<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_______________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1996.
Commission File No. 1-9158
_______________________________________
MAI SYSTEMS CORPORATION
(Exact name of Registrant as Specified in its Charter)
Delaware 22-2554549
(State of Incorporation) (I.R.S. Employer
Identification Number)
9600 Jeronimo Road
Irvine, California 92718
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (714) 580-0700
====================================================================
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
and (2) has been subject to such filing requirements for the
past 90 days.
Yes No
/X/ / /
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 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 No
/X/ / /
As of May 3, 1996, 6,734,650 shares of the registrant's
Common Stock, $0.01 par value, were outstanding.
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<PAGE>2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAI Systems Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, March 31,
1995 1996
(dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents $4,086 $4,055
Receivables, net 7,662 6,874
Inventories 3,769 3,935
Prepaids 913 963
Total current assets 16,430 15,827
Furniture, fixtures and
equipment, net 3,766 3,670
Other assets 837 759
Total assets $21,033 $20,256
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of
long-term debt $620 $558
Customer deposits 745 1,237
Accounts payable 4,778 4,139
Accrued liabilities 6,432 5,102
Income taxes payable 337 164
Unearned revenue 3,181 3,116
Total current liabilities 16,093 14,316
Deferred income taxes 132 26
Long-term debt 1,021 778
Other liabilities 1,150 824
Minority interest in
consolidated subsidiary 165 -
Total liabilities 18,561 15,944
Stockholders' equity:
Common stock, par value $0.01
per share, authorized 10,000,000
shares, 7,398,914 shares
issuable 74 74
Additional paid-in capital 199,364 199,411
Cumulative translation
adjustment 28 61
Accumulated deficit (196,994) (195,234)
Total stockholders' equity 2,472 4,312
Total liabilities and
stockholders' equity $21,033 $20,256
The accompanying notes are an integral part of these condensed
consolidated financial statements
<PAGE>3
MAI Systems Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three-Months
Ended March 31,
1995 1996
---------- ----------
(dollars in thousands,
except per share data)
Revenue:
Computer products and
other contract services $17,195 $14,731
Direct costs:
Computer products and
other contract services 10,269 9,644
Gross profit 6,926 5,087
Selling, general and
administrative expenses 3,015 2,763
Research and development costs 656 687
Operating income 3,255 1,637
Interest expense, net (28) (42)
Minority interest in
consolidated subsidiary (147) 165
Income before income
taxes 3,080 1,760
Provision for income taxes (222) -
Net income $2,858 $1,760
Primary and fully diluted
income per share
of common stock $0.39 $0.21
The accompanying notes are an integral part of these condensed
consolidated financial statement
<PAGE>4
MAI Systems Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Three-Months
Ended March 31,
1995 1996
(dollars in
thousands)
Net cash provided by operating
activities $430 $406
Cash flows from investing
activities:
Capital expenditures (426) (215)
Proceeds from disposal of
furniture, fixtures and
equipment 42 -
Net cash used in investing
activities (384) (215)
Cash flows from financing
activities:
Repayments of term and other
long-term debt (234) (308)
Proceeds from the exercise
of stock options - 47
Net cash used in financing
activities (234) (261)
Effect of exchange rate changes
on cash and cash equivalents 2 39
Net change in cash and cash
equivalents (186) (31)
Cash and cash equivalents at
beginning of period 3,151 4,086
Cash and cash equivalents at end
of period $2,965 $4,055
Cash paid during the period for:
Interest $64 $90
The accompanying notes are an integral part of these condensed
consolidated financial statements
<PAGE>5
MAI Systems Corporation
Notes to Condensed Consolidated Financial Statements
Three-Months Ended March 31, 1996
(Unaudited)
(1) Basis of Presentation
Companies for which this report is filed are MAI Systems
Corporation and its majority and 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. The minority interest relates to
Gaming Systems International, the Company's 70%-owned gaming
solutions subsidiary.
<TABLE>
<CAPTION>
(2) Inventories
Inventories are summarized as follows:
December 31, March 31,
1995 1996
(dollars in thousands)
<S> <C> <C>
Finished goods $ 2,649 $ 2,993
Replacement parts 1,120 942
-------- -------
Total $ 3,769 $3,935
</TABLE>
(3) Plan of Reorganization
In 1994, the Company emerged from a voluntary proceeding
under the bankruptcy protection laws. Notwithstanding the
confirmation and effectiveness of its Plan of Reorganization
(the "Plan"), the Bankruptcy Court continues to have
jurisdiction to resolve disputed pre-petition claims against
the Company to resolve matters related to the assumptions,
assignment or rejection of executory contracts pursuant to the
Plan and to resolve other matters that may arise in connection
with the implementation of the Plan.
Shares of common stock are currently being distributed by
the Company to its former creditors. As of May 3, 1996,
6,728,401 shares of common stock had been issued pursuant to
the plan and were outstanding. The Company estimates that
approximately 7,356,250 shares will be issued to creditors.
(4) Net Income per Share
Primary and fully diluted income per share are computed
using 7,356,250 shares of common stock (adjusted for the
August 1995 stock split) expected to be issued in accordance
with the Plan of Reorganization and the weighted average
number of shares and equivalent shares of common stock
outstanding during the period. Common stock equivalents
consist of dilutive outstanding stock options and warrants and
are calculated using the treasury stock method. For all
periods presented, fully diluted income per share approximates
primary income per share.
<PAGE>6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At March 31, 1996, working capital increased to
$1,511,000 from $337,000 at December 31, 1995. Excluding
deferred revenue (which will not give rise to cash
disbursements) of $3,116,000, the Company's working capital is
$4,627,000 or a ratio of current assets to current liabilities
of 1.41 to 1.0. The improvement in the Company's working
capital is attributable to the improved operating results of
the business for the period through March 31, 1996.
Cash and cash equivalents were $4,055,000 at March 31,
1996, compared to $4,086,000 at December 31, 1995. The
Company continues to have available a $4,000,000 secured
revolving credit facility. The availability of this line of
credit is based on a calculation reflecting the age and nature
of certain accounts receivable. At March 31, 1996, the
available balance was approximately $2,800,000; however, no
balances were drawn down under this facility at March 31,
1996.
Net cash used for investing activities in the three
months ended March 31, 1996, totaled $215,000 relating to
capital expenditures.
Net cash used in financing activities for the three-
months ended March 31, 1996, totaled $261,000, comprising
$308,000 to repay long-term debt offset by $47,000 proceeds
from the exercise of stock options.
Stockholders' equity increased to $4,312,000 at March 31,
1996 from $2,472,000 at December 31, 1995, principally due to
net income for the three months ended March 31, 1996 of
$1,760,000.
The Company believes it will continue to have sufficient
cash available to fund its operating and capital requirements
through 1996.
As of May 3, 1996, the Company had issued 6,728,401
shares of common stock to its former unsecured creditors in
satisfaction of their claims against the Company.
Results of Operations
Three-Months Ended March 31, 1995 Compared to Three-Months Ended
March 31, 1996
March 31, Percentage of March 31, Percentage
1995 Revenues 1996 of Revenues
(dollars in thousands)
Revenues $17,195 100.0% $14,731 100.0%
Gross profit 6,926 40.3% 5,087 34.5%
Selling, general &
administrative expenses 3,015 17.5% 2,763 18.8%
Research and development
costs 656 3.8% 687 4.7%
Provision for income taxes (222) 1.3% - -
Minority Interest (147) 0.9% 165 1.1%
Revenues for the first quarter of 1995 were $17,195,000
compared to $14,731,000 for the comparable period of 1996. The
decrease revenues in the first quarter of 1996 compared
to comparable periods of 1995 is due to lower revenues at the
Company's gaming solutions subsidiary, where revenues were
favorably impacted by one large installation. Non-gaming revenues in
the first quarter of 1995 included approximately $800,000 of revenues
generated by operations that were disposed or closed. Excluding those
operations that were disposed or closed, non-gaming-related revenues
increased approximately 5.3% comprised of an increase in sales to the
Company's network solution customers partially offset by a decrease
in the Company's traditional contract services revenues.
<PAGE>7
Gross profit for the first quarter of 1995 was $6,926,000
compared to $5,087,000 for the comparable period of 1996. The decrease
in the percentage gross profit from 40.3% in the first quarter of 1995 to
34.5% for the comparable period of 1996 primarily relates
to a lower gross profit contribution by the Company's gaming
solutions subsidiary due to lower sales volumes in the first quarter of
1996 and certain direct costs at the Company's gaming solutions
subsidiary that are largely fixed which negatively impact
gross profit when sales volumes decline.
Selling, general and administrative expenses decreased
from $3,015,000 for the first quarter of 1995, compared to $2,763,000
for the comparable period of 1996. The decrease is principally
attributable to ongoing cost reduction efforts and the reversal
of certain excess restructuring costs in 1996.
Research and development costs were $656,000 for the first quarter
of 1995 compared to $687,000 for the comparable period of 1996. Research and
development costs primarily relate to costs incurred for the Company's
gaming and hospitality products.
The provision for taxes reflects taxes for domestic and
foreign operations offset by the utilization net operating
loss carryforwards.
The minority interest charge for the first quarter of 1995 reflects
the share of (income) losses attributable to the minority shareholders
in the Company's gaming solutions subsidiary. The $165,000
credit for the minority interest in the first quarter of 1996 reduces the
minority interest balance to zero in the accompanying condensed
consolidated balance sheet at March 31, 1996.
<PAGE>8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As a consequence of the commencement of the Company's
bankruptcy proceedings, the Company has filed objections to a
large number of proofs of claim. Sums determined to be due to
claimants, as a result of settlement or judicial
determinations, will be treated under the Plan of
Reorganization as claims and claimants will receive either
cash or shares of common stock in exchange for their claims.
The Company does not believe the outcome of these objections
to be material.
Further, the Company instituted several adversary
proceedings prior to the effective date of the Plan of
Reorganization. None of those proceedings involve allegations
of material claims against the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None
<PAGE>9
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: May 15, 1996 /S/ William Brian Kretzmer
William Brian Kretzmer
Vice-President, Chief
Financial
Officer and Treasurer
<PAGE>10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1,000
<CASH> 4,055
<SECURITIES> 0
<RECEIVABLES> 6,874
<ALLOWANCES> (1,039)
<INVENTORY> 3,935
<CURRENT-ASSETS> 15,827
<PP&E> 13,344
<DEPRECIATION> (9,674)
<TOTAL-ASSETS> 20,256
<CURRENT-LIABILITIES> 14,316
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,256
<SALES> 14,731
<TOTAL-REVENUES> 14,731
<CGS> 9,644
<TOTAL-COSTS> 9,644
<OTHER-EXPENSES> 3,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 1,760
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,760
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<PAGE>
</TABLE>
