UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One)





 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF
1934





For the
fiscal year ended December 31,
2008





TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
transition period from [ ] to [ ]





Commission
file number 333-91988





HOTEL
      OUTSOURCE MANAGEMENT INTERNATIONAL INC.(Exact
      Name of Registrant as Specified 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)





Issuer's
telephone number (212) 344-1600





Securities
registered pursuant to Section 12(b) of the Act:





Name
      of each exchange on whichTitle
      of each class
            Registered0
            0





Securities
registered pursuant to Section 12(g) of the Act:





Common
Stock, par value $0.001


(Title of
Class)


Indicate
by check mark if the registrant is a well-known seasoned issuer (as defined in
Rule 405 of the Securities Act)  o
 Yes    x   No
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act Yes x   No o
 
 Indicate
by check mark whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes x   No o
 
 Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
 
 Indicate
by check mark whether the registrant is a large accelerated filer or accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Ruler 12b-2 of the Exchange Act (check one):
  Large
Accelerated Filer o                                                                            Accelerated
Filer o
 Non-Accelerated
Filer   o
                                                                            Smaller
reporting Company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). o
 Yes    x   No
 State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Company computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of December 31, 2008, the last business day of the registrant's most
recently completed year:





41,122,078 shares at $.04065
(1) = $2,672,935





(1)
Average of bid and ask closing prices on March 31, 2009





(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)





State the
number of shares outstanding of each of the Issuer’s classes of common stock, as
of the latest practicable date:





69,453,364 common shares issued and
outstanding as of March 31, 2009





DOCUMENTS
INCORPORATED BY REFERENCE





See index
to exhibits





Transitional
Small Business Disclosure Format (Check One): Yes [ ] No [X]





HOTEL
OUTSOURCE MANAGEMENT INTERNATIONAL, INC.


2008 FORM
10-K ANNUAL REPORT


TABLE OF
CONTENTS


PART
      IItem
      1
                Business
                3General
                3Our
      Growth Strategy
                4Operations
                5Competition
                6Customers
      and Markets
                6Government
      Regulations
                6Intellectual
      Property
                7Employees
                7Corporate
      Structure
                7Item
      1A
                Risk
      Factors
                7Item
      1B
                Unresolved
      Staff Comments
                8Item
      2
                Properties
                8Item
      3
                Legal
      Proceedings
                9Item
      4
                Submission
      of Matters to a Vote of Security Holders
                9PART
      IIItem
      5
                Market
      for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
      Purchases of Equity Securities
                9Item
      6
                Selected
      Financial Data
                10Item
      7
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                10Forward-Looking
      Statements
                11Critical
      Accounting Policies
                11Revenue
      Recognition, Accounts Receivable and Allowance for Doubtful
      Accounts
                11Long-Lived
      Assets
                12Overview
                13Cost
      and Expenses
                13Results
      of Operations
                13Liquidity
      and Capital Resources
                14Subsequent
      Events
                15Off-Balance
      Sheet Arrangements
                15Inflation
                15International
      Tax Implications
                15Item
      7A
                Quantitative
      and Qualitative Disclosures about Market Risk
                16Item
      8
                Financial
      Statements and Supplementary Data
                17Report
      of Independent Registered Public Accounting Firm
                FS
      2Consolidated
      Balance Sheets
                FS
      3Consolidated
      Statements of Operations
                FS
      5Consolidated
      Statements of shareholders’ Equity
                FS
      6Consolidated
      Statements of Cash Flows
                FS
      7Notes
      to Consolidated Financial Statements
                FS
      9-27Item
      9
                Changes
      In and Disagreements With Accountants on Accounting onAccounting
      and Financial Disclosure
                45Item
      9A(T)
                Controls
      and Procedures
                45Item
      9B
                Other
      Information
                46PART
      IIIItem
      10
                Directors,
      Executive Officers and Corporate Governance
                47Item
      11
                Executive
      Compensation
                49Item
      12
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                50Item
      13
                Certain
      Relationships and Related Transactions And Director
      Independence
                51Item
      14
                Principal
      Accountant Fees and Services
                52Signatures
                54PART
      IVItem
      15
                Exhibits
      and Financial Statement Schedules
                53


2


FORM
10-K





HOTEL
OUTSOURCE MANAGEMENT INTERNATIONAL, INC.





PART I.





ITEM
      1.
            DESCRIPTION
      OF BUSINESS





General





Hotel
Outsource Management International, Inc.  is a multi-national service
provider in the hospitality industry, supplying a range of services in relation
to computerized minibars that are primarily intended for in-room refreshments.
In addition, we have recently begun to manufacture and install our own
proprietary computerized minibar, the HOMI® 336,
which is the first in a new range of products currently under development and/or
manufacture. The HOMI® 336 is
the first product to be designed and manufactured by the Company.





Hotel
Outsource Management International, Inc. is a holding company for several
subsidiaries which market, and operate computerized minibars in hotels located
in the United States, Europe, Australia and Israel. Hotel Outsource Management
International, Inc. and its subsidiaries may collectively be referred to as
"we", "us", "our" or" HOMI."  HOMI was incorporated in Delaware on
November 9, 2000 under the name Benjamin Acquisitions, Inc.





Our core
activities focus primarily on manufacturing, operating, servicing and marketing
computerized minibars installed in upscale hotels throughout the
world.





We
believe that by using the appropriate equipment, including technologically
advanced computerized minibars, we are able to materially improve the
performance of the minibar departments, thereby improving the hotel’s bottom
line.





For some
years now, the hotel industry has been focusing on outsourcing many of the
functions related to its key activities, in order to increase efficiency and
lower fixed costs. In periods of economic slow-down, the interest in outsourcing
solution may actually increase. We offer our customers a number of solutions
that are designed to meet this need, in relation to the minibar departments,
ranging from consultation and supervision services, all the way to full
outsource installation and operation arrangements.





Whether
we are consulting to the hotel, or managing the entire minibar department, we
focus on hands-on, expert and dedicated management, on-site supervision, and
disciplined implementation of specialized procedures which we have developed, in
order to achieve our goals and improve the department’s
performance.





Using
these methods, we already manage many thousands of minibars for our customers,
who are spread over four continents around the world.





We have
been doing business since 1997 through various subsidiaries. The current
corporate structure, in which we are a holding company for various wholly and
majority owned subsidiaries around the world, has been in place since 2001. Our
common stock has been listed on the Over-the-Counter Bulletin Board, or "OTC
Bulletin Board" since February 2004 under the symbol "HOUM.OB."





Our
Growth Strategy





It is our
objective to continue to increase the number of minibars which we manage in
hotels, using the various business models which we have developed, in accordance
with each customer’s needs, as well as to engage in rental, sale and
installation and outsource programs using the HOMI® 336 and
additional minibar models. HOMI intends to design and manufacture peripheral
products and/or accessories for HOMI® 336.
HOMI also intends to offer new and additional minibar models. Proposed
additional models may be referred to as the “New Range of
Products.”





We also
intend, among other things, to expand our activities in those hotels in which a
minibar system is already installed and operational. These opportunities can be
particularly attractive, as a simplified business model can be implemented,
without it being necessary to address matters such as the purchase and
installation of the minibars themselves.





Our
activities currently focus on North America, Europe, Asia Pacific and Israel. We
intend to consolidate and increase our business in the regions in which we are
already active. We also believe that there are growth opportunities in new
markets, and that by implementing the same models that have been successful for
us in our current markets, we will be able to replicate our success in these
other regions also.


3


Our services have to date
been directed primarily at upscale and luxury hotels. We believe that by
adjusting our existing business models, it will be possible to broaden the base
of our activities so as to include midscale hotels. An integral part of this
strategy involves the sale, rental, installation and outsource programs of the
HOMI® 336 and the New Range of Products. Features of HOMI® 336 and the New Range
of Products which we believe will make it easier to enter the mid-scale range of
hotels include:






            Mechanism against mistaken
      charges. This has been designed to increase the accuracy of the
      automatic billing.
            Substantially lower operating
      costs. This should improve profit margins and means that HOMI will
      be able to offer the HOMI®
      336 and the New Range of Products to midscale/mid-market hotels, a very
      large sector previously closed to HOMI in the past, as well as to upscale
      hotels.
            No need for infrastructure at
      hotel. A standard electrical outlet is the only infrastructure
      required. Minibar data is transferred automatically via an integral,
      dedicated wireless system. This makes installation easier, and more
      attractive to hotels.





By
opening the midscale range of hotels to our services, we will be able to
substantially increase the potential size of our target market, which should
enable us to further improve our revenues and profitability.





Operations





To date
our activities have focused primarily on managing the minibar departments in
upscale hotels. We offer our customers a number of solutions ranging from
consultation and supervision services, all the way to full outsource
installation and operation services. We currently implement several general
types of business models, further detailed below.




Complete Outsource
Solution.  This is currently the most prominent of the business
models that we employ. Many hotels do not want to pay upfront for their
minibars, and many do not want to allocate resources to operate the minibars
either.





Accordingly,
we manufacture our own New Range of Products, or purchase other manufacturers’
new minibars, and install them at the hotel’s premises, at no immediate cost to
the hotel. In the case of computerized minibars, the installation also includes
software designed to interface between the minibars and the customer’s existing
management software, so that various actions relating to usage of the minibars
such as, consumption of products from the minibars, and the locking/unlocking of
the minibars, can be logged or controlled by the customer and by us. We then
manage and operate the minibar department for the customer. We also supply full
maintenance services for the minibars. We carry the operating expenses of the
minibar department, and net revenues (after rebates and other discounts, if any)
from the minibar department are shared, with us receiving the majority of the
revenue and the hotel retaining the balance of the revenues. Generally, we offer
incentives to the hotel so that the customer’s relative share increases as the
net revenue per minibar rises.





In this
model, the initial term of our agreement with the hotel is several years, and
the customer typically has an option to purchase the turnkey system from us at
one or more points in time during the term of the agreement. Our objective is to
provide our services to the customer for the full term of the agreement, but
this business model remains profitable even if the customer decides, at any
stage, to exercise its option to purchase the system from us.





We have
recently begun to offer this kind of model for the HOMI® 336, but
have made some adjustments, so that the agreements are typically for a shorter
period, and the division of revenues is often based on a threshold, where HOMI
is guaranteed all revenue up to the threshold, and anything above the threshold
is divided between HOMI and the hotel at a fixed rate, with the majority going
to HOMI.





We
believe that this type of model offers the customer many advantages in relation
to its minibar department, including the following:






            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





4


Management & Operation of
Installed Base.  For customers who already have an installed,
operational minibar system, we provide partial maintenance services, and full
operation and management services. Essentially, the services which we provide in
this case are the same as in the Outsource Solution for Leased Base
model.





Management of Installed
Base.  This is the model that is preferred by customers who
wish to receive the benefit of our know-how and our procedures, but would like
to continue to manage the minibar department themselves, using their own staff.
Typically, the customer receives a limited license to utilize our know-how, and
is then taught how to manage the minibar department in a more efficient and
profitable manner. We provide part-time supervision and support, and the
customer carries the cost of operation of the department.








Other.  The models
discussed above are the primary types of arrangement that we offer our
customers, but we approach each case with a flexible approach, which enables us
to adjust a particular model so that it is tailor-made for the customer, but is
still in line with the principles outlined above. Also, each model may be
sub-divided into arrangements whereby we receive a fixed service charge, or a
fixed percentage of gross revenues, instead of net revenues, and other similar
adjustments. The models will also vary depending on the nature of the customer:
upscale hotel, airport hotel or other hotel; and whether the minibars are
computerized or manual. Sometimes, the existence of specific union rules in
certain territories also require us to be flexible and adapt an arrangement so
that it is workable for the customer, while still enabling us to manage and/or
operate the minibar department in a way which is designed to be profitable for
us, as well as for the customer. We may also be prepared to lease / rent
minibars to customers, or enter into other financing arrangements, where
circumstances so require. This may be applicable to the HOMI® 336 and
the New Range of Products.





Competition





We have a
decade of hands-on experience in providing services to the hotel industry.
Whether we are consulting to a hotel, or managing the entire minibar department,
we focus on hands-on, expert and dedicated management, on-site supervision, and
disciplined implementation of specialized procedures which we have developed, in
order to achieve our goals and improve the department’s
performance.





Many of
our competitors have experience in revenue-sharing business models, while others
provide systems that are supposed to improve the efficiency of a hotel’s minibar
department.





We
believe that our ability to provide a range of services, up to a Complete
Outsource Solution, including a comprehensive financing solution as well as the
full management and operation of the minibar department, places us in a
favorable position, compared with some of our competitors.





Our
hands-on management strategy, combined with on-site supervision, allows us to
assume responsibility for the following matters, thereby enabling our customers
to concentrate their efforts in other areas:






            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






            Periodic
      reconciliation of accounts






            Training
      of minibar attendants and front office
employees






            Maintenance
      and support





Our
objective, is to enable our customers to increase the net revenues that are
generated by their minibar departments, including by the following
means:






            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





5


Most
hotels still manage and operate their minibar departments in-house, and the
concept of outsourcing this to a company that specializes in this kind of
activity is still relatively new. In some cases, there is a general lack of
awareness on the part of the hotel, either of the existence of the kind of
services which we offer, or of the advantages that can be gained by making use
of them. Our marketing activities are directed at increasing awareness and
painting a full picture for the hotels, so that they can make an educated
decision, based on the relative pros and cons. We believe that our services can
be of substantial benefit to our customers, but outsourcing of this type of
services still accounts for a relatively small segment of the hotel industry
market.





In
addition, there are also other companies which offer some or all of the services
which we offer. Presently, our main competitors are Minibar Systems, Bartech
Systems International, Inc. and Dometic Holding AB which offer outsourcing or
revenue sharing programs at prices that are competitive with ours. Other
companies, such as Club Minibar, offer outsourcing programs utilizing manual
minibars. In respect of the financing aspects of the solutions we offer to our
clients, we are also in competition with certain manufacturers of the minibars
themselves. With respect to the New Range of Products, we expect to be in
competition with certain minibar manufacturers who offer minibars that may be
perceived by our potential customers as being alternatives to our New Range of
Products.





Whether
in the regions in which we are currently active, or in territories into which we
will expand our activities in the future, the arrival of other companies
offering similar services may force down our profit margins if we are to remain
competitive.





Customers
and Markets





We
currently market and provide our products and services primarily to upscale and
luxury hotels.





As of
December 31, 2008, we provide operation and/or management services to the
minibar departments of 23 hotels, most of which are affiliated with prominent
international hotel chains such as Sheraton, Hyatt, Radisson and
others.


There
seems to be a direct correlation between a hotel's occupancy level and average
room rate and the quantity of purchases made by guests from a hotel's minibars.
As a result, in the majority of our current projects, where our revenues are
based on the net revenues of the minibar departments which we operate and/or
manage, our revenues are dependent on hotel occupancy levels and average room
rate. Decreases in hotel occupancy levels and its average room rate could result
in corresponding decreases in our revenues.





Governmental
Regulation





In
accordance with regulations related to the sale of alcoholic beverages in
various countries in which we provide our services, there are instances where we
operate under a hotel's license to sell alcohol. In such cases, although we do
not incur costs of meeting regulatory compliance, we cannot guarantee a hotel's
compliance with applicable regulations. Failure of a hotel to comply with these
regulations could result in our inability to sell alcoholic beverages in the
minibars being operated and/or managed by us, which would probably result in a
decrease in our revenues.





Intellectual
Property





We own
the trademark “HOMI” in respect of the services which we supply. In numerous
countries around the world, we have registered, or are in the process of
registering, this trademark in our name. In 2006, we filed for patent protection
with regard to certain features of the HOMI® 336 and
our New Range of Products, and patent applications in this regard are currently
pending in the USA and the European Union. In 2008, a further patent application
was filed in the USA, with regard to certain additional features of our New
Range of Products, and this application is pending. As of the date hereof, no
patents have yet been granted. We hold no other registered patents, trademarks,
service marks or other registered intellectual property relating to our
operations.


6


Employees





As of
December 31, 2008, HOMI and its subsidiaries had 30 full time
employees





Corporate
Structure





We have a
fully owned United States subsidiary, HOMI USA, Inc. (“HOMI USA”), formerly
known as Hotel Outsource Services, Inc., through which we conduct business in
the United States.





Outside
the United States, we carry on our business activities through regional
subsidiaries, each of which is responsible for one or more territories in which
we market and/or provide our services. These subsidiaries receive management
services from us, and also retain staff of their own, either as employees or
under management agreements or service agreements.





Our
operating subsidiaries can, as of December 31, 2008, be summarized as
follows:





HOMI USA,
Inc. (“HOMIUSA”)


HOMI
Israel Ltd. (“HOMIIsrael”)


HOMI
(Operation 99) Ltd. (“HOMI
Operation”)





HOMI
Australia Pty Ltd. (“HOMIAustralia”)


HOMI
Deutschland GmbH (“HOMIGermany”)


HOMI
Italia S.R.L. (“HOMIItaly”)


HOMI
France SAS


HOMI UK
Limited





All of
our subsidiaries are currently wholly owned by us, directly or
indirectly.





ITEM
      1A:
            RISK
      FACTORS





1.  We
are dependent on a small number of customers for a large percentage of our
business.





In 2008,
our three largest customers provided [30.3] %   of our sales
revenues, and in 2007, our three largest customers provided 28.5% of our sales
revenues. The loss of any of these customers would cause a large decrease in our
sales revenues and negatively affect our ability to operate.





2.  We
depend on key personnel, the loss of whom could adversely affect our ability to
perform, market our company and obtain contracts with major hotels.





Our
success is substantially dependent on the performance of our executive officers,
Daniel Cohen and Jacob Ronnel. The loss of the services of either of these
executive officers could have a material adverse effect on our business, results
of operations and financial condition. In addition to being executive officers
of HOMI, Mr. Cohen and Mr. Ronnel are executive officers of most of our
subsidiaries. We are further dependent on the performance of Ariel Almog, Chief
Executive Officer of HOMI USA, Inc. Competition for senior management, marketing
personnel and other employees is intense, and there can be no assurance that we
will be successful in attracting and retaining such personnel. Failure to
successfully manage our personnel requirements could cause a decrease in sales
and revenues. While we intend to purchase key person life insurance for our
executive officers, currently we do not have any such insurance.





3.  The
economy of the hospitality industry is uncertain; a downturn could decrease our
opportunities for contracting with new hotels.





HOMI's
revenues are dependent in large part on the continued growth and profitability
of the lodging industry, which, in turn, is dependent on levels on travel,
tourism and business entertaining. There can be no assurance that profitability
and growth will be achieved.





The
current global economic crisis has had an adverse effect on the hospitality
industry, and could continue to adversely affect this industry through the
foreseeable future.  A weak U.S. dollar and high rates of unemployment
could result in the failure of many Americans to travel abroad, thereby
resulting in decreased tourism.   The ongoing crisis in the
Middle East, likewise, has had a negative impact on the hospitiatliy industry in
that region, which may continue into the foreseeable future.  Any or
all of these events could result in hoteliers' decision to not install our
minibars, which could have a materially adversely effect HOMI's business,
operating results and financial condition.


7


4.   In
our outsource operations, we depend on the hotels' timely payment of our share
of the minibar revenues, the failure of which could harm our credit, cash flow
and corporate growth.





An
integral part of our outsource operation program is in the collection of
revenues from our minibars by the host hotel, and then the allocation of such
revenues between HOMI and the hotel. As a result, we depend on each hotel's
timely and accurate collection of revenues. To the extent we depend on our
revenues to pay our expenses and/or fund our growth, hotels' failure to timely
and/or accurately remit payment could adversely affect our credit, cash flow and
expansion opportunities.





5. We
will need, and may be unable to obtain, additional financing which could force
us to slow down or suspend our operations.





HOMI
needs to continue to market its products and services in order to expand its
operations. As of April 6, 2009, we have commitments from certain of our
shareholders to lend HOMI a total of $350,000 by May 15, 2009. We believe that
once we have received these loans, we will have sufficient funds to meet our
needs for working capital for the next 12 months. In addition, we intend to
raise approximately $600,000 within the next six months to begin the manufacture
of minibars and for general working capital as we grow and enter into new
outsourcing operation agreements. There can be no assurance that additional
capital will be available on acceptable terms. As such, we may not be able to
fund our future operations, adequately promote our products, develop or enhance
services or respond to competitive pressures. Any such inability could adversely
effect our ability to enter into new contracts which would prevent us from
growing the company.





6. If we fail to maintain an effective system of internal
controls, we may not be able to accurately report our financial results. As a
result, current and potential stockholders could lose confidence in our
financial reporting, which would harm our business and the trading price of our
stock.




Effective
internal controls are necessary for us to provide reliable financial reports. If
we cannot provide reliable financial reports, our business and operating results
could be harmed. We have in the past discovered, and may in the future discover,
areas of our internal controls that need improvement.




For
example, in evaluating the effectiveness of our internal controls over financial
reporting as of December 31, 2008, we identified two material weaknesses: entity
control level; and segregation of duties in the finance department. These
weaknesses were first discovered by our former Chief Financial Officer,
controller and internal accounting firm in evaluating the effectiveness of our
internal controls over financial reporting as of December 31, 2007 and were
reported in our annual report on Form 10-K for the year ended December 31,
2007.  Management estimates that these two weaknesses have existed since
2003.  In the first quarter of 2008, management implemented a comprehensive
program designed to strengthen our internal controls over financial reporting.
Among other things, the program provided for (i) the addition of staff to our
finance department as well as to the operational department, (ii) the
integration of updated financial software, (iii) the creation of a new
mechanisms for the review and approval of invoices to customers and/or from
suppliers, (iv) increased level of discussion and documentation by senior
financial management, (v) increased frequency of sudden checks; and (vi) the
establishment of additional controls over financial reporting.





During
the year ending December 31, 2008, management carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. Such an evaluation requires the check and testing of the existence
of the required controls. As of December 31, 2008, management performed the
examination with regard to only one material subsidiary, where the controls were
found to be effective. However, the disclosure controls and procedures in other
material entities have yet to be examined or evaluated so HOMI management has
been unable to conclude that HOMI's controls and procedures are effective. 
Because of this, management believes that its controls and procedures are not
currently effective.  HOMI will continue to test the effectiveness of
controls in all other material subsidiaries, and believes the examinations will
be finalized by the end of 2009.  The anticipated cost of such tests to
determine the effectiveness of our internal controls over financial reporting
and our disclosure controls and procedures is $20,000-$30,000. We cannot
determine the costs of remediating any additional weaknesses until such
weaknesses, if any, are discovered. Any failure to improve our internal controls
to address these identified weaknesses could also cause investors to lose
confidence in our reported financial information, which could have a negative
impact on the trading price of our stock.





ITEM
      1B:
            UNRESOLVED
      STAFF COMMENTS





Not
applicable





ITEM 2:
            PROPERTIES





Our
operations are based primarily at hotels in which we conduct our outsource
operations. Most of these hotels allow us to utilize office space free of
charge. We also make use of a small amount of office space in Tel Aviv,
Johannesburg, San Francisco, Geneva and New York.


8


Our
facilities are as follows:






            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 9 Shenkar St.
      Hertzeliya Pituach 47625 Israel with a monthly rent of $4700. 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.






            In
      connection with our European operations, we also lease an office in
      Geneva, Switzerland, for a monthly rent of approximately $1,600
      (approximately CHF1,535 )





The
office space provided us by the hotels in which we operate are also usually used
to store goods to be placed in the minibars and spare parts for the minibars.
Generally, we do not keep a significant number of minibars in stock. Instead, we
order them on an as needed basis. Typically, they are then shipped directly from
the manufacturer to the customer. As we enter into additional outsource
agreements with customers, we will expect to receive office space within the
premises of these customers, from which we will conduct our
operations.





ITEM 3:
            LEGAL
      PROCEEDINGS





As of the
date hereof, we are not a party to any pending legal proceedings. To the best of
our knowledge, no governmental authority is contemplating the initiation of any
legal proceedings against us.





ITEM 4.
            SUBMISSION OF MATTERS TO VOTE
      OF SECURITY HOLDERS





On
November 20, 2008, HOMI held its annual stockholders meeting. At this meeting,
the following seven people were elected to the board of
directors:  Daniel Cohen; Jacob Ronnel; Ariel Almog; Avraham Bahry;
Jacob Faigenbaum; Jules M. Polak and Yoav Ronen. Stockholders also voted to
ratify the appointment of Barzily & Co. as HOMI's independent accountants.
All seven directors were elected unanimously, as was the ratification of the
appointment of Barzily & Co. There were 35,002,525 shares represented at
this meeting.





PART
II.





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





Market
For Common Stock





As of
December 31, 2008, HOMI has 41,122,078 shares of common stock outstanding held
by a total of 93 shareholders. No dividends have been declared as of December
31, 2008.





Our
common stock has been listed on the Over-the-Counter Bulletin Board, or "OTC
Bulletin Board" since February 2004 under the symbol "HOUM.OB."





2007:
              
              
              High
              LowFirst
      Quarter
              
              $0.45
              $0.36Second
      Quarter
              
              $0.40
              $0.30Third
      Quarter
              
              $0.34
              $0.26Fourth
      Quarter
              
              $0.32
              $0.282008:First
      Quarter
              
              $0.30
              $0.27Second
      Quarter
              
              $0.29
              $0.23Third
      Quarter
              
              $0.25
              $0.06Fourth
      Quarter
              
              $0.12
              $0.04





9


Recent
Sales of Unregistered Securities





During
the year ended December 31, 2005, we engaged a shareholder, Rhodia Mihali, to
provide certain consulting services under an agreement that allowed us to
remunerate the consultant in cash and/or shares of our common stock. The initial
agreement provided that the number of shares to be issued would be 37,500 per
quarter; however this number of shares was subsequently reduced by 20% to 30,000
shares for the third and fourth quarters of 2005. In March 2006, we made the
decision to satisfy the amount owed of $68,000 for such consulting services
through the issuance of 135,000 shares of our restricted common stock. We
relied on Section 4(2) and Rule 506 in this transaction.





On
February 10, 2006, HOMI completed an offering of 6,000,000 shares of its common
stock. Pursuant to the terms of this offering, for each 5.028 shares held as of
the record date, existing shareholders of HOMI were able to purchase one new
share of HOMI common stock at $0.25 per share. Shareholders subscribed for the
full amount of shares providing HOMI with gross offering proceeds of $1,500,000.
HOMI relied on Section 4(2) of the Securities Act of 1933 in this non-public
offering to persons who owned shares of HOMI prior to this offering. There
was no general solicitation or advertising.





During
the period March 1, 2006 to September 30, 2006, the Company issued 3,305,714 and
60,000 shares of its restricted common stock in exchange for common and
preferred shares of Bartech Systems International, Inc. (“BSI”) held by certain
BSI shareholders. Between January 1, 2007 and September 31, 2007 we issued an
additional 952,358 shares of our common stock in exchange for shares of BSI.
Shares were issued to a total of 12 accredited investors.  We relied upon
Section 4(2) and Rule 506 when issuing these shares. There were less than 35
purchasers and no general solicitation or advertising.





During
the three month period ended June 30, 2007, two shareholders, Ariel Almog and
Jacob Ronnel, converted outstanding loans of approximately $77,000 into 61,566
and 91,830 shares of our common stock, respectively.





Between
November 2006 and July 31, 2007, we issued $495,900 of convertible notes to 9
individuals who reside in Israel. These notes bear interest at a rate of 8% per
annum and are convertible into common stock at a conversion rate ranging between
$0.50 and $0.80 per share, depending on the dates of conversion. Interest on the
notes is due and payable on a quarterly basis commencing March 2007. The
principal of each note is to be repaid in eight equal quarterly installments
commencing March 2009. We relied upon Section 4(2) and Rule 506 in this
offering. There were less than 35 purchasers. There was no general solicitation
or advertising. The financing under the notes was performed via a third party,
unaffiliated with the Company, based on a  Memorandum of Understanding
dated September 2006, as amended in February 2007, in return for a 10%
commission on the amount raise.





On
November 11, 2008, HOMI entered into a loan agreement with related parties,
Daniel Cohen, President of HOMI and Avraham Bahry, Chairman of the Board of
Directors of HOMI. The loan agreement had been approved by HOMI’s Board of
Directors on November 10, 2008. Pursuant to this loan agreement, Mr. Cohen and
Mr. Bahry loaned HOMI $100,000 and $200,000, respectively, for a maximum period
of four months. The loans carried interest at a rate of 6% per
annum.  The entire sum of the loans and accrued interest was converted
into HOMI’s common stock at a rate of $0.05 per share, the price that shares
were offered to shareholders in HOMI's rights offering that closed on January
23, 2009.




On
December 8, 2008, HOMI entered into a loan agreement with related parties, Jacob
Ronnel, Chief Executive Officer of HOMI and Aryeh Reif, Corporate Secretary of
HOMI. The loan agreement had been approved by HOMI’s Board of Directors on
December 3, 2008. Pursuant to this loan agreement, Mr. Ronnel and Mr. Reif
loaned HOMI $400,000 and $20,000, respectively, for a maximum period of four
months. The loans carried interest at a rate of 6% per annum.  The
entire sum of the loans and accrued interest was converted into HOMI’s common
stock at a rate of $0.05 per share, the price that shares were offered to
shareholders in HOMI's rights offering that closed on January 23,
2009.





With the
exception of the offering of the convertible notes between November 2006 and
July 31, 2007, there were no underwriters in any of these offerings.





ITEM 6.
            SELECTED FINANCIAL
      DATA





Not
applicable.





ITEM
      7.
            MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





The
following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of our results of operations and
financial condition for the year ended December 31, 2008. The following
discussion should be read in conjunction with the financial statements for the
year ended December 31, 2008.


10


Forward-Looking
Statements





This
annual report contains forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as “may,” “will,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential” or “continue” or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors that may cause our or out
industry’s actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements.





Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.  Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.





Our
financial statements are stated in United States Dollars (US$) and are prepared
in accordance with accounting principles generally accepted in the United States
of America. In this annual report, unless otherwise specified, all dollar
amounts are expressed in United States Dollars.





As used
in this annual report, the terms "we", "us", "our", and "HOMI" mean Hotel
Outsource Management International, Inc. and its subsidiaries, unless otherwise
indicated.





Critical
Accounting Policies





In
connection with the issuance of Securities and Exchange Commission FR-60, the
following disclosure is provided to supplement the Company’s accounting policies
in regard to significant areas of judgment. Management of the Company is
required to make certain estimates and assumptions during the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States. These estimates and assumptions impact
the reported amount of assets and liabilities and disclosures of contingent
assets and liabilities as of the date of the consolidated financial statements.
These estimates also impact the reported amount of net earnings during any
period. Actual results could differ from those estimates. Because of the size of
the financial statement elements to which they relate, some of our accounting
policies and estimates have a more significant impact on our financial
statements than others.





Revenue
recognition, Accounts Receivable and Allowance for Doubtful
Accounts





Revenues
from product sales derived from outsource activity under the exclusive long-term
revenue sharing agreements with hotels, net of the hotel’s portion, and revenues
from disposal of minibars are recognized in accordance with Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB No. 101")
and SAB No. 104 when delivery has occurred, persuasive evidence of an
arrangement exists, the vendor’s fee is fixed or determinable and collectibles
is probable.





Our
payment terms are normally net 15 days from invoicing. We evaluate our allowance
for doubtful accounts on a regular basis through periodic reviews of the
collectability of the receivables in light of historical experience, adverse
situations that may affect our customers’ ability to repay, and prevailing
economic conditions. This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant revision as more information
becomes available. We perform ongoing credit evaluations of our customers and
generally do not require collateral because (1) we believe we have certain
collection measures in-place to limit the potential for significant losses, and
(2) because of the nature of customers comprising our customer base. Accounts
receivable are determined to be past due based on how recently payments have
been received and bad debts are charged in the form of an allowance account in
the period the receivables are deemed uncollectible. Receivables are written off
when we abandon our collection efforts. To date, we have not experienced any
material losses. An allowance for doubtful accounts is provided with respect to
those amounts that we have determined to be doubtful of collection. No allowance
was deemed necessary as of December 31, 2008 and 2007.





Long-Lived
Assets





We assess
the recoverability of the carrying value of long-lived assets periodically. If
circumstances suggest that long-lived assets may be impaired, and a review
indicates that the carrying value will not be recoverable, as determined based
on the projected undiscounted future cash flow, the carrying value is reduced to
its estimated fair value. The determination of cash flow is based upon
assumptions and forecasts that may not occur. As of December 31, 2008 the
Company’s balance sheet includes $ 5,429,300 of fixed assets, net. The Company
has completed its impairment test for 2008 and has concluded that no impairment
write-off is necessary.


11


Financial
statements in US dollars:





The
majority of the Company's sales are in U.S. dollars or in dollar linked
currencies. In addition, the majority of the Company's financing is received in
U.S. dollars. Accordingly, the Company has determined the U.S. dollar as the
currency of its primary economic environment and thus, its functional and
reporting currency. Non-dollar transactions and balances have been remeasured
into U.S. dollars in accordance with Statement of Financial Accounting Standard
No. 52 "Foreign Currency Translation" ("SFAS No. 52"). All transaction gains and
losses from the remeasurement of monetary balance sheet items denominated in
non-dollar currencies are reflected in the statements of operations as financial
income or expenses, as appropriate.





The
financial statements of foreign subsidiaries, whose functional currency is not
the U.S. dollar, have been translated into US dollars. All balance sheet
accounts have been translated using the exchange rates in effect at the balance
sheet date. Statements of operations amounts have been translated using the
average exchange rate for the period. The resulting translation adjustments are
not included in determining net loss but are reported in a separate component of
accumulated other comprehensive income (loss) in shareholders’
equity.





Investments
in affiliates:





The
investment in companies over which the Company can exercise significant
influence (generally, entities in which the Company holds 20% to 50% of
ownership or voting rights) is presented using the equity method of accounting.
The Company generally discontinues applying the equity method when its
investment (including advances and loans) is reduced to zero and it has not
guaranteed obligations of the affiliate or otherwise committed to provide
further financial support to the affiliate. Where the Company’s share of an
affiliate’s losses is greater than the investment in such an affiliate and in
which the Company has guaranteed obligations of the affiliate, the excess amount
is presented as a liability.





Overview





Hotel
Outsource Management International, Inc. is a multi-national service provider in
the hospitality industry, supplying a range of services in relation to
computerized minibars that are primarily intended for in-room refreshments. In
addition, we have recently begun to manufacture and install our own proprietary
computerized minibar, the HOMI® 336,
which is the first in a new range of products currently under development. The
HOMI® 336 is
the first product to be designed and manufactured by HOMI.





HOMI is a
holding company for several subsidiaries which market and operate computerized
minibars in hotels located in the United States, Europe, Australia and Israel.
HOMI was incorporated in Delaware on November 9, 2000 under the name Benjamin
Acquisitions, Inc.





Our core
activities focus primarily on manufacturing, operating, servicing and marketing
computerized minibars installed in upscale hotels throughout the
world.





We
believe that by using the appropriate equipment, including technologically
advanced computerized minibars, we are able to materially improve the
performance of the minibar departments, thereby improving the hotel’s bottom
line.





For some
years now, the hotel industry has been focusing on outsourcing many of the
functions related to its key activities, in order to increase efficiency and
lower fixed costs. In periods of economic slow-down, the interest in outsourcing
solution may actually increase. We offer our customers a number of solutions
that are designed to meet this need, in relation to the minibar departments,
ranging from consultation and supervision services, all the way to full
outsource installation and operation arrangements.





Whether
we are consulting to the hotel, or managing the entire minibar department, we
focus on hands-on, expert and dedicated management, on-site supervision, and
disciplined implementation of specialized procedures which we have developed, in
order to achieve our goals and improve the department’s
performance.


Using
these methods, we already manage many thousands of minibars for our customers,
who are spread over four continents around the world.





We have
been doing business since 1997 through various subsidiaries. The current
corporate structure, in which we are a holding company for various subsidiaries
around the world, has been in place since 2001. Our common stock has been listed
on the Over-the-Counter Bulletin Board, or "OTC Bulletin Board" since February
2004 under the symbol "HOUM.OB."





12


Costs
and Expenses





Costs and
expenses incurred in our outsource operations are generally as follows, but can
vary depending on the circumstances and the nature and terms of specific
agreements with customers:





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





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





(3)
            Labor
      costs of the minibar attendants;





(4)
            General
      and Administrative, and marketing
expenses;





(5)
            Maintenance
      of the minibar systems;





(6)
            Finance
      expenses.





RESULTS
OF OPERATIONS FOR HOMI


YEAR
ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007.





Revenues





For the
years ended December 31, 2007 and 2008, HOMI had revenues of $3,775,000 and $
3,700,000 respectively, a decrease of $ 75,000 or 2%. These revenues come from
the sale of products in the minibars. According to our agreements with hotels in
which we conduct our outsource programs, the hotels, which collect the revenues
generated from our minibars, deduct their portion of the revenues before
distributing the remainder to us. The decrease in sales is due to the fact that
a large part of our sales are denominated in non-U.S. currencies most of which
have lost strength against the U.S. dollar resulting in a decrease in revenues
as reported in U.S. dollars. In addition, there wa     s a
decrease in occupancy rates in some of the countries in which we operate,
resulting in a decrease in minibar product consumption and accordingly in
revenues, especially in Q 4 2008.





For the
year ended December 31, 2008, our three largest customers accounted for 30.3% of
our total revenues, similarly to 2007 where our three largest customers
collectively comprised of 28.5% of our total revenues.





As of
December 31, 2008 and 2007, HOMI, through its operating subsidiaries had
outsource operation programs to provide and operate minibars as
follows:





Location
              Percentage
      of Revenues2007
              
              2008United
      States of America
              30%
              
              28.4%ROW
              36%
              
              36.4%Israel
              21%
              
              29.7%South
      Africa
              13%
              
              5.5%Totals
              100%
              
              100%





Gross
Profit





Gross
profit decreased from $1,562,000 to $ 1,341,000, a decrease of $221,000 or by
14.1% for the years ended December 31, 2007 and 2008, respectively. Such
decrease is in correlation to the decrease in revenues and in addition a
decrease from 41.4% to 36.2%, as a percentage of revenues. This decrease is due
to an increase of cost of revenues, mainly due to the introduction of our own
computerized minibar, the HOMI® 336, in
various countries.





Cost
of Revenues





Cost of
Revenues, before consideration of depreciation expense, for the years ended
December 31, 2007 and 2008 were $1,606,000 and $1,760,000 respectively, an
increase of $154,000 or  9.6%, . As a percentage of gross revenues,
costs of revenues increased slightly, by 42.5% in 2007 and 47.5% in 2008. This
increase in cost of revenues is mainly due to the introduction of our own
computerized minibar, the HOMI® 336, in
various countries.





Depreciation
expense for the years ended December 31, 2007 and 2008 was $607,000 and
$599,000, respectively, a decrease of $8, 0000, or 1.3%.


13


Research
and Development





During
2006, HOMI commenced its own research and development program aimed at the
development of a new range of products. The HOMI® 336, a
novel, computerized minibar system designed to increase the accuracy of
automatic billing, is the first of the new range of products, the research and
development of which, was completed in 2007. During 2008, HOMI developed a new
and more advanced version of its HOMI® 336 -
the HOMI® 330.
Research and Development are expensed to operations as incurred. Total expenses
for the year 2008 were $180,000, and $134,000 in 2007.




Operating
Expenses





General
and administrative expenses increased from $ 1,410,000 to $1,987,000, an
increase of $ 577,000, or 40.9% for the years ended December 2007 and 2008. As a
percentage of revenues, general and administrative expenses increased from 37.4%
to 53.7%.  This is due to several factors. In addition to providing
outsourcing services to hotels, HOMI has begun to manufacture its own
computerized minibars. HOMI increased its management and technical support
platforms in order to support those changes. Also, in view of preparations to
increase HOMI’s business from 2009 onward, we made some changes in management
and appointed Daniel Cohen as President. In addition we also added Renaud
Escudier as VP operations in Europe and we added a logistics manager. We rented
office space for our financial department and logistic department. These and
other changes resulted in an increase in general and administrative
expenses.





Selling
and Marketing expenses increased from $296,000 to $ 460,000, or 55.4% primarily
as a result of the marketing efforts related to the HOMI® 336
system.





For the
years ended December 31, 2007 and 2008 we had $ 0 and $680,000 interest and
financial expenses, respectively, an increase of $680,000. This is mainly due to
currency exchange rates changes





For the
year ended December 31, 2007we had other income of $752,000, and for the year
ended December 31, 2008, we had other income of $6,000. The 2007 income resulted
primarily from a gain of $472,000 due to the purchase of 30% of HOMI USA by Hila
International, Corp., a wholly owned subsidiary of HOMI and the termination of
relating agreements, as more fully described below, as well as a gain of
$270,000 from the sale of our interest in Bartech Systems International, Inc.
(“BSI”).The income in 2008 is mainly due to income from a transaction with
subsidiary's minority.


Net
Profit (Loss)





As a
result of the above, we finished 2008with a net loss of $1,974,000 compared to a
net profit of $450,000 in 2007, including onetime gains in the amount of
$752,000. When excluding such onetime gains, we finished 2007 with a net loss of
$302,000.





Liquidity
And Capital Resources





Since our
inception, we have been dependent on investment capital as our primary source of
liquidity. We had an accumulated deficit at December 31, 2007 of $2,276,000 and
$4,250,000 as of December 31, 2008. During the year ended December 31, 2007, we
achieved a net profit of $450,000. During the year ended December 31, 2008, we
incurred a net loss of $1,974,000.





Investing
and operating activities have historically been funded through our financing
activities, which provided cash of approximately $30,000 in the year 2007 and in
the year 2008 HOMI Inc. used $717,000. In 2006 HOMI raised $118,000 through
the issuance of convertible notes. These notes accrue interest at a rate of 8%
per annum, with the interest payable each quarter commencing 2007. Principal
will be repaid in eight equal quarterly installments commencing December 2008.
These notes may be converted at a conversion price ranging between $0.50 and
$0.80 on dates as defined in the agreement. During the year ended December 31,
2007, HOMI raised an additional $376,000 of these notes.  As of
December 31, 2007, $494,000 of such notes was outstanding.  As of
December 31, 2008 there were $478,600 in notes outstanding





On
December 31, 2008 HOMI had long term debt of $ 1, 305, 000, including, $ 332,000
in current maturities, and $4,000 in short-term bank credit.





On
October 31, 2007, HOMI Israel Ltd. (“HOMI Israel”) acquired 50% of a previously
jointly owned subsidiary, HOMI Operation 99 Ltd ("HOMI Operation"), from three
other unaffiliated entities for a purchase price of $16,000.  As a
result, as of October 31, 2007, HOMI Operation, which is an Israeli company,
became a wholly owned subsidiary of HOMI Israel.





On
December 28, 2007, HOMI Israel which is a wholly owned subsidiary of HOMI and
which indirectly owned 60% of HOMI South Africa (Pty) Ltd. (HOMI SA), entered
into an agreement ("the Agreement") with Ice Maiden International Ltd. and its
beneficial owners ("Ice Maiden"), which owned 40% of HOMI SA. Under the
agreement, it was agreed that HOMI Israel would purchase Ice Maiden's 40%
holding in HOMI SA.


14


Closing
of this transaction took place on March 10, 2008, during which time the
following actions occurred: (i) all of Ice Maiden's shares in HOMI SA were
purchased by HOMI Israel at a  purchase price of $73; (ii) the
Shareholder Loan in the amount of $112,000 including accrued interest was
repaid; (iii) HOMI SA sold and assigned to Ice Maiden's order the minibar
equipment owned by HOMI SA and installed at two hotels in Johannesburg, South
Africa, and the agreements with such hotels regarding the operation of such
minibars, at a price of $102,000.





As a
result, HOMI SA became, as of March 10, 2008, an indirectly wholly owned
subsidiary of the Company.





On August
11, 2008, HOMI’s Board of Directors of appointed Mr. Daniel Cohen as its
President. Prior to such appointment, Mr. Jacob Ronnel held the combined offices
of Chief Executive Officer and President. Following Mr. Cohen’s appointment as
President, Mr. Ronnel has continued as HOMI’s CEO. In addition, the Board agreed
that HOMI will no longer maintain the position of Chief Operating Officer. The
former COO, Ariel Almog, continued to serve as COO of HOMI USA, and was then
appointed that company's CEO.





On
November 10, 2008, Linor Labandter resigned as HOMI’s Chief Financial Officer,
effective as of February 15, 2009.





On
November 11, 2008, HOMI entered into a loan agreement with related parties,
Daniel Cohen, President of HOMI and Avraham Bahry, Chairman of the Board of
Directors of HOMI. The loan agreement had been approved by HOMI’s Board of
Directors on November 10, 2008. Pursuant to this loan agreement, Mr. Cohen and
Mr. Bahry loaned HOMI $100,000 and $200,000, respectively, for a maximum period
of four months. The loans carried interest at a rate of 6% per
annum.  The entire sum of the loans and accrued interest was converted
into HOMI’s common stock at a rate of $0.05 per share, the price that shares
were offered to shareholders in HOMI's rights offering that closed in January
2009.





On
December 8, 2008, HOMI entered into a loan agreement with related parties, Jacob
Ronnel, Chief Executive Officer of HOMI and Aryeh Reif, Corporate Secretary of
HOMI. The loan agreement had been approved by HOMI’s Board of Directors on
December 3, 2008. Pursuant to this loan agreement, Mr. Ronnel and Mr. Reif
loaned HOMI $400,000 and $20,000, respectively, for a maximum period of four
months. The loans carried interest at a rate of 6% per annum.  The
entire sum of the loans and accrued interest was converted into HOMI common
stock at a rate of $0.05 per share, the price that shares were offered to
shareholders in HOMI's rights offering that closed in January 2009.





At
December 31, 2008, we had $797,000 in cash, including short term deposits. For
the year ended December 31, 2008, we had a net loss of $1,974,000. Management
believes that the  $603,746 raised in HOMI’s January 2009 rights
offering, the conversion of  $814,117 in outstanding loans, and
commitments from shareholders to lend HOMI a total of $350,000 by  May
15, 2009, as well as the effect of reducing corporate expenses, will provide
sufficient cash for the ongoing operations of the company for the next twelve
months.  In addition, HOMI intends to raise funds within the next six
months and adopt a new financing plan which will provide required funds for the
company’s growth.





Subsequent
Events





On
January 23, 2009 HOMI completed a subscription rights offering. The Company
raised a total of $814,117 and issued 16,282,342 shares of common stock. In
addition, the Company converted $603,746 in outstanding loans at $0.05 per share
for an issuance of 12,074,920 shares. In total, between the Rights Offering and
the loan conversions, the Company raised $1,417,863.00 and issued 28,357,262
shares. The proceeds of the rights offering and the converted loans were applied
toward general operating expenses.





On
February 10, 2009, Remstone Limited, a wholly owned subsidiary of HOMI Israel
Ltd., which is a wholly owned subsidiary of HOMI, sold its interest in HOMI SA
to Clevo Corporation S.A., a Panama corporation. The purchase price was
$205,000. The transaction was effective as of January 28, 2009. As a result,
HOMI SA changed its name, and ceased to be a subsidiary or affiliate of
HOMI.





Off
Balance Sheet Arrangements





HOMI has
no significant off balance sheet arrangements.





Inflation





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





International
Tax Implications





Taxable
income of Israeli companies is subject to tax at the rate of 31% in 2006, 29% in
2007, 27% in 2008, 26% in 2009 and 25% in 2010 and thereafter. The South African
subsidiary is subject to a 29% corporate tax rate. HOMI’s United States
subsidiary is subject to a 15% -35% corporate tax rate. Subsidiaries in Europe
are subject to 35% - 45% corporate tax rate (in Germany, corporate and business
tax calculation is based on company’s EBITDA).The Australia subsidiary is
subject to 30% corporate tax rate.


15


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.


As of
December 31, 2008 HOMI Inc. had approximately $ 2,058 net operating loss
carryforwards





As of
December 31, 2008 HOMI Israel Ltd., a subsidiary in Israel, had approximately
$445,000 net operating loss carry forwards. The loss carryforwards in Israel
have no expiration date.





As of
December 31, 2008, HOMI USA had approximately $1,869,000 net operating loss
carryforwards. Utilization of US net operating losses may be subject to
substantial annual limitation due to the “change in ownership” provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitations may result in the expiration of net operating losses before
utilization.





As
      of December 31, 2008 the subsidiary in Australia had net operating loss
      carryforwards of $ 387,000.





As of
December 31, 2008 the subsidiaries in Italy and Malta had net operating loss
carryforwards of $ 219,000.





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.












































16


ITEM 8.
            FINANCIAL
      STATEMENTS


























HOTEL
OUTSOURCE MANAGEMENT





INTERNATIONAL,
INC.





AND
ITS SUBSIDIARIES











CONSOLIDATED
FINANCIAL STATEMENTS




AS
OF AND FOR THE YEARS ENDED




DECEMBER
31, 2008 AND 2007
















17


CONSOLIDATED
FINANCIAL STATEMENTS




AS
OF AND FOR THE YEARS ENDED




DECEMBER
31, 2008 AND 2007

















INDEX





PageReport
      of Independent Registered Public Accounting Firm
              2Consolidated
      Balance Sheets
              3-4Consolidated
      Statements of Operations
              5Statement
      of Changes in Shareholders' Equity
              6Consolidated
      Statements of Cash Flows
              7-8Notes
      to the Consolidated Financial Statements
              9-27














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








18













REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM








To the
Stockholders and Directors of Hotel Outsource Management International, Inc. and
subsidiaries:





We have
audited the accompanying consolidated balance sheets of Hotel Outsource
Management International, Inc. and subsidiaries (the “Company”) as of December
31, 2008 and 2007 and the related consolidated statements of operations, changes
in shareholders’ equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial
statements presentation.  We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 2008 and 2007, and the consolidated results of its operations,
changes in shareholders' equity and cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
















Barzily
& Co.


Jerusalem,
Israel





March,
2009











FS
2





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


US
Dollars in thousands





December
      31,Note
              
              2008
              
              2007ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              
              770
              
              2,344Short-term
      bank deposits
              
              
              27
              
              5Trade
      receivables (net of allowance for doubtful accounts of $ zero as of
      December 31, 2008 and 2007)
              
              
              719
              
              791Other
      accounts receivable
              3
              
              249
              
              125Inventories
              
              
              260
              
              251TOTAL
      CURRENT ASSETS
              
              
              2,025
              
              3,516LONG-TERM
      INVESTMENTS:Severance
      pay fund
              
              
              28
              
              33PROPERTY
      AND EQUIPMENT, NET:
              4Minibars
      and related equipment
              
              
              5,320
              
              4,541Other
      property and equipment
              
              
              109
              
              565,429
              
              4,597OTHER
      ASSETS:
              5Deferred
      expenses, net
              
              
              67
              
              90Intangible
      assets
              
              
              73
              
              56TOTAL
      OTHER ASSETS
              
              
              140
              
              146TOTAL
              
              
              7,622
              
              8,292





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





FS
3





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


US
Dollars in thousands (except share data)





December
      31,Note
              
              2008
              
              2007LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Short
      term bank credits
              
              
              4
              
              -Loans
      from shareholders
              6
              
              809
              
              -Current
      maturities of convertible notes
              7
              
              219
              
              -Current
      maturities of long-term loans
              8
              
              113
              
              292Trade
      payables
              
              
              1,110
              
              374Accrued
      expenses and other current liabilities
              9
              
              292
              
              299TOTAL
      CURRENT LIABILITIES
              
              
              2,547
              
              965LONG-TERM
      LIABILITIES:Long-term
      loans, net of current maturities
              8
              
              669
              
              785Convertible
      notes
              7
              
              260
              
              494Accrued
      severance pay
              
              
              44
              
              45Deferred
      taxes
              15
              
              25
              
              21TOTAL
      LONG-TERM LIABILITIES
              
              
              998
              
              1,345COMMITMENTS,
      CONTINGENT LIABILITIES AND LIENS
              10MINORITY
      INTEREST
              
              
              -
              
              (26)SHAREHOLDERS'
      EQUITY:
              11Share
      capital -Preferred
      stock of $ 0.001 par value –
                5,000,000
      shares  Authorized; Zero
                shares  issued
      and outstanding;
                Common
      stock of $ 0.001 par value –
                105,000,000 shares Authorized; 41,122,078 shares issued and
      outstanding;
              
              
              41
              
              41Additional
      paid-in capital
              
              
              8,048
              
              8,048Accumulated
      other comprehensive income
              
              
              238
              
              195Accumulated
      deficit
              
              
              (4,250)
              
              (2,276)TOTAL
      SHAREHOLDERS' EQUITY
              
              
              4,077
              
              6,008TOTAL
              
              
              7,622
              
              8,292





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





FS
4







HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATION
 US
Dollars in thousands (except share and per share data)








Year
      ended December 31,Note
              
              2008
              
              2007Revenues
              12
              
              3,700
              
              3,775Cost
      of revenues:Depreciation
              
              
              (599)
              
              (607)Other
              
              
              (1,760)
              
              (1,606)Gross
      profit
              
              
              1,341
              
              1,562Operating
      expenses:Research
      and Development
              
              
              (180)
              
              (134)Selling
      and marketing
              
              
              (460)
              
              (296)General
      and administrative
              
              
              (1,987)
              
              (1,410)Loss
      before financial expenses and other income, net
              
              
              (1,286)
              
              (278)Financial
      expenses, net
              13
              
              (680)
              
              -Other
      income, net
              14
              
              6
              
              752Income
      (loss) before taxes on income
              
              
              (1,960)
              
              474Taxes
      on income
              15
              
              (14)
              
              (36)Income
      (loss) before equity in earnings of an affiliated company and minority
      interests in losses of subsidiaries, net
              
              
              (1,974)
              
              438Minority
      interest in losses of subsidiaries, net
              
              
              -
              
              12Net
      income (loss)
              
              
              (1,974)
              
              450Basic
      and diluted net income (loss) per share
              
              
              (0.048)
              
              0.011Weighted
      average number of shares used in computing basic and diluted net income
      (loss) per share
              
              
              41,122,078
              
              40,361,891





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





FS
5





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
              
              Accumulated
                deficit
              
              Other
      Comprehensive income (loss)
              
              TotalBalance
      as of December 31, 2006
              
              39,967,937
              
              40
              
              7,585
              
              52
              
              (2,726)
              
              -
              
              4,951Issuance of shares (see also Note
      11)
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -Foreign currency translation adjustments
              
              -
              
              -
              
              -
              
              143
              
              -
              
              143
              
              143Net
      income
              
              -
              
              -
              
              -
              
              -
              
              450
              
              450
              
              450Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              593Balance
      as of December 31, 2007
              
              41,122,078
              
              41
              
              8,048
              
              195
              
              (2,276)
              
              -
              
              6,008Foreign
      currency translation adjustments
              
              -
              
              -
              
              -
              
              43
              
              -
              
              43
              
              43Net
      loss
              
              -
              
              -
              
              -
              
              -
              
              (1,974)
              
              (1,974)
              
              (1,974)Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              (1,931)Balance
      as of December 31, 2008
              
              41,122,078
              
              41
              
              8,048
              
              238
              
              (4,250)
              
              
              
              4,077




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




FS
6





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


US
Dollars in thousands





Year
      ended December 31,2008
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
              
              
              (1,974)
              
              450Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Gain
      on sale of investment
              
              
              -
              
              (275)Depreciation
      and amortization
              
              
              734
              
              641Share-based
      compensation
              
              
              -
              
              15Increase
      in accrued severance pay, net
              
              
              4
              
              4Accrued
      interest and linkage difference on loans, net
              
              
              -
              
              (2)Interest
      and linkage differences in regard to shareholders and
      subsidiaries
              
              
              409
              
              18Equity
      loss  from an affiliated  company
              
              
              30
              
              -Gain
      on sale of property and equipment
              
              
              -
              
              (2)Minority
      interest in losses of subsidiaries, net
              
              
              -
              
              (12)Provision
      for deferred income taxes
              
              
              17
              
              10Other
      income
              
              
              -
              
              (472)Changes
      in assets and liabilities:Decrease
      (increase) in inventories
              
              
              (25)
              
              7Decrease
      (increase) in trade receivables
              
              
              16
              
              (227)Increase
      in related parties
              
              
              (14)
              
              -Decrease
      (increase) in other accounts receivable
              
              
              (163)
              
              10Increase
      in trade payables
              
              
              236
              
              53Increase
      (decrease) in accrued expenses and other current
    liabilities
              
              
              13
              
              (191)Net
      cash provided by  (used in) operating activities
              
              
              (717)
              
              27CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of shares in an affiliate
              
              
              -
              
              2,353Purchases
      of property and equipment
              
              
              (1,354)
              
              (640)Proceeds
      from sales of property and equipment
              
              
              82
              
              11Short-term
      bank deposits, net
              
              
              (22)
              
              13Acquisition
      of intangibles
              
              
              (17)
              
              (30)Acquisition
      of a newly consolidated company  (Appendix A)
              
              
              -
              
              16Acquisition
      of a minority interest in a subsidiary
              
              
              (73)
              
              -Net
      cash provided by (used in) investing activities
              
              
              (1,384)
              
              1,723CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      (repayments) of long-term loans from shareholders, net
              
              
              685
              
              (5)Repayments
      of long-term loans from banks and others
              
              
              (119)
              
              (310)Short-term
      bank credits
              
              
              4
              
              -Proceeds
      from issuance of convertible notes, net of deferred
    expenses
              
              
              -
              
              338Dividend
      from an affiliated company
              
              
              -
              
              6Issue
      of shares, net
              
              
              -
              
              1Net
      cash provided by financing activities
              
              
              570
              
              30Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (43)
              
              (45)Increase
      (decrease) in cash and cash equivalents
              
              
              (1,574)
              
              1,735Cash
      and cash equivalents at the beginning of the year
              
              
              2,344
              
              609Cash
      and cash equivalents at the end of the year
              
              
              770
              
              2,344





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





FS
7





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


US
Dollars in thousands





Appendix
      A -Acquisition
      of a newly consolidated company:
              Year
      ended December 31,2008
              
              2007Working
      capital, net (excluding cash and cash equivalents)
              
              
              -
              
              32Excess
      cost attributed to fixed assets
              
              
              -
              
              (16)-
              
              16




Appendix
      B -Supplemental
      disclosure of non-cash investing and financing activities and cash flow
      information:
              Year
      ended December 31,2008
              
              2007Non-cash
      investing and financing activities:Acquisition
      of property and equipment on short-term credit
              
              
              702
              
              58Prepayments
      in regard of property and equipment
              
              
              42
              
              -Cash
      paid during the year for interest
              
              
              122
              
              98Cash
      paid during the period for income taxes
              
              
              35
              
              48Conversion
      of accounts payable into share capital
              
              
              -
              
              77Investment
      in shares of an affiliate in exchange for shares issued by  the
      Company net of issue expenses
              
              
              -
              
              371





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





FS
8





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
1:-                      GENERAL





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





Hereinafter,
HOMI and its subsidiaries will be referred to as the "Company".





HOMI's
common stock has been listed on the Over-the-Counter Bulletin Board since
February 2004 under the symbol "HOUM.OB."





b.
            During
      2006, the Company commenced its own research and development program aimed
      at the development of a new range of products. The HOMI® 336 (the system),
      a novel, computerized minibar system designed to increase the accuracy of
      the automatic billing and reduce the cost of operating the minibars.
      Subsequently, during the second half of 2007, the Company entered the
      production phase of the system. The first pilot installation of the system
      was completed in early 2008. Additional installations have been completed
      since that time and the Company continues to manufacture the system for
      scheduled installations. Further, the HOMI® 330 system, an additional new
      range product, is currently in the final stages of
      development.





Until
February 13, 2007, the company was dependent upon a sole supplier, Bartech
Systems International, Inc. ("BSI") to provide minibars custom built to their
specifications. As mentioned in note 1c, subsequent to the abovementioned date
and self-manufacturing as described, above, the Company is no longer subject to
such dependence.





c.
            On
      February 13, 2007, HOMI and several of its subsidiaries entered into a
      series of agreements with BSI and one of its subsidiaries, pursuant to
      which the parties settled and resolved all outstanding disputes between
      them.





In
addition, BSI sold to Hila International Corp., a wholly owned subsidiary of
HOMI ("Hila") all of BSI's shares and rights in HOMI USA. 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 a directly 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 was the nominal sum of $ 1. The purchase by Hila of 30% of
HOMI USA that was previously held by BSI has resulted in other income of
approximately $ 472 to the Company.





d.
            On
      December 28, 2007, HOMI Israel, which is a wholly owned subsidiary of HOMI
      and which indirectly owned 60% of HOMI SA, entered into an agreement ("the
      Agreement") with Ice Maiden International Ltd. and its beneficial owners
      ("Ice Maiden"), which owned the remaining 40% of HOMI
  SA.





Under
      the Agreement, it was agreed that HOMI Israel will purchase Ice Maiden's
      40% holding in HOMI SA at a purchase price of $ 73. In addition, it was
      agreed that the shareholder loan made by Ice Maiden to HOMI SA, the
      outstanding balance of which including accrued interest was $ 112 (the
      "Shareholder Loan"), would be
repaid.





FS
9








HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
1:-                      GENERAL
(cont.)





The
Closing of this transaction took place on March 10, 2008, at which time the
Shareholder Loan was repaid in the following manner: (i) HOMI SA sold to Ice
Maiden's order the minibars and related assets & equipment owned by HOMI SA
which were installed in two hotels in Johannesburg, South Africa, and assigned
to Ice Maiden's order the agreements it was a party to with such hotels
regarding the operation of such minibars for an agreed price of $ 102.5
(inclusive of VAT). The total amount of the purchase price was set-off against
the Shareholder's Loan. (ii) repayment of the balance of the Shareholder's Loan
in the amount of $ 9.5.





As a
result of the share purchase, HOMI SA became, as of March 10, 2008, an
indirectly wholly (100%) owned subsidiary of HOMI.





The
above-mentioned transactions resulted in other income in the amount of
approximately $ 7 to the Company.





e.    Investment
in Homi (Operation 99) Ltd.





On
October 31, 2007, HOMI Israel acquired 50% of a previously jointly owned
subsidiary, "HOMI (Operation 99) Ltd." ("HOMI Operation"), from three other
entities who are not affiliated to HOMI. As a result, as of the said date, HOMI
Operation, which is an Israeli company, became a wholly owned subsidiary of HOMI
Israel.


The
purchase price was $ 16. This amount is excess cost recorded in fixed assets and
attributed to the minibars.


As a
result of the above mentioned, the investment was amortized, after receiving
dividend from the affiliated company, and the subsidiary's financial statements
were consolidated with the Company.





f.
            At
      December 31, 2008, we had $797 in cash, including short term deposits. For
      the year ended December 31, 2008, we had a net loss of $1,974. Management
      believes that the $603 raised in HOMI’s January 2009 rights offering, the
      conversion of  $814 in outstanding loans, and commitments from
      shareholders to lend HOMI a total of $350 by  May 15, 2009, as
      well as the effect of reducing corporate expenses, will provide sufficient
      cash for the ongoing operations of the company for the next twelve
      months.  In addition, HOMI intends to raise funds within the
      next six months and adopt a new financing plan which will provide required
      funds for the company’s growth.








NOTE
2:-                      SIGNIFICANT
ACCOUNTING POLICIES





The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States ("US
GAAP").





a.
            Use
      of estimates:





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The reported amounts of revenues and expenses
during the reporting period may be affected by the estimates and assumptions
management is required to make.  Estimates that are critical to the
accompanying consolidated financial statements relate principally to
depreciation and recoverability of long lived assets.  The markets for
the Company’s products are characterized by intense price competition, rapid
technological development, evolving standards and short product life cycles; all
of which could impact the future realization of its assets. Estimates and
assumptions are reviewed periodically and the effects of revisions are reflected
in the period that they are determined to be necessary.  It is at
least reasonably possible that management’s estimates could change in the near
term with respect to these matters.




FS
10





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE
2:-                      SIGNIFICANT
ACCOUNTING POLICIES (cont.)





b.
            Financial
      statements in U.S. dollars:





The
majority of the Company's sales are in U.S. dollars or in dollar linked
currencies. In addition, the majority of the Company's financing is received in
U.S. dollars. Accordingly, the Company has determined the U.S. dollar as the
currency of its primary economic environment and thus, its functional and
reporting currency. Non-dollar transactions and balances have been remeasured
into US dollars in accordance with Statement of Financial Accounting Standard
No. 52 "Foreign Currency Translation" ("SFAS No. 52"). All transaction gains and
losses from the re-measurement of monetary balance sheet items denominated in
non-dollar currencies are reflected in the statements of operations as financial
income or expenses, as appropriate.





The
financial statements of foreign subsidiaries, whose functional currency is not
the U.S. dollar, have been translated into U.S. dollars in accordance with FAS
No. 52. All balance sheet accounts have been translated using the exchange rates
in effect at the balance sheet date. Statements of operations amounts have been
translated using the average exchange rate for the period. The resulting
translation adjustments are not included in determining net loss but are
reported as a separate component of accumulated other comprehensive income in
shareholders’ equity.





c.
            Principles
      of consolidation:





The
consolidated financial statements include the accounts of the Company and its
active subsidiaries listed below:





Number
      of Operational MinibarsSubsidiary Name
                    Area
                    Ownership
      Percentage
                    31.12.2008
                    
                    31.12.2007HOMI
      Israel Ltd.
                    Israel
                    100%
                    2,638
                    
                    1,611HOMI
      USA, Inc. (1)
                    U.S.A.
                    100%
                    2,829
                    
                    2,610HOMI
      Europe Sarl (2)
                    ROW
                    100%
                    2,758
                    
                    2,580HOMI
      South Africa (Proprietary) Limited (3)
                    South
      Africa
                    100%
                    483
                    
                    858HOMI
      (Operation 99) Ltd. (4)
                    Israel
                    100%
                    167
                    
                    1678,875
                    
                    7,826





(1)
            Until
      February 2007 – the company's interest in HOMI USA was 70%. See note
      1(c).


The
additional 219 minibars in the United States were installed during June
2008.


(2)
            Through
      subsidiaries in Italy (including a Malta branch), Germany, Australia,
      France and the U.K.


The
subsidiary in the United Kingdom was established in August
2006.  Operation of this subsidiary has not as yet
commenced.


During
the third quarter of 2008, HOMI established a subsidiary in France The accounts
of such subsidiary were included for the first time in the consolidated
financial statements.


(3)
            From
      March 2008, HOMI South Africa (Pty) Ltd. ("HOMI SA") is a 100% wholly
      owned subsidiary of HOMI Israel Ltd. ("HOMI Israel"). Prior to such date,
      HOMI Israel's interest in HOMI SA was 60
%.).


On March
10, 2008, 375 minibars were sold to the order of Ice Maiden International Ltd.
(which until such date owned a 40% interest in HOMI SA), all as part of the
transaction described in Note 1d.


After
balance sheet date, HOMI sold its holdings in HOMI SA (see Note
17b).


(4)   Prior
      year – 50% holdings (see Note 1e).





Inter-company
transactions and balances, including profits from inter-company sales not yet
realized outside the group, have been eliminated in consolidation.





FS
11





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
2:-                      SIGNIFICANT
ACCOUNTING POLICIES (cont.)





d.
            Cash
      and cash equivalents:





The
Company considers all highly liquid investments originally purchased with
maturities of three months or less at the date acquired to be cash
equivalents.





e.         Short-term
bank deposits:





The
Company classifies bank deposits with maturities of more than three months and
less than one year as short-term deposits. Short-term deposits are presented at
cost, including accrued interest.





f.
            Inventory:





Inventories
are stated at the lower of cost or market value. Inventory write-offs are
provided to cover risks arising from slow moving items. Cost is determined using
the "first-in, first-out" method. Inventories are composed of the food products
and drinks sold at the minibars in hotels.





g.
            Property
      and equipment:





Property
and equipment are stated at cost net of accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, at the following annual rates:





%Minibars
                10Computers
      and electronic equipment
                15
      – 33Office
      furniture and equipment
                7





h.         Other
assets:





1.
            Intangible
      assets –





1.1
            Contract
      rights for operating minibars in a hotel in South Africa were amortized
      using the straight-line method over the contract periods with the hotels -
      ten years. The rights were completely amortized since the Company ceased
      its operations with the hotel and new goodwill was subsequently created
      from acquisition of a minority in South
Africa.





1.2
            Trademarks
      registered in several countries worldwide are capitalized and will be
      amortized over the life span of the asset (twenty
  years).





2.
            Deferred
      expenses represent loan acquisition costs arising from the other long-term
      loan originated in 2005 and convertible notes payable issued in 2007 and
      2006 (see Note 7).


FS
12





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
2:-                      SIGNIFICANT
ACCOUNTING POLICIES (cont.)





i.         Impairment
of long-lived assets:





The
      Company's long-lived assets and certain identifiable intangibles are
      reviewed for impairment in accordance with Statement of Financial
      Accounting Standard No. 144 "Accounting for the Impairment or Disposal of
      Long-Lived Assets" ("SFAS No. 144") whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. Recoverability of assets to be held and used is measured by a
      comparison of the carrying amount of an asset to the future undiscounted
      cash flows expected to be generated by the assets. If such assets are
      considered to be impaired, the impairment to be recognized is measured by
      the amount by which the carrying amount of the assets exceeds the fair
      value of the assets. As of December 31, 2008, management believes that all
      of the Company’s long-lived assets are
  recoverable.





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





The
      Company’s payment terms are normally net 15 to 30 days from invoicing. The
      Company evaluates its allowance for doubtful accounts on a regular basis
      through periodic reviews of the collectability of the receivables in light
      of historical experience, adverse situations that may affect its
      customers’ ability to repay, and prevailing economic
      conditions.  This evaluation is inherently subjective, as it
      requires estimates that are susceptible to significant revision as more
      information becomes available. The Company performs ongoing credit
      evaluations of its customers and generally does not require collateral
      because (1) management believes it has certain collection measures
      in-place to limit the potential for significant losses, and (2) because of
      the nature of customers comprising the Company’s customer base. Accounts
      receivable are determined to be past due based on how recently payments
      have been received and bad debts are charged in the form of an allowance
      account in the period the receivables are deemed
      uncollectible.  Receivables are written off when the Company
      abandons its collection efforts. To date, the Company has not experienced
      any material losses. An allowance for doubtful accounts is provided with
      respect to those amounts that the Company has determined to be doubtful of
      collection. No allowance was deemed necessary as of December 31, 2008 and
      2007.





k.          Investments
in affiliates:





The
      investment in companies over which the Company can exercise significant
      influence (generally, entities in which the Company holds 20% to 50% of
      ownership or voting rights) is presented using the equity method of
      accounting. The Company generally discontinues applying the equity method
      when its investment (including advances and loans) is reduced to zero and
      it has not guaranteed obligations of the affiliate or otherwise committed
      to provide further financial support to the affiliate. Where the Company’s
      share of an affiliate’s losses is greater than the investment in such an
      affiliate and in which the Company has guaranteed obligations of the
      affiliate, the excess amount is presented as a
  liability





FS
13





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:





Research
      and Development costs are charged to the statement of operations as
      incurred.


Costs and acquisitions related to pre-production, production support, tools and
molds, are charged to fixed assets.





m.
            Accounting
      for stock based compensation:





Through
      December 31, 2005, the Company used Statement of Financial Accounting
      Standards No. 148 “Accounting for Stock-Based Compensation – Transition
      and Disclosure” (SFAS No. 148) to account for its stock based compensation
      arrangements. This Statement amended the disclosure provision of FASB
      Statement No. 123 to require prominent disclosure about the effects on
      reported net income of an entity’s accounting policy decisions with
      respect to stock-based employee compensation. As permitted by SFAS No. 123
      and amended by SFAS No. 148, the Company continued to apply the intrinsic
      value method under Accounting Principles Board (“APB”) Opinion No. 25,
      “Accounting for Stock Issued to Employees,” to account for its stock-based
      employee compensation arrangements.





The
      Company uses Financial Accounting Standards Board Statement Number 123
      (“FAS 123 (R)”), “Share-Based Payments,” to recognize compensation expense
      in an amount equal to the fair value of share-based payments such as stock
      options granted to employees. Since the Company does not have any share
      based arrangements, the adoption of this Statement has not affected the
      Company’s consolidated financial
statements.





The
Company accounts for stock-based compensation issued to non-employees and
consultants in accordance with the provision of SFAS 123 and the Emerging Issues
Task Force consensus in Issue No. 96-18 (“EITF 96-18”), “Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring or in
Conjunction with Selling, Goods or Services”.





n.
            Income
      taxes:





The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
This Statement prescribes the use of the liability method whereby deferred tax
assets and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company provides a valuation allowance,
if necessary to reduce the amount of deferred tax assets to their estimated
realizable value.





o.
            Concentrations
      of credit risk:





Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and trade receivables. The
majority of the Company's cash and cash equivalents are invested in interest
bearing dollar and dollar-linked instruments or in NIS, South African Rand and
Euro deposits bearing interest with major Israeli, U.S., European and South
African banks. Such deposits in the United States may be in excess of insured
limits and are not insured in other jurisdictions. Management believes that the
financial institutions that hold the Company's investments are financially
sound, and accordingly, minimal credit risk exists with respect to these
investments.




FS
14





HOTEL
OUTSOURCE MANAGEMENT





INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
2:-                      SIGNIFICANT
ACCOUNTING POLICIES (cont.)





The
Company has no off-balance sheet concentration of credit risk, such as foreign
exchange contracts or other foreign currency hedging arrangements.





p.
            Severance
      pay:





The
Company's liability for severance pay is calculated pursuant to the local law
applicable in certain countries where the Company operates.





q.        Concentrations
of Credit Risk and Fair Value of Financial Instruments





The
financial instruments of the Company consist mainly of cash and cash
equivalents, short-term bank deposits, trade receivables, other accounts
receivable, short-term bank credit, trade payables, other accounts payable and
notes payable to shareholders and others.





In view
of their short term nature, the fair value of the financial instruments included
in working capital of the Company is usually identical, or close, to their
carrying values. The fair values of long-term notes payable also approximates
their carrying values, since such notes bear interest at rates that management
believes is approximately the same as prevailing market rates.





Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, and trade receivables. The
majority of the Company's cash and cash equivalents are invested in interest
bearing U.S. dollar and U.S. dollar-linked instruments or in NIS, South African
Rand and Euro interest bearing deposits with major Israeli, U.S., European and
South African banks. Such deposits in the United States may be in excess of
insured limits and are not insured in other jurisdictions. Management believes
that, minimal credit risk exists with respect to these investments. Trade
receivable potentially expose the company to credit risk. The company monitors
the amount of credit it allows  each of its customers' using the
customers prior payment history to determine how much credit it will aloe or
whether any credit should be given at all. As a result of its monitoring of the
outstanding credit allowed for each customer, as well as the fact that the
majority o f the company's sales are to customers whose satisfactory credit and
payment record has been established over a long period of time, the company
believes that its account receivable credit risk has been reduced. However the
company acknowledges that as of the date these financial statements the poor
economic climate globally, has increased the chances of customers and financial
institutions defaulting on their obligations.





r.
            Basic
      and Diluted Net Income (Loss) per
Share





Basic net
profit (loss) per share is computed based on the weighted average number of
common shares outstanding during each year. Diluted loss per share is computed
based on the weighted average number of common shares outstanding during each
year, plus dilutive potential common shares considered outstanding during the
year, in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128").  There were no dilutive common
equivalent shares outstanding at anytime during the year ended December 31, 2008
and 2007; accordingly basic and diluted net income (loss) per share are
identical for both years.




FS
15





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
2:-                      SIGNIFICANT
ACCOUNTING POLICIES (cont.)





s.
            Exchange
      rates:





Exchange
and linkage differences are charged or credited to operations as
incurred.





Exchange
rates:





December
    31,2008
                
                2007New
      Israeli Shekel (NIS)
                
                $  0.263
                
                $  0.260Euro
      (EU)
                
                $  1.393
                
                $  1.471South
      African Rand (SAR)
                
                $  0.106
                
                $  0.147Australian
      Dollar (AU$)
                
                $  0.686
                
                $  0.887Pound
      Sterling (GBP)
                
                $  1.459
                
                $  2.005Year
      Ended December 31,Increase
      (Decrease) in Rate of Exchange:
                
                2008
                
                2007NIS
                
                1.1%
                
                9.7%EU
                
                (5.3%)
                
                11.7%SAR
                
                (27.9%)
                
                2.8%AU$
                
                (22.7%)
                
                12.2%GBP
                
                (27.2%)
                
                2.2%





t.     Advertising
Costs:





Advertising
costs are charged to the statements of operations as incurred.





u.     Implementation
of new accounting Standards:





SFAS 157 – Fair Value
Measurement:


In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements (“FAS
157”). This standard defines fair value, establishes a framework and gives
guidance regarding the methods used for measuring fair value, and expands
disclosures about fair value measurements. This standard is effective for
financial statements issued for fiscal years beginning after November 15, 2007.
In February 2008, the FASB released a FASB Staff Position (FSP FAS 157-2-
Effective Date of FASB Statement No. 157) which delays the effective date of
SFAS No. 157 for all non-financial assets and non-financial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually) to fiscal years beginning after
November 15, 2008. The partial adoption of SFAS No. 157 on January 1, 2008, for
financial assets and liabilities did not have a material impact on the Company’s
consolidated financial position or results of operations.




SFAS 159- The Fair Value
Option for Financial Assets and Liabilities:


In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115," which provides a fair value option election that permits
entities to irrevocably elect to measure certain financial assets and
liabilities (exceptions are specifically identified in the Statement) at fair
value as the initial and subsequent measurement attribute, with changes in fair
value recognized in earnings as they occur. SFAS No. 159 permits the fair value
option election on an instrument-by-instrument basis at initial recognition of
an asset or liability or upon an event that gives rise to a new basis of
accounting for that instrument.




FS
16





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
2:-                      SIGNIFICANT
ACCOUNTING POLICIES (cont.)




The
adoption of SFAS No. 159 on January 1, 2008, for financial assets and
liabilities did not have a material impact on the Company’s consolidated
financial position or results of operations.




FASB Staff Position (“FSP”)
Accounting Principles Board (“APB”) 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement):




In May
2008, the FASB issued FASB Staff Position (“FSP”) Accounting Principles Board
(“APB”) 14-1, “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1
applies to convertible debt instruments that, by their stated terms, may be
settled in cash (or other assets) upon conversion, including partial cash
settlement of the conversion option. FSP APB 14-1 requires bifurcation of the
instrument into a debt component that is initially recorded at fair value and an
equity component. The difference between the fair value of the debt component
and the initial proceeds from issuance of the instrument is recorded as a
component of equity. The liability component of the debt instrument is accreted
to par using the effective yield method; accretion is reported as a component of
interest expense. The equity component is not subsequently re-valued as long as
it continues to qualify for equity treatment. FSP APB 14-1 must be applied
retrospectively to previously issued cash-settle able convertible instruments as
well as prospectively to newly issued instruments. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The adoption did not have a material impact on the
consolidated financial statements.





FASB Staff Position (“FSP”)
FSP FAS 142-3, Determination of the Useful Life of Intangible Assets or FSP FAS
142-3.


The FASB
has issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets. The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under Statement 142 and the period
of expected cash flows used to measure the fair value of the asset under FASB
Statement No. 141R, and other U.S. generally accepted accounting
principles.





This FSP
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited.




The
adoption did not have a material impact on the consolidated financial
statements.




FS
17





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands




NOTE
3:-                      
OTHER ACCOUNTS RECEIVABLE





December
      31,2008
                
                2007Prepayment
      and others
                130
                
                72Government
      authorities
                115
                
                51Shareholders
                4
                
                2249
                
                125





NOTE
4:-                      
PROPERTY AND EQUIPMENT, NET





December  31,2008
                
                2007Cost:Minibars
                7,367
                
                6,319Production
      equipment and parts
                621
                
                547Computers
      and electronic equipment
                135
                
                70Office
      furniture, equipment and other
                98
                
                918,221
                
                7,027Accumulated
      depreciation:Minibars
                2,614
                
                2,325Production
      equipment and parts
                54
                
                -Computers
      and electronic equipment
                66
                
                57Office
      furniture, equipment and other
                58
                
                482,792
                
                2,430Depreciated
      cost
                5,429
                
                4,597





Depreciation
expenses amounted to $684 and $623 for the years ended December 31, 2008 and
2007, respectively.


As for
liens, see Note 10.





FS
18





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
5:-                      
OTHER ASSETS





December
      31,2008
                
                2007(A)
      Intangible assetsContract
      rights and goodwill (1)Cost
                27
                
                53Accumulated
      amortization
                -
                
                (42)Effect
      of exchange rate change
                -
                
                1527
                
                26Trademark
      (1)
                46
                
                3073
                
                56





(B)
      Deferred expenses -Cost
                116
                
                116Accumulated
      amortization (2)
                (49)
                
                (26)67
                
                90140
                
                146





(1)
            See
      Note 2h.


(2)
            Deferred
      expenses in regard to loans received are amortized over the loan period of
      nine years.


Deferred
expenses in regard to the private offering are amortized over the period of the
note (see Note 7).





NOTE
6:-                      
LOANS FROM SHAREHOLDERS





On
September 26, 2008, HOMI filed a Form S-1 regarding the proposed issue of rights
to its stockholders to purchase additional shares. Subsequently, in December
2008, HOMI raised approximately $720 through loan agreements. The loans are
short-term and bear interest at the rate of 6% per annum. According to the terms
of the loan, the loans could be repaid in cash or by conversion at the same
price per share as those shares offered in the rights offering.


Accrued
interest at balance sheet date is in the amount of $ 4.





Subsequent
to balance sheet date, HOMI converted these loans, as well as additional
balances of shareholders, in the total amount of $809 to shares (see also Note
17a).




FS
19





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
7:-                      CONVERTIBLE
NOTES





During
      the years 2006 and 2007, HOMI raised $ 494 through the issuance of notes.
      The notes bear interest at a rate of 8% per annum and are convertible into
      common stock at a conversion price ranging between $ 0.50 and $ 0.80 per
      share, depending on the conversion dates.Interest
      on the notes is due and payable on a quarterly basis commencing March
      2007. Principal will be repaid in eight equal quarterly installments
      commencing December 2008. The principal repaid was $
15.The
      financing under the notes was performed via a third party company,
      unaffiliated with the  Company, based on a Memorandum of
      Understanding dated September 2006 as amended in February 2007, in return
      for a 10% commission on the amount raised.





Presentation
      in the financial statements:
                
                December
      31,2008
                
                2007Long-term
      liability
                
                260
                
                494Current
      maturities of long-term liability
                
                219
                
                -479
                
                494





NOTE   8:-                      LONG-TERM
LOANS, NET OF CURRENT MATURITIES





a.      Composed
      as follows:December
      31,2008
                
                2007From
      others (1)
                
                
                782
                
                885From
      Minority (2)
                
                
                -
                
                192Total
                
                
                782
                
                1,077Less
      - current maturities (includes $ 0 and $ 192 from shareholders as of
      December 31, 2008 and 2007, respectively)
                
                
                (113)
                
                (292)669
                
                785





(1)
            In
      March and June, 2005, HOMI and the subsidiary in the U.S. received from
      Horizon Challenges Investment Company Ltd. (“Horizon”) loans in the total
      amount of $ 1.1 million, which Horizon undertook to provide to the Company
      (“the Financing”), pursuant to a Financing Agreement, dated as of March 1,
      2005, as amended on May 17, 2005. The loans bear interest at the rate of
      11.67% and are to be repaid in monthly installments for nine years. The
      loans are secured by a lien on all minibars in respect of which the loan
      was received, and a security interest and assignment of a portion of HOMI
      and/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.





(2)  See
Note 16i.




FS
20





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





b.
            Aggregate
      maturities of long-term loans for years subsequent to December 31, 2008
      are as follows:





Year
              
              Amount2009
              
              1132010
              
              1262011
              
              1422012
              
              1592013
      and thereafter
              
              242782





NOTE
9:-                      ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES





December
      31,2008
                
                2007Accrued
      expenses
                117
                
                64Employees
      and payroll accruals
                80
                
                49Government
      authorities and others
                58
                
                66Related
      parties
                34
                
                90Other
                3
                
                30292
                
                299








NOTE
10:-                      COMMITMENTS,
CONTINGENT LIABILITIES AND LIENS





a.
            HOMI
      and its affiliates have contractual obligations towards hotels with regard
      to the operation of minibars in hotel rooms. HOMI and its affiliates own
      most of these minibars. Several hotels have a contractual purchase option
      granted which enables them to purchase the minibars at a price which
      results in a profit for the Company, and the agreement with the hotel is
      then terminated. To date, no hotel has exercised such an
      option.





b.
            As
      of the balance sheet date, there is a guarantee given by a shareholder of
      the company to a bank, which is limited to $
10.





c.
            Liens
      have been placed on certain Company's assets, including the rights to
      receivables from customers, in favor of banks and others, as security for
      amounts due. Total liabilities that are secured by these liens as of
      December 31, 2008 and 2007 amount to approximately $782 and $885,
      respectively.





d.
            Liens
      on behalf of the loan received from Horizon – see Note 8a
    (1).




FS
21





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





e.         Rent
expense





The
Company’s operations are based primarily at hotels where its outsource
operations are conducted. Most of the hotels allow the Company to utilize office
space free of charge.


In
addition, the Company’s U.S. counsel (who is also a shareholder) allows the
Company to use its office as their corporate headquarters at no charge. No
amounts have been reflected as rent expense in the accompanying consolidated
statements of operations for the value of this rent due to its
insignificance.


In
addition, the Company rents space under various month to month arrangements for
certain facilities. In September 2008, the Company began renting office space in
Hertzeliya, Israel, primarily for HOMI’s finance department, its technical
support and as the headquarters of HOMI Israel.  During the years
ended December 31, 2008 and 2007, rent expenses were $ 57 and $ 35,
respectively.





NOTE
11:-                      SHAREHOLDERS’
EQUITY





Shareholders’
      Rights:





The
common shares confer upon the holders the right to receive a notice to
participate and vote in the general meetings of the Company and to receive
dividends, if and when declared.





Preferred
share rights are yet to be determined. No preferred shares are issued and
outstanding.





Additional information in
regard to issue of shares:





a.
            During
      the second quarter of 2007, shareholders signed a notice of conversion to
      convert shareholders' loans in the amount of approximately $77 to 153,396
      common shares of HOMI, at the rate of $ 0.50 per share, in accordance with
      a resolution of the Company's Board of
  Directors.


(see also
Note 16e.)





b.
            During
      the third quarter of 2007, HOMI issued 48,387 shares of common stock at a
      price of $ 0.295 per share (representing a value of $ 15), as
      consideration for bona fide legal consulting services that it received
      from its legal counsel.




FS
22





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
12:-                      CUSTOMERS
AND GEOGRAPHIC INFORMATION





The
Company manages its business on a basis of one reportable segment (see Note 1
for a brief description of the Company’s business) and follows the requirements
of Statement of Financial Accounting Standard No. 131, "Disclosures About
Segments of an Enterprise and Relation Information" ("SFAS No.
131").





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





Year
      ended December 31,2008
                  
                  2007Customer
      A
                  
                  11.2%
                  
                  9.1%Customer
      B
                  
                  9.7%
                  
                  8.7%Customer
      C
                  
                  9.4%
                  
                  6.3%Customer
      D
                  
                  8.9%
                  
                  8.5%Customer
      E
                  
                  7.8%
                  
                  10.7%Customer
      F
                  
                  5.6%
                  
                  8.2%





b.
            Breakdown
      of Consolidated Sales to unaffiliated Customers according to Geographic
      Regions:





Year
      ended December 31,2008
                
                2007ROW
                
                
                35%
                
                36%Israel
                
                
                32%
                
                21%USA
                
                
                28%
                
                30%South
      Africa
                
                
                5%
                
                13%Total
                
                
                100%
                
                100%





c.
            As
      of December 31, 2008, $212 of the consolidated long-lived assets were
      located in South Africa; $690 were located in Israel; $3,235 in the USA;
      and $1,292 in ROW. As of December 31, 2007, $489 of the consolidated
      long-lived assets were located in South Africa, $383 were located in
      Israel, $2,182 in the USA and $1,543 in
ROW.




NOTE
13:-                      FINANCIAL
EXPENSES, NET




Year
      ended December 31,2008
                
                2007Interest
      on long-term loans (1)
                
                160
                
                117Linkage
      difference and others, net
                
                
                520
                
                (117)680
                
                -
  (1) As
for financial expenses to shareholders, see Note 16a.




FS
23





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
14:-                      OTHER
INCOME, NET





Year
      ended December 31,2008
                
                2007Income
      from termination of agreements,
      net      (see Note 1c)
                -
                
                472Income
      from sale of investment, net (see (1) below)
                -
                
                270Income
      from transactions with a subsidiary's minority  (see Note
      1d)
                7
                
                -Others
                
                (1)
                
                106
                
                752





(1)   On
      February 13, 2007, HOMI sold all its common and preferred shares which it
      held in BSI to Eurogest Foundation, a Vaduz, Liechtenstein Corporation
      ("Eurogest"), at a price of $0.55 per share, for the total sale price of
      $2.35 million, which was paid to HOMI by
  Eurogest.


The sale
of HOMI's shares in BSI resulted in a profit of approximately $
270.





NOTE
15:-                      TAXES
ON INCOME





a.
            Corporate
      tax structure:


Taxable
income of Israeli companies is subject to tax at the rate of 29% in 2007, 27% in
2008, 26% in 2009 and 25% in 2010 and thereafter.


The
subsidiary in South Africa is subject to a 29% corporate tax rate. The
subsidiary in the USA is subject to a 15% -35% corporate tax rate. Subsidiaries
in Europe are subject to 35% - 45% corporate tax rate (in Germany, corporate and
business tax calculation is based on company’s EBITDA). The subsidiary in
Australia is subject to 30% corporate tax rate.





b.
            Pursuant
      to the Income Tax (Inflationary Adjustments) Law - 1985, till 2007 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
      U.S. dollars using historical exchange rates and that result from changes
      in exchange rates or indexing for tax
purposes.





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




d.
            (1)
      As of December 31, 2008 HOMI Inc. had approximately $ 2,058 net operating
      loss carryforwards.


(2)
            As
      of December 31, 2008 HOMI Israel Ltd. had approximately $ 445 Israeli net
      operating loss carryforwards. The loss carryforwards in Israel have no
      expiration date.


(3)
              As
      of December 31, 2008, HOMI USA had approximately $1,869 net operating loss
      carryforwards. Utilization of U.S. net operating losses may be subject to
      substantial annual limitation due to the “change in ownership” provisions
      of the Internal Revenue Code of 1986 and similar state provisions. The
      annual limitations may result in the expiration of net operating losses
      before utilization.


(4)
            As
      of December 31, 2008 the Subsidiary in Australia had net operating loss
      carryforwards of $ 387.


(5)
            As
      of December 31, 2008 the Subsidiaries in Italy and Malta had net operating
      loss carryforwards of $ 219.




FS
24





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
15:-                          TAXES
ON INCOME (cont.)





e.
            Deferred
      income taxes:





Deferred
      income taxes reflect the net tax effects of temporary differences between
      the carrying amounts of assets and liabilities for financial reporting
      purposes and the amounts used for income tax purposes. Significant
      components of the Company's deferred tax assets and liabilities are as
      follows:





December
      31,2008
                
                2007Operating
      loss carryforwards
                1,687
                
                1,196Temporary
      differences in regard to expenses and property
                (95)
                
                (84)Net
      deferred tax asset before valuation allowance
                1,592
                
                1,112Valuation
      allowance
                (1,617)
                
                (1,133)Net
      deferred tax
                (25)
                
                (21)





As of
December 31, 2008, the Company had provided valuation allowances of $ 1,617 in
respect of deferred tax assets resulting from tax loss and temporary
differences. Management currently believes that it is more likely than not that
the deferred tax regarding the loss carryforwards and other temporary
differences will not be realized in the foreseeable future. Deferred tax
liability is presented in long-term liabilities.  The valuation
allowance increased by approximately $ 484 during the year ended December 31,
2008 and decreased by approximately $ 179 during the year ended December 31,
2007.





f.
            Composition
      of taxes on income:




Year
      ended December 31,2008
                
                2007Current
      taxes
                
                
                (10)
                
                (25)Deferred
      taxes
                
                
                (4)
                
                (11)(14)
                
                (36)





g.
            Breakdown
      of losses (income) before taxes:





Year
      Ended December 31,2008
                
                2007Israel
                299
                
                (598)South
      Africa
                (18)
                
                28USA
                796
                
                114ROW
                883
                
                (18)Total
                1,960
                
                (474)





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





FS
25





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
16:-                      RELATED
PARTY TRANSACTIONS





a.
            The
      following transactions with related parties are included in the financial
      statements:





Year
      ended December 31,2008
                
                2007Directors'
      fees and liability insurance
                60
                
                66Consulting
      and management fees
                534
                
                575Interest
      Expense
                4
                
                18598
                
                659





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





c.
            During
      the year 2007, an affiliated company paid the Company, reimbursement of
      expense and management fees of
$ 70.





d.
            As
      for balances and loans as of December 31, 2008 and 2007 - see Note 6 and
      Note 9.





e.
            In
      December 2003, HOMI entered into agreement with two shareholders pursuant
      to which each agreed to lend HOMI $ 150 with notes payable bearing
      interest at fixed rate of 4%. In 2007, the outstanding balance of the
      loans was converted into shares of HOMI's common
  stock.





f.
            Directors'
      fees of $ 35 and $ 30 for the years 2008 and 2007, respectively and
      directors’ insurance expenses of $ 25 and $ 36 for the years 2008 and
      2007, respectively.





g.
            The
      Management of the Company is entitled to an annual bonus which is computed
      as a percentage of the Company's Earnings before Income Tax, Depreciation
      and Amortization ("EBITDA") and as a percentage of the Company's Net
      Profits (cumulative). In the years 2008 and 2007, such bonus expense, as
      it relates to managers which are related parties, was in the amounts of $
      0 and $ 73, respectively.





h.
            The
      Company agreed to pay an annual management and consulting fee to a company
      that is owned by its Chairman. The services are in addition to the
      Chairman's normal duties as an officer of the Company. The fee, payable
      only if the Company is profitable, is graduated according to defined
      profit milestones. In the years 2008 and 2007, such fees amounted to $ 0
      and $ 60, respectively





i.
            The
      minority shareholders of HOMI's South African subsidiary up to the year of
      2007 granted a loan to the subsidiary amounting to $ 192 as of December
      31, 2007 (see Note 8a). The loan was linked to the South African Rand with
      variable annual interest of 14% for the year 2007. The loan was repaid
      during 2008, as part of the agreement by which HOMI (through a subsidiary)
      acquired all of the minority shareholder's shares in HOMI South Africa
      (see Note 1d).





FS
26





HOTEL
OUTSOURCE MANAGEMENT


INTERNATIONAL,
INC. AND ITS SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


US
Dollars in thousands





NOTE
17:-                      EVENTS
SUBSEQUENT TO BALANCE SHEET DATE




a.
            In
      February 2009, HOMI completed a subscription rights offering. HOMI raised
      an amount of $ 1,418 part by conversion of loans from shareholders and
      part by an additional mobilization of capital. In consideration, HOMI
      issued 28,357,262 common stock shares at $ 0.05 per share (see also Note
      6).





b.
            On
      February 10, 2009, Remstone Limited, a wholly owned subsidiary of HOMI
      Israel Ltd., which is a wholly owned subsidiary of HOMI, sold its interest
      in HOMI's South African subsidiary to CLevo Corporation S.A., a Panama
      corporation. The purchase price was $ 205 on a "no cash no debt" basis.
      The transaction was effective as of January 28, 2009. As a result, HOMI
      South Africa changed its name, and ceased to be a subsidiary or affiliate
      of HOMI.


































FS
27





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










ITEM
      9.
            CHANGES
      AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None





ITEM 9A.
            CONTROLS AND
      PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Management
is required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934 to evaluate, with the participation of the Chief Executive Officer and
Chief Financial Officer, the effectiveness of disclosure controls and procedures
as of the end of the period covered by this report. Disclosure controls and
procedures refer to controls and other procedures designed to ensure that
information required to be disclosed in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in our reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management was required to
apply its judgment in evaluating and implementing possible controls and
procedures.





As
described below, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31,


2008,
there were two material weaknesses in our controls over financial reporting:
entry level control; and segregation of duties in out finance department. These
weaknesses were first discovered by our former Chief Financial Officer, our
Controller and our internal accounting form during the first quarter of 2008.
Management estimates that these two weaknesses have existed since
2003.





Management’s
Report on Internal Control Over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended. Internal control over
financial reporting refers to a process designed by, or under the supervision
of, the Chief Executive Officer and Chief Financial Officer and effected by the
board of directors, management and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles, and includes those policies and procedures
that:





•
            
            pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;





•
            
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being
      made only in accordance with authorizations of our management and our
      board of directors; and





•
            
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of our assets that could
      have a material effect on our financial
  statements.





Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence,
compliance and is subject to lapses in judgment and breakdowns resulting from
improper segregation of duties and human failures. Because of such limitations,
there is a risk that material misstatements may not be prevented or detected on
a timely basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting process.
Therefore, it is possible to design into the process safeguards to reduce,
though not eliminate, this risk.


45


Management
evaluated the effectiveness of our internal control over financial reporting as
of December 31, 2008 using the framework set forth in the report of the Treadway
Commission’s Committee of Sponsoring Organizations (COSO), “Internal Control — Integrated
Framework.” The Public Company Accounting Oversight Board’s Auditing
Standard No. 2 defines a material weakness as a significant deficiency, or
combination of significant deficiencies, that result in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. In conducting the aforementioned
evaluation, management identified two material weaknesses in the Company’s
internal control over financial reporting. The two material weaknesses
were:




1
            
            Entity control level.
      Management concluded that entity control level was not optimal. This
      material weakness is a result of significant deficiencies in the company's
      control environment.





2
            
            Segregation of duties in the
      finance department. Management’s job description of financial
      employees was not properly designed. Specifically, the Company did not
      maintain proper segregation of duties between its financial
      personnel.




As a
result of these two material weaknesses in internal control over financial
reporting, management concluded that, the Company’s internal control over
financial reporting was not completely effective as of December 31,
2008.




Remediation
Efforts in Response to Material Weaknesses




To
remediate the material weaknesses described above and enhance our internal
control over financial reporting, subsequent to year end, management, led by our
CEO and CFO, have launched a comprehensive program designed to strengthen our
internal controls over financial reporting. Among other things, the program
provides for the addition of staff to our finance department, the integration of
updated financial software and the establishment of additional controls over
financial reporting:




We have
begun to implement the following changes:





(i)
            the
      integration of updated financial software and the establishment of
      additional controls over financial
reporting;


(ii)
            the
      creation of new mechanisms for the review and approval of invoices to
      customers and/or from suppliers;


(iii)
            increased
      frequency of sudden checks;


(iv)
            increased
      levels of discussions and documentation by senior financial
      management;


(v)
            the
      establishment of additional controls over financial
    reporting





As of the
end of the period covered by this annual report, management carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures. Such an evaluation requires the check and testing of
the existence of the required controls. As of December 31, 2008, management
preformed the examination with regard to one material subsidiary, where the
controls were found to be effective. Based on this examination, our management,
including our Chief Executive Officer and Chief Financial Officer has concluded
that, as of December 31, 2008, while certain of our disclosure controls and
procedures were found to be effective in one material entity of the group, the
disclosure controls and procedures in other material entities are believed to be
effective but yet to be examined and evaluated. Management is continuing to test
the effectiveness of controls in all other material subsidiaries, and believes
the examination will be finalized by the end of 2009.





Changes
in Internal Control over Financial Reporting





Management
has evaluated, with the participation of the Chief Executive Officer and Chief
Financial Officer, whether any changes in our internal control over financial
reporting that occurred during our last fiscal quarter have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting. Based on the evaluation we conducted, management has
concluded that no such changes have occurred.





This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this annual report.





ITEM
      9B.
            OTHER
      INFORMATION





None


46


PART
III





ITEM 10.
            DIRECTORS, EXECUTIVE OFFICERS
      AND CORPORATE GOVERNANCE





Directors
and Executive Officers





Our Board
of Directors and executive officers and their respective ages as of December 31,
2008 are set forth in the table below. Each of the directors of HOMI will serve
until the next annual meeting of shareholders or until his successor is elected
and qualified.





Also
provided is a brief description of the business experience of each director and
executive officer and the key personnel during the past three years and an
indication of directorships (if any) held by each director in other companies
subject to the reporting requirements under the Federal securities
laws.





NAME
              
              AGE
              
              POSITIONDaniel
      Cohen
              
              53
              
              President,
      DirectorJacob
      Ronnel (1)
              
              52
              
              CEO,
      CFO, DirectorAriel
      Almog
              
              41
              
              COO,
      DirectorLinor
      Labandter (2)
              
              32
              
              CFOAvraham
      Bahry
              
              63
              
              ChairmanJules
      Polak
              
              62
              
              DirectorJacob
      Faigenbaum
              
              55
              
              DirectorYoav
      Ronen
              
              49
              
              Director


(1)
            Mr.
      Ronnel was appointed CFO on March 26,
2009.


(2)
            Ms.
      Labandter's resignation as CFO became effective on February 15,
      2009.





Biographies





Avraham Bahry, 63, has been a
director of HOMI since December 2004 and its Chairman from December 2004 to
March 2007. Mr. Bahry established Mul-T-Lock Ltd., an Israeli corporation, in
1973, which he grew into a multi-national holding company in the business of
products and services for the protection of life and property. Mr. Bahry sold
Mul-T-Lock Ltd. in 1999 and has worked as a consultant since then.





Daniel Cohen, 53, was
appointed President of HOMI in August 2008 and was elected to the Board of
Directors on November 20, 2008. Mr. Cohen has been a consultant to HOMI since
September 2007. Mr. Cohen created a number of highly successful businesses
including DAC Systemes (exclusive distributor in France Lebanon, Mauritius and
Israel) for Micros Systems - world leaders in hospitality management, and
eventually selling to Micros in 1995 From 1997 to 2005, Mr. Cohen served as
Chairman, President and Chief Executive Officer of Bartech Systems
International, Inc., a U.S. corporation which creates automated mini-bar
solutions for the hotel industry. Mr. Cohen is a director of several small
companies. From 1991 to 2000 ($40m to $300m), he was a director at Micros
Systems inc, like HOMI, a NASDAQ listed company. Mr. Cohen is a graduate of
Ecole Hoteliere de Lausanne (International Institute of Hospitality Management)
and is a graduate of the Advanced Management Program, INSEAD.





Jacob Ronnel, 52, has been
Chief Executive Officer and a director of HOMI since December 28, 2001, and
a director of HOMI Israel Ltd. (formerly Bartech Mediterranean Ltd.) since
May 1997. Mr. Ronnel served as President of HOMI from December 2001 to August
2008. Mr. Ronnel was appointed HOMI's CFO on March 26, 2009. In addition, he
serves as a director and Chief Executive Officer of subsidiaries of HOMI. From
July 1997 to September 1997, Mr. Ronnel was a consultant to and provisional
manager of Brookside Investments, Ltd. From 1996 to 2002, he was a consultant
for Kassel Financial Consultants, located in Israel. Mr. Ronnel obtained a
degree in International Hotel Administration from Ecole Hoteliere de Lausanne,
Switzerland.





Ariel Almog, 41, has been
Chief Operating Officer, secretary and director of HOMI since December 28,
2001.He has been Chief Operating Officer and a director of HOMI Israel, Ltd.
(formerly Bartech Mediterranean Ltd.) since May 1997 and a general manager since
March 1998. In addition, he serves as an officer and director of each of HOMI's
subsidiaries. From 1996 to 1998, Mr. Almog was an owner of a franchise Apropo
Cafe restaurant in Israel. He received a Bachelor of Business Administration and
Marketing from Schiller International University (American University, Paris,
France).


47


Linor Labandter, 32, served as
HOMI's Chief Financial Officer from May 2007 to February 15, 2009. From 2003 to
2006, she served as controller for Carmel Ventures, a leading Israeli venture
capital firm. From 2000 to 2003, Ms. Labandter was an advisor for the corporate
finance department of KPMG. Ms. Labandter is a certified public accountant. She
received a B.A. degree in accounting and an LLB law degree from Tel Aviv
University.





Jules M. Polak, 62, has been a
director of HOMI since December 2004. Mr. Polak has been a principal of Jules
Polak Business Consulting Ltd. since 2000. From 1993 to 2000, he was Chief
Executive Officer of Golden Pages Israel, the yellow pages publisher of Israel.
He has been a director of several privately held companies in Israel. He
received a Masters of Business Administration from the Hebrew University in
Jerusalem (Israel) and is a CPA (Isr).





Jacob Faigenbaum, 55, has
served as founder and Managing Director of Financial Guardian Group since 2001.
He was Senior Manager of Old Mutual International in London from 1997 to 2001,
and he was Managing Director of Pioneer International, International Investments
Advisory from 1986-1997. Mr. Faigenbaum served in the Israeli Defense Forces as
Colonel. He received a Masters of Economics and Business Administration from
Bar-Ilan University and is currently finishing his LLB.





Yoav Ronen, 49, was elected to
HOMI’s board of directors in December 2006. Mr. Ronen has years of experience
managing hotels. Since 2005, he had been Supervisor and Director of Marketing
for two hotels in Prague, Czech Republic: The Joe Hotel and Villa Schwaiger.
Since 2003, he has been Supervisor and Director of Marketing for the Ros Maris
Rob D.o.o. Hotel in Croatia. From 1995-2002 he served as Chief Executive Officer
for the Hotel Jordan River in Tiberius, Israel, and Hotel Carmel in Netanya,
Israel. Mr. Ronen received a Bachelor’s degree in Business and Accounting from
Tel Aviv University.





Section
16(a) Beneficial Ownership Reporting Compliance





The
following officers, directors and/or beneficial owners of 10% or more of HOMI’s
common stock were required by Section 16(a) of the Securities Exchange Act of
1934, to file certain reports which reports were not filed on a timely
basis:  Avrham Bahri and Jacob Ronnel.





Code
of Ethics





HOMI has
adopted a code of ethics that applies to its principal executive officers,
principal financial officer and principal accounting officer. HOMI will provide
any person without charge, upon request, a copy of such code of ethics and
explain the manner in which such request may be made.





Corporate
Governance





There
have been no material changes to the procedures by which security holders may
recommend nominees to HOMI's board of directors.





Audit
Committee Financial Expert





HOMI has
a separately designated standing audit committee established in accordance with
Section 3(a)(58)(a) of the Exchange Act. HOMI’s board of directors has
determined that HOMI has one financial expert serving on its audit committee:
Jules M.
Polak,





48


ITEM. 11
            EXECUTIVE
      COMPENSATION





The
following is a chart of compensation paid to all executive officers of the
Company.





Name
      and Principal Position
                              Year
                              Salary
      ($)
                              Bonus
      ($)
                              Stock
      Awards ($)
                              Option
      Awards ($)
                              Non
      Equity Incentive Plan Compensation ($)
                              Non
      Qualified Deferred Compensation Earnings ($)
                              All
      Other Compensation ($)
                              Total
      ($)Jacob
      Ronnel (1)
                                Chief
      Executive Officer
                              2007
                              144,288
                              41,690
                              
                              
                              
                              
                              500(7)
                              186,4782008
                              188,300
                              
                              
                              
                              
                              
                              1,447(7)
                              189,747Daniel
      Cohen
                                President
      (2)
                              2007
                              N/A
                              
                              
                              
                              
                              
                              20,000(6)
                              20,0002008
                              55,350
                              
                              
                              
                              
                              
                              75,826(6,7)
                              131,176Sigal
      Grinboim
                                CFO
      (3)
                              2007
                              38,500
                              1,024
                              
                              
                              
                              
                              
                              39,5242008
                              N/ALinor
      Labandter
                                CFO
      (4)
                              2007
                              80,000
                              9,816
                              
                              
                              
                              
                              
                              89,8162008
                              166,871
                              
                              
                              
                              
                              
                              
                              166,871Ariel
      Almog
                                COO
      (5)
                              2007
                              193,389
                              30,850
                              
                              
                              
                              
                              500(7)
                              224,7392008
                              200,428
                              
                              
                              
                              
                              
                              
                              200,428





(1)
            Mr.
      Ronnel's salary was paid by HOMI Europe. Mr. Ronnel served as President of
      HOMI until August 2008. He remains CEO of HOMI.  Mr. Ronnel was
      appointed CFO of HOMI on March 26,
2009.





(2)
            Mr.
      Cohen was appointed President of HOMI in August
  2008.





(3)
            Ms.
      Grinboim's position as Chief Financial Officer terminated on May 9,
      2007.





(4)
            Ms.
      Labandter was appointed Chief Financial Officer in May 2007 and is an
      employee of HOMI Israel Ltd. Her salary was paid by HOMI Israel Ltd. On
      November 10, 2008, Ms. Labandter tendered her resignation, effective
      February 15, 2009.





(5)
            Mr.
      Almog's entire salary was paid by HOMI USA, Inc. Mr. Almog ceased to be
      HOMI's COO in August 2008, at which time he was appointed CEO of HOMI USA,
      Inc.





(6)
            Mr.
      Cohen was paid as a consultant of HOMI, the amount of
    75,021.





(7)
            Represents
      interest paid on loans to the
Company.





Directors
Compensation





Directors
are reimbursed for the expenses they actually incur in attending board meetings.
In addition, Directors are paid a fee of $1,000 per directors meeting, and $500
per committee meeting. The following is a chart of compensation paid to HOMI
directors in 2008.





Name
              Fees
      Earned or Paid in Cash ($)
              Stock
      Awards($)
              Option
      Awards($)
              Non-Equity
      Incentive Plan Compensation($)
              Non
      Qualified Deferred Compensation Earnings
              All
      Other Compensation
                ($)
              Total
                ($)Avraham
      Bahry
              $3,000
              
              
              
              
              
              $3,000Jacob
      Ronnel*Ariel
      Almog*Jules
      Polak
              $6,000
              
              
              
              
              
              $6,000Phillipe
      Schwartz
              $6,000
              
              
              
              
              
              $6,000Jacob
      Faigenbaum
              $4,000
              
              
              
              
              
              $4,000Yoav
      Ronen
              $4,500
              
              
              
              
              
              $4,500Uri
      Kellner
              $4,000
              
              
              
              
              
              $4,000


*
Compensation for services as a director is fully reflected in the Executive
Officer Compensation Table.





Compensation
Committee





Currently,
HOMI does not have a compensation committee. All directors participate in
deliberations concerning executive officer compensation.


49




ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





Principal
Stockholders





The
following table sets forth certain information known to HOMI with respect to
beneficial ownership of HOMI common stock as of March 15, 2009, the number and
percentage of outstanding shares of common stock beneficially owned by each
person who beneficially owns:






            More
      than 5% of the outstanding shares of our common
  stock;






            Each
      of our officers and directors;






            All
      of our officers and directors as a
group.





Except as
otherwise noted, the persons named in this table, based upon information
provided by these persons, have sole voting and investment power with respect to
all shares of common stock owned by them.





Names
      and Address of Beneficial Owner
                Number
      of Shares Beneficially Owned
                %
      Beneficially Owned (3)Daniel
      Cohen
                  10
      Iris Street, PO Box 4591
                  Caesarea,
      Israel 30889
                3,308,523
                4.76%Jacob
      Ronnel
                  21
      Hasvoraim Street
                  Tel
      Aviv, Israel
                10,538,679
                15.17%Ariel
      Almog
                  224
      Maypoint Drive,
                  San
      Raphael, CA
                2,649,481
                3.81%Linor
      Labandter(1)
                  100
      Levi Eshkol Street, Apt # 9
                  Tel-Aviv  69361  Israel
                0
                0%Avraham
      Bahry
                  1
      Gan Hashikmin Street
                  Ganei-Yehuda-Savion,
      Israel
                10,914,646
                15.71%Jules
      Polak
                  4
      Kiriati Street
                  Ramat
      Gan, Israel
                0
                0%Yoav
      Ronen
                  2
      Mivza Horev Street
                  Modiin,
      Israel
                60,065
                0.09%Philippe
      Schwartz (2)
                  999
      California Street
                  San
      Francisco, CA 94108
                0
                0%Uri
      Kellner (2)
                  6
      Herzel Rosenblum Street, Apt #6210,
                  Tel
      Aviv, Israel 69379
                0
                0%Jacob
      Faigenbaum
                  Migdal
      Moshe Aviv
                  7
      Jabotinsky Street, 19th Floor
                  Ramat
      Gan, Israel
                0
                0%All
      officers and directors as a
                  group
      (10 people) (1)(2)
                27,471,394
                39.55%


(1)
              Ms.
      Labandter served as Chief Financial Officer until February 15,
      2009.(2)
              Mr.
      Kellner and Mr. Schwartz served as directors until November 20,
      2008.(3)
              Based on total of
      69,453,364 shares outstanding as of March 15,
  2009.





50


ITEM 13:
            CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONS AND DIRECTOR
  INDEPENDENCE.





Other
than as disclosed below, there have been no transactions or proposed
transactions which have materially affected or will materially affect us in
which all director, executive officer or beneficial holder of more than 5% of
the outstanding common stock, or any of their respective relatives, spouses,
associates or affiliates, has had or will have any direct or material indirect
interest.





Icemaiden
International Ltd, the minority shareholder of HOMI South Africa (Proprietary)
Limited (“HOMI SA”) granted a loan to a HOMI subsidiary that had a balance of
approximately $192,000 as of December 31, 2007. The loan is linked to the South
African Rand with a variable annual interest which was 14% for 2007. The loan
term is indefinite with no fixed terms of repayment. During the year ended
December 31, 2007, the Company incurred interest of $17,000 under these
notes.





On
December 28, 2007, HOMI Israel Ltd., a wholly owned subsidiary of the Company,
entered into an agreement for the purchase from Ice Maiden International Ltd.,
of the 40% of HOMI SA owned by Ice Maiden. It was also agreed that the loan from
Ice Maiden would be repaid.





Closing
of this transaction took place on March 10, 2008, during which time the
following actions occurred: (i) all of Ice Maiden's shares in HOMI SA were
purchased by HOMI Israel at a  purchase price of $ 73; (ii) the loan
in the amount of $ 112,000 including accrued interest was repaid; (iii) HOMI SA
sold and assigned to Ice Maiden's order the minibar equipment owned by HOMI SA
and installed at two hotels in Johannesburg, South Africa, and the agreements
with such hotels regarding the operation of such minibars, at a price of $
102,000. As a result, HOMI SA became, as of March 10, 2009, an indirectly wholly
owned subsidiary of the Company.





On
February 10, 2009, Remstone Limited, a wholly owned subsidiary of HOMI Israel
Ltd., which is a wholly owned subsidiary of HOMI, sold its interest in HOMI SA
subsidiary to Clevo Corporation S.A., a Panama corporation. The purchase price
was $205,000. The transaction was effective as of January 28, 2008. As a result,
HOMI SA changed its name, and ceased to be a subsidiary or affiliate of
HOMI.





On
November 11, 2008, HOMI entered into a loan agreement with related parties,
Daniel Cohen, President of HOMI and Avraham Bahry, Chairman of the Board of
Directors of HOMI. The loan agreement had been approved by HOMI’s Board of
Directors on November 10, 2008. Pursuant to this loan agreement, Mr. Cohen and
Mr. Bahry loaned HOMI $100,000 and $200,000, respectively, for a maximum period
of four months. The loans carried interest at a rate of 6% per
annum.  The entire sum of the loans and accrued interest was converted
into HOMI’s common stock at a rate of $0.05 per share, the price that shares
were offered to shareholders in HOMI's rights offering that closed on January
23, 2009.





On
December 8, 2008, HOMI entered into a loan agreement with related parties, Jacob
Ronnel, Chief Executive Officer of HOMI and Aryeh Reif, Corporate Secretary of
HOMI. The loan agreement had been approved by HOMI’s Board of Directors on
December 3, 2008. Pursuant to this loan agreement, Mr. Ronnel and Mr. Reif
loaned HOMI $400,000 and $20,000, respectively, for a maximum period of four
months. The loans carried interest at a rate of 6% per annum.  The
entire sum of the loans and accrued interest was converted into HOMI common
stock at a rate of $0.05 per share, the price that shares were offered to
shareholders in HOMI's rights offering that closed on January 23,
2009.





During
the years ended December 31, 2008, HOMI incurred various related party expenses
for the following:





Description
                
                2008Directors’
      fees and liability insurance
                $
                60,139Consulting
      fees
                $
                534,078Interest
      Payments
                $
                34,546Totals
                $
                628,763





Director
Independence





Our
current Board members consist of Daniel Cohen, Avraham Bahry, Jacob Ronnel,
Ariel Almog, Jacob Faigenbaum, Jules Polak, and Yoav Ronen. The Board has
determined that Messrs. Polak, Faigenbaum and Ronen are independent applying the
definition of independence under the listing standards of the American Stock
Exchange. Messrs. Cohen, Bahry, Ronnel and Almog are not independent.


51





ITEM 14.
            PRINCIPAL ACCOUNTANT FEES AND
      SERVICES.





Audit
Fees





The
aggregate fees billed for the year ended December 31, 2008 for professional
services rendered by Barzily & Company for the audit of the December 31,
2007 and 2008 financial statements approximated $ $ 59, 0000 and $ 64,000,
respectively.





All
services provided by independent accountants were approved by the audit
committee of HOMI. Other than income tax preparation, Barzily and Company does
not provide any non-audit services to the Company.





Audit
Related Fees





In 2007,
we paid $49,000 and in 2008 we paid$ 53,000. for assurance and related services
reasonably related to the performance of the audit.





Tax
Fees





In 2007
and 2008 we paid, $0 for professional services rendered for tax compliance, tax
advice and tax planning.





All
Other Fees





In 2007
and 2008, we paid $ 10,000 and $ 11,000, respectively, for other products and
services.





Audit
Committee Pre-Approval Policies and Procedures





The Audit
Committee is directly and solely responsible for oversight, engagement and
termination of any independent auditor employed by the company for the purpose
of preparing or issuing an audit report or related work.





The
Committee discusses the planning and staffing of the audit and approves in
advance the engagement of the independent auditor for all audit services and
non-audit services and approve the fees and other terms of any such engagement
and obtains periodically from the independent auditor communications of various
matters required to be discussed by various Statements on Auditing Standards,
Sarbanes Oxley and other standards. The communications include a description of
all relationships between the auditor and the Company that may impact auditor
objectivity and independence.


52


PART
IV.





ITEM 15.
            EXHIBITS AND FINANCIAL
      STATEMENT SCHEDULES





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





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 (1)(9)10.21
              Financing
      Agreement between HOMI and Solog Mifalelei Srigah Ltd., as amended on May
      17, 2005 (1)(10)10.22
              Loan Agreement by and between
      HOMI and Avraham Bahry and Rodia Mihali dated November 2004.
      (1)(7)10.23
              Loan
      Agreement between HOMI and Daniel Cohen and Avraham Bahry dated November
      11, 2008(1)(11)10.24
              Loan
      Agreement between HOMI and Jacob Ronnel and Aryeh Reif dated December 8,
      2008 (1)(12)14.0
              Code
      of Ethics (8)21.0
              Subsidiaries
      (3)31.1
              Certification
      of Jacob Ronnel pursuant to Rule 13a-14(a) of the Securities Exchange Act
      of 193432.1
              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(11)
            Incorporated
      by reference from Form 8-K filed November 12, 2008.(12)
            Incorporated
      by reference from Form 8-K filed December 12,
  2008




53


SIGNATURES








In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.








HOTEL
      OUTSOURCE MANAGEMENT INTERNATIONAL, INC.Dated:
      April 10, 2009
            By:
            /s/
      Daniel CohenDaniel
      Cohen, President





In
accordance with the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:








/s/
      Daniel Cohen
            
            /s/
      Jacob RonnelDaniel
      Cohen, President, Director
            
            Jacob
      Ronnel, Chief Executive Officer, Chief Financial Officer,
      DirectorDated:
            April
      10, 2009
            Dated:
            April
      10, 2009/s/
      Ariel Almog
            
            /s/Avraham
      BahryAriel
      Almog, Director
            
            Avraham
      Bahry, DirectorDated:
            April
      10, 2009
            Dated:
            April
      10, 2009/s/ Jacob
      FaigenbaumJacob
      Faigenbaum, Director
            
            Jules
      Polak, DirectorDated:
            April
      10, 2009
            Dated:Yoav
      Ronen, DirectorDated:






































54