<PAGE>

EXHIBIT 13.1   THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS

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

<S>      <C>
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' Equity (Deficiency) and Comprehensive Income (Loss)

13.1.7   Consolidated Statements of Cash Flows 13.1.8 Notes to Consolidated
         Financial Statements
</TABLE>

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)
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>

                                                     For the Years Ended December 31,
                                         ---------------------------------------------------------
                                            1996       1997        1998       1999        2000

<S>                                        <C>        <C>         <C>        <C>          <C>
Revenue                                    $64,164    $70,978     $62,238    $56,346      $37,587
Operating Income (loss)                    (12,744)    (8,675)     (1,066)    (8,873)       2,220
Net income (loss)                          (13,487)   (10,172)     (2,316)   (10,773)         817
Income (loss) per share -- (2):
Basic income (loss) per share               $(1.85)    $(1.08)     $(0.23)    $(0.99)       $0.07
                                           ========   ========     =======    =======       =====

Diluted income (loss) per share             $(1.85)    $(1.08)     $(0.23)    $(0.99)       $0.07
                                            =======    ======      =======    =======       =====

Weighted average common shares
used in determining income
(loss) per share:

   Basic                                     7,309      9,408      10,587     10,889       10,932
                                             =====      =====      ======     ======       ======

   Diluted                                   7,309      9,408      10,587     10,889       11,206
                                             =====      =====      ======     ======       ======

BALANCE SHEET DATA

Working capital deficiency                  (8,270)   (11,696)     (8,010)   (14,381)     (10,811)
Total Assets                                32,853     34,613      35,757     24,630       16,445
Long-term debt                                 485      5,230       8,570      8,162        7,813
Stockholders' equity (deficiency)(1)         2,058       (666)     (2,366)   (12,569)     (12,110)
</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 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. The total shares of Common
      Stock expected to be issued in accordance with the Plan of Reorganization
      have been adjusted down to reflect the resolution of certain claims with
      credits during the fourth quarter of 1996. Income (loss) per share has
      been restated for all periods to reflect the resolution of such claims.





                                       1
<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
                               1999      1999      1999      1999      2000      2000      2000       2000

<S>                           <C>       <C>       <C>       <C>        <C>       <C>        <C>       <C>
Revenue                       $16.1     $16.3     $11.4     $12.5      $9.0      $9.9       $9.8      $8.9
Gross Profit                    9.1       9.1       2.5       5.9       4.2       5.3        5.5       4.9
Operating income (loss)         1.5       1.1      (6.5)     (5.0)     (0.9)      0.6        1.4       1.1
Income (loss) before            1.2       0.8      (7.5)     (5.1)     (1.2)      0.3        1.2       0.8
income taxes
Net income (loss) (2)           1.2       0.8      (7.5)     (5.3)     (1.2)      0.3        1.1       0.6

Income (loss) per share (1):

Basic                         $0.11     $0.07    $(0.68)   $(0.49)   $(0.11)    $0.02      $0.10     $0.05

Diluted                       $0.11     $0.07    $(0.68)   $(0.49)   $(0.11)    $0.02      $0.10     $0.05

Weighted average common
shares used in determining
income (loss) per share (in
thousands):

Basic                        10,836    10,907    10,907    10,907    10,907    10,907     10,907    10,973
                             ======    ======    ======    ======    ======    ======     ======    ======

Diluted                      10,925    10,019    10,907    10,907    10,986    10,986     10,907    10,973
                             ======    ======    ======    ======    ======    ======     ======    ======

Share Prices
     High                     $3.25     $4.00     $3.31     $1.25     $1.56     $1.13      $0.69     $0.44
     Low                      $2.13     $1.88     $1.06     $0.44     $0.81     $0.50      $0.31     $0.19
</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)   The fourth quarter of 1999 includes charges of $2.3 million relating to a
      restructuring plan.




                                       2

<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" in the our Annual Report on Form 10-K for
2000.


LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000, working capital improved from a working capital deficiency
of $14,381,000 at December 31, 1999 to a working capital deficiency of
$10,811,000. Excluding unearned revenue of $5,423,000, our working capital
deficiency at December 31, 2000 would be $5,388,000 or a ratio of current assets
to current liabilities of 0.63 to 1.0. Excluding unearned revenue, working
capital deficiency at December 31, 1999 was $6,608,000, with a current ratio of
0.68 to 1.0. Excluding unearned revenue, the decrease in the working capital
deficiency of $1,220,000 was primarily attributable to decreases in the Coast
Bridge Loan of $1,230,000, accounts payable of $3,310,000, unearned revenue of
$2,350,000 and accrued liabilities of $954,000 offset by decreases in cash of
$1,626,000, receivables of $2,851,000 and inventories of $300,000.

Cash was $1,019,000 at December 31, 2000, as compared to $2,645,000 at December
31, 1999. Availability under our secured revolving credit facility is based on a
calculation using a rolling average of certain cash collections. At December 31,
2000, approximately $2,579,000 was available and drawn down under this facility.
The facility expires on April 30, 2003.

Net cash used for investing activities for the twelve months ended December 31,
2000, totaled $134,000, which represented capital expenditures.

Net cash used by financing activities in 2000 totaled $1,911,000, which is
comprised of $368,000, $313,000 and $1,230,000 in repayments of long-term debt,
secured credit facility and Bridge Loan, respectively. We were temporarily in
default on our revolving credit facility, Bridge Loan and subordinated debt. On
April 13, 2000, we amended the respective loan agreements to waive all previous
defaults and to require weekly principal payments of $35,000 on the Bridge Loan,
except for the period from September 12, 2000 through December 8, 2000, which
required monthly payments of $35,000, and weekly interest payments of $12,500 on
the subordinated debt until the Bridge Loan and $300,000 loan fee are paid in
full, then interest payments of $25,000 per week on the subordinated debt until
all accrued and unpaid interest on the subordinated debt is paid in full, then
$11,000 per week in interest on the subordinated debt thereafter. The facility,
and subordinated debt pursuant to an intercreditor agreement between Canyon
Capital and Coast Business Credit, contains various restrictions and convenants,
including a minimum consolidated net worth of $6,877,000 as of December 31,
2000, minimum quarterly debt coverage ratio and minimum quarterly profitability
of 2.9:1 and $125,000, respectively. We were in compliance with these covenants
as of December 31, 2000. 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 decreased from $12,569,000 at December 31, 1999 to
$12,110,000 at December 31, 2000, as a result of a net income for the period of
$817,000 offset by a decrease in accumulated comprehensive income of $414,000.
We have commitments in connection with lease commitments, which require payments
of approximately $1.3 million in 2001.

Net cash provided by operating activities in 2000 totaled $379,000 and mainly
related to non-cash charges for depreciation and amortization of tangible and
intangible assets of $3,686,000, provision for doubtful accounts receivable of
$933,000, a decrease in receivables of $1,918,000, net inventories of $300,000
and prepaids and other assets of $275,000 offset by decreases in accounts
payable and customer deposits of $3,312,000, income taxes payable of


                                       3

<PAGE>

$303,000, accrued liabilities of $1,254,000 and unearned revenue of $2,350,000.
We expect that we will continue to generate cash from our operating activities
in 2001.

Although we have a net stockholders' deficiency of $12,110,000 at December 31,
2000, we believe we will generate sufficient funds from operations and obtain
additional financing, as needed, in 2001 to meet our operating and capital
requirements. Our belief is based on us significantly reducing our cost
structure through a restructuring effected in 1999 which included reductions in
employee headcount and the use of outside consultants, the closure and reduction
of certain facilities, and the renegotiation, termination or replacement of
certain contracts with certain creditors and service providers. Additionally, we
have a $11.8 million backlog as of December 31, 2000. We expect to generate
positive cashflow during 2001 from shipping out products and services from this
backlog as well as new orders. Also, we are currently holding our notes
receivable for sale. The amount expected to be realized upon the sale of these
notes is approximately $2,700,000. We expect to sell these notes within the next
six months and use the funds to reduce certain current obligations and other
operational purposes.

Lastly, we have historically been successful in securing additional capital,
when needed, to meet operating and capital requirements.


As of February 28, 2001, we had issued and outstanding 13,656,085 shares of
Common Stock.


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>
Revenues:
     Hospitality                             $35,639           63.3%         $27,321          72.7%
     Process Manufacturing                     8,243           14.6%           4,162          11.1%
     Gaming                                    1,696            3.0%               -              -
     Legacy                                   10,768           19.1%           6,103          16.2%
Total Revenue                                 56,346          100.0%          37,587         100.0%
Gross Profit                                  26,627           47.3%          19,878          52.9%
Selling, general and administrative
      Expenses                                25,456           45.2%          11,042          29.4%
Restructuring                                  2,288            4.1%               -              -
Research and development costs                 5,114            9.1%           4,047          10.8%
Amortization of intangibles                    2,326            4.1%           2,666           7.1%
Other operating expense (income)                 280            0.5%             (97)         (0.3%)
Equity in net income of
     Unconsolidated subsidiaries                 (28)          (0.1%)              -              -
Write off of deferred financing
  costs                                          574            1.0%               -              -
Interest expense, net                          1,185            2.1%           1,241           3.3%
Provision for income taxes                       169            0.3%             162           0.4%
Net (loss) income                           $(10,773)         (19.1%)        $   817           2.2%
</TABLE>



Revenue for 2000 was $37,587,000 compared to $56,346,000 in 1999 or a 33.3%
decrease. We continue to transition from our legacy business to the sale of
enterprise solutions as 83.8% of our 2000 revenue resulted from our enterprise
solutions business as compared to 80.9% in 1999. Our revenue from our sales of
enterprise solutions in industries in which we compete (hospitality, process
manufacturing and gaming), decreased 30.9% compared to the prior year.
Hospitality revenue decreased 23.3% from $35,639,000 in 1999 to $27,321,000 in
2000, as a result of to 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.. Process Manufacturing decreased 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.
Gaming revenue decreased from $1,696,000 in 1999 due to the sale of our gaming
subsidiary in June 1999. 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. As a result of certain
customers



                                       4

<PAGE>

replacing our legacy hardware systems with other Year 2000 compliant third party
hardware products amounts contractually due to us from these customers for
maintenance accounts receivable have become less collectible and accordingly,
our allowance for doubtful accounts as a percentage of gross accounts receivable
approximates 33% as of December 31, 1999 and 2000.

The decrease in revenue for our hospitality, process manufacturing and legacy
business units from 1999 to 2000 were 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 decrease from $5,379,000 in 1999 to $3,960,000
in 2000. Operating income 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 $19,878,000 (52.9%) from $26,627,000 (47.3%)
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 and process manufacturing business units payroll and the
use of outside consultants. Also, during the third quarter of 2000, gross
margins increased to 56.5% for the three month period in 2000 from 22.3% 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.

Gross margin on hospitality sales increased to 57.3% in 2000 from 48.5% in 1999
primarily due to the implementation of several cost reduction measures including
our restructuring effected in the fourth quarter of 1999 mainly due to a
reduction in payroll of approximately $810,000 and the use of outside
consultants of approximately $165,000. Gross margins associated with our legacy
business declined consistent with our strategy to focus on providing software
and services to our vertical markets. Gross margin on process manufacturing
sales decreased from 51.2% in 1999 to 46.2% in 2000 mainly due to a decrease in
higher margin software sales which were $1,231,000 (91.0% gross margin) in 1999
and $271,000 (79.9% gross margin) in 2000 resulting from product transitions.

Selling, general and administrative expenses ("SG&A") decreased 56.6% from
$25,456,000 in 1999 to $11,042,000 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 20.9% 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 (income) improved from expense in 1999 of $280,000 to
income of $97,000 in 2000 principally due to refunds received in 2000 resulting
from overpayments of medical insurance payments made in earlier years.

The 12.9% increase in amortization of intangibles versus the comparable period
of 1999 is due to the increased amortization expense associated with capitalized
software development costs of the our Process Manufacturing 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 $1,185,000 in 1999 compared to $1,241,000 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 reflects a tax provision for our foreign operations and
alternative minimum taxes for domestic operations.



                                       5

<PAGE>


RESULTS OF OPERATIONS

Year Ended December 31, 1998 Compared to Year Ended December 31, 1999.


(dollars in thousands)

<TABLE>
<CAPTION>

                                          December 31,    Percentage of   December 31,    Percentage of
                                              1998           Revenue         1999            Revenue
                                          ------------    -------------   ------------    -------------

<S>                                       <C>              <C>            <C>              <C>
Revenues:
     Hospitality                             $33,394           53.7%         $35,639          63.3%
     Process Manufacturing                     8,638           13.9%           8,243          14.6%
     Gaming                                    2,687            4.3%           1,696           3.0%
     Legacy                                   17,211           27.6%          10,768          19.1%
     Other                                       308            0.5%               -              -
Total Revenue                                 62,238          100.0%          56,346         100.0%
Gross Profit                                  29,690           47.7%          26,627          47.3%
Selling, general and administrative
  expenses                                    23,798           38.2%          25,456          45.2%
Restructuring                                      -               -           2,288           4.1%
Research and development costs                 4,058            6.5%           5,114           9.1%
Amortization  of intangibles                   2,522            4.1%           2,326           4.1%
Other operating expense                          378            0.6%             280           0.5%
Write off of deferred financing
  costs                                            -               -             574           1.0%
Equity in net income of
  unconsolidated Subsidiaries                    (33)          (0.1%)            (28)         (0.1%)
Interest expense, net                            896            1.4%           1,185           2.1%
Provision for income taxes                       387            0.6%             169           0.3%
Net loss                                     $(2,316)          (3.7%)       $(10,773)        (19.1%)
</TABLE>

Revenue for 1999 was $56,346,000 compared to $62,238,000 in 1998 or a 9.5%
decrease. We continue to transition from our legacy business to the sale of
enterprise solutions as 80.9% of our 1999 revenue resulted from our enterprise
solutions business as compared to 72.0% in 1998. Our revenue from our sales of
enterprise solutions in industries in which we compete (hospitality, process
manufacturing, gaming and other), increased 1.2% compared to the prior year.
Hospitality revenue increased 6.7% from $33,394,000 in 1998 to $35,639,000 in
1999, largely due to increased software sales. Process Manufacturing decreased
only slightly from $8,638,000 in 1998 to $8,243,000 in 1999. Gaming revenue
decreased 36.9% from 1998 to 1999 due to the sale of its gaming subsidiary in
June 1999. Consistent with our strategy to focus on providing software and
services to its vertical markets, our legacy revenue (traditional hardware
contract service revenues and proprietary add-on sales) declined 37.4% year over
year, largely due to expected decreased volume and customers replacing their
legacy systems due to Year 2000 compliance. As a result of certain customers
replacing our legacy hardware systems with other Year 2000 compliant third party
hardware products, amounts due to us from these customers have become less
collectible and accordingly, our allowance for doubtful accounts as a percentage
of gross accounts receivable increased from 19% as of December 31, 1998 to 33%
as of December 31, 1999.

Revenue in our Asian operations decreased from $6,501,000 in 1998 to $5,379,000
in 1999. Operating income was $777,000 in 1998 as compared to $717,000 in 2000.
The deterioration of revenue and operating income from 1998 to 1999 is mainly
due to the generally depressed condition of the Asian economies resulting in a
decrease in sales in the region.

Gross profit for 1999 decreased to $26,627,000 (47.3%) from $29,690,000 (47.7%)
in 1998. The overall gross margin remained consistent in 1999 to that of 1998
despite a decline in revenue. This was due primarily to increased software
sales, which have higher gross margins. However, during the third quarter of
1999, gross margins decreased from 47.2% for the three month period in 1998
compared to 22.3% in 1999 due to decreased revenue primarily associated with
delays in certain shipments and installations of its Lodging Touch product
during 1999 combined with higher levels of fixed costs associated with
professional services and support which was expected to be absorbed by an
increasing hospitality revenue stream.


Gross margin on hospitality sales remained consistent in 1999 to that of 1998.
Gross margins on gaming decreased from 68.5% in 1998 to 60.4% in 1999 due to
lower margins on hardware sales. Gross margins associated with our legacy

                                       6

<PAGE>

business declined consistent with our strategy to focus on providing software
and services to our vertical markets. Gross margin on process manufacturing
sales decreased from 56.2% in 1998 to 51.2% in 1999 mainly due to decreased
margins on software support as a result of decreased software support revenues
with comparable software support costs from 1998 to 1999.

Selling, general and administrative ("SG&A") expenses increased 7.0% from
$23,798,000 in 1998 to $25,456,000 in 1999. The increase is primarily related to
increased payroll and consultancy costs.

We incurred restructuring costs of $2,288,000 in 1999 in connection with a
restructuring plan to close or reduce certain facilities and reduce the work
force to the appropriate levels to sufficiently support our operations. The
costs were recorded to recognize severance, benefits and other related costs for
employees to be terminated; accruals for lease commitments and the write-off of
certain furniture, fixtures and equipment. The write off of certain furniture,
fixtures and equipment will not significantly effect cash costs of operations in
future periods. There were no comparable costs in 1998.

Research and development costs were $4,058,000 in 1998, compared to $5,114,000
in 1999. The increase was primarily due to a decrease in costs capitalized in
1999, and increased outsourcing of certain development efforts in 1999 as
compared to 1998.

Amortization of intangibles was $2,522,000 in 1998 and $2,326,000 in 1999. This
represents the amortization of intangible assets resulting from acquisitions of
HIS, CIMPRO and the remaining minority ownership (through the acquisition of
stock options) of Gaming Systems International, ("GSI"). The decrease was mainly
due to the sale of GSI in July 1999.

Net interest expense was $896,000 for 1998 compared to $1,185,000 in 1999. The
increase in 1999 is reflective of higher interest rates associated with our line
of credit as compared to 1998 and interest related to our Bridge Loan obtained
on July 28, 1999.

The income tax provision reflects a tax provision for our foreign operations.
Our income tax provisions in 1998 and 1999 results primarily from profitable
foreign operations in those years.

ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended, is effective for
transactions entered into after January 1, 2001. This statement requires that
all derivative instruments be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and the type of hedge transaction. The
ineffective portion of all hedges will be recognized in earnings. The
implementation of SFAS No. 133 did not have a material impact on our results of
operations or financial position.

In December 1999, the SEC staff issued Staff Accounting Bulletin No., 101,
"Revenue Recognition in Financial Statements" and in March 2000, the SEC staff
issued Staff Accounting Bulletin No. 101A "Implementation Issues Related to SAB
101." In addition, in October 2000, the SEC staff issued a document containing
answers to certain frequently asked questions ("FAQ") which further clarified
certain accounting issues addressed in the bulletins relating to revenue
recognition. These bulletins summarize certain of the staff's views about
applying generally accepted accounting principles to revenue recognition in
financial statements. The staff is providing this guidance due, in part, to the
large number of revenue recognition issues that registrants encounter. The
provisions of these pronouncements were effective for us commencing in the
fourth quarter of 2000. The implementation of these bulletins did not have a
material impact on our financial position or results of operations.



                                       7
<PAGE>

EXHIBIT 13.1.3

                          INDEPENDENT AUDITORS' REPORT




The Board of Directors
MAI Systems Corporation:


We have audited the accompanying consolidated balance sheets of MAI Systems
Corporation and subsidiaries as of December 31, 1999 and 2000 and the related
consolidated statements of operations, stockholders' equity (deficiency) and
comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 2000. 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, 1999 and 2000 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.



/s/ KPMG LLP


Orange County, California
March 8, 2001




                                       8
<PAGE>

EXHIBIT 13.1.4 CONSOLIDATED BALANCE SHEETS

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                     As of December 31,
                                                                   (in thousands, except
                                                                        share data)
                                                                 -------------------------
                                                                    1999           2000
ASSETS
<S>                                                              <C>             <C>
Current assets:
     Cash                                                        $   2,645       $   1,019
     Receivables, less allowance for doubtful
     accounts of $3,622 in 1999 and $2,154 in 2000                   7,189           4,338
     Inventories                                                       625             325
     Notes receivable held for sale, less                            2,700           2,700
     deferred gain of $1,227
     Prepaids and other assets                                         782             807
                                                                 ---------       ---------
             Total current assets                                   13,941           9,189

Furniture, fixtures and equipment, net                               2,609           1,882
Intangibles, net                                                     7,974           5,308
Other assets                                                           106              66
                                                                 ---------       ---------
             Total assets                                        $  24,630       $  16,445
                                                                 =========       =========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
     Bridge loan                                                 $   1,450       $     220
     Current portion of long-term debt                                 447             274
     Accounts payable                                               10,705           7,395
     Customer deposits                                               2,236           2,234
     Accrued liabilities                                             5,136           4,182
     Income taxes payable                                              575             272
     Unearned revenue                                                7,773           5,423
                                                                 ---------       ---------

             Total current liabilities                              28,322          20,000

Line of credit                                                       2,892           2,579
Long-term debt                                                       5,270           5,234
Other liabilities                                                      715             742
                                                                 ---------       ---------

             Total liabilities                                      37,199          28,555
                                                                 ---------       ---------

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; 10,906,658 and
          11,006,658 shares issued and issuable at
          December 31, 1999 and 2000, respectively                     112             113
    Additional paid-in capital                                     220,567         220,622
    Accumulated other comprehensive income                             494              80
    Accumulated deficit                                           (233,742)       (232,925)
                                                                 ---------       ---------
             Total stockholders' deficiency                        (12,569)        (12,110)
                                                                 ---------       ---------
Commitments and contingencies
Subsequent events

Total liabilities and stockholders' deficiency                   $  24,630       $  16,445
                                                                 =========       =========
</TABLE>

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


                                       9
<PAGE>

EXHIBIT 13.1.5 CONSOLIDATED STATEMENTS OF OPERATIONS


                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                         For the Years Ended December 31,
                                                       (in thousands, except per share data)
                                                         1998          1999           2000
                                                         ----          ----           ----

<S>                                                    <C>            <C>            <C>
Revenue:
     Software, networks and professional services:
           Software sales                              $10,845        $13,473       $ 7,142
           Network and computer equipment                6,979          5,048         1,301
           Professional services                        27,203         29,513        23,041
                                                       -------      - -------       -------
                                                        45,027         48,034        31,484

     Legacy revenue                                     17,211          8,312         6,103
                                                       -------       --------       -------

                  Total revenue                         62,238         56,346        37,587
                                                       -------       --------       -------

Direct costs:
     Software, networks and professional services:
           Software sales                                2,871          3,978         1,162
           Network and computer equipment                5,599          3,497         1,041
           Professional services                        13,956         15,860        11,691
                                                       -------       --------       -------
                                                        22,426         23,335        13,894

     Legacy costs                                       10,122          6,384         3,815
                                                       -------       --------       -------
                  Total direct costs                    32,548         29,719        17,709
                                                       -------       --------       -------
                  Gross profit                          29,690         26,627        19,878

Selling, general and administrative expenses            23,798         25,456        11,042

Restructuring charges                                        -          2,288             -
Research and development costs                           4,058          5,114         4,047
Amortization of intangibles                              2,522          2,362         2,666
Other operating expense (income)                           378            280          (97)
                                                       -------       --------       -------
                  Operating income (loss)               (1,066)        (8,873)        2,220


Write off of deferred financing costs                        -           (574)            -
Equity in net income of unconsolidated                      33             28             -
     Subsidiaries
Interest income                                            202            300           282
Interest expense                                        (1,098)        (1,485)       (1,523)
                                                       -------       --------       -------
                  Income (loss) before income taxes     (1,929)       (10,604)          979

Provision for income taxes                                 387            169           162
                                                       -------       --------       -------
                  Net income (loss)                    $(2,316)      $(10,773)      $   817
                                                       ========      ========       =======

Income (loss) per share:

Basic income (loss) per share                          $ (0.23)       $ (0.99)        $0.07
                                                       =======        =======         =====

Diluted income (loss) per share                        $ (0.23)       $ (0.99)        $0.07
                                                       =======        =======         =====

Weighted average common shares used in
Determining income (loss) per share:

Basic                                                   10,587         10,889        10,932
                                                        ======         ======        ======
Diluted                                                 10,587         10,889        11,206
                                                        ======         ======        ======
</TABLE>

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



                                       10
<PAGE>

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


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

<TABLE>
<CAPTION>

                                     Additional   Accumulated Other                        Total              Total
                            Common    Paid-In       Comprehensive     Accumulated       Stockholders'     Comprehensive
                            Stock     Capital          Income           Deficit      Equity (Deficiency)  Income (Loss)
                           -------   ----------   -----------------   -----------   -------------------   -------------
                                                               (in thousands)


<S>                       <C>          <C>            <C>             <C>               <C>                 <C>
Balance at December 31,   $   105      $ 219,379      $     503       $(220,653)        $    (666)          $  (9,769)
 1997                                                                                                       =========

Issuance of common
 stock for acquisition
 of GSI minority
 interest                       1              -              -               -                 1                  -


Issuance of common
 stock in connection with
 acquisition of HIS             2              -              -               -                 2                  -
Issuance of common
 stock in lieu of license
 acquisition fee payment        1            324              -               -               325                  -

Exercise of stock
 options and Warrants           1             67              -               -                68                  -
Stock option                    -             10              -               -                10                  -
 compensation
Foreign currency                -              -            210               -               210                210
 translation gains
Net loss                        -              -              -          (2,316)           (2,316)            (2,316)
                          -------      ---------      ---------       ---------         ---------          ---------
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               -              9              -               -                 9                 -
 options
Stock option                    -            280              -               -               280                 -
 compensation
Foreign currency                -              -           (219)              -              (219)             (219)
 translation losses
Net income                      -              -              -         (10,773)          (10,773)          (10,773)
                           ------      ---------      ---------       ---------         ---------         ---------

Balance at December 31,
 1999                         112        220,567            494        (233,742)          (12,569)        $ (10,992)
                                                                                                          =========

Stock option                    1             55              -               -                56                 -
 compensation
Foreign currency                -              -           (414)              -              (414)             (414)
 translation losses
Net income                      -              -              -             817               817               817
                          -------      ---------      ---------       ---------         ---------         ---------

Balance at December 31,
 2000                    $    113      $ 220,622      $      80       $(232,925)        $ (12,110)        $     403
                         ========      =========      =========       =========         =========         =========
</TABLE>


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

                                       11
<PAGE>


EXHIBIT 13.1.7  CONSOLIDATED STATEMENTS OF CASH FLOWS

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                          1998               1999                2000
                                                          ----               ----                ----
<S>                                                     <C>               <C>                   <C>
Cash flows from operating activities:
     Net income (loss)                                   $(2,316)          $(10,773)            $  817
     Adjustments to reconcile net income
     (loss) to net cash provided by (used in)
     operating activities:
          Amortization of intangibles                      2,522              2,362              2,666
          Depreciation and amortization                    1,538              1,323              1,020
          Stock option compensation expense                   10                280                 56
          Write-down of notes receivable                       -                355                  -
            held for sale
          Write-off of deferred financing costs                -                574                  -
          Write-off of furniture, fixtures,
            and equipment                                      -              1,900                  -
          Equity in net losses (income) of
            unconsolidated Subsidiaries                      (33)               (28)                 -
          Provision for doubtful accounts receivable       1,340              2,151                933
          Provision for inventory obsolescence               346                413                170

          Net loss (gain) from foreign
            currency translation                             233               (222)              (454)
          Changes in assets and liabilities:
               (Increase) decrease in receivables         (3,564)             3,638              1,918
               (Increase) decrease in inventories            102                (12)               130
               Decrease (increase) in prepaids
               and other asset                              (984)             1,483                275
               Decrease (increase) in other assets           527                927                 40
               (Decrease) increase in
               accounts payable and customer deposits      1,237                375             (3,312)
               (Decrease) increase in accrued
               liabilities                                 1,355              1,083             (1,254)
               (Decrease) increase in income taxes
               payable                                        16                 (2)              (303)
              (Decrease) increase in unearned revenue     (1,265)            (2,578)            (2,350)
              (Decrease) increase in other liabilities         1                  2                 27
                                                         --------          --------           --------
              Net cash provided by  operating
                activities                                 1,065              3,251                379
                                                         --------          --------           --------
Cash flows from investing activities:
        Capital expenditures                                (920)            (2,178)              (134)
        Software development costs                        (2,040)            (1,724)                  -
                                                         --------          --------           --------
               Net cash used in investing
                 activities                               (2,960)            (3,902)              (134)
                                                         --------          --------           --------
Cash flows from financing activities:
        Proceeds from issuance of common stock, net            -                500                  -

        Repayments of long-term debt                         (89)              (310)              (368)
        Proceeds from issuance of Bridge Loan                  -              2,000                  -
        Repayments of Bridge Loan                              -               (550)            (1,230)
        Net increase (decrease) in line of credit          1,917               (385)              (313)
        Proceeds from the exercise of stock options           68                  9                  -
                                                         --------          --------           --------
               Net cash provided by (used
                 in) financing                             1,896              1,264             (1,911)
                                                         --------          --------           --------

               Effect of exchange rate changes on cash       (23)                 3                 40
                                                        --------           --------           --------
               Net increase (decrease) in cash              (22)                616             (1,626)

Cash at beginning of year                                  2,051              2,209              2,645
                                                        --------           --------           --------
Cash at end of year                                     $  2,029           $  2,645           $  1,019
                                                        ========           ========           ========

Cash paid during the period for:
      Interest                                          $  1,093           $    870           $  1,190
                                                        ========           ========           ========
      Income taxes                                      $     16           $    226           $    148
                                                        ========           ========           ========
</TABLE>


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

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



                                       12
<PAGE>

EXHIBIT 13.1.8      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS

MAI Systems Corporation (the "Company" or "MAI") designs, sells, installs and
supports total technology solutions featuring complex wide and local area
networks primarily in the hospitality and process manufacturing industries. The
Company also 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 these legacy systems with currently available computer technologies.
Directly and through its arrangement with a third party service provider, the
Company provides on-site warranty service, re-manufacturing, and depot service
to third party computer distributors and manufacturers. During 1999, the Company
sold its subsidiary which sold software and services to the gaming industry.

The Company was incorporated under the laws of the State of Delaware on
September 6, 1984. The Company's name was changed from MAI Basic Four, Inc. to
MAI Systems Corporation on November 6, 1990.

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
generally accepted accounting principles. 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 recognizes 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
recognized when 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 transfers. Software
revenues are recorded when application software programs are shipped to end
users, resellers and distributors. 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 other than replacement parts are valued at the lower of cost or
market using the first-in, first-out ("FIFO") method. Replacement parts used for
hardware maintenance are valued at cost and are amortized to expense over the
period of benefit.




                                       13
<PAGE>

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.

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 measured 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, except for assets covered by Accounting Principles
Board ("APB") Opinion No. 30, "Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions."

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.

STOCK OPTION PLANS

Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. As such, compensation expense
would be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income
(loss) and pro forma net income (loss) per share disclosures considering stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.

FOREIGN CURRENCY TRANSLATION

The functional currency for all foreign subsidiaries is the applicable local
currency. Accordingly, all translation gains and losses 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' equity (deficiency).

Net foreign exchange transaction gains for 1998 was $81,000. There were no
material net foreign gains (losses) in 1999 and 2000. 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. In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" 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 completion of a detailed program design.



                                       14
<PAGE>

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.

The Company capitalized $2,040,000 and $1,724,000 of software development costs
during 1998 and 1999, respectively. No costs were capitalized in 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosure about Fair Value of Financial Instruments", requires
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value. SFAS No. 107 defines fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties. As of December 31, 1999 and 2000,
the carrying value of cash and cash equivalents, 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.

INCOME (LOSS) PER SHARE OF COMMON STOCK

Basic and diluted income or (loss) per share is computed using shares of common
stock issued to date and expected to be issued in accordance with the Plan of
Reorganization ("Common Stock") as discussed in Note 17. 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 .
However, for all periods presented , there were no common stock equivalents or
the effect of common stock equivalents would be anti-dilutive.

ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended, is effective for
transactions entered into after January 1, 2001. This statement requires that
all derivative instruments be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and the type of hedge transaction. The
ineffective portion of all hedges will be recognized in earnings. The
implementation of SFAS No. 133 did not have a material impact on the Company's
results of operations and financial position.

In December 1999, the SEC staff issued Staff Accounting Bulletin No., 101,
"Revenue Recognition in Financial Statements" and in March 2000, the SEC staff
issued Staff Accounting Bulletin No. 101A "Implementation Issues Related to SAB
101." In addition, in October 2000, the SEC staff issued a document containing
answers to certain frequently asked questions ("FAQ") which further clarified
certain accounting issues addressed in the bulletins relating to revenue
recognition. These bulletins summarize certain of the staff's views about
applying generally accepted accounting principles to revenue recognition in
financial statements. The staff is providing this guidance due, in part, to the
large number of revenue recognition issues that registrants encounter. The
provisions of these pronouncements were effective for the Company during the
fourth quarter of 2000. The implementation of these bulletins did not have a
material impact on its results of operations and financial position.



                                       15
<PAGE>

NOTE 2 - INVENTORIES

Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                              December 31,
                                           -----------------
                                             (in thousands)
                                           1999         2000
                                           ----         ----
<S>                                        <C>          <C>
Finished goods                             $251         $124
Replacement parts                           374          201
                                            ---         ----
                                           $625         $325
                                           ====         ====
</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 - ASSETS HELD FOR SALE

During 1998, the Company wrote off the remaining net assets of $75,000 of its
Venezuelan subsidiary. During 2000 the Venezuela subsidiary was sold to the
local management for an immaterial amount.

NOTE 4 - FURNITURE, FIXTURES AND EQUIPMENT

The major classes of furniture, fixtures and equipment are as follows:
<TABLE>
<CAPTION>

                                                                       1999             2000
                                                                       ----             ----
                                                                          (in thousands)
<S>                                                                    <C>             <C>
                  Furniture, fixtures and equipment                    $2,657          $2,657
                  Equipment held for administrative purposes            6,319           6,323
                  Leasehold improvements                                  345             345
                                                                     --------        --------
                                                                        9,321           9,325

                  Less:  accumulated depreciation and
                         amortization                                  (6,712)         (7,443)
                                                                     --------        --------
                                                                     $  2,609        $  1,882
                                                                     ========        ========
</TABLE>


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 significant.

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.



                                       16
<PAGE>

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 after considering the
settlement described in Note 20. As of December 31, 2000, the fair market value
of the Company's common stock was $0.25 per share, which would result in
approximately 2,645,000 additional shares being issued. Also, included in the
escrow account at December 31, 2000 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, 2000, the final purchase price has not been determined.

In April 1998, in accordance with the purchase agreement and related documents
pursuant to which the Company acquired HIS in August 1996, the Company issued
246,453 additional shares of Common Stock valued at par.

GAMING SYSTEMS INTERNATIONAL

In May 1998, in accordance with the stock purchase agreement and option
cancellation agreements pursuant to which the Company acquired the remaining 30%
minority interest and remaining options in Gaming Systems International ("GSI")
in May 1996 and March 1997, respectively, the Company issued 45,424 additional
shares of Common Stock valued at par.

On June 19, 1999, the Company sold 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 is 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
is guaranteed by a third party. Principal payments and interest, at prime plus
1%, 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 resulting in a combined
carrying value of $4,282,000 for all three promissory notes. The Company is
amortizing the imputed interest over the contractual life of the promissory
notes using the interest method. The gain on sale of $1,227,000 has been
deferred until collection of the proceeds representing the gain can be assured.
The promissory notes are currently held for sale. The Company expects to sell
the notes in 2001 at an amount approximately $355,000 less than the carrying
value of such notes. Accordingly, the promissory notes have been written down to
their estimated net realizable value of $2,700,000 and are classified as current
in the accompanying consolidated balance sheet as of December 31, 2000 after
income taxes.


Summarized below is historical financial information about GSI (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>



                                       17
<PAGE>

CIMPRO

On March 6, 1997, the Company acquired substantially all the assets and assumed
certain liabilities of CIMPRO, which develops and markets process manufacturing
software, for $5,900,000 in cash and $328,000 of direct costs related to the
acquisition. To finance the acquisition of CIMPRO, the Company sold 400,000
shares of its Common Stock in a private placement for $6.50 per share and issued
$6,000,000 of 11% subordinated notes payable due in 2003 to an investment fund
managed by Canyon Capital Management LP ("Canyon"), (see note 9).

The acquisition of CIMPRO was accounted for using the purchase method of
accounting and resulted in the Company recording $7,475,000 of intangible assets
and resulted in as of the date of acquisition. Intangible assets are being
amortized on a straight-line basis over the expected periods to be benefited of
five to seven years.

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 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 1998, 1999 and 2000 were approximately $750,000,
$941,000, and $425,000 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 (see note 18).



                                       18
<PAGE>

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)
                                            1999         2000
                                          -------       -------

<S>                                       <C>           <C>
Goodwill                                  $10,196       $10,196
Capitalized software                        4,056         4,056
Customer list                                 925           925
                                         --------      --------
                                           15,177        15,177
Less:  accumulated amortization            (7,203)       (9,869)
                                         --------      --------
          Total                           $ 7,974       $ 5,308
                                         ========      ========
</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. The initial term of
the Bridge Loan has been extended as described below. Loan origination fees of
$75,000 paid to Coast in connection with the Bridge Loan are included in
prepaids and other assets and are being 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 $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 bears
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 require
$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 is paid in full. As of December 31, 2000, the unpaid balance
of the Bridge Loan was $220,000. 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, the Company agreed to
pay Coast a fee of $300,000 in weekly installments of $35,000 commencing after
the Bridge Loan is paid in full. 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 these
covenants as of December 31, 2000.

At December 31, 1999 and 2000, approximately $2,892,000 and $2,579,000,
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.





                                       19
<PAGE>

NOTE 9 - LONG-TERM DEBT

Long-term debt outstanding is as follows:

<TABLE>
<CAPTION>
                                             December 31,
                                             ------------
                                           (in thousands)
                                          1999          2000
                                          ----          ----

<S>                                      <C>          <C>
Notes payable                            $4,722       $4,881
Obligations under capital leases            666          343
Tax Claims                                  279          279
Other                                        50            5
                                         ------       ------
                                          5,717        5,508
Less:  current installments                (447)        (274)
                                         ------       ------
Noncurrent portion                       $5,270       $5,234
                                         ======       ======
</TABLE>


Aggregate maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
                  Year Ending December 31,
                  ------------------------
                       (in thousands)

           <S>                     <C>
           2001                    $  274
           2002                       100
           2003                     4,882
           2004                         -
           2005                         -
           Thereafter                 252
                                   ------
                                   $5,508
                                   ======
</TABLE>

See Note 20 regarding subsequent events impacting additional long-term
indebtedness.

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 $368,000 at
December 31, 2000.

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 is $460,000 as of December 31, 2000.

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 until the


                                       20
<PAGE>

Coast Bridge Loan is paid in full. 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. Upon repayment of the Bridge Loan,
the Company will be required to pay Canyon weekly interest payments of $25,000
until all interest on the subordinated notes is paid in full. Thereafter, the
Company will pay weekly interest payments of approximately $11,000.

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, 1999 and 2000. As of December 31,
1999 and 2000, unsettled tax claims of $712,000 are included in long-term
liabilities.

NOTE 10 - ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES

Accrued liabilities consist of the following:


<TABLE>
<CAPTION>
                                            1999         2000
                                            ----         ----
                                              (in thousands)

<S>                                        <C>          <C>
Salaries, wages and commissions            $1,225       $  639
Accrued warranty, insurance & sales
taxes                                         687          405
Accrued vacation                              675          529
Accrued interest                              524          460
Other                                       2,025        2,149
                                           ------       ------
     Total                                 $5,136       $4,182
                                           ======       ======
</TABLE>


NOTE 11 - INCOME TAXES

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


<TABLE>
<CAPTION>
                                 Years Ended December 31,
                                 ------------------------
                                      (in thousands)
                                1998        1999        2000
                                ----        ----        ----

<S>                           <C>        <C>             <C>
U.S.                          $(3,458)   $(12,147)       $871
Foreign                         1,529       1,543         108
                              -------    --------        ----
      Total                   $(1,929)   $(10,604)       $979
                              =======    =========       ====
</TABLE>



                                       21
<PAGE>

The income tax provision is comprised of the following:

<TABLE>
<CAPTION>
                                Years Ended December 31,
                                     (in thousands)

                                1998      1999      2000
                                ----      ----      ----
<S>                             <C>       <C>       <C>
Current:
     U.S. Federal               $  -      $  -      $ 65
     State                         -         -         -
     Foreign                     387       169        97
                                ----       ---        --
                                 387       169       162
Deferred:
     U.S. Federal                  -         -         -
     Foreign                       -         -         -
                                ----       ---        --
                                   -         -         -
                                ----       ---        --
 Total                          $387      $169      $162
                                ====      ====      ====
</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)
                                           1999          2000
                                           ----          ----

<S>                                     <C>            <C>
Deferred tax assets:
     Net operating loss carryforwards   $ 23,097       $ 22,646
     Property, plant and equipment         1,509          1,467
     Restructuring and other reserves        124              -
     Inventory reserves                      121            107
     Allowance for doubtful accounts       1,278            647
     Capitalized software and
     intangibles                             809          1,140
     Accrued expenses                        410            455
     Other                                   540            486
                                        --------       --------
                                          27,888         26,947
Less:  valuation allowance               (27,888)       (26,947)
                                        --------       --------
          Net deferred tax assets       $      -       $      -
                                        ========       ========
</TABLE>


The Company recorded approximately $670,000 of certain deferred tax assets as of
December 31, 1999 that were previously not included due to contingencies that
were resolved during the year as a result of the finalization of an Internal
Revenue Service examination of the Company's former parent's 1991, 1992, 1993
consolidated group tax returns. However, 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 1999
and 2000 was $1,246,000 and $(941,000)), 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, 2000, the Company has Federal and state net operating losses
(NOL) carryovers of approximately $63,500,000 and $4,500,000 respectively. These
NOL carryovers will expire in the years 2001 through 2018. The Company's
utilization of a portion of its NOL carryovers is subject to various
uncertainties including an annual limitation 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.




                                       22
<PAGE>

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

                                                     Years Ended December 31,
                                                     ------------------------
                                                        (in percentages)
                                                  1998          1999           2000
                                                  ----          ----           ----

<S>                                              <C>             <C>           <C>
Statutory tax rate                               (34.0%)         (34.0%)        34.0%
Change in valuation allowance                     100.7           11.8         (91.9)
Amortization and write-off of intangibles           9.1            6.9          14.6
Expiration of state NOLs                              -              -           7.5
Effect of foreign operations                       13.9            8.6          27.5
Adjustments of NOL carry forwards and
  deferred tax assets pursuant to the
  finalization of the IRS examination and
  other analysis                                  (78.6)           7.5          24.9
Other                                               0.3            0.8          (0.1)
                                                 ------          -----        ------
Effective tax rate                                 11.4%           1.6%         16.5%
                                                 ======          =====        ======
</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, Venezuela, United Kingdom,
Singapore, Malaysia, Hong Kong, and the Netherlands. In connection with the
acquisition of HIS (see Note 6), the Company acquired operations in Singapore,
Hong Kong and Australia.


<TABLE>
<CAPTION>
                                          1998               1999               2000
                                          ----               ----               ----
Revenue from unaffiliated
  customers:
<S>                                    <C>               <C>                 <C>
     United States                     $49,841           $ 43,729            $29,740
      Asia                               6,501              5,379              3,960
      Canada                             3,854              3,726              1,778
      United Kingdom                     1,532              2,567              1,281
      Other foreign                        510                945                828
                                       -------           --------            -------
                                       $62,238           $ 56,346            $37,587
                                       =======           ========            =======

United States revenue from                $379               $271                $42
  foreign affiliates

Operating income (loss):
     United States                     $(2,325)          $(10,362)             2,135
     Asia                                  777                717               (189)
     Canada                                651                607                306
     United Kingdom                        380                348                (92)
     Other foreign                        (549)              (183)                60
                                       -------           --------            -------
                                       $(1,066)          $ (8,873)           $ 2,220
                                       =======           ========            =======

Identifiable assets:
     United States                     $28,396           $ 18,268            $13,205
     Asia                                3,382              2,455              1,078
     Canada                              1,658              1,670                544
     United Kingdom                      2,085              1,817              1,331
     Other foreign                         235                420                287
                                       -------           --------            -------
                                       $35,757           $ 24,630            $16,445
                                       =======           ========            =======

Long-lived assets:
     United States                     $13,379            $10,512             $7,137
     Asia                                 $178               $103                $52
     Canada                               $193                $39                $27
     Other foreign                        $172                $33                $47
</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


                                       23
<PAGE>

current 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 four reportable segments: Hospitality, Process Manufacturing,
Gaming, and Legacy. The Hospitality segment marketed three property management
systems to the hospitality marketplace. The Process Manufacturing segment
markets enterprise resource planning ("ERP") applications software for mid-size
process manufacturers. The Gaming segment marketed products for the gaming
industry and was sold in 1999. The Legacy segment principally provides
maintenance services to its installed base of customers.

The Company evaluates performance of each segment based on operating income for
fiscal years ending December 31, 1998, 1999, and 2000.


                                        YEAR ENDING DECEMBER 31,
                                             (IN THOUSANDS)

2000:
<TABLE>
<CAPTION>
                                             Process
                             Hospitality   Manufacturing     Gaming     Legacy     Corporate      Total
                             -----------   -------------     ------     ------     ---------     --------
<S>                            <C>            <C>             <C>       <C>          <C>         <C>
Revenues from:
   Hardware                    $ 1,301        $     -         $ -       $  355       $    -      $  1,656
   Software                      6,865            277           -          138            -         7,280
   Professional Services        19,156          3,885           -        5,610            -        28,651
Total Revenues                  27,322          4,162           -        6,103            -        37,587
Operating Income (loss)          3,523         (1,968)          -        1,322         (657)        2,220
Total Assets                     8,292          4,153           -          738        3,263        16,445
</TABLE>

1999:
<TABLE>
<CAPTION>
                                             Process
                             Hospitality   Manufacturing     Gaming     Legacy     Corporate      Total
                             -----------   -------------     ------     ------     ---------     --------
<S>                           <C>           <C>            <C>         <C>         <C>           <C>
Revenues from:
   Hardware                    $ 3,191        $     3      $1,186      $   668        $   -       $ 5,048
   Software                     11,689          1,231          77          476            -        13,473
   Professional Services        20,758          7,009         434        9,624            -        37,825
Total Revenues                  35,639          8,243       1,696       10,768            -        56,346
Operating Income (loss)         (8,798)           253         150        2,717       (3,195)       (8,873)
Total Assets                    11,851          7,646           -        2,169        2,964        24,630

</TABLE>

1998:
<TABLE>
<CAPTION>
                                             Process
                             Hospitality   Manufacturing    Gaming     Legacy     Corporate      Total
                             -----------   -------------    ------     ------     ---------     --------
<S>                           <C>           <C>            <C>        <C>         <C>           <C>
Revenues from:
   Hardware                    $ 5,178        $     3       $ 1,801   $   357      $     -       $ 7,339
   Software                      8,847          1,948            51        53            -        10,899
   Professional Services        19,369          6,687           835    16,801          308        44,000
Total Revenues                  33,394          8,638         2,687    17,211          308        62,238
Operating Income (loss)           (552)        (1,780)       (1,493)    4,345       (1,586)       (1,066)
Total Assets                    15,629          8,930         4,028     6,462          708        35,757

</TABLE>

NOTE 14 - STOCKHOLDERS' EQUITY (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, 2,000,000 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, 2000,


                                       24
<PAGE>

300,918 options under the 1993 Plan were exercisable and the weighted-average
exercise price of these options was $3.38.

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 each
non-employee director who is elected or appointed and duly qualified, be granted
automatically an option to purchase 31,250 shares of Common Stock. The option
vests in five equal installments, the first of which occurs on the six-month
anniversary of the non-employee director's election or appointment to the Board,
and thereafter on the date of each successive re-election to another annual
term. The Director's Plan further 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 on the date of the annual
meeting of the Company's stockholders held during the fourth calendar year after
the date of grant at 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, 2000, 82,814
options under the Director's Plan were exercisable and the weighted-average
exercise price of these options was $4.99.

At December 31, 2000, there were 400,813 additional shares available for grant
under the stock option plans. The per share weighted-average fair value of stock
options granted during 1998, 1999 and 2000 was $2.65, $2.19, and $0.53
respectively, on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: 1998 -- risk-free interest rate
of 6.20%, volatility of 70% and an expected life of 5 years; 1999 -- risk-free
interest rate of 6.5%, volatility of 80% and an expected life of 5 years; 2000
-- risk free interest rate 6.5%, volatility 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)
                                                      1998         1999         2000
                                                      ----         ----         ----

<S>                        <C>                      <C>         <C>              <C>
Net income (loss):          As reported             $(2,316)    $(10,773)        $ 817
                            Pro forma                (3,403)     (12,201)         (566)

Basic income (loss) per
share:                      As reported              $(0.23)      $(0.99)        $0.07
                            Pro forma                 (0.32)       (1.12)        (0.05)

Diluted income (loss) per
share:                      As reported              $(0.23)      $(0.99)        $0.07
                            Pro forma                 (0.32)       (1.12)        (0.05)

</TABLE>


Pro forma net income (loss) and pro forma net income (loss) per share reflects
only options granted in 1996 through 2000. 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.



                                       25


<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, 1997          1,025,342           $5.45

     Granted                                        245,770            2.64
     Exercised                                      (40,666)           1.65
     Canceled                                      (205,486)           6.79
                                                  ---------            ----

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            $.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
                                                  =========           =====
</TABLE>



At December 31, 2000, the range of exercise prices and weighted-average
remaining contractual life of outstanding options under the Company's stock
option plans were $0.31, $9.75 and 8.10 years, respectively.

During 1998 and in July 2000, the Company accelerated the vesting period of
6,185 and 100,000 stock options, respectively, granted to certain employees of
the Company resulting in a new measurement date of such options. The exercise
prices of the options were $2.32 and zero, respectively, and the fair market
values on the date of acceleration were $3.94 and $0.56, respectively.
Accordingly, earned compensation of approximately $10,000 and $56,000 have been
recorded for the difference between the option exercise price and fair market
value on the date of acceleration in 1998 and 2000, respectively, and was
charged to expense in each respective period.

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).

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 1998, 1999 and 2000, 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 $3,500, $4,700 and $5,200 for
1998, 1999 and 2000 respectively.




                                       26


<PAGE>

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)
                                    1998        1999       2000
                                    ----        ----       ----
<S>                                <C>         <C>        <C>
Service costs                      $  40       $   -      $   -
Interest costs                       110         132        132
Expected return on plan assets      (110)       (114)      (126)
                                   -----       -----      -----


Net periodic pension expense         $40         $18         $6
                                   =====        ====      =====
</TABLE>


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:                             1998         1999         2000
                                                          ----         ----         ----

<S>                                                     <C>          <C>          <C>
Projected Benefit Obligation, beginning of year         $1,541       $1,976       $1,695
Service cost                                                40            -            -
Interest cost                                              110          132          131
Benefits paid                                              (56)         (57)         (62)
Actuarial loss/(gain)                                      341         (356)          95
                                                        ------       ------       ------
Projected Benefit Obligation, end of year               $1,976       $1,695       $1,859
                                                        ======       ======       ======
Change in Plan Assets:

Plan assets, beginning of year                          $1,408       $1,677       $1,830
Actual return on plan assets                               270          127          (86)
Employer contribution                                       55           83           54
Benefits paid                                              (56)         (57)         (62)
                                                        ------       ------       ------
Plan assets, end of year                                $1,677       $1,830       $1,736
                                                        ======       ======       ======

Funded status                                           $ (299)      $  135       $ (123)
Unrecognized (gain)/loss                                   223         (146)         161
                                                        ------       ------       ------
Net amount recognized                                   $  (76)      $  (11)      $   38
                                                        ======       ======       ======
</TABLE>



                                       27


<PAGE>

The weighted average discount rates used in determining the actuarial present
value of the benefit obligations were 6.75%, 7.9% and 7.5% for 1998, 1999 and
2000, respectively. The long-term rate of return on assets was 8%, 7% and 7% for
1998, 1999 and 2000, respectively.



                                       28


<PAGE>

NOTE 16 - RESTRUCTURING COSTS

Prior to 1994, a restructuring plan was implemented comprising employee
severance programs, excess facilities and lease termination costs. During 1998
approximately $37,000 of costs and payments have been charged against this
restructuring reserve balance and during 2000, the remaining lease obligations
were paid. The balance at December 31, 1999 of $36,000 mainly comprised lease
obligations for excess space.

In September 1997, management authorized and committed the Company to a
restructuring plan to eliminate operations and related expenses which were not
required to support the Company's operations of software sales and professional
services. In connection with the restructuring plan, the Company recorded a
restructuring charge of $900,000 to recognize severance, benefits and other
related costs for the employees to be terminated. During 1997, the Company paid
approximately $875,000 of severance and termination benefits. The remaining
balance of $25,000 mainly consisted of severance and termination benefits and
was paid in 1999.

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 anticipates that approximately
6,820,338 shares of Common Stock will be issued under the Plan, and it is the
balance that is used in the income (loss) per share calculation. As of December
31, 2000, 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.

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>
          2001                   $1,247
          2002                    1,081
          2003                      765
          2004                      134
          2005                      196
          Thereafter                 54
                                 ------
                                 $3,477
                                 ======
</TABLE>


                                       29


<PAGE>

Rental expense was approximately $2,095,000, $1,500,000 and $1,085,000 for the
years ended December 31, 1998, 1999, and 2000, respectively.

LEGAL PROCEEDINGS


Chapter 11 Bankruptcy Proceedings

At December 31, 2000, 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 has 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 a second
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 (See Note 20).


Enterprise Hospitality Solutions, Inc.

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, 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.

Wang Global 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
it's Legacy customers. On July 26, 1999, Wang Global Corporation ("Wang"),
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 Wang. Wang claims that the amounts due from MAI exceed $3.7 million.




                                       30


<PAGE>

MAI filed a counterclaim for breach of contract and unfair business practices.
MAI believed that to the extent any amounts are outstanding under the parties'
agreement, the amount outstanding was significantly less than $3.7 million.
Getronics Corporation answered the Counterclaim in the arbitration, asserting
that it was the successor-in-interest to ONA and Wang.

On June 9, 2000, MAI filed a compliant in California Superior Court against
Getronics Corporation ("Getronics") seeking to enjoin it from proceeding with
the arbitration on the grounds that the Company had not agreed to arbitrate with
Getronics (the "Court Action"). On June 22, 2000, the arbitration was stayed
pending the resolution of the Court Action.

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's 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.

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 (which were to expire on August 14, 1999)
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 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). On August 11, 1999, the term of the remaining warrants to purchase up to
467,105 shares of Common stock was extended for an additional two-year period so
that they will expire on August 14, 2001. In connection with extending the term
of the warrants, the Company recorded $280,275 of compensation expense as the
fair market value of Common Stock on the date of the extension of $2.50 exceeded
the $1.90 exercise price.

On May 21, 1999, the Company's Chairman was granted 31,250 options to purchase
Common Stock under the Non-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 is on a month-to-month basis at the rate
of $16,667 per month. The Company paid Mr. Loshitzer approximately $92,000 in
2000.


                                       31
<PAGE>

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 Company, 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.

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)

                                                            1998          1999          2000
                                                            ----          ----          ----
<S>                                                       <C>           <C>            <C>
Numerator:
Numerator for basic and diluted income (loss)
per share -- net income (loss)                            $(2,316)      $ (10,773)      $  817
                                                          =======       =========       ======

Denominator:
Denominator for basic income (loss) per share -
  weighted average number of common shares outstanding
  during the period                                        10,587          10,889       10,923
Incremental common shares attributable to exercise of
  outstanding options and warrants                              -               -          283
                                                          -------        --------      -------
Denominator for diluted income (loss) per share            10,587          10,889       11,206
                                                          =======        ========      =======

Basic income (loss) per share                             $ (0.23)       $  (0.99)      $ 0.07

Diluted income (loss) per share                           $ (0.23)       $  (0.99)      $ 0.07
</TABLE>


The computation of diluted loss per share 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).


NOTE 20 -- SUBSEQUENT EVENTS

The Company entered into a second settlement agreement with CSA in February,
2001 (See Note 18), whereby we agreed to take the following steps on or before
March 1, 2001: (i) issue CSA additional shares of our common stock to bring
CSA's total share ownership to 2,433,333 shares; (ii) immediately file a
registration statement for all of CSA's shares of our common stock; and (iii)
execute a secured debt instrument in favor of CSA in the principal sum of
$2,800,000 which is subordinate only to our present group of three (3) senior
secured leaders and requires cash installment payments to commence June 1, 2002.
The number of shares which may be sold by the selling shareholder includes: (i)
CSA's current ownership of 517,319 shares, and (ii) 1,916,014 additional shares
which we will issue to CSA pursuant to the settlement agreement. As of March 8,
2001, these steps had not yet occurred and the Company was in default.
Accordingly, CSA had the ability to terminate the February 2001 settlement
agreement.

In January and February of 2001, the Company entered into tentative agreements
with several creditors to retire approximately $2.1 million of obligations
outstanding as of December 31, 2000 in exchange for 798,000 shares of Common
Stock and $470,000 of cash. To fulfill its performance under the agreement, the
Company must issue the 798,000 shares of its Common Stock and cause them to
become tradable with the effectiveness of an S-3 Registration Statement, which
the Company is expected to file in March 2001. The Company must also pay the
$470,000 to the creditors as prescribed in the respective agreements.

The CSA settlement is expected to result in a decrease to additional
paid-in-capital for the amount of the note issued and no charge to the statement
of operations. The settlements with the various creditors described in the
preceding paragraph are expected to result in gains of approximately $1.4
million. All of these settlements require performance by the Company of various
tasks, including the successful completion of the of the registration of common
shares. If these tasks are not successfully concluded, the settlement
arrangements could be adversely impacted. Accordingly, the



                                       32
<PAGE>
final accounting for the settlements will be reflected once the significant
uncertainties concerning MAI's performance are resolved.

Following is the pro-forma effect of the CSA and creditor settlements as if all
uncertainties regarding these settlements had been resolved in 2000 (in
thousands):

<TABLE>
<CAPTION>

                                                     2000          Pro Forma      2000
                                                 As Reported      Adjustments   Pro-Forma
                                                 -----------      -----------   ---------

<S>                                              <C>              <C>          <C>
Accounts Payable                                 $   7,395          $(1,553)    $ 5,842
Long-term debt                                       5,234            2,750       7,984
Stockholders' deficiency                           (12,110)          (1,196)    (13,306)
Net income                                             817            1,400       2,217
</TABLE>


NOTE 21 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>

                               1st       2nd       3rd       4th       1st       2nd       3rd       4th
                             Quarter   Quarter   Quarter   Quarter   Quarter   Quarter   Quarter   Quarter
                               1999      1999      1999    1999(1)     2000      2000      2000      2000
                               ----      ----      ----    -------     ----      ----      ----      ----
<S>                           <C>       <C>      <C>       <C>       <C>        <C>       <C>       <C>
Revenue                       $16.1     $16.3     $11.4    $ 12.5    $  9.0      $9.9     $ 9.8     $ 8.9
Gross Profit                    9.1       9.1       2.5       5.9       4.2       5.3       5.5       4.9
Operating income (loss)         1.5       1.1      (6.5)     (5.0)     (0.9)      0.6       1.4       1.1
Net income (loss)               1.2       0.8      (7.5)     (5.3)     (1.2)      0.3       1.1       0.6
Basic and diluted income
(loss) per share              $0.11     $0.07    $(0.69)   $(0.49)   $(0.11)    $0.02     $0.10     $0.05
                              =====     =====    =======   =======   =======    =====     =====     =====
</TABLE>






(1)   The fourth quarter of 1999 includes charges of $2.3 million relating to a
      restructuring plan.




                                       33