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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
COMMISSION FILE NO. 1-9158
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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) (Zip Code)
Registrant's telephone number, including area code: (949) 598-6000
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock $0.01 par value per share
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Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The registrant's Certificate of Incorporation authorizes the issuance of
24,000,000 shares of $.01 par value Common Stock. As more fully described in
this report, shares of Common Stock were previously distributed by the
registrant to its former creditors pursuant to its Chapter 11 Plan of
Reorganization. At April 5, 2002, the number of issued and outstanding shares of
the Company's Common Stock was 13,656,085 shares. The aggregate market value of
all of the shares of Common Stock held by non-affiliates of the registrant as of
March 29, 2002 was approximately $4,096,826. Directors and officers and ten
percent or greater stockholders are considered affiliates for the purposes of
this calculation but should not necessarily be deemed affiliates for any other
purpose.
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[ ]
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's 1993 Annual Report on Form 10-K are incorporated herein
by reference in Part I; portions of registrant's 2001 Annual Report are
incorporated herein by reference in Part II; and portions of registrant's
definitive Proxy Statement to be delivered to stockholders in connection with
the Annual Meeting of Stockholders to be held in 2002 are incorporated herein by
reference into Part III.
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PART I
ITEM 1. BUSINESS
THE COMPANY
We provide total information technology solutions primarily to the hospitality,
resort and destination industry. The solutions provided by us typically include
applications software, computer hardware, peripherals and wide and local area
network design, implementation, installation and support. The software
applications are generally our proprietary software, or software which is
licensed to us on an exclusive basis. The hardware, peripherals and networking
systems are generally third-party products, which we distribute. Directly and
through arrangements with third parties, we provide on-site and off-site service
and support to users of network and systems hardware.
In the fourth quarter of 2001, we made a strategic decision to sell our Process
Manufacturing and Legacy businesses during 2002. We were incorporated under the
laws of the State of Delaware on September 6, 1984. Our name was changed from
MAI Basic Four, Inc. to MAI Systems Corporation on November 6, 1990. We
commenced operations on January 29, 1985.
DESCRIPTION OF THE BUSINESS
Our mission is to put in place long-term information technology systems for our
customers by designing, installing and supporting customer-specific total
information management solutions. Focusing primarily on the hotel, motel and
resort destinations industry, we design, sell, install and support enterprise
information management solutions. We provide a wide array of products and
services to our installed base of customers and continue to make direct sales of
certain products and services which enhance, upgrade and extend the useful life
and functionality of our installed systems.
We market our products and services primarily through a team selling approach,
which utilizes our nationwide network of sales offices. This approach involves a
coordinated effort between our field sales personnel, and our corporate office
software development, marketing, contract administration and financial staff.
All of our products and services are also available through a limited number of
distributors, independent value-added resellers ("VARs"), authorized service
representatives and independent software vendors ("ISVs").
Our activities are conducted principally in the United States, Canada, the
United Kingdom, Hong Kong, Singapore and Mexico. We also operate offices in the
People's Republic of China and Malaysia.
We provide software support services (both procedural and technical support) to
our hospitality customers from our offices in the United States, the United
Kingdom, Singapore and Hong Kong. In some countries, we rely on certain foreign
distributors of our products to provide software support services to customers
located within the distributors' territories.
PRODUCTS AND SERVICES
We provide complete enterprise products and services to serve the needs of local
and multinational chains, franchisees and independent operators of hotels,
resorts and destination properties. Our products have been installed in over
4,000 properties, throughout 83 countries, with up to 5,000 rooms from limited
service and business hotels to convention centers and five star luxury resorts
or urban luxury hotels.
Our HIS epitome(TM) Enterprise Solutions enables hospitality enterprises to
increase revenue, improve guest loyalty and reduce costs by centralizing and
streamlining their operations while maximizing existing technology investments.
The enterprise suite includes software, services and integration for Business
Intelligence, Corporate Information, Channel Reservation, Channel Management and
Property Management systems. The products are deployable on multiple platforms
using intelligent transport and messaging technology.
Our enterprise services include systems integration, consulting, project
management, implementation, training, documentation, online help, long-term
support, maintenance and specialized engineering, with particular expertise in
the implementation of local and wide-area networks for the hospitality industry.
The epitome Strategic Analysis Tools
Our epitome multidimensional Business Intelligence ("BI") provides an umbrella
of sophisticated Multidimensional Online Analytical Processing ("MOLAP") tools
for strategic analysis and planning for the entire enterprise. Not only can
hoteliers analyze and report on data consolidated from multiple sources, they
can perform complex modeling against industry standard Key Performance
Indicators ("KPIs"), including Revenue Per Available Room ("RevPAR") and Revenue
Per Available Customer ("RevPAC"). These tools include a relational data
warehouse, subject-specific data marts, MOLAP tools and a library of standard
analyses and reports. This combination results in a system that provides
executives with "just- in-time" strategic intelligence to analyze operations and
grow market share, revenue and occupancy.
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The epitome Corporate Management Tools
Our epitome Central Information Systems ("CIS") provides essential information
and management tools to centralize operations at a corporate headquarters. With
the increasing number of mergers, acquisitions and individual properties
desiring to associate with an established chain or flag, centralizing the data
for consolidated marketing, accounting and reporting tasks have become popular
cost-savings tools. Additionally, hotel guests now expect their preferences and
history to be available at local properties, corporate locations and online. To
accomplish this, corporate systems must capture and share all guest information
to provide quality service during the reservation process as well as
comprehensive marketing and financial information to facilitate corporate
marketing and finance strategies. Our HIS corporate tools consolidate
information about each guest such as identity, spending patterns, preferred
accommodations, amenity requests, billing details, commission accumulations and
more.
Specialized functionality of the CIS includes centralized travel agency
production statistics and transaction payments, more accurate and effective
corporate Accounts Receivable invoicing and collections, and consistent guest
spending patterns to better facilitate corporate affinity programs and more.
The epitome Reservation and Channel Management Tools
Our epitome Central Reservation Systems ("CRS") provides chains and management
companies with the functionality required to process reservations and
availability from a centralized location. Over time, CRS products have evolved
to provide the same features and functions as reservation modules in Property
Management Systems. However, a CRS must be more efficient at guest preference
requirements, multiple property itineraries, history retrievals, travel agent
processing and general corporate billing and transaction processing. These
products are perfectly suited for small and medium reservation call centers.
Hoteliers are reducing the cost of guest acquisition and improving guest loyalty
through branded Internet booking engines. However, we understand that the
explosion of Internet channels and travel procurement software has been
difficult for hoteliers to manage effectively. Our epitome Channel Reservation
and Channel Management Tools deliver more benefits than a simple branded booking
engine or any one wholesale reservation portal. It allows hoteliers the tools to
manage their rates, availability and guests through all their channels of
distribution. The goal and foundation of the design are to provide a more
cost-effective and efficient tool for the properties using the epitome
enterprise suite of applications.
It also provides guests with the ability to search multiple (related)
properties, to check availability of rooms and to maintain reservations for
rooms, and allows the property the ability to use room allocation features
already in the epitome PMS, to modify or customize its web reservations screens
and to reduce transaction fees of costly intermediaries.
The epitome Property Management Tools
Our epitome Property Management Systems ("PMS") provide a complete solution for
the management of rates, availability and affinity programs for single and
multi-property enterprises. These tools are specifically designed and optimized
for comprehensive guest management, including modules for web and central
reservations, room and revenue management and group and wholesaler management.
Specialized functionality offers flexible guest-focused features including guest
service notification, availability and occupancy controls for long-term stay and
gender-specific environments, sophisticated revenue and taxation capabilities,
casino accounting and condominium management. Multi-property integration of
availability, itinerary reservations and guest accounting is also available.
Additional tools include modules for report writing, emulation, data extraction
and transfer and more.
The epitome Integration and Data Exchange Tools
The HIS epitome Interfaces and Integrations provide multiple levels of data
exchange and application integration, from simple send and receive interfaces to
intelligent business application integration. The high-level of integration
available between the HIS PMS, CRS, CIS and BI enables chains and management
companies to deploy an enterprise solution with `customizable' functionality at
each location, while consolidating critical controls, statistics and revenue
analysis. Our HIS epitome Enterprise Solutions includes a library of over 400
device-type interfaces. Some examples include Call Accounting, Energy
Management, In-room Facsimile, In-room Internet, Mini Bar, Point Of Sale,
Telephone Management, Video Services and Voice Mail.
We also specialize in application-type integrations, which are typically more
complex than device-type interfaces, requiring additional management and
auditing of the data exchange. It often includes the exchange of guest and group
information, availability, contractual room rates and more. Each product also
adds complexity, as the platform, data and method of communication vary from
product to product. It is very rare that any of these elements are similar to
the platform, database
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and method of communication in the core business applications.
Our integration solutions offer integration of the core business applications
(PMS, CRS and CIS) with other disparate business applications (Sales, Catering,
Revenue Management and more). It allows for standardized communication
processes, configuration controls and audit trails. The data mapping is
accomplished through a series of application-specific and common industry
Application Programming Interfaces ("APIs"). All communication and data exchange
are actually handled through a central integration product, providing our core
business applications and the third party products with a common ground for data
exchange and consolidation.
From property transactions to corporate intelligence our HIS epitome Enterprise
Solutions provides complete products and services for every level of the
enterprise. With different platforms, applications, deployment methods and
database management technologies, hoteliers can implement the `epitome of
technology' for their enterprise.
MARKETING AND SALES
We market our products and services primarily through a team-selling approach,
which utilizes our worldwide network of sales offices and our Irvine,
California-based account representatives. We also market certain products and
services through limited numbers of distributors, authorized service
representatives and ISVs.
In the United States, our systems are marketed by a direct sales and marketing
organization which included, as of April 5, 2002, 17 sales and marketing
personnel located in the corporate headquarters and satellite offices. In
addition, we market our systems internationally through our subsidiaries which
operate in Canada, the United Kingdom, Mexico, Hong Kong and Singapore, and
through various distributors that are exclusive in their jurisdictions. Our
international subsidiaries employed, as of April 5, 2002, 10 sales and marketing
personnel who are engaged in the marketing of MAI products from sales offices in
Canada, Mexico, the United Kingdom, Hong Kong, Singapore, Malaysia and the
People's Republic of China.
During 2001, our aggregate revenue was derived from geographic areas as follows:
Percentage of
Total Revenue
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United States 81.4%
Asia 10.9%
United Kingdom 5.2%
Canada 2.5%
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Total 100.0%
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Our financial performance is affected by the fluctuation in value of the US
dollar in relation to the local currencies of the countries in which we do
business. In addition, our foreign operations are subject to the usual risks
that may affect such operations, including possible expropriation or other
governmental actions, taxes and political changes. However, as only 18.6% of our
2001 revenue was generated outside the United States, the risk associated with
these foreign operations in relation to our overall financial performance is
limited.
SUPPORT AND MAINTENANCE
The provision of around-the-clock customer service is a cornerstone of our
business. As of February 28, 2002, we had software support agreements with
approximately 1,500 customers. Additionally, we had hardware maintenance
agreements with approximately 1,000 other customers. We employ approximately 70
technicians to provide support for our applications software products.
Telephonic support, which is primarily to assist licensees of our applications
products, is provided from our response centers located in Irvine, California,
Concord, California, Singapore, Hong Kong and the United Kingdom. We utilize the
latest developments in telephony and call center technology to enable our
support technicians to quickly identify and resolve customers' software related
computing problems.
Our maintenance services are generally provided pursuant to individual
maintenance contracts with customers, although time and material services are
provided in some areas. Such support and maintenance are of varying duration,
provide prospective cancellation rights and require advance payment of fees to
us. Substantially all of the revenue earned by maintenance operations is
invoiced to customers in advance and recognized evenly over the related contract
period.
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PRODUCTION AND PROCUREMENT
In response to market demand for standardized hardware and software products,
all of our current systems offerings utilize open systems architecture, which
means that they will operate on a wide variety of third-party hardware
equipment. At present, we have relationships with a number of suppliers
including Microsoft, Cognos, BEA, Compaq Computer, Data General, Hewlett
Packard, Seagull Software, Visual Legacy, IBM and distributors such as MicroAge
and Ingram Micro. Management believes that these relationships have enabled us
to reduce product costs, permit earlier availability of new technology and offer
customers products with superior performance at competitive prices. We no longer
manufacture proprietary hardware products.
Delay or failure in the delivery of products or components purchased from third
parties could adversely affect our shipments and our ability to conclude sales.
We have purchased many products and components from single sources of supply.
Because our current products are industry standard, or are comprised of
industry-standard components, management believes that alternative sources of
supply of similar products would be available to us in the event of any
interruption of delivery of a single source supplier.
ORDER, SHIPMENT AND BACKLOG
We record and enter into backlog a purchase order for equipment and software
when we receives a customer's written order requesting delivery within twelve
months, and systems configuration and contract provisions are verified. Orders
that are canceled by the customer and orders that are not shipped within one
year are removed from backlog. Orders that are removed from backlog for
non-shipment are restored if they are reinstated by the customer.
Set forth below is certain information concerning orders, shipments and backlog
for 2000 and 2001:
(dollars in millions)
2000 2001
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Orders received (net of cancellations) $ 7.9 $ 10.5
Shipments 10.1 9.4
Backlog (at year end) 11.8 12.9
Our backlog is not necessarily indicative of future revenues.
RESEARCH AND DEVELOPMENT
Our research and development activities are focused on the development of
products for the hospitality, resort and destination industry.
As of April 5, 2002, we employed 40 engineers, programmers and other technical
personnel in research and development activities. We also utilized external
third party resources for development. During 1999, 2000, and 2001, we incurred
$4,747,000, $3,068,000, and $4,209,000, respectively, for research and
development activities. Our research and development expenditures related to the
support and extension of existing software products and the development of new
products.
CUSTOMERS
Our customers in hospitality are both chain and independent hotels and resorts.
During 2000 and 2001, the Joint Armed Services was the only customer which
accounted for ten percent or more of our revenues. Total revenue from the Joint
Armed Services for 2000 and 2001 was $ 3,147,000 and $ 2,937,000, respectively.
COMPETITION
Competition is vigorous in all sectors of the worldwide market for
computer-based applications systems, networked solutions and the maintenance and
support of the software and hardware, which comprise those systems. We have
numerous competitors (and potential competitors) varying widely in their size,
capabilities, market segment and geographic area, many of which are larger and
have financial resources far greater than ours.
Within our targeted application markets, we have positioned ourselves to sell
complete enterprise solutions to our customers. Within this marketplace,
competition comes primarily from vendors of competing information technology in
the markets in which we compete. There are several providers of information
technology to the hotel, resort and destination industry against which we
regularly compete. The primary competitors are of similar size to the Company,
and provide technology that is also similar to ours.
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TRADEMARKS, COPYRIGHTS AND LICENSES
We are the owner or licensee of certain trademarks, copyrights and other
property rights associated with our businesses, including rights associated with
our proprietary application software. We own or have licensing rights, generally
with terms of three years, to the principal application software products
marketed by us. Such licensing rights are generally renewable. Although there is
some risk that independent vendors who own such products may elect not to renew
their licensing agreements with us and enter into exclusive arrangements with,
or elect to install their software on systems sold by competitors of ours, such
vendors generally tend to continue to support our marketing efforts so long as
our systems provide a good opportunity for them to market their products. These
independent vendors do not represent a significant part of our revenues.
We are party to license agreements with IBM relating to a variety of patents,
with Novell, Inc. relating to UNIX and with a number of other suppliers of
software products. These licenses are terminable at our option and certain of
the licenses require us to make royalty payments.
OpenBASIC and certain other intellectual property formerly owned by us are
currently owned by Triple P Management BV ("Triple P"), a corporation organized
under the laws of the Netherlands. We hold an exclusive license to use OpenBASIC
and other intellectual property in the western hemisphere and have a
nonexclusive license to use it in certain other parts of the world. The license
is perpetual and royalty-free, but subject to termination under certain
conditions.
EMPLOYEES
As of April 5, 2002, we had 217 employees, of whom 158 were employed in the
United States, 11 in Canada, 3 in Mexico, 9 in the United Kingdom and 36 in Asia
(Hong Kong, Singapore and the People's Republic of China). We have not
experienced any work stoppages and consider our relationship with our employees
to be good.
CHAPTER 11 BANKRUPTCY PROCEEDINGS
We filed for Chapter 11 bankruptcy protection on April 12, 1993, shortly after
our banks foreclosed on all of the outstanding capital stock of certain of our
former European subsidiaries in satisfaction of all amounts due under certain
loan agreements. On January 27, 1994, our Plan of Reorganization became
effective. The summary of the material features of the Plan of Reorganization,
contained in our Annual Report on Form 10-K for the year ended December 31, 1993
under the heading "CHAPTER 11 BANKRUPTCY PROCEEDINGS", is included herein by
this reference.
Under the Plan of Reorganization, there was no recovery for holders of our $0.01
par value old Common Stock, and all classes of Preferred Stock outstanding prior
to the Effective Date. The interests evidenced by these securities were
extinguished by operation of the Plan of Reorganization. We commenced
distribution of Common Stock to holders of unsecured claims on April 14, 1994.
Through December 31, 2000, we had distributed 6,758,251 shares of Common Stock
(approximately 49.4% of our current issued and outstanding shares) to our former
creditors in settlement of all outstanding claims, except for the tax claim
discussed below. The Plan of Reorganization provided holders of unsecured claims
the right to elect a limited cash recovery, and through December 31, 2000,
$74,570 in cash had been distributed pursuant to such provision. As of December
31, 2001, all claimants' rights to elect a cash recovery have expired.
We do not believe that the Plan of Reorganization has any current material
impact on our business operations. We have been able to secure revolving credit
facilities and other financing during the period in which the Plan of
Reorganization has been pending. In addition, suppliers and customers have not
requested any extraordinary contractual provisions during this period.
At December 31, 2001, there is only one material claim to be settled before the
Chapter 11 proceedings can be formally closed, a tax claim with the United
States Internal Revenue Service (the "Service") in the amount of $712,000. The
amount of this claim is in dispute. We reserved $712,000 for settlement of this
claim, which upon settlement, it is anticipated would be payable to the Service,
interest only at 6% per annum for a period of 72 months, at which time the
entire outstanding balance would be due and payable. The dispute relates to
complex alternative minimum tax and interest calculations covering the period
1988 though 1989.
RISK FACTORS
The following discussion should be read in conjunction with the audited
consolidated financial statements contained herein. In addition to the factors
set forth herein, there may be other factors, or factors that arise in the
future which may affect our future performance.
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EFFECTS OF THE SEPTEMBER 11, 2001 TERRORIST ATTACKS
Our operating results for the twelve months ended December 31, 2001 were
negatively affected by the September 11, 2001 terrorist attacks. Weakness in the
hospitality and tourism industries as a result of the terrorist attacks and
armed conflicts arising therefrom have caused the Company to experience
cancellations, delays and reductions in certain purchases by its hospitality
customers. There can be no guarantee that this slow-down will be only
short-term. Many of our hospitality customers experienced severe declines in
occupancy and room rates at most of their hotels in the weeks following the
attacks. We believe that because occupancy and rate levels have steadily
increased from their mid-September 2001 lows, that our customers are beginning
to return to their pre-September 11th purchasing programs. We are operating our
business under the assumption that the weakness in the hospitality industry will
be short-term. It is not possible, however, to predict the magnitude or duration
of the declines or the potential impact on our results of operations, financial
condition or cash flow, if the existing political and economic risks continue
unabated, or if there is future major terrorist activity.
WE HAVE RECENTLY SETTLED LITIGATION AND ISSUED A SUBSTANTIAL NUMBER OF SHARES TO
A SHAREHOLDER WHO MAY BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE
In February 2001 we settled certain litigation which required that we issue and
register with the United States Securities and Exchange Commission (the
"Commission") a substantial number of shares to an existing shareholder, CSA
Private Limited ("CSA"). CSA received these shares pursuant to our acquisition
of our Hotel Information Systems subsidiary as described under "Legal
Proceedings -- CSA Private Limited versus MAI Systems Corporation." Based upon
this settlement, CSA has become our largest shareholder and beneficially owns
approximately 18% of our Common Stock. If this shareholder decides not to sell
its shares of Common Stock or sells the shares in a block to a third party,
either this shareholder or the party or parties it sells to in any "block" sale
may be able to exert significant influence over our affairs because they have
approximately 18% of the voting control on any matter that may be submitted for
a shareholder vote. This concentration of ownership could have the effect of
delaying or preventing a change in our control or otherwise discouraging a
potential acquirer from attempting to obtain control of us, which in turn could
have a material and adverse effect on the market price of our Common Stock.
THE PRICE OF OUR COMMON STOCK MAY DECLINE DUE TO SALES BY CERTAIN SHAREHOLDERS
In January and February 2001, we entered into agreements with various creditors
to retire approximately $2.1 million of obligations outstanding partially
through the issuance of new shares of Common Stock. These issuances, included
with the issuance to CSA, totaled approximately 24.8% of our then issued and
outstanding Common Stock. Sales by these shareholders of a part or substantially
all of their shares of our Common Stock in the market or the perception that
sales may occur could cause the market price of our Common Stock to drop.
At April 15, 2002, we had 13,656,085 shares of Common Stock outstanding.
Approximately 76% of our outstanding shares are freely tradable, The remaining
shares are either held by "affiliates," as defined under Rule 144 under the
Securities Act of 1933, or are "restricted securities" under such rule. In such
cases, shares may be sold pursuant to registration under the Securities Act, or
to the extent permitted by Rule 144 or another exemption under the Securities
Act.
OUR AGREEMENTS WITH OUR PRIMARY LENDER AND TWO OTHER SUBSTANTIAL CREDITORS
REQUIRE SUBSTANTIAL ON-GOING PAYMENTS
We have agreements with Coast Business Credit ("Coast") and two other creditors
that require substantial on-going payments and affect the availability of our
cash flow to be used for other material company operations. As of December 31,
2001 these obligations were as follows:
- A balance due to Coast of approximately $2,424,400 on a secured
revolving credit facility with a current monthly principal and
interest payment obligation of approximately $60,000;
- A balance due under our 11% subordinated notes payable to an
investment fund managed by Canyon Capital Management LP
("Canyon") of approximately $5,688,100, with a current weekly
interest payment obligation of $12,500;
- A balance due under a 10% secured promissory note due to CSA in
the amount of $2,800,000, with monthly payments of $37,500
commencing on March 1, 2002 and ending on September 1, 2002, and
monthly payments of $107,500 commencing on October 1, 2002 until
October 1, 2003 when all remaining unpaid principal and interest
is due.
As of December 31, 2001 we were current on our payment obligations to Coast and
Canyon and are in compliance with or received waivers for all covenants under
our respective agreements with these entities. In the event that we are unable
to meet the required payments to our primary lender or meet our payment
obligations to our other secured creditors, they are
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entitled to exercise certain rights under the respective agreements we have with
them, including but not limited to, foreclosing on all of our tangible and
intangible assets. Such action would have a substantial adverse effect on our
ability to continue as a going concern.
OUR LIMITED PERIOD OF PROFITABILITY MAY NOT CONTINUE
Although we were profitable for the years ended December 31, 2000 and 2001, we
incurred substantial operating losses and net losses on an annual basis for the
previous four fiscal years. We cannot assure you that we will attain
profitability on a consistent basis or avoid losses on a quarterly or annual
basis in the future.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY NEGATIVELY IMPACT OUR STOCK PRICE
Our annual and quarterly operating results may fluctuate significantly in the
future as a result of numerous factors, including:
- the timing of significant orders,
- the timing of product enhancements and new product introductions
by us, our technology vendors and our competitors,
- the pricing of our products and services, and
- economic and competitive conditions specific to our industry.
Typically, the orders we receive in one quarter are delivered and installed by
the following quarter. However, many of our sales involve lengthy sales cycles
and installations. Consequently, it is not possible to predict with any
reliability the periods within which a sale may close or when we will recognize
revenue. As a result, our operating results may be materially affected if a
single large transaction is completed earlier or later than expected. It is
likely that in some future periods our operating results will be below the
expectations of securities analysts and investors. If this happens, the trading
price of our Common Stock would likely be materially adversely affected.
WE MAY NEED AND BE UNABLE TO OBTAIN ADDITIONAL FUNDING ON SATISFACTORY TERMS,
WHICH COULD DILUTE OUR STOCKHOLDERS OR IMPOSE BURDENSOME FINANCIAL RESTRICTIONS
ON OUR BUSINESS
As stated above, we have incurred substantial indebtedness with three creditors
which must be repaid or restructured over the next fifteen months. We anticipate
that this indebtedness may require additional financing. This may not be
available on a timely basis, in sufficient amounts or on terms acceptable to us.
This financing may also dilute existing stockholders. Any debt financing or
other financing of securities senior to Common Stock will likely include
financial and other covenants that will restrict our flexibility. At a minimum,
we expect these covenants to include restrictions on our ability to pay
dividends on our Common Stock. Any failure to comply with these covenants or to
repay such indebtedness when due would have a material adverse effect on our
business, prospects, financial condition and results of operation.
THE MARKET IN WHICH WE OPERATE IS HIGHLY COMPETITIVE, AND WE MAY FACE INCREASED
COMPETITION FROM NEW ENTRANTS AND ESTABLISHED INDUSTRY COMPETITORS WITH
SIGNIFICANTLY GREATER FINANCIAL RESOURCES
We face significant competition in all sectors of the market for computer-based
solutions and support and maintenance services which we offer. We have numerous
competitors in each of our business lines, which vary widely in their size,
capabilities, market segments and geographical areas, many of which are larger
and have financial resources far greater than we have. Within our markets,
competition comes primarily from competing software applications vendors and
from local value-added resellers and independent software vendors, who usually
resell hardware or networking products of larger original equipment
manufacturers. We also face competition, to a lesser extent, from independent
service organizations, which provide service to end users of our software
products. Many of our services are also provided by our customers' in-house
information services departments. There can be no assurance that we can
effectively compete with any or all of our competitors in any of our business
lines. Our competitors may be able to adapt more swiftly to new or emerging
technologies and changes in customer requirements, take advantage of acquisition
and other opportunities more readily and devote greater resources to the
marketing and sale of their products and services than we can. There can be no
assurance that additional competitors will not enter markets that we plan to
serve or that we will be able to compete effectively.
THE SOFTWARE INDUSTRY FOR HOSPITALITY MANAGEMENT IS UNDERGOING RAPID
TECHNOLOGICAL CHANGES AND NEW SOFTWARE INTRODUCED BY THIRD PARTIES MAY BE
SUPERIOR TO THE SOFTWARE THAT WE OWN OR LICENSE
The software industry for hospitality management is subject to rapid and
significant technological change. We cannot
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predict the effect of technological changes on our business. We expect that new
products and services will emerge in the markets in which we compete. These new
products and services may be superior to the products and services that we use
or these products and services may render our products and services obsolete.
Our failure to anticipate or respond adequately to the changes in technology and
customer preferences, or to develop and introduce new products in a timely
fashion, could materially adversely affect our business and operating results.
TRADING IN OUR COMMON STOCK IS LIMITED
The recent trading volume for our Common Stock has been small, and the market
for our common stock has been less liquid than that of many other publicly
traded companies. During the twelve months ended December 31, 2001, the average
daily trading volume has been approximately 19,000 shares, whereas the average
daily trading volume for an American Stock Exchange listed stock is
substantially higher. There can be no assurance that a stockholder who desires
to sell shares of Common Stock can sell all of the shares that the stockholder
desires to sell, either at all or at the desired times or prices.
OUR PRINCIPAL BUSINESS LINE, HOSPITALITY SYSTEMS, IS SUBJECT TO CYCLICAL
BUSINESS CONDITIONS
We believe that the growth of our hospitality information systems business is
attributable in part to the current health of the hospitality industry, compared
to the condition of that industry in the early 1990's. We cannot predict a
favorable climate or its duration in the hospitality industry. Any significant
slowdown in the hotel occupancy rates or new hotel construction in our primary
market in the United States could have a material adverse affect on our
financial performance.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO ADDITIONAL RISKS
Approximately 19% of our revenues in the year ended December 31, 2001 were
derived from foreign operations and approximately 32% of our work force is based
outside the domestic United States. Our financial performance is affected to
some extent by the fluctuation in value of the US dollar in relation to the
local currencies of the countries in which we do business. In addition, our
foreign operations are subject to the usual risks that may affect such
operations, including import and export restrictions, possible expropriation or
other governmental actions, taxes and political changes. International sales are
subject to inherent risks, including:
- recessions in economies outside the United States,
- limited protection of intellectual property rights in some
countries,
- political instability,
- terrorism,
- unexpected changes in regulatory requirements and tariffs,
- difficulties in staffing and managing foreign operations,
- the possibility of subsidization of our competitors and the
nationalization of business,
- longer payment cycles,
- greater difficulty in accounts receivable collection, and
- potentially adverse tax consequences.
WE MAY BE UNABLE TO ENFORCE OR DEFEND OUR OWNERSHIP AND USE OF PROPRIETARY
TECHNOLOGY
Our success depends to a significant degree upon our proprietary technology upon
and our licensing rights to the principal application software products that we
market. We rely on a combination of trademark, trade secret and copyright law
and contractual restrictions to protect our proprietary technology. However,
these measures provide only limited protection, and we may not be able to detect
unauthorized use or take appropriate steps to enforce our intellectual property
rights, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. Any litigation to enforce
our intellectual property rights would be expensive and time-consuming, would
divert management resources and may not be adequate to protect our business.
We could be subject to claims that we have infringed the intellectual property
rights of others. In addition, we may be required to indemnify our resellers and
users for similar claims made against them. Any claims against us could require
us to spend significant time and money in litigation, pay damages, develop new
intellectual property or acquire licenses to intellectual property that is the
subject of the infringement claims. These licenses, if required, may not be
available at all or on acceptable terms. As a result, intellectual property
claims against us could have a material adverse effect on our business,
prospects, financial condition and results of operations.
-9-
AMERICAN STOCK EXCHANGE MARKET LISTING
We were notified by The American Stock Exchange ("AMEX") that we no longer
comply with the minimum stockholders' equity requirements for continued listing
and have subsequently met with exchange officials to review such requirements.
Based upon this meeting and subsequent communications, the AMEX has determined
that it will continue our listing pending review of our Form 10-Q for the
quarter ended March 31, 2002 and has requested a report updating the exchange on
financial projections and other operational matters by May 15, 2002. We are
cooperating with the AMEX in its decision making process. We cannot provide any
assurance that we will remain listed on the American Stock Exchange or that we
will not be delisted at some later time. In the event of a delisting, we will
attempt to have our Common Stock listed on the over-the-counter electronic
bulletin board sponsored by Nasdaq. In such event, investors may find it more
difficult to trade in our Common Stock or to obtain accurate, current
information concerning market prices. This could have a substantially negative
impact on the trading prices and the liquidity of the market for our Common
Stock. In addition, there would likely be a more negative perception of our
company by investors, customers and third parties doing business or considering
doing business with us. Also, following delisting, our company would be treated
less favorably with respect to regulatory requirements that are dependent upon
listing on a national stock exchange. For example, our Common Stock would cease
to be a covered security for purposes of Section 18 of the Securities Act of
1933, which provides an exemption from state securities registration or
qualification requirements.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN
Some statements under the caption "Risk Factors," and elsewhere in this
prospectus or in the documents incorporated by reference in this prospectus are
forward-looking statements. These forward-looking statements include, but are
not limited to, statements about our industry, plans, objectives, expectations,
intentions and assumptions and other statements that are not historical facts.
When used in this prospectus or in the incorporated documents, the words
"expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" and
similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, including those described in this "Risk Factors" section, actual
results may differ materially from those expressed or implied by these
forward-looking statements. We do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
-10-
ITEM 2. PROPERTIES
As of April 5, 2002, the principal properties utilized by the Company were as
follows:
Approximate Total
Type of Facility Square Footage Location
---------------- ----------------- ------------------
Corporate and Hospitality Headquarters, warehousing, administration,
marketing, sales, development and support 50,210 Irvine, California
Sales and support 600 Boston, Massachusetts
Sales and support 1,250 Atlanta, Georgia
Product development, sales and support 3,151 Concord, California
Process Manufacturing headquarters, marketing, sales, development, and support 3,600 Tarrytown, New York
MAI Canada Ltd. Administration, sales, education, warehousing, test and repair 6,710 Ontario, Canada
Hotel Information Systems (Ltd) Hong Kong headquarters, marketing, sales, and support 3,638 Hong Kong
Hotel Information Systems (Ltd) Singapore sales and support 4,527 Singapore
MAI Information Solutions Limited, European Headquarters, marketing, sales and support 2,201 London
All of the properties noted above were occupied by the Company pursuant to
leases with various expiration dates. In addition to the premises identified
above, the Company leases one additional location in Canada and five other
locations around the world. Generally such leases are for terms of five years or
less.
ITEM 3. LEGAL PROCEEDINGS
Chapter 11 Bankruptcy Proceedings
At December 31, 2001, there was only one material claim to be settled before our
Chapter 11 proceeding could be formally closed, a tax claim with the United
States Internal Revenue Service (the "Service"). The amount of this claim is in
dispute. We have 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 v. MAI Systems Corporation
CSA is a MAI shareholder. On August 9, 1996, we acquired from Hotel Information
Systems, Inc. ("HIS") substantially all their assets and certain of their
liabilities (the "HIS Acquisition"). At the time of our acquisition of HIS in
1996, CSA was a shareholder of HIS and, in connection with the purchase, we
agreed to issue to CSA shares of our 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. We also granted CSA demand
registration rights with respect to such stock. CSA requested registration of
their shares, but we delayed registration based upon our good faith exercise of
our rights under our agreement with CSA. On October 5, 1998, CSA filed a lawsuit
against us in the U.S. District Court for the Central District of California.
Pursuant to a settlement agreement entered into as of May 13, 1999 we agreed by
November 1, 1999 to file, or at a minimum to commence the process to file, a
registration statement with the Securities and Exchange Commission ("SEC") for
the purpose of registering CSA's shares. CSA initiated another lawsuit in
December 1999 in the above-referenced court (a) seeking damages in excess of $5
million; (b) enforcement of the settlement agreement; and (c) injunctive relief
through court order to cause us to file with the SEC. On March 6, 2000, we
answered the complaint. Because we did not conclude the registration statement
filing by November 1, 1999, CSA initiated another lawsuit in January 2000 to
enforce the settlement agreement and secure injunctive relief through court
order to cause us to file a registration statement.
-11-
We entered into a second settlement agreement with CSA in February 2001, whereby
we (i) issued CSA 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 our present group of two (2) senior secured leaders and
required cash installment payments to commence March 2002.
Other Litigation
We are also involved in various other legal proceedings that are incident to our
business. Management believes the ultimate outcome of these matters will not
have a material adverse effect on our consolidated financial position, results
of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
-12-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our shares are traded on the American Stock Exchange, Inc. under the AMEX symbol
"NOW". Prior to listing on the AMEX, which occurred August 29, 1995, our shares
were traded over-the-counter by various market makers under the ticker symbol
"MAIS". The following table sets forth the high and low closing sales prices for
our Common Stock for the indicated periods during 2000 and 2001, as reported by
the AMEX. On April 5, 2002, the closing price of our Common Stock as reported by
the AMEX was $0.28 and there were 538 stockholders of record (See "Risk Factors"
- -- American Stock Exchange Market Listing").
We have never paid any dividends and do not anticipate declaring or paying cash
dividends in the foreseeable future. We intend to retain future earnings, if
any, to reinvest in our business. The covenants in our current or future
financing agreements may prohibit or limit our ability to declare or pay cash
dividends.
Period High Low
------ --------- --------
Fiscal 2000:
First Quarter $ 1.56 $ 0.81
Second Quarter 1.13 0.50
Third Quarter 0.69 0.31
Fourth Quarter 0.44 0.19
Fiscal 2001
First Quarter $ 0.67 $ 0.19
Second Quarter 0.58 0.26
Third Quarter 0.68 0.30
Fourth Quarter 0.40 0.22
Fiscal 2002
First Quarter (through April 5, 2002) $ 0.34 $ 0.24
ITEM 6. SELECTED FINANCIAL INFORMATION
The information required by this item is incorporated by reference to our Annual
Report under the heading, "Selected Financial Information".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to our Annual
Report under the heading, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
ITEM 7A. 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 $11.3 million principal amount of indebtedness at December 31, 2001, $2.4
million bears interest at a rate that fluctuates based on changes in prime rate.
A percentage point change in the underlying prime rate would result in a $24,000
change in the annual amount of interest payable on such debt. Of the remaining
amount of $8.9 million, $5.7 million bears interest at a fixed rate of 11%, $2.8
million bears interest at a fixed rate of 10% and $0.4 million bears fixed
interest rates ranging from 6% to 17.5%.
-13-
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
denominated in US dollars. The currency exchange impact on intercompany
transactions was immaterial in 2001, 2000 and 1999.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to our Annual
Report under the headings, "Consolidated Balance Sheets", "Consolidated
Statements of Operations", "Consolidated Statements of Stockholders' Deficiency
and Comprehensive Income (Loss)", "Consolidated Statements of Cash Flows",
"Notes to Consolidated Financial Statements" and "Independent Auditors' Report".
Schedule II Valuation and Qualifying Accounts is set forth in this Annual Report
on Form 10-K.
All other schedules and financial statements are omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-14-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item with respect to Directors may be found in the
section captioned "Election of Directors" appearing in the definitive Proxy
Statement to be delivered to stockholders in connection with the Annual Meeting
of Stockholders to be held in 2002. Information required by this Item with
respect to executive officers may be found in the section captioned "Proposal 1
- - Election of Directors" appearing in the definitive Proxy Statement to be
delivered to stockholders in connection with the Annual Meeting of Stockholders
to be held in 2002. Such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item may be found in the section captioned
"Executive Compensation" appearing in the definitive Proxy Statement to be
delivered to stockholders in connection with the Annual Meeting of Stockholders
to be held in 2002. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this Item may be found in the section captioned
"Security Ownership of Management" appearing in the definitive Proxy Statement
to be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held in 2002. Such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this Item may be found in the sections captioned
"Proposal 1 -- Election of Directors -- Consulting Contract with Director Zohar
Loshitzer," and " -- Compensation Committee Interlocks and Insider
Participation" and "Executive Compensation - Employment Contracts and Change of
Control Arrangements" appearing in the definitive Proxy Statement to be
delivered to stockholders in connection with the Annual Meeting of Stockholders
to be held in 2002. Such information is incorporated herein by reference.
-15-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Deficiency and Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
The consolidated financial statements of the Company, the notes thereto
and the Independent Auditors' Report are incorporated herein by
reference to the Company's 2001 Annual Report.
2. Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
3. Exhibits:
Number Exhibit
- ------ -------
2.1 First Amended Joint Chapter II Plan of Reorganization of MAI Systems
Corporation, Brooke Acquisition Corp. and CLS Software, Inc., as
confirmed by the United States Bankruptcy Court for the District of
Delaware, on November 13, 1993, filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated January 15, 1994.
2.2 Consent Order Modifying Confirmed Plan of Reorganization and Fixing
Effective Date, as entered by the United States Bankruptcy Court for
the district of Delaware on January 27, 1994, as filed as Exhibit
2.2 to the Registrant's Current Report on form 8-K dated February 9,
1994.
3.1 Amended and Restated Certificate of Incorporation of MAI Systems
Corporation, filed as Exhibit 3.1 to the Company's 1996 Annual
Report on Form 10-K.
3.2 Amendment No. 1 to the Amended and Restated Certificate of
Incorporation of MAI Systems Corporation, filed as Exhibit 3.2 to
the Company's 1996 Annual Report on Form 10-K.
3.3 By-laws of MAI Systems Corporation, filed as Exhibit 2(b) to the
Registrant's Registration Statement on Form 8-A/A filed with the
Securities and Exchange Commission on February 24, 1994.
3.4 Amendment No. 2 to the Amended and Restated Certificate of
Incorporation of MAI Systems Corporation, filed as Exhibit 3.4 to
the Company's 1998 Annual Report on Form 10-K.
10.1 Amended and Restated MAI Systems Corporation 1993 Stock Option Plan.
10.2 Amended and Restated 1995 Non-Employee Directors Stock Option Plan.
10.3 MAI Systems Corporation's 2001 Restricted Stock Plan.
10.4 Coast Business Credit Loan and Security Agreement, dated April 23,
1998, filed as Exhibit 10.2 to the Company's 1998 Annual Report on
Form 10-K.
10.5 Amendment Number One dated September 30, 1998 to the Loan and
Security Agreement between Coast Business Credit and the Company
dated April 23, 1998, filed as Exhibit 10.2 to the Company's 1999
Annual Report on Form 10-K.
10.6 Amendment Number Two dated March 2, 1999 to the Loan and Security
Agreement between Coast Business Credit and the Company dated April
23, 1998, filed as Exhibit 10.3 to the Company's 1999 Annual Report
on Form 10-K.
10.7 Amendment Number Three dated June 16, 1999 to the Loan and Security
Agreement between Coast Business Credit and the Company dated April
23, 1998, filed as Exhibit 10.4 to the Company's 1999 Annual Report
on Form 10-K.
10.8 Amendment Number Four dated July 28, 1999 to the Loan and Security
Agreement between Coast Business Credit and the Company dated April
23, 1998, filed as Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the period ending September 30, 1999.
10.9 Letter Agreement Amendment dated October 1, 1999 to the Loan and
Security Agreement between Coast Business Credit and
-16-
the Company dated April 23, 1998, filed as Exhibit 10.6 to the
Company's 1999 Annual Report on Form 10-K.
10.10 Amendment Number Five dated April 13, 2000, to the Loan and Security
Agreement between Coast Business Credit and the Company dated April
23, 1998, filed as Exhibit 10.20 to the Company's 1999 Annual Report
on Form 10-K.
10.11 Amendment Number Six dated September 12, 2000, to the Loan and
Security Agreement between Coast Business Credit and the Company
dated April 23, 1998, filed as Exhibit 10.31 to the Company's Annual
Report on Form 10-K.
10.12 Amendment Number Seven dated September 13, 2001, to the Loan and
Security Agreement between Coast Business Credit and the Company
dated April 23, 1998.
10.13 Pledge, Assignment and Security Agreement dated September 7, 2001
between Coast Business Credit, the Company, MAI Systems
International and MAI Development Corporation.
10.14 Collateral Release Agreement dated September 28, 2001 between Coast
Business Credit and the Company.
10.15 Forebearance Agreement between MAI Systems Corporation and CPI
Securities LP, The Value Realization Fund, L.P., The Canyon Value
Realization Fund and GRS Partners II dated October 28, 1999, filed
as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for
the period ending September 30, 1999.
10.16 Amendment No. 1 dated February 14, 2000 to Forebearance Agreement
between MAI Systems Corporation and CPI Securities LP, The Value
Realization Fund, L.P., The Canyon Value Realization Fund and GRS
Partners II dated October 28, 1999, filed as Exhibit 10.18 to the
Company's 1999 Annual Report on Form 10-K.
10.17 Amendment No. 2 dated April 13, 2000 to Forebearance Agreement
between MAI Systems Corporation and CPI Securities LP, The Value
Realization Fund, L.P., The Canyon Value Realization Fund and GRS
Partners II dated October 28, 1999, filed as Exhibit 10.19 to the
Company's 1999 Annual Report on Form 10-K.
10.18 Supplement and Amendment dated January 31, 2001 to Forebearance
Agreement between MAI Systems Corporation and CPI Securities LP, The
Value Realization Fund, L.P., The Canyon Value Realization Fund and
GRS Partners II dated October 28, 1999, filed as Exhibit 10.32 to
the Company's 2000 Annual Report on Form 10-K.
10.19 Collateral Release Agreement dated September 28, 2001 between MAI
Systems Corporation and CPI Securities LP, The Value Realization
Fund, L.P., The Canyon Value Realization Fund and GRS Partners II.
10.20 Settlement Agreement dated September 2000 between GetronicsWang Co.
LLC and Olsy North America, Inc. and MAI Systems Corporation, filed
as Exhibit 10.2 to the Company's Quarterly Report for the period
ending September 30, 2000.
10.21 Security Agreement dated September 2000 between GetronicsWang Co.
LLC and MAI Systems Corporation, filed as Exhibit 10.3 to the
Company's Quarterly Report dated September 30, 2000.
10.22 Settlement Agreement dated December 1, 2000 between CSA and MAI
Systems Corporation, filed as Exhibit 10.27 to the Company's 2000
Annual Report on Form 10-K.
10.23 Security Agreement dated December 1, 2000 between CSA and MAI
Systems Corporation, filed as Exhibit 10.28 to the Company's 2000
Annual Report on Form 10K.
10.24 Settlement Agreement and Mutual Release and Purchase Agreement dated
June 30, 2000 between Enterprise Hospitality Solutions, Lodging
Touch International and Global Enterprise Technology Solutions and
MAI Systems Corporation and Hotel Information Systems, Inc., filed
as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q dated
September 30, 2000.
10.25 Termination/Transition Agreement between Christian Rivadalla d/b/a
Enterprise Hospitality Solutions and Enterprise Hospitality
Solutions, Inc., and the Company dated August 2, 1999, filed as
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1999.
10.26 Exclusive Worldwide Software License Agreement between Christian
Rivadalla d/b/a Enterprise Hospitality Solutions and Enterprise
Hospitality Solutions, Inc., and the Company dated August 20, 1999,
filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the period ending September 30, 1999.
10.27 Settlement and Reconveyance Agreement dated April 6, 2001 between
MAI Systems Corporation and Logix Development Corporation, a
California corporation, filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q dated June 30, 2001.
10.28 Asset Purchase Agreement dated July 27, 2001 between the Company,
Monaco Informatiques Systemes S.A.M. and Monaco Informatiques
Systemes USA, Inc.
10.29 Asset Purchase Agreement dated October 9, 2001 between the Company
and Optimal Robotics, Inc.
10.30 Consulting Agreement dated as of August 15, 1994, as amended as of
October 17, 1994, August 16, 1996, August 31, 1997, August 31, 1998,
August 31, 1999, August 31, 2000 and August 31, 2001 by and between
the Company and Orchard Capital Corporation, relating to the
services of Richard S. Ressler, Chairman of the Board. The original
agreement and the October 17, 1994 amendment are incorporated herein
by reference to the Company's 1994 Annual Report on Form 10-K. The
August 16, 1996 amendment is incorporated herein by reference to the
Company's 1996 Annual Report on Form 10-K. The August 31, 1997
amendment is incorporated herein by reference to the Company's 1997
Annual Report on Form 10-K. The August 31, 1998 amendment is
incorporated herein by reference to the Company's 1998 Annual Report
on Form 10-K. The August 31,
-17-
1999 amendment is incorporated herein by reference to the Company's
1999 Annual Report on Form 10-K. The August 2000 amendment is
incorporated herein by reference to the Company's 2000 Annual Report
on Form 10-K.
10.31 Richard S. Ressler Stock Purchase Letter, dated February 3, 1999,
filed as Exhibit 10.4 to the Company's 1998 Annual Report on Form
10-K.
10.32 Consulting Agreement dated July 15, 2000 between Zohar Loshitzer and
MAI Systems Corporation, filed as Exhibit 10.30 to the Company's
2000 Annual Report on Form 10K.
10.33 Stock Option Agreement between W. Brian Kretzmer and the Company
dated August 2, 1999, filed as Exhibit 10.11 to the Company's 1999
Annual Report on Form 10-K.
10.34 Stock Option Agreement between W. Brian Kretzmer and the Company
dated March 24, 2000, filed as Exhibit 10.23 to the Company's 2000
Annual Report on Form 10-K.
10.35 Warrant Agreement between W. Brian Kretzmer and the Company dated
March 24, 2000, filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2000.
10.36 Stock Option Agreement between James Dolan and the Company dated
November 2, 1999, filed as Exhibit 10.10 to the Company's 1999
Annual Report on Form 10-K.
10.37 Stock Option Agreement between James Dolan and the Company dated
March 24, 2000, filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 2001.
10.38 Stock Option Agreement between James Dolan and the Company dated
February 2, 2001, filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ending March 31, 2001
13.1 Portions of the Company's Annual Report to Stockholders for the year
ended December 31, 2001, but only to the extent such report is
expressly incorporated by reference into Items 10, 11, 12, 13 and
14(a)(1) of this report and such report is not otherwise deemed to
be filed as part of this Annual Report on Form 10-K.
21.1 Subsidiaries of MAI Systems Corporation
23.1 Consent of KPMG LLP
(b) Reports on Form 8-K during 2001
None.
-18-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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
By: /s/ William B. Kretzmer
--------------------------------------
William B. Kretzmer
Chief Executive Officer and President
Dated: April 15, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on April 15, 2002.
Signatures Title
---------- -----
/s/ Richard S. Ressler Chairman, Director
- ----------------------------------------
Richard S. Ressler
/s/William B. Kretzmer Chief Executive Officer and President
- ---------------------------------------- (Principal Executive Officer)
William B. Kretzmer
/s/James W. Dolan Chief Operating Officer and Chief Financial Officer
- ---------------------------------------- (Principal Financial and Accounting Officer)
James W. Dolan
/s/Zohar Loshitzer Director
- ----------------------------------------
Zohar Loshitzer
/s/Morton O. Schapiro Director
- ----------------------------------------
Morton O. Schapiro
/s/Stephen Ross Director
- ----------------------------------------
Stephen Ross
/s/Steven F. Mayer Director
- ----------------------------------------
Steven F. Mayer
-19-
Number Exhibit
- ------ -------
2.1 First Amended Joint Chapter II Plan of Reorganization of MAI Systems
Corporation, Brooke Acquisition Corp. and CLS Software, Inc., as
confirmed by the United States Bankruptcy Court for the District of
Delaware, on November 13, 1993, filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated January 15, 1994.
2.2 Consent Order Modifying Confirmed Plan of Reorganization and Fixing
Effective Date, as entered by the United States Bankruptcy Court for
the district of Delaware on January 27, 1994, as filed as Exhibit
2.2 to the Registrant's Current Report on form 8-K dated February 9,
1994.
3.1 Amended and Restated Certificate of Incorporation of MAI Systems
Corporation, filed as Exhibit 3.1 to the Company's 1996 Annual
Report on Form 10-K.
3.2 Amendment No. 1 to the Amended and Restated Certificate of
Incorporation of MAI Systems Corporation, filed as Exhibit 3.2 to
the Company's 1996 Annual Report on Form 10-K.
3.3 By-laws of MAI Systems Corporation, filed as Exhibit 2(b) to the
Registrant's Registration Statement on Form 8-A/A filed with the
Securities and Exchange Commission on February 24, 1994.
3.4 Amendment No. 2 to the Amended and Restated Certificate of
Incorporation of MAI Systems Corporation, filed as Exhibit 3.4 to
the Company's 1998 Annual Report on Form 10-K.
10.1 Amended and Restated MAI Systems Corporation 1993 Stock Option Plan.
10.2 Amended and Restated 1995 Non-Employee Directors Stock Option Plan.
10.3 MAI Systems Corporation's 2001 Restricted Stock Plan.
10.4 Coast Business Credit Loan and Security Agreement, dated April 23,
1998, filed as Exhibit 10.2 to the Company's 1998 Annual Report on
Form 10-K.
10.5 Amendment Number One dated September 30, 1998 to the Loan and
Security Agreement between Coast Business Credit and the Company
dated April 23, 1998, filed as Exhibit 10.2 to the Company's 1999
Annual Report on Form 10-K.
10.6 Amendment Number Two dated March 2, 1999 to the Loan and Security
Agreement between Coast Business Credit and the Company dated April
23, 1998, filed as Exhibit 10.3 to the Company's 1999 Annual Report
on Form 10-K.
10.7 Amendment Number Three dated June 16, 1999 to the Loan and Security
Agreement between Coast Business Credit and the Company dated April
23, 1998, filed as Exhibit 10.4 to the Company's 1999 Annual Report
on Form 10-K.
10.8 Amendment Number Four dated July 28, 1999 to the Loan and Security
Agreement between Coast Business Credit and the Company dated April
23, 1998, filed as Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the period ending September 30, 1999.
10.9 Letter Agreement Amendment dated October 1, 1999 to the Loan and
Security Agreement between Coast Business Credit and
the Company dated April 23, 1998, filed as Exhibit 10.6 to the
Company's 1999 Annual Report on Form 10-K.
10.10 Amendment Number Five dated April 13, 2000, to the Loan and Security
Agreement between Coast Business Credit and the Company dated April
23, 1998, filed as Exhibit 10.20 to the Company's 1999 Annual Report
on Form 10-K.
10.11 Amendment Number Six dated September 12, 2000, to the Loan and
Security Agreement between Coast Business Credit and the Company
dated April 23, 1998, filed as Exhibit 10.31 to the Company's Annual
Report on Form 10-K.
10.12 Amendment Number Seven dated September 13, 2001, to the Loan and
Security Agreement between Coast Business Credit and the Company
dated April 23, 1998.
10.13 Pledge, Assignment and Security Agreement dated September 7, 2001
between Coast Business Credit, the Company, MAI Systems
International and MAI Development Corporation.
10.14 Collateral Release Agreement dated September 28, 2001 between Coast
Business Credit and the Company.
10.15 Forebearance Agreement between MAI Systems Corporation and CPI
Securities LP, The Value Realization Fund, L.P., The Canyon Value
Realization Fund and GRS Partners II dated October 28, 1999, filed
as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for
the period ending September 30, 1999.
10.16 Amendment No. 1 dated February 14, 2000 to Forebearance Agreement
between MAI Systems Corporation and CPI Securities LP, The Value
Realization Fund, L.P., The Canyon Value Realization Fund and GRS
Partners II dated October 28, 1999, filed as Exhibit 10.18 to the
Company's 1999 Annual Report on Form 10-K.
10.17 Amendment No. 2 dated April 13, 2000 to Forebearance Agreement
between MAI Systems Corporation and CPI Securities LP, The Value
Realization Fund, L.P., The Canyon Value Realization Fund and GRS
Partners II dated October 28, 1999, filed as Exhibit 10.19 to the
Company's 1999 Annual Report on Form 10-K.
10.18 Supplement and Amendment dated January 31, 2001 to Forebearance
Agreement between MAI Systems Corporation and CPI Securities LP, The
Value Realization Fund, L.P., The Canyon Value Realization Fund and
GRS Partners II dated October 28, 1999, filed as Exhibit 10.32 to
the Company's 2000 Annual Report on Form 10-K.
10.19 Collateral Release Agreement dated September 28, 2001 between MAI
Systems Corporation and CPI Securities LP, The Value Realization
Fund, L.P., The Canyon Value Realization Fund and GRS Partners II.
10.20 Settlement Agreement dated September 2000 between GetronicsWang Co.
LLC and Olsy North America, Inc. and MAI Systems Corporation, filed
as Exhibit 10.2 to the Company's Quarterly Report for the period
ending September 30, 2000.
10.21 Security Agreement dated September 2000 between GetronicsWang Co.
LLC and MAI Systems Corporation, filed as Exhibit 10.3 to the
Company's Quarterly Report dated September 30, 2000.
10.22 Settlement Agreement dated December 1, 2000 between CSA and MAI
Systems Corporation, filed as Exhibit 10.27 to the Company's 2000
Annual Report on Form 10-K.
10.23 Security Agreement dated December 1, 2000 between CSA and MAI
Systems Corporation, filed as Exhibit 10.28 to the Company's 2000
Annual Report on Form 10K.
10.24 Settlement Agreement and Mutual Release and Purchase Agreement dated
June 30, 2000 between Enterprise Hospitality Solutions, Lodging
Touch International and Global Enterprise Technology Solutions and
MAI Systems Corporation and Hotel Information Systems, Inc., filed
as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q dated
September 30, 2000.
10.25 Termination/Transition Agreement between Christian Rivadalla d/b/a
Enterprise Hospitality Solutions and Enterprise Hospitality
Solutions, Inc., and the Company dated August 2, 1999, filed as
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1999.
10.26 Exclusive Worldwide Software License Agreement between Christian
Rivadalla d/b/a Enterprise Hospitality Solutions and Enterprise
Hospitality Solutions, Inc., and the Company dated August 20, 1999,
filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the period ending September 30, 1999.
10.27 Settlement and Reconveyance Agreement dated April 6, 2001 between
MAI Systems Corporation and Logix Development Corporation, a
California corporation, filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q dated June 30, 2001.
10.28 Asset Purchase Agreement dated July 27, 2001 between the Company,
Monaco Informatiques Systemes S.A.M. and Monaco Informatiques
Systemes USA, Inc.
10.29 Asset Purchase Agreement dated October 9, 2001 between the Company
and Optimal Robotics, Inc.
10.30 Consulting Agreement dated as of August 15, 1994, as amended as of
October 17, 1994, August 16, 1996, August 31, 1997, August 31, 1998,
August 31, 1999, August 31, 2000 and August 31, 2001 by and between
the Company and Orchard Capital Corporation, relating to the
services of Richard S. Ressler, Chairman of the Board. The original
agreement and the October 17, 1994 amendment are incorporated herein
by reference to the Company's 1994 Annual Report on Form 10-K. The
August 16, 1996 amendment is incorporated herein by reference to the
Company's 1996 Annual Report on Form 10-K. The August 31, 1997
amendment is incorporated herein by reference to the Company's 1997
Annual Report on Form 10-K. The August 31, 1998 amendment is
incorporated herein by reference to the Company's 1998 Annual Report
on Form 10-K. The August 31,
1999 amendment is incorporated herein by reference to the Company's
1999 Annual Report on Form 10-K. The August 2000 amendment is
incorporated herein by reference to the Company's 2000 Annual Report
on Form 10-K.
10.31 Richard S. Ressler Stock Purchase Letter, dated February 3, 1999,
filed as Exhibit 10.4 to the Company's 1998 Annual Report on Form
10-K.
10.32 Consulting Agreement dated July 15, 2000 between Zohar Loshitzer and
MAI Systems Corporation, filed as Exhibit 10.30 to the Company's
2000 Annual Report on Form 10K.
10.33 Stock Option Agreement between W. Brian Kretzmer and the Company
dated August 2, 1999, filed as Exhibit 10.11 to the Company's 1999
Annual Report on Form 10-K.
10.34 Stock Option Agreement between W. Brian Kretzmer and the Company
dated March 24, 2000, filed as Exhibit 10.23 to the Company's 2000
Annual Report on Form 10-K.
10.35 Warrant Agreement between W. Brian Kretzmer and the Company dated
March 24, 2000, filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2000.
10.36 Stock Option Agreement between James Dolan and the Company dated
November 2, 1999, filed as Exhibit 10.10 to the Company's 1999
Annual Report on Form 10-K.
10.37 Stock Option Agreement between James Dolan and the Company dated
March 24, 2000, filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 2001.
10.38 Stock Option Agreement between James Dolan and the Company dated
February 2, 2001, filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ending March 31, 2001
13.1 Portions of the Company's Annual Report to Stockholders for the year
ended December 31, 2001, but only to the extent such report is
expressly incorporated by reference into Items 10, 11, 12, 13 and
14(a)(1) of this report and such report is not otherwise deemed to
be filed as part of this Annual Report on Form 10-K.
21.1 Subsidiaries of MAI Systems Corporation
23.1 Consent of KPMG LLP