<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
SEPTEMBER 30, 1997
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)
9601 Jeronimo Road
Irvine, California 92618
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (714) 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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by 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 X No
--- ---
As of November 12, 1997, 10,148,205 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)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ ------------
(dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,857 $ 4,570
Receivables, less allowance for doubtful accounts of
$2,578 in 1996 and $3,760 in 1997 11,407 16,747
Inventories 3,321 2,621
Prepaids and other current assets 1,938 4,513
--------- ---------
Total current assets 20,523 28,451
Furniture, fixtures and equipment, net 4,065 4,582
Intangibles 6,804 12,503
Other assets 1,461 2,057
--------- ---------
Total assets $ 32,853 $ 47,593
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,394 $ 941
Accounts payable 6,852 6,741
Customer deposits 1,763 3,048
Accrued liabilities 7,312 10,649
Income taxes payable 462 324
Unearned revenue 11,010 14,464
--------- ---------
Total current liabilities 28,793 36,167
Long-term debt 485 6,338
Other liabilities 1,517 1,046
--------- ---------
Total liabilities 30,795 43,551
--------- ---------
Stockholders' equity:
Common stock, par value $0.01 per share, authorized 25,000,000
shares, 8,292,935 and 10,223,963 shares issuable 88 106
Additional paid-in capital 212,351 220,051
Cumulative translation adjustment 100 (2)
Accumulated deficit (210,481) (216,113)
--------- ---------
Total stockholders' equity 2,058 4,042
--------- ---------
Total liabilities and stockholders' equity $ 32,853 $ 47,593
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
2
<PAGE> 3
MAI Systems Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1996 1997 1996 1997
---------- -------- ---------- ---------
(dollars in thousands, (dollars in thousands,
except per share data) except per share data)
<S> <C> <C> <C> <C>
Revenue
Software, networks and professional services:
Software sales $ 2,179 $ 1,516 $ 4,334 $ 4,459
Network and computer equipment 4,129 3,152 10,596 9,561
Professional services 4,122 8,074 9,074 22,926
-------- -------- -------- --------
10,430 12,742 24,004 36,946
Legacy revenue 7,320 4,917 23,511 15,950
-------- -------- -------- --------
Total revenue 17,750 17,659 47,515 52,896
Direct costs 11,585 9,690 29,975 32,697
-------- -------- -------- --------
Gross profit 6,165 7,969 17,540 20,199
Selling, general and administrative expenses 5,309 6,939 11,766 18,641
Research and development costs 377 1,467 1,366 4,152
Amortization and impairment of intangibles 374 550 395 1,374
Restructuring costs -- 900 -- 900
Other operating (income) expense (140) 158 (7,434) 33
-------- -------- -------- --------
Operating income (loss) 245 (2,045) 11,447 (4,901)
Minority interest in consolidated subsidiary -- -- 165 --
Interest income -- 39 -- 94
Interest expense (8) (290) (102) (825)
-------- -------- -------- --------
Income (loss) before income taxes 237 (2,296) 11,510 (5,632)
Income tax benefit (164) -- (164) --
-------- -------- -------- --------
Net income (loss) $ 401 $ (2,296) $ 11,674 $ (5,632)
======== ======== ======== ========
Primary and fully diluted income (loss)
per share of common stock and dilutive
common stock equivalents $ 0.04 $ (0.24) $ 1.20 $ (0.61)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE> 4
MAI Systems Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------
1996 1997
---------- ----------
(dollars in thousands)
<S> <C> <C>
Net cash provided by (used in) operating activities $ 5,665 $ (4,071)
-------- --------
Cash flows from investing activities:
Capital expenditures (1,065) (830)
Purchase of businesses 158 (6,102)
Capitalized software costs (736) --
-------- --------
Net cash used in investing activities (1,643) (6,932)
-------- --------
Cash flows from financing activities:
Short-term borrowings, net -- 1,183
Payments received on notes receivable -- 234
Proceeds from issuance of common stock, net -- 2,300
Proceeds from issuance of subordinated notes payable -- 6,000
Increase in note receivables (437) (25)
Repayments of term and other long-term debt (1,655) (134)
Proceeds from the exercise of stock options and warrants 57 2,207
-------- --------
Net cash (used in) provided by financing activities (2,035) 11,765
-------- --------
Effect of exchange rate changes on cash and cash equivalents (53) (49)
-------- --------
Net change in cash and cash equivalents 1,934 713
-------- --------
Cash and cash equivalents at beginning period 4,086 3,857
-------- --------
Cash and cash equivalents at end of period $ 6,020 $ 4,570
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE> 5
MAI Systems Corporation
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 1997
(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.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ --------------
(dollars in thousands)
<S> <C> <C>
Finished goods $2,277 $1,685
Replacement parts 1,044 936
------ ------
$3,321 $2,621
====== ======
</TABLE>
3. PLAN OF REORGANIZATION
In 1993, the Company emerged from a voluntary proceeding under the
bankruptcy protection laws. Notwithstanding the confirmation and
effectiveness of its Plan of Reorganization (the "Plan"), the
Bankruptcy Court continues to have jurisdiction to resolve disputed
pre-petition claims against the Company to resolve matters related to
the assumptions, assignment or rejection of executory contracts
pursuant to the Plan and to resolve other matters that may arise in
connection with the implementation of the Plan.
Shares of common stock may be distributed by the Company to its former
creditors. As of November 14, 1997, 6,755,751 shares of Common Stock
had been issued pursuant to the Plan and were outstanding. The Company
estimates that approximately 6,820,338 shares will have been issued to
creditors at completion of the Plan.
4. BUSINESS ACQUISITIONS
CIMPRO:
On March 6, 1997, the Company acquired substantially all the assets and
assumed certain liabilities of CIMPRO, which develops and markets
process manufacturing software, for $5,900,000 in cash. The acquisition
of CIMPRO was effected by utilizing the proceeds derived from selling
400,000 shares of Common Stock in a private placement for $6.50 per
share and issuing $6,000,000 of 11% subordinated notes due in 2004 to
investment funds associated with Canyon Capital Management LP
("Canyon"). Interest on the subordinated notes is payable semi-annually
commencing September 3, 1997.
Associated with the stock issuance, the Company incurred $300,000 of
issuance costs which are included in additional paid-in capital in the
accompanying condensed consolidated balance sheet at September 30,
1997.
5
<PAGE> 6
The acquisition of CIMPRO has been accounted for using the purchase
method of accounting. A preliminary allocation of the purchase price is
as follows:
Allocation of
Purchase Price
--------------
(in thousands)
Current assets $ 2,011
Property, plant and equipment 400
Intangibles 6,338
Current liabilities (2,263)
Long-term liabilities (586)
-------
$ 5,900
=======
Intangible assets are being amortized on a straight-line basis over the
expected periods to be benefited of five to seven years.
GAMING SYSTEMS INTERNATIONAL:
In March 1997, the Company acquired options previously issued to
certain employees permitting such employees to purchase 3.5% of Gaming
Systems International ("GSI") Common Stock. Consideration given in
exchange was 14,930 shares of the Company's Common Stock valued at
$104,500 and notes payable of $104,500. The transaction resulted in an
increase in goodwill of $209,000.
HOTEL INFORMATION SYSTEMS, INC.:
In July 1997, the Company received a preliminary arbitration decision
regarding the purchase price of assets and assumed liabilities acquired
from Hotel Information Systems, Inc., in August 1996. The preliminary
decision requires a reduction to the purchase price of approximately
$931,000. The final purchase price reduction amount rendered by the
arbitrator will reduce recorded goodwill.
5. STOCK WARRANTS
Warrants to purchase 750,000 shares of the Company's Common Stock at $8
per share were issued in connection with the issuance of the 11%
subordinated debt. These warrants are exercisable and callable (by the
Company) under certain circumstances at any time within seven years and
the 11% subordinated notes may be used to exercise the warrants. The
Company recorded an original issue discount of $1,027,000 which
represents the fair value of the warrants at the time of issuance. The
fair value of the warrants was recorded in connection with the issuance
of the warrants and is reflected as a reduction in the face value of
the subordinated notes.
In September 1997, the Company reduced the exercise price of 800,000
warrants (750,000 related to the subordinated debt and 50,000 held by a
related party) to $3.04 per share. As a result, the holders of warrants
exercised such warrants and acquired 800,000 shares of the Company's
Common Stock at $3.04 per share. Such exercises were paid in cash,
except that holders of warrants relating to the subordinated debt, as
allowed under the terms of the debt agreement, applied $750,000 of the
proceeds to the principal balance of the related debt.
In addition, in September 1997, the Company issued 157,895 shares of
its Common Stock to a related party upon exercise of a previously
outstanding warrant, exercisable at $1.90 per share in cash.
6
<PAGE> 7
6. RESTRUCTURING COSTS
In September 1997, management authorized and committed the Company to a
restructuring plan to eliminate operations and related expenses which
were not required to support the Company's operations of software sales
and professional services. In connection with the restructuring plan,
the Company recorded a restructuring charge of $900,000 to recognize
severance, benefits and other related costs for the employees to be
terminated. At September 30, 1997, the remaining liability associated
with the restructuring was approximately $616,000.
7. INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
Per Share. SFAS No. 128 specifies new standards designed to improve the
Earnings Per Share ("EPS") information provided in financial statements
by simplifying the existing computational guidelines, revising the
disclosure requirements and increasing the comparability of EPS data on
an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS
and replacing it with basic EPS, with the principal difference being
that the common stock equivalents are not considered in computing basic
EPS, (b) eliminating the modified treasury stock method and the three
percent materiality provision and (c) revising the contingent share
provisions and the supplemental EPS data requirements. SFAS No. 128
also makes a number of changes to existing disclosure requirements.
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Accordingly,
the financial statements for the Company's fourth quarter ending
December 31, 1997, will include a restatement of historical income
(loss) per share to conform to the requirements of SFAS No. 128. The
effects of this change are not expected to have a material effect on
income (loss) per common share.
Primary and fully diluted income (loss) per share for 1996 and 1997,
are computed using 6,867,752 and 9,559,345 shares of Common Stock,
respectively for the three months ended September 30, and 7,356,250 and
9,114,051 shares of Common Stock, respectively for the nine months
ended September 30. These share amounts represent shares of Common
Stock (adjusted for stock split in August 1995) 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. Common Stock equivalents are not included in the
1997 calculation as they would be anti-dilutive.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, working capital increased by $554,000 from a deficit of
$8,270,000 at December 31, 1996, to a deficit of $7,716,000. Excluding unearned
revenue (which will not give rise to cash disbursements) of $14,464,000, the
Company's working capital is $6,748,000 or a ratio of current assets to current
liabilities of 1.31 to 1.0. The comparable ratio at December 31, 1996, was 1.15
to 1.0. The Company's working capital position has improved due to the issuance
of common stock and proceeds from the exercise of stock options and warrants.
Cash and cash equivalents were $4,570,000 at September 30, 1997, as compared to
$3,857,000 at December 31, 1996. The Company continues to have 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 September 30, 1997, approximately $1,183,000 was drawn down under
this facility.
Net cash used for investing activities in the nine months ended September
30,1997 totaled $6,932,000. Capital expenditures comprised $830,000, while the
acquisition of CIMPRO and the acquisition of options to purchase 3.5% of GSI
accounted for $6,102,000.
Net cash provided by financing activities included $6,000,000 from the issuance
of 11% subordinated notes payable due in 2004 in connection with the CIMPRO
acquisition. The notes payable were reduced by $750,000 in September, 1997 to
$5,250,000 due to the exercise of stock warrants. The Company's
working capital was increased by the issuance of 400,000 and 335,506 (in
connection with the exercise of stock options and warrants) shares of $0.01 par
value common stock ("Common Stock") totaling $2,300,000 (net of issuance costs
of $300,000) and $2,207,000, respectively. The increased utilization of the
revolving credit facility by $1,183,000 also increased the Company's working
capital.
Stockholder's equity changed to $4,042,000 at September 30,1997 from $2,058,000
at December 31, 1996, principally due to the issuance of Common Stock totaling
$5,257,000, net of issuance of costs, and the net loss for the nine-months ended
September 30, 1997, of $5,632,000.
The Company believes it will continue to have sufficient cash available to fund
its operating and capital requirements through the next twelve months.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1997
<TABLE>
<CAPTION>
Three months ended Percentage Three months ended Percentage
September 30, 1996 of Revenue September 30, 1997 of Revenue
------------------ ---------- ------------------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenue $ 17,750 100.0% $ 17,659 100.0%
Gross profit 6,165 34.7% 7,969 45.1%
Selling, general &
administrative expenses 5,309 29.9% 6,939 39.3%
Research and development
costs 377 2.1% 1,467 8.3%
Amortization of intangibles 374 2.1% 550 3.1%
Restructuring costs 900 5.1%
Other operating (income)
expense (140) (0.8%) 158 0.9%
Provision (benefit) for
income taxes (164) (0.9%) -- --
</TABLE>
8
<PAGE> 9
Revenues for the three months ended September 30, 1996 were $17,750,000 compared
to $17,659,000 (a 0.1% decrease) for the comparable period of 1997. The $91,000
decrease includes an anticipated decline in the Company's legacy revenues of
$2,403,000 or 33%. Non-legacy revenues increased by $2,312,000 or 22%.
Gross profit for the three months ended September 30, 1996, was $6,165,000
compared to $7,969,000 for the comparable period for 1997. The increase in the
gross profit percentage from 34.7% in the three months ended September 30, 1996,
to 45.1% for the comparable period of 1997, reflects a shift in the mix of
software product sales to higher-margin company-owned products from lower-margin
third-party products. The overall increase in gross margin is net of a reduction
in the margin from legacy revenues. For strategic reasons, legacy services were
outsourced to Olivetti North America and Olivetti Canada, Ltd., in December
1996.
Selling, general and administrative expenses ("SG&A") increased from $5,309,000
for the three months ended September 30, 1996, to $6,939,000 for the comparable
period of 1997. The increase is principally attributable to increased marketing
efforts internationally and a larger sales force. These expenses are related to
a more aggressive sales strategy aimed at securing contracts with larger
multi-site customers.
Research and development costs were $377,000 for the three months ended
September 30, 1996, compared to $1,467,000 for the comparable period of 1997.
The increase is attributable to the capitalization of certain software
development costs which qualify for capitalization as product enhancement costs
in the three months ended September 30, 1996, whereas all development costs were
expensed in the comparable period of 1997, and continued increased development
activity in both the Company's hospitality and manufacturing products.
The amortization of intangibles was $374,000 for the three months ended
September 30, 1996, compared to $550,000 for the comparable period of 1997. The
increase is primarily due to intangible assets generated by the acquisitions of
HIS, CIMPRO and the remaining minority ownership (through the acquisition of
stock options) of Gaming Systems International.
The Company incurred restructuring costs of $900,000 for the three months ended
September 30, 1997 in connection with a restructuring plan to eliminate
operations and related expenses which were not required to support the Company's
operations of software sales and professional services. The costs were recorded
to recognize severance, benefits and other related costs for employees to be
terminated. There were no comparable costs for the three months ended September
30, 1996.
Other operating income for the three months ended September 30, 1996 related to
a favorable settlement of a claim that the Company recorded for in the three
months ended June 30, 1996. In the three months ended September 30, 1997, other
operating expense was principally from foreign exchange losses.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1997
<TABLE>
<CAPTION>
Nine months ended Percentage Nine months ended Percentage
September 30, 1996 of Revenue September 30, 1997 of Revenue
------------------ ---------- ------------------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenue $ 47,515 100.00% 52,896 100.0%
Gross profit 17,540 36.9% 20,199 38.2%
Selling, general &
administrative expenses 11,766 24.8% 18,641 35.2%
Research and development
costs 1,366 2.9% 4,152 7.8%
Amortization of intangibles 395 0.8% 1,374 2.6%
Restructuring costs 900 1.7%
Other operating (income)
expense (7,434) (15.6)% 33 0.1%
Provision (benefit) for
income taxes (164) (0.3)% -- --
Minority interest (165) (0.3)% -- --
</TABLE>
9
<PAGE> 10
Revenues for the nine months ended September 30, 1996, were $47,515,000 compared
to $52,896,000 for the comparable period of 1997. The increase in revenues of
$5,381,000 is net of an anticipated decline in legacy revenues of $7,561,000 or
32.2%. Non-legacy revenues increased by $12,942,000 or 53.9%.
Gross profit for the nine months ended September 30, 1996, was $17,540,000
compared to $20,199,000 for the comparable period of 1997. The increase in the
gross profit percentage from 36.9% in the nine months ended September 30, 1996,
to 38.2% for the comparable period for 1997, reflects a shift in the mix of
software product sales to higher-margin company-owned products from lower-margin
third-party products. The overall increase in gross margin is net of a reduction
in the margin from legacy revenues. For strategic reasons, legacy services were
outsourced to Olivetti North America and Olivetti Canada, Ltd., in December
1996.
Selling, general and administrative expenses increased from $11,766,000 or 24.8%
of revenues in the nine months ended September 30, 1996, to $18,641,000 or 35.2%
of revenues in the comparable period of 1997. The increase is principally
attributable to increased marketing efforts both domestically and
internationally, as well as a larger sales force in both the hospitality and
process manufacturing industries. These expenses, which are related to a more
aggressive sales strategy aimed at winning contracts with larger multi-site
customers, resulted in increased software and professional services revenues in
the nine months ended September 30,1997, compared to the comparable period of
1996. In addition, SG&A increased due to residual integration costs associated
with the August 1996 acquisition of HIS and the integration costs associated
with the March 1997 acquisition of CIMPRO. Higher facilities costs in connection
with the combination of Irvine, California operations into a single building
(which will lower future costs) and higher telecommunications costs, due to
increased traffic from HIS and CIMPRO, also contributed to increased SG&A
expenses.
Research and development costs increased from $1,366,000 or 2.9% of revenues for
the nine months ended September 30, 1996, to $4,152,000 or 7.8% of revenues for
the comparable period in 1997, due to a significant increase in product
development and sustaining engineering activities. The acquisitions of the HIS
and CIMPRO product lines, together with obtaining exclusive world-wide rights to
the Lodging Touch International software product, have resulted in increased
expense in the development and sustaining of these products.
The amortization of intangibles was $395,000 for the nine months ended September
30, 1996, compared to $1,374,000 for the comparable period of 1997. The increase
is primarily due to intangible assets generated by the acquisitions of HIS,
CIMPRO and the remaining minority ownership (through the acquisition of stock
options) of Gaming Systems International.
The Company incurred restructuring costs of $900,000 for the nine months ended
September 30, 1997 in connection with a restructuring plan to eliminate
operations and related expenses which were not required to support the Company's
operations of software sales and professional services. The costs were recorded
to recognize severance, benefits and other related costs for employees to be
terminated. There were no comparable costs for the nine months ended September
30, 1996.
Other operating income for the nine months ended September 30, 1996 related to a
favorable settlement (net of litigation expenses) relating to the disposition of
certain subsidiaries that were disposed in 1993. For the nine months ended
September 30, 1997, other operating income was principally from foreign exchange
gains.
New Accounting Standards
- ------------------------
In June 1997, the FASB issued Statement 130, "Reporting Comprehensive Income".
The new statement is effective for both interim and annual periods beginning
after December 15, 1997. The Company has not yet determined the impact of
adopting this new standard on the consolidated financial statements.
In June 1997, the FASB issued Statement 131, "Disclosure about Segments of an
Enterprise and Related Information". The new statement is effective for fiscal
years beginning after December 15, 1997. The Company has not yet determined
the impact of adopting this new standard on the consolidated financial
statements.
In October 1997, the Accounting Standards Executive Committee issued a
Statement of Position ("SOP") on software recognition, SOP No. 97-2, which
supersedes SOP No. 91-1. The new statement is effective for transactions
entered into in fiscal years beginning after December 15, 1997. The Company is
currently reviewing the impact of SOP No. 97-2 on its consolidated financial
statements and currently believes that impact of its adoption will not have a
material impact on the Company's financial position or results of operations.
10
<PAGE> 11
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 AND USE OF PROCEEDS
(a) None.
(b) None.
(c) On September 4, 1997, the Company issued 157,895 shares of its
Common Stock to Mr. Richard Ressler, Chairman of the Company, upon
his exercise of a previously outstanding warrant, exercisable at
$1.90 per share in cash, and on September 8, 1997, the Company
issued 398,510 shares of its Common Stock to Mr. Ressler in
payment for services rendered pursuant to a consulting agreement
with the Company, dated April 15, 1994, as amended.
Additionally, in order to induce exercises, on September 12, 1997,
the Company temporarily repriced all of its outstanding "out of
the money" warrants to an exercise price of $3.04 per share. As a
result, holders of warrants, being Mr. Ressler with respect to
50,000 warrants, and four institutional investors with respect to
750,000 warrants, exercised such warrants and acquired an
aggregate of 800,000 shares of the Company's Common Stock at $3.04
per share. Such exercises were paid in cash except that such
institutional investors paid a portion of the consideration for
their shares by surrendering $750,000 aggregate principal of
promissory notes of the Company (which were credited at the
principal amount together with accrued interest). This use of
notes to pay a portion of the warrant exercise price was
authorized by the terms of the warrants and notes. Such issuances
closed on September 18, 1997.
The foregoing issuances were made in transactions exempt under
Section 4(2) under the Securities Act of 1933, as transactions not
involving any public offering. The shares issued were legended and
appropriate investment representations were obtained from the
purchasers.
(d) 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.
11
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAI SYSTEMS CORPORATION
(Registrant)
Date: November 14, 1997 /s/ LEWIS H. STANTON
------------------------------------
Lewis H. Stanton
Executive Vice President and
Chief Operating and Financial Officer
(Chief Accounting Officer)
13
<PAGE> 14
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1,000
<CASH> 4,570
<SECURITIES> 0
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0
0
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</TABLE>
