**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-KSB**

| **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)                           | (Zip                Code) |

|                               | Name                of each exchange on which |
|------------------------------------|-----------------------------------------------|
| Title                of each class | Registered                                    |
| 0                                  | 0                                             |

**Common      Stock, par value $0.001**

----

**26,778,800      shares at $0.42**
**(1)**

**      = $11,247,096.00**

**(APPLICABLE      ONLY TO CORPORATE REGISTRANTS)**

**39,967,937      **

**DOCUMENTS      INCORPORATED BY REFERENCE**

----

| **PART                I**  |                                                                                                    |
|----------------------------|---------------------------------------------------------------------------------------------------------|
| Item                1      | Business                                                                                                | 5 |
|                       | General                                                                                                 | 5 |
|                       | Our                Growth Strategy                                                                      | 5 |
|                       | Operations                                                                                              | 6 |
|                       | Competition                                                                                             | 7 |
|                       | Customers                and Markets                                                                    | 9 |
|                       | Government                Regulations                                                                   | 9 |
|                       | Intellectual                Property                                                                    | 9 |
|                       | Employees                                                                                               | 10 |
|                       | Corporate                Structure                                                                      | 10 |
| Item                2      | Description                of Property                                                                  | 10 |
| Item                3      | Legal                Proceedings                                                                        | 11 |
| Item                4      | Submission                of Matters to a Vote of Security Holders                                      | 11 |
|                       |                                                                                                    |   |
| **PART                II** |                                                                                                    |
| Item                5      | Market                for Registrant’s Common Equity, Related Stockholder                Matters, |   |
|                       |                                                                                                    | and                Small Business Issuer Purchases of Equity Securities | 11 |
| Item                6      | Management’s                Discussion and Analysis of Financial Condition and                    |   |
|                       |                                                                                                    | Results                of Operations | 12 |
|                       | Forward-Looking                Statements                                                               | 12 |
|                       | Critical                Accounting Policies                                                             | 13 |
|                       | Revenue                Recognition, Accounts Receivable and Allowance for                Doubtful       |   |
|                       |                                                                                                    | Accounts | 13 |
|                       | Long-Lived                Assets                                                                        | 13 |
|                       | Overview                                                                                                | 14 |
|                       | Cost                and Expenses                                                                   | 14 |
|                       | Financing                Agreement                                                                 | 14 |
|                       | Results                of Operations                                                                    | 15 |
|                       | Liquidity                and Capital Resources                                                          | 16 |
|                       | Subsequent                Events                                                                        | 17 |
|                       | Off-Balance                Sheet Arrangements                                                           | 18 |
|                       | Inflation                                                                                               | 18 |
|                       | International                Tax Implications                                                           | 18 |
| Item                7      | Financial                Statements                                                                     | 18 |
|                       | Report                of Independent Registered Public Accounting Firm                                  |   |
|                       | Consolidated                Balance Sheets                                                              |   |
|                       | Consolidated                Statements of Operations                                                    |   |
|                       | Consolidated                Statements of shareholders’ Equity                                    |   |
|                       | Consolidated                Statements of Cash Flows                                                    |   |
|                       | Notes                to Consolidated Financial Statements                                               |   |
| Item                8      | Changes                In and Disagreements With Accountants on Accounting on                           |   |
|                       |                                                                                                    | Accounting                and Financial Disclosure | 18 |
| Item                8A     | Controls                and Procedures                                                                  | 18 |
| Item                8B     | Other                Information                                                                        | 19 |

----

**TABLE      OF CONTENTS**

**(Continued)**

| **PART                III** |                                                              |
|-----------------------------|-------------------------------------------------------------------|
|                        |                                                              |
| Item                9       | Directors                and Executive Officers of the Registrant | 19 |

| Item                10 | Executive                Compensation                                             | 21                                         |
|------------------------|-----------------------------------------------------------------------------------|--------------------------------------------|
| Item                11 | Security                Ownership of Certain Beneficial Owners and Management and |                                       |
|                   |                                                                              | Related                Stockholder Matters | 22 |
| Item                12 | Certain                Relationships and Related Transactions                     | 24                                         |
| Item                13 | Exhibits                                                                          | 25                                         |
| Item                14 | Principal                Accountant Fees and Services                             | 26                                         |
|                   | Signatures                                                                        | 27                                         |
|                   |                                                                              |                                       |

**FORM      10-KSB**

**HOTEL      OUTSOURCE MANAGEMENT INTERNATIONAL, INC.**

**PART      I.**

**ITEM      1.       DESCRIPTION OF BUSINESS**

**General      **

----

**Our      Growth Strategy **

|   | · | **Mechanism                against mistaken charges**.                This enables accurate billing. |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | **Substantially                lower operating costs**.                This should improve profit margins and means that HOMI will be able                to                offer the New Range of Products to mid-market hotels, which is a                very                large sector which has not been open to HOMI in the past, as well                as                upscale hotels. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | **No                need for infrastructure at hotel**.                A                standard electrical outlet is the only infrastructure required. Minibar                data is transferred automatically via an integral, dedicated wireless                system. This should make installation easier, and more attractive                to                hotels. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Operations**

----

**Complete      Outsource Solution.**

|   | § | No                capital expenditure on the minibars |
|--------|--------|-------------------------------------------------------|

|   | § | A                new revenue stream, if no minibars were previously installed and                operational |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | § | No                labor expenses and no operating                costs |
|--------|--------|------------------------------------------------------------------------|

|   | § | No                purchase of goods and no inventory                management |
|--------|--------|--------------------------------------------------------------------------------|

|   | § | Added                service to guests, thereby improving the customer’s competitive                edge |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

|   | § | No                downside: hotel is minimizing its risks, both financial and                other |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | § | Added                flexibility, via the customer’s option to purchase the                system |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|   | § | Outsourcing                allows the hotel to focus on major revenue                sources |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | § | Quality                of service: we specialize in the                field |
|--------|--------|------------------------------------------------------------------------------|

|   | § | Increased                control and management, extensive                reporting |
|--------|--------|-------------------------------------------------------------------------------------|

|   | § | No                maintenance by customer |
|--------|--------|-------------------------------------------|

|   | § | Periodic                technical and technological                upgrades |
|--------|--------|-----------------------------------------------------------------------------|

**Outsource      Solution for Leased Base.**

**Management      & Operation of Installed Base.**

**Management      of Installed Base.**

----

**Other.**

**Competition**

|   | § | implementation                of our exclusive operating                procedures |
|--------|--------|------------------------------------------------------------------------------------|

|   | § | procurement                of the consumables that are offered in the                minibars |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | § | management                of inventory control and monitoring of expiry dates of                consumables |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | § | implementation                of procedures to handle and reduce                rebates |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | § | daily                reconciliation of accounts |
|--------|--------|-------------------------------------------------|

|   | § | training                of minibar attendants and front office                employees |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | § | maintenance                and support |
|--------|--------|----------------------------------------|

|   | § | taking                active involvement in the selection and pricing of                consumables |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | § | implementing                innovative and attractive product mixes for different room                categories |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | § | producing                attractive, creative and novel                menus |
|--------|--------|------------------------------------------------------------------------------|

|   | § | improving                minibar visibility |
|--------|--------|---------------------------------------------|

|   | § | proposing                and implementing effective promotional                activities |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | § | reducing                rebates & manual emptying of minibars by                guests |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | § | in-depth                and real-time data logging and reporting, thereby creating extensive                sales                statistics and enabling effective data-mining, designed to adapt                the                system to improve performance |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Customers      and Markets **

|   | **Ø** | Hyatt                Regency San Francisco, USA |
|--------|------------|-------------------------------------------------|

|   | **Ø** | Grand                Hyatt Seattle, USA |
|--------|------------|-----------------------------------------|

|   | **Ø** | Hyatt                Regency Boston, USA |
|--------|------------|------------------------------------------|

|   | **Ø** | The                Renaissance Mayflower, Washington DC,                USA |
|--------|------------|-----------------------------------------------------------------------------|

|   | **Ø** | ArabellaSheraton                Bogenhausen, Munich, Germany |
|--------|------------|--------------------------------------------------------------|

|   | **Ø** | ArabellaSheraton                Grand, Munich, Germany |
|--------|------------|--------------------------------------------------------|

|   | **Ø** | Sheraton                Diana Majestic, Milano, Italy |
|--------|------------|-------------------------------------------------------|

|   | **Ø** | Radisson                Bay Point, Malta |
|--------|------------|------------------------------------------|

|   | **Ø** | Radisson                Golden Sands, Malta |
|--------|------------|---------------------------------------------|

|   | **Ø** | Le                Meridien, Malta |
|--------|------------|-----------------------------------|

|   | **Ø** | Palazzo                InterContinental, Johannesburg,                S.Africa |
|--------|------------|--------------------------------------------------------------------------------|

|   | **Ø** | Airport                InterContinental, Johannesburg, S.Africa |
|--------|------------|-----------------------------------------------------------------|

|   | **Ø** | Arabella                Sheraton Cape Town, S. Africa |
|--------|------------|-------------------------------------------------------|

|   | **Ø** | David                InterContinental Tel-Aviv, Israel |
|--------|------------|--------------------------------------------------------|

|   | **Ø** | Carlton                Hotel, Tel-Aviv, Israel |
|--------|------------|------------------------------------------------|

|   | **Ø** | Sheraton                City Tower, Tel-Aviv, Israel |
|--------|------------|------------------------------------------------------|

|   | **Ø** | Dan                Hotel, Tel-Aviv, Israel |
|--------|------------|--------------------------------------------|

|   | **Ø** | The                Daniel, Herzliya, Israel |
|--------|------------|---------------------------------------------|

|   | **Ø** | David                Citadel (ex Hilton), Jerusalem,                Israel |
|--------|------------|----------------------------------------------------------------------------|

----

**Governmental      Regulation**

**Intellectual      Property **

**Employees      **

**Corporate      Structure**

**HOMI      USA**

**HOMI      Israel**

**HOMI      South Africa**

**HOMI      Australia**

**HOMI      Germany**

**HOMI      Italy**

**ITEM      2: **
**DESCRIPTION      OF PROPERTY **

|   | · | Our                corporate headquarters are located at 80 Wall Street, Suite 815,                New York,                New York, in the offices of Schonfeld & Weinstein, L.L.P., at no                additional cost to us. Schonfeld & Weinstein, L.L.P. serves as our US                Counsel and also owns shares in our company. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | HOMI                Israel’s corporate headquarters are currently located at 4 Raul Wallenberg                Street, Tel Aviv, Israel, with a monthly rent of $600. This office                is                leased from an unaffiliated third party. We also lease a virtual                office at                116 West 23rd Street, New York, New York from Select Office Suites,                an                unrelated third party, for $100 per month on a month-to-month basis. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | HOMI                USA has its corporate headquarters at 1 Embarcadero Center, Suite                500, San                Francisco, California 94111. The monthly rent is $500. Most of HOMI                USA’s                operations are conducted from the office we utilize at the Hyatt                Regency                San Francisco, which is one of our customers. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | HOMI                South Africa operates from an office in Johannesburg for monthly                rent of                $350. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | In                connection with our European operations, we also lease an office                in Paris,                France, for monthly rent of approximately $1,500 (€1,130). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM      3: **
**LEGAL      PROCEEDINGS **

**ITEM      4**
**SUBMISSION      OF MATTERS TO VOTE OF SECURITY HOLDERS**

**PART      II. **

**ITEM      5. **
**MARKET      FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL      BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES**

**Market      For Common Stock **

| First                Quarter 2006  |
|------------------------------------|
|                               |
| High                Bid $0.58      | Low                Bid $0.38 |
|                               |   |
|                               |   |
| Second                Quarter 2006 |
|                               |
| High                Bid $0.52      | Low                Bid $0.36 |
|                               |   |
|                               |   |
| Third                Quarter 2006  |
|                               |   |
| High                Bid $0.42      | Low                Bid $0.36 |
|                               |   |
|                               |   |
| Fourth                Quarter 2006 |
|                               |
| High                Bid $0.46      | Low                Bid $0.37 |
|                               |   |

----

**Recent      Sales of Unregistered Securities**

**ITEM      6. **
**MANAGEMENTS      DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL      CONDITION**

**Forward-Looking      Statements**

**Critical      Accounting Policies **

**Revenue      recognition, Accounts Receivable and Allowance for Doubtful      Accounts**

----

**Long-Lived      Assets **

**Financial      statements in US dollars:**

**Investments      in affiliates: **

**Overview**

----

**Costs      and Expenses**

|   | (1) | the                purchase of the minibars system to be installed in hotels; this capital                expense is charged to property and equipment and depreciated over                a period                of ten years; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | (3) | labor                costs of the minibar attendants; |
|--------|-----|-------------------------------------------------------|

|   | (4) | G&A,                and marketing; |
|--------|-----|----------------------------------------|

|   | (5) | maintenance                of the minibar systems; |
|--------|-----|----------------------------------------------------|

|   | (6) | finance                expenses. |
|--------|-----|----------------------------------|

**CONVERTIBLE      NOTES**

----

**Revenues**

| Location                                | Percentage                of Revenues |
|-----------------------------------------|---------------------------------------|
|                                    | 2006                                  |   | 2005 |
|                                    |                                  |   |   |
| United                States of America | 33%                                   |   | 41% |
| Europe                                  | 35                                    |   | 23 |
| Israel                                  | 21                                    |   | 20 |
| South                Africa             | 11                                    |   | 16 |
| Totals                                  | 100%                                  |   | 100% |

**Gross      Profit**

**Cost      Of Revenues:**

**Research      and Development**

----

**Operating      Expenses **

**Net      Loss**

**Liquidity      And Capital Resources**

**Subsequent      Events**

**BSI**

|   | · | BSI                sold to Hila International Corp., a wholly owned subsidiary of HOMI                (“**Hila**”)                all of BSI’s shares and rights in HOMI USA (formerly “HOS”). Prior to                February 13, 2007, HOMI USA was owned 30% by BSI and 70% by Hila.                As a                result of this sale, HOMI USA is now an indirectly wholly owned subsidiary                of HOMI, and the previously existing stockholders agreement in HOMI                USA                has been terminated and voided, with no surviving provisions. The                purchase                price paid by Hila for all of BSI’s shares and rights in HOMI USA was the                nominal sum of $1. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | Hila                and BSI gave notice of the discontinuance, with prejudice, of the                arbitration proceedings that were pending between them before the                American                Arbitration Association.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

----

|   | · | BSI                granted HOMI and its subsidiaries preferred customer terms on any                further                purchases that HOMI and its subsidiaries may make from BSI and its                subsidiaries, for a minimum and revolving term. Aside from these                preferred                terms, all non-competition restrictions, exclusivity provisions and                all                prior agreements between HOMI and its subsidiaries and BSI and its                subsidiaries were terminated and voided, with no surviving provisions. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Off      Balance Sheet Arrangements**

**Inflation**

**International      Tax Implications **

**ITEM      7.**
**FINANCIAL      STATEMENTS**

**HOTEL        OUTSOURCE MANAGEMENT **

**INTERNATIONAL        INC. **

**AND        ITS SUBSIDIARIES**

----

**CONSOLIDATED        FINANCIAL STATEMENTS **

**AS        OF AND FOR THE YEARS ENDED**

**DECEMBER        31, 2006 AND 2005**

**INDEX**

|                                                                           | **Page**  |
|--------------------------------------------------------------------------------|-----------|
|                                                                           |      |
| **Reports                  of Independent Registered Public Accounting Firms** | **2-3**   |
|                                                                           |      |
| **Consolidated                  Balance Sheets**                               | **4-5**   |
|                                                                           |      |
| **Consolidated                  Statements of Operations**                     | **6**     |
|                                                                           |      |
| **Statement                  of Changes in Shareholders' Equity**              | **7**     |
|                                                                           |      |
| **Consolidated                  Statements of Cash Flows**                     | **8-9**   |
|                                                                           |      |
| **Notes                  to the Consolidated Financial Statements**            | **10-32** |

**-        - - - - - - - - - - - - - -**

----

***REPORT        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM***

|   | **Jerusalem**,City                  Tower,34 Ben-Yehuda St. 94583Tel:                  972 - 2 - 6256341 Fax: 972 - 2 - 6231340**Tel-Aviv**,Shalom                  Tower,9 Ahad Ha’am St.65251Tel:                  972 - 3 - 5176383 Fax: 972 - 3 - 5176392 | ירושלים,מגדל                  העיר, רח' בן יהודה 34, 94583טל':                  6256341                  - 02פקס:                  6231340                  - 02תל                  אביב,מגדל שלום,רח' אחד העם 9, 65251טל':                  5176383                  - 03פקס:                  5176392                  - 03 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  **Barzily                  & Co. is a member of MSI, a network of independent professional                  firms** |
|-------------------------------------------------------------------------------------------------------------------------------|
| **w                  w w . b a r z i l y . c o . I                  l**                                                       |

----

**LETTERHEAD        OF KINGERY & CROUSE, P.A.**

***REPORT        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM***

----

**HOTEL        OUTSOURCE MANAGEMENT **

**INTERNATIONAL        INC. AND ITS SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEETS**

**US        Dollars in thousands **

|                                                                                                                                                     |   |     |   | **December                  31,** |   | **December                  31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                                                                                                                                     |   | **Note** |   | **2006**                          |   | **2005**                          |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |
| ASSETS                                                                                                                                                   |   |     |   |                              |   |                              |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |
| CURRENT                  ASSETS:                                                                                                                         |   |     |   |                              |   |                              |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |
| Cash                  and cash equivalents                                                                                                               |   |     |   |                              |   | 609                               |   |   | 543 |   |
| Short-term                  bank deposits                                                                                                                |   |     |   |                              |   | 18                                |   |   | 92 |   |
| Trade                  receivables (net of allowance for doubtful accounts of $ 0.00 as                  of                  December 31, 2006 and 2005) |   |     |   |                              |   | 539                               |   |   | 496 |   |
| Other                  accounts receivable                                                                                                               |   |     | 3      |                              |   | 163                               |   |   | 172 |   |
| Inventory                                                                                                                                                |   |     |   |                              |   | 243                               |   |   | 178 |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                     |   |     |   |                              |   | 1,572                             |   |   | 1,481 |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
| LONG-TERM                  INVESTMENTS AND RESTRICTED CASH                                                                                               |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
| Investments                  in affiliated companies                                                                                                     |   |     | 4      |                              |   | 1,713                             |   |   | 9 |   |
| Severance                  pay fund                                                                                                                      |   |     |   |                              |   | 23                                |   |   | 19 |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                     |   |     |   |                              |   | 1,736                             |   |   | 28 |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
| PROPERTY                  AND EQUIPMENT, NET:                                                                                                            |   |     | 5      |                              |   |                              |   |   |   |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
| Minibars                                                                                                                                                 |   |     |   |                              |   | 4,236                             |   |   | 4,024 |   |
| Other                  property and equipment                                                                                                            |   |     |   |                              |   | 91                                |   |   | 85 |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                     |   |     |   |                              |   | 4,327                             |   |   | 4,109 |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
| OTHER                  ASSETS:                                                                                                                           |   |     | 6      |                              |   |                              |   |   |   |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
| Contract                  rights, net                                                                                                                    |   |     |   |                              |   | 37                                |   |   | 43 |   |
| Deferred                  expenses                                                                                                                       |   |     |   |                              |   | 66                                |   |   | 61 |   |
|                                                                                                                                                     |   |     |   |                              |   | 103                               |   |   | 104 |   |
|                                                                                                                                                     |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                     |   |     |   |                              |   | 7,738                             |   |   | 5,722 |   |

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEETS**

**US        Dollars in thousands (except share data)**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   | **December                  31,** |   | **December                  31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | **Note** |   | **2006**                          |   | **2005**                          |   |
| LIABILITIES                  AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |     |   |                              |   |                              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |
| CURRENT                  LIABILITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |     |   |                              |   |                              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |
| Current                  maturities of long-term loans from banks and others                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |     | 9      |                              |   | 332                               |   |   | 279 |   |
| Trade                  payables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |     |   |                              |   | 252                               |   |   | 281 |   |
| Due                  to Bartech Systems International                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |     |   |                              |   | -                                 |   |   | 76 |   |
| Other                  accounts payable and accrued expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |     | 8      |                              |   | 469                               |   |   | 211 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   | 1,053                             |   |   | 847 |   |
| LONG-TERM                  LIABILITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |   |   |   |
| Long-term                  loans from banks and others                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     | 9      |                              |   | 1,116                             |   |   | 2,282 |   |
| Convertible                  notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |     | 7      |                              |   | 118                               |   |   | - |   |
| Accrued                  severance pay                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     |   |                              |   | 31                                |   |   | 19 |   |
| Deferred                  taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |     | 14     |                              |   | 10                                |   |   | 11 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   | 1,275                             |   |   | 2,312 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |   |   |   |
| COMMITMENTS                  AND CONTINGENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |     | 10     |                              |   |                              |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |   |   |   |
| MINORITY                  INTEREST                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |     |   |                              |   | 459                               |   |   | 471 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |   |   |   |
| SHAREHOLDERS'                  EQUITY:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |   |   |   |
| Share                  capital -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |     | 11     |                              |   |                              |   |   |   |   |
| Preferred                  stock of $ 0.001 par value - Authorized:                  5,000,000 shares as of December 31, 2006 and 2005; Issued                  and outstanding: 0 shares as of December 31, 2006 and 2005;Common                  stock of $ 0.001 par value - Authorized:                  105,000,000 shares as of December 31, 2006 and 2005;Issued                  and outstanding: 39,967,937 shares as of December 31, 2006 and                  30,447,522                  shares as of December 31, 2005; |   |     |   |                              |   | 40                                |   |   | 30 |   |
| Additional                  paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |     |   |                              |   | 7,585                             |   |   | 4,556 |   |
| Accumulated                  other comprehensive income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |   |                              |   | 52                                |   |   | (71 | ) |
| Accumulated                  deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   | (2,726                            | )      |   | (2,423 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   | 4,951                             |   |   | 2,092 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   |                              |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |   |                              |   | 7,738                             |   |   | 5,722 |   |

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

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

|                                                                                                                                                                               |   |     |   |  **Year                    ended December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|------------------------------------------------------|--------|
|                                                                                                                                                                               |   | **Note** |   |  **2006**                                       |   | **2005** |   |
|                                                                                                                                                                               |   |     |   |                                            |   |   |   |
| Revenues                                                                                                                                                                           |   |     | 12     |                                                 |   | 3,261 |   |   | 2,814 |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Cost                    of revenues                                                                                                                                                |   |     |   |                                                 |   | (1,385 | ) |   | (1,174 | ) |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Depreciation                                                                                                                                                                       |   |     |   |                                                 |   | (572 | ) |   | (418 | ) |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Gross                    profit                                                                                                                                                    |   |     |   |                                                 |   | 1,304 |   |   | 1,222 |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Operating                    expenses:                                                                                                                                             |   |     |   |                                                 |   |   |   |   |   |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Research                    and Development                                                                                                                                        |   |     |   |                                                 |   | (261 | ) |   | - |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Selling                    and marketing                                                                                                                                           |   |     |   |                                                 |   | (223 | ) |   | (240 | ) |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| General                    and administrative                                                                                                                                      |   |     |   |                                                 |   | (990 | ) |   | (975 | ) |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Operating                    profit (loss)                                                                                                                                         |   |     |   |                                                 |   | (170 | ) |   | 7 |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Financial                    expenses, net                                                                                                                                         |   |     | 13     |                                                 |   | (132 | ) |   | (318 | ) |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Other                    income, net                                                                                                                                               |   |     |   |                                                 |   | 20 |   |   | 122 |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Loss                    before taxes on income                                                                                                                                     |   |     |   |                                                 |   | (282 | ) |   | (189 | ) |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Tax                    benefit (Taxes on income)                                                                                                                                   |   |     | 14     |                                                 |   | (32 | ) |   | 27 |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Loss                    before equity in earnings of affiliated company and minority                    interests in                    losses of unconsolidated subsidiaries, net |   |     |   |                                                 |   | (314 | ) |   | (162 | ) |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Equity                    in earnings (losses) of an affiliated company                                                                                                            |   |     |   |                                                 |   | (3 | ) |   | 1 |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Minority                    interest in losses of subsidiaries, net                                                                                                                |   |     |   |                                                 |   | 14 |   |   | 33 |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Net                    loss                                                                                                                                                        |   |     |   |                                                 |   | (303 | ) |   | (128 | ) |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Basic                    and diluted net loss per share                                                                                                                            |   |     |   |                                                 |   | (0.008 | ) |   | (0.004 | ) |
|                                                                                                                                                                               |   |     |   |                                                 |   |   |   |   |   |   |
| Weighted                    average number of shares used in computing basic and diluted                    net loss per                    share                                  |   |     |   |                                                 |   | 38,098,371 |   |   | 29,781,745 |   |

----

**HOTEL              OUTSOURCE MANAGEMENT **

**INTERNATIONAL              INC. AND ITS SUBSIDIARIES**

**STATEMENT        OF CHANGES IN SHAREHOLDERS' EQUITY**

**US        Dollars in thousands (except shares data)**

|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |
|-------------------------------------------------------------|--------|---------------------------------------------------------|------------|-----------------------------------------------|--------|---------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------------|--------|-----------|--------|
|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |
|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |
|                                                        |   | **Number                    of Shares of Common Stock** |       | **Common                    Stock Par Value** |   | **Additional                    paid-in capital** |   | **Accumulated                    other comprehensive income (loss)** |   | **Accumulated                    deficit** |   | **Other                    Comprehensive loss** |   | **Total** |   |
| Balance                    as of December 31, 2004          |   |                                                    | 28,834,880 |                                          |   | 29                                                |   |                                                                 | 3,491  |                                       |   | 45                                              |   |      | (2,295 | ) |   | - |   |   | 1,270 |   |
|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |   |   |   |   |   |   |   |
| Issuance                    of shares                       |   |                                                    | 1,612,642  |                                          |   | 1                                                 |   |                                                                 | 1,065  |                                       |   | -                                               |   |      | -      |   |   | - |   |   | 1,066 |   |
| Foreign                    currency translation adjustments |   |                                                    | -          |                                          |   | -                                                 |   |                                                                 | -      |                                       |   | (116                                            | )      |      | -      |   |   | (116 | ) |   | (116 | ) |
| Net                    loss                                 |   |                                                    | -          |                                          |   | -                                                 |   |                                                                 | -      |                                       |   | -                                               |   |      | (128   | ) |   | (128 | ) |   | (128 | ) |
|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |   |   |   |   |   |   |   |
| Total                    comprehensive loss                 |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |   |   | (244 | ) |   |   |   |
|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |   |   |   |   |   |   |   |
| Balance                    as of December 31, 2005          |   |                                                    | 30,447,522 |                                          |   | 30                                                |   |                                                                 | 4,556  |                                       |   | (71                                             | )      |      | (2,423 | ) |   | - |   |   | 2,092 |   |
|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |   |   |   |   |   |   |   |
| Issuance                    of shares                       |   |                                                    | 9,520,415  |                                          |   | 10                                                |   |                                                                 | 3,029  |                                       |   | -                                               |   |      | -      |   |   | - |   |   | 3,039 |   |
| Foreign                    currency translation adjustments |   |                                                    | -          |                                          |   | -                                                 |   |                                                                 | -      |                                       |   | 123                                             |   |      | -      |   |   | 123 |   |   | 123 |   |
| Net                    loss                                 |   |                                                    | -          |                                          |   | -                                                 |   |                                                                 | -      |                                       |   | -                                               |   |      | (303   | ) |   | (303 | ) |   | (303 | ) |
|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |   |   |   |   |   |   |   |
|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |   |   |   |   |   |   |   |
| Total                    comprehensive loss                 |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |   |   | (180 | ) |   |   |   |
|                                                        |   |                                                    |       |                                          |   |                                              |   |                                                                 |   |                                       |   |                                            |   |      |   |   |   |   |   |   |   |   |
| Balance                    as of December 31, 2006          |   |                                                    | 39,967,937 |                                          |   | 40                                                |   |                                                                 | 7,585  |                                       |   | 52                                              |   |      | (2,726 | ) |   |   |   |   | 4,951 |   |

----

**HOTEL              OUTSOURCE MANAGEMENT **

**INTERNATIONAL              INC. AND ITS SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**US        Dollars in thousands **

|   |   |
|--------|--------|

|                                                                                                                  |   | **Year                  ended December 31,** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                  |   | **2006**                                     |   | **2005** |   |
| **CASH                  FLOWS FROM OPERATING ACTIVITIES:**                                                            |   |                                         |   |   |   |
| Net                  loss                                                                                             |   |                                         | (303   | ) |   | (128 | ) |
| **Adjustments                  to reconcile net loss to net cash provided by operating                  activities:** |   |                                         |   |   |   |   |   |
| Depreciation                  and amortization                                                                        |   |                                         | 596    |   |   | 435 |   |
| Compensation                  expense resulting from shares granted                                                   |   |                                         | -      |   |   | 15 |   |
| Decrease                  in accrued severance pay, net                                                               |   |                                         | 8      |   |   | - |   |
| Accrued                  interest and linkage difference on loans, net                                                |   |                                         | -      |   |   | 103 |   |
| Interest                  and linkage differences in regard to shareholders                                           |   |                                         | 26     |   |   | - |   |
| Deficit                  (equity) in earnings of an affiliated company                                                |   |                                         | 3      |   |   | (1 | ) |
| Capital                  gain on sale of property and equipment                                                       |   |                                         | -      |   |   | (125 | ) |
| Minority                  interest in losses of subsidiaries, net                                                     |   |                                         | (13    | ) |   | (27 | ) |
| Provision                  for deferred income taxes                                                                  |   |                                         | -      |   |   | (32 | ) |
| **Changes                  in assets and liabilities:**                                                               |   |                                         |   |   |   |   |   |
| Increase                  in inventories                                                                              |   |                                         | (61    | ) |   | (19 | ) |
| Increase                  in trade receivables                                                                        |   |                                         | (28    | ) |   | (246 | ) |
| Decrease                  (Increase) in related party receivables                                                     |   |                                         | (6     | ) |   | 67 |   |
| Decrease                  in other accounts receivable                                                                |   |                                         | 21     |   |   | 93 |   |
| Increase                  (decrease) in trade payables                                                                |   |                                         | (33    | ) |   | 101 |   |
| Increase                  in other accounts payable and accrued expenses                                              |   |                                         | 216    |   |   | 114 |   |
|                                                                                                                  |   |                                         |   |   |   |   |   |
| Net                  cash provided by operating activities                                                            |   |                                         | 426    |   |   | 350 |   |
|                                                                                                                  |   |                                         |   |   |   |   |   |
| **CASH                  FLOWS FROM INVESTING ACTIVITIES:**                                                            |   |                                         |   |   |   |   |   |
| Purchase                  of property and equipment                                                                   |   |                                         | (803   | ) |   | (1,641 | ) |
| Proceeds                  from sales of property and equipment                                                        |   |                                         | -      |   |   | 310 |   |
| Investment                  in an affiliated company                                                                  |   |                                         | (120   | ) |   | - |   |
| Short-term                  bank deposits, net                                                                        |   |                                         | 74     |   |   | (58 | ) |
|                                                                                                                  |   |                                         |   |   |   |   |   |
| Net                  cash used in investing activities                                                                |   |                                         | (849   | ) |   | (1,389 | ) |
|                                                                                                                  |   |                                         |   |   |   |   |   |
| **CASH                  FLOWS FROM FINANCING ACTIVITIES:**                                                            |   |                                         |   |   |   |   |   |
| Issuance                  of shares, net                                                                              |   |                                         | 927    |   |   | 1,051 |   |
| Proceeds                  from long-term loans from banks and others, net of deferred                  expenses       |   |                                         | 106    |   |   | 1,249 |   |
| Repayment                  of long-term loans from banks and others                                                   |   |                                         | (281   | ) |   | (376 | ) |
| Repayment                  of long-term loans from shareholders                                                       |   |                                         | (261   | ) |   | (300 | ) |
| Short-term                  bank credit, net                                                                          |   |                                         | -      |   |   | (324 | ) |
|                                                                                                                  |   |                                         |   |   |   |   |   |
| Net                  cash provided by financing activities                                                            |   |                                         | 491    |   |   | 1,300 |   |
|                                                                                                                  |   |                                         |   |   |   |   |   |
| Effect                  of exchange rate changes on cash and cash equivalents                                         |   |                                         | (2     | ) |   | 19 |   |
|                                                                                                                  |   |                                         |   |   |   |   |   |
| Increase                  in cash and cash equivalents                                                                |   |                                         | 66     |   |   | 280 |   |
|                                                                                                                  |   |                                         |   |   |   |   |   |
| Cash                  and cash equivalents at the beginning of the year                                               |   |                                         | 543    |   |   | 263 |   |
|                                                                                                                  |   |                                         |   |   |   |   |   |
| Cash                  and cash equivalents at the end of the year                                                     |   |                                         | 609    |   |   | 543 |   |

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**US        Dollars in thousands **

| **Supplemental                  disclosure of non-cash investing and financing activities and cash                  flow                  information:**      |   | **Year                  ended December 31,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                                                          |   |  **2006**                               |   | **2005** |   |
|                                                                                                                                                          |   |                                    |   |   |   |
| Non-cash                  investing and financing activities:                                                                                                 |   |                                         |        |   |   |   |   |
| Acquisition                  of property and equipment on short-term credit                                                                                   |   |                                         | -      |   |   | 76 |   |
|                                                                                                                                                          |   |                                         |   |   |   |   |   |
| Conversion                  of shareholders' loans to share capital.                                                                                          |   |                                         | 569    |   |   | - |   |
|                                                                                                                                                          |   |                                         |   |   |   |   |   |
| Cash                  paid during the year for interest                                                                                                       |   |                                         | 130    |   |   | 141 |   |
|                                                                                                                                                          |   |                                         |   |   |   |   |   |
| Conversion                  of accounts payable to share capital                                                                                              |   |                                         | 78     |   |   | - |   |
|                                                                                                                                                          |   |                                         |   |   |   |   |   |
| Investment                  in shares of an affiliate in exchange for shares issued by the                  Company net                  of issuance expenses |   |                                         | 1,476  |   |   | - |   |
|                                                                                                                                                          |   |                                         |   |   |   |   |   |
| Payables                  in regard to investment in an affiliate                                                                                             |   |                                         | 100    |   |   | - |   |

----

**HOTEL              OUTSOURCE MANAGEMENT **

**INTERNATIONAL              INC. AND ITS SUBSIDIARIES**

**NOTES          TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US          Dollars in thousands **

**NOTE        1:-**
**GENERAL        **

|   | a. | Hotel                  Outsource Management International Inc. ("HOMI") was incorporated                  under                  the laws of Delaware on November 9, 2000. HOMI and its subsidiaries,                  as                  identified in Note 2 below, are engaged in the distribution, marketing                  and                  operation of computerized minibars in hotels located in Israel,                  Europe,                  South Africa and the United States. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | HOMI                  Israel was incorporated under the laws of Israel in 1997 and is                  a provider                  of services to hotels. HOMI Israel is the exclusive distributor                  of Bartech                  Systems International and Bartech Emea Sarl (together: "Bartech                  Int.") in                  Israel. Bartech Int. is a manufacturer of computerized minibars                  for                  hotels. Since inception, HOMI Israel has sold and installed computerized                  minibars in hotels. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | During                  2006, the Company commenced research and development of minibar                  devices.** **See                  also Note 16c. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES **

|   | a. | Use                  of estimates: |
|--------|----|------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES (cont.) **

|   | b. | Financial                  statements in US dollars: |
|--------|----|------------------------------------------------------|

|   | c. | Principles                  of consolidation: |
|--------|----|-----------------------------------------------|

| **Subsidiary                  Name**                     | **Area**                      | **Ownership                  Percentage** | **Number                  of Minibars** |
|----------------------------------------------------------|-------------------------------|-------------------------------------------|-----------------------------------------|
| HOMI                  Israel Ltd.                        | Israel                        | 100%                                      | 1,787                                   |
| Hotel                  Outsource Services, Inc.          | U.S.A.                        | 70%                  **                   | 2,515                                   |
| HOMI                  Europe Sarl                        | ROW*                          | 100%                                      | 2,334                                   |
| HOMI                  South Africa (Proprietary) Limited | South                  Africa | 60%                                       | 868                                     |

|   | d. | Cash                  and cash equivalents: |
|--------|----|---------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES (cont.) **

|   | e. | Short-term                  bank deposits: |
|--------|----|--------------------------------------------|

|   | f. | Inventory: |
|--------|----|------------|

|   | g. | Property                  and equipment: |
|--------|----|------------------------------------------|

|   | % |
|--------|---|

| Minibars                                            | *                  10    |
|-----------------------------------------------------|--------------------------|
| Computers                  and electronic equipment | 15                  - 33 |
| Office                  furniture and equipment     | 7                        |

|   | h. | Other                  assets: |
|--------|----|--------------------------------|

|   | i. | Impairment                  of long-lived assets: |
|--------|----|---------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES (cont.)**

|   | j. | Revenue                  Recognition, Accounts Receivable and Allowance for Doubtful Accounts: |
|--------|----|------------------------------------------------------------------------------------------------|

|   |   | Revenues                  from 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 revenues from disposal of minibars are                  recognized in accordance with Staff Accounting Bulletin No. 101                  "Revenue                  Recognition in Financial Statements" ("SAB No. 101") and SAB No.                  104 when                  delivery has occurred, persuasive evidence of an arrangement exists,                  the                  vendor’s fee is fixed or determinable and collectibles is probable. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | k. | Investments                  in affiliates: |
|--------|----|---------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES (cont.)**

|  | l. | Research                  and Development costs are charged to operations as incurred. |
|--|----|----------------------------------------------------------------------------------------|

|  | m. | Accounting                  for stock based compensation: |
|--|----|-----------------------------------------------------------|

|   | n. | Income                  taxes: |
|--------|----|--------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES (cont.)**

|   | o. | Concentrations                  of credit risk: |
|--------|----|-------------------------------------------------|

|   | p. | Severance                  pay: |
|--------|----|---------------------------------|

|   | q. | Basic                  and diluted net loss per share: |
|--------|----|--------------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES (cont.)**

|   | r. | Fair                  value of financial instruments: |
|--------|----|-------------------------------------------------------|

|  | s. | Exchange                  rates: |
|--|----|----------------------------------|

|                                                      |   | **31                  December**            |     |
|-----------------------------------------------------------|--------|---------------------------------------------|----------|
|                                                      |   | **2006**                                    |     | **2005** |   |
| New                  Israeli Shekel (NIS)                 |   | $                                           | 0.237    |   | $ | 0.217 |   |
| EURO                  (EU)                                |   | $                                           | 1.317    |   | $ | 1.183 |   |
| South                  African Rand (SAR)                 |   | $                                           | 0.143    |   | $ | 0.158 |   |
| Australian                  Dollar (AU$)                  |   | $                                           | 1.265    |   |   |   |   |
| Pound                  Sterling (UK)                      |   | $                                           | 0.510    |   |   |   |   |
|                                                      |   |                                        |     |   |   |   |   |
|                                                      |   | **Year                  Ended 31 December** |
| Increase                  (Decrease) in Rate of Exchange: |   |                                        | **2006** |   |   | **2005** |   |
| NIS                                                       |   |                                        | 9.2      | % |   | (6.4 | %) |
| EU                                                        |   |                                        | 11.3     | % |   | (13.2 | %) |
| SAR                                                       |   |                                        | (9.5     | %) |   | (11.2 | %) |

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES (cont.)**

|  | t. | Impact                  of other recently issued accounting                  Standards: |
|--|----|-----------------------------------------------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES (cont.)**

|   | u. | Change                  of estimate: |
|--------|----|--------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        2:-**
**SIGNIFICANT        ACCOUNTING POLICIES (cont.)**

|   | v. | Advertising                  Costs |
|--------|----|------------------------------------|

|   | x. | Reclassifications |
|--------|----|-------------------|

**NOTE        3:-**
**        OTHER ACCOUNTS RECEIVABLE**

|                                    |   | **December                  31,** |   | **December                  31,** |   |
|-----------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                    |   | **2006**                          |   | **2005**                          |   |
|                                    |   |                              |   |                              |   |
| Prepayment                  and other   |   |                              | 116    |                              |   | 68 |   |
| Government                  authorities |   |                              | 26     |                              |   | 91 |   |
| Affiliated                  company     |   |                              | 16     |                              |   | 11 |   |
| Shareholders                            |   |                              | 5      |                              |   | 2 |   |
|                                    |   |                              |   |                              |   |   |   |
|                                    |   |                              | 163    |                              |   | 172 |   |

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        4:-**
**INVESTMENTS        IN AFFILIATED COMPANIES**

|                                                       |   | **December                  31,** |   | **December                  31,** |   |
|------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                                       |   | **2006**                          |   | **2005**                          |   |
|                                                       |   |                              |   |                              |   |
| Total                  investments in affiliated companies |   |                              | 1,713  |                              |   | 9 |   |
|                                                       |   |                              |   |                              |   |   |   |
| Composition:                                               |   |                              |   |                              |   |   |   |
| Net                  equity as at purchase date (1)        |   |                              | 1,708  |                              |   | 1 |   |
| Changes                  commencing with purchase date:    |   |                              |   |                              |   |   |   |
| Accumulated                  profits                       |   |                              | 5      |                              |   | 8 |   |
|                                                       |   |                              |   |                              |   |   |   |
|                                                       |   |                              | 1,713  |                              |   | 9 |   |
|                                                       |   |                              |   |                              |   |   |   |

|   | (1)    | Investment                  in Bartech Systems, Inc., a Delaware Corporation                  (“BSI”) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|
|   |   | 1.                                                                                                                | On                  March 6, 2006 the Company entered into agreements with certain                  shareholders of BSI to purchase a total of 3,592,965 shares of                  BSI Common                  and Preferred shares for an equal number of the Company shares,                  which                  number of shares represented approximately 24% of BSI. At December                  31,                  2006, the Company had issued 3,365,714 shares of its common stock;                  the                  remaining shares were issued subsequent to December 31, 2006. |
|   |   | 2.                                                                                                                | On                  May 18, 2006, the Company entered into an agreement to acquire                  an                  additional 753,705 shares of BSI that constitutes approximately                  5% of BSI                  shares. As consideration, the Company paid cash of $220 and agreed                  to                  issue an equal amount of its shares to the sellers. At December                  31, 2006,                  the Company had not issued shares of its common stock. The shares                  were                  issued subsequent to December 31, 2006. |
|   |   | 3.                                                                                                                | On                  May 25, 2006 the Company signed an agreement to acquire 50,000                  Preferred                  Shares of BSI using the proportional exchange rate of 1.2 shares                  of HOMI                  Common Stock for each share of BSI Preferred Stock. The Preferred                  Stock                  bears interest at the rate of 8% per annum and has no super-voting                  or                  other voting rights. At December 31, 2006, the Company had not                  issued                  shares of its common stock. The shares were issued subsequent to                  December                  31, 2006. |
|   |   |                                                                                                              |   |
|   |   |                                                                                                              | Subsequent                  to balance sheet date, the abovementioned investments were sold                  at a gain.                  See Note 16a. |

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        5:-**
**        PROPERTY AND EQUIPMENT, NET**

|                                                |   | **December                  31,** |   | **December                  31,** |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                                |   | **2006**                          |   | **2005**                          |   |
| Cost:                                               |   |                              |   |                              |   |
| Minibars                                            |   |                              | 5,761  |                              |   | 5,139 |   |
| Vehicle                                             |   |                              | 27     |                              |   | 27 |   |
| Computers                  and electronic equipment |   |                              | 91     |                              |   | 61 |   |
| Office                  furniture and equipment     |   |                              | 60     |                              |   | 76 |   |
|                                                |   |                              |   |                              |   |   |   |
|                                                |   |                              | 5,939  |                              |   | 5,303 |   |
| Accumulated                  depreciation:          |   |                              |   |                              |   |   |   |
| Minibars                                            |   |                              | 1,525  |                              |   | 1,115 |   |
| Vehicle                                             |   |                              | 15     |                              |   | 10 |   |
| Computers                  and electronic equipment |   |                              | 50     |                              |   | 43 |   |
| Office                  furniture and equipment     |   |                              | 22     |                              |   | 26 |   |
|                                                |   |                              |   |                              |   |   |   |
|                                                |   |                              | 1,612  |                              |   | 1,194 |   |
|                                                |   |                              |   |                              |   |   |   |
| Depreciated                  cost                   |   |                              | 4,327  |                              |   | 4,109 |   |

**NOTE        6:-**
**        OTHER ASSETS**

|                                            |   | **December                  31,** |   | **December                  31,** |   |
|-------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                            |   | **2006**                          |   | **2005**                          |   |
| Contract                  rights -              |   |                              |   |                              |   |
| Cost                                            |   |                              | 53     |                              |   | 53 |   |
| Accumulated                  amortization (1)   |   |                              | (35    | )                                 |   | (28 | ) |
| Effect                  of exchange rate change |   |                              | 19     |                              |   | 18 |   |
|                                            |   |                              | 37     |                              |   | 43 |   |
| Deferred                  expenses -            |   |                              |   |                              |   |   |   |
| Cost                                            |   |                              | 78     |                              |   | 66 |   |
| Accumulated                  amortization (2)   |   |                              | (12    | )                                 |   | (5 | ) |
|                                            |   |                              | 66     |                              |   | 61 |   |
|                                            |   |                              | 103    |                              |   | 104 |   |

|   | (1) | Amortization                  expenses amounted to $ 7 for the year ended December 2006. |
|--------|-----|------------------------------------------------------------------------------------------|

|   |   | Deferred                  expenses in regard to the private offering will be amortized over                  the                  period of the note. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        7:-**
**CONVERTIBLE        NOTES**

| The                  Company intends to issue, in a private offering, a principal amount                  of up                  to $ 3 million in 8% Convertible Notes.                                                                                                                                                                                                                                                                                                                                       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| During                  September 2006, the Company signed a Memorandum of Understanding                  (hereinafter - "MOU") with another company whereby the other company                  will                  provide the Company with professional services to raise the necessary                  amount in return for a consideration of 10% commission on the amount                  thus                  raised.                                                                               |
| During                  December 2006, the Company raised an amount of $ 118. Subsequent                  to                  balance sheet date, an additional amount of $ 230 was raised.                                                                                                                                                                                                                                                                                                                    |
| Deadline                  for the first installment, intended to raise an amount of $ 1 million,                  was                  extended several times. Subsequent to balance sheet date, the MOU                  was                  amended on February 28, 2007. A draft extension is in the process                  of being                  signed. According to this draft, the extension will be as follows,                  with                  the rest of the MOU remaining unchanged. |
| a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | The                  total amount of financing which the other company will try to raise                  pursuant to the Notes is hereby reduced from an amount of $ 3 million                  to                  an amount of $ 1 million. |
| b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | The                  other company will have until 31 March 2007 (the "End Date") to                  try, on a                  best efforts basis, to complete this financing up to the $ 1 million                  total. Subject to each party, in its discretion, consenting to                  such                  extension, the End Date and any extension thereof, may be extended                  by                  additional periods, of one month each, by letter of extension signed                  by                  both parties. The term of the MOU shall be defined as the term                  ending upon                  the End Date, or any extension thereof, as applicable. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Terms                  of the Notes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| The                  Notes shall bear interest ("the Interest") at the rate of 8% per                  annum.                                                                                                                                                                                                                                                                                                                                                                                                  |
| The                  Notes shall exist for a period of 48 months. Payments will be made                  according to the following schedules:                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **Interest                  -**Interest                  due will be paid on a quarterly basis starting on the first quarter                  of the                  original issuance. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **Principal**-                  Principal due will be paid in eight equal quarterly installments                  starting                  on the first quarter of the third year following the Initial                  Issuance. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| c.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **Conversion                  Term**-                  Conversion term, between 1-4 years, as defined in the agreement,                  with the                  conversion price varying from $ 0.5 - $ 0.8 per share, in accordance                  with                  the conversion dates. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | For                  the purposes of the Conversion Term, the "Effective Date" shall                  mean the                  later of (i) 1 March, 2007 or (ii) the date of issue of the                  Note. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |

**NOTE        8:-**
**OTHER        ACCOUNTS PAYABLE AND ACCRUED EXPENSES**

|                                                                                                         |   | **December                  31,** |   | **December                  31,** |   |
|--------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                                                                                         |   | **2006**                          |   | **2005**                          |   |
| Accrued                  expenses (includes an amount of $ 147 thousand to related                  parties) |   |                              | 249    |                              |   | 39 |   |
| Government                  authorities and others                                                           |   |                              | 77     |                              |   | 53 |   |
| Other                                                                                                        |   |                              | 61     |                              |   | - |   |
| Related                  parties                                                                             |   |                              | 54     |                              |   | 102 |   |
| Employees                  and payroll accruals                                                              |   |                              | 28     |                              |   | 17 |   |
|                                                                                                         |   |                              |   |                              |   |   |   |
|                                                                                                         |   |                              | 469    |                              |   | 211 |   |

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        9:-**
**LONG-TERM        LOANS FROM BANKS AND OTHERS**

| a.                   Composed                  as follows:                                            |   |                                          |   |                                      |   |                                      |   |
|------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                       |   | **Annual****interest                  rates** |   | **December                  31,****2006** |   | **December                  31,****2005** |   |
| From                  Banks:                                                                               |   |                                          |   |                                      |   |                                      |   |
| In                  Rand                                                                                   |   |                                          | 10.8%  |                                      |   | 113                                       |   |   | 211 |   |
| In                  US dollar (3)                                                                          |   |                                          | 10%    |                                      |   | 110                                       |   |   | 220 |   |
| In                  NIS                                                                                    |   |                                          | 8%     |                                      |   | -                                         |   |   | 6 |   |
|                                                                                                       |   |                                          |   |                                      |   |                                      |   |   |   |   |
|                                                                                                       |   |                                          |   |                                      |   | 223                                       |   |   | 437 |   |
|                                                                                                       |   |                                          |   |                                      |   |                                      |   |   |   |   |
| From                  others (1)                                                                           |   |                                          |   |                                      |   | 973                                       |   |   | 1,057 |   |
|                                                                                                       |   |                                          |   |                                      |   |                                      |   |   |   |   |
|                                                                                                       |   |                                          |   |                                      |   | 1,196                                     |   |   | 1,494 |   |
|                                                                                                       |   |                                          |   |                                      |   |                                      |   |   |   |   |
| From                  Shareholders (2)                                                                     |   |                                          |   |                                      |   | 252                                       |   |   | 1,067 |   |
|                                                                                                       |   |                                          |   |                                      |   |                                      |   |   |   |   |
| Total                                                                                                      |   |                                          |   |                                      |   | 1,448                                     |   |   | 2,561 |   |
|                                                                                                       |   |                                          |   |                                      |   |                                      |   |   |   |   |
| Less                  - current maturities (includes an amount of $ 48 from                  shareholders) |   |                                          |   |                                      |   | (332                                      | )      |   | (279 | ) |
|                                                                                                       |   |                                          |   |                                      |   |                                      |   |   |   |   |
|                                                                                                       |   |                                          |   |                                      |   | 1,116                                     |   |   | 2,282 |   |

| (1)    | In                  March and June, 2005 the Company and the subsidiary in U.S. received                  from                  Horizon Challenges Investment Company Ltd. (“Horizon”) loans in the total                  amount of $1.1 million, which Horizon undertook to provide to the                  Company                  (“the Financing”), pursuant to the Financing Agreement between them, dated                  as of March 1, 2005, as amended by the parties thereto, as reported                  by the                  Company on May 17, 2005 (the “Amendment”). Pursuant to the Amendment, the                  amount of financing which the parties had originally agreed would                  be                  provided by Horizon was reduced from $10 million to $1.1 million,                  after                  Horizon notified the Company that it does not have funds available                  to make                  the loans required by the Company. The possible grant of Options                  to                  Horizon for the purchase of the Company’s shares was cancelled. The loans                  bear interest at the rate of 11.67% and are to be repaid in monthly                  installments for nine years. The loans are secured by a lien on                  all                  minibars in respect of which the loan was received, and a security                  interest and assignment of a portion of the Company’s and/or its                  subsidiaries’ monthly revenues from those minibars, in the amount required                  to pay each month’s repayments on all outstanding loans, principal plus                  interest. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |
|   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

| See                  Note 15d and 15e |   |   | 81     |   |   | 770    |   |
|---------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| See                  Note 15g         |   |   | 171    |   |   | 297    |   |
|                                  |   |   |   |   |   |   |   |
|                                  |   |   | 252    |   |   | 1,067  |   |

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        9:-**
**LONG-TERM        LOANS FROM BANKS AND OTHERS (cont.)**

|   | (3) | The                  note requires monthly principal and interest payments of approximately                  $11,000 through December 1, 2007, at which time any remaining principal                  and interest is due. The loan is secured by funds deposited in                  such bank                  by a shareholder, as well as a first security position in the minibars                  purchased with the proceeds of the loan and all accounts and contract                  rights arising from the agreement with the hotel in which the minibars                  are                  located. In the event the Company defaults on the loan, the shareholder                  may require the bank to assign him its rights and security interests                  in                  the loan. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Aggregate                  maturities of long-term loans from banks and others for years subsequent                  to December 31, 2006 are as                  follows: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Year**                             |   | **Amount** |   |
|--------------------------------------|--------|------------|--------|
|                                 |   |       |   |
| 2007                                 |   |       | 284    |   |
| 2008                                 |   |       | 134    |   |
| 2009                                 |   |       | 113    |   |
| 2010                                 |   |       | 127    |   |
| 2011                                 |   |       | 143    |   |
| 2012                  and thereafter |   |       | 395    |   |
|                                 |   |       |   |   |
|                                 |   |       | 1,196  |   |

**NOTE        10:-**
**COMMITMENTS        AND CONTINGENT LIABILITIES**

|   | a. | The                  Company and its affiliate have contractual obligations to hotels                  in regard                  to operating minibars in hotel rooms. The Company and its affiliate                  own                  most of these minibars. Several hotels have a contractual purchase                  option                  granted which allows them to purchase and operate the minibars                  during the                  agreement period and receive a reduction in the purchase price                  relative to                  the term of the operating agreement that has already                  elapsed. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | As                  of balance sheet date, Bartech Int., holder of 30% of the subsidiary                  in                  the USA (HOS), will not refer outsource leads in the United States                  to any                  person other than HOS and will not, without the Company’s consent,                  knowingly sell, rent or license its minibars in the United States                  to any                  person who intends to use them in outsource for hotels; provided,                  that                  Bartech Int. may refer outsource leads or sell, rent or license                  minibars                  to hotels (i) which have pre-existing relationships with outsource                  vendors                  other than HOS, or (ii) to which HOS is not able or not willing                  to provide                  outsource. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        10:-**
**COMMITMENTS        AND CONTINGENT LIABILITIES (cont.)**

|   | c. | In                  April 2003, the Company signed a 10 year agreement with Bartech                  Int.                  according to which the Company will provide outsource services                  to hotels                  on an exclusive basis, in all European and other territories in                  which                  Bartech Int. is active using Bartech Int. minibars which the Company                  will                  purchase from Bartech Int. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | Shareholders                  of the Company gave unlimited personal guarantees to a bank in                  respect of                  the Company liabilities. Total liabilities of the Company to the                  bank as                  of December 31, 2006 were in the amount of approximately $ 0 and                  $ 6 as of                  December 31, 2005. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | e. | Liens                  have been placed on all Company assets, including rights to receive                  amounts due from customers, in favor of banks, as security for                  amounts                  due. Total liabilities that are secured by these liens as of December                  31,                  2006 and 2005 amount to approximately $ 1,083 and $ 1,167,                  respectively.  |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f. | Liens                  on behalf of the loan received from Horizon - see Note                  9(a)(1). |
|--------|----|---------------------------------------------------------------------------------------------------------|

|   |   |   |
|--------|--------|--------|

|  | g. | Liens                  placed by shareholders - see Note 15e.   |
|--|----|----------------------------------------------------------------------|

|   |   |   |
|--------|--------|--------|

|   | h. | Rent                  expense |
|--------|----|-------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        11:-**
**SHAREHOLDERS’        EQUITY**

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        12:-**
**CUSTOMERS        AND GEOGRAPHIC INFORMATION**

|   | a. | Major                  customers’ data as a percentage of total sales to unaffiliated                  customers: |
|--------|----|-------------------------------------------------------------------------------------------------------------------------|

|                        |   | **Year                  ended December 31,** |   |
|-----------------------------|--------|----------------------------------------------|--------|
|                        |   | **2006**                                     |   | **2005** |   |
|                        |   |                                         |   |   |   |
| Customer                  A |   |                                         | 8.2    | % |   | 8.9 | % |
| Customer                  B |   |                                         | 3.6    | % |   | 5.8 | % |
| Customer                  C |   |                                         | 9.4    | % |   | 11.4 | % |
| Customer                  D |   |                                         | 8.4    | % |   | 8.9 | % |
| Customer                  E |   |                                         | 11.2   | % |   | 13.4 | % |
| Customer                  F |   |                                         | 6.3    | % |   | 7.2 | % |

|   | b. | Breakdown                  of Consolidated Sales to unaffiliated Customers according to                  GeographicRegions: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------|

|                          |   | **Year                  ended December 31,** |   |
|-------------------------------|--------|----------------------------------------------|--------|
|                          |   | **2006**                                     |   | **2005** |   |
|                          |   |                                         |   |   |   |
| Israel                        |   |                                         | 21     | % |   | 20 | % |
| South                  Africa |   |                                         | 11     | % |   | 16 | % |
| USA                           |   |                                         | 33     | % |   | 41 | % |
| Europe                        |   |                                         | 35     | % |   | 23 | % |
| Total                         |   |                                         | 100    | % |   | 100 | % |
|                          |   |                                         |   |   |   |   |   |

|   | c. | As                  of December 31, 2006, $ 576 of the consolidated long-lived assets                  were                  located in South Africa, $ 290 were located in Israel, $ 1,914                  in the USA                  and $ 1,547 in ROW. As of December 31, 2005, $738 of the consolidated                  long-lived assets were located in South Africa, $330 were located                  in                  Israel, $ 2,188 in the USA and $853 in                  Europe. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        13:-**
**FINANCIAL        EXPENSES, NET**

|                                                                        |   | **Year                  ended December 31,** |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                        |   | **2006**                                     |   | **2005** |   |
|                                                                        |   |                                         |   |   |   |
| Interest                  on long-term loans from banks and others, net (1) |   |                                         | 130    |   |   | 306 |   |
| Other,                  net                                                 |   |                                         | 2      |   |   | 12 |   |
|                                                                        |   |                                         |   |   |   |   |   |
|                                                                        |   |                                         | 132    |   |   | 318 |   |

**NOTE        14:-**
**INCOME        TAXES**

|   | a. | Corporate                  tax structure: |
|--------|----|-------------------------------------------|

|   | b. | Pursuant                  to the Income Tax (Inflationary Adjustments) Law - 1985, results                  for tax                  purposes in Israel are measured in real terms, in accordance with                  changes                  in the Israeli Consumer Price Index. However, Paragraph 9(f) of                  Statement                  of Financial Accounting Standard No. 109, "Accounting for Income                  Taxes",                  prohibits the recognition of deferred tax liabilities or assets                  that arise                  from differences between the financial reporting and tax bases                  of assets                  and liabilities that are remeasured from the local currency into                  US                  dollars using historical exchange rates and that result from changes                  in                  exchange rates or indexing for tax                  purposes. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | The                  subsidiary in the US is subject to both federal and state tax.                  The federal                  tax is determined according to taxable income, for the first $50                  taxable                  income the rate is 15%. In addition, a 9.3% California state tax                  is                  applicable. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | As                  of December 31, 2006 HOMI Israel Ltd. and a subsidiary in Israel                  had                  approximately $668 Israeli net operating loss carry forwards. The                  loss                  carry forwards in Israel have no expiration date. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        14:-**
**INCOME        TAXES (cont.)**

|   | e. | Deferred                  income taxes: |
|--------|----|-----------------------------------------|

|                                                                      |   | **December                  31,** |   | **December                  31,** |   |
|---------------------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                                                      |   | **2006**                          |   | **2005**                          |   |
| Operating                  loss carry forwards                            |   |                              | 967    |                              |   | 864 |   |
| Temporary                  differences in regard to expenses and property |   |                              | (165   | )                                 |   | (163 | ) |
|                                                                      |   |                              |   |                              |   |   |   |
| Net                  deferred tax asset before valuation allowance        |   |                              | 802    |                              |   | 701 |   |
| Valuation                  allowance                                      |   |                              | (812   | )                                 |   | (712 | ) |
|                                                                      |   |                              |   |                              |   |   |   |
| Net                  deferred tax (foreign)                               |   |                              | (10    | )                                 |   | (11 | ) |

|   | f. | Composition                  of tax benefit (taxes on income): |
|--------|----|----------------------------------------------------------------|

|                            |   | **Year                  ended December 31,** |   |
|---------------------------------|--------|----------------------------------------------|--------|
|                            |   | **2006**                                     |   |  **2005** |   |
|                            |   |                                         |   |    |   |
| Current                  taxes  |   |                                         | (33    | ) |   | (5 | ) |
| Deferred                  taxes |   |                                         | 1      |   |   | 32 |   |
|                            |   |                                         |   |   |   |   |   |
|                            |   |                                         | (32    | ) |   | 27 |   |

|   | g. | Breakdown                  of losses (income) before taxes: |
|--------|----|-------------------------------------------------------------|

| Israel                        |   |   | (27    | )      |   | 15     |   |
|-------------------------------|--------|--------|--------|--------|--------|--------|--------|
| South                  Africa |   |   | 3      |   |   | 112    |   |
| USA                           |   |   | 384    |   |   | 91     |   |
| Europe                        |   |   | (78    | )      |   | (29    | )      |
|                          |   |   |   |   |   |   |   |
| Total                         |   |   | 282    |   |   | 189    |   |

|   | h. | The                  main reconciling items between the statutory tax rate of the Company                  and                  the effective tax rate are the non-recognition of tax benefits                  from                  accumulated net operating losses carryforward among the various                  subsidiaries worldwide due to the uncertainty of the realization                  of such                  tax benefits. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        15:-**
**RELATED        PARTIES **

|   | a. | The                  following transactions with shareholders are included in the financial                  statements for 2006: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------|

|                                        |   |    |   |
|---------------------------------------------|--------|--------------|--------|
| Research                  and Development   |   |         | 147    |   |
|                                        |   |         |   |   |
| General                  and administrative |   |         | 465    |   |
|                                        |   |         |   |   |
| Financing                  Expenses         |   |         | 27     |   |
|                                        |   |         |   |   |

|   | b. | Guarantees                  and participation of shareholders - see Note                  10d. |
|--------|----|------------------------------------------------------------------------------------------------|

|   | c. | During                  the years 2006 and 2005, an affiliated company paid the Company,                  reimbursement of expense and management fees in the amount of $  20                  and $ 30, respectively. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | In                  December 2003 the Company entered into agreement with two shareholders                  pursuant to which each agreed to lend the Company $150 under notes                  payable                  bearing interest at a fixed rates of 4%. The loans, were converted                  into                  shares of the Company’s common stock in 2006. During the year ended                  December 31, 2005, the Company incurred interest of $12 under these                  loans.                  Because the loans were converted to equity, they were reflected                  as                  non-current in the accompanying 2005 consolidated balance sheet. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | In                  November 2004 the Company entered into agreements with two shareholders                  pursuant to which each agreed to lend the Company $350. Prior to                  their                  satisfaction, the loans had an initial term of six months (that                  was                  subsequently deferred), required interest at a fixed rate of 10%                  per                  annum, and were secured by a (i) general lien and security interest                  over                  all of the Company’s assets (except that such security position was                  subordinate to all pre-existing liens on such assets) and (ii)                  the pledge                  of 2,000,000 shares of the Company’s common stock owned by certain other                  shareholders. The Company had the right to satisfy the loans plus                  accrued                  interest through the issuance of its common stock at a price of                  $0.25 per                  share, and such right was exercised in 2006 for the note balance                  owed at                  December 31, 2006 (one of the loans was paid in                  2005) |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f. | As                  to shareholder stock based compensation see note                  11. |
|--------|----|-------------------------------------------------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        15:-**
**RELATED        PARTIES (cont.)**

|   | g. | The                  minority shareholder of the Company’s South African subsidiary granted a                  loan to the subsidiary amounting to $ 297 as of December 31, 2005                  and $                  171 as of December 31, 2006 (see Note 9a). The loan is linked to                  the South                  African Rand with annual interest of 10.5%. The loan term is indefinite                  with no fixed terms of repayment. Despite this, these loans have                  been                  classified as long-term, as this shareholder has confirmed that                  repayment                  will not be required during 2007. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | h. | Directors'                  fees are in the amounts of $ 20 and $ 12 for the years 2006 and                  2005,                  respectively and directors' insurance expenses are in the amount                  of $ 38                  and $ 33 for the years 2006 and 2005,                  respectively. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | i. | During                  the year ended December 31 2005, the Company incurred interest                  of $72                  under the notes discussed at e, f, and g. At December 31, 2005,                  other                  accounts payable and accrued expenses included approximately $52                  owed to                  various stockholders for accrued interest. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE        16:-**
**SUBSEQUENT        EVENTS**

|   | a. | On                  February 13, 2007, HOMI sold all of the 4,078,072 shares of common                  stock                  and 200,000 shares of preferred stock which it held in Bartech                  Systems                  International ("BSI") to Eurogest Foundation, a Vaduz, Liechtenstein                  Corporation ("Eurogest"), at a price of $ 0.55 per share, for the                  total                  sale price of $ 2,352,940, which was paid to HOMI by                  Eurogest. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | On                  February 13, 2007, HOMI together with several HOMI subsidiaries                  (collectively, the "HOMI Companies"), entered into a series of                  agreement                  with BSI and a subsidiary of BSI (collectively, "BSI Companies"),                  pursuant                  to which the HOMI Companies and the BSI Companies settled and resolved                  all                  outstanding disputes between them. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**HOTEL            OUTSOURCE MANAGEMENT **

**INTERNATIONAL            INC. AND ITS SUBSIDIARIES**

**NOTES            TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**US            Dollars in thousands **

**NOTE        16:-**
**SUBSEQUENT        EVENTS**
**        (cont.)**

|   | c. | On                  March 13, 2007, HOMI published a report stating as                  follows: |
|--------|----|--------------------------------------------------------------------------------------------------|

**NOTE        17:-**
**GAIN        ON SALES OF PROPERTY AND EQUIPMENT**

**NOTE        18:-**
**SHORT-TERM        BANK CREDIT **

----

**ITEM      8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE  **

----

**ITEM      8A.**
**CONTROLS      AND PROCEDURES**

**ITEM      8B. OTHER INFORMATION**

**PART      III**

**ITEM      9. **
**DIRECTORS      AND EXECUTIVE OFFICERS **

**Directors      and Executive Officers**

| NAME                          | AGE    | POSITION                                |
|-------------------------------|--------|-----------------------------------------|
|                          |   |                                    |
| Jacob                Ronnel   | 50     | CEO,                President, Director |
|                          |   |                                    |
| Ariel                Almog    | 39     | COO,                Secretary, Director |
|                          |   |                                    |
| Sigal                Grinboim | 42     | CFO                                     |
|                          |   |                                    |
| Avraham                Bahry  | 61     | Chairman                                |
|                          |   |                                    |
| Jules                Polak    | 60     | Director                                |

----

|                             |   |     |
|----------------------------------|--------|----------|
| Jacob                Faigenbaum  | 53     | Director |
|                             |   |     |
| Yoav                Ronen        | 47     | Director |
|                             |   |     |
| Philippe                Schwartz | 46     | Director |
|                             |   |     |
| Uri                Kellner       | 79     | Director |
|                             |   |     |

**Biographies      **

**Jacob      Ronnel**

**Ariel      Almog**

**Sigal      Grinboim**

**Avraham      Bahry**

**Jules      M. Polak**

**Jacob      Faigenbaum**

**Yoav      Ronen**

----

**Philippe      Schwartz**

**Uri      Kellner**

**Compliance      with Section 16(a) of the Exchange Act**

**Code      of Ethics**

**Audit      Committee Financial Expert**

**Jules      M. Polak.**

| **ITEM.                10** | **EXECUTIVE                COMPENSATION** |
|-----------------------------|-------------------------------------------|

|                           |   |   |    | Annual                Compensation |   | Long-Term                Compensation Awards |   |
|--------------------------------|--------|--------|---------|------------------------------------|--------|----------------------------------------------|--------|
| NameAndPrincipalPosition       |   | Year   |    | Salary($)                          |   | Bonus($)                                     |   | OtherAnnualCompensation($) |   | RestrictedStockAward(s)($) |   | Securities                Underlying Options/ SARs($) |   | All                Other Compensation($) |   |
| Jacob                Ronnel(1) |   |   |    |                               |   |                                         |   |   |   |   |   |   |   |   |   |
| CEO,                President  |   |   | 2004    |                               | $      | 100,000                                      |   |   |  |   |   |  |   |   |  |   |   |  |   | $ | 13,491 |   |
|                           |   |   | 2005    |                               | $      | 107,994                                      |   |   |  |   | $ | 4,750-                interest |   |   |   |   |   |   |   |   |   |   |
|                           |   |   | 2006    |                               | $      | 96,000                                       |   |   |  |   |   | 3,276$iinterest |   |   |   |   |   |   |   |   |   |   |
| Ariel                Almog(2)  |   |   |    |                               |   |                                         |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |
| COO,                Secretary  |   |   | 2004    |                               | $      | 161,000                                      |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |
|                           |   |   | 2005    |                               | $      | 153,979                                      |   |   |  |   | $ | 6,000-                interest |   |   |   |   |   |   |   |   |  |   |
|                           |   |   | 2006    |                               | $      | 153,979                                      |   |   |  |   |   | 2,424$                interest |   |   |   |   |   |   |   |   |  |   |
| Sigal                Grinboim  |   |   |    |                               |   |                                         |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |
| CFO                            |   |   | 2004    |                               | $      | 20,000                                       |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |
|                           |   |   | 2005    |                               | $      | 48,000                                       |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |
|                           |   |   | 2006    |                               | $      | 48,000                                       |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |
| Avraham                Bahry   |   |   |    |                               |   |                                         |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |
| Chairman                       |   |   | 2004    |                               | $      | 5,000                                        |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |
|                           |   |   | 2005(3) |                               | $      | 0                                            |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |
|                           |   |   | 2006(3) |                               | $      | 0                                            |   |   |  |   |   |   |   |   |   |   |   |   |   |   |  |   |

----

| (1) | In                2004, Mr. Ronnel’s salary was paid as follows: HOMI Israel- $24,497; HOMI                USA-$39,996; HOMI- $48,998. According to the employment agreement                entered                into by Jacob Ronnel and HOMI USA which commenced June 2002, Mr.                Ronnel                shall serve as Chief Executive Officer at $80,000 per year; however                Mr.                Ronnel is entitled to an annual performance-based bonus. HOMI USA                may                terminate this agreement upon 90 days written notice. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Mr.                Almog’s entire salary was paid by HOMI USA. |
|-----|----------------------------------------------------------------------|

| (3) | According                to HOMI’s agreement with Mr. Avraham Bahry, Mr. Bahry was entitled to                remuneration for his services as chairman of HOMI. HOMI’s board of                directors approved such remuneration of $75,000 per year commencing                January 1, 2005; however, he has agreed to waive any payments until                such                time as HOMI achieves a net profit. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Directors      Compensation**

**ITEM      11:**
**SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER      MATTERS**

**Principal      Stockholders**

| · | More                than 5% of the outstanding shares of our common stock; |
|--------|----------------------------------------------------------------------------|

| · | Each                of our officers and directors; |
|--------|----------------------------------------------------|

| · | All                of our officers and directors as a                group. |
|--------|-----------------------------------------------------------------------------|

| Names                and Address of Beneficial Owner                                                                                |   | Number                of Shares Beneficially Owned |      | %                Beneficially Owned (3) |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|-----------|-----------------------------------------|--------|
| Jacob                Ronnel 21                Hasvoraim Street Tel                Aviv, Israel                                      |   |                                               | 2,379,312 |                                    |   | 6.0 | % |
|                                                                                                                                |   |                                               |      |                                    |   |   |   |
| Ariel                Almog 224                Maypoint Drive, San                Raphael, CA                                        |   |                                               | 2,387,915 |                                    |   | 5.9 | % |
|                                                                                                                                |   |                                               |      |                                    |   |   |   |
| Blackborn                Financial Consulting (1999) LTD. (1) 25                HaMerad Street Tel                Aviv, Israel |   |                                               | 3,601,917 |                                    |   | 9.0 | % |
|                                                                                                                                |   |                                               |      |                                    |   |   |   |

----

| Rodia                Mihali (2)21                Neher St Munich,                Germany                                                       |   |   | 2,380,562 |   |   | 6.0    | %      |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|
|                                                                                                                                           |   |   |      |   |   |   |   |
| Sigal                Grinboim7                Barazani Street Ramat                Aviv, Israel                                                |   |   | 0         |   |   | 0      | %      |
|                                                                                                                                           |   |   |      |   |   |   |   |
| Avraham                Bahry 1                Gan Hashikmin Street Ganei-Yehuda-Savion,                Israel                                  |   |   | 3,566,838 |   |   | 8.9    | %      |
|                                                                                                                                           |   |   |      |   |   |   |   |
| Jules                Polak 4                Kiriati Street Ramat                Gan, Israel                                                    |   |   | 0         |   |   | 0      | %      |
|                                                                                                                                           |   |   |      |   |   |   |   |
| Yoav                Ronnen 2                Mivza Horev StreetModiin,                Israel                                               |   |   | 21,593    |   |   | 0.06   | %      |
| .                                                                                                                                              |   |   |      |   |   |   |   |
| Philippe                Schwartz 999                California StreetSan                Francisco, CA 94108                                    |   |   | 0         |   |   | 0      | %      |
|                                                                                                                                           |   |   |      |   |   |   |   |
| Uri                Kellner 6                Herzel Rosenblum Street, Apt #6210, Tel                Aviv, Israel 69379                          |   |   | 0         |   |   | 0      | %      |
|                                                                                                                                           |   |   |      |   |   |   |   |
| Jacob                Faigenbaum Migdal                Moshe Aviv7                Jabotinsky Street, 19th FloorRamat                Gan, Israel |   |   | 0         |   |   | 0      | %      |
|                                                                                                                                           |   |   |      |   |   |   |   |
| All                officers and directors as a group                (8 people) (2)(3)                                                          |   |   | 6,206,658 |   |   | 15.5   | %      |
|                                                                                                                                           |   |   |      |   |   |   |   |

| (1)    | The                beneficial owner of the securities held by Blackborn is Mr. Benzion                Perko,                17 Alterman Street, Kfar-Saba, Israel. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Mr.                Mihali resigned as director on June 24, 2005                                                                                                    |
| (3)    | Based                on a total of 39,967,937 shares outstanding as of December 31,                2006.                                                           |
|   |                                                                                                                                                               |

**ITEM      12: **
**CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS. **

----

| Description                                                  |   | 2005   |    | 2006   |   |
|--------------------------------------------------------------|--------|--------|---------|--------|--------|
|  Research                and Development services       |   |   |         |   |   | 147,000 |   |
| Rent                and office services                      |   | $      | -       |   | $      | - |   |
| Directors’                fees and liability insurance |   |   | 45,000  |   |   | 53,000 |   |
| Consulting                fees                               |   |   | 242,000 |   |   | 169,000 |   |
|                                                         |   |   |    |   |   |   |   |
| Totals                                                       |   | $      | 287,000 |   | $      | 231,000 |   |

**ITEM      13.**
**EXHIBITS      **

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

| 2.1              | Acquisition                Agreement between Benjamin Acquisitions, Inc. and Bartech Mediterranean                International, Ltd.                (1) (2) |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              | Certificate                of Incorporation                (1) (2)                                                                                           |
|   3.1A | Certificate                of Amendment to Certificate of Incorporation(1) (2)                                                                               |
| 3.2              | By-Laws                (1) (2)                                                                                                                               |
| 10.1             | HOMI                Israel-BSI Agreement for Israel, Jordan and Turkey                (1) (3)                                                                |
| 10.2             | HOMI                Israel-BSI Agreement for South Africa                (1) (3)                                                                             |
| 10.3             | HOS-BSI                Stock Purchase Agreement((1) 3)                                                                                                       |
| 10.4             | HOS-BSI                Stockholders' Agreement                (1) (3)                                                                                        |
| 10.5             | HOS-BSI                Option                (1) (3)                                                                                                         |
| 10.6             | HOS                Purchase Option Agreement                (1) (3)                                                                                          |
| 10.7             | Bank                Leumi Credit Agreement                (1) (3)                                                                                            |
| 10.8             | Bank                Leumi Promissory Note                (1) (3)                                                                                             |
| 10.9             | Bank                Leumi Security Agreement                (1) (3)                                                                                          |
| 10.10            | Assignment                by HOMI Israel to Protel Bilgisayar Limited Sirketi                (1) (3)                                                         |
| 10.11            | Agreement                between HOMI Israel and Intercontinental Hotels Corporation                (1) (4)                                                  |
| 10.12            | Strategic                Alliance between Bartech E.M.E.A SARL and HOMI                (1) (6)                                                               |
| 10.13            | Consulting                Agreement between HOMI Israel and Muscum Holding Corp.                (1) (5)                                                      |
| 10.14            | Employment                Agreement between HOS and Ariel Almog                (1) (5)                                                                       |
| 10.15            | Employment                Agreement between HOS and Jacob Ronnel                (1) (5)                                                                      |

----

| 10.16 | Agreement                with Rodia Mihali                (1) (6)                                                                                                                                                                              |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17 | Loan                Agreement by and between HOMI and Jacky Ronnel dated December 1,                2003                (1) (7)                                                                                                                     |
| 10.18 | Loan                Agreement by and between HOMI and Ariel Almog dated December 1,                2003(1)                (7)                                                                                                                       |
| 10.19 | Loan                Agreement by and between HOMI and Avraham Bahry and Rodia Mihali                dated                March 1, 2003(1)                (7)                                                                                        |
| 10.20 | Financing                Agreement between HOMI and Solog Mifalelei Srigah Ltd. dated February                28,                2005(9)                                                                                                            |
| 10.21 | Financing                Agreement between HOMI and Solog Mifalelei Srigah Ltd., as amended                on May                17, 2005(10)                                                                                                       |
| 10.22 | Loan                Agreement by and between HOMI and Avraham Bahry and Rodia Mihali                dated                November 2004.                                                                                                             |
| 14.0  | Code                of Ethics(8)                                                                                                                                                                                                                    |
| 21.0  | Subsidiaries(3)                                                                                                                                                                                                                                     |
| 31.1  | Certification                of Sigal Grinboim and Jacob Ronnel pursuant to Rule 13q-14(a) of                the                Securities Exchange Act of 1934                                                                                     |
| 32.1  | Certification                required by Rule 13a-14(b) under the Securities Exchange Act of 1934                and                Section 1350 of Chapter 63 of Title 18 of the United States Code                (18                U.S.C. 1350) |

|   | (1) | Incorporated                by reference. |
|--------|-----|-------------------------------------------|

|   | (2) | Incorporated                by reference from initial filing of registration statement on Form                SB-2                filed July 7, 2002. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Incorporated                by reference from Amendment No. 1 to registration statement on Form                SB-2                filed October 15, 2002. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Incorporated                by reference from Amendment No. 2 to registration statement on Form                SB-2                filed January 21, 2003. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Incorporated                by reference from Amendment No. 3 to registration statement on Form                SB-2                filed July 3, 2003. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | Incorporated                by reference from Amendment No. 4 to registration statement on Form                SB-2                filed August 6, 2003. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7) | Incorporated                by reference from Form 8-K filed April 8,                2004. |
|--------|-----|--------------------------------------------------------------------------------------------|

|   | (8) | Incorporated                by reference from Form 10-KSB filed on April 16,                2004. |
|--------|-----|---------------------------------------------------------------------------------------------------|

|   | (9) | Incorporated                by reference from Form 8-k filed March 1,                2005 |
|--------|-----|-------------------------------------------------------------------------------------------|

|   | (10)  | Incorporated                by reference from Form 8-k filed May 19,                2005 |
|--------|------------|------------------------------------------------------------------------------------------|

**ITEM      14.**
**PRINCIPAL      ACCOUNTANT FEES AND SERVICES.**

**Audit      Committee Pre-Approval Policies and Procedures**

----

**SIGNATURES**

| HOTEL                OUTSOURCE MANAGEMENT INTERNATIONAL, INC. |
|---------------------------------------------------------------|
|                                                          |   |   |
| Dated:                April 16, 2007                          | By: | /s/                Jacob Ronnel . |
|                                                          |   | Jacob                Ronnel, President |
|                                                          |   |   |
|                                                          |   |   |

|   | /s/                Jacob Ronnel .                      |   | /s/                Ariel Almog,                   |
|--------|--------------------------------------------------------|--------|---------------------------------------------------|
|   | Jacob                Ronnel, President, Director       |   | Ariel                Almog, Secretary, Director   |
| Dated: | April                16, 2007                          | Dated: | April                16, 2007                     |
|   |                                                   |   |                                              |
|   | /s/                Sigal Grinboim .                    |   | /s/                Avraham                Bahry . |
|   | Sigal                Grinboim, Chief Financial Officer |   | Avraham                Bahry, Director            |
| Dated: | April                16, 2007                          | Dated: | April                16, 2007                     |
|   |                                                   |   |                                              |
|   | /s/                Jacob Faigenbaum                    |   | /s/                                               |
|   | Jacob                Faigenbaum, Director              |   | Jules                Polak, Director              |
| Dated: | April                16, 2007                          | Dated: | April                16, 2007                     |
|   |                                                   |   |                                              |
|   | /s/                Yoav Ronen .                        |   | /s/                Philippe Schwartz .            |
|   | Yoav                Ronen, Director                    |   | Philippe                Schwartz, Director        |
| Dated: | April                16, 2007                          | Dated: | April                16, 2007                     |
|   |                                                   |   |                                              |
|   | /s/                Uri Kellner .                       |   |                                              |
|   | Uri                Kellner, Director                   |   |                                              |
| Dated: | April                16, 2007                          |   |                                              |

----