<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                     SECURITIES EXCHANGE ACT OF 1934 For the
                    quarterly period ended September 30, 2002

                           COMMISSION FILE NO. 1-9158

                                   ----------

                             MAI SYSTEMS CORPORATION
             (Exact name of Registrant as Specified in its Charter)

                Delaware                            22-2554549
   (State or other jurisdiction of               (I.R.S. Employer
    incorporation or organization)              Identification No.)

                               9601 JERONIMO ROAD
                               IRVINE, CALIFORNIA
                                      92618
                    (Address of Principal Executive Offices)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 598-6000

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

Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X]  No

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

Yes [X]  No

As of November 19, 2002, 14,568,585 shares of the registrant's Common Stock,
$0.01 par value, were outstanding.


Due to the recent dismissal of KPMG LLP as its independent public accountants,
the Company has been unable to engage a new independent public accounting firm
to complete the SAS 71 review. The Company anticipates engaging its new
independent public accounting firm and completing its SAS 71 review shortly.

================================================================================

<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                             MAI SYSTEMS CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       (in thousands, except share data)
                                                                   As of December 31,    As of September 30,
                                                                          2001                  2002
                                                                   ------------------    -------------------
<S>                                                                <C>                   <C>

ASSETS

Current assets:
Cash                                                                    $   1,224             $     545
Receivables, less allowance for doubtful accounts of
   $1,023 in 2001 and $546 in 2002                                          2,396                 2,244
Inventories                                                                    90                    86
Note receivable                                                               500                   750
Prepaids and other assets                                                     918                   807
Current assets held for sale                                                  204                   579
                                                                        ---------             ---------
      Total current assets                                                  5,332                 5,011

Furniture, fixtures and equipment, net                                      1,221                   924
Notes receivable                                                              250                    --
Intangibles, net                                                              799                 1,532
Assets held for sale                                                          613                   563
Other assets                                                                   73                   261
                                                                        ---------             ---------

      Total assets                                                      $   8,288             $   8,291
                                                                        =========             =========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
   Current portion of long-term debt                                    $     112             $   5,856
   Line of credit                                                              --                 2,144
   Accounts payable                                                         1,903                 1,479
   Customer deposits                                                        1,164                 1,275
   Accrued liabilities                                                      2,402                 2,397
   Income taxes payable                                                       235                   101
   Unearned revenue                                                         1,743                 3,033
   Current liabilities held for sale                                        1,560                   385
                                                                        ---------             ---------
      Total current liabilities                                             9,119                16,670

Line of credit                                                              2,424                    --
Long-term debt                                                              8,542                 2,837
Other liabilities                                                           1,195                 1,263
                                                                        ---------             ---------
      Total liabilities                                                    21,280                20,770
                                                                        ---------             ---------

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; 13,656,085 and 14,568,585
      shares issued and outstanding at December 31, 2001 and
      September 30, 2002, respectively                                        140                   149
   Additional paid-in capital                                             218,022               218,244
   Accumulated other comprehensive loss                                      (361)                 (488)
   Unearned compensation                                                       --                  (100)
   Accumulated deficit                                                   (230,793)             (230,284)
                                                                        ---------             ---------

      Total stockholders' deficiency                                      (12,992)              (12,479)
                                                                        ---------             ---------

Commitments and contingencies
Total liabilities and stockholders' deficiency                          $   8,288             $   8,291
                                                                        =========             =========
</TABLE>


         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      -2-
<PAGE>

                             MAI SYSTEMS CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               (UNAUDITED)                 (UNAUDITED)
                                        For the Three Months Ended  For the Nine Months Ended
                                              September 30,               September 30,
                                        (in thousands, except per   (in thousands, except per
                                               share data)                 share data)
                                            2001          2002          2001          2002
                                          --------      --------      --------      --------
<S>                                       <C>           <C>           <C>           <C>
Revenue:
  Software                                $  1,254      $  1,396      $  4,465      $  3,787
  Network and computer equipment               375           328           820           731
  Services                                   4,474         3,987        13,588        12,413
                                          --------      --------      --------      --------
     Total revenue                           6,103         5,711        18,873        16,931
                                          --------      --------      --------      --------

Direct costs:
  Software                                      81           158           427           507
  Network and computer equipment               274           276           421           569
  Services                                   1,409         1,366         5,000         4,485
                                          --------      --------      --------      --------
     Total direct costs                      1,764         1,800         5,848         5,561
                                          --------      --------      --------      --------

     Gross profit                            4,339         3,911        13,025        11,370

Selling, general and administrative
  expenses                                   1,985         2,418         5,901         6,828

Research and development costs               1,114           797         3,289         2,461
Amortization of intangibles                    183            25           550           134
Other operating (income) expense                 8           232        (1,340)          237
                                          --------      --------      --------      --------

     Operating income                        1,049           439         4,625         1,710

Interest income                                  4             1            53             4
Interest expense                              (410)         (372)       (1,273)       (1,146)
                                          --------      --------      --------      --------

Income from continuing operations
  before income taxes                          643            68         3,405           568
Income taxes                                    (1)           (8)          (79)          (16)
                                          --------      --------      --------      --------
Income from continuing operations              642            60         3,326           552

Loss from discontinued operations             (231)         (223)       (1,227)          (43)
                                          --------      --------      --------      --------

     Net income (loss)                    $    411      $   (163)     $  2,099      $    509
                                          ========      ========      ========      ========

Income (loss) per share:

  Continuing Operations:
     Basic income per share               $   0.05      $   0.00      $   0.26      $   0.04
                                          ========      ========      ========      ========
     Diluted income per share             $   0.05      $   0.00      $   0.26      $   0.04
                                          ========      ========      ========      ========

  Discontinued Operations:
     Basic income (loss) per share        $  (0.02)     $  (0.01)     $  (0.10)     $   0.00
                                          ========      ========      ========      ========
     Diluted income (loss) per share      $  (0.02)     $  (0.01)     $  (0.10)     $   0.00
                                          ========      ========      ========      ========

  Net income (loss) per share:
     Basic income (loss) per share        $   0.03      $  (0.01)     $   0.16      $   0.04
                                          ========      ========      ========      ========
     Diluted income (loss) per share      $   0.03      $  (0.01)     $   0.16      $   0.04
                                          ========      ========      ========      ========

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

Basic                                       13,691        14,569        12,922        14,175
                                          ========      ========      ========      ========
Diluted                                     13,928        14,569        13,113        14,182
                                          ========      ========      ========      ========
</TABLE>



         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      -3-
<PAGE>

                             MAI SYSTEMS CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                           For the Nine Months Ended
                                                 September 30,
                                                 (in thousands)
                                               2001         2002
                                              -------      -------
<S>                                           <C>          <C>

Net cash provided by (used in) operating
  activities                                  $  (655)     $ 1,933

Cash flows used in investing activities -
    Capital expenditures                         (124)        (128)
    Software development costs
                                                   --         (615)
                                              -------      -------

Net cash used in investing activities            (124)        (743)
                                              -------      -------

Cash flows from financing activities:

    Net increase (decrease) in line of
      credit                                       18         (280)
    Proceeds received from sale of
      subsidiary                                1,000           --
    Repayments of long-term debt                 (262)         (89)
    Repayments of bridge loan                    (220)          --
                                              -------      -------

Net cash provided by (used in) financing
  activities                                      536         (369)
                                              -------      -------

Net cash provided by (used in) continuing
  operations                                     (243)         821

Net cash used in discontinued operations         (423)      (1,487)

Effect of exchange rate changes on cash             4          (13)
                                              -------      -------

Net change in cash                               (662)        (679)
                                              -------      -------

Cash at beginning of period                     1,019        1,224
                                              -------      -------

Cash at end of period                         $   357      $   545
                                              =======      =======
</TABLE>


     Supplemental disclosure of non-cash investing and financing activities
                               (see notes 4 and 8)



         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      -4-
<PAGE>

                             MAI SYSTEMS CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                      NINE MONTHS ENDED SEPTEMBER 30, 2002
                                   (UNAUDITED)

1.      BASIS OF PRESENTATION AND LIQUIDITY

        Companies for which this report is filed are MAI Systems Corporation and
        its wholly-owned subsidiaries (the "Company"). The information contained
        herein is unaudited, but gives effect to all adjustments (which are
        normal recurring accruals) necessary, in the opinion of Company
        management, to present fairly the condensed consolidated financial
        statements for the interim period. All significant intercompany
        transactions and accounts have been eliminated in consolidation.

        Although the Company believes that the disclosures in these financial
        statements are adequate to make the information presented not
        misleading, certain information and footnote disclosures normally
        included in financial statements prepared in accordance with accounting
        principles generally accepted in the United States of America have been
        condensed or omitted pursuant to the rules and regulations of the
        Securities and Exchange Commission (the "SEC"), and these financial
        statements should be read in conjunction with the financial statements
        included in the Company's Annual Report on Form 10-K for the year ended
        December 31, 2001, which is on file with the SEC.

        The Company currently operates in one reportable business segment, which
        is the hospitality market, focusing primarily on the hotel, motel and
        resort destinations industry for which we design, sell, install and
        support enterprise information systems.

        Although the Company has a net stockholders' deficiency of $12,479,000
        at September 30, 2002, the Company believes it will continue to generate
        sufficient funds from operations and obtain additional financing or
        restructure its subordinated notes with Canyon and CSA as well as its
        facility with Coast, as needed, to meet its operating and capital
        requirements. The Company is currently not able to pay its existing debt
        obligations with Canyon and Coast, which mature in March 2003 and April
        2003, respectively and CSA, which matures in October 2003, without
        significantly modifying the existing terms of such debt. The Company is
        currently in negotiations with all of its secured creditors to
        restructure the terms of the existing debt, including extending the
        maturity dates. The Company expects to generate positive cash flow from
        its continuing operations during 2002 and 2003 from shipping out
        products and services from its $3.2 million backlog as of September 30,
        2002 as well as new orders. Also, in July 2001, the Company entered into
        an agreement for the sale of its investment in GSI and has received $2.5
        million in 2001. The Company expects to receive an additional $500,000
        in 2002 and an additional $250,000 to $300,000 in January 2003. There
        can be no assurance that the Company will be able to sustain
        profitability, generate positive cash flow from operations or obtain the
        necessary renewal and/or restructure of its debt. These financial
        statements have been prepared assuming the Company will continue to
        operate as a going concern. If the Company is unsuccessful in the
        aforementioned efforts, the Company could be forced to liquidate certain
        of its assets, reorganize its capital structure and, if necessary, seek
        other remedies available to the Company.

2.      INVENTORIES

        Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                           (dollars in thousands)
                                       December 31,     September 30,
                                           2001              2002
                                       ------------     -------------
<S>                                    <C>               <C>

            Finished goods                  $75               $70
            Replacement parts                15                16
                                            ---               ---
                                            $90               $86
                                            ===               ===
</TABLE>

3.      PLAN OF REORGANIZATION

        In 1993, the Company emerged from a voluntary proceeding under the
        bankruptcy protection laws. Notwithstanding the confirmation and
        effectiveness of its Plan of Reorganization (the "Plan"), the Bankruptcy
        Court continues to have jurisdiction 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.


                                      -5-
<PAGE>

        Shares of common stock may be distributed by the Company to its former
        creditors. As of September 30, 2002, 6,738,251 shares of Common Stock
        had been issued pursuant to the Plan and were outstanding.

4.      BUSINESS ACQUISITIONS

        HOTEL INFORMATION SYSTEMS, INC. ("HIS"):

        Effective August 9, 1996, the Company acquired substantially all of the
        assets and assumed certain liabilities of HIS pursuant to an asset
        purchase agreement. 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. During the fourth quarter of
        1996, arbitration proceedings were initiated regarding the final
        purchase price of HIS.

        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. As of September 30, 2002, the fair market value of the Company's
        common stock was $0.17 per share, which would result in approximately
        5,138,110 additional shares being issued. Also, included in the escrow
        account at September 30, 2002 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 September 30, 2002, the final purchase price has not been determined.

        HOSPITALITY SERVICES & SOLUTIONS ("HSS"):

        On June 23, 2002, the Company acquired substantially all of the assets
        and assumed certain liabilities of Hospitality Services & Solutions
        pursuant to a stock purchase agreement for 100,000 shares of common
        stock valued at $32,000, and $75,000 in cash. Additionally, the
        shareholders of HSS received a 20% minority interest in the Company's
        combined operations in Asia. The net assets acquired from HSS are used
        in the business of software design, engineering and service relating to
        hotel information systems. The net assets also include subsidiaries of
        HSS in Malaysia, Singapore and Thailand.

5.      BUSINESS DIVESTITURES

        On June 19, 1999, the Company sold its gaming subsidiary ("GSI"). 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 ("Notes").

        On April 6, 2001 the Company entered into an agreement with the maker of
        the Notes whereby the maker reconveyed 100% of the Common Stock of GSI
        to the Company for the purpose of selling GSI to a third party. In
        connection with the agreement, the Company canceled the Notes and
        entered into a new $1.1 million secured promissory note with the same
        party. The maker will be paid a commission of 30% of cash receipts from
        the third party, which will be first applied to the $1.1 million note
        and paid in cash to the maker thereafter. On July 27, 2001, the Company
        entered into an Asset Purchase Agreement ("Agreement") with the third
        party for approximately $3.2 million whereby all of the assets of GSI
        were acquired and all of the liabilities assumed, except for
        approximately $300,000 of obligations, which will remain with GSI. The
        payment terms under the Agreement required a $1 million non-refundable
        cash payment to the Company, which was received on July 27, 2001 and a
        $1.5 million payment, which was received in December 2001. The Company
        also received a secured promissory note in the amount of $750,000. Under
        the terms of the secured promissory note, the third party was required
        to pay $500,000 in April 2002 (See Note 12) and the remaining $250,000
        in January 2003. The third party is also required to pay an additional
        $250,000 in January 2003 subject to a maximum $250,000 reduction
        pursuant to the resolution of certain uncertainties as of the date of
        the Agreement.

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

        On October 9, 2001, the Company sold certain rights under customer
        contracts together with the related assets and liabilities of its
        domestic Legacy hardware maintenance division to the third party which
        currently provides the on-site repair and warranty service to the
        Company's Legacy hardware maintenance customers. Pursuant to the
        agreement, the Company retained the software maintenance component of
        the customer contracts and will continue to provide the software support
        services directly to the domestic Legacy customer base. Additionally,
        the third party will be required to pay the


                                      -6-
<PAGE>

        Company approximately 15% of the third party's hardware maintenance
        revenue stream relating to the hardware maintenance customer contracts
        subsequent to October 31, 2003. In connection with the sale, the Company
        received $328,000 in cash and sold approximately $157,000 of assets
        consisting of inventory, spare parts, fixed assets and certain accounts
        receivable. The third party also assumed approximately $1,091,000 of
        liabilities consisting of accrued liabilities of approximately $366,000
        and deferred revenue of approximately $725,000. The sale resulted in a
        gain of approximately $1,262,000 in October 2001, which is included in
        other operating income.

6.      BUSINESSES HELD FOR SALE

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

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

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

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

<TABLE>
<CAPTION>
                                             For The Three Months       For The Nine Months
                                                    Ended                       Ended
                                                September 30,               September 30,
                                              2001         2002         2001          2002
                                             -------       -----       -------       -------
<S>                                          <C>           <C>         <C>           <C>

            Revenue                          $ 1,342       $ 585       $ 4,450       $ 2,072

            Income (loss) before income
              tax                               (231)       (223)       (1,227)          (43)
</TABLE>

7.      LINE OF CREDIT AND BRIDGE LOAN AND LONG TERM DEBT

        LINE OF CREDIT & 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). Loan origination fees of $75,000 paid to Coast in
        connection with the Bridge Loan were amortized to interest expense over
        the term of the loan. During the first quarter of 2001, the remaining
        balance of the Bridge Loan was repaid in full. 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 is secured
        by all assets, including intellectual property of the Company, and bore
        interest at prime plus 4.5% and expires on April 30, 2003. 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, the Company agreed to pay Coast a fee of
        $300,000 ("Loan Fee") in weekly installments of $35,000 commencing after
        the Bridge Loan is paid in full. The Loan Fee was fully paid by April
        23, 2001. The facility contains various restrictions and covenants,
        including a minimum consolidated net worth, debt coverage ratio and
        minimum quarterly profitability. The Company was in compliance with all
        covenants as of September 30, 2002 except for its minimum quarterly
        profitability covenant of $250,000. Coast has informed the Company that
        it is in default and that Coast reserves all rights and remedies as
        provided in the loan agreement. Additionally, the Company capitalized
        $256,000 of software development costs during the quarter ended
        September 30, 2002.

        At December 31, 2001, approximately $2,579,000 $2,424,400, respectively,
        was available and drawn down under the credit facility. At September 30,
        2002, approximately $2,162,000 and $2,144,000 was available and drawn
        down under the credit facility.

        The Loan Fee of $300,000 is classified in prepaids and other current
        assets and is being amortized to interest expense over


                                      -7-
<PAGE>

        the term of the facility.

        The Company is currently in negotiations with Coast to restructure the
        terms of the facility including extending its maturity date. There can
        be no assurance that Coast and MAI will come to terms on a restructuring
        or that management will be successful in finding a replacement lender
        with acceptable terms.

        LONG-TERM DEBT

        In March 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"). In September 1997, this indebtedness was
        reduced to $5,250,000 through application of a portion of the proceeds
        realized from the exercise of warrants by Canyon. The notes called for
        semi-annual interest payments.

        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.

        On April 13, 2000, the Company entered into an agreement with Canyon,
        which waived all existing events of default, accelerated the maturity
        date to March 3, 2003 and provided for continued weekly interest
        payments of $12,500. On January 31, 2001, the Company entered into an
        agreement with Canyon whereby the specified accrued interest of $431,000
        was added to the principal balance of the subordinated notes payable. As
        part of this agreement, the Company also agreed to pay Canyon an
        additional $79,000 loan fee, of which $29,000 was added to principal.
        The principal balance outstanding on the subordinate notes payable to
        Canyon was approximately $5,690,000 and $5,670,000 at December 31, 2001
        and September 30, 2002, respectively.

        The Company is currently in negotiations with Canyon to restructure the
        terms of the subordinated notes including extending its maturity date.
        There can be no assurance that Canyon and MAI will come to terms on a
        restructuring or that management will be successful in finding a
        replacement lender with acceptable terms.

        In connection with a settlement agreement with CSA (see Note 12), the
        Company issued $2.8 million of subordinated debt to CSA. The $2.8
        million of debt is secured by all of the Company's assets which is
        subordinate to Coast and Canyon, accrues interest at 10% per annum and
        requires payments of $37,500 from March 1, 2002 through September 1,
        2002 and monthly payments of $107,500 commencing on October 1, 2002
        until October 2003 when all remaining unpaid principal and accrued
        interest is to be paid in full. The balance outstanding on the
        subordinate debt to CSA was $2,800,000 at December 31, 2001 and
        September 30, 2002.

        The agreement with CSA was revised whereby the Company shall be required
        to pay the required payments under the subordinated note unless and
        until it pays $1 million by December 31, 2002. Upon payment of the $1
        million, contractual payments under the subordinated note will cease
        until a final payment in the amount of $400,000 is paid by February 28,
        2003. If the Company does not make all of the modified payments to CSA,
        the subordinated note will revert back to its original terms. As of
        November 14, 2002, the Company had not made the modified payment nor its
        October 1, 2002 and November 1, 2002 required payment under the
        subordinated notes to CSA. CSA has not formally notified the Company of
        its default. The Company is currently in negotiations with CSA to
        restructure the terms of the subordinated notes including extending its
        maturity date. There can be no assurance that CSA and MAI will come to
        terms on a restructuring or that management will be successful in
        finding a replacement lender with acceptable terms.

8.      COMMON STOCK

        In January and February of 2001, the Company entered into agreements
        with several creditors to retire approximately $2.1 million of Company
        obligations in exchange for 798,000 shares of Common Stock and $470,000
        of cash. This resulted in a gain of $1,377,000. To fulfill its
        performance under the agreement, the Company issued the 798,000 shares
        of its Common Stock and registered the shares with the SEC. The Company
        was also required to pay the $470,000 to the creditors as prescribed in
        the respective agreements. All payments required under the agreements
        were made in 2001 and the first quarter of 2002.

        In May 2002, the Company issued 612,500 shares of restricted common
        stock to its members of the board of directors and certain of its
        corporate officers. Recipients are not required to provide consideration
        to the Company other than rendering the service and have the right to
        vote the shares.

        Under SFAS No. 123, compensation cost is recognized for the fair value
        of the restricted stock awarded, which is its fair market value without
        restrictions at the date of grant, which was $0.25 per share. The total
        market value of the shares of $153,125 was treated as unearned
        compensation and is being amortized to expense in proportion to the
        vesting schedule


                                      -8-
<PAGE>

        through March 2005. The unamortized balance as of September 30, 2002 is
        $100,000.

9.      ACCOUNTING CHANGES

        Effective January 1, 2002, the Company adopted SFAS 141 and SFAS 142.
        SFAS 141 requires business combinations initiated after June 30, 2001 to
        be accounted for using the purchase method of accounting. It also
        specifies the types of acquired intangible assets that are required to
        be recognized and reported separate from goodwill. SFAS 142 requires
        that goodwill and certain intangibles no longer be amortized, but
        instead tested for impairment at least annually. There was no impairment
        of goodwill upon adoption of SFAS 142.

        Net income and earnings per share for the third quarter of fiscal 2001
        adjusted to exclude amortization expense (net of taxes) is as follows:

<TABLE>
<CAPTION>
                                                   For the Three        For the Nine
                                                   Months Ended         Months Ended
                                                   September 30,        September 30,
                                                        2001                2001
                                                   -------------        -------------
<S>                                                   <C>                <C>

Net income:
    Reported net income                               $   411            $   2,099
    Goodwill amortization                                 105                  315
                                                      -------            ---------
       Adjusted net income                            $   516            $   2,414
                                                      =======            =========

Basic earnings per share:
    Reported basic earnings per share                 $  0.03            $    0.16
    Goodwill amortization                                0.01                 0.02
                                                      -------            ---------
       Adjusted basic earnings per share              $  0.04            $    0.18
                                                      =======            =========

Diluted earnings per share:
    Reported diluted earnings per share               $  0.03            $    0.16
    Goodwill amortization                                0.01                 0.02
                                                      -------            ---------
       Adjusted diluted earnings per share            $  0.04            $    0.18
                                                      =======            =========
</TABLE>

        As of September 30, 2002, net intangible assets consisted of $917,000 of
        goodwill and $615,000 of capitalized software. Capitalized software
        amortization was $64,000 $45,000 and $25,000 during the first, second,
        and third quarters of 2002, respectively.

10.     INCOME PER SHARE OF COMMON STOCK

        Basic and diluted income per share is computed using the weighted
        average shares of common stock outstanding during the period.
        Consideration is also given in the diluted income per share calculation
        for the dilutive effect of stock options and warrants.

        The following table illustrates the computation of basic and diluted
        earnings per share under the provisions of SFAS 128:

<TABLE>
<CAPTION>
                                          For the Three Months Ended    For the Nine Months Ended
                                                  September 30,               September 30,
                                               2001         2002            2001         2002
                                              -------      -------         -------      -------
                                              (in thousands except         (in thousands except
                                                 per share data)              per share data)
<S>                                           <C>          <C>             <C>          <C>
Numerator:
Numerator for basic and diluted
  earnings per share - net income             $   411      $  (163)        $ 2,099      $   509
                                              =======      =======         =======      =======
Denominator:
Denominator  for  basic  earnings  per
 share-weighted average number of Common
 shares outstanding during the period          13,691       14,569          12,922       14,175

Incremental common shares
  attributable to exercise of
  outstanding shares                              237           --             191            7
                                              -------      -------         -------      -------

Denominator for diluted earnings per
  share                                        13,928       14,569          13,113       14,182
                                              =======      =======         =======      =======

Basic earnings per share                      $  0.03      $ (0.01)        $  0.16      $  0.04
                                              =======      =======         =======      =======

Diluted earnings per share                    $  0.03      $ (0.01)        $  0.16      $  0.04
                                              =======      =======         =======      =======
</TABLE>


                                      -9-
<PAGE>

        The computation does not consider the additional shares of common stock
        which may be issued in connection with past acquisitions. The number of
        antidilutive options and warrants that were excluded from the
        computation of incremental common shares were 2,126,894 and 2,667,272
        for the nine-month periods ended September 30, 2001 and 2002,
        respectively.

11.     ACCOUNTING PRONOUNCEMENTS

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

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

        Statement No. 144 is effective for fiscal years beginning after December
        15, 2001 and interim periods within those fiscal years. The Company
        elected to adopt Statement No. 144 as of December 31, 2001. There was no
        impact on the statement of operations as a result of the adoption of
        Statement No. 144.

        In April 2002, the FASB issued Statement of Financial Accounting
        Standards No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4 and
        64, Amendment of FASB Statement No. 13, and Technical Corrections, "to
        update, clarify and simplify existing accounting pronouncements. FASB
        Statement No. 4, which required all gains and losses from debt
        extinguishments to be aggregated and, if material, classified as an
        extraordinary item, net of related tax effect, was rescinded.
        Consequently, FASB Statement No. 64, which amended FASB Statement No. 4,
        was rescinded because it was no longer necessary. The adoption of SFAS
        145 did not have a material impact on the Company's financial position
        or results of operations.

        In June 2002, the FASB issued Statement of Financial Accounting
        Standards No. 146, "Accounting for Costs Associated with Exit or
        Disposal Activities." SFAS 146 addresses accounting and reporting for
        costs associated with exit or disposal activities and nullifies Emerging
        Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
        Employee Termination Benefits and Other Costs to Exit An Activity
        (Including Certain Costs Incurred in a Restructuring). "SFAS No. 146
        requires that a liability for a cost associated with an exit or disposal
        activity be recognized and measured initially at fair value when the
        liability is incurred. SFAS No. 146 is effective for exit or disposal
        activities that are initiated after December 31, 2002, with early
        application encouraged. We do not expect the adoption of this statement
        to have a material effect on our financial statements.

12.     LEGAL PROCEEDINGS

        Chapter 11 Bankruptcy Proceedings

        At September 30, 2002, there was only one material claim to be settled
        regarding the Company's Chapter 11 proceedings, a tax claim with the
        United States Internal Revenue Service (the "Service"). The amount of
        this claim is in dispute. The Company has reserved $712,000 for
        settlement of this claim, which it is anticipated would be payable to
        the Service in equal monthly installments over a period of six (6) years
        from the settlement date at an interest rate of 6%.

        CSA Private Limited

        CSA is a MAI shareholder. On August 9, 1996, MAI acquired from Hotel
        Information Systems, Inc. ("HIS") substantially all their assets and
        certain of their liabilities (the "HIS Acquisition"). At the time of
        MAI's acquisition of HIS in 1996, CSA was a shareholder of HIS and, in
        connection with the purchase, MAI agreed to issue to CSA shares of its
        Common Stock worth approximately $4.8 million in August 1996, which
        amount had increased to approximately $6.8 million as of December 31,
        2000, pursuant to the agreement. The Company entered into a settlement
        agreement with CSA in February, 2001 whereby it (i) issued CSA 1,916,014
        additional shares of our Common Stock to bring CSA's total share
        ownership to 2,433,333 shares; (ii) filed a registration statement for
        all of CSA's shares of our Common Stock which has been declared


                                      -10-
<PAGE>

        effective by the SEC so that such shares are now freely tradable; and
        (iii) executed a secured debt instrument in favor of CSA in the
        principal sum of $2,800,000 which is subordinate only to the Company's
        present group of two (2) senior secured leaders and required cash
        installment payments to commence in March 2002 (see note 7).

        In connection with the settlement agreement with CSA, the Company
        recorded the $2.8 million debt issuance as a reduction in paid in
        capital and the 1,916,014 additional shares at par as an addition to
        Common Stock and a reduction to additional paid in capital.

        Cher-Ae Heights Indian Community

        A lawsuit has been filed by Cher-Ae Heights Indian Community ("Cher-Ae
        Heights") against Logix Development Corporation (Logix), now known as
        MAI Development Corporation, as a co-defendant for a breach of contract
        by the Company's formerly owned gaming subsidiary along with the new
        owners, Monaco Informatiques Systemes ("MIS"), who acquired the assets
        and certain liabilities of the gaming subsidiary on July 27, 2001. Based
        upon this suit, MIS has informed the Company that it did not intend to
        pay the next $500,000 due to the Company under a promissory note and
        security agreement (see note 5). The Company is currently in settlement
        negotiations with Cher-Ae Heights and MIS to resolve any and all
        outstanding legal issues associated with Cher-Ae Heights and the July
        27, 2001 Agreement and believes that the promissory note will be
        recoverable through payments from MIS.

        Logix Development Corporation

        The Company entered into a settlement agreement with Logix in July of
        2002 whereby it (i) issued Logix 200,000 shares of our Common Stock (ii)
        required the Company to make various cash installment payments totaling
        $175,000 to be paid within 1 year and (iii) executed a contract with
        Logix for a consulting project in the amount of $50,000.

        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.

13.     COMPREHENSIVE INCOME

        The following table summarizes components of comprehensive income:

<TABLE>
<CAPTION>
                           For The Three Months   For The Nine Months
                                  Ended                   Ended
                              September 30,           September 30,
                             2001       2002         2001       2002
                             ----      -----       ------      -----
<S>                          <C>       <C>         <C>         <C>

Net income                   $411      $(163)      $2,099      $ 509

Change in cumulative
translation Adjustments        46        (37)          56       (128)
                             ----      -----       ------      -----

Comprehensive income         $457      $(200)      $2,155      $ 381
                             ====      =====       ======      =====
</TABLE>

    Accumulated other comprehensive income in the accompanying consolidated
    balance sheets consists of cumulative translation adjustments.


                                      -11-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

        Revenue Recognition

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

        Accounts Receivable

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

        Intangible Assets

        We record goodwill arising from acquisitions as the excess of the
        purchase price over the fair value of assets acquired and such goodwill
        was being amortized over a useful life of five to seven years. In July
        2001, the Financial Accounting Standards Board issued Statement of
        Financial Accounting Standards ("SFAS") No. 141, Business Combinations
        and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141
        requires that all business combinations initiated after June 30, 2001 be
        accounted for using the purchase method and provides new criteria for
        recording intangible assets separately from goodwill. Existing goodwill
        and intangible assets will be evaluated against these new criteria,
        which may result in certain intangible assets being subsumed into
        goodwill. SFAS 142 addresses financial accounting and reporting for
        acquired goodwill and other intangible assets. Goodwill and intangible
        assets that have indefinite useful lives will not be amortized into
        results of operations, but instead will be evaluated at least annually
        for impairment and written down when the recorded value exceeds the
        estimated fair value. The Company adopted the provisions of SFAS No. 142
        on January 1, 2002. As a result, the Company has ceased amortization of
        goodwill, reducing annual amortization expense. In addition, impairment
        reviews may result in charges against earnings to write down the value
        of goodwill.

        The Company capitalized $256,000 and $615,000 of software development
        costs during the three and nine month periods ended September 30, 2002,
        respectively, relating to its new N-Tier, Internet-native corporate
        application suite of products written. Although the Company has not yet
        sold any of the modules to this suite of applications, the Company
        believes that


                                      -12-
<PAGE>

        its new product will produce new sales adequate to recover amounts
        capitalized.

LIQUIDITY AND CAPITAL RESOURCES

        At September 30, 2002, working capital decreased from a working capital
        deficiency of $3,787,000 at December 31, 2001 to a working capital
        deficiency of $11,659,000 as an additional $7.9 million of Company debt
        was classified as current as of September 30, 2002. Excluding unearned
        revenue of $3,033,000, the Company's working capital deficiency at
        September 30, 2002 would be $8,626,000 or a ratio of current assets to
        current liabilities of 0.37 to 1.0. Excluding unearned revenue, working
        capital deficiency at December 31, 2001 was $2,044,000 with a current
        ratio of 0.72 to 1.0. Excluding unearned revenue, the increase in the
        working capital deficiency of $6,582,000 was primarily attributable to
        an increase in current portion of long-term debt and line of credit of
        $7,888,000 and customer deposits of $111,000 offset by increases in note
        receivable of $250,000, current assets held for sale of $375,000 and
        decreases in accounts payable of $424,000, income taxes payable of
        $134,000 and current liabilities held for sale of $1,175,000.

        Cash was $545,000 at September 30, 2002, as compared to $1,224,000 at
        December 31, 2001. Availability under the Company's secured revolving
        credit facility is based on a calculation using a rolling average of
        certain cash collections. At September 30, 2002, approximately
        $2,162,000 was available and $2,144,000 was drawn down under this
        facility. The facility expires on April 30, 2003.

        Net cash used in investing activities for the nine months ended
        September 30, 2002, totaled $743,000 which represented capital
        expenditures of $128,000 and capitalized software of $615,000.

        Net cash used in financing activities for the nine months ended
        September 30, 2002 totaled $369,000, which is comprised of a $280,000
        decrease in the secured revolving credit facility and $89,000 in
        repayments of long-term debt. The revolving credit facility requires
        monthly interest only payments on the average outstanding balance for
        the period. The Company is required to make weekly payments of $12,500
        on the subordinated debt. The facility, and subordinated debt pursuant
        to an intercreditor agreement between Canyon Capital and Coast Business
        Credit, contains various restrictions and covenants, including an
        adjusted minimum consolidated net worth of ($4,758,102) as of September
        30, 2002, minimum quarterly debt coverage ratio of 1.1:1 and minimum
        quarterly profitability of $250,000. 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. We were in compliance
        with all covenants as of September 30, 2002, except for our minimum
        quarterly profitability covenant of $250,000. Coast has informed the
        Company that it is in default and that Coast reserves all rights and
        remedies as provided in the loan agreement. Additionally, the Company
        capitalized $256,000 of software development costs during the quarter
        ended September 30, 2002. The restrictions and covenants are assessed
        quarterly.

        Stockholders' deficiency decreased from $12,992,000 at December 31, 2001
        to $12,479,000 at September 30, 2002, mainly as a result of net income
        of $509,000 and the issuance of common stock of $231,000 offset by an
        increase in the accumulated other comprehensive loss of $127,000 and
        unearned compensation of $100,000.

        Net cash provided by operating activities for the nine months ended
        September 30, 2002 totaled $1,933,000 and mainly related to an increase
        in unearned revenue of $1,040,000, customer deposits of $111,000, net
        income for the period of $509,000, non-cash charges for depreciation and
        amortization of tangible and intangible assets of $775,000 and a
        decrease in accounts receivable of $260,000 and $191,000 of prepaids and
        other assets, offset by a decrease in accounts payable of $570,000,
        accrued liabilities of $132,000, and income taxes payable of $139,000.
        Net cash used for discontinued operations was $1,487,000. The Company
        expects that it will generate cash from its operating activities during
        the next twelve months.

        Although the Company has a net stockholders' deficiency of $12,479,000
        at September 30, 2002, the Company believes it will continue to generate
        sufficient funds from operations and obtain additional financing or
        restructure its subordinated notes with Canyon and CSA as well as its
        facility with Coast, as needed, to meet its operating and capital
        requirements. The Company is currently not able to pay its existing debt
        obligations with Canyon and Coast, which mature in March 2003 and April
        2003, respectively and CSA, which matures in October 2003, without
        significantly modifying the existing terms of such debt. The Company is
        currently in negotiations with all of its secured creditors to
        restructure the terms of the existing debt, including extending the
        maturity dates. The Company expects to generate positive cashflow from
        its continuing operations during 2002 and 2003 from shipping out
        products and services from its $3.2 million backlog as of September 30,
        2002 as well as new orders. Also, in July 2001, the Company entered into
        an agreement for the sale of its investment in GSI and has received $2.5
        million in 2001. The Company expects to receive an additional $500,000
        in 2002 and an additional $250,000 to $300,000 in January 2003. There
        can be no assurance that the Company will be able to sustain
        profitability, generate positive cash flow from operations or obtain the
        necessary renewal and/or restructure of its debt. These financial
        statements have been prepared assuming the Company will continue to
        operate as a going concern. If the


                                      -13-
<PAGE>

        Company is unsuccessful in the aforementioned efforts, the Company could
        be forced to liquidate certain of its assets, reorganize its capital
        structure and, if necessary, seek other remedies available to the
        Company.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

        The following table summarizes the Company's obligations and commitments
        as of September 30, 2002:

<TABLE>
<CAPTION>
                                                  Payments Due by Period (in thousands)
                                                  -------------------------------------
                                                 Less Than 1                              After 5
Contractual Cash Obligations          Total          Year       1-3 Years    4-5 Years     Years
----------------------------          -----      -----------    ---------    ---------    -------
<S>                                  <C>            <C>           <C>           <C>         <C>

Long-Term Debt                       $ 8,787        $5,928        $2,607        $ --        $252
Line of Credit                         2,144         2,144            --          --          --
Operating Leases                       1,372           765           540          67          --
                                     -------        ------        ------        ----        ----
                                     $12,303        $8,837        $3,147        $ 67        $252
                                     =======        ======        ======        ====        ====
</TABLE>


                                      -14-
<PAGE>

                              RESULTS OF OPERATIONS

                 Three Months Ended September 30, 2001 Compared
                    to Three Months Ended September 30, 2002

<TABLE>
<CAPTION>
                                        September 30,    Percentage    September 30,   Percentage
                                            2001         of Revenue         2002       of Revenue
                                        -------------    ----------    -------------   ----------
                                       (in thousands)                  (in thousands)
<S>                                        <C>             <C>            <C>             <C>

Revenue                                    $ 6,103         100.0%         $ 5,711         100.0%
Gross profit                                 4,339          71.1%           3,911          68.5%
Selling, general and administrative
  expenses                                   1,985          32.5%           2,418          42.3%
Research and development costs               1,114          18.3%             797          14.0%
Amortization of intangibles                    183           3.0%              25           0.4%
Other operating income                           8           0.1%             232           4.1%
Interest expense, net                          406           6.7%             371           6.5%
Income taxes                                     1           0.0%               8           0.1%
Loss from discontinued operations             (231)         (3.8)%           (223)         (3.9)%
Net income                                 $   411           6.7%         $  (163)         (2.9)%
</TABLE>

        Revenue for 2002 was $5,711,000 compared to $6,103,000 in 2001 or a 6.4%
        decrease. Revenue decreased $392,000 in 2002, as a result of decreased
        professional services and maintenance services mainly due to decreased
        capital spending on information technology in 2002 due to the effects of
        the September 11, 2001 terrorist attacks on the hospitality industry.

        The decrease in revenue in 2002 was mainly attributable to a decrease in
        services as many hotels have reduced their operating costs by canceling
        or reducing contracted services, including support, in a post September
        11, 2001 economy. Many hotels have requested that their suppliers reduce
        the cost of service or delay any price while they are experiencing
        reduced guest occupancy and lower average daily rates on their inventory
        of rooms. Certain hotels have also established their own help desks to
        further reduce costs. As a result, the Company did not raise support
        prices in 2002 and agreed, with certain of its clients, to provide a
        second line of support versus a first line of support that was
        previously provided to such clients. Our continuing hospitality business
        unit continues to generate sufficient cash from operations to adequately
        fund its ongoing operating activities.

        Gross profit for 2002 decreased to $3,911,000 (68.5%) from $4,339,000
        (71.1%) in 2001. The decrease in gross profit is mainly due to the
        decrease in professional services and maintenance services revenues
        during the period in excess of the Company's cost reductions. Selling,
        general and administrative expenses ("SG&A") increased from $1,985,000
        in 2001 to $2,418,000 in 2002. The increase is mainly due to an increase
        in selling & marketing, expenses for trade shows, advertisements and
        additional head count and other employee related expenses as the Company
        actively markets components of its newly developed enterprise suite of
        applications. Additionally, approximately $225,000 was expensed to S,G&A
        during the period in connection with the Company's legal settlement with
        Logix.

        The decrease in research and development costs in 2002 was due to the
        capitalization of approximately $257,000 of software development costs
        associated with the Company's new product development for hospitality.
        There were no such costs capitalized in 2001.

        The decrease in amortization of intangibles in 2002 versus the
        comparable period of 2001 is due to the fact that goodwill is no longer
        amortized to expense commencing January 1, 2002. Goodwill amortization
        was $105,000 for the three months ended September 30, 2001.

        Net interest expense was $406,000 in 2001 compared to $371,000 in 2002.
        The decrease is mainly due to the Company not incurring interest expense
        for the Bridge Loan in 2002. The Bridge loan was paid in full in 2001.

        The income tax provision reflects a tax provision for our foreign
        operations only and alternative minimum taxes for domestic operations
        due to the utilization for net operating loss carry forward in 2001 and
        2002.

        Results from discontinued operations improved from a loss of $231,000 in
        2001 to loss of $223,000 in 2002 as a result of decreased Process
        Manufacturing operating expenses from $866,000 in 2001 to $401,000 in
        2002. Revenue from discontinued operations decreased from $1,342,000 in
        2001 to $585,000 in 2002. Revenue from Process Manufacturing decreased
        from $482,000 in 2001 to $339,000 in 2002 as the process business unit
        continued its transition 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 late 2001 and early 2002.
        Additionally, consistent with our strategy to focus on providing
        software and services to our vertical markets, our legacy revenue
        (traditional hardware contract service revenues and proprietary add-on
        sales) declined $614,000 (71.3%) from $860,000 in 2001 to $246,000 in
        2002, largely due to the sale of its domestic legacy hardware


                                      -15-
<PAGE>

        business in October 2001 and expected decreased volume and customers
        replacing their legacy systems. The Company is actively engaged in
        selling its businesss units classified as discontinued operations.

                      Nine Months Ended September 30, 2001
                Compared to Nine Months Ended September 30, 2002

<TABLE>
<CAPTION>
                                         September 30,      Percentage   September 30,     Percentage
                                             2001           of Revenue       2002          of Revenue
                                         -------------      ----------   -------------     ----------
                                         (in thousands)                  (in thousands)
<S>                                        <C>                <C>          <C>                <C>

Revenue                                    $ 18,873           100.0%       $ 16,931           100.0%
Gross profit                                 13,025            69.0%         11,370            67.2%
Selling, general and administrative
  expenses                                    5,901            31.3%          6,828            40.4%
Research and development costs                3,289            17.4%          2,461            14.6%
Amortization of intangibles                     550             2.9%            134             0.8%
Other operating (income) expense             (1,340)           (7.1)%           237             1.4%
Interest expense, net                         1,220             6.5%          1,142             6.8%
Income taxes                                     79             0.4%             16             0.1%
Loss from discontinued operations            (1,227)           (6.5)%           (43)           (0.3)%
Net income                                 $  2,099            11.1%       $    509             3.0%
</TABLE>

        Revenue for 2002 was $16,931,000 compared to $18,873,000 in 2001 or a
        10.5% decrease. Revenue decreased $688,000 in 2002, as a result of
        decreased professional services and maintenance services mainly due to
        decreased capital spending on information technology in 2002 due to the
        effects of the September 11, 2001 terrorist attacks on the hospitality
        industry.

        The decrease in revenue in 2002 was mainly attributable to a decrease in
        services as many hotels have reduced their operating costs by canceling
        or reducing contracted services, including support, in a post September
        11, 2001 economy. Many hotels have requested that their suppliers reduce
        the cost of service or delay any price increases while they are
        experiencing reduced guest occupancy and lower average daily rates on
        their inventory of rooms. Certain hotels have also established their own
        help desks to further reduce costs. As a result, the Company did not
        raise support prices in 2002 and agreed, with certain of its clients, to
        provide a second line of support versus a first line of support that was
        previously provided to such clients. Our continuing hospitality business
        unit continues to generate sufficient cash from operations to adequately
        fund its ongoing operating activities.

        Gross profit for 2002 decreased to 11,370,000 (67.2%) from $13,025,000
        (69.0%) in 2001. The decrease in gross profit is mainly due to the
        decrease in professional services and maintenance services revenues
        during the period in excess of the Company's cost reductions. Selling,
        general and administrative expenses ("SG&A") increased from $5,901,000
        in 2001 to $6,828,000 in 2002. The increase is mainly due to an increase
        in selling & marketing, expenses for trade shows, advertisements and
        additional head count and other employee related expenses as the Company
        actively markets components of its newly developed enterprise suite of
        applications. Additionally, approximately $225,000 was expensed to S,G&A
        during the period in connection with the Company's legal settlement with
        Logix.

        The decrease in research and development costs in 2002 was due to the
        capitalization of approximately $615,000 of software development costs
        associated with the Company's new product development for hospitality.
        There were no such costs capitalized in 2001.

        The decrease in amortization of intangibles in 2002 versus the
        comparable period of 2001 is due to the fact that goodwill is no longer
        amortized to expense commencing January 1, 2002. Goodwill amortization
        was $315,000 for the nine months ended September 30, 2001.

        Other operating (income) expense was ($1,340,000) in 2001 and $237,000
        in 2002. The decrease in other operating income in 2002 is mainly due to
        the Company issuing Common Stock to certain creditors to satisfy its
        obligations, which resulted in a gain of $1,377,000 in the first quarter
        of 2001. There were no such transactions in 2002.

        Net interest expense was $1,220,000 in 2001 compared to $1,142,000 in
        2002. The decrease is mainly due to the Company not incurring interest
        expense for the Bridge Loan in 2002. The Bridge loan was paid in full in
        2001.

        The income tax provision only reflects a tax provision for our foreign
        operations and alternative minimum taxes for domestic operations due to
        the utilization for net operating loss carry forward in 2001 and 2002.

        Results from discontinued operations improved from a loss of $1,227,000
        in 2001 to loss of $43,000 in 2002 as a result of decreased Process
        Manufacturing operating expenses from $2,819,000 in 2001 to $1,039,000
        in 2002. Revenue from discontinued operations decreased from $4,450,000
        in 2001 to $2,073,000 in 2002. Revenue from Process Manufacturing
        decreased from $1,565,000 in 2001 to $1,172,000 in 2002 as the process
        business unit continued its transition from a direct selling model to a
        reseller model and completed development of new products. During 2000,
        we focused on developing


                                      -16-
<PAGE>

        enhancements to our CIMPRO V and CIMPRO classic process manufacturing
        products which were released in late 2001 and early 2002. Additionally,
        consistent with our strategy to focus on providing software and services
        to our vertical markets, our legacy revenue (traditional hardware
        contract service revenues and proprietary add-on sales) declined
        $1,984,000 (68.8%) from $2,885,000 to $901,000, largely due to the sale
        of its domestic legacy hardware business in October 2001 and expected
        decreased volume and customers replacing their legacy systems.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        MARKET RISK DISCLOSURES

        The following discussion about the Company's market risk disclosures
        contains forward-looking statements. Forward-looking statements are
        subject to risks and uncertainties. Actual results could differ
        materially from those discussed in the forward-looking statements. The
        Company is exposed to market risk related to changes in interest rates
        and foreign currency exchange rates. The Company does not have
        derivative financial instruments for hedging, speculative, or trading
        purposes.

        INTEREST RATE SENSITIVITY

        Of the Company's approximate $10.8 million principal amount of
        indebtedness at September 30, 2002, approximately $2.1 million bears
        interest at a rate that fluctuates based on changes in prime rate. A one
        percentage point change in the underlying prime rate would result in an
        approximately $21,000 change in the annual amount of interest payable on
        such debt. Of the remaining amount of approximately $8.7 million, $5.6
        million bears interest at a fixed rate of 11%, $2.8 million bears
        interest at a fixed rate of 10% and $300,000 bears fixed interest rates
        ranging from 6% to 17.5%.

        FOREIGN CURRENCY RISK

        The Company believes that its exposure to currency exchange fluctuation
        risk is insignificant because the Company's transactions with
        international vendors are generally denominated in US dollars. The
        currency exchange impact on intercompany transactions was immaterial for
        the quarter ended September 30, 2002.

ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

        (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

        Our chief executive officer and our chief financial officer, after
        evaluating the effectiveness of the Company's "disclosure controls and
        procedures" (as defined in the Securities Exchange Act of 1934 Rules
        13a-14(c) and 15-d-14(c)) as of a date ("Evaluation Date") within 90
        days before the filing date of this quarterly report, have concluded
        that as of the Evaluation Date, our disclosure controls and procedures
        were adequate and designed to ensure that material information relating
        to us and our consolidated subsidiaries would be made known to them by
        others within those entities.

        (b) CHANGES IN INTERNAL CONTROLS

        There were no significant changes in our internal controls or to our
        knowledge, in other factors that could significantly affect our
        disclosure controls and procedures subsequent to the Evaluation Date.


                                      -17-
<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        Chapter 11 Bankruptcy Proceedings

        At September 30, 2002, there was only one material claim to be settled
        regarding the Company's Chapter 11 proceedings, a tax claim with the
        United States Internal Revenue Service (the "Service"). The amount of
        this claim is in dispute. The Company has reserved $712,000 for
        settlement of this claim, which it is anticipated would be payable to
        the Service in equal monthly installments over a period of six (6) years
        from the settlement date at an interest rate of 6%.

        CSA Private Limited

        CSA is a MAI shareholder. On August 9, 1996, MAI acquired from Hotel
        Information Systems, Inc. ("HIS") substantially all their assets and
        certain of their liabilities (the "HIS Acquisition"). At the time of
        MAI's acquisition of HIS in 1996, CSA was a shareholder of HIS and, in
        connection with the purchase, MAI agreed to issue to CSA shares of its
        Common Stock worth approximately $4.8 million in August 1996, which
        amount had increased to approximately $6.8 million as of December 31,
        2000, pursuant to the agreement. The Company entered into a settlement
        agreement with CSA in February, 2001 whereby it (i) issued CSA 1,916,014
        additional shares of our Common Stock to bring CSA's total share
        ownership to 2,433,333 shares; (ii) filed a registration statement for
        all of CSA's shares of our Common Stock which has been declared
        effective by the SEC so that such shares are now freely tradable; and
        (iii) executed a secured debt instrument in favor of CSA in the
        principal sum of $2,800,000 which is subordinate only to the Company's
        present group of two (2) senior secured leaders and required cash
        installment payments to commence in March 2002 (see note 7 to the
        financial statements).

        In connection with the settlement agreement with CSA, the Company
        recorded the $2.8 million debt issuance as a reduction in paid in
        capital and the 1,916,014 additional shares at par as an addition to
        Common Stock and a reduction to additional paid in capital.

        Cher-Ae Heights Indian Community

        A lawsuit has been filed by Cher-Ae Heights Indian Community ("Cher-Ae
        Heights") against Logix Development Corporation (Logix), now known as
        MAI Development Corporation, as a co-defendant for a breach of contract
        by the Company's formerly owned gaming subsidiary along with the new
        owners, Monaco Informatiques Systemes ("MIS"), who acquired the assets
        and certain liabilities of the gaming subsidiary on July 27, 2001. Based
        upon this suit, MIS has informed the Company that it did not intend to
        pay the next $500,000 due to the Company under a promissory note and
        security agreement (see note 5 to the financial statements). The Company
        is currently in settlement negotiations with Cher-Ae Heights and MIS to
        resolve any and all outstanding legal issues associated with Cher-Ae
        Heights and the July 27, 2001 Agreement and believes that the promissory
        note will be recoverable through payments from MIS.

        Logix Development Corporation

        The Company entered into a settlement agreement with Logix in July of
        2002 whereby it (i) issued Logix 200,000 shares of our Common Stock (ii)
        required the Company to make various cash installment payments totaling
        $175,000 to be paid within 1 year and (iii) executed a contract with
        Logix for a consulting project in the amount of $50,000.

        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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        (a)    None.

        (b)    None.

        (c)    None

        (d)    None.


                                      -18-
<PAGE>

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        (a)    None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        (a)    None

ITEM 5. OTHER INFORMATION

        None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)    Exhibits

        99.1    Certification of Chief Executive Officer, W. Brian Kretzmer, as
                required by Sections 3.02 and 9.06 of Sarbane-Oxley Act of 2002

        99.2    Certification of Chief Financial Officer, James W. Dolan, as
                required by Sections 3.02 and 9.06 of Sarbane-Oxley Act of 2002

        (b)    Reports on Form 8-K: None.


                                      -19-
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                           MAI SYSTEMS CORPORATION
                                           (Registrant)


Date: November 19, 2002                    /s/ James W. Dolan
                                           -------------------------------------
                                           James W. Dolan
                                           Chief Financial and Operating Officer
                                           (Chief Financial and Accounting
                                           Officer)


                                      -20-
<PAGE>

                                 EXHIBIT INDEX

Exhibit
Number                                  Description
-------                                 -----------

99.1            Certification of Chief Executive Officer, W. Brian Kretzmer, as
                required by Sections 3.02 and 9.06 of Sarbane-Oxley Act of 2002

99.2            Certification of Chief Financial Officer, James W. Dolan, as
                required by Sections 3.02 and 9.06 of Sarbane-Oxley Act of 2002