<PAGE>

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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                   ------------------------------------------
                                    FORM 10-Q

      /X/   QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934.

                     For the period ended March 31, 2003 or

      /__/  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934.

                    For the transition period from ___to___.

                         Commission file number: 1-9158

                   ------------------------------------------
                             MAI Systems Corporation
             (Exact name of registrant as specified in its charter)

                  DELAWARE                                 22-2554549
    (State or other jurisdiction of          (IRS Employer Identification No.)
      incorporation or organization)

                   26110 Enterprise Way, Lake Forest, CA 92630
                     Address of principal executive offices
        Registrant's telephone number including area code (949) 598-6000
                    -----------------------------------------

Indicate by 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X   No ___

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___   No X

The aggregate market value of the common stock held by non-affiliates of the
registrant, based upon the last sale price of the Common Stock reported on the
National Association of Securities Dealers Automated Quotation National Market
System on April 28, 2003 was $2,677,635.

The number of shares of common stock issued, outstanding and subscribed as of
April 28, 2003 was 14,875,752.

================================================================================
<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    As of March
                                                                     31, 2002         31, 2003
                                                                     --------         --------
<S>                                                               <C>                <C>
ASSETS

Current assets:
Cash                                                                 $     545       $     300
Receivables, less allowance for doubtful accounts of
    $336 in 2002 and $308 in 2003                                        1,834           2,524
Inventories                                                                 60              73
Notes receivable                                                           250              --
Prepaids and other assets                                                  628             644
                                                                     ---------       ---------
       Total current assets                                              3,317           3,541

Furniture, fixtures and equipment, net                                     843             866
Intangibles, net                                                         1,823           2,053
Other assets                                                               194             240
                                                                     ---------       ---------
       Total assets                                                  $   6,177       $   6,700
                                                                     =========       =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
    Current portion of long-term debt                                $   3,289       $   3,465
    Accounts payable                                                     1,077             958
    Customer deposits                                                    1,811           1,225
    Accrued liabilities                                                  2,007           2,065
    Income taxes payable                                                    89              89
    Unearned revenue                                                     3,693           4,724
                                                                     ---------       ---------
       Total current liabilities                                        11,966          12,526

Long-term debt                                                           7,234           7,132
Other liabilities                                                        1,759           1,690
                                                                     ---------       ---------
       Total liabilities                                                20,959          21,348
                                                                     ---------       ---------
Commitments and contingencies

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; 14,875,752 shares issued, outstanding
       and subscribed at December 31, 2002 and
       March 31, 2003                                                      150             152
    Additional paid-in capital                                         218,251         218,112
Accumulated other comprehensive loss
    Minimum pension liability                                             (918)           (918)
    Foreign currency translation                                           (31)            (32)
Unearned Compensation                                                      (91)            (81)
Accumulated deficit                                                   (232,143)       (231,881)
                                                                     ---------       ---------
       Total stockholders' deficiency                                  (14,782)        (14,648)
                                                                     ---------       ---------
Total liabilities and stockholders' deficiency                       $   6,177       $   6,700
                                                                     =========       =========
</TABLE>

  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
                             FINANCIAL STATEMENTS.
<PAGE>
                             MAI SYSTEMS CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        For the Three Months Ended March 31,
                                                                       (in thousands, except per share data)
                                                                           2002              2003
                                                                           ----              ----
<S>                                                                    <C>               <C>
Revenue:
   Software                                                               $  1,267       $  1,130
   Network and computer equipment                                              269            149
   Services                                                                  4,196          3,907
                                                                          --------       --------
      Total revenue                                                          5,732          5,186

Direct costs:
   Software                                                                    157            207
   Network and computer equipment                                              203             91
   Services                                                                  1,620          1,174
                                                                          --------       --------
      Total direct costs                                                     1,980          1,472

      Gross profit                                                           3,752          3,714

Selling, general and administrative expenses                                 2,074          2,531
Research and development costs                                               1,008            682
Amortization of intangibles                                                     64             --
Other operating income                                                          (1)           (51)
                                                                          --------       --------
      Operating income                                                         607            552

Interest income                                                                  2              1
Interest expense                                                              (386)          (350)
                                                                          --------       --------
Income from continuing operations before income taxes                          223            203
Income tax expense (benefit)                                                    (3)            59
                                                                          --------       --------
Income from continuing operations                                              220            262

Income from discontinued operations                                            106             --
                                                                          --------       --------
      Net income                                                          $    326       $    262
                                                                          ========       ========
Income per share:

  Continuing Operations:
      Basic income per share                                              $   0.02       $   0.02
                                                                          ========       ========
      Diluted income per share                                            $   0.02       $   0.02
                                                                          ========       ========
  Discontinued Operations:
      Basic income per share                                              $   0.01       $   0.00
                                                                          ========       ========
      Diluted income per share                                            $   0.01       $   0.00
                                                                          ========       ========
  Net income per share:

      Basic income per share                                              $   0.02       $   0.02
                                                                          ========       ========
      Diluted income per share                                            $   0.02       $   0.02
                                                                          ========       ========

Weighted average common shares used in determining income per share:

Basic                                                                       13,656         14,426
                                                                          ========       ========
Diluted                                                                     13,663         14,876
                                                                          ========       ========
</TABLE>

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

                                      -2-
<PAGE>
                             MAI SYSTEMS CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                         For the Three Months Ended
                                                                 March 31,
                                                               (in thousands)
                                                           2002           2003
                                                           ----           ----
<S>                                                       <C>           <C>
Net cash provided by (used in) operating activities:      $   376       $   (35)

Cash flows used in investing activities:
     Proceeds from note receivable                             --           250
     Capital Expenditures                                     (66)         (128)
     Capitalized software development costs                    --          (229)
                                                          -------       -------
Net cash used in investing activities                         (66)         (107)

Cash flows from financing activities:
     Net decrease in line of credit                          (130)           --
     Repayments on long-term debt                             (64)         (103)
                                                          -------       -------
Net cash used in financing activities                        (194)         (103)
                                                          -------       -------
Net cash provided by (used in) continuing operations          116          (245)

Net cash provided by discontinued operations                   45            --

Effect of exchange rate changes on cash                         2            --
                                                          -------       -------
Net change in cash                                            163          (245)
                                                          -------       -------
Cash at beginning of period                                 1,224           545
                                                          -------       -------
Cash at end of period                                     $ 1,387       $   300
                                                          =======       =======
</TABLE>

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

                                      -3-
<PAGE>
                             MAI SYSTEMS CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                        THREE MONTHS ENDED MARCH 31, 2003

                                   (UNAUDITED)

1. BASIS OF PRESENTATION

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, 2002, which is on file with the SEC.

2. LIQUIDITY

Although the Company has a net stockholders' deficiency of $14,648,000 and a
working capital deficit of $8,985,000 (which includes subordinated debt due to
CSA of $2,800,000) at March 31, 2003, the Company believes it will continue to
generate sufficient funds from operations and obtain additional financing or
restructure its subordinated note with CSA to meet its operating and capital
requirements. The Company is currently in negotiations with CSA to restructure
the terms of the existing debt, including extending the maturity date. The
Company expects to generate positive cash flow from its continuing operations
during 2003 from shipping out products and services from its current backlog as
of March 31, 2003 as well as new orders. In the event that the Company cannot
generate positive cash flow from its continuing operations during 2003, the
Company can substantially reduce its research and development efforts to
mitigate cash outflow to help sustain its operations. There can be no assurance
that the Company will be able to sustain profitability, generate positive cash
flow from operations or restructure its debt as necessary. 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, including protection under the bankruptcy laws. We believe that it is
likely that we will delist from AMEX and apply for a listing on the electronic
bulletin board sponsored by Nasdaq in 2003.

3. INVENTORIES

Inventories are summarized as follows:

<TABLE>
<CAPTION>
                        (dollars in thousands)
                    December 31,    March 31,
                       2002           2003
                       ----           ----
<S>                 <C>             <C>
Finished goods          $45           $65
Replacement parts        15             8
                         ---          ---
                         $60          $73
                         ===          ===

</TABLE>

4. PLAN OF REORGANIZATION

In connection with the Company's Chapter 11 bankruptcy proceedings in 1993,
shares of Common Stock are currently being distributed by the Company to its
former creditors pursuant to the Plan of Reorganization (the "Plan") as approved
by United States Bankruptcy Court. The Company does not anticipate that
additional shares will be issued under the plan. As of March 31, 2003, 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

                                      -4-
<PAGE>
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.

5. BUSINESS ACQUISITIONS

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 the Company's common stock valued at
$10,900,000. The net assets acquired from HIS are used in the business of
software design, engineering and service relating to hotel information systems.
The net assets also included subsidiaries of HIS in Singapore, Hong Kong,
Australia and Mexico. The acquisition of HIS has been accounted for by the
purchase method of accounting. The total purchase price for HIS was $21,373,000,
which included net liabilities assumed of HIS of $7,873,000 and acquisition
costs of approximately $2,600,000.

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

In November 1997, the purchase price for the acquisition of HIS was reduced by
$931,000 pursuant to arbitration proceedings. As a result, goodwill was reduced
by $931,000 and approximately 100,650 shares were required to be released from
the escrow account and returned to the Company (this has not accrued as of March
31, 2003). In addition, the Company had further claims against HIS relating to
legal costs and certain disbursements inappropriately made by HIS prior to the
closing estimated at $650,000. The Company was required, as needed, pursuant to
the asset purchase agreement and related documents, to 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 applied to a maximum of 73,466
shares of Common Stock. As of March 31, 2003, the fair market value of the
Company's common stock was $0.29 per share, which would result in approximately
2,931,859 additional shares being issued. Also, included in the escrow account
at December 31, 2002 are 200,000 shares of the Company's common stock, which do
not have a guarantee of value.

On March 25, 2003, the Company entered into a settlement agreement with HIS and
one of its former corporate officers whereby (i) the parties dismissed all
claims, known and unknown, against each other; (ii) the Company forgave and
wrote off a note receivable from the former corporate officer of HIS in the
amount of $66,000 (which was expensed to other expense in the 2002 consolidated
statement of operations); (iii) the Company paid $50,000 in cash and issued a
non-interest bearing unsecured promissory note which requires 35 consecutive
monthly payments of $5,000 each commencing April 1, 2003; and (iv) the remaining
374,116 shares in the escrow account will be released to the Company. If the
Company is delinquent four times in any twelve month period during the term of
the unsecured promissory note in making its $5,000 monthly payments to HIS, and
HIS issues respective valid default notices, the Company will be subject to a
$225,000 penalty. The 374,116 shares have been received by MAI together with the
HIS authorization to legally transfer such shares to MAI.

Imputing interest at 11%, the present value of the $175,000 promissory note a
the date of the settlement was $149,000. The Company recorded the present value
of this debt issuance and the $50,000 cash payment as a reduction to additional
paid-in capital.

HOSPITALITY SERVICES & SOLUTIONS

On June 23, 2002, the Company acquired substantially all of the assets and
assumed certain liabilities of Hospitality Services & Solutions ("HSS") pursuant
to a stock purchase agreement for 100,000 shares of common stock valued at
$32,000 (the quoted market price of the common stock at the time the terms were
agreed), and $75,000 in cash. Additionally, the shareholders of HSS received a
20% minority interest in the Company's combined operations in Asia. HSS was
acquired for the Company to expand its operations in the Asian marketplace,
strengthen its management team n the territory and create new opportunities for
its new enterprise capable suite of products. 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. The Company recorded $297,000 of goodwill
(deductible for tax purposes) in connection with the acquisition of HSS. Pro
forma results of operations as if this acquisition had occurred at the beginning
of 2001 and 2002 are not shown because its impact would have been immaterial.

                                      -5-
<PAGE>
6. BUSINESS DIVESTITURES

GAMING SYSTEMS INTERNATIONAL

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

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

On April 6, 2001 the Company entered into an agreement with the maker of the
Notes whereby the maker reconveyed 100% of the Common Stock of GSI to the
Company for the purpose of selling GSI to a third party. In connection with the
agreement, the Company canceled the Notes and entered into a new $1.1 million
secured promissory note with the same party. The maker will be paid a commission
of 30% of cash receipts from the third party, which will be first applied to the
$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, of which $500,000 was received in December 2002 and
$250,000 in January 2003. The third party was also required to pay an additional
$250,000 subject to a maximum $250,000 reduction pursuant to the resolution of
certain uncertainties as of the date of the Agreement, which, as part of the
settlement, in January 2003 the Company received $46,000. Due to the uncertainty
of collecting the unsecured amount of $250,000, gain recognition on that part of
the proceeds was deferred until collection was assured. The Company recorded a
gain on the sale of GSI of $245,000 in the fourth quarter of 2001.

LEGACY

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

MAI CANADA

On December 6, 2002, the Company sold all the assets and certain liabilities of
its Canadian operations, including all legacy divisions, to the management of
this subsidiary pursuant to a stock purchase agreement. In connection with the
sale, the Company also entered into a software distribution agreement whereby
the buyer has a non-exclusive right and license to market and install the
Company's hospitality products in Canada. The sale resulted in a loss of
approximately $630,000, which is included in the loss on disposal of
discontinued operations. Prior to the sale, the Canadian operations incurred a
net income of $159,000 for the three-month period ended March 31, 2002.

                                      -6-
<PAGE>
PROCESS MANUFACTURING

On December 6, 2002, the Company entered into an Asset Purchase Agreement
whereby all the assets and certain liabilities of its process manufacturing
software division were sold to a third party for cash of $250,000. The sale
resulted in a loss of approximately $391,000, which is included in the loss on
disposal of discontinued operations. Prior to the sale, Process Manufacturing
operations incurred a net loss of $15,000 for the three-month period ended March
31, 2002.

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 was 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 was due to expire 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 was paid in
full. The Loan Fee was fully paid by April 23, 2001. The Loan Fee of $300,000 is
classified in prepaids and other current assets and was being amortized to
interest expense over the original term of the facility. As of March 31, 2003
the loan fee was fully amortized.

On January 13, 2003, the Company re-negotiated the terms of the credit facility
whereby the outstanding balance of $1,828,000 as of that date was converted to a
term loan which accrues interest at 9.25% per annum and requires monthly
payments of $58,000 over a 36 month period commencing March 1, 2003. The new
term loan matures on February 28, 2005, at which time all remaining principal
and accrued interest is due and payable. The Company will also be required to
pay Coast additional principal payments on a quarterly basis based upon an
EBITDA-based formula commencing March 31, 2003. For the three-months ended March
31, 2003, there are no additional principal payment required under the
EBITDA-based formula. The consolidated balance sheet as of December 31, 2002 and
March 31, 2003 reflects the reclass of the secured revolving credit facility to
a term loan. The restructured debt pursuant to an intercreditor agreement
between Canyon Capital and Coast Business Credit, contains various restrictions
and covenants, including a minimum quick ratio of 0.30 to l.00 and minimum debt
service coverage ratio of 0.90 to l.00 which commence as of and for the
three-month period ended March 31, 2003. The minimum quick ratio increases to
0.31 to 1.00 as of June 30, 2003 and September 30, 2003 and to 0.34 to 1.00 as
of December 31, 2003 and for each and every fiscal quarter ending thereafter.
The minimum debt coverage ratio increases to 1.10 to 1.00 for the three-month
period ending June 30, 2003 and to 1.25 to 1.00 for the three-month period
ending September 30, 2003 and for each and every fiscal quarter thereafter. In
the event that the Company were not in compliance with the various restrictions
and covenants and were unable to receive waivers for non-compliance, the term
and subordinated debt would be immediately due and payable. The Company is in
compliance with the covenants as of March 31, 2003.

On February 7, 2003, the Federal Deposit Insurance Corporation ("FDIC") put
Coast and its parent company, Southern Pacific Bank, into receivership and is
currently holding all of Coast's assets for sale to third parties, which include
the Company's term loan with Coast. This receivership and ultimate sale of the
loan by the FDIC does not change any of the terms of the Company's current loan
agreement.

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
providing 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.

                                      -7-
<PAGE>
On April 13, 2000, the Company entered into an agreement with Canyon, waiving
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 $5,662,000 at December 31, 2002 and March 31, 2003.

On January 13, 2003, the Company modified the terms of its agreement with
Canyon, whereby the Company is required to make monthly payments of $52,000,
until the Coast term loan is paid off in full, at which time the note payable
will be converted into a three-year amortizing loan which will accrue interest
at 11% per annum and requires equal monthly payments of principal and interest
such that the subordinated debt will be paid in full at the end of the amended
term. Upon the repayment of the Coast debt in full, the Company will also be
required to pay Canyon additional principal payments on a quarterly basis based
upon an EBITDA-based formula. Additionally, the Company will issue to Canyon
200,000 shares of its common stock valued at $20,000 (the quoted market price of
the common stock at the time the terms were agreed) and one million warrants at
an exercise price of $0.40 per share valued at $ 42,000 (using the Black-Scholes
option-pricing model with the following weighted-average assumptions: risk-free
interest rate of 6.5%, volatility of 80% and an expected life of 5 years). The
$62,000 will be amortized to interest expense over the term of the modified
note.

In connection with a settlement agreement with CSA, 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, 2002 and March 31, 2003.

The agreement with CSA was amended whereby the Company shall be required to pay
the required payments under the subordinated note unless and until it paid $1
million by December 31, 2002. Upon payment of the $1 million, contractual
payments under the subordinated note would have ceased until a final payment in
the amount of $400,000 is paid by February 28, 2003. If the Company did not make
all of the modified payments to CSA, the subordinated note will revert back to
its original terms. The Company did not make the modified payment and have not
made any payments since September 2002. Under the terms of the subordination
agreement between Coast, Canyon and CSA, the Company is not allowed to make any
principal or interest payments to CSA until the Coast and Canyon debt, including
any accrued interest, is repaid in full, or the CSA debt is restructured and
approved by Coast and Canyon. 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 Coast and Canyon will ultimately approve the terms of
the restructuring. In the event that the Company is unable to meet the required
payments to its primary lenders or meet its payment obligations to its other
secured creditors, they are entitled to exercise certain rights under the
respective agreements the Company has with them, including but not limited to,
foreclosing on all of the Company's tangible and intangible assets. Such action
would have a substantial adverse effect on our ability to continue as a going
concern. The CSA debt is shown as current.

CSA has not formally notified the Company of its default. As of December 31,
2002 and March 31, 2003, accrued interest relating to the CSA subordinated debt
was $408,000 and $489,000 respectively, and is included in accrued liabilities
in the accompanying consolidated balance sheets.

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 must also pay the $470,000 to the creditors as
prescribed in the respective agreements. All payments required under the
agreements were made in 2001 and the first quarter of 2002.

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

                                      -8-
<PAGE>
shares of $153,125 was treated as unearned compensation and is being amortized
to expense in proportion to the vesting schedule through March 2005. The
unamortized balance as of March 31, 2003 is $81,000.

9. 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.

10. INTANGIBLE ASSETS

Intangible assets consist primarily of goodwill and capitalized software.
Intangible assets other than goodwill are amortized on a straight-line basis
over their estimated useful lives. Prior to 2002, goodwill, representing the
excess of the purchase price over the estimated fair value of the net assets of
the acquired business, was amortized over the period of expected benefit of five
to seven years. However, effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets, ("SFAS No. 142") which requires that the Company cease
amortization of all goodwill and intangible assets having indefinite useful
economic lives. The Company determined that there was no impairment upon
adoption. Such assets are not to be amortized until their lives are determined
to be finite, however, a recognized intangible asset with an indefinite useful
life should be tested for impairment annually or on an interim basis if events
or circumstances indicate that the fair value of the asset has decreased below
its carrying value. At March 31, 2003, the Company evaluated its goodwill and
determined that fair value had not decreased below carrying value and no
adjustment to impair goodwill was necessary in accordance with SFAS No. 142.

Goodwill and capitalized software as of December 31, 2002 and March 31, 2003 are
as follows:

<TABLE>
<CAPTION>
                                (dollars in thousands)
                             December 31,    March 31,
                                 2002          2003
<S>                          <C>             <C>
Goodwill                       $   962       $   962
Accumulated amortization            --            --
                               -------       -------
Goodwill, net                      962           962
                               -------       -------
Capitalized software             2,180         2,410
Accumulated amortization        (1,319)       (1,319)
                               -------       -------
Capitalized software, net          861         1,091
                               -------       -------
          Total                $ 1,823       $ 2,053
                               =======       =======
</TABLE>

The Company's weighted average amortization period for capitalized software is
expected to be three years. The following table shows the estimated amortization
expense for these assets for each of the five succeeding years:

<TABLE>
<CAPTION>
Year Ending December 31,

  (in thousands)
<S>         <C>
2003        $   72
2004           287
2005           287
2006           215
2007           230
            ------
            $1,091
            ======
</TABLE>

11. INCOME (LOSS) PER SHARE OF COMMON STOCK

Basic and diluted income or loss per share is computed using the weighted
average shares of common stock outstanding during the period. Consideration is
also given in the 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

                                      -9-
<PAGE>
128:

<TABLE>
<CAPTION>
                                           For The Three Months Ended
                                                    March 31,
                                              2002              2003
                                              ----              ----
                                           (in thousands, except per
                                                   share data)
<S>                                        <C>            <C>
Numerator:

Numerator for basic and diluted earnings
   per share - net income                     $   326      $   262
                                              =======      =======
Denominator:

Denominator for basic earnings per
   Share-weighted average number of
   Common shares outstanding during
   the period                                  13,656       14,426

Incremental common shares attributable
   To exercise of outstanding options               7          450
                                              -------      -------
Denominator for diluted earnings
   Per share                                   13,663       14,876
                                              =======      =======
Basic earnings per share                      $  0.02      $  0.02
                                              =======      =======
Diluted earnings per share                    $  0.02      $  0.02
                                              =======      =======
</TABLE>

      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 1,648,272 and 3,676,355 in 2002 and
      2003, respectively.

12. STOCK OPTION PLANS

      The Company accounts for stock-based compensation in accordance with
      Accounting Principles Board, APB, No. 25, "Accounting for Stock Issued to
      Employees." The Company has adopted the disclosure-only provisions of FAS
      No. 123 "Accounting for Stock-Based Compensation." Under APB No. 25,
      compensation expense relating to employee stock options is determined
      based on the excess of the market price of the Company's stock over the
      exercise price on the date of grant, the intrinsic value method, versus
      the fair value method as provided under FAS No. 123.

      At March 31, 2003, the Company had two stock-based employee compensation
      plans. The Company accounts for that plan under the recognition and
      measurement principles of APB No. 25, "Accounting for Stock Issued to
      Employees," and related interpretations. Accordingly, no stock-based
      employee compensation cost is reflected in net income (loss), as all
      options granted under the plan had an exercise price equal to the market
      value of the underlying common stock on the date of grant. Had
      compensation cost for the Company's stock option plan been determined
      based on the fair value at the grant date for awards for the three-month
      periods ended March 31, 2002 and 2003, consistent with the provisions of
      FAS No. 123, the Company's net income and net income per share would have
      decreased. The following table represents the effect on net income and net
      income per share if the Company had applied the fair value based method
      and recognition provisions of Statement of Financial Accounting Standards
      (SFAS) No. 123, "Accounting for Stock-Based Compensation", to stock-based
      employee compensation.

      In December 2002, the FASB issued FAS No. 148, "Accounting for Stock-Based
      Compensation -- Transition and Disclosure", which amended FAS No. 123,
      "Accounting for Stock-Based Compensation." The new standard provides
      alternative methods of transition for a voluntary change to the fair
      market value based method for accounting for stock-based employee
      compensation. Additionally, the statement amends the disclosure
      requirements of FAS No. 123 to require prominent disclosures in both
      annual and interim financial statements about the method of accounting for
      stock-based employee compensation and the effect of the method used on
      reported results. This statement is effective for financial statements for
      the year ended December 31, 2002. In compliance with FAS No. 148, the
      Company has elected to continue to follow the intrinsic value method in
      accounting for its stock-based employee compensation plan as defined by
      APB No. 25 and has made the applicable disclosures in Note 10.

                                      -10-
<PAGE>
<TABLE>
<CAPTION>
                                                                                               For the three-months ended March 31,
                                                                                               ------------------------------------
                                                                                               (in thousands, except per share data)
                                                                                                       2002             2003
                                                                                                      -------         -------
<S>                                                                                            <C>                    <C>
Net income:                      As reported                                                          $   326         $   262
                                   Add: Stock-based employee compensation
                                   expense recorded                                                        --              --
                                   Less:  Stock based employee compensation
                                   expense determined under fair value
                                   calculations                                                           (33)            (17)
                                                                                                      -------         -------
                                 Pro forma                                                                293             245
                                                                                                      =======         =======

Basic income per share:          As reported                                                          $  0.02         $  0.02
                                   Add: Stock-based employee compensation
                                   expense recorded                                                        --              --
                                   Less:  Stock based employee compensation
                                   expense determined under fair value
                                   calculations                                                            --              --
                                                                                                      -------         -------
                                 Pro forma                                                               0.02            0.02
                                                                                                      =======         =======


Diluted income per share:
                                 As reported                                                          $  0.02         $  0.02
                                   Add: Stock-based employee compensation
                                   expense recorded                                                        --              --
                                   Less:  Stock based employee compensation
                                   expense determined under fair value
                                   calculations                                                            --              --
                                                                                                      -------         -------
                                 Pro forma                                                            $  0.02         $  0.02
                                                                                                      =======         =======
</TABLE>

      13.   LEGAL PROCEEDINGS

      Chapter 11 Bankruptcy Proceedings

      At December 31, 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.

      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 was 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"),


                                     - 11 -
<PAGE>
      who acquired the assets and certain liabilities of the gaming subsidiary
      on July 27, 2001. Based upon this suit, MIS 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. On October 24, 2002, the Company
      entered into a global settlement agreement between the parties whereby all
      claims, known and unknown, between the parties were dismissed and the
      Company received $796,000.

      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 and claims
      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.

      14.   COMPREHENSIVE INCOME

      The following table summarizes components of comprehensive income:

<TABLE>
<CAPTION>
                                                For The Three Months Ended
                                                         March 31,
                                                    2002          2003
                                                    -----         -----
<S>                                             <C>               <C>
Net income                                          $ 326         $ 262

Change in cumulative translation adjustments            2            (1)
                                                    -----         -----

Comprehensive income                                $ 328         $ 261
                                                    =====         =====
</TABLE>

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

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

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


                                     - 12 -
<PAGE>
      evenly over the related contract period.

      Allowance for Doubtful Accounts

      The Company records an allowance for doubtful accounts based on
      specifically identified amounts that it believes is uncollectible. The
      Company also records additional allowances based upon certain percentages
      of our aged receivables, which are determined based on historical
      experience and or assessment of the general financial conditions affecting
      our customer base. If the Company's actual collection experience changes,
      revisions to its allowance may be required. Any unanticipated change in
      the Company's customer's credit worthiness or other matters affecting the
      collectibility of amounts due from such customers, could have a material
      affect on its results of operations in the period in which such changes or
      events occur. After all attempts to collect a receivable have failed, the
      receivable is written off against the allowance.

      Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

      Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
      for the Impairment or Disposal of Long-Lived Assets" provides a single
      accounting model for long-lived assets to be disposed of. SFAS No. 144
      also changes the criteria for classifying an asset as held for sale, and
      broadens the scope of businesses to be disposed of that qualify for
      reporting as discontinued operations and changes the timing of recognizing
      losses on such operations.

      The Company adopted SFAS No. 144 on January 1, 2001. The adoption of SFAS
      No.144 did not affect the Company's financial statements. In accordance
      with SFAS No. 144, long-lived assets, such as furniture, fixtures and
      equipment are reviewed for impairment whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. Recoverability of assets to be held and used is measured by a
      comparison of the carrying amount of an asset to estimated undiscounted
      future cash flows expected to be generated by the asset. If the carrying
      amount of an asset exceeds its estimated future cash flows, and impairment
      charge is recognized by the amount by which the carrying amount of the
      asset exceeds the fair value of the asset. Assets to be disposed of would
      be separately presented in the balance sheet and reported at the lower of
      the carrying amount or fair value less costs to sell, and are no longer
      depreciated. The assets and liabilities of a disposed group classified as
      held for sale would be presented separately in the appropriate asset and
      liability sections of the balance sheet.

      Prior to the adoption of SFAS No. 144, the Company accounted for
      long-lived assets to be disposed of in accordance with SFAS No. 121,
      "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
      to be Disposed Of".

      Goodwill

      Prior to 2002, goodwill, representing the excess of the purchase price
      over the estimated fair value of the net assets of the acquired business,
      was amortized over the period of expected benefit of five to seven years.
      Long-lived assets and certain identifiable intangibles to be held and used
      by the Company were reviewed for impairment whenever events or changes in
      circumstances indicated that the carrying amount of the asset may not be
      recoverable. Recoverability of assets to be held and used was assessed by
      a comparison of the carrying amount of an asset to future undiscounted net
      cash flows expected to be generated by the asset. If such assets were
      considered to be impaired, the impairment recognized was measured by the
      amount by which the carrying amount of the assets exceeded the fair value
      of the assets. Assets that were to be disposed of were reported at the
      lower of the carrying amount or fair value less cost to sell.

      However, effective January 1, 2002, the Company adopted Statement of
      Financial Accounting Standards No. 142, "Goodwill and Other Intangible
      Assets," ("SFAS No. 142") which requires that the Company cease
      amortization of goodwill and all intangible assets having indefinite
      useful economic lives. Such assets are not to be amortized until their
      lives are determined to be finite, however, a recognized intangible asset
      with an indefinite useful life should be tested for impairment annually or
      on an interim basis if events or circumstances indicate that the fair
      value of the asset has decreased below its carrying value. At December 31,
      2002, the Company evaluated its goodwill and determined that fair value
      had not decreased below carrying value and no adjustment to impair
      goodwill was necessary in accordance with SFAS No. 142.

      Software Development Costs

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


                                     - 13 -
<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 $0 and $229,000 for the three-month period ended
      March 31, 2002 and 2003, respectively for software development costs
      relating to its new N-Tier, Internet-native corporate application suite of
      products written in java. Although the Company has not yet sold any of the
      modules to this suite of applications, the Company believes that its new
      product will produce new sales adequate to recover amounts capitalized.

LIQUIDITY AND CAPITAL RESOURCES

      At March 31, 2003, working capital decreased from a working capital
      deficiency of $8,649,000 at December 31, 2002 to a working capital
      deficiency of $8,985,000. Excluding unearned revenue of $4,724,000, the
      Company's working capital deficiency at March 31, 2003 would be
      $4,261,000. Excluding unearned revenue of $3,693,000, the Company's
      working capital deficiency at December 31, 2002 would be $4,956,000.
      Excluding unearned revenue, the decrease in the working capital deficiency
      of $695,000 was primarily attributable to increase in accounts receivable
      of $690,000 and decreases in accounts payable of $119,000, customer
      deposits of $586,000 offset by decreases in cash of $245,000, note
      receivable of $250,000 and increases in current portion of long term debt
      of $176,000 and accrued liabilities of $58,000.

      Net cash used in investing activities for the period ended March 31, 2003
      totaled $107,000, which is comprised of capital expenditures of $128,000
      and capitalized software of $229,000 offset by proceeds from note
      receivable of $250,000.

      Net cash used in financing activities for the period ended March 31, 2003
      totaled $103,000, which is comprised of repayments on long-term debt of
      $103,000. On January 13, 2003, the Company converted its credit facility
      to a term loan which requires monthly principal and interest payments of
      $58,000 and matures on February 28, 2005. In addition, the Company amended
      its subordinated note to require monthly interest only payments of $52,000
      through February 28, 2005, at which time it will convert to a term loan to
      be amortized over a three year period. The restructured debt pursuant to
      an intercreditor agreement between Canyon Capital and Coast Business
      Credit, contains various restrictions and covenants, including a minimum
      quick ratio of 0.30 to l.00 and minimum debt service coverage ratio of
      0.90 to l.00 which commence as of and for the three-month period ended
      March 31, 2003. The minimum quick ratio increases to 0.31 to 1.00 as of
      June 30, 2003 and September 30, 2003 and to 0.34 to 1.00 as of December
      31, 2003 and for each and every fiscal quarter ending thereafter. The
      minimum debt coverage ratio increases to 1.10 to 1.00 for the three-month
      period ending June 30, 2003 and to 1.25 to 1.00 for the three-month period
      ending September 30, 2003 and for each and every fiscal quarter
      thereafter. In the event that we were not in compliance with the various
      restrictions and covenants and were unable to receive waivers for
      non-compliance, the term and subordinated debt would be immediately due
      and payable. We are in compliance with the covenants as of March 31, 2003
      and believe that we will be in compliance for every fiscal quarter
      thereafter.

      Stockholders' deficiency decreased from $14,782,000 at December 31, 2002
      to $14,648,000 at March 31, 2003, mainly as a result of net income of
      $262,000, the issuance of common stock and warrants to Canyon Capital of
      valued at $62,000, and amortization of unearned compensation of $10,000
      offset by a reduction in additional paid-in capital $199,000 relating to
      the issuance of $149,000 of debt and $50,000 of cash to satisfy a legal
      settlement (see note 5).

      Although the Company has a net stockholders' deficiency of $14,648,000 and
      a working capital deficit of $8,985,000 (which includes subordinated debt
      due to CSA of $2,800,000) at March 31, 2003, the Company believes it will
      generate sufficient funds from operations and obtain additional financing
      or restructure its subordinated note with CSA to meet its operating and
      capital requirements. The Company is currently in negotiations with CSA to
      restructure the terms of the existing debt, including extending the
      maturity date. The Company expects to generate positive cash flow from its
      continuing operations during 2003 from shipping out products and services
      from its current backlog as of March 31, 2003 as well as new orders. In
      the event that the Company cannot generate positive cash flow from its
      continuing operations during 2003, the Company can substantially reduce
      its research and development efforts to mitigate cash outflow to help
      sustain its operations. There can be no assurance that the Company will be
      able to sustain profitability, generate positive cash flow from operations
      or restructure its debt as necessary. 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,
      including protection under the bankruptcy laws.


                                     - 14 -
<PAGE>
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

      The following table summarizes the Company's obligations and commitments
      as of March 31, 2003:

<TABLE>
<CAPTION>
                                                      Payments Due by Period (in thousands)
                                    ----------------------------------------------------------------------

Contractual Cash Obligations        Total     Less Than 1 Year  1-3 Years      4-5 Years     After 5 Years
----------------------------        -----     ----------------  ---------      ---------     -------------
<S>                                <C>        <C>               <C>            <C>           <C>
Long-Term Debt                     $10,597        $ 3,465        $ 3,137        $ 3,742        $   253
Operating Leases                     2,319            679          1,110            423            107
Consulting Agreements                  336            336             --             --             --
                                   -------        -------        -------        -------        -------
                                   $13,252        $ 4,480        $ 4,247        $ 4,165        $   360
                                   =======        =======        =======        =======        =======
</TABLE>


                                     - 15 -
<PAGE>
                              RESULTS OF OPERATIONS

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2003

<TABLE>
<CAPTION>
                                                                Percentage of                  Percentage of
                                                March 31, 2002     Revenue     March 31, 2003    Revenue
                                                --------------     -------     --------------    -------
<S>                                             <C>             <C>            <C>             <C>
Revenue:                                            $ 5,732         100.0%         $ 5,186         100.0%
Gross profit                                          3,752          65.5%           3,714          71.6%
Selling, general and administrative expenses          2,074          36.2%           2,531          48.8%
Research and development costs                        1,008          17.6%             682          13.2%
Amortization of intangibles                              64           1.1%              --           0.0%
Other operating income                                   (1)         (0.0%)            (51)         (1.0%)
Interest expense, net                                   384           6.7%             349           6.7%
Income tax expense (benefit)                              3           0.1%             (59)          0.1%
Income from discontinued operations                     106           1.8%              --           0.0%
Net income                                          $   326           5.7%         $   262           5.1%
</TABLE>

      Revenue for 2003 was $5,186,000 compared to $5,732,000 in 2002 or a 9.5%
      decrease. Revenue decreased $546,000 in 2003, as a result of decreased
      professional services and maintenance services mainly due to decreased
      capital spending on information technology in 2003 due to the effects of
      the September 11, 2001 terrorist attacks on the hospitality industry.

      The decrease in revenue in 2003 was mainly attributable to a decrease in
      service volume and rates 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
      postponed increasing its support prices until the first quarter of 2003
      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 is expected to generate
      sufficient cash from operations to adequately fund its ongoing operating
      activities.

      Revenue in our Asian operations increased from $490,000 in 2002 to
      $814,000 in 2003 as a result of its acquisition of HSS in June 2002 (see
      note 5) which allowed the Company to expand its operations in the Asian
      marketplace, strengthen its management team in the territory and create
      new opportunities for its new enterprise capable suite of products.

      Gross profit for 2003 decreased to $3,714,000 (71.6%) from $3,752,000
      (65.5%) in 2002. The decrease in gross profit is mainly due to the
      decrease in software and maintenance services revenues during the period
      in excess of the Company's cost reductions.

      Selling, general and administrative expenses ("SG&A") increased from
      $2,074,000 in 2002 to $2,531,000 in 2003. The increase is mainly due to an
      increase in selling and marketing expenses for trade shows, advertisement
      and travel as the Company continues to actively and aggressively market
      its newly developed enterprise suite of applications and services.

      Research and development costs decreased from $1,008,000 in 2002 to
      $682,000 in 2003. The decrease is due to the capitalization of $229,000 of
      software development costs in 2003 associated with the Company's product
      development of its new internet native suite of applications. There were
      no such costs capitalized in 2002.

      Other operating income was $1,000 in 2002 and $51,000 in 2003. The
      increase is mainly due to receipt of approximately $46,000 of cash
      resulting from a legal settlement.

      The decrease in amortization of intangibles in 2003 versus the comparable
      period of 2002 is due to the fact that the Company amortized $64,000 of
      software development costs in 2002 relating to costs capitalized in 1999.
      These costs were fully amortized during 2002.

      Net interest expense was $384,000 in 2002 compared to $349,000 in 2003.
      The decrease is due to lower balances of interest bearing debt during 2003
      as compared to 2002.

      The income tax provision (benefit) 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. The income
      tax benefit in 2003 is due to the Company recording a domestic income tax
      receivable during the period to recover taxes previously paid.

      Results from discontinued operations was $106,000 in 2002. Results from
      discontinued operations in 2003 was $0 as


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<PAGE>
      all entities held for sale were sold in the fourth quarter of 2002.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      MARKET RISK DISCLOSURES

      The following discussion about our 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. We are exposed to market risk
      related to changes in interest rates and foreign currency exchange rates.
      We do not have derivative financial instruments for hedging, speculative,
      or trading purposes.

      INTEREST RATE SENSITIVITY

      Of our $10.6 million principal amount of indebtedness at March 31, 2003,
      none bears interest at a variable rate. However, $5.7 million bears
      interest at a fixed rate of 11%, $2.8 million bears interest at a fixed
      rate of 10%, $1.8 million bears interest at 9.25% and $0.3 million bears
      fixed interest rates ranging from 6% to 17.5%. Since these debt
      instruments bear interest at fixed rates, we have no exposure to decreases
      in interest rates because we still are required to pay the fixed rate even
      if current interest rates are lower.

      FOREIGN CURRENCY RISK

      We believe that our exposure to currency exchange fluctuation risk is
      reduced because our transactions with international vendors and customers
      are generally transacted in US dollars. The currency exchange impact on
      intercompany transactions was immaterial for the quarter ended March 31,
      2003.

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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      Chapter 11 Bankruptcy Proceedings

      At March 31, 2003, 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


                                     - 17 -
<PAGE>
      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 6).

      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 was 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 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. On October 24, 2002, the Company entered into a global
      settlement agreement between the parties whereby all claims, known and
      unknown, between the parties were dismissed and the Company received
      $796,000 (see note 5).

      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 and claims
      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.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

      (a)   None

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

      (a)   None

      (b)   None

      (c)   None

      (d)   None

ITEM 5. OTHER INFORMATION


                                     - 18 -
<PAGE>
      (a)   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 Sarbanes-Oxley Act of 2002

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


                                     - 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: April 28, 2003             /s/James W. Dolan
                                       -----------------------------------------
                                       James W. Dolan
                                       Chief Financial and Operating Officer
                                       (Chief Financial and Accounting Officer)


                                     - 20 -
<PAGE>
                                 EXHIBIT INDEX

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

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


                                     - 21 -