<PAGE>

EXHIBIT 13.1 THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS

Sections of the Registrant's Annual Report to Stockholders Incorporated by
Reference:

13.1.1      Selected Financial Information

13.1.2      Management's Discussion and Analysis of Financial Condition and
            Results of Operations

13.1.3      Independent Auditors' Report

13.1.4      Consolidated Balance Sheets

13.1.5      Consolidated Statements of Operations

13.1.6      Consolidated Statements of Stockholders' Deficiency and
            Comprehensive Income (Loss)

13.1.7      Consolidated Statements of Cash Flows

13.1.8      Notes to Consolidated Financial Statements

EXHIBIT 13.1.1 SELECTED FINANCIAL INFORMATION

The following table sets forth for the periods indicated selected consolidated
financial data for MAI Systems Corporation. This information should be read in
conjunction with the consolidated financial statements included elsewhere herein
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."


                             SELECTED FINANCIAL DATA

                      (in thousands, except per share data)

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
                                                                              For the Years Ended December 31,
                                                              ----------------------------------------------------------------
                                                                1997          1998          1999          2000           2001
                                                              --------      --------      --------      --------      --------
<S>                                                           <C>           <C>           <C>           <C>           <C>
Revenue                                                       $ 39,534      $ 36,389      $ 37,335      $ 27,321      $ 23,768
Income (loss) from continuing operations                        (9,021)       (4,881)      (13,770)        1,444         3,657
Income (loss) and gain from discontinued operations             (1,151)        2,565         2,997          (627)       (1,525)
Net income (loss)                                              (10,172)       (2,316)      (10,773)          817         2,132

Income (loss) per share from continuing operations (2):
          Basic income (loss) per share                       $  (0.96)     $  (0.46)     $  (1.26)     $   0.13      $   0.28
                                                              ========      ========      ========      ========      ========
          Diluted income (loss) per share                     $  (0.96)     $  (0.46)     $  (1.26)     $   0.13      $   0.28
                                                              ========      ========      ========      ========      ========

Income (loss) per share from discontinued operations (2):
          Basic income (loss) per share                       $  (0.12)     $   0.23      $   0.27      $  (0.06)     $  (0.12)
                                                              ========      ========      ========      ========      ========
          Diluted income (loss) per share                     $  (0.12)     $   0.23      $   0.27      $  (0.06)     $  (0.12)
                                                              ========      ========      ========      ========      ========

Net Income (loss) per share:
          Basic income (loss) per share                       $  (1.08)     $  (0.23)     $  (0.99)     $   0.07      $   0.16
                                                              ========      ========      ========      ========      ========
          Diluted income (loss) per share                     $  (1.08)     $  (0.23)     $  (0.99)     $   0.07      $   0.16
                                                              ========      ========      ========      ========      ========

Weighted average common shares used in determining
  income (loss) per share:
   Basic                                                         9,408        10,587        10,889        10,923        13,091
                                                              ========      ========      ========      ========      ========
   Diluted                                                       9,408        10,587        10,889        11,206        13,263
                                                              ========      ========      ========      ========      ========
BALANCE SHEET DATA
Working capital deficiency                                     (11,696)       (8,010)      (14,381)      (10,811)       (3,787)
Total Assets                                                    34,613        35,757        24,630        16,445         8,288
Long-term debt                                                   5,230         8,333         8,114         7,792        10,996
Stockholders' deficiency (1)                                      (666)       (2,366)      (12,569)      (12,110)      (12,992)
</TABLE>


(1)     No cash dividends have been declared by the Company.

(2)     Income (loss) per share is computed using shares of Common Stock
        expected to be issued in accordance with the Plan of Reorganization as



                                      -1-
<PAGE>

discussed in Note 17 to the consolidated financial statements, the weighted
average shares of Common Stock issued and outstanding outside the Plan of
Reorganization and the dilutive effect of stock options and warrants outstanding
during the period, if applicable.





                                      -2-
<PAGE>

QUARTERLY DATA (UNAUDITED)

(IN MILLIONS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                          1st       2nd         3rd        4th        1st       2nd        3rd         4th
                                        Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                                         2000       2000       2000       2000       2001       2001       2001      2001(2)
                                        -------    -------    -------    -------    -------    -------    -------    -------
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Revenue                                 $  5.6     $  7.0     $  7.7     $  7.0     $  6.5     $  6.3     $  6.1     $  4.9
Gross profit                               3.0        4.1        4.7        3.8        4.3        4.4        4.3        3.5
Income (loss) from continuing
 operations                               (1.1)       0.3        1.4        0.8        1.9        0.8        0.6        0.3
Income (loss) from discontinued
  operations                              (0.1)       0.0       (0.3)      (0.2)      (0.5)      (0.5)      (0.2)      (0.3)
Net income (loss)                         (1.2)       0.3        1.1        0.6        1.4        0.3        0.4        0.0

Income (loss) per share (1):
    Continuing Operations:
         Basic                          $(0.10)    $ 0.02     $ 0.13     $ 0.07     $ 0.16     $ 0.06     $ 0.05     $ 0.02
         Diluted                         (0.10)      0.02       0.13       0.07       0.16       0.06       0.05       0.02

    Discontinued Operations:
         Basic                           (0.01)      0.00      (0.03)     (0.02)     (0.04)     (0.04)     (0.02)     (0.02)
         Diluted                         (0.01)      0.00      (0.03)     (0.02)     (0.04)     (0.04)     (0.02)     (0.02)

    Income (loss) per share:
         Basic                           (0.11)      0.02       0.10       0.05       0.12       0.02       0.03       0.00
         Diluted                         (0.11)      0.02       0.10       0.05       0.12       0.02       0.03       0.00

Weighted average common shares
  used in determining income
  (loss) per share (in thousands):
Basic                                   10,907     10,907     10,907     10,973     11,395     13,679     13,691     13,656
                                        ======     ======     ======     ======     ======     ======     ======     ======
Diluted                                 10,907     10,986     10,907     10,973     11,563     13,847     13,928     13,692
                                        ======     ======     ======     ======     ======     ======     ======     ======
</TABLE>


----------

(1)     Income (loss) per share is computed using shares of Common Stock
        expected to be issued in accordance with the Plan of Reorganization as
        discussed in Note 17 to the consolidated financial statements, the
        weighted average shares of Common Stock issued and outstanding outside
        the Plan of Reorganization and for profitable quarters, the dilutive
        effect of stock options and warrants outstanding during the period, if
        applicable.

(2)     During the fourth quarter of 2001, the Company recorded a $1,262,000
        gain on the sale of certain assets relating to its Legacy business.
        Additionally, the Company also recorded a charge of $1,351,000 in the
        fourth quarter of 2001 relating to the write down of intangible assets
        relating to its Process Manufacturing business which is being held for
        sale with the Legacy business as of December 31, 2001.




                                      -3-
<PAGE>

EXHIBIT 13.1.2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the audited
consolidated financial statements included elsewhere herein. Except for the
historical information contained herein, the matters discussed in this Annual
Report are forward-looking statements that involve a number of risks and
uncertainties. There are certain important factors and risks, including the
rapid change in hardware and software technology, market conditions, competitive
factors, seasonality and other variations in the buying cycles of certain of our
customers, the timing of product announcements, the release of new or enhanced
products, the introduction of competitive products and services by existing or
new competitors, the significant risks associated with the acquisition of new
products, product rights, technologies or businesses, our ability to retain
technical, managerial and other personnel, and the other risks detailed from
time to time in our SEC reports, including reports on Form 10-K and Form 10-Q,
that could cause results to differ materially from those anticipated by the
statements made herein. Therefore, historical results and percentage
relationships will not necessarily be indicative of the operating results of any
future period. See "Risk Factors" elsewhere in this Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect our reported assets, liabilities, revenues
and expenses. On an on-going basis, we evaluate our estimates, including those
related to revenue recognition, accounts receivable and intangible assets. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. This forms the basis
of judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

We believe the following critical accounting policies and the related judgments
and estimates affect the preparation of our consolidated financial statements:

Revenue Recognition

We record revenue in accordance with Statement of Position (SOP) 97-2, Software
Revenue Recognition, as amended. We license our products through our direct
sales force and indirectly through resellers. We recognize revenue from sales of
hardware, software and professional services and from arrangements involving
multiple elements of each of the above. Revenue for multiple element
arrangements are recorded by allocating revenue to the various elements based on
their respective fair values as evidenced by vendor specific objective evidence.
The fair value in multi-element arrangements is determined based upon the price
charged when sold separately. Revenue is not recognized until persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable and collectibility is probable. Sales of network and computer
equipment are recorded when title and risk of loss transfers. Software revenues
are recorded when application software programs are shipped to end users,
resellers and distributors, provided the Company is not required to provide
services essential to the functionality of the software and/or significantly
modify, customize or produce the software. Professional services fees for
software development, training and installation are recognized as the services
are provided. Maintenance revenues are recorded evenly over the related contract
period.

Accounts Receivable

We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. The amount of our
reserves is based on historical experience and our analysis of the accounts
receivable balances outstanding. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required which would result in an
additional general and administrative expense in the period such determination
was made. While such credit losses have historically been within our
expectations and the provisions established, we cannot guarantee that we will
continue to experience the same credit loss rates that we have in the past.

Intangible Assets

We record goodwill arising from acquisitions as the excess of the purchase price
over the fair value of assets acquired and such goodwill was being amortized
over a useful life of five to seven years. In July 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 141, Business Combinations and SFAS



                                      -4-
<PAGE>


No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that all
business combinations initiated after June 30, 2001 be accounted for using the
purchase method and provides new criteria for recording intangible assets
separately from goodwill. Existing goodwill and intangible assets will be
evaluated against these new criteria, which may result in certain intangible
assets being subsumed into goodwill. SFAS 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets. Goodwill and
intangible assets that have indefinite useful lives will not be amortized into
results of operations, but instead will be evaluated at least annually for
impairment and written down when the recorded value exceeds the estimated fair
value. The Company adopted the provisions of SFAS No. 142 on January 1, 2002. As
a result, the Company has ceased amortization of goodwill, reducing annual
amortization expense by approximately $420,000. In addition, impairment reviews
may result in charges against earnings to write down the value of goodwill.

We currently do not expect to record an impairment charge upon completion of the
initial impairment review. However, there can be no assurance that at the time
the review is completed a material impairment charge will not be recorded.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, working capital improved from a working capital deficiency
of $10,811,000 at December 31, 2000 to a working capital deficiency of
$3,787,000. Excluding unearned revenue of $1,743,000, the Company's working
capital deficiency at December 31, 2001 would be $2,044,000 or a ratio of
current assets to current liabilities of 0.72 to 1.0. Excluding unearned revenue
of $3,794,000, working capital deficiency at December 31, 2000 would be
$7,017,000, with a current ratio of 0.56 to 1.0. Excluding unearned revenue, the
decrease in the working capital deficiency of $4,973,000 was primarily
attributable to decreases in the Coast Bridge Loan of $220,000, accounts payable
of $4,957,000 (mainly due to vendor settlements described in Note 7 to the
consolidated financials statements), deposits of $1,004,000, accrued liabilities
of $319,000, unearned revenue of $2,051,000 and liabilities held for sale of
$2,224,000 offset by decreases in receivables of $1,743,000, notes receivable of
$2,200,000 and current assets held for sale of $321,000.

Cash was $1,224,000 at December 31, 2001, as compared to $1,019,000 at December
31, 2000. Availability under the Company's secured revolving credit facility is
based on a calculation using a rolling average of certain cash collections. At
December 31, 2001, approximately $2,424,400 was available and drawn down under
this facility. The facility expires on April 30, 2003.

Net cash used in investing activities for the twelve months ended December 31,
2001, totaled $158,000, which represented capital expenditures.

Net cash provided by financing activities for the twelve months ended December
31, 2001 totaled $1,799,000, which is comprised of a $2.5 million payment
received in connection with the sale of GSI on July 27, 2001 offset by $321,000,
$220,000, and $155,000 in repayments of long-term debt, Bridge Loan, and line of
credit respectively. The revolving credit facility requires monthly interest
only payments on the average outstanding balance for the period. The Company is
required to make weekly payments of $12,500 on the subordinated debt. The
facility, and subordinated debt pursuant to an intercreditor agreement between
Canyon Capital and Coast Business Credit, contains various restrictions and
covenants, including an adjusted minimum consolidated net worth of ($5,171,000)
as of December 31, 2001, minimum quarterly debt coverage ratio of 1.1:1 and
minimum quarterly profitability of $250,000. We were in compliance with these or
received waivers for covenants as of December 31, 2001. As of March 31, 2002, we
were in compliance with these covenants. In the event that we are not in
compliance with the various restrictions and covenants and were unable to
receive waivers for non-compliance, the facility and subordinated debt would
become immediately due and payable. The restrictions and covenants are assessed
quarterly.

Stockholders' deficiency increased from $12,110,000 at December 31, 2000 to
$12,992,000 at December 31, 2001, mainly as a result of a reduction to
additional paid in capital relating to a legal settlement that required the
Company to issue $2.8 million of subordinated debt to a shareholder and the
recording of a minimum pension liability of $461,000 during the period.
Principal and interest payments on $2.8 million of CSA debt commence on March 1,
2002. The decrease was offset by net income for the period of $2,132,000 and
approximately $255,000 of Common Stock issued during 2001.

Net cash used in operating activities for the twelve months ended December 31,
2001 totaled $1,431,000 and mainly related to decreases in accounts payable and
customer deposits of $4,707,000, accrued liabilities of $255,000, unearned
revenue of $2,051,000 and a gain recorded in 2001 on the issuance of Common
Stock for settlement of vendor obligations of $1,377,000 a gain on the disposal
of discontinued operations of $1,262,000 and a gain on the sale of GSI of
$245,000 offset by net income for the period of $2,132,000, non-cash charges for
depreciation and amortization of tangible and intangible assets, of $1,452,000,
decrease in receivables of $1,697,000, provision for doubtful accounts
receivable of $47,000 and discontinued operations of $2,787,000. The Company
expects that it will generate cash from its operating activities during the next
twelve months.

Although the Company has a net stockholders' deficiency of $12,992,000 at
December 31, 2001, the Company believes it



                                      -5-
<PAGE>


will generate sufficient funds from operations and obtain additional financing,
as needed, in 2002 to meet its operating and capital requirements. The Company
expects to generate positive cashflow during 2002 from shipping out products and
services from its $13 million backlog as of December 31, 2001 as well as new
orders. Also, in July 2001, the Company entered into an agreement for the sale
of its investment in GSI and has received $2.5 million in 2001. The Company
expects to receive an additional $500,000 in April 2002 and an additional
$250,000 to $500,000 in January 2003.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table summarizes the Company's obligations and commitments as of
December 31, 2001:


<TABLE>
<CAPTION>
                                                       Payments Due by Period (in thousands)
                                    -------------------------------------------------------------------------------
Contractual Cash Obligations         Total       Less Than 1 Year    1-3 Years        4-5 Years       After 5 Years
                                    -------      ----------------    ---------        ---------       -------------
<S>                                <C>          <C>                 <C>              <C>             <C>
Long-Term Debt                      $ 8,654          $   112          $ 8,290          $    --          $   252
Line of Credit                        2,424               --            2,424               --               --
Operating Leases                      2,196            1,083              843              270               --
                                    -------          -------          -------          -------          -------
                                    $13,274          $ 1,195          $11,557          $   270          $   252
                                    =======          =======          =======          =======          =======
</TABLE>


RESULTS OF OPERATIONS

Year Ended December 31, 2000 Compared to Year Ended December 31, 2001.

(dollars in thousands)


<TABLE>
<CAPTION>
                                                     December 31,       Percentage of    December 31,        Percentage of
                                                        2000              Revenue           2001               Revenue
                                                     ------------       -------------    ------------        -------------
<S>                                                   <C>                  <C>            <C>                  <C>
Revenue                                               $ 27,321             100.0%         $ 23,768             100.0%
Gross profit                                            15,666              57.3%           16,530              69.5%
Selling, general and administrative expenses             8,942              32.7%            7,927              33.3%
Research and development costs                           3,068              11.2%            4,209              17.7%
Amortization of intangibles                                740               2.7%              731               3.1%
Other operating (income) expense                            50               0.2%           (1,643)             (6.9%)
Interest expense, net                                    1,260               4.6%            1,473               6.2%
Income taxes                                               162               0.6%              176               0.7%
Gain on disposal of discontinued operations                 --              --               1,262               5.3%
Loss from discontinued operations                         (627)             (2.3%)          (2,787)            (11.7)%
Net income                                            $    817               3.0%         $  2,132               9.0%
</TABLE>

Revenue for 2001 was $23,768,000 compared to $27,321,000 in 2000 or a 13.0%
decrease. Revenue decreased from 2000, as a result of decreased software sales
and professional services mainly due to decreased market spending on information
technology in the fourth quarter of 2001 due to the effects of the September 11,
2001 terrorist attacks on the hospitality industry.

The decrease in revenue in 2001 was mainly attributable to a decrease in the
volume of sales. Our respective business units continue to generate sufficient
cash from operations to adequately fund the respective ongoing operating
activities.

Revenue in our Asian operations decreased from $3,960,000 in 2000 to $2,585,000
in 2001. The deterioration of revenue from 2000 to 2001 is mainly due to the
continued generally depressed condition of the Asian economies resulting in a
decrease in sales in the region.

Gross profit increased to 69.5% in 2001 from 57.3% in 2000 primarily due to the
implementation of several cost reduction measures which included a significant
decrease in the use of outside consultants for professional services in 2001
compared to 2000. Additionally, the company was no longer required to pay
royalties on its LTS product line in 2001, which resulted in improved gross
profit percentages on software.

Selling, general and administrative expenses ("SG&A") decreased 11.4% from
$8,942,000 in 2000 to $7,927,000 in 2001. The decrease is related to the
implementation of several cost reduction measures, including our reduction in
payroll in the third quarter of 2001. Marketing expenses decreased from 2000 to
2001 as a result of decreasing our product advertising in



                                      -6-
<PAGE>

trade publications and attending fewer trade shows.

Research and development costs increased 37.2% over the comparable period of
2000. This is primarily a result of increased headcount in the Company's
hospitality division and an increase in the use of contracted research and
development personnel in 2001. Research and development costs increased from
$3,068,000 in 2000 to $4,209,000 in 2001 as a result of the Company's efforts
and focus on new product development as well as enhancements to its current
products.

Other operating (income) expense improved from $50,000 in 2000 to ($1,643,000)
in 2001 primarily as a result of the Company issuing Common Stock to certain
creditors to satisfy its obligations, which resulted in a gain of $1,377,000 in
2001. There were no such transactions in 2000.

Net interest expense was $1,260,000 in 2000 compared to $1,473,000 in 2001. The
increase in 2001 is mainly due to the increased debt resulting from the
company's settlement with CSA, which required the Company to issue $2.8 million
of secured debt in February 2001 which bears interest at 10% per annum.

The income tax provision only reflects a tax provision for our foreign
operations and alternative minimum taxes for domestic operations due to the
utilization of net operating loss carry forwards in 2000 and 2001.

In 2001, the Company sold certain assets and liabilities relating to its
domestic Legacy hardware maintenance division to a third party, resulting in a
gain of $1,262,000. There was no such transaction in 2000.

The Company is holding its Process Manufacturing and Legacy businesses for sale.
The increase in the loss from these businesses held for sale from $627,000 in
2000 to $2,787,000 in 2001 is due to increased losses incurred at the Process
Manufacturing business from approximately $2.0 million in 2000 to $3.7 million
in 2001. The increase in losses of $1.7 million mainly related to the write off
of approximately $1.4 million of intangible assets in 2001. There were no such
charges in 2000.



                                       -7-
<PAGE>



RESULTS OF OPERATIONS

Year Ended December 31, 1999 Compared to Year Ended December 31, 2000.

(dollars in thousands)


<TABLE>
<CAPTION>
                                                          December 31,      Percentage of      December 31,     Percentage of
                                                             1999              Revenue             2000            Revenue
                                                          ------------      -------------      ------------     -------------
<S>                                                       <C>                  <C>              <C>               <C>
Revenue:
         Hospitality                                       $ 35,639             95.5%            $ 27,321          100.0%
         Gaming                                               1,696              4.5%                  --             --
Total Revenue                                                37,335            100.0%              27,321          100.0%
Gross profit                                                 18,317             49.1%              15,666           57.3%
Selling, general and administrative expenses                 21,751             58.3%               8,942           32.7%
Restructuring                                                 2,288              6.1%                  --             --
Research and development costs                                4,747             12.7%               3,068           11.2%
Amortization of intangibles                                   1,126              3.0%                 740            2.7%
Other operating expense                                         249              0.7%                  50            0.2%
Write off of deferred financing costs                           574              1.5%                  --             --
Equity in net income of unconsolidated subsidiaries             (28)             0.1%                  --             --
Interest expense, net                                         1,211              3.2%               1,260            4.6%
Income taxes                                                    169              0.5%                 162            0.6%
Income (loss) from discontinued operations                    2,997              8.0%                (627)          (2.3%)
Net income (loss)                                          $(10,773)           (28.9%)           $    817            3.0%
</TABLE>

Revenue for 2000 was $27,321,000 compared to $37,335,000 in 1999 or a 26.8%
decrease. Revenue decreased $10,014,000 in 2000, as a result of decreased
software sales and professional services mainly due to decreased market spending
on information technology in 2000 as a result of the significant outlays in 1999
preparing for the Year 2000 compliance. Gaming revenue decreased from $1,696,000
in 1999 due to the sale of our gaming subsidiary in June 1999.

The decrease in revenue for our hospitality business unit from 1999 to 2000 was
mainly attributable to a decrease in the volume of sales. After considering our
recent efforts to pay down accounts payable to a manageable level, our
respective business units continue to generate sufficient cash from operations
to adequately fund the respective ongoing operating activities.

Revenue in our Asian operations decreased from $5,379,000 in 1999 to $3,960,000
in 2000. Operating income in Asia was $717,000 in 1999 as compared to an
operating loss of $189,000 in 2000. The deterioration of revenue and operating
income (loss) from 1999 to 2000 is mainly due to the continued generally
depressed condition of the Asian economies resulting in a decrease in sales in
the region.

Gross profit for 2000 decreased to $15,666,000 (57.3%) from $18,317,000 (49.1%)
in 1999. The increase in the gross profit percentage from 1999 to that of 2000
despite a decline in gross profit and revenue, was due primarily to the
implementation of several cost reduction measures including our restructuring
effected in the fourth quarter of 1999, mainly relating to a reduction in the
domestic hospitality business units payroll of $810,000 and the use of outside
consultants of approximately $165,000. Also, during the third quarter of 2000,
gross margins increased to 61.1% for the three month period in 2000 from 22.2%
in 1999 primarily due to delays in certain shipments and installations of its
Lodging Touch product during 1999 combined with higher levels of fixed costs in
1999 associated with professional services and support which was expected to be
absorbed by an increased hospitality revenue stream.

Selling, general and administrative expenses ("SG&A") decreased 58.9% from
$21,751,000 in 1999 to $8,942,000 in 2000. The decrease is related to the
implementation of several cost reduction measures, including our restructuring
effected in the fourth quarter of 1999, and more focused and controlled
marketing efforts. Cost reduction measures included a reduction in payroll of
approximately $1,616,000, $470,000 in the use of outside consultants, and
$649,000 in facility costs. Marketing expenses decreased from 1999 to 2000 as a
result of decreasing our product advertising in trade publications and attending
fewer trade shows.

Research and development costs decreased 35.4% over the comparable period of
1999. This is primarily as a result of a reduction in the use of contracted
research and development in 2000.

Other operating expense improved from expense in 1999 of $249,000 to $50,000 in
2000 principally due to refunds received in 2000 resulting from overpayments of
medical insurance payments made in earlier years.

The 34.3% decrease in amortization of intangibles versus the comparable period
of 1999 is due to the decreased



                                      -8-
<PAGE>

amortization expense associated with capitalized software development costs of
our Hospitality division.

Included in non-operating costs for 1999 is the write off of approximately
$574,000 of financing costs previously capitalized in 1998.

Net interest expense was $1,211,000 in 1999 compared to $1,260,000 in 2000. The
increase in 2000 is due to the amortization of the $300,000 loan fee during 2000
offset by lower interest rates and outstanding balances associated with our line
of credit and Bridge Loan obtained on July 28, 1999.

The income tax provision only reflects a tax provision for our foreign
operations and alternative minimum taxes for domestic operations due to the
utilization for net operating loss carry forward in 2000.

Results from discontinued operations decreased from income of $2,997,000 in 1999
to a loss of $627,000 in 2000 as a result of decreased Process Manufacturing
revenue from $8,243,000 in 1999 to $4,162,000 in 2000, as the process business
unit transitioned from a direct selling model to a reseller model and completed
development of new products. During 2000, we focused on developing enhancements
to our CIMPRO V and CIMPRO classic process manufacturing products which were
released in February 2001. Additionally, consistent with our strategy to focus
on providing software and services to our vertical markets, our legacy revenue
(traditional hardware contract service revenues and proprietary add-on sales)
declined 43.3% year over year, largely due to expected decreased volume and
customers replacing their legacy systems due to Year 2000 compliance.

ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141 --Business Combinations. This statement requires that all business
combinations initiated after June 30, 2001 be accounted for by a single method -
the purchase method. It also sets forth criteria for the identification of
intangible assets apart from goodwill. At the same time, the FASB also issued
SFAS No. 142 --Goodwill and Other Intangible Assets. This statement addresses
how goodwill and other intangible assets should be accounted for after they have
been initially recognized in financial statements. Specifically, SFAS No. 142
requires that goodwill be tested for impairment at least annually and that
amortization of goodwill and other intangible assets with indefinite lives
cease. SFAS No. 142 is required to be implemented by the Company commencing on
January 1, 2002. The Company has determined that the implementation of this
standard will not have a material effect on the Company's financial position or
results of operations. Goodwill amortization was $420,000 in 2000 and 2001.

On October 3, 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long --Lived
Assets, which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement
No. 121, Accounting for the Impairment of Long --Lived Assets and for Long-Lived
Assets for Be Disposed Of, it retains many of the fundamental provisions of that
Statement.

Statement No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in Opinion 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale.

Statement No. 144 is effective for fiscal years beginning after December 15,
2001 and interim periods within those fiscal years. The Company elected to adopt
Statement No. 144 as of December 31, 2001.




                                      -9-
<PAGE>


EXHIBIT 13.1.3


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders

MAI Systems Corporation:


We have audited the accompanying consolidated balance sheets of MAI Systems
Corporation and subsidiaries as of December 31, 2000 and 2001 and the related
consolidated statements of operations, stockholders' deficiency and
comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement 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 financial position of MAI Systems
Corporation and subsidiaries as of December 31, 2000 and 2001 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

/s/ KPMG LLP


Costa Mesa, California
March 31, 2002



                                      -10-
<PAGE>

EXHIBIT 13.1.4 CONSOLIDATED BALANCE SHEETS


                             MAI SYSTEMS CORPORATION

                           CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                                  As of December 31,
                                                                                    (in thousands,
                                                                                  except share data)
                                                                              ---------         ---------
                                                                                2000               2001
<S>                                                                           <C>               <C>
ASSETS

Current assets:
Cash                                                                          $   1,019         $   1,224
Receivables, less allowance for doubtful accounts of
       $1,148 in 2000 and $1,023 in 2001                                          4,139             2,396
Inventories                                                                          77                90
Notes receivable                                                                  2,700               500
Prepaids and other assets                                                           729               918
Current assets held for sale                                                        525               204
                                                                              ---------         ---------
              Total current assets                                                9,189             5,332
Furniture, fixtures and equipment, net                                            1,614             1,221
Notes receivable                                                                     --               250
Intangibles, net                                                                  1,530               799
Assets held for sale                                                              4,046               613
Other assets                                                                         66                73
                                                                              ---------         ---------
              Total assets                                                    $  16,445         $   8,288
                                                                              =========         =========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
       Bridge loan                                                            $     220         $      --
       Current portion of long-term debt                                            238               112
       Accounts payable                                                           6,860             1,903
       Customer deposits                                                          2,168             1,164
       Accrued liabilities                                                        2,721             2,402
       Income taxes payable                                                         215               235
       Unearned revenue                                                           3,794             1,743
       Current liabilities held for sale                                          3,784             1,560
                                                                              ---------         ---------
              Total current liabilities                                          20,000             9,119
Line of credit                                                                    2,579             2,424
Long-term debt                                                                    5,213             8,542
Other liabilities                                                                   763             1,195
                                                                              ---------         ---------
              Total liabilities                                                  28,555            21,280
                                                                              ---------         ---------
Stockholders' deficiency:
       Preferred Stock, par value $0.01 per share;
              1,000,000 shares authorized, none issued and outstanding               --                --
       Common Stock, par value $0.01 per share; authorized
              24,000,000 shares; 11,006,658 and 13,656,085 shares
              issued and outstanding at December 31, 2000 and 2001,
              respectively                                                          113               140
       Additional paid-in capital                                               220,622           218,022
       Accumulated other comprehensive income (loss)                                 80              (361)
       Accumulated deficit                                                     (232,925)         (230,793)
                                                                              ---------         ---------
              Total stockholders' deficiency                                    (12,110)          (12,992)
                                                                              ---------         ---------
Commitments and contingencies
Total liabilities and stockholders' deficiency                                $  16,445         $   8,288
                                                                              =========         =========
</TABLE>


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


                                      -11-
<PAGE>


EXHIBIT 13.1.5 CONSOLIDATED STATEMENTS OF OPERATIONS


                             MAI SYSTEMS CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                          For the Years Ended December 31,
                                                                        (in thousands, except per share data)
                                                                       1999              2000              2001
                                                                     --------          --------          --------
Revenue:
<S>                                                                  <C>               <C>               <C>
     Software                                                        $ 11,771          $  6,857          $  5,329
     Network and computer equipment                                     4,377             1,301               789
     Services                                                          21,187            19,163            17,650
                                                                     --------          --------          --------
            Total revenue                                              37,335            27,321            23,768

Direct costs:
     Software                                                           3,841             1,106               269
     Network and computer equipment                                     3,108             1,041               479
     Services                                                          12,069             9,508             6,490
                                                                     --------          --------          --------
            Total direct costs                                         19,018            11,655             7,238
            Gross profit                                               18,317            15,666            16,530
Selling, general and administrative expenses                           21,751             8,942             7,927
Research and development costs                                          4,747             3,068             4,209
Restructuring charges                                                   2,288                --                --
Amortization of intangibles                                             1,126               740               731
Other operating expense (income)                                          249                50            (1,643)
                                                                     --------          --------          --------
            Operating income (loss)                                   (11,844)            2,866             5,306
Write off of deferred financing costs                                    (574)               --                --
Equity in net income of unconsolidated subsidiaries                        28                --                --
Interest income                                                           268               263                72
Interest expense                                                       (1,479)           (1,523)           (1,545)
                                                                     --------          --------          --------
Income (loss) from continuing operations
  before income taxes                                                 (13,601)            1,606             3,833
Income taxes                                                             (169)             (162)             (176)
                                                                     --------          --------          --------
Income (loss) from continuing operations                              (13,770)            1,444             3,657
Discontinued operations:
     Gain on disposal of discontinued operations                           --                --             1,262
     Income (loss) from discontinued operations                         2,997              (627)           (2,787)
                                                                     --------          --------          --------
            Net income (loss)                                        $(10,773)         $    817          $  2,132
                                                                     ========          ========          ========

Income (loss) per share:
    Continuing Operations:
           Basic income (loss) per share                             $  (1.26)         $   0.13          $   0.28
                                                                     ========          ========          ========
           Diluted income (loss) per share                           $  (1.26)         $   0.13          $   0.28
                                                                     ========          ========          ========
    Discontinued Operations:
           Basic income (loss) per share                             $   0.27          $  (0.06)         $  (0.12)
                                                                     ========          ========          ========
           Diluted income (loss) per share                           $   0.27          $  (0.06)         $  (0.12)
                                                                     ========          ========          ========
</TABLE>



                                      -12-
<PAGE>


<TABLE>
<S>                                                                  <C>               <C>               <C>
    Net income (loss) per share:
           Basic income (loss) per share                             $  (0.99)         $   0.07          $   0.16
                                                                     ========          ========          ========
           Diluted income (loss) per share                           $  (0.99)         $   0.07          $   0.16
                                                                     ========          ========          ========
     Weighted average common shares used in
          determining income (loss) per share:
Basic                                                                  10,889            10,923            13,091
                                                                     ========          ========          ========
Diluted                                                                10,889            11,206            13,263
                                                                     ========          ========          ========
</TABLE>



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



                                      -13-
<PAGE>

EXHIBIT 13.1.6 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY AND
               COMPREHENSIVE INCOME (LOSS)


                             MAI SYSTEMS CORPORATION

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                         AND COMPREHENSIVE INCOME (LOSS)

                                 (in thousands)


<TABLE>
<CAPTION>
                                                                   Accumulated
                                                                      Other                              Total           Total
                                                  Additional      Comprehensive     Accumulated      Stockholders'    Comprehensive
                                 Common Stock   Paid-In Capital      Income           Deficit         Deficiency      Income (Loss)
                                 ------------   ---------------   -------------     -----------      -------------    -------------
<S>                             <C>             <C>              <C>               <C>               <C>              <C>
Balance at December 31, 1998       $     110       $ 219,780        $     713        $(222,969)       $  (2,366)       $  (2,106)
                                                                                                                       =========
Issuance of Common Stock                   2             498               --               --              500               --
Exercise of stock options                 --               9               --               --                9               --
Stock option compensation                 --             280               --               --              280               --
Translation adjustments                   --              --             (219)              --             (219)            (219)
Net loss                                  --              --               --          (10,773)         (10,773)         (10,773)
                                   ---------       ---------        ---------        ---------        ---------        ---------
Balance at December 31, 1999             112         220,567              494         (233,742)         (12,569)         (10,992)
                                                                                                                       =========
Stock option compensation                  1              55               --               --               56               --
Translation adjustments                   --              --             (414)              --             (414)            (414)
Net income                                --              --               --              817              817              817
                                   ---------       ---------        ---------        ---------        ---------        ---------
Balance at December 31, 2000             113         220,622               80         (232,925)         (12,110)             403
                                                                                                                       =========

Issuance of Common Stock                   8             219               --               --              227               --
Legal settlement                          19          (2,819)              --               --           (2,800)              --
Minimum pension liability                 --              --             (461)              --             (461)            (461)
Translation adjustments                   --              --               20               --               20               20
Net income                                --              --               --            2,132            2,132            2,132
                                   ---------       ---------        ---------        ---------        ---------        ---------
Balance at December 31, 2001       $     140       $ 218,022        $    (361)       $(230,793)       $ (12,992)       $   1,691
                                   =========       =========        =========        =========        =========        =========
</TABLE>



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



                                      -14-
<PAGE>

EXHIBIT 13.1.7 CONSOLIDATED STATEMENTS OF CASH FLOWS

                             MAI SYSTEMS CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                      1999          2000          2001
                                                                                    --------      --------      --------
<S>                                                                                 <C>           <C>           <C>
Cash flows from operating activities:
     Net income (loss)                                                              $(10,773)     $    817      $  2,132
     Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities:
            Discontinued operations                                                   (2,997)          627         2,787
            Gain on disposal of discontinued operations                                   --            --        (1,262)
            Gain on creditor settlements                                                  --            --        (1,377)
            Gain on sale of GSI                                                           --            --          (245)
            Amortization of intangibles                                                1,126           740           731
            Depreciation and amortization                                              1,082           749           721
            Stock option compensation expense                                            280            56            --
            Write-down of notes receivable held for sale                                 355            --            --
            Write-off of deferred financing costs                                        574            --            --
            Write-off of furniture, fixtures, and equipment                            1,900            --            --
            Equity in net income of unconsolidated subsidiaries                          (28)           --            --
            Provision for doubtful accounts receivable                                   547           350            47
            Net loss (gain) from foreign currency translation                           (222)         (454)            8
            Changes in assets and liabilities:
                  (Increase) decrease in receivables                                   3,221           748         1,697
                  (Increase) decrease in inventories                                     111            29           (13)
                  (Increase) decrease in prepaids and other asset                      1,409           190          (110)
                  (Increase) decrease in other assets                                    583            40            (6)
                  (Decrease) increase in accounts payable and customer deposits        4,144        (3,192)       (4,707)
                  (Decrease) increase in accrued liabilities                           2,775           107          (255)
                  (Decrease) increase in income taxes payable                            (84)         (261)           20
                  (Decrease) increase in unearned revenue                             (1,737)       (1,314)       (2,051)
                  (Decrease) increase in other liabilities                                 1            27           452
                                                                                    --------      --------      --------
                  Net cash provided by (used in) operating activities                  2,267          (741)       (1,431)
                                                                                    --------      --------      --------

Cash flows from investing activities:
            Capital expenditures                                                      (2,128)         (127)         (158)
            Software development costs                                                  (673)           --            --
                                                                                    --------      --------      --------
                  Net cash used in investing activities                               (2,801)         (127)         (158)
                                                                                    --------      --------      --------

Cash flows from financing activities:
     Proceeds from issuance of Common Stock, net                                         500            --            --
     Repayments of long-term debt                                                       (246)         (245)         (321)
     Proceeds from issuance of Bridge Loan                                             2,000            --            --
     Repayments of Bridge Loan                                                          (550)       (1,230)         (220)
     Net decrease in line of credit                                                     (385)         (312)         (155)
     Payments received on notes receivable                                                --            --         2,495
     Proceeds from the exercise of stock options                                           9            --            --
                                                                                    --------      --------      --------
                  Net cash provided by (used in) financing                             1,328        (1,787)        1,799
                                                                                    --------      --------      --------
                  Net cash provided by (used in) continuing operations                   794        (2,655)          210
                  Net cash provided by (used in) discontinued operations                 366           989           (17)
                  Effect of exchange rate changes on cash                                  3            40            12
                                                                                    --------      --------      --------
                  Net increase (decrease) in cash                                      1,163        (1,626)          205
</TABLE>



                                      -15-
<PAGE>


<TABLE>
<S>                                                                                <C>           <C>           <C>
Cash at beginning of year                                                              1,482         2,645         1,019
                                                                                    --------      --------      --------
Cash at end of year                                                                 $  2,645      $  1,019      $  1,224
                                                                                    ========      ========      ========
Cash paid during the period for:
     Interest                                                                       $    870      $  1,190      $  1,504
                                                                                    ========      ========      ========
     Income taxes                                                                   $    226      $    148      $     96
                                                                                    ========      ========      ========
</TABLE>


  Supplemental disclosure of non-cash investing and financing activities (see
                           notes 6, 8, 9, 14 and 18).

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



                                      -16-
<PAGE>

EXHIBIT 13.1.8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             MAI SYSTEMS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS

MAI Systems Corporation (the "Company" or "MAI") provides total information
technology solutions primarily to the hospitality, resort and destination
industry. The solutions provided by the Company typically include applications
software, computer hardware, peripherals and wide and local area network design,
implementation, installation and support. The software applications are
generally the Company's proprietary software, or software which is licensed to
the Company on an exclusive basis. The hardware, peripherals and networking
systems are generally third-party products, which we distribute. Directly and
through arrangements with third parties, we provide on-site and off-site service
and support to users of network and systems hardware. During 1999, the Company
sold its subsidiary, which sold software and services to the gaming industry.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Company include the accounts of its
domestic operations and its majority and wholly owned subsidiaries. All
significant intercompany transactions and accounts have been eliminated in
consolidation.

USE OF ESTIMATES

The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the dates
of the balance sheets and revenues and expenses for the periods. Actual results
could differ from those estimates.

REVENUE RECOGNITION

The Company earns revenue from sales of hardware, software and professional
services and from arrangements involving multiple elements of each of the above.
Revenue for multiple element arrangements are recorded by allocating revenue to
the various elements based on their respective fair values as evidenced by
vendor specific objective evidence. The fair value in multi-element arrangements
is determined based upon the price charged when sold separately. Revenue is not
recognized until persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable and collectibility is probable. Sales
of network and computer equipment are recorded when title and risk of loss
transfers. Software revenues are recorded when application software programs are
shipped to end users, resellers and distributors, provided the Company is not
required to provide services essential to the functionality of the software or
significantly modify, customize or produce the software. Professional services
fees for software development, training and installation are recognized as the
services are provided. Maintenance revenues are recorded evenly over the related
contract period.

CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments which are readily
convertible into known amounts of cash and have original maturities of three
months or less.

INVENTORIES

Inventories are valued at the lower of first in, first out cost or market.

FURNITURE, FIXTURES AND EQUIPMENT

Furniture, fixtures and equipment are recorded at cost and depreciated on a
straight-line basis over estimated useful lives ranging from 3 to 5 years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the lease term or their estimated useful lives.



                                      -17-
<PAGE>

GOODWILL AND OTHER LONG-LIVED ASSETS

Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, and other intangible assets are being amortized on a
straight-line basis over the expected periods to be benefited, generally five to
seven years. Long-lived assets and certain identifiable intangibles to be held
and used by the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of assets to be held and used is assessed by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. 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. Assets that
are to be disposed of are reported at the lower of the carrying amount or fair
value less cost to sell.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The realizability of the
deferred tax asset is assessed throughout the year and a valuation allowance is
established accordingly.

STOCK OPTION PLANS

The Company records stock based compensation for employees using the intrinsic
value method.

PENSION PLAN

The Company established a defined benefit plan for employees that were employed
by the Company's maintenance service business acquired in 1988. The plan
provides benefits based upon a percentage of the participant's career income
with the Company or years of service while an employee of the Company. The
funding policy is to contribute annually an amount to fund pension costs as
actuarially determined by an independent pension consulting firm.

FOREIGN CURRENCY TRANSLATION

The functional currency for all foreign subsidiaries is the applicable local
currency. Accordingly, all translation adjustments for foreign subsidiaries, and
gains and losses on intercompany foreign currency transactions that are of a
long-term nature, are included in accumulated other comprehensive income as a
separate component of stockholders' deficiency.

There were no material net foreign currency transaction gains (losses) in 1999,
2000 and 2001. These amounts are included in selling, general and administrative
expenses in the accompanying consolidated statements of operations.

SOFTWARE DEVELOPMENT COSTS

The Company capitalizes costs related to the development of certain software
products. Capitalization of costs begins when technological feasibility is
established and ends when the product is available for general release to
customers. Technological feasibility is reached upon the earlier of completion
of a detailed program design or working model.

Amortization is computed on an individual product basis and is recognized over
the greater of the remaining economic lives of each product or the ratio that
current gross revenues for a product bear to the total of current and
anticipated revenues for that product, commencing when the products become
available for general release to customers. Software development costs are
generally being amortized over a three-year period. The Company continually
assesses the recoverability of software development costs by comparing the
carrying value of individual products to their net realizable value.

FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 2000 and 2001, the carrying value of cash receivables, Bridge
Loan, accounts payable, accrued liabilities, income taxes payable and other
liabilities approximate fair value due to the short-term nature of such
instruments. The carrying value of long-term debt, including the Company's line
of credit, approximates fair value as the related interest rates approximate
rates currently available to the Company.



                                      -18-
<PAGE>

INCOME (LOSS) PER SHARE OF COMMON STOCK

Basic and diluted income or (loss) per share is computed using the weighted
average shares of Common Stock outstanding during the period. Consideration is
also given in the dilutive income per share calculation for the dilutive effect
of Common Stock equivalents which might result from the exercise of stock
options and warrants. In 1999, the effect of Common Stock equivalents would be
anti-dilutive.

ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141 -Business Combinations. This
statement requires that all business combinations initiated after June 30, 2001
be accounted for by a single method - the purchase method. It also sets forth
criteria for the identification of intangible assets apart from goodwill. At the
same time, the FASB also issued SFAS No. 142 Goodwill and Other Intangible
Assets. This statement addresses how goodwill and other intangible assets should
be accounted for after they have been initially recognized in financial
statements. Specifically, SFAS No. 142 requires that goodwill be tested for
impairment at least annually and that amortization of goodwill and other
intangible assets with indefinite lives cease. SFAS No. 142 is required to be
implemented by the Company commencing on January 1, 2002. The Company has
determined that the implementation of this standard will not have a material
effect on the Company's financial position or results of operations. Goodwill
amortization was $420,000 in 2000 and 2001.

On October 3, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long -Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS No.
144 supersedes SFAS No. 121, Accounting for the Impairment of Long -Lived Assets
and for Long-Lived Assets for Be Disposed Of, it retains many of the fundamental
provisions of that Statement.

SFAS No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in Opinion 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale.

SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. The Company elected to adopt SFAS No.
144 early and it is effective as of January 1, 2001. Previously reported
quarterly results have been restated to conform with SFAS No. 144.


RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform with the 2001
presentation.




                                      -19-
<PAGE>

NOTE 2 - INVENTORIES

        Inventories are summarized as follows:


<TABLE>
<CAPTION>
                                              December 31,
                                           --------------------
                                              (in thousands)
                                           2000            2001
                                           ----            ----

<S>                                        <C>            <C>
               Finished goods               $63            $75
               Replacement parts             14             15
                                           ----            ----
                                            $77            $90
                                           ====            ====
</TABLE>


The Company has purchased many products and components from single sources of
supply. Because the Company's current products are industry standard, the
Company believes that alternative sources of supply of similar products would be
available to the Company in the event of any interruption of delivery of a
single source supplier.

NOTE 3 - BUSINESSES HELD FOR SALE

In the fourth quarter of 2001, the Company's Board of Directors adopted a plan
to sell its Process manufacturing and Legacy divisions. The Process
manufacturing business division designs, sells, installs and supports total
technology solutions featuring complex wide and local area networks to the
process manufacturing industry. The Legacy business provides a wide array of
products and services to its customers who continue to use its proprietary
host-based computer systems, including field engineering services, new and
replacement equipment, operating systems and software application products.
These products and services upgrade, enhance and integrate the legacy systems
with currently available computer technologies.

The Company is actively seeking buyers for its Process Manufacturing and Legacy
divisions and expects to consummate the sale of these divisions during 2002. The
divisions are available for immediate sale subject only to customary terms for
such sales.

In accordance with SFAS No. 144, the Company has reflected all of the assets and
liabilities of Process Manufacturing and Legacy in the consolidated balance
sheets as held for sale and the operating results of these businesses have been
reflected as discontinued operations in the consolidated statements of
operations for all periods presented.

Summarized below is historical financial information about Process Manufacturing
and Legacy (in thousands):

<TABLE>
<CAPTION>
                                                              1999                2000                 2001
                                                            --------            --------             --------
<S>                                                         <C>                 <C>                  <C>
               Revenue                                      $ 19,011            $ 10,266             $  5,078
               Income (loss) before income taxes               2,997                (627)              (1,525)
</TABLE>

NOTE 4 - FURNITURE, FIXTURES AND EQUIPMENT

The major classes of furniture, fixtures and equipment are as follows:


<TABLE>
<CAPTION>
                                                                                 2000                2001
                                                                                -------             -------
                                                                                      (in thousands)
<S>                                                                             <C>                 <C>
                    Furniture, fixtures and equipment                           $ 2,818             $ 2,760
                    Equipment held for administrative purposes                    3,056               3,178
                    Leasehold improvements                                          264                 262
                                                                                -------             -------
                                                                                  6,138               6,200
                    Less:  accumulated depreciation and amortization             (4,524)             (4,979)
                                                                                -------             -------
                                                                                $ 1,614             $ 1,221
                                                                                =======             =======
</TABLE>



                                      -20-
<PAGE>

NOTE 5 - JOINT VENTURES

The Company is a joint venture partner with Metro Systems Corporation Limited
("MSC") for the purpose of marketing and selling the Company's software in
Thailand. The Company has a 49.9% interest in the joint venture and accounted
for this investment using the equity method of accounting. During 1998 the
investment in MSC, recorded at $76,000, was written off by the Company.
Summarized financial information of the investees has not been provided, as such
combined amounts are not material.

NOTE 6 - ACQUISITIONS, DIVESTITURE, AGREEMENTS AND FINANCING

HOTEL INFORMATION SYSTEMS, INC.

Effective August 9, 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of Hotel Information Systems, Inc. ("HIS")
pursuant to an asset purchase agreement dated June 30, 1996 (as amended July 10,
1996) for 1,179,000 unregistered shares of Common Stock valued at $10,900,000.
The net assets acquired from HIS are used in the business of software design,
engineering and service relating to hotel information systems. The net assets
also included subsidiaries of HIS in Singapore, Hong Kong, Australia and Mexico.
The acquisition of HIS has been accounted for by the purchase method of
accounting. The total purchase price for HIS was $21,373,000, which included net
liabilities assumed of HIS of $7,873,000 and acquisition costs of approximately
$2,600,000.

During 1996, the Company entered into arbitration proceedings regarding the
purchase price of HIS. The Company placed approximately 1,100,000 shares of
Common Stock issued in connection with the acquisition of HIS in an escrow
account to be released in whole, or in part, upon final resolution of post
closing adjustments.

In November 1997, the purchase price for the acquisition of HIS was reduced by
$931,000 pursuant to arbitration proceedings. As a result, goodwill was reduced
by $931,000 and approximately 100,650 shares will be released from the escrow
account and returned to the Company. In addition, further claims by the Company
against HIS relating to legal costs and certain disbursements currently
estimated at $650,000 are presently pending. Resolution of such claims may
result in release of additional escrow shares to the Company. Upon settlement,
the Company may, as needed, pursuant to the asset purchase agreement and related
documents, issue additional shares of Common Stock in order that the recipients
ultimately receive shares worth a fair value of $9.25 per share. This adjustment
applies to a maximum of 73,466 shares of Common Stock issued at the time of
acquisition. As of December 31, 2001, the fair market value of the Company's
Common Stock was $0.32 per share, which would result in approximately 2,624,000
additional shares being issued. Also, included in the escrow account at December
31, 2001 is 200,000 shares of Common Stock which do not have a guarantee of
value. The amount and number of shares will be determined based on the final
resolution of such claims. Accordingly, as of December 31, 2001, the final
purchase price has not been determined.

GAMING SYSTEMS INTERNATIONAL

On June 19, 1999, the Company sold Gaming Systems International ("GSI") for an
amount in excess of the book value of net assets sold. Assets sold of
approximately $3,749,000 consisted of accounts receivable of $1,514,000,
inventories of $364,000, furniture, fixtures and equipment of $218,000,
intangible assets of $1,573,000 and prepaid expenses of $80,000. Liabilities
assumed by the buyer consisted of accounts payable and accrued liabilities of
$197,000, deposits of $100,000, unearned revenue of $351,000 and long-term debt
of 446,000. The Company received three promissory notes totaling $4,925,000 with
face values of $1,100,000, $1,500,000 and $2,325,000, respectively. Interest was
paid monthly at the rate of 10% per annum on both the $1,100,000 and $1,500,000
notes, with the principal due and payable on June 19, 2001 and June 19, 2003,
respectively. The $1,100,000 promissory note was guaranteed by a third party.
Principal payments and interest, at prime plus 1%, was to commence for the
$2,325,000 promissory note on October 1, 2002 in 48 monthly installments of
approximately $48,000 of principal, plus accrued interest.

Imputing interest at a rate of 10%, the present value of the $2,325,000
promissory note at the date of sale was $1,682,000 which resulted in a combined
carrying value of $4,282,000 for all three promissory notes. The gain on sale of
$1,227,000 had been deferred until collection of the proceeds representing the
gain can be assured. As of December 31, 2000, the Notes were held for sale and
were written down to an amount which approximated their estimated net realizable
value of $2,700,000.

On April 6, 2001 the Company entered into an agreement with the maker of the
Notes whereby the maker reconveyed 100% of the Common Stock of GSI to the
Company for the purpose of selling GSI to a third party. In connection with the
agreement, the Company canceled the Notes and entered into a new $1.1 million
secured promissory note with the same party. The maker will be paid a commission
of 30% of cash receipts from the third party, which will be first applied to the


                                      -21-
<PAGE>

$1.1 million note and paid in cash to the maker thereafter. On July 27, 2001,
the Company entered into an Asset Purchase Agreement ("Agreement") with the
third party for approximately $3.2 million whereby all of the assets of GSI were
acquired and all of the liabilities assumed, except for approximately $300,000
of obligations, which will remain with GSI. The payment terms under the
Agreement require a $1 million non-refundable cash payment to the Company, which
was received on July 27, 2001 and a $1.5 million payment which was received in
December 2001. The Company also received a promissory note in the amount of
$750,000. Under the terms of the promissory note, the third party is required to
pay $500,000 in April 2002 and the remaining $250,000 in January 2003. The third
party is also required to pay an additional $250,000 in January 2003 subject to
a maximum $250,000 reduction pursuant to the resolution of certain uncertainties
as of the date of the Agreement.

Due to the uncertainty of collecting the unsecured amount of $250,000, it has
been deferred until collection can be assured. The Company has recorded a gain
on the sale of GSI of $245,000 in the fourth quarter of 2001.

Summarized below is historical financial information about GSI prior to its
initial sale on June 19, 1999 (in thousands):


<TABLE>
<CAPTION>
                                               January 1, 1999 -
                                                June 19, 1999
                                               -----------------
<S>                                              <C>
            Revenue                               $ 1,696
            Operating income                          (80)
            Total assets at period end              3,800
</TABLE>

LEGACY

On October 9, 2001, the Company sold certain rights under customer contracts
together with the related assets and liabilities of its domestic Legacy hardware
maintenance division to the third party which currently provides the on-site
repair and warranty service to the Company's Legacy hardware maintenance
customers. Pursuant to the agreement, the Company retained the software
maintenance component of the customer contracts and will continue to provide the
software support services directly to the domestic Legacy customer base.
Additionally, the third party will be required to pay the Company approximately
15% of the third party's hardware maintenance revenue stream relating to the
hardware maintenance customer contracts subsequent to October 31, 2003. In
connection with the sale, the Company received $328,000 in cash and sold
approximately $157,000 of assets consisting of inventory, spare parts, fixed
assets and certain accounts receivable. The third party also assumed
approximately $1,091,000 of liabilities consisting of accrued liabilities of
approximately $366,000 and deferred revenue of approximately $725,000. The sale
resulted in a gain of approximately $1,262,000 in October 2001.

ENTERPRISE HOSPITALITY SOLUTIONS

Effective October 1, 1996, the Company entered into an exclusive worldwide and
perpetual license agreement with Enterprise Hospitality Solutions ("Licensor")
for substantially all current and future versions of software, derivative works,
enhancements, modifications and improvements relating to the hotel, resort,
hospitality, or gaming industry products of Licensor.

In consideration for the rights and licenses granted to the Company by the
Licensor, a $1,000,000 license acquisition fee was agreed to be paid by the
Company. As of December 31, 1997, the Company had paid $675,000 of the license
acquisition fee and the outstanding balance of $325,000 was paid through the
issuance of 110,639 shares of Common Stock in 1998. The license acquisition fee
was capitalized and was amortized over a three-year period, which commenced in
1997. The license acquisition fee was fully amortized in 1999.

Additionally, under the license agreement, the Company paid the Licensor
royalties of 20% of net revenues subject to certain minimum royalties commencing
April 1997.

Effective September 30, 1999, the Company terminated the license agreement (as
amended) with the Licensor. Pursuant to the termination, the Company guaranteed
the value of the 110,639 shares of Common Stock issued to the Licensor in 1998
such that the Licensor would receive $2.75 per share of Common Stock upon sale.
The Licensor sold all 110,639 shares of Common Stock during 1999 at prices below
$2.75 per share resulting in an additional $177,000 of cash payments by the
Company to the Licensor during 1999.

Effective with the termination of the original license agreement, the Company
entered into a new exclusive worldwide software license agreement ("New
Agreement") with the Licensor to market, distribute, and modify the LodgingTouch
software application. In connection with the New Agreement, the Company was
provided with the source code, object code, specifications and documentation of
the then existing LodgingTouch client server applications and, subsequent to the
termination, has continued the development of the application with its internal
development staff. Any derivative work



                                      -22-
<PAGE>

based upon the licensed software created by MAI under the New Agreement, and all
intellectual property, trade secrets and other proprietary rights therein and
thereto, shall be the sole and exclusive property of MAI, both during and
following the expiration or other termination of the New Agreement.

Under the New Agreement, the Company paid the Licensor a 10% royalty on the net
software price including any derivatives or enhancements to the software
application. Royalties paid for fiscal years 1999, 2000 and 2001 were
approximately $941,000, $425,000 and $450,000 respectively.

On November 30, 1999, Enterprise Hospitality Solutions, Inc. ("EHS") and
Christian Rivadella commenced an action against MAI in the United States
District Court for the Central District of California. On February 1, 2000, MAI
answered the complaint by denying its material allegations and asserted a
counterclaim against the plaintiffs.

Effective June 30, 2000, the parties entered into an agreement pursuant to which
MAI acquired from EHS the exclusive worldwide marketing rights to the Lodging
Touch products and the royalty free use of the Lodging Touch name and trademark.
As part of that agreement, all prior agreements between MAI and EHS were
terminated. The parties executed mutual general releases, and the litigation was
dismissed with prejudice.

DEFERRED FINANCING COSTS

During 1998, the Company commenced efforts to raise additional capital. During
the third quarter of fiscal 1999 the related capital raising efforts were
terminated and, the Company expensed $574,000 of deferred financing costs, which
were previously capitalized.

NOTE 7 - INTANGIBLE ASSETS

Intangible assets consist of the following:



<TABLE>
<CAPTION>
                                                              December 31,
                                                      ---------------------------
                                                             (in thousands)
                                                        2000                2001
                                                      -------             -------
<S>                                                   <C>                 <C>
            Goodwill                                  $ 3,196             $ 3,196
            Capitalized software                        1,319               1,319
            Customer List                                 925                  --
                                                      -------             -------
                                                        5,440               4,515
            Less: accumulated amortization             (3,910)             (3,716)
                                                      -------             -------
                               Total                  $ 1,530             $   799
                                                      =======             =======
</TABLE>

NOTE 8 - LINE OF CREDIT AND BRIDGE LOAN

On July 28, 1999, the Company obtained a Bridge Loan from Coast Business Credit
("Coast") in the amount of $2,000,000. The Bridge Loan originally bore interest
at prime plus 5% (prime plus 8% when default interest rates apply) and was
payable interest only on a monthly basis with all accrued and unpaid principal
and interest due on the earlier of June 30, 2000 or the date the Company
receives a debt or equity infusion of at least $10,000,000. Loan origination
fees of $75,000 paid to Coast in connection with the Bridge Loan were amortized
to interest expense over the term of the loan. Due to a temporary event of
default on the Bridge Loan and the secured revolving credit facility and
pursuant to a forbearance agreement with Coast, the Company began making weekly
principal payments of $25,000 on the Bridge Loan commencing in September 1999.
During the default period, the Company also paid and expensed $40,000 in default
fees to Coast in 1999 and $30,000 in 2000.

In April 1998, the Company negotiated a $5,000,000 secured revolving credit
facility with Coast. The availability of this facility is based on a calculation
using a rolling average of certain cash collections. The facility was amended on
July 28, 1999 to allow for aggregate borrowings on an interest only basis under
the credit facility and Bridge Loan not to exceed $6,000,000. The facility is
secured by all assets, including intellectual property of the Company, and bore
interest at prime plus 2.25% (prime plus 5.25% when default interest rates
apply) and expires on April 30, 2003. The facility was again amended on April
13, 2000 and September 12, 2000. In accordance with the amendments, the Bridge
Loan and the credit facility bear interest at prime plus 4.5% and required
$35,000 weekly principal payments on the Bridge Loan, except for the period from
September 12, 2000 through December 8, 2000, which required monthly payments of
$35,000, until it was paid in full. During the first quarter of 2001, the
remaining balance of the Bridge Loan was repaid in full. Additionally, the
credit facility was amended to allow for aggregate borrowings on an interest
only basis under the credit facility not to exceed $3,360,000. In connection
with the amendment on April 13, 2000, Coast waived all existing defaults.
Additionally,


                                      -23-
<PAGE>
the Company agreed to pay Coast a fee of $300,000 ("Loan Fee") in weekly
installments of $35,000 commencing after the Bridge Loan is paid in full. The
Loan Fee was fully paid by April 23, 2001. The facility contains various
restrictions and covenants, including a minimum consolidated net worth, debt
coverage ratio and minimum quarterly profitability. The Company was in
compliance with or received waivers for covenants as of December 31, 2001.

At December 31, 2000 and December 31, 2001, approximately $2,579,000 and
$2,424,400, respectively, was available and drawn down under the credit
facility.

Loan restructuring fees of $300,000 were incurred in connection with the line of
credit and Bridge Loan, are classified in prepaids and other current assets and
are being amortized to interest expense over the term of the facility.

NOTE 9 - LONG-TERM DEBT

Long-term debt outstanding is as follows:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                         ---------------------------
                                                                (in thousands)
                                                           2000               2001
                                                         -------             -------
<S>                                                      <C>                 <C>
       11% subordinated debt, net of discount            $ 4,881             $ 5,490
       10% subordinated debt                                  --               2,800
       Obligations under capital leases                      291                  57
       Tax claims                                            279                 252
       Other                                                  --                  55
                                                         -------             -------
                                                           5,451               8,654
       Less: current installments                           (238)               (112)
                                                         -------             -------
       Non-current portion                               $ 5,213             $ 8,542
                                                         =======             =======
</TABLE>


Aggregate maturities of long-term debt are as follows:


<TABLE>
<CAPTION>
                                              Year Ending
                                              December 31,
                                             (in thousands)
                                             --------------
<S>                                            <C>
                      2002                      $  112
                      2003                       8,290
                      2004                          --
                      2005                          --
                      2006                          --
                      Thereafter                   252
                                                ------
                                                $8,654
                                                ======
</TABLE>

NOTES PAYABLE

On March 3, 1997, the Company issued $6,000,000 of 11% subordinated notes
payable due in 2004 to an investment fund managed by Canyon Capital Management
LP ("Canyon") with detachable warrants to purchase 750,000 shares of the
Company's Common Stock at $8 per share. These warrants were exercisable and
callable (by the Company) under certain circumstances at any time within seven
years and the 11% subordinated notes may be used to exercise the warrants. The
Company recorded an original issue discount of $1,027,000 that represents the
fair value of the warrants at the time of issuance. The fair value of the
warrants was recorded as a reduction in the face value of the subordinated notes
and is being amortized to interest expense over the term of the subordinated
notes. The unamortized balance of original issue discount was $198,000 at
December 31, 2001.

In September 1997, the Company reduced the exercise price of 800,000 warrants
(750,000 related to the subordinated debt and 50,000 held by a related party -
see note 18) to $3.04 per share, which approximated fair market value of the
Company's Common Stock. As a result, holders of the warrants exercised such
warrants and acquired 800,000 shares of the Company's Common Stock at $3.04 per
share. Such exercises were paid in cash, except that holders of warrants
relating to the subordinated debt, as allowed under the terms of the debt
agreement, applied $750,000 of the principal amount of the subordinated debt in
payment of a portion of the warrant exercise price.

On September 30, 1999, the Company failed to make the $289,000 semi-annual
interest payment due to Canyon on that date. Accrued interest on the
subordinated notes payable was $460,000 as of December 31, 2000.



                                      -24-
<PAGE>

The Company and Canyon subsequently entered into a forbearance agreement which
provided that the Company pay Canyon weekly interest payments of $12,500
effective January 1, 2000. In addition, the Company executed a security
agreement which provided Canyon with a lien on all of the Company's tangible and
intangible property, which lien is junior to the lien granted to Coast (see Note
8).

On April 13, 2000, the Company entered into an agreement with Canyon which
waived all existing events of default, accelerated the maturity date to March 3,
2003 and provided for continued weekly interest payments of $12,500. On January
31, 2001, the Company entered into an agreement with Canyon whereby the
specified accrued interest of $431,000 was added to the principal balance of the
subordinated notes payable. As part of this agreement, the Company also agreed
to pay Canyon an additional $79,000 loan fee, of which $29,000 was added to
principal.

In connection with a settlement agreement with CSA (see Note 18), the Company
issued $2.8 million of subordinated debt to CSA. The $2.8 million of debt is
secured by all of the Company's assets, accrues interest at 10% per annum and
requires payments of $37,500 commencing on March 1, 2002 through September 1,
2002 and monthly payments of $107,500 commencing on October 1, 2002 until
October 2003 when all remaining unpaid principal and accrued interest is to be
paid in full.

TAX CLAIMS

Tax claims include pre-petition unsecured tax claims for income and property
taxes from various taxing authorities. Under the terms of the Plan of
Reorganization (see Note 17), such amounts are to be paid in full in cash in
annual installments over six years with interest at 6%. Upon agreement with the
respective taxing authority, tax claims are classified as debt, otherwise such
claims are classified as other long-term liabilities in the accompanying
consolidated balance sheets at December 31, 2000 and 2001. As of December 31,
2000 and 2001, unsettled tax claims of $712,000 are included in long-term
liabilities.

NOTE 10 - ACCRUED LIABILITIES

Accrued liabilities consist of the following:


<TABLE>
<CAPTION>
                                                             2000              2001
                                                            ------            ------
                                                                  (in thousands)
<S>                                                         <C>               <C>
       Salaries, wages and commissions                      $  473            $  323
       Accrued warranty, insurance & sales taxes               186                80
       Accrued vacation                                        402               375
       Accrued interest                                        460               321
       Other                                                 1,200             1,303
                                                            ------            ------
            Total                                           $2,721            $2,402
                                                            ======            ======
</TABLE>



                                      -25-
<PAGE>

NOTE 11 - INCOME TAXES

The components of income (loss) from continuing operations before income taxes
are as follows:

<TABLE>
<CAPTION>
                                            Years Ended December 31,
                              --------------------------------------------------
                                                (in thousands)
                                1999                 2000                 2001
                              --------             --------             --------
<S>                           <C>                  <C>                  <C>
       U.S                    $(14,856)            $  1,688             $  3,829
       Foreign                   1,255                  (82)                   4
                              --------             --------             --------
             Total            $(13,601)            $  1,606             $  3,833
                              ========             ========             ========
</TABLE>

The income tax provision is comprised of the following:


<TABLE>
<CAPTION>
                                           Years Ended December 31,
                              --------------------------------------------------
                                               (in thousands)
                                1999                 2000                 2001
                              --------             --------             --------
<S>                           <C>                  <C>                  <C>
       Current:
               U.S. Federal   $     --             $     65             $     81
               State                --                   --                   --
               Foreign             169                   97                   95
                              --------             --------             --------
                                   169                  162                  176
       Deferred:
               U.S. Federal         --                   --                   --
               Foreign              --                   --                   --
                              --------             --------             --------
                                    --                   --                   --
                              --------             --------             --------
        Total                 $    169             $    162             $    176
                              ========             ========             ========
</TABLE>

Deferred tax assets and liabilities result from differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The significant components of the deferred income tax assets and
deferred income tax liabilities are as follows:


<TABLE>
<CAPTION>
                                                                       December 31,
                                                              -----------------------------
                                                                      (in thousands)
                                                                2000                 2001
                                                              --------             --------
<S>                                                           <C>                  <C>
       Deferred tax assets:
              Net operating loss carryforwards                $ 22,646             $ 21,448
              Property, plant and equipment                      1,467                1,381
              Inventory write-downs                                107                   82
              Allowance for doubtful accounts                      647                  463
              Capitalized software and intangibles               1,140                1,812
              Accrued expenses                                     455                  304
              Other                                                486                  683
                                                              --------             --------
                                                                26,948               26,173
       Less:  valuation allowance                              (26,948)             (26,173)
                                                              --------             --------
                          Net deferred tax assets             $     --             $     --
                                                              ========             ========
</TABLE>

The Company has recorded a valuation allowance in the amount set forth above for
certain deductible temporary differences where it is not more likely than not
the Company will receive future tax benefits. The net change in the valuation
allowance for the years ended 2000 and 2001 was $(941,000) and $(774,000),
respectively.

The portion of the valuation allowance for which subsequently recognized tax
benefits will be applied directly to contributed capital is $213,000.

As of December 31, 2001, the Company has Federal and state net operating losses
(NOL) carryovers of approximately $60,400,000 and $3,500,000, respectively.
These NOL carryovers will expire in the years 2003 through 2018. The Company's
utilization of a portion of its NOL carryovers is subject to various
uncertainties including an annual limitation



                                      -26-
<PAGE>

under Section 382 of the Internal Revenue Code. The amount of this limitation is
not known at this time. The IRS has asserted deficiencies for the Company's
separate federal income tax returns for the years 1988 and 1989. The Company
believes it has meritorious defenses and does not expect that any liability
resulting from those years will result in a material adverse effect on its
results of operations or financial position.

The provision (benefit) for income taxes differs from the amount computed by
applying the Federal corporate income tax rate of 34% to income (loss) from
continuing operations before income taxes as follows:


<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                    ------------------------------------------
                                                                                 (in percentages)
                                                                    1999               2000              2001
                                                                    -----              ----              ----
<S>                                                                 <C>                <C>               <C>
       Statutory tax rate                                           (34.0)%            34.0%             34.0%
       Change in valuation allowance                                 18.0             (71.2)            (36.1)
       Amortization and write-off of intangibles                      5.4               8.9               3.7
       Expiration of state NOLs                                        --               4.6               --
       Effect of foreign operations                                   6.7              19.4               2.5
       Adjustments of NOL carry forwards and deferred
         tax assets pursuant to the finalization of the
         IRS examination and other analysis                           5.8              15.2                --
       Other                                                         (0.7)             (0.8)              0.5
                                                                    -----              ----              ----
       Effective tax rate                                             1.2%             10.1%              4.6%
                                                                    =====              ====              ====
</TABLE>

NOTE 12 - GEOGRAPHIC AREA INFORMATION

Information with respect to the Company's operations by significant geographic
area is set forth below. "United States" includes operations in Puerto Rico.
"Other foreign" includes operations in Mexico and the Netherlands. "Asia"
includes operations in Singapore, Malaysia and Hong Kong.


<TABLE>
<CAPTION>
                                                                  1999                 2000                 2001
                                                                --------             --------             --------
<S>                                                             <C>                  <C>                  <C>
       Revenue from unaffiliated customers:
              United States                                     $ 27,402             $ 21,207             $ 19,351
              Asia                                                 5,379                3,960                2,585
              Canada                                               1,755                  708                  584
              United Kingdom                                       2,567                1,281                1,248
              Other foreign                                          232                  165                   --
                                                                --------             --------             --------
                                                                $ 37,335             $ 27,321             $ 23,768
                                                                ========             ========             ========

       United States revenue from foreign affiliates            $    271             $     42             $    343
       Operating income (loss):
              United States                                     $(13,071)            $  2,951             $  5,303
              Asia                                                   717                 (189)                 (32)
              Canada                                                 182                  204                   23
              United Kingdom                                         348                  (92)                  61
              Other foreign                                          (20)                  (8)                 (49)
                                                                --------             --------             --------
                                                                $(11,844)            $  2,866             $  5,306
                                                                ========             ========             ========

       Identifiable assets:
              United States                                     $ 18,268             $ 13,205             $  6,233
              Asia                                                 2,455                1,078                  909
              Canada                                               1,670                  544                  383
              United Kingdom                                       1,817                1,331                  505
              Other foreign                                          421                  287                  258
                                                                --------             --------             --------
                                                                $ 24,631             $ 16,445             $  8,288
                                                                ========             ========             ========

       Long-lived assets:
              United States                                     $ 10,512             $  7,129             $  2,862
              Asia                                                   103                   52                   28
              United Kingdom                                          39                   56                   36
              Canada                                                  39                   27                   18
              Other foreign                                           (5)                  (8)                  12
                                                                --------             --------             --------
                                                                $ 10,688             $  7,256             $  2,956
                                                                ========             ========             ========
</TABLE>


United States revenue from foreign affiliates consists of net intercompany sales
and services from the United States to the Company's foreign subsidiaries and is
eliminated from consolidated net revenue. Intercompany sales are based on
current



                                      -27-
<PAGE>

selling prices or list prices less discounts. Discounts typically are influenced
by competitive pricing, market conditions and relative foreign exchange rates.

NOTE 13 - BUSINESS SEGMENT INFORMATION

The Company has two reportable segments: Hospitality and Gaming. The Gaming
segment marketed products for the gaming industry and was sold in 1999.

The Company evaluates performance of each segment based on operating income for
fiscal years ending December 31, 1999, 2000, and 2001.



                            YEAR ENDING DECEMBER 31,
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
2001:
                                                    Discontinued
                                  Hospitality        Operations           Gaming             Corporate            Total
                                  -----------       -------------         -------            ---------           -------
<S>                                <C>               <C>                 <C>                 <C>                <C>
Revenues from:
   Hardware                         $   789            $    --            $    --             $    --            $   789
   Software                           5,329                 --                 --                  --              5,329
   Professional Services             17,650                 --                 --                  --             17,650
Total Revenues                       23,768                 --                 --                  --             23,768
Operating Income (loss)               5,886                                    --               (580)              5,306

Total Assets                          5,862                817                 --               1,609              8,288
</TABLE>


<TABLE>
<CAPTION>
2000:
                                                    Discontinued
                                  Hospitality        Operations           Gaming             Corporate            Total
                                  -----------       -------------         -------            ---------           -------
<S>                                <C>               <C>                 <C>                 <C>                <C>
Revenues from:
   Hardware                         $ 1,301            $    --            $    --             $    --            $ 1,301
   Software                           6,857                 --                 --                  --              6,857
   Professional Services             19,163                 --                 --                  --             19,163
Total Revenues                       27,321                 --                 --                  --             27,321
Operating Income (loss)               3,523                 --                 --                (657)             2,866

Total Assets                          8,611              4,571                 --               3,263             16,445
</TABLE>


<TABLE>
<CAPTION>
2001:
                                                    Discontinued
                                  Hospitality        Operations           Gaming             Corporate            Total
                                  -----------       -------------         -------            ---------           -------
<S>                                <C>               <C>                 <C>                 <C>                <C>
Revenues from:                                         $    --
   Hardware                         $ 3,191                 --            $ 1,186             $    --            $ 4,377
   Software                          11,689                 --                 82                  --             11,771
   Professional Services             20,758                 --                429                  --             21,187
Total Revenues                       35,638                 --              1,697                  --             37,335
Operating Income (loss)              (8,798)                --                149              (3,195)           (11,844)

Total Assets                         12,806              8,860                 --               2,964             24,630
</TABLE>

CUSTOMERS

During 2000 and 2001, the Joint Armed Services was the only customer which
accounted for ten percent or more of our revenues. Total revenue from the Joint
Armed Services for 2000 and 2001 was $3,147,000 and $2,937,000, respectively.

NOTE 14 - STOCKHOLDERS' DEFICIENCY

STOCK OPTION PLANS

In connection with the Plan of Reorganization (see Note 17), the Company adopted
the MAI Systems Corporation 1993 Stock Option Plan (the "1993 Plan") which
became effective on January 27, 1994. Under the 1993 Plan, 2,500,000 authorized
shares of Common Stock are reserved for issuance of options. Options under the
1993 Plan may be granted at exercise prices determined by the Compensation
Committee of the Board of Directors, provided that the exercise prices shall not
be less than the fair market value of the Common Stock on the date of grant. At
December 31, 2001, 676,418



                                      -28-
<PAGE>

options under the 1993 Plan were exercisable and the weighted-average exercise
price of these options was $1.96.

In July 1995, the Board of Directors adopted the Non-Employee Director's Stock
Option Plan (the "Director's Plan"). Under the Director's Plan, certain
directors who are not employees of the Company or any affiliate of the Company
are eligible to receive stock options. The Director's Plan provides that each
non-employee director is also granted an option to purchase 6,250 shares of
Common Stock on the date of each annual meeting of the Company's stockholders at
which the director is reelected to the Company's Board. These options vest 25%
on the date of each subsequent annual meeting of the Company's stockholders
which the director is reelected to the Board. The number of shares of Common
Stock reserved for issuance pursuant to the Director's Plan is 250,000 shares.
The exercise price shall not be lower than the fair market value of the Common
Stock on the date of grant. As of December 31, 2001, 107,814 options under the
Director's Plan were exercisable and the weighted-average exercise price of
these options was $4.39.

At December 31, 2001, there were 659,647 additional shares available for grant
under the stock option plans. The per share weighted-average fair value of stock
options granted during 1999, 2000 and 2001 was $2.19, $0.53 and $0.32,
respectively, on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: 1999, 2000 and 2001 - risk-free
interest rate of 6.5%, volatility of 80% and an expected life of 5 years.

The Company applies APB Opinion No. 25 in accounting for its stock option plans
and, accordingly, no compensation cost using the intrinsic value method has been
recognized for its stock option grants in the financial statements except as
noted below. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the Company's
net income (loss) and net income (loss) per share would have been reduced
(increased) to the pro forma amounts indicated below:


<TABLE>
<CAPTION>
                                                                   Years ended December 31,
                                                         ----------------------------------------------
                                                            (in thousands, except per share data)
                                                             1999             2000              2001
                                                         -----------       ----------        ----------
<S>                                    <C>              <C>               <C>               <C>
Net income (loss):                     As reported       $  (10,773)       $      817        $    2,132
                                       Pro forma            (12,201)             (566)            1,339

Basic income (loss) per share:         As reported       $    (0.99)       $     0.07        $     0.16
                                       Pro forma              (1.12)            (0.05)             0.10

Diluted income (loss) per share:       As reported       $    (0.99)       $     0.07        $     0.16
                                       Pro forma              (1.12)            (0.05)             0.10
</TABLE>

Pro-forma net income (loss) and pro forma net income (loss) per share reflects
only options granted in 1996 through 2001. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net loss amounts presented above because compensation
cost is reflected over the options' vesting period of four years.



                                      -29-
<PAGE>

The following is a summary of stock option activity under the Company's stock
option plans:


<TABLE>
<CAPTION>
                                                                    Number of          Weighted-average
                                                                     shares             Exercise price
                                                                    ---------          ----------------
<S>                                                                <C>                   <C>
               Options outstanding at December 31, 1998             1,024,960             $     4.76
                      Granted                                         862,500                   2.19
                      Exercised                                        (5,413)                  1.80
                      Canceled                                       (128,667)                  6.67
                                                                    ---------             ----------

               Options outstanding at December 31, 1999             1,753,380             $     0.35
                      Granted                                         678,746                   0.53
                      Exercised                                      (100,000)                    --
                      Canceled                                       (902,625)                  3.91
                                                                    ---------             ----------

               Options outstanding at December 31, 2000             1,429,501             $     1.99
                      Granted                                         396,250                   0.32
                      Canceled                                       (155,084)                  2.20
                                                                    ---------             ----------

               Options outstanding at December 31, 2001             1,670,667             $     1.58
                                                                    =========             ==========
</TABLE>

At December 31, 2001, the exercise prices ranged from $0.28 to $9.75 per share
and the weighted-average remaining contractual life of outstanding options under
the Company's stock option plans was 7.49 years.

The following is a summary of stock options as of December 31, 2001:


<TABLE>
<CAPTION>
                                              Weighted Average
      Range          Number Outstanding          Remaining           Weighted Average       Number Exercisable
 Exercise Prices     December 31, 2001        Contractual Life        Exercise Price         December 31, 2001
 ---------------     -----------------        ----------------       ----------------       ------------------
<S>                     <C>                     <C>                    <C>                      <C>
  $0.28 - $0.63           808,250                  8.86                $   0.33                  190,772
   1.00 - 1.65            141,667                  5.70                    1.08                   83,334
   2.38 - 2.81            597,500                  6.76                    2.66                  405,626
   3.25 - 4.50             79,750                  6.06                    3.42                   61,000
   7.35 - 9.75             43,500                  4.18                    8.03                   43,500
</TABLE>

In July 2000, the Company accelerated the vesting period of 100,000 stock
options granted to an employee of the Company resulting in a new measurement
date of such options. The exercise price of the options was zero and the fair
market value on the date of acceleration was $0.56. Accordingly, earned
compensation of $56,000 has been recorded for the difference between the option
exercise price and fair market value on the date of acceleration in 2000 and was
charged to expense in 2000.

During 1999, the Company extended the term of certain warrants issued to the
Chairman of the Company resulting in a new measurement date of the warrants.
Accordingly, the Company recorded $280,275 of compensation expense in 1999 (see
Note 18).

RESTRICTED STOCK PLAN

In May 2001, the Board of Directors adopted the 2001 Restricted Stock Plan.
Under the plan, 1,250,000 authorized shares of the Company's Common Stock are
reserved for issuance to officers and directors of the Company. The shares will
be issued as "Restricted Stock" within the meaning of Rule 144 of the Securities
Act of 1933, as amended. The Compensation Committee of the Board of Directors
shall have the discretion to determine what terms and conditions shall apply,
including the imposition of a vesting schedule. As of December 31, 2001, there
were no shares issued under the 2001 Restricted Stock Plan.

COMMON STOCK

In January and February of 2001, the Company entered into agreements with
several creditors to retire approximately $2.1



                                      -30-
<PAGE>

million of Company obligations in exchange for 798,000 shares of Common Stock
and $470,000 of cash. This resulted in a gain of $1,377,000. To fulfill its
performance under the agreement, the Company issued the 798,000 shares of its
Common Stock and registered the shares with the SEC. The Company must also pay
the $470,000 to the creditors as prescribed in the respective agreements. All
payments required under the agreements were made in 2001 and the first quarter
of 2002.

PREFERRED STOCK

On May 20, 1997, the Company authorized the issuance of up to 1,000,000 shares
of $0.01 par value preferred stock. The Board of Directors has the authority to
issue the preferred stock, in one or more series, and to fix the rights,
preferences, privileges and restrictions thereof without any further vote by the
holders of Common Stock.

NOTE 15 - EMPLOYEE BENEFITS

SAVINGS PLANS

On October 1, 1995, the Company established a Savings and Investment Plan
covering substantially all the Company's domestic employees (the "Domestic
Plan"). The Domestic Plan qualifies under Sections 401(k) and 401(a) of the
Internal Revenue Code. Participating employees are allowed to contribute from 1%
to 15% of their annual compensation. During 1999, 2000 and 2001, the Company did
not make contributions to the Domestic Plan.

The Company's Canadian subsidiary offers to its employees a money purchase plan
for benefits accruing in respect of service from August 1, 1985 for
substantially all full-time employees (the "Canadian Plan"). Participating
employees are allowed to contribute between 2% and 6% of their annual
compensation. The Company contributes an amount equal to 50% of the employee
contributions up to a maximum of 2% of annual compensation. Contributions to the
Canadian Plan by the Company were approximately $4,700, $5,200, and $4,500 for
1999, 2000 and 2001 respectively.

DEFINED BENEFIT PLANS

The Company established a defined benefit plan for employees that were employed
by the Company's maintenance service business acquired in 1988.

In April 1992, the Company elected to cease benefit accruals under the defined
benefit plan to current participants. The curtailment had no effect on the
accrued pension cost of the defined benefit plan.

Company contributions under this plan are funded annually. Plan assets are
comprised primarily of guaranteed investment/annuity contracts. Employee
benefits are based on years of service and the employees' compensation during
their employment.

The actuarially computed components of net periodic benefit cost included the
following components:


<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                          -----------------------------------------
                                                                        (in thousands)
                                                          1999              2000              2001
                                                          ----              ----              ----
<S>                                                     <C>                <C>               <C>
               Service costs                             $  --             $  --             $  --
               Interest costs                              132               132               137
               Expected return on plan assets             (114)             (126)             (122)
                                                         -----             -----             -----
               Net periodic pension expense              $  18             $   6             $  15
                                                         =====             =====             =====
</TABLE>



                                      -31-
<PAGE>

The following table sets forth the funded status and amounts recognized in the
Company's consolidated statements of operations:


<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                  -----------------------------------------------
                                                                                  (in thousands)
       Change in Benefit Obligation:                                 1999                2000                2001
                                                                  -------             -------             -------
<S>                                                               <C>                 <C>                 <C>
       Projected Benefit Obligation, beginning of year            $ 1,976             $ 1,695             $ 1,859
       Service cost                                                    --                  --                  --
       Interest cost                                                  132                 131                 137
       Benefits paid                                                  (57)                (62)                (69)
       Actuarial loss/(gain)                                         (356)                 95                  66
                                                                  -------             -------             -------
       Projected Benefit Obligation, end of year                  $ 1,695             $ 1,859             $ 1,993
                                                                  =======             =======             =======

       Change in Plan Assets:
       Plan assets, beginning of year                             $ 1,677             $ 1,830             $ 1,736
       Actual return on plan assets                                   127                 (86)               (190)
       Employer contribution                                           83                  54                  54
       Benefits paid                                                  (57)                (62)                (69)
                                                                  -------             -------             -------
       Plan assets, end of year                                   $ 1,830             $ 1,736             $ 1,531
                                                                  =======             =======             =======
       Funded status                                              $   135             $  (123)            $  (461)
       Unrecognized (gain)/loss                                      (146)                161                 538
                                                                  -------             -------             -------
       Net amount recognized                                      $   (11)            $    38             $    77
                                                                  =======             =======             =======
</TABLE>

The weighted average discount rates used in determining the actuarial present
value of the benefit obligations were 7.9%, 7.5%, and 7.25% for 1999, 2000 and
2001, respectively. The long-term rate of return on assets was 8%, 7% and 7% for
1999, 2000 and 2001, respectively.

NOTE 16 - RESTRUCTURING COSTS

During 1999, management authorized and committed the Company to a restructuring
plan to close and reduce certain of its domestic facilities and reduce its
hospitality and process manufacturing workforce to the appropriate levels
sufficient to support the Company's hospitality and process manufacturing
domestic operations of software sales and professional services. In connection
with these actions, the Company recorded a restructuring charge of $2,288,000 in
the fourth quarter of 1999. The restructuring charge consisted of (1) $1,900,000
relating to the write-off of certain furniture, fixtures and equipment impaired
pursuant to the restructuring which were determined to have a fair value of zero
based upon a SFAS No. 121 evaluation, (2) $45,000 of costs associated with lease
obligations relating to exited facilities and, (3) $343,000 of employee
severance and termination benefits associated with 38 of the terminated
employees. The remaining balance of $288,000 as of December 31, 1999 consists of
$243,000 of remaining severance and termination benefits and $45,000 of lease
obligations on exited facilities. The remaining balance of $288,000 was paid in
2000.

NOTE 17 - PLAN OF REORGANIZATION

In connection with the Company's Chapter 11 bankruptcy proceedings in 1993,
shares of Common Stock are currently being distributed by the Company to its
former creditors pursuant to the Plan of Reorganization (the "Plan") as approved
by United States Bankruptcy Court. The Company does not anticipate that
additional shares will be issued under the plan. As of December 31, 2001,
6,758,251 shares had been issued pursuant to the Plan.

Notwithstanding the confirmation and effectiveness of its Plan of Reorganization
pursuant to which the Company emerged from a voluntary proceeding under the
bankruptcy laws, the United States Bankruptcy Court continues to have
jurisdiction, among other things, to resolve disputed pre-petition claims
against the Company, to resolve matters related to the assumptions, assignment
or rejection of executory contracts pursuant to the Plan, and to resolve other
matters that may arise in connection with the implementation of the Plan.



                                      -32-
<PAGE>

NOTE 18 - COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases certain facilities and equipment, under both month-to-month
and fixed-term agreements.

The aggregate minimum rentals under operating leases with noncancelable terms of
one year or more are as follows:


<TABLE>
<CAPTION>
                                           Year Ending
                                           December 31,
                                         --------------
                                         (in thousands)
<S>                                          <C>
             2002                            $1,083
             2003                               552
             2004                               291
             2005                               230
             2006                                40
                                             ------
                                             $2,196
                                             ======
</TABLE>

Rental expense was approximately $1,500,000, $1,085,000 and $ 1,146,000 for the
years ended December 31, 1999, 2000, and 2001, respectively.

LEGAL PROCEEDINGS

Chapter 11 Bankruptcy Proceedings

At December 31, 2001, there was only one material claim to be settled before the
Company's Chapter 11 proceeding could be formally closed, a tax claim with the
United States Internal Revenue Service (the "Service"). The amount of this claim
is in dispute. The Company has reserved $712,000 for settlement of this claim,
which it is anticipated would be payable to the Service in equal monthly
installments over a period of six (6) years from the settlement date at an
interest rate of 6%.

CSA Private Limited

CSA is a MAI shareholder. On August 9, 1996, MAI acquired from Hotel Information
Systems, Inc. ("HIS") substantially all their assets and certain of their
liabilities (the "HIS Acquisition"). At the time of MAI's acquisition of HIS in
1996, CSA was a shareholder of HIS and, in connection with the purchase, MAI
agreed to issue to CSA shares of its Common Stock worth approximately $4.8
million in August 1996, which amount had increased to approximately $6.8 million
as of December 31, 2000, pursuant to the agreement. MAI also granted CSA demand
registration rights with respect to such stock. CSA requested registration of
their shares, but MAI delayed registration based upon its good faith exercise of
its rights under its agreement with CSA. On October 5, 1998, CSA filed a lawsuit
against MAI in the U.S. District Court for the Central District of California.
Pursuant to a settlement agreement entered into as of May 13, 1999 MAI agreed by
November 1, 1999 to file, or at a minimum to commence the process to file, a
registration statement with the Securities and Exchange Commission ("SEC") for
the purpose of registering CSA's shares. CSA initiated another lawsuit in
December 1999 in the above-referenced court (a) seeking damages in excess of $5
million; (b) enforcement of the settlement agreement; and (c) and injunctive
relief through court order to cause MAI to file with the SEC. On March 6, 2000,
the Company answered the complaint. Because the Company did not conclude the S-1
registration statement filing by November 1, 1999, CSA initiated another lawsuit
in January 2000 to enforce the settlement agreement and secure injunctive relief
through court order to cause us to file a registration statement. The Company
entered into a second settlement agreement with CSA in February 2001.

The Company entered into a second settlement agreement with CSA in February,
2001 whereby it (i) issued CSA 1,916,014 additional shares of our Common Stock
to bring CSA's total share ownership to 2,433,333 shares; (ii) filed a
registration statement for all of CSA's shares of our Common Stock which has
been declared effective by the SEC so that such shares are now freely tradable;
and (iii) executed a secured debt instrument in favor of CSA in the principal
sum of $2,800,000 which is subordinate only to the Company's present group of
two (2) senior secured leaders and required cash installment payments to
commence in March 2002.

In connection with the second settlement agreement with CSA, the Company
recorded the $2.8 million debt issuance as a reduction in paid in capital and
the 1,916,014 additional shares at par as an addition to Common Stock and a
reduction to additional paid in capital. The $2.8 million of debt accrues
interest at 10% per annum and requires payments of $37,500 commencing on March
1, 2002 through September 1, 2002 and monthly payments of $107,500 commencing on
October 1, 2002 until October 2003 when all remaining unpaid principal and
accrued interest is to be paid in full.



                                      -33-
<PAGE>

Enterprise Hospitality Solutions, Inc.

On November 30, 1999, Enterprise Hospitality Solutions, Inc. ("EHS") and
Christian Rivadalla commenced an action against MAI in the United States
District Court for the Central District of California, alleging that MAI had
failed to pay certain royalties to EHS under the parties' exclusive license
agreement. The complaint asserted claims for breach of contract, unjust
enrichment, accounting and unfair competition. The complaint sought damages,
preliminary and permanent injunctive relief, imposition of a constructive trust,
an order canceling MAI's exclusive right to license the software at issue under
the parties' agreement, and the appointment of a receiver to conduct an audit.
On February 1, 2000, MAI answered the complaint by denying its material
allegations and asserted a counterclaim against the plaintiffs. The counterclaim
asserted claims for breach of the parties exclusive license agreement, breach of
the covenant of good faith and fair dealing, unfair business practices,
interference with contractual relations and declaratory relief, and a
declaration that MAI was not in breach of the parties' license agreement.

Effective June 30, 2000, the parties entered into an agreement pursuant to which
MAI acquired from EHS the exclusive worldwide marketing rights to the Lodging
Touch products and the royalty free use of the Lodging Touch name and trademark.
As part of that agreement, all prior agreements between MAI and EHS were
terminated. The parties executed mutual general releases, and the litigation was
dismissed with prejudice.

Getronics Corporation

On December 2, 1996 MAI executed outsource agreements with Olivetti North
America, Inc. ("ONA") in the United States and with Olivetti Canada Ltd. in
Canada, for on-site repair and warranty service and telephonic support for the
Legacy customers. In 1999 and 2000, Getronics Corporation ("Getronics"),
asserting that it was the parent of ONA, filed for arbitration in this matter,
alleging breach of contract for payments due for maintenance services provided
by Getronics. Getronics claimed that the amounts due from MAI exceeded $3.7
million.

In September 2000, the parties settled all of their disputes. Pursuant to that
settlement, the parties dismissed the arbitration proceeding and terminated
their outsourcing agreements. MAI agreed to pay Getronics a total of $1,124,000
payable as follows: (a) $134,000 on or before September 15, 2000, which has been
paid; (b) $150,000 on or before June 30, 2001; and (c) $35,000 on the first day
of each month from October 2000 through September 2002. Additionally, (a) MAI
executed a security agreement in Getronics' favor in the amount of $2,000,000 on
all of MAI's assets; (b) the parties mutually released all claims against each
other, other than as stated in the Stipulation; and (c) Getronics agreed to
provide services through September 15, 2000 at which time MAI assumed the
responsibility of servicing its customers under hardware support service
agreements. The total settlement of $1,124,000 approximated the book value of
the recorded liability as of the date of settlement.

As of December 31, 1999 and 2000, $1,834,000 and $885,000 was due to Getronics
and reflected in accounts payable in the consolidated balance sheets. The
Company paid the remaining balance due Getronics in full during 2001 and all
Company collateral was released by Getronics.

Other Litigation

The Company is also involved in various other legal proceedings that are
incident to its business. Management believes the ultimate outcome of these
matters will not have a material adverse effect on the consolidated financial
position, results of operations or liquidity of the Company.

RELATED PARTY TRANSACTIONS

Under the terms of a consulting agreement, and subsequent amendments (which
expires on August 31, 2001), between Orchard Capital Corporation ("Orchard") and
the Company, Orchard provides the services of Richard S. Ressler as the
Company's Chairman. Orchard is paid a consulting fee of $24,000 per month.
Orchard was granted warrants in 1995 to purchase up to 625,000 shares of Common
Stock at a price of $1.90 per share and in March 1997, was granted additional
warrants to purchase up to 50,000 shares of the Company's Common Stock at a
price of $7.50 per share, the fair market values of Common Stock on the dates of
grant (the latter warrants were subsequently repriced at $3.04 per share). The
warrants were fully exercisable on the dates of the respective grants. In
September 1997, Orchard exercised warrants to purchase 157,895 shares of Common
Stock at $1.90 per share and additional warrants to purchase 50,000 shares of
the Company's Common Stock at $3.04 per share (which warrants had been
temporarily re-priced in order to induce exercises), resulting in $452,000 cash
proceeds to the Company (see Note 9). The term of the remaining warrants to
purchase up to 467,105 shares of Common stock was extended so that they will
expire on August 14, 2003. In connection with extending the term of the warrants
in 1999, the Company recorded $280,275 of compensation expense.

On May 21, 1999, the Company's Chairman was granted 31,250 options to purchase
Common Stock under the Non-



                                      -34-
<PAGE>

Employee Directors' Option Plan at $3.25 per share, the fair market value of
Common Stock on the date of grant. On August 11, 1999, Orchard was granted
225,000 options under the 1993 Stock Option Plan at a price of $2.50 per share,
the fair market value of Common Stock on the date of grant.

On February 3, 1999, the Company's Chairman purchased 201,106 shares of the
Company's Common Stock for $500,000, the fair market value of Common Stock on
the date of purchase.

The Company executed a consulting agreement with a member of its Board of
Directors, Zohar Loshitzer, for the purpose of providing technology advisory
services for the Company at its Process Manufacturing Division. The consulting
agreement commenced in August 2000 and was on a month-to-month basis at the rate
of $16,667 per month. The Company paid Mr. Loshitzer approximately $92,000 and
$161,000 in 2000 and 2001 respectively. As of December 31, 2001 Mr. Loshitzer
had completed his services on behalf of the Company.

On May 26, 2000, the Company issued warrants to its Chief Executive Officer to
purchase 225,000 shares of Common Stock at $0.56 per share. The exercise price
of these warrants will increase with the fair market value of Common Stock when
the fair market value exceeds $2.81 per share. As the exercise price is not
fixed, the warrants are accounted for as a variable award and, accordingly, are
remeasured at each reporting date. The warrants vest equally over a three-year
period and expire on March 24, 2010.

At December 31, 2000 and 2001, the Company was indebted to its Chief Financial
Officer for $69,000 and $94,000, respectively, for unreimbursed Company related
expenses paid by the Chief Financial Officer on the Company's behalf. These
expenses mainly relate to the travel costs for the Company's professional
service personnel.



                                      -35-
<PAGE>

NOTE 19 - INCOME (LOSS) PER SHARE

The following table illustrates the computation of basic and diluted income
(loss) per share under the provisions of SFAS No. 128.

<TABLE>
<CAPTION>
                                                                                      Year Ending December 31,
                                                                            ---------------------------------------
                                                                                           (in thousands)
                                                                              1999            2000            2001
                                                                            --------        --------       --------
<S>                                                                         <C>             <C>            <C>
Numerator:
     Numerator for basic and diluted income
        (loss) per share - net income (loss)                                $(10,773)       $    817       $  2,132
                                                                            ========        ========       ========

Denominator:
     Denominator for basic income (loss) per share - weighted average
        number of common shares outstanding during the period                 10,889          10,923         13,091
     Incremental common shares attributable to exercise of
        outstanding options and warrants                                          --             283            172
                                                                            --------        --------       --------
Denominator for diluted income (loss) per share                               10,889          11,206         13,263
                                                                            ========        ========       ========
Basic income (loss) per share                                               $  (0.99)       $   0.07       $   0.16
Diluted income (loss) per share                                             $  (0.99)       $   0.07       $   0.16
</TABLE>


The computation of diluted loss per share for 1999 excludes the effect of
incremental common shares attributable to the exercise of outstanding Common
Stock options and warrants because their effect would be antidilutive (See Notes
14 and 17). Additionally, the computation does not consider the additional
shares of Common Stock, which may be issued in connection with past acquisitions
(see Note 6). The number of antidilutive options and warrants that were excluded
from the computation of incremental common shares were 1,415,273 and 1,648,272
in 2000 and 2001, respectively.

NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (Unaudited) (in millions, except share
data)

<TABLE>
<CAPTION>
                                       1st        2nd         3rd        4th          1st        2nd         3rd         4th
                                     Quarter     Quarter    Quarter     Quarter     Quarter     Quarter     Quarter     Quarter
                                     -------     -------    -------     -------     -------     -------     -------     -------
                                       2000       2000       2000         2000       2001        2001        2001        2001
                                     -------     -------    -------     -------     -------     -------     -------     -------
<S>                                  <C>         <C>        <C>         <C>         <C>         <C>         <C>         <C>
Revenue                              $  5.6      $  7.0     $  7.7      $  7.0      $  6.5      $  6.3      $  6.1      $  4.9
Gross Profit                            3.0         4.1        4.7         3.8         4.3         4.4         4.3         3.5
Income (loss) from
 continuing operations                 (1.1)        0.3        1.4         0.8         1.9         0.8         0.6         0.3
Income (loss) from
 discontinued operations               (0.1)        0.0       (0.3)       (0.2)       (0.5)       (0.5)       (0.2)       (0.3)
Net income (loss)                      (1.2)        0.3        1.1         0.6         1.4         0.3         0.4         0.0

Income (loss) per share:
    Continuing Operations:
          Basic                      $ (0.10)    $  0.02    $  0.13     $  0.07     $  0.16     $  0.06     $  0.05     $  0.02
          Diluted                      (0.10)       0.02       0.13        0.07        0.16        0.06        0.05        0.02

    Discontinued Operations:
          Basic                        (0.01)       0.00      (0.03)      (0.02)      (0.04)      (0.04)      (0.02)      (0.02)
          Diluted                      (0.01)       0.00      (0.03)      (0.02)      (0.04)      (0.04)      (0.02)      (0.02)

    Income (loss) per share:
          Basic                        (0.11)       0.02       0.10        0.05        0.12        0.02        0.03        0.00
          Diluted                      (0.11)       0.02       0.10        0.05        0.12        0.02        0.03        0.00

Weighted average common shares
 used in determining income (loss)
 per share (in thousands):
Basic                                 10,907      10,907     10,907      10,973      11,395      13,679      13,691      13,656
                                      ======      ======     ======      ======      ======      ======      ======      ======
Diluted                               10,907      10,986     10,907      10,973      11,563      13,847      13,928      13,692
                                      ======      ======     ======      ======      ======      ======      ======      ======
</TABLE>



                                      -36-
<PAGE>

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 1999, 2000 and 2001
                             (dollars in thousands)



<TABLE>
<CAPTION>
                                      Balance       Charged to     Reductions       Additions                         Balances
                                     Beginning      Costs and     Due to Sale          from                            End of
                                      of Year        Expenses    of Subsidiary     Acquisitions      Write-offs        Year
                                     ---------      ----------   -------------     ------------      ----------       --------
<S>                                   <C>            <C>            <C>             <C>              <C>             <C>
Year ended December 31, 1999:
Allowance for doubtful accounts        $ 2,280        $   547        $   (75)        $      --        $(1,155)        $ 1,590
                                       =======        =======        =======         =========        =======         =======

Year ended December 31, 2000:
Allowance for doubtful accounts        $ 1,590        $   350        $    --         $      --        $  (792)        $ 1,148
                                       =======        =======        =======         =========        =======         =======

Year ended December 31, 2001:
Allowance for doubtful accounts        $ 1,148        $    47        $    --         $      --        $  (172)        $ 1,023
                                       =======        =======        =======         =========        =======         =======
</TABLE>


                                      -37-