<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

                   FOR ANNUAL AND TRANSITION REPORTS PURSUANT
         TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

<Table>
<C>               <S>
   (MARK ONE)
      [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

                                       OR

      [ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</Table>

                       COMMISSION FILE NUMBER: 000-23453

                       FLEXIINTERNATIONAL SOFTWARE, INC.
             (Exact Name of Registrant as Specified in Its Charter)

<Table>
<S>                                            <C>
                  DELAWARE                                 06-1309427
(State or Other Jurisdiction of Incorporation    (I.R.S. Employer Identification
              or Organization)                                No.)
</Table>

<Table>
<S>                                            <C>
      TWO ENTERPRISE DRIVE, SHELTON, CT                       06484
  (Address of Principal Executive Offices)                 (Zip Code)
</Table>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 925-3040

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS                    NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------                    -----------------------------------------
       None                                              None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     COMMON STOCK, $.01 PAR VALUE PER SHARE
                                (TITLE OF CLASS)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]       No [ ]

     Indicate by check mark 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 aggregate market value of the common equity held by non-affiliates of
the registrant, based upon the closing sales price of Common Stock, par value
$0.01 per share, on March 1, 2002 as reported on the OTC Bulletin Board, was
approximately $0.8 million. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes. The registrant has no shares of non-voting Common Stock
authorized or outstanding.

     As of March 1, 2002, Registrant had 17,784,185 shares of Common Stock
outstanding.
<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Registrant's 2002 Annual Meeting of
Stockholders to be held on Monday, May 24, 2002 (the "2002 Proxy Statement")
which will be filed with the Securities and Exchange Commission no later than
120 days after December 31, 2001, are incorporated by reference in Items 10, 11,
and 12 of Part III of this Report on Form 10-K. With the exception of the
portions of the 2002 Proxy Statement expressly incorporated into this Annual
Report on Form 10-K by reference, such document shall not be deemed filed as a
part of this Form 10-K.

                           FORWARD LOOKING STATEMENTS

     This Annual Report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that are subject to a number of risks and
uncertainties. All statements, other than statements of historical facts
included in this Annual Report on Form 10-K, regarding our strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this Annual Report on Form 10-K, the words "will", "believe", "anticipate",
"intend", "estimate", "expect", "project" and similar expressions are intended
to identify forward-looking statements, although not all forward-looking
statements contain these identifying words. For example, we have made
forward-looking statements with respect to our future revenue growth herein. We
cannot guarantee future results, levels of activity, performance or achievements
and you should not place undue reliance on our forward-looking statements. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or strategic alliances. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
described in "Certain factors that May Affect Future Operating Results" and
elsewhere in this Annual Report on Form 10-K. In addition, you should carefully
review the risk factors included in our documents filed from time to time with
the Securities and Exchange Commission, including our Annual Report of Form 10-K
for the year ended December 31, 2001 and our Quarterly Reports on Form 10-Q. In
addition, from time to time we may also provide oral or written forward-looking
statements in other materials we release to the public. We do not assume any
obligation to update any of the forward-looking statements we make.
<PAGE>

                       FLEXIINTERNATIONAL SOFTWARE, INC.

                                   FORM 10-K
                               2001 ANNUAL REPORT

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                                PAGE
                                                                                ----
<S>               <C>                                                           <C>
PART I

Item 1.           Business....................................................    1
Item 2.           Properties..................................................    4
Item 3.           Legal Proceedings...........................................    4
Item 4.           Submission of Matters to a Vote of Security Holders.........    5
Item 4A           Executive Officers of the Company...........................    5

PART II

Item 5.           Market for Company's Common Equity and Related Stockholder      6
                  Matters.....................................................
Item 6.           Selected Consolidated Financial Data........................    7
Item 7.           Management's Discussion and Analysis of Financial Condition     8
                  and Results of Operations...................................
Item 7A           Quantitative and Qualitative Disclosure about Market Risk...   19
Item 8.           Financial Statements and Supplementary Data.................   20
Item 9.           Changes in and Disagreements with Accountants on Accounting    42
                  and Financial Disclosure....................................

PART III

Item 10.          Directors and Executive Officers of the Company.............   42
Item 11.          Executive Compensation......................................   42
Item 12           Security Ownership of Certain Beneficial Owners and            42
                  Management..................................................
Item 13.          Certain Relationships and Related Transactions..............   42

PART IV

Item 14.          Exhibits, Financial Statement Schedules and Reports on Form    43
                  8-K.........................................................
                  Signatures..................................................   44
                  Exhibit Index...............................................   45
</Table>

     FlexiFinancials, FlexiLedger, FlexiPayables and FlexiReceivables are
registered trademarks, and the Flexi logo, FlexiAnalysis, FlexiObjects,
FlexiWorkFlow, FlexiActiveXControls, FlexiAssets, FlexiCenter, FlexiDB,
FlexiDesigner, FlexiDeveloper, FlexiFDW, FlexiInternational, FlexiInventory,
FlexiProjects, FlexiPurchasing, FlexiSecure, FlexiFRE, FlexiXL, FlexiOpenAccess,
Flexi.Com, FlexiQuery, FlexiBatch, FlexiNet, FlexiWriter, justaboutbiz,
FlexiDistribute and FlexiTools are trademarks of FlexiInternational Software,
Inc. All other trademarks or trade names referred to in this Annual Report on
Form 10-K are the property of their respective owners.

                                        i
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     FlexiInternational Software, Inc., or Flexi or the Company, was organized
as a Connecticut corporation in 1990 and reincorporated in Delaware in 1993.
Flexi designs, develops, markets and supports the Flexi family of financial
application software and related applications and tools. The Flexi
solution -- composed of FlexiFinancials, Flexi Financial Datawarehouse, or
FlexiFDW, FlexiInfoAccess and FlexiTools -- is designed to address the needs of
users with sophisticated financial accounting and operational analysis
requirements. We believe that our solution's distributed, object-oriented,
component-based architecture provides significant advantages over traditional
financial accounting software, including greater transaction throughput and
scalability, ease of implementation, modification and use, and reduced cost of
ownership. We market our products as packaged accounting software solutions to
companies for in-house accounting operations as well as an accounting services
solution for companies which want to outsource their back office accounting
operations as part of a business process outsourcing, or BPO, strategy. The
former involves a traditional software sale with upfront license fees,
implementation consulting and annual maintenance fees. The latter involves
long-term service contracts of 3-5 year duration with fixed monthly fees which
cover the use of the software and the actual accounting services provided by
Flexi.

     In the second half of 2001, we began marketing our financial management
services, or FMS, solution, a BPO service that we expect will leverage our suite
of accounting products and our expertise in back office processing of accounting
data. We believe that mid-sized and fast growing companies could achieve
significant benefits from outsourcing their back office accounting processes
while they focus on financial analysis, cash management and the strategic issues
of their business.

     Flexi products are designed to support new technologies as they develop,
including the Internet and corporate intranets, can be modified quickly and
efficiently by users to create tailored business solutions and can seamlessly
integrate with new applications to support evolving business processes. Rapidly
changing market conditions and intensifying competitive pressures have in recent
years increased the need for highly functional, flexible financial accounting
systems. The systems must have sufficient performance and adaptability to
continue to provide timely and accurate information as organizations change
business processes to meet evolving market and operational requirements. This is
particularly true for organizations experiencing rapid growth in dynamic
markets, and for multinational organizations, which face the complex task of
managing financial information in multiple tax jurisdictions, currencies and
languages. Furthermore, organizations require financial accounting systems that
offer broad functionality across dispersed locations and workgroups. These
functional and technological requirements are especially critical in businesses
centered around the timely collection, analysis and dissemination of vast
amounts of numerical information.

     In 2002 we intend to expand our product offering of FMS and recruit BPO
partners. Flexi expects to offer FMS to the mid-market sector in various select
industries. We anticipate that our sales channel will consist of both direct and
indirect distribution with greater emphasis placed on indirect distribution. We
believe that there is a large market for the advanced functionality of our
products, and we are seeking to exploit this market both domestically and
internationally. Our indirect sales channel consists of resellers or Flexi
Industry Partners or FIPs that address select vertical markets and regional BPO
partners. We currently have relationships with FIPs in the healthcare and
insurance industries, and we expect to establish additional relationships to
complement our direct sales force and FIPs to provide penetration into
additional geographic and vertical markets. Our customers for FlexiFinancials
include Mutual of America, SE Banken, Netstock Direct, Unitil, Wells Fargo,
Lloyds Treasury, Credit Lyonnais, Camden Properties, Nomura International,
RMB-South Africa and Washington Mutual.

     Flexi's goal is to establish itself as a global provider in the mid-market
financial accounting software and BPO market. Key elements of our strategy
include:

                                        1
<PAGE>

     to continue to invest in research and development to strengthen the Flexi
     financial accounting solution delivery over the Internet;

     to continue to target the solution to users with sophisticated financial
     accounting requirements;

     to deliver a reduced overall cost of ownership of financial accounting
     systems to current and prospective customers;

     to leverage strategic relationships with key FIPs in target industries and
     accounting firms to grow our BPO service offering; and

     to expand indirect sales and distribution capabilities both in the U.S. and
     internationally.

PRODUCTS

     The Flexi solution, FlexiFinancial Enterprise Suite, is an integrated suite
of financial accounting applications, together with related information
applications and development tools, that address the needs of users with
sophisticated financial accounting requirements and is easily customized and
supports the latest technologies as they evolve. The FlexiFinancial Enterprise
Suite is composed of the Company's three core families of products:

     FlexiFinancials financial accounting systems;

     Flexi Financial Datawarehouse; and

     FlexiTools development and customized tools.

     The following table provides selected information relating to these core
products. All of our products can operate on a fully integrated basis, be
licensed separately for use on a stand-alone basis or for integration with
products from third-party vendors, or purchased for use in outsourced
environments.

<Table>
<Caption>
                    COMMERCIAL                COMMERCIAL                            COMMERCIAL
FLEXIFINANCIALS    INTRODUCTION   FLEXIFDW   INTRODUCTION        FLEXITOOLS        INTRODUCTION
---------------    ------------   --------   ------------   --------------------   ------------
<S>                <C>            <C>        <C>            <C>                    <C>
FlexiLedger            1993       FlexiFDW       1998       FlexiControl               1993
FlexiPayables          1994       FlexiFRE       1998       FlexiCenter                1994
FlexiReceivables       1995                                 FlexiDeveloper             1994
FlexiPurchasing        1996                                 FlexiDB                    1996
FlexiAssets            1997                                 FlexiDesigner              1996
FlexiProjects          1999                                 FlexiActiveXControls       1997
                                                            FlexiFIRE                  1998
</Table>

  FlexiFinancials

     - FlexiLedger.  FlexiLedger, the general ledger module for FlexiFinancials,
       provides the functionality required for users with sophisticated
       financial accounting requirements, including the ability to support
       unlimited number of currencies including Euro, multicurrency accounts and
       multicurrency sets of books; multi-company consolidations; user-defined
       subledgers; flexible account validation; sophisticated summarization and
       allocation structure; daily and monthly closing cycles, as well as other
       normal ledger functions, with levels of security traditionally associated
       with mainframes.

     - FlexiPayables.  FlexiPayables is an accounts payable module that supports
       centralized and decentralized accounts payable processing through
       sophisticated operation and accounting security controls, while
       supporting the generation of invoices and payment authorizations
       automatically routed for approval. Users have the flexibility to
       establish payment rules, terms for payment, cash management, and expense
       control and vendor management.

     - FlexiReceivables.  FlexiReceivables is an accounts receivable module that
       supports automatic cash application, invoice aging and discounts, as well
       as flexible rules for account group, payment schedule

                                        2
<PAGE>

commission and other terms. It can be easily configured to define multiple
account distribution or multiple-company accounting for management of
receivables across large organizations.

     - FlexiPurchasing.  FlexiPurchasing is a dynamic purchasing management
       module that tracks purchases from requisition to purchase order to
       invoicing, as well as delivery and storage, including data ranging from
       discount levels to receipt and acceptance of goods. Users can define,
       among other items, management approval levels, all relevant report
       information and payment terms.

     - FlexiAssets.  FlexiAssets is a fixed-asset module for controlling and
       tracking the physical location of all assets, while providing
       depreciation calculations on a fully automated basis. The user can
       maintain records on an unlimited number of assets. FlexiAssets permits
       the user to choose depreciation methods, and to maintain multiple sets of
       records to satisfy GAAP and federal, state and local property tax
       reporting requirements.

     - FlexiProjects.  FlexiProjects, the most recent addition to the
       FlexiFinancials integrated suite of accounting applications, allows for
       the management of costs for any type of capital project, whether it's
       software development, building a new facility, or building improvements.
       FlexiProjects stores, tracks and analyzes all project costs and insures
       that project information is always reconciled with general ledger,
       purchasing, and other financial data.

  Flexi Financial Datawarehouse

     The ability to produce in-depth management reports on the various aspects
of a business is crucial. Flexi FDW is a high-performance financial and
operational tool for performing analysis with multi-dimensional roll-ups, and
drill-down and multi-currency capabilities. It creates a single repository of
financial and operational information for the user. It processes data according
to customer defined accounting and financial rules and offers a unified view of
a company's entire operation, giving the user the information on profitability,
risk, and new opportunities. It provides this visibility through a flexible data
model.

     - FlexiFDW.  FlexiFDW features an open client/server architecture and uses
       an event-driven model to organize and track information. It processes,
       reconciles, standardizes and reports information based on the business or
       accounting rules established by the user in the Flexi Financial Rules
       Engine or some other type of rules engine. FlexiFDW accepts information
       directly from the user's organization's source systems -- regardless of
       their age, complexity, or number. FlexiFDW is fully Euro compliant.

     - FlexFRE.  FlexiFRE provides an efficient, effective way to clean,
       validate, enrich and transform data from an organization's source
       systems. It creates a single, standardized layer between front- and back-
       office source systems and a data warehouse or back-end reporting system.
       Just as important, it enables the user to use a graphical interface to
       build your organization's business logic directly into the data capture
       process.

  FlexiTools

     FlexiTools are development and customization tools based on the open
technologies that permit users to take advantage of the object-oriented,
component-based architecture of our systems to accommodate their unique
requirements in a timely and cost-effective manner. We believe that FlexiTools
increase the flexibility of our products and facilitates seamless integration
with customer applications.

     - FlexiDeveloper, FlexiDesigner and FlexiDB provide users with the
       flexibility to extend Flexi applications and customize the interface and
       database definitions. With these tools, customers may add additional
       fields to any table, modify the attributes of a currently existing
       database or customize their graphical user interface. Each customer has a
       high degree of flexibility regarding screen or menu structure. Through
       the revision control feature, subsequent updates may be easily applied
       without overriding customized modifications.

     - FlexiControl permits users to define and manage system-wide controls,
       such as security and server-based processing.

                                        3
<PAGE>

     - FlexiActiveXControls allows customers to create interfaces between any
       Windows-based applications supporting COM (Component Object Model)
       interface and FlexiFinancials modules, as well as to develop custom
       interfaces for many FlexiFinancials processes using industry standard
       tools, such as Visual Basic, Internet browser and Microsoft Office
       applications.

     - FlexiFIRE delivers high performance server-based reporting engine. The
       application is extremely flexible in its inquiry capabilities and can be
       used with all FlexiEnterpriseSuite applications as well as with other
       relational databases for various software packages.

FINANCIAL MANAGEMENT SERVICES

     FlexiFMS provides the outsourcing of back office accounting processes.
Flexi handles the back office accounting functions remotely for clients who will
then have access to the data for financial management, analysis and reporting.
We believe that Flexi's experience with a broad range of accounting solutions
with its in-house managed installations as well as its ownership of the software
gives Flexi an advantage over other BPO providers.

INTERNATIONAL OPERATIONS

     In June 1998, Flexi acquired The Dodge Group, a company specializing in
financial data warehouse solutions having it principal offices in the United
Kingdom. Flexi believes that the acquisition of The Dodge Group has given Flexi
a business and marketing presence in the United Kingdom's banking and financial
services industry and has helped Flexi to continue to maintain an international
business presence.

     During the years ended December 31, 2001, 2000, and 1999, the Company's
international revenues were approximately 19.2%, 18.9%, and 31.0%, of total
revenues, respectively. The Company presently has customers in North America,
Europe, Asia, and South Africa.

CUSTOMERS

     The Company's customers include a wide range of financial institutions and
other organizations that require a high level of functionality from their
financial accounting software, including banks, insurance companies and other
financial services firms, as well as organizations in other industries such as
healthcare and technology. In each of the years ended December 31, 2001, 2000,
and 1999, two customers represented 10% or more of the Company's total revenues,
or an aggregate of 40.6%, 38.2%, and 39.0% of total revenues, respectively. The
two customers who each made up greater than 10% of the Company's revenue for the
year ended December 31, 2001 were Citigroup and McKesson/HBOC.

EMPLOYEES

     As of December 31, 2001, the Company had 44 employees, 33 domestically and
11 internationally.

ITEM 2.  PROPERTIES

     Flexi is headquartered at Two Enterprise Drive, Shelton, Connecticut 06484,
where it leases approximately 9,697 square feet under a lease expiring in June
2003. In addition, Flexi maintains approximately 2,700 square feet of leased
office space in Bonita Springs, Florida, under a lease expiring in December 2002
and 2,300 square feet in London, United Kingdom, under a lease expiring in
February 2005. Flexi believes that its leased space is sufficient for its
current operations.

ITEM 3.  LEGAL PROCEEDINGS

     On July 18, 2001, the Company filed for arbitration with the American
Arbitration Association in a royalty and enhancement fee dispute with its
healthcare industry reseller McKesson Information Services (formerly known as
McKesson HBOC). Several offers by the Company to settle the dispute were
rejected by McKesson. Arbitration is proceeding and the Company expects the case
to be heard in 2002.

                                        4
<PAGE>

     The Company is also a party to various disputes and proceedings arising
from the ordinary course of general business activities. The Company is also
finalizing a sales tax audit by the State of Connecticut involving past
acquisition of computer and related equipment. Although the final outcome of
these matters cannot be determined, we believe that these matters will not
seriously harm our business.

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

     During the fourth quarter of the fiscal year ended December 31, 2001 there
were no matters submitted to a vote of security holders through the solicitation
of proxies or otherwise.

ITEM 4A.  EXECUTIVE OFFICERS OF THE COMPANY

     The following individuals are the executive officers of Flexi as of
February 2002:

<Table>
<Caption>
NAME                                              AGE                  POSITION
----                                              ---                  --------
<S>                                               <C>   <C>
Stefan R. Bothe.................................  53    Chairman of the Board, Chief Executive
                                                        Officer and President
Dmitry Trudov...................................  29    Chief Technology Officer and Vice
                                                        President, Software Development
Adrian A. Marchi................................  38    Vice President, USA Sales
</Table>

     Mr. Bothe has served as Chairman of the Board and Chief Executive Officer
of the Company since March 1993. From November 1991 to February 1993, Mr. Bothe
was President and Chief Executive Officer of DSI Group N.V., a Dutch-based
international software company. From 1989 to 1991, Mr. Bothe was President and
Chief Executive Officer of GEAC Computer Corporation Limited, a software
company. Prior to joining GEAC, Mr. Bothe was President of the Application
Products Division of Computer Associates International, Inc., one of the largest
software companies in the industry. While at Computer Associates, Mr. Bothe held
numerous senior management positions, including President of the International
Division, President of the Micro Products Division and Senior Vice President of
Marketing.

     Mr. Trudov has served as Chief Technology Officer and Vice President,
Software Development responsible for software development, client services,
hotline support, quality assurance and MIS since August 2001. From April 2000 to
August 2001, Mr. Trudov served as the Company's Chief Technology Officer
responsible for all technical aspects of the company including MIS, database
support, top-level support for Flexi customers, company infrastructure and
technical input to the development team. Mr. Trudov also held the positions
within the Company of Manager, Technology Services from October 1999 to April
2000, Sales Support Engineer from 1998 to 1999 and Internet Development
Engineer/Webmaster and Pre-Sales Technical Engineer from 1996 to 1998. From
January 1996 to July 1996, Mr. Trudov was employed by Acorn Information
Services, Inc., an Internet consulting services company.

     Mr. Marchi has served as Vice President, USA Sales since December 2000.
From February 2000 to December 2000, Mr. Marchi was Vice President, Sales of the
Applications and Information Management Solutions Group for Computer Associates
International, a leading software company. From 1999 to 2000, Mr. Marchi was
Vice President of Modis Professional Services, a consulting company. Prior to
joining Modis, Mr. Marchi was Managing Director at Indus International from 1996
to 1999, a software and consulting company.

     Each officer serves at the discretion of the Board of Directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. With the exception of Mr. Bothe and Jennifer V.
Cheng, a director of the Company, who are husband and wife, there are no family
relationships among any of the executive officers or directors of the Company.

                                        5
<PAGE>

                                    PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock was traded on the Nasdaq National Market under
the symbol FLXI from December 12, 1997, the first trading day after the
Company's initial public offering was declared effective, through October 5,
1999, when, as a result of the Company's delisting from the Nasdaq National
Market, the stock began trading on the OTC Bulletin Board under the symbol
FLXI.OTC. The following table lists the high and low closing sales price for the
Company's common stock on the OTC bulletin board for the periods indicated:

<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER 31, 2000(1)                        HIGH     LOW
--------------------------------------                        -----   -----
<S>                                                           <C>     <C>
First Quarter...............................................  $1.78   $0.75
Second Quarter..............................................  $1.25   $0.38
Third Quarter...............................................  $0.42   $0.13
Fourth Quarter..............................................  $0.36   $0.09

FISCAL YEAR ENDED DECEMBER 31, 2001(1)                         HIGH     LOW
--------------------------------------                        -----   -----
First Quarter...............................................  $0.20   $0.11
Second Quarter..............................................  $0.21   $0.13
Third Quarter...............................................  $0.16   $0.09
Fourth Quarter..............................................  $0.15   $0.08
</Table>

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

(1) The high and low price may represent over-the-counter market quotations that
    reflect inter-dealer prices, without retail mark-up, mark-down or
    commissions and may not necessarily represent actual transactions.

     As of March 1, 2001, the approximate number of holders of record of the
Company's Common Stock was 100. The number of holders of record of the Company's
Common Stock differs from the number of beneficial owners of such Common Stock
because a significant number of shares are held by depositories, brokers and
other nominees.

     The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.

                                        6
<PAGE>

ITEM 6.  SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     The following selected historical consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our audited consolidated financial
statements and related notes thereto included elsewhere in this Annual Report on
Form 10-K.

     The selected historical consolidated financial data presented below as of
December 31, 2001, 2000, 1999, 1998, and 1997, and for the years then ended, are
derived from the consolidated financial statements of Flexi, which 2001
consolidated financial statements have been audited by, Hill, Barth & King, LLC,
2000 and 1999 by Deloitte & Touche LLP, and 1997 and 1998 by
PricewaterhouseCoopers LLP, independent certified public accountants. In the
opinion of management, the unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the financial condition and results of
operations for such periods.

<Table>
<Caption>
                                                              YEARS ENDED DECEMBER 31,
                                                  ------------------------------------------------
                                                   2001      2000       1999      1998      1997
                                                  -------   -------   --------   -------   -------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                               <C>       <C>       <C>        <C>       <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Software license..............................  $ 2,917   $ 4,112   $  3,385   $10,542   $13,901
  Service and maintenance.......................    6,598     8,324     12,169    13,754     7,723
                                                  -------   -------   --------   -------   -------
          Total revenues........................    9,515    12,436     15,554    24,296    21,624
                                                  -------   -------   --------   -------   -------
Cost of revenues:
  Software license..............................      684       636        586     1,757       828
  Service maintenance...........................    2,308     3,956      7,491    10,584     5,450
                                                  -------   -------   --------   -------   -------
          Total cost of revenues................    2,992     4,592      8,077    12,341     6,278
                                                  -------   -------   --------   -------   -------
Operating expenses:
  Sales and marketing...........................    2,552     1,632      5,919    11,233     7,820
  Product development...........................    1,616     2,689      6,887    10,752     7,880
  General and administrative....................    2,847     3,365      7,153     6,191     2,316
  Goodwill impairment...........................      862        --      4,224        --        --
  Restructuring charge..........................       --        --      1,824        --        --
  Acquired in-process research and
     development................................       --        --         --     1,890        --
                                                  -------   -------   --------   -------   -------
          Total operating expenses..............    7,832     7,686     26,007    30,066    18,016
                                                  -------   -------   --------   -------   -------
Operating income (loss).........................   (1,309)      158    (18,530)  (18,111)   (2,670)
Net interest income (expense)...................  $   (29)  $    (1)  $     49   $   880   $    27
                                                  -------   -------   --------   -------   -------
Income (loss) before income taxes...............   (1,383)      157    (18,481)  (17,231)   (2,643)
Income taxes....................................  $    --   $    --   $     --   $    --   $    --
                                                  -------   -------   --------   -------   -------
Net income (loss)...............................  $(1,383)  $   157   $(18,481)  $(17,231) $(2,643)
                                                  =======   =======   ========   =======   =======
Income (loss) per share:
  Basic.........................................  $ (0.08)  $  0.01   $  (1.06)  $ (1.02)  $ (0.42)
                                                  =======   =======   ========   =======   =======
  Diluted.......................................  $ (0.08)  $  0.01   $  (1.06)  $ (1.02)  $ (0.42)
                                                  =======   =======   ========   =======   =======
Weighted average shares:
  Basic.........................................   17,713    17,669     17,414    16,938     6,332
  Diluted.......................................   17,713    17,669     17,414    16,938     6,332
</Table>

<Table>
<Caption>
                                                              YEARS ENDED DECEMBER 31,
                                                  ------------------------------------------------
                                                   2001      2000       1999      1998      1997
                                                  -------   -------   --------   -------   -------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                               <C>       <C>       <C>        <C>       <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................  $   637   $ 1,389   $  1,874   $ 7,876   $24,622
Marketable securities...........................       --     108(1)        --     3,000        --
Working capital (deficit).......................   (2,648)   (3,304)    (5,197)    7,497    26,676
          Total assets..........................    3,411     6,623     12,072    32,911    35,670
Stockholders' equity (deficit)..................   (2,887)   (1,515)    (1,918)   16,614    27,706
</Table>

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

(1) Marketable securities are restricted.

                                        7
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     You should read the following discussion together with the consolidated
financial statements and related notes appearing elsewhere in this Annual Report
on Form 10-K. This item contains forward-looking statements within the meaning
of section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities and Exchange Act of 1934, as amended, that involve risks and
uncertainties. Actual results may differ materially from those included in such
forward-looking statements. Factors which could cause actual results to differ
materially include those set forth under "Factors that may Affect Future
Results" commencing on page 15, as well as those otherwise discussed in this
section and elsewhere in this annual report on form 10-K.

OVERVIEW

     FlexiInternational Software Inc. designs, develops, markets and supports
the FlexiFinancial Enterprise Suite of financial and accounting software
applications and related tools. The Flexi solution -- composed of
FlexiFinancials, FlexiFinancial Datawarehouse, or FlexiFDW, FlexilnfoAccess and
FlexiTools -- is designed to address the needs of users with sophisticated
financial accounting and operational analysis requirements. We sell our software
for use in traditional in-house accounting operations as well as through our
business outsourcing service, or BPO, to companies which want to outsource their
back office accounting processes.

     Our Financial Management Services solution, or FMS, a BPO service, is
designed to leverage our suite of accounting products and our expertise in back
office processing of accounting data. We believe that many mid-sized and
start-up fast growing companies would benefit substantially from outsourcing
their back office accounting processes to enable them to better focus on
financial analysis, cash management and the strategic issues of their business.
As part of our BPO sales strategy, we recruit regional resellers of our FMS
solution which will pay us a percentage of the fee they collect for using our
software and related solutions. Some resellers will handle the complete BPO
service while others will handle the client relationship and Flexi will handle
the hosting and accounting aspects of the service. We recently signed a BPO
reseller agreement in which we provided the reseller a convertible loan, in the
aggregate principal amount of $272,000, to help launch the reseller's BPO
service. According to industry analysts, the finance and accounting outsourcing
segment of the BPO market is in the early adoption phase and is expected to
double in size over the next three years. However, the full acceptance of this
solution is still several years away.

     We derive our revenue primarily from software license and maintenance
agreements and, to a lesser extent, from reselling third party products:

     - revenues from noncancellable software license agreements entered into
       between our customers and us with respect to our products;

     - royalties due us from third parties that distribute our products; and

     - to a lesser extent, third-party products distributed by us.

     - Maintenance fees from our clients which are renewed annually.

     Historically, the Company's revenues have been derived from both domestic
sales and international sales, with the international sales comprising
approximately 19.2%, 18.9%, and 31.0% of total revenues for the years ended
December 31, 2001, 2000, and 1999, respectively. Our international sales
generally have the same cost structure as our domestic sales. The majority of
our international sales are transacted in British pounds sterling and an
increase in the value of the British pound relative to the currency of the
country in which we are selling our product, could make our products more
expensive and potentially less competitive in these markets. In addition, our
international business may be subject to a variety of other risks, including
difficulties in collecting international accounts receivable or obtaining U.S.
export licenses, the introduction of non-tariff barriers and higher duty rates
and fiscal and monetary policies that adversely affect non-native firms. See
"Certain factors that May Affect Future Operating Results."

                                        8
<PAGE>

CRITICAL ACCOUNTING POLICIES

     Our significant accounting policies are more fully described in Note B to
our Consolidated Financial Statements. However, certain of our accounting
policies are particularly important to the portrayal and understanding of our
financial position and results of operations and require the application of
significant judgment by our management. As a result, these policies are subject
to an inherent degree of uncertainty. In applying these policies, the Company's
management uses its judgment in making certain assumptions and estimates. Our
critical accounting policies include:

     - Revenue Recognition:  Flexi recognizes license revenue upon shipment,
       outsourcing and consulting services when they are performed and annual
       maintenance contracts on a prorated monthly basis over the term. However,
       revenues on all software license transactions in which there are
       significant outstanding obligations are not recognized until such
       obligations are fulfilled. Significant obligations would include future
       promises of enhancements and/or modifications that are essential to the
       product. Software license royalties earned through our indirect sales
       channel are recognized as such fees are reported to us. Revenues for
       maintaining, supporting and providing periodic upgrading are deferred and
       recognized ratably over the maintenance period, which is generally one
       year. Revenues from training and consulting services are recognized as
       such services are performed. Revenues from outsourcing contracts are
       recognized monthly as the service is performed. We do not require
       collateral for our receivables, and reserves are maintained for potential
       losses.

     - Product Development:  Flexi charges all of its product development
       expenses to operations in the period incurred. In accordance with
       Statement of Financial Accounting Standards No. 86, Accounting for the
       Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,
       Flexi, during the software development phase, evaluates the technological
       feasibility of its various products. The time period during which costs
       could be capitalized, from the point of reaching technological
       feasibility until the time of general product release is very short and,
       consequently, the amounts that could be capitalized are not material to
       our financial position or results of operations.

     - Goodwill and Tangible Assets:  Flexi reviews periodically its goodwill
       and tangible assets for impairment and states them at cost and amortizes
       them on a straight-line basis.

     - Foreign Revenue:  Flexi translates foreign revenue into U.S. dollars at
       an average exchange rate

     - Cash Balances:  Flexi maintains its cash balances in financial
       institutions and invests excess cash in short-term interest bearing
       instruments.

     - Property and Equipment:  Flexi evaluates periodically its equipment and
       other properties for impairment and states them at cost less accumulated
       depreciation.

                                        9
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.

<Table>
<Caption>
                                                               YEARS ENDED DECEMBER 31,
                                                              --------------------------
                                                              2001       2000      1999
                                                              -----      -----    ------
<S>                                                           <C>        <C>      <C>
STATEMENT OF OPERATIONS DATA:
Revenues
  Software License..........................................   30.7%      33.1%     21.8%
  Service and maintenance...................................   69.3%      66.9%     78.2%
                                                              -----      -----    ------
          Total revenues....................................  100.0%     100.0%    100.0%
                                                              -----      -----    ------
Cost of revenues:
  Software license..........................................    7.2%       5.1%      3.8%
  Service maintenance.......................................   24.3%      31.8%     48.1%
                                                              -----      -----    ------
          Total cost of revenues............................   31.4%      36.9%     51.9%
                                                              -----      -----    ------
Operating expenses:
  Sales and marketing.......................................   26.8%      13.1%     38.1%
  Product development.......................................   17.0%      21.6%     44.3%
  General and administrative................................   29.9%      27.1%     46.0%
  Goodwill impairment.......................................    9.1%       0.0%     27.2%
  Restructuring charge......................................    0.0%       0.0%     11.7%
                                                              -----      -----    ------
          Total operating expenses..........................   82.8%      61.8%    167.2%
                                                              -----      -----    ------
Operating income (loss).....................................  (14.2)%      1.3%   (119.1)%
Net interest income (expense)...............................   (0.3)%      0.0%      0.3%
                                                              -----      -----    ------
Income (loss) before income taxes...........................  (14.5)%      1.3%   (118.8)%
Income taxes................................................    0.0%       0.0%      0.0%
                                                              -----      -----    ------
Net income (loss)...........................................  (14.5)%      1.3%   (118.8)%
                                                              =====      =====    ======
</Table>

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

  Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Revenues.  Total revenues, consisting of software license revenues and
service and maintenance revenues, decreased 23%, from $12.4 million for the year
ended December 31, 2000 to $9.5 million for the year ended December 31, 2001.
Domestic revenues, those derived from sales in the U.S. decreased 23.7% from
$10.1 million for the year ended December 31, 2000 to $7.7 million for the year
ended December 31, 2001. International revenues, those derived from sales
outside of the U.S., decreased 22.5% from $2.4 million for the year ended
December 31, 2000 to $1.8 million for the year ended December 31, 2001.

     Software license revenues decreased 29.3%, from $4.1 million for the year
ended December 31, 2000 to $2.9 million for the year ended December 31, 2001.
The decrease is primarily due to a significant reduction in royalties from our
healthcare reseller McKesson and lack of new license activity with respect to
our products. License revenue for the year ended December 31, 2000 included
recognizing revenue from the performance of prior years' contracts. Software
license revenue for the twelve months ended December 31, 2000 included $1.1
million of previously deferred income from a former customer, which accounted
for approximately 26.8% of total year to date software revenue.

     Service and maintenance revenues decreased 20.5%, from $8.3 million for the
year ended December 31, 2000 to $6.6 million for the year ended December 31,
2001. The decrease was attributable primarily to lower service revenue due to
fewer active implementations of our products in 2001.

     Cost of Revenues.  The Company's cost of revenues consists of cost of
software license revenues and cost of service and maintenance revenues. Cost of
software license revenues consists primarily of the cost of third-party software
products distributed by the Company and the cost of product media, manuals and
shipping.

                                        10
<PAGE>

Cost of service and maintenance revenues consists of the cost of providing
consulting, implementation and training to licensees of the Company's products
and the cost of providing software maintenance to customers, technical support
services and periodic upgrades of software.

     Cost of software license revenues increased 7.5%, from $636,000 for the
year ended December 31, 2000 to $684,000 for the year ended December 31, 2001.
Cost of software license revenues as a percentage of software license revenues
increased from 15.4% for the year ended December 31, 2000 to 23.4% for the year
ended December 31, 2001. The increase in cost of revenues in dollars was
primarily due to an increase in third-party software products distributed by the
Company. The increase in cost of revenue as a percentage of software license
revenues was primarily due to an increase in the proportion of third-party
products sold as a percentage of total license fees.

     Cost of service and maintenance revenues decreased 42.5%, from $4.0 million
for the year ended December 31, 2000 to $2.3 million for the year ended December
31, 2001. The decrease of such costs resulted primarily from reduced staffing
levels in the consulting organization, as the costs of this organization were
reduced to a level consistent with anticipated revenues. Cost of service and
maintenance revenues as a percentage of service and maintenance revenues
decreased from 47.5 % for the year ended December 31, 2000 to 34.8% for the year
ended December 31, 2001, due to the aforementioned alignment of costs to
anticipated revenues (see "Revenues" above and "Restructuring" below).

     Sales and Marketing.  Sales and marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses, and facility and
communication costs for direct sales offices. Sales and marketing expenses
increased 62.5%, from $1.6 million for the year ended December 31, 2000 to $2.6
million for the year ended December 31, 2001. The increase in dollar amount was
primarily attributable to increased staffing levels in the sales and marketing
organization to mount a BPO sales effort in the first half of 2001 which
included the hiring of a Vice-President of Sales. The costs of this organization
were reduced in the second half to a level consistent with anticipated revenues.
Sales and marketing expenses as a percentage of total revenues increased from
13.1% for the year ended December 31, 2000 to 27.4% for the year ended December
31, 2001. This increase was primarily due to the aforementioned staff increases.

     Product Development.  Product development expenses include software
development costs and consist primarily of engineering personnel costs. The
Company has made significant investments in product development in the past
several years to bring its suite of component-based, object-oriented financial
accounting products to market.

     Product development expenses decreased 40.7%, from $2.7 million for the
year ended December 31, 2000 to $1.6 million for the year ended December 31,
2001. Product development expenses as a percentage of total revenues decreased
from 21.6% for the year ended December 31, 2000 to 16.8% for the year ended
December 31, 2001. This decreases in product development expense was due
primarily to the decrease in development personnel as a result of the completion
of development work on FlexiFinancials Release 4.3 during 2001. The Company
expects to continue to enhance the functionality of its core financial
accounting and reporting applications and its BPO solution, but does not
anticipate the need to materially increase its development staff from its
current levels.

     General and Administrative.  General and administrative expenses consist
primarily of salaries of executive, administrative and financial personnel, as
well as provisions for doubtful accounts, amortization of goodwill and outside
professional fees. General and administrative expenses decreased 17.6%, from
$3.4 million for the year ended December 31, 2000 to $2.8 million for the year
ended December 31, 2001 due to reduction in legal expenses and executive
compensation. General and administrative expenses as a percentage of total
revenues increased slightly from 27.1% for the year ended December 31, 2000 to
29.9% for the year ended December 31, 2001.

     Goodwill Impairment.  During September 2001 management conducted a periodic
impairment assessment of the intangible assets resulting from The Dodge Group
acquisition. As a result of that review, expected future revenue and cash flows
from the acquired The Dodge Group business were revised downward significantly,
causing the impairment of goodwill. Management concluded that an impairment had
occurred

                                        11
<PAGE>

with the goodwill and an $862,000 write down of goodwill to a zero carrying
value was recorded in the third quarter of 2001.

     Interest Income and Interest Expense.  Interest income represents income
earned on the Company's cash, cash equivalents and marketable securities. Net
interest expense increased from $1,000 for the year ended December 31, 2000 to
$29,000 for the year ended December 31, 2001 representing interest expense on
capital equipment leases and less investable cash balances available to the
Company during 2001.

     Income Taxes.  No provision or benefit for federal, state or foreign income
taxes was made for the years ended December 31, 2001 or 2000 due to the
operating losses incurred in the respective periods. The Company has reported
only tax losses to date and consequently has approximately $40.3 million and
$27.0 million of U.S. and foreign net operating loss carryforwards,
respectively, which expire during the years 2005 through 2021, available to
offset future taxable income. The utilization of such net operating losses is
subject to limitations as a result of ownership changes. The annual limitation
and the timing of attaining profitability will result in the expiration of net
operating loss carryforwards before utilization. The Company's deferred tax
assets at December 31, 2001 were $24.5 million, consisting primarily of net
operating loss carryforwards. The Company's benefit of deferred tax assets has
been fully reserved as of December 31, 2001 as the realization of deferred taxes
is dependent on future events and earnings, if any, the timing and extent of
which are uncertain.

  Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     Revenues.  Total revenues, consisting of software license revenues and
service and maintenance revenues, decreased 20.0%, from $15.6 million for the
year ended December 31, 1999 to $12.4 million for the year ended December 31,
2000. Domestic revenues, those derived from sales in the U.S. decreased 6.4%
from $10.8 million for the year ended December 31, 1999 to $10.1 million for the
year ended December 31, 2000. International revenues, those derived from sales
outside of the U.S., decreased 50.0% from $4.8 million for the year ended
December 31, 1999 to $2.4 million for the year ended December 31, 2000.

     Software license revenues increased 20.6%, from $3.4 million for the year
ended December 31, 1999 to $4.1 million for the year ended December 31, 2000.
This increase was primarily due to recognizing revenue from the performance of
prior years' contracts. Software license revenue for the twelve months ended
December 31, 2000 included $1.1 million of previously deferred income from a
former customer, which accounted for approximately 26.8% of total year to date
software revenue. Service and maintenance revenues decreased 32.0%, from $12.2
million for the year ended December 31, 1999 to $8.3 million for the year ended
December 31, 2000. The decrease was attributable primarily to lower service
revenue due to fewer active implementations of our products in 2000.

     Cost of Revenues.  The Company's cost of revenues consists of cost of
software license revenues and cost of service and maintenance revenues. Cost of
software license revenues consists primarily of the cost of third-party software
products distributed by the Company and the cost of product media, manuals and
shipping. Cost of service and maintenance revenues consists of the cost of
providing consulting, implementation and training to licensees of the Company's
products and the cost of providing software maintenance to customers, technical
support services and periodic upgrades of software.

     Cost of software license revenues increased 8.5%, from $586,000 for the
year ended December 31, 1999 to $636,000 for the year ended December 31, 2000.
Cost of software license revenues as a percentage of software license revenues
decreased from 17.3% for the year ended December 31, 1999 to 15.4% for the year
ended December 31, 2000. The increase in cost of revenues in dollars was
primarily due to an increase in third-party software products distributed by the
Company, as a result of the overall increase in software license revenues. The
decrease in cost of revenue as a percentage of software license revenues was
primarily due to a decrease in the proportion of third-party products sold as a
percentage of total license fees.

     Cost of service and maintenance revenues decreased 46.7%, from $7.5 million
for the year ended December 31, 1999 to $4.0 million for the year ended December
31, 2000. The decrease in the dollar amount of such costs resulted primarily
from reduced staffing levels in the consulting organization, as the costs of
this organization were reduced to a level consistent with anticipated revenues.
Cost of service and maintenance

                                        12
<PAGE>

revenues as a percentage of service and maintenance revenues decreased from
61.6% for the year ended December 31, 1999 to 47.5% for the year ended December
31, 2000, due to the aforementioned alignment of costs to anticipated revenues
(see "Revenues" above and "Restructuring" below).

     Sales and Marketing.  Sales and marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses, and facility and
communication costs for direct sales offices. Sales and marketing expenses
decreased 72.9%, from $5.9 million for the year ended December 31, 1999 to $1.6
million for the year ended December 31, 2000. The decrease in dollar amount was
primarily attributable to reduced staffing levels in the sales and marketing
organization, as the costs of this organization were reduced to a level
consistent with anticipated revenues. Sales and marketing expenses as a
percentage of total revenues decreased from 38.0% for the year ended December
31, 1999 to 13.1% for the year ended December 31, 2000. This decrease was
primarily due to the decreased staffing in response to the revenue decline (see
"Revenues" above and "Restructuring" below).

     Product Development.  Product development expenses include software
development costs and consist primarily of engineering personnel costs. The
Company has made significant investments in product development in the past
several years to bring its suite of component-based, object-oriented financial
accounting products to market.

     Product development expenses decreased 60.9%, from $6.9 million for the
year ended December 31, 1999 to $2.7 million for the year ended December 31,
2000. Product development expenses as a percentage of total revenues decrease
from 44.3% for the year ended December 31, 1999 to 21.6% for the year ended
December 31, 2000. These decreases in product development expenses was due
primarily to the decrease in development personnel as a result of the completion
of development work on FlexiFinancials Release 4 during 2000. The Company
expects to continue to enhance the functionality of its core financial
accounting and reporting and workflow applications, but does not anticipate the
need to increase its development staff greatly from its current levels.

     General and Administrative.  General and administrative expenses consist
primarily of salaries of executive, administrative and financial personnel, as
well as provisions for doubtful accounts, amortization of goodwill and outside
professional fees. General and administrative expenses decreased 52.8%, from
$7.2 million for the year ended December 31, 1999 to $3.4 million for the year
ended December 31, 2000. General and administrative expenses as a percentage of
total revenues decreased from 46.0% for the year ended December 31, 1999 to
27.1% for the year ended December 31, 2000.

     Interest Income and Interest Expense.  Interest income represents income
earned on the Company's cash, cash equivalents and marketable securities. Net
interest income (expense) decreased from $49,000 for the year ended December 31,
1999 to $(1,000) for the year ended December 31, 2000. This decrease was
primarily due the lower investable cash balances available to the Company during
2000. Interest expense represents interest expense on capital equipment leases.

     Income Taxes.  No provision or benefit for federal, state or foreign income
taxes was made for the years ended December 31, 2000 or 1999 due to the
operating losses incurred in the respective periods. The Company has reported
only tax losses to date and consequently has approximately $47.9 million and
$9.1 million of U.S. and foreign net operating loss carryforwards, respectively,
which expire during the years 2005 through 2020, available to offset future
taxable income. The utilization of such net operating losses is subject to
limitations as a result of ownership changes. The annual limitation and the
timing of attaining profitability will result in the expiration of net operating
loss carryforwards before utilization. The Company's deferred tax assets at
December 31, 2000 were $23.6 million, consisting primarily of net operating loss
carryforwards. The Company's benefit of deferred tax assets has been fully
reserved as of December 31, 2000 as the realization of deferred taxes is
dependent on future events and earnings, if any, the timing and extent of which
are uncertain.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, the Company has primarily financed its operations through
private placements of its capital stock, issuance of convertible promissory
notes and loans, equipment financing and other traditional

                                        13
<PAGE>

borrowing arrangements. In addition, in December 1997 Flexi consummated an
initial public offering of common stock.

     For the past two years, however, Flexi has funded its operations primarily
through cash received from license and royalty revenues, annual maintenance
contracts, and consulting services provided to its clients. Maintenance fees
represented 55% of the cash resources of the Company for fiscal 2001 and are
expected to average $450,600 per month in 2002. Given the critical nature of
software to our customers' business, most maintenance contracts are renewed
regularly and cancellations are usually due to circumstances such as mergers and
acquisitions of Flexi clients with companies that are using a competing product.
For instance, Flexi was recently informed that due to its client Citibank's
merger with the Travellers, Citibank intends to move to another accounting
solution as part of its strategic plan. The loss of Citibank as a customer could
negatively impact Flexi's maintenance revenues by approximately $500,000 in
2002.

     As of December 31, 2001, the Company had cash and cash equivalents of
$637,000, a decrease of $752,000 from December 31, 2000. The Company's working
capital deficit at December 31, 2001 was $2.7 million, compared to a working
capital deficit of $3.3 million at December 31, 2000.

     The Company's operating activities resulted in net cash outflow of $0.2
million for the year ended December 31, 2001 which was mainly the result of the
net operating loss offset by non-cash items, principally goodwill impairment and
depreciation and amortization expenses, decreases in deferred revenue and
accounts receivable and an increase in accounts payable and accrued expenses.
The Company's investing activities resulted in net cash inflows of $0.1 million
for the year ended December 31, 2001, which was primarily related to the sale of
marketable securities. At December 31, 2001, the Company had no material
commitments for capital expenditures. During the year ended December 31, 2001,
the Company had net cash outflows from financing activities of $0.6 million,
which was primarily related to payments of capital lease obligations and
repayments of debt.

     Flexi's contractual cash obligations are outlined in the table below
including its equipment lease and office rental obligations, as well as payments
due under payment terms negotiated with companies for current debt and
settlements of payment disputes. These cash obligations are expected to amount
to approximately $91,000 per month for fiscal 2002. In addition, Flexi agreed to
provide Core3, its BPO reseller, with a convertible note with monthly payment
obligations for Flexi through December 2002 of $15,500. Flexi has the option to
convert this note into equity of Core3 representing 20% of that company. Flexi
also has an arbitration award of $331,000 against the Company for which no
collection attempts have yet been made. Where appropriate, Flexi will seek to
negotiate extended payment terms with respect to its financial obligations.

<Table>
<Caption>
                                                                 PAYMENTS DUE BY PERIOD
                                                                     (IN THOUSANDS)
                                                 -------------------------------------------------------
                                                            LESS THAN                            AFTER 5
CONTRACTUAL OBLIGATIONS                           TOTAL      1 YEAR      1-3 YEARS   4-5 YEARS    YEARS
-----------------------                          --------   ---------    ---------   ---------   -------
<S>                                              <C>        <C>          <C>         <C>         <C>
Facilities Obligation..........................  $  748.1   $  379.4                 $   309.1   $ 59.6
Capital Lease Obligation.......................     429.0      120.0                     309.0       --
Operating Leases...............................      92.9       52.7                      40.2       --
Other Obligations..............................   1,679.1      596.5(1)     644.5        120.0    318.3
Insurance Obligations..........................     130.9      130.9                        --       --
                                                 --------   --------     --------    ---------   ------
          Total Contractual Cash Obligations...  $3,080.2   $1,279.5     $1,302.6    $   179.6   $318.3
                                                 ========   ========     ========    =========   ======
</Table>

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

(1) Partially offset by $215 insurance payment.

During the year ended December 31, 2001, the Company has not engaged in:

     - material off-balance sheet activities, including the use of structured
       finance or special purpose entities;

     - trading activities in non-exchange traded contracts; or

     - transactions with persons or entities that benefit from their
       non-independent relationship with the Company.

                                        14
<PAGE>

CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

     Accumulated Deficit; Net Losses.  The Company had an accumulated deficit of
$59.5 million at December 31, 2001 and incurred a net loss of $1.4 million for
the year ended December 31, 2001, income of $0.2 million and net losses of $18.5
million during 2000 and 1999, respectively. Since inception in 1990, the Company
has only been profitable for three quarters during the year 2001, the full year
of 2000 and during the last two quarters of 1997. There can be no assurance that
the Company will achieve profitability on a consistent basis, or at all in the
future. As of December 31, 2001, management of the Company evaluated the
positive and negative evidence impacting the realizability of its deferred tax
assets, which consist principally of net operating loss carryforwards.
Management has considered the history of losses and concluded that, as of
December 31, 2001, it is more likely than not that the Company will not generate
sufficient taxable income prior to the expiration of the net operating losses
during the years 2005 through 2021. Accordingly, the Company has recorded a full
valuation allowance for its deferred tax assets at December 31, 2001.

     If our FMS Solution does not gain market acceptance, our business will be
adversely affected.  The growth of our business will depend largely on the
successful implementation of our recently introduced FMS solution. This solution
is a business processing outsource service or BPO, which we anticipate will
allow us to leverage our suite of accounting software products and our expertise
in back office processing of accounting data. We expect to derive a
[substantial] portion of our revenues in the future from our BPO service in
conjunction with our existing software suites. If our BPO service does not gain
market acceptance, our revenues may decline and our business may be adversely
affected. Factors that may affect the market acceptance of our BPO service, some
of which are beyond our control, may include:

     - the growth, acceptance and changing requirements in the BPO industry;

     - the performance, quality and price of our new service and our existing
       product suites; and

     - the availability, price, quality and performance of competing products
       and services.

     Potential Fluctuations in Quarterly Performance; Seasonality.  The
Company's revenues and operating results have varied substantially from quarter
to quarter. The Company's quarterly operating results may continue to fluctuate
due to a number of factors, including the timing, size and nature of the
Company's licensing transactions; the market acceptance of new services,
products or product enhancements by the Company or its competitors; product and
price competition; the relative proportions of revenues derived from license
fees, services and third-party channels; changes in the Company's operating
expenses; personnel changes; the timing of the introduction, and the performance
of, the Company's Flexi Industry Partners; foreign currency exchange rates; and
fluctuations in economic and financial market conditions.

     The timing, size and nature of individual licensing transactions are
important factors in the Company's quarterly results of operations. Many such
transactions involve large dollar amounts, and the sales cycles for these
transactions are often lengthy and unpredictable. In addition, the sales cycles
associated with these transactions are subject to a number of uncertainties,
including customers' budgetary constraints, the timing of customers' budget
cycles and customers' internal approval processes. There can be no assurance
that the Company will be successful in closing such large transactions on a
timely basis or at all. Software license revenues under the Company's license
agreements are recognized upon delivery and installation of the product and when
all significant contractual obligations have been satisfied. Significant
obligations would include future promises of enhancements and/or modification
that are essential to the product. Delays in the installation of the Company's
software, including potential delays associated with contractual enhancements to
the Company's software products, could materially adversely affect the Company's
quarterly results of operations. In addition, as the Company derives a
significant proportion of total revenues from license revenues, the Company may
realize a disproportionate amount of its revenues and income in the last month
of each quarter and, as a result, the magnitude of quarterly fluctuations may
not become evident until late in, or at the end of, a given quarter.
Accordingly, delays in product delivery and installation or in the closing of
sales near the end of a quarter could cause quarterly revenues and, to a greater
degree, results of operations to fall substantially short of anticipated levels.

                                        15
<PAGE>

     The Company's expense levels are based, in significant part, on its
expectations as to future revenues and are largely fixed in the short term. As a
result, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenues. Accordingly, any
significant shortfall of revenues in relation to the Company's expectations
would have an immediate and material adverse effect on the Company's business,
financial condition and results of operations.

     The Company has experienced, and may experience in the future, significant
seasonality in its business, and the Company's financial condition or results of
operations may be affected by such trends in the future. In past years, the
Company had greater demand for its products in its fourth quarter and has
experienced lower revenues in its succeeding first quarter. These fluctuations
are caused primarily by pressures on prospects to complete purchases before
year-end to achieve their goals and use the allocated budgets.

     Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance. There can be no assurance that future revenues and results
of operations will not vary substantially. It is also possible that in some
future quarter the Company's results of operations will be below the
expectations of public market analysts and investors. In either case, the price
of the Company's Common Stock could be materially adversely affected.

     Dependence on Key Personnel.  The Company's performance depends
substantially on the performance of its Chief Executive Officer, Stefan R.
Bothe. The Company has experienced significant turnover in its management and is
therefore operating with a limited group of executive officers and key
employees. In addition, the Company has experienced personnel turnover with
respect to its sales force and software professionals. The Company is dependent
on its ability to attract, retain and motivate high-quality personnel,
especially its management, sales staff and highly skilled development team. The
loss of the services of any of the Company's executive officers or other key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company maintains a key
person insurance policy on Stefan R. Bothe.

     Lengthy Sales Cycle.  The Company's software is often used for
business-critical purposes, and its implementation involves significant capital
commitments by customers. Potential customers generally commit significant
resources to an evaluation of available software and require the Company to
expend substantial time, effort and money educating potential customers about
the value of the Company's solutions. Sales of the Company's software products
required an extensive education and marketing effort throughout a customer's
organization because decisions to license such software generally involve the
evaluation of the software by a significant number of customer personnel in
various functional and geographic areas, each having specific and often
conflicting requirements. A variety of factors, including factors over which the
Company has little or no control, may cause potential customers to favor a
competing vendor or to delay or forego a purchase. As a result of these or other
factors, the sales cycle for the Company's products is long, typically ranging
between three and nine months. Due to the length of the sales cycle for its
software products, including delays in implementing the Company's software
across several functional and geographic areas of an organization, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
delay or failure to complete one or more large license transactions could have a
material adverse effect on the Company's business, financial condition or
results of operations.

     Product Concentration.  To date, substantially all of the Company's
revenues have been attributable to the licensing of its FlexiFinancials,
FlexilnfoAccess and FlexiTools financial accounting products and the provision
of consulting, training and software installation services in connection
therewith. Although Flexi is working to implement its BPO service, the Company
currently expects that the licensing of its financial accounting software, and
the provision of related services, will account for a substantial portion of its
revenues in the near future. As a result, factors adversely affecting the
pricing of or demand for such products and services, such as competition or
technological change, could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's future
financial performance will depend, in significant part, on the continued market
acceptance of the Company's existing products and the successful development,
introduction and customer acceptance of new and enhanced versions of its
software

                                        16
<PAGE>

products and services. There can be no assurance that the Company will be
successful in developing and marketing its financial accounting products.

     Rapid Technological Change and Evolving Market.  The market for the
Company's products and services is characterized by rapidly changing technology,
evolving industry standards and new product introductions and enhancements that
may render existing products obsolete or less competitive. As a result, the
Company's position in the financial applications software market could erode
rapidly due to unforeseen changes in the features and functionality of competing
products, as well as the pricing models for such products. The Company's future
success will depend in part upon the widespread adoption of object-oriented,
component-based standards and the development of the Internet as a viable
commercial marketplace, as well as the Company's ability to enhance its existing
products and services and to develop and introduce new products and services to
meet changing customer requirements. The process of developing products and
services such as those offered by the Company is extremely complex and is
expected to become increasingly complex and expensive in the future with the
introduction of new platforms and technologies. In addition, the Company has on
occasion experienced delays in the scheduled release of software products or the
porting of such products to specific platforms or configurations. There can be
no assurance that an object-oriented, component-based standards will be adopted,
or that the Company will successfully complete the development of new products
in a timely fashion or that the Company's current or future products will
satisfy the needs of potential customers.

     Concentration of Customers.  Historically, a limited number of customers
have accounted for a significant percentage of the Company's revenues in each
year. During the years ended December 31, 2001, 2000, and 1999, two customers
each represented 10% or more of the Company's total revenues (or an aggregate of
40.6%, 38.2%, and 39.0%, of total revenues in each of these years,
respectively). The Company anticipates that its results of operations in any
given period will continue to depend to a significant extent upon revenues from
a small number of customers. The failure of the Company to enter into a
sufficient number of licensing agreements during a particular period could have
a material adverse effect on the Company's business, financial condition and
results of operations.

     Competition.  The market for the Company's products and services is
intensely competitive and is characterized by rapid change in technology and
user needs and the frequent introduction of new products. In recent quarters,
the Company has been observing increasingly aggressive pricing practices and/or
unusual terms and conditions offered to customers by its competitors, and
increasing competition in the middle market from competitors which previously
focused principally on larger corporations. A number of the Company's
competitors are more established, benefit from greater name recognition and have
substantially greater financial, technical and marketing resources than the
Company and its partners and distributors. In addition, the Company's partners
may develop or offer products and services that compete with the Company's
products and services. There can be no assurance that the Company's partners
will not give higher priority to the sales of these or other competitive
products and services. There can be no assurance that the Company will be able
to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, financial condition and results of operations.

     Potential for Product Liability.  The Company's license agreements with its
customers typically contain provisions designed to limit the Company's exposure
to potential product liability claims. It is possible, however, that the
limitation of liability provisions contained in the Company's license agreements
may not be effective under the laws of certain jurisdictions. The sale and
support of products by the Company and its partners may entail the risk of such
claims, and there can be no assurance that the Company will not be subject to
such claims in the future. The Company attempts to limit contractually its
liability for damages arising from negligent acts, errors, mistakes or omissions
in rendering its products and services. Despite this precaution, there can be no
assurance that the limitations of liability set forth in its contracts would be
enforceable or would otherwise protect the Company from liability for damages.
The Company maintains general liability insurance coverage, including coverage
for errors or omissions. However, there can be no assurance that such coverage
will continue to be available on acceptable terms, or will be available in
sufficient amounts to cover one or more large claims, or that the insurer will
not disclaim coverage as to any future claim. The successful assertion of one or
more large claims against the Company that exceed available
                                        17
<PAGE>

insurance coverage or changes in the Company's insurance policies, including
premium increases or the imposition of large deductible or co-insurance
requirements, could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, litigation with
respect to liability claims, regardless of its outcome, could result in
substantial cost to the Company and divert management's attention from the
Company's operations. Any product liability claim or litigation against the
Company could, therefore, have a material adverse effect on the Company's
business, financial condition and results of operations.

     The Company has included security features in its products that are
intended to protect the privacy and integrity of customer data. Despite the
existence of these security features, the Company's software products may be
vulnerable to break-ins and similar disruptive problems. Such computer break-ins
and other disruptions may jeopardize the security of information stored in and
transmitted through the computer systems of the Company's customers, which may
result in loss of or delay in market acceptance of the Company's products.
Addressing these evolving security issues may require significant expenditures
of capital and resources by the Company, which may have a material adverse
effect on the Company's business, financial condition or results of operations.

     Software Errors or Bugs.  The Company's software products are highly
complex and sophisticated and could from time to time contain design defects or
software errors that could be difficult to detect and correct. Although the
Company has not experienced material adverse effects resulting from any software
errors, bugs or viruses, there can be no assurance that, despite testing by the
Company and its customers, errors will not be found in new or existing products,
which errors could result in a delay in or inability to achieve market
acceptance and thus could have a material adverse impact upon the Company's
business, financial condition and results of operations.

     Limited Protection of Proprietary Rights.  The Company's success is heavily
dependent upon its proprietary technology. The Company relies on a combination
of copyright, trademark and trade secret laws and license agreements to
establish and protect its rights in its software products and other proprietary
technology. In addition, the Company currently requires its employees and
consultants to enter into nondisclosure agreements to limit use of, access to
and distribution of its proprietary information. There can be no assurance that
the Company's means of protecting its proprietary rights in the United States or
abroad will be adequate to prevent misappropriation. Also, despite the steps
taken by the Company to protect its proprietary rights, it may be possible for
unauthorized third parties to copy aspects of the Company's products, reverse
engineer such products, develop similar technology independently or obtain and
use information that the Company regards as proprietary.

     In the future, the Company may receive notice of claims of infringement of
other parties' proprietary rights. Although the Company does not believe that
its products infringe the proprietary rights of third parties, there can be no
assurance that infringement or invalidity claims (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company or that any such assertions or prosecutions will not materially
adversely affect the Company's business, financial condition or results of
operations.

     Dependence on Third-Party Technology.  The Company's proprietary software
is currently designed, and may in the future be designed, to work on or in
conjunction with certain third-party hardware and/or software products. If any
of these current or future third-party vendors were to discontinue making their
products available to the Company or to licensees of the Company's software or
to increase materially the cost for the Company or its licensees to acquire,
license or purchase the third-party vendors' products, or if a material problem
were to arise in connection with the ability of the Company to design its
software to properly use or operate with any third-party hardware and/or
software products, the Company may be required to identify additional sources
for such products. In such an event, interruptions in the availability or
functioning of the Company's software and delays in the introduction of new
products and services may occur until equivalent technology is obtained. There
can be no assurance that an alternative source of suitable technology would be
available or that the Company would be able to develop an alternative product in
sufficient time or at a reasonable cost. The failure of the Company to obtain or
develop alternative technologies or products on a

                                        18
<PAGE>

timely basis and at a reasonable cost could have a material adverse effect on
the Company's business, financial condition and results of operations.

     Risks Associated with Third-Party Channels.  The Company addresses certain
vertical and geographic markets through its partners. The Company relies on its
third-party channels to provide sales and marketing presence and name
recognition, as well as the resources necessary to offer industry-specific
financial accounting solutions. Although the Company expects to dedicate
significant resources to develop its partners, there can be no assurance that
the Company will be able to attract and retain qualified firms in its targeted
vertical markets. The failure of the Company to maintain its current third-party
channels or find other third-party channels, the Company's inability to
adequately support such channels, the development of competitive products and
services by the Company's third-party channels or the entry by such firms into
alliances with competitors of the Company would substantially limit the
Company's ability to provide its products and services and, accordingly, have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company has attempted to seek partners in
distinct vertical markets and distributors in distinct geographic markets, and
to manage them in a manner to avoid potential channel conflicts, there can be no
assurance that channel conflicts may not develop. Any such conflicts may
adversely affect the Company's relationship with third-party channels or
adversely affect its ability to develop new channels.

     Risks Associated with International Operations.  The Company's
international sales represented approximately 19.2%, 18.9%, and 31.0%, of total
revenues during 2001, 2000, and 1999, respectively. The Company's international
presence increased by virtue of its acquisition of The Dodge Group. As a result
of the acquisition the Company now has an office in London and distributors in
Hong Kong and Japan. There can be no assurance that the Company will be able to
maintain or increase international market demand for the Company's products and
services. The Company's international sales are generally denominated in British
pounds. An increase in the value of the British pound relative to foreign
currencies could make the Company's products more expensive and, therefore,
potentially less competitive in those markets. Currently, the Company does not
employ currency-hedging strategies to reduce this risk. In addition, the
Company's international business may be subject to a variety of risks, including
difficulties in collecting international accounts receivable or obtaining U.S.
export licenses, potentially longer payment cycles, increased costs associated
with maintaining international marketing efforts, the introduction of non-tariff
barriers and higher duty rates and difficulties in enforcement of contractual
obligations and intellectual property rights. There can be no assurance that
such factors will not have a material adverse effect on the Company's future
international sales and, consequently, on the Company's business, financial
condition or results of operations.

     Risks Associated with the European Monetary Union ("EMU").  The Company's
internal business information systems are comprised of the same commercial
application software products generally offered for license by the Company to
end user customers. The Company's latest software release contains EMU
functionality that allows for dual currency reporting and information
management. The Company is not aware of any material operational issues or costs
associated with preparing internal systems for the EMU. However, the Company
utilizes other third party software products that may or may not be EMU
compliant. Although the Company is currently taking steps to address the impact,
if any, of EMU compliance for such third party products, failure of any critical
technology components to operate properly post EMU may have an adverse impact on
business operations or require the Company to incur unanticipated expenses to
remedy any problems.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Market risk refers to the potential effects of unfavorable changes in
certain prices and rates on Company's financial results and conditions,
primarily foreign currency exchange rates and interest rates on marketable
securities. The Company does not utilize derivative instruments in managing its
exposure to such changes. The Company does not believe that near-term changes in
foreign currency exchange rates or interest rates will have a material effect on
its future earnings, fair values or cash flows.

                                        19
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       FLEXIINTERNATIONAL SOFTWARE, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................   21
Independent Auditors' Report................................   22
Consolidated Balance Sheets as of December 31,2001 and
  2000......................................................   23
Consolidated Statements of Operations for the years ended
  December 31,2001, 2000 and 1999...........................   24
Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended December 31, 2001, 2000 and 1999......   25
Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999..........................   26
Notes to Consolidated Financial Statements..................   27
Independent Auditors' Report on Financial Statement
  Schedule..................................................   39
Independent Auditors' Report on Financial Statement
  Schedule..................................................   40
Schedule II -- Valuation and Qualifying Accounts............   41
</Table>

                                        20
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders of
FlexiInternational Software, Inc.

     We have audited the accompanying consolidated balance sheet of
FlexiInternational Software, Inc. and subsidiary (the "Company") as of December
31, 2001 and the related consolidated statement of operations, stockholders'
equity (deficit), and cash flows for the year then ended. The consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 2001 financial statements based
on our audit.

     We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FlexiInternational Software, Inc. and subsidiary as of December 31, 2001 and the
consolidated results of its operations and their consolidated cash flows for the
year then ended in conformity with U.S. generally accepted accounting
principles.

Hill, Barth & King LLC
Certified Public Accountants

Naples, Florida
February 20, 2002

                                        21
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders of
FlexiInternational Software, Inc.
Shelton, Connecticut

     We have audited the accompanying consolidated balance sheet of
FlexiInternational Software, Inc. and subsidiary (the "Company") as of December
31, 2000 and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the two years in the period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of FlexiInternational Software,
Inc. and subsidiary at December 31, 2000 and the results of their operations and
their cash flows for each of the two years in the period then ended in
conformity with accounting principles generally accepted in the United States of
America.

Deloitte & Touche LLP

Hartford, Connecticut
February 27, 2001

                                        22
<PAGE>

                       FLEXIINTERNATIONAL SOFTWARE, INC.

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2001        2000
                                                              --------    --------
<S>                                                           <C>         <C>
                                    ASSETS
Current Assets:
     Cash and cash equivalents..............................  $    637    $  1,389
     Marketable securities -- restricted....................         0         108
     Accounts receivable, net of allowance for doubtful
      accounts of $22 and $352, respectively................     1,954       2,558
     Prepaid expenses and other current assets..............       126         322
                                                              --------    --------
          Total current assets..............................     2,717       4,377
                                                              --------    --------
Property and equipment (Note G).............................       418         841
Acquired software, net of accumulated amortization of $2,160
  and $1,080, respectively (Note E).........................         0       1,080
Goodwill, net of accumulated amortization of $5,667 and
  $5,502, respectively (Note E).............................         0         165
Other assets................................................       276         160
                                                              --------    --------
          Total assets......................................  $  3,411    $  6,623
                                                              ========    ========
                 LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
  Accounts payable..........................................  $    511    $  1,018
  Accrued commissions.......................................        21           0
  Accrued restructuring costs (Note O)......................         0          27
  Accrued expenses..........................................     1,207         648
  Current portion of long-term debt (Notes H and I).........       148         976
  Deferred revenue..........................................     3,478       5,012
                                                              --------    --------
          Total current liabilities.........................     5,365       7,681
                                                              --------    --------
Long-term debt less principal due within one year (Notes H
  and I)....................................................       933         457
Stockholders deficit (Notes J and K):
  Preferred stock, par value $.01 per share, 5,000,000
     shares authorized, no shares issued and outstanding....        --          --
  Common stock, par value $.01 per share, 50,000,000 shares
     authorized, 17,784,181 and 17,683,133 issued,
     17,784,181 and 17,672,703 outstanding, respectively....       178         177
  Additional paid-in-capital................................    56,117      56,128
  Accumulated deficit.......................................   (59,477)    (58,094)
  Other accumulated comprehensive income....................       295         293
  Common stock in treasury at cost -- 0 and 10,430 shares,
     respectively...........................................         0         (19)
                                                              --------    --------
          Total stockholders' deficit.......................    (2,887)     (1,515)
                                                              --------    --------
                                                              $  3,411    $  6,623
                                                              ========    ========
</Table>

          See accompanying notes to consolidated financial statements
                                        23
<PAGE>

                       FLEXIINTERNATIONAL SOFTWARE, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
                                                              YEARS ENDED DECEMBER 31, 2001,
                                                                       2000 AND 1999
                                                              -------------------------------
                                                                2001       2000       1999
                                                              --------   --------   ---------
<S>                                                           <C>        <C>        <C>
Revenues:
  Software license..........................................  $ 2,917    $ 4,112    $  3,385
  Service and maintenance...................................    6,598      8,324      12,169
                                                              -------    -------    --------
          Total revenues....................................    9,515     12,436      15,554
                                                              -------    -------    --------
Cost of Revenues:
  Software license..........................................      684        636         586
  Service and maintenance...................................    2,308      3,956       7,491
                                                              -------    -------    --------
          Total cost of revenues............................    2,992      4,592       8,077
                                                              -------    -------    --------
          Gross profit......................................    6,523      7,844       7,477
                                                              -------    -------    --------
Operating Expenses:
  Sales and marketing.......................................    2,552      1,632       5,919
  Product development.......................................    1,616      2,689       6,887
  General and administrative................................    2,847      3,365       7,153
  Goodwill impairment (Note E)..............................      862          0       4,224
  Restructuring charge (Note O).............................        0          0       1,824
                                                              -------    -------    --------
          Total operating expenses..........................    7,832      7,686      26,007
                                                              -------    -------    --------
          Income (loss) from operations.....................   (1,309)       158     (18,530)
Other income (deductions):
Net interest (expense)......................................      (29)        (1)         49
                                                              -------    -------    --------
Income (loss) before income taxes...........................   (1,383)       157     (18,481)
                                                              -------    -------    --------
Income taxes................................................        0          0           0
                                                              -------    -------    --------
Net income (loss)...........................................  $(1,383)   $   157    $(18,481)
                                                              =======    =======    ========
Income (loss) per share:
     Basic..................................................  $ (0.08)   $  0.01    $  (1.06)
                                                              =======    =======    ========
     Diluted................................................  $ (0.08)   $  0.01    $  (1.06)
                                                              =======    =======    ========
Weighted average shares:
     Basic..................................................   17,713     17,669      17,414
                                                              =======    =======    ========
     Diluted................................................   17,713     17,669      17,414
                                                              =======    =======    ========
</Table>

          See accompanying notes to consolidated financial statements
                                        24
<PAGE>

                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                              YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
                                        -----------------------------------------------------------------------------------------
                                                                                             OTHER                      TOTAL
                                           COMMON STOCK       ADDITIONAL                  ACCUMULATED               STOCKHOLDERS'
                                        -------------------    PAID-IN     ACCUMULATED   COMPREHENSIVE   TREASURY      EQUITY
                                          SHARES     AMOUNT    CAPITAL       DEFICIT        INCOME        STOCK       (DEFICIT)
                                        ----------   ------   ----------   -----------   -------------   --------   -------------
<S>                                     <C>          <C>      <C>          <C>           <C>             <C>        <C>
Balance at January 1, 1999............  17,383,133    $174     $56,308      $(39,656)        $  2         $(214)       $16,614
    Shares issued for stock purchase
      plan............................           0       0           0           (88)           0           150             62
    Cancellation of options issued in
      conjunction with the acquisition
      of The Dodge Group..............           0       0        (180)            0            0             0           (180)
    Exercise of stock options.........     300,000       3           0           (26)           0            29              6
    Net loss..........................           0       0           0       (18,481)           0             0        (18,481)
    Currency translation adjustment...           0       0           0             0           61             0             61
                                                                                                                       -------
Comprehensive loss....................           0       0           0             0            0             0        (18,420)
                                        ----------    ----     -------      --------         ----         -----        -------
Balance at December 31, 1999..........  17,683,133     177      56,128       (58,251)          63           (35)        (1,918)
    Shares issued for stock purchase
      plan............................           0       0           0             0            0            16             16
    Net income........................           0       0           0           157            0             0            157
    Currency translation adjustment...           0       0           0             0          230             0            230
                                                                                                                       -------
Comprehensive income..................           0       0           0             0            0             0            387
                                        ----------    ----     -------      --------         ----         -----        -------
Balance at December 31, 2000..........  17,683,133     177      56,128       (58,094)         293           (19)        (1,515)
    Shares issued for stock purchase
      plan............................     101,052       1         (11)                                      19              9
    Net loss..........................           0       0           0        (1,383)           0             0         (1,383)
    Currency translation adjustment...           0       0           0             0            2             0              2
                                                                                                                       -------
Comprehensive loss....................           0       0           0             0            0             0         (1,381)
                                        ----------    ----     -------      --------         ----         -----        -------
Balance at December 31, 2001..........  17,784,185    $178     $56,117      $(59,477)        $295         $   0        $(2,887)
                                        ==========    ====     =======      ========         ====         =====        =======
</Table>

          See accompanying notes to consolidated financial statements
                                        25
<PAGE>

                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                              YEARS ENDED DECEMBER 31, 2001, 2000
                                                                            AND 1999
                                                              ------------------------------------
                                                                2001         2000          1999
                                                              ---------    ---------    ----------
<S>                                                           <C>          <C>          <C>
Cash flows from operating activities:
  Net income (loss).........................................   $(1,383)     $   157      $(18,481)
  Adjustments to reconcile net income (loss) to net cash
     used in operating activities:
     Depreciation and amortization..........................       845        1,310         2,518
     Provision (credit) for doubtful accounts...............      (310)         299         1,643
     Goodwill impairment....................................       862            0         4,224
     (Gain) loss on disposal of assets......................         4           (3)          198
     Decrease in accounts receivable........................       934        3,298         3,223
     Decrease in prepaid expenses and other assets..........        80          160           404
     Increase (decrease) in accounts payable and accrued
       expenses.............................................       297       (1,910)       (3,115)
     (Decrease) increase in accrued restructuring...........       (27)        (374)          401
     (Decrease) increase in deferred revenue................    (1,534)      (3,396)          988
                                                               -------      -------      --------
Net cash used in operating activities.......................      (232)        (459)       (7,997)
                                                               -------      -------      --------
Cash flows from investing activities:
     Purchases of marketable securities.....................         0         (108)            0
     Sales of marketable securities.........................       108            0         3,000
     Proceeds from sales of property and equipment..........         1           40            33
     Purchases of property and equipment....................       (23)         (21)         (610)
                                                               -------      -------      --------
Net cash provided by (used in) investing activities.........        86          (89)        2,423
                                                               -------      -------      --------
Cash flows from financing activities:
     Proceeds from exercise of stock options and warrants...         0            0             6
     Prepayments on line of credit..........................         0            0        (2,000)
     Proceeds from line of credit...........................         0            0         2,000
     Pepayments on long-term debt...........................      (185)         (50)            0
     Proceeds from employee stock purchase plan.............         9            5            62
     Payments of capital lease obligations..................      (432)        (122)         (599)
                                                               -------      -------      --------
Net cash used in financing activities.......................      (608)        (167)         (531)
     Effect of exchange rate changes on cash................         2          230           103
                                                               -------      -------      --------
Decrease in cash and cash equivalents.......................      (752)        (485)       (6,002)
Cash and cash equivalents:
     Beginning of year......................................     1,389        1,874         7,876
                                                               -------      -------      --------
     End of year............................................   $   637      $ 1,389      $  1,874
                                                               =======      =======      ========
Supplemental disclosures of cash flow information:
     Interest paid..........................................   $    66      $    50      $    107
                                                               =======      =======      ========
     Conversion of accounts payable into notes payable......   $   224      $   748      $     --
                                                               =======      =======      ========
</Table>

          See accompanying notes to consolidated financial statements
                                        26
<PAGE>

                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE A -- THE COMPANY

     FlexiInternational Software, Inc. and subsidiary (the "Company") began
operations in 1991. The Company designs, develops, markets and supports the
Flexi Financial Enterprise Suite of financial and accounting software
applications and related tools. The Flexi solution -- composed of
FlexiFinancials, Flexi Financial Datawarehouse (FlexiFDW), FlexiInfoAccess and
Flexi Tools -- is designed to address the needs of users with sophisticated
financial accounting and operational analysis requirements.

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION:

     The consolidated financial statements include the accounts of
FlexiInternational Software, Inc. and its wholly-owned subsidiary since its
acquisition of The Dodge Group ("Dodge") in June 1998 (NOTE E). All significant
intercompany transactions and balances have been eliminated.

REVENUE RECOGNITION:

     The Company licenses software under noncancellable license agreements
through direct and indirect channels, and provides services including
maintenance, training and consulting. Software license revenues through the
Company's direct sales channel are recognized when persuasive evidence of an
arrangement exists, the licensed products have been shipped, fees are fixed and
determinable and collectibility is considered probable. Customers may elect to
receive the licensed products pre-loaded and configured on a hardware unit. In
this case, revenue is recognized when the licensed products are installed on the
hardware unit, the unit is shipped and all other criteria are met. Other
software license royalties earned through the Company's indirect sales channel
are recognized as such fees are reported to the Company.

     Revenues on all software license transaction in which there are significant
outstanding obligations are not recognized until such obligations are fulfilled.
Significant obligations would include future promises of enhancements and/or
modification that are essential to the product. For multiple element
arrangements and arrangements with extended payment terms, or where a
significant portion of the payment is due after inception of the license
agreement, all revenue is deferred until the final portion of the license fee
becomes due and payable, and all other criteria are met at that time.
Maintenance revenues for maintaining, supporting, and providing periodic
upgrading are deferred and recognized ratably over the maintenance period,
generally one year.

     Revenues from training and consulting services are recognized as such
services are performed. The Company does not require collateral for its
receivables, and reserves are maintained for potential losses.

FOREIGN CURRENCY TRANSLATION:

     The assets and liabilities of the Company's foreign subsidiary, Dodge, are
translated into U.S. dollars at exchange rates in effect at the balance sheet
dates. Revenue and expense items are translated into U.S. dollars at the average
exchange rate for the years. Resulting unrealized translation adjustments are
included in stockholders' equity (deficit).

     Gains and (losses) on foreign currency exchange transactions are reflected
in the consolidated statements of operations. Net transaction gains and (losses)
included in income for the years ended December 31, 2001, 2000 and 1999 were $0
for 2001 and 2000 and $2 for 1999.

                                        27
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRODUCT DEVELOPMENT COSTS:

     The Company has evaluated the establishment of technological feasibility of
its various products during the development phase. The time period during which
costs could be capitalized from the point of reaching technological feasibility
until the time of general product release is very short, and consequently, the
amounts that could be capitalized are not material to the Company's consolidated
financial position or results of operations. Therefore, the Company charges all
the product development expenses to operations in the period incurred.

CASH AND CASH EQUIVALENTS:

     The Company considers all interest-bearing securities having original
maturities of three months or less to be cash equivalents. Additionally, the
Company maintains cash balances which at time exceed the federally insured
limits. The Company has not experienced any losses in such accounts, nor does it
believe that there is a significant exposure to credit risk on these accounts
because the credit ratings of institutions which maintain the cash balances has
been assessed by the Company.

MARKETABLE SECURITIES:

     For the year ended December 31, 2000 the Company had restricted marketable
securities that represented a subleasee's security deposit and prepaid rent.

PROPERTY AND EQUIPMENT:

     Property and equipment is composed of furniture and equipment and is stated
at cost less accumulated depreciation. Depreciation is calculated using an
accelerated method over the estimated useful lives of the assets ranging from
three to seven years. Property and equipment are periodically reviewed for
impairment based upon anticipated cash flows generated from such underlying
assets.

GOODWILL AND OTHER INTANGIBLE ASSETS:

     Goodwill and other intangible assets are stated on the basis of cost and
amortized on a straight-line basis over the estimated future periods to be
benefited (5 years). Good will and other intangible assets are periodically
reviewed for impairment based upon anticipated cash flows generated from such
underlying assets.

INCOME TAXES:

     Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the amount
of taxable income and pretax financial income and between the tax basis of
assets and liabilities and their reported amounts in the consolidated financial
statements. Deferred tax assets and liabilities are included in the consolidated
financial statements at currently enacted income tax rates applicable to the
period in which the deferred tax assets and liabilities are expected to be
realized or settled.

FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS:

     The estimated fair value of amounts reported in the consolidated financial
statements has been determined by using available market information and
appropriate valuation methodologies. The carrying value of all current assets
and current liabilities approximates fair value because of their short-term
nature. The fair value of capital lease obligations and notes payable
approximates the carrying value, based on current market prices.

                                        28
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTING FOR STOCK BASED COMPENSATION:

     The Company has adopted Statement of Financial Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123"). As permitted by SFAS
123, the Company continues to apply Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," to account for its
stock-based employee compensation arrangements.

NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS:

     On July 5, 2001, the Financial Accounting Standard Board approved Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 142 includes requirements to test goodwill and indefinite lived
intangible assets for impairment rather than amortize them (NOTE E). SFAS 142
will be effective for fiscal years beginning after December 15, 2001. The
Company will adopt SFAS 142 beginning in the first quarter of 2002. This will
not have a material effect on the financial statements.

     Effective January 1, 2002, the Company adopted Statement of Financial
Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133). This statement establishes accounting and reporting standards
for derivative instruments embedded in other contracts and hedging activities.
It requires that an entity recognize all derivatives as either other assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement did not have a material impact on financial
condition and results of operations.

     In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"). FIN 44 clarifies
the application of APB Opinion No. 25 regarding (a) the definition of employee
for purposes of applying APB Opinion No. 25 (b) the criteria for determining
whether a stock option plan qualifies as a non-compensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occur after either December
15, 1998, or January 12, 2000. The adoption of FIN 44 did not have a material
effect on the Company's consolidated financial position, results of operations,
or cash flows.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101, as amended, provides guidance related to revenue
recognition issues based on interpretations and practices followed by the SEC.
The adoption of SAB 101 in 2000 did not have a material affect on the Company's
consolidated financial position, results of operations, or cash flows.

USE OF ESTIMATES:

     The preparation of financial statements, in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

EARNINGS PER SHARE:

     Basic earnings per share ("EPS") is computed by dividing earnings available
to common shareholders by the weighted average number of common shares
outstanding for the periods. Diluted EPS reflects the potential dilution of
securities that could share in the earnings. As of December 31, 2001, 2000 and
1999, the weighted average number of common shares are the same for both the
basic and diluted per share computations because the inclusion of common stock
equivalents would have been antidilutive.
                                        29
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK

     The Company operates in only one business segment.  The Company's
international revenues were derived primarily from the United Kingdom, Sweden
and South America for the years ended December 31, 2001, 2000, and 1999, and the
Company's international long lived assets at December 31, 2001 and 2000 resided
primarily in the United Kingdom.

REVENUES:

<Table>
<Caption>
                                                             2001     2000      1999
                                                            ------   -------   -------
<S>                                                         <C>      <C>       <C>
United States.............................................  $7,691   $10,082   $10,800
  International:
     United Kingdom.......................................   1,824     2,354     3,314
     Sweeden..............................................       0         0       983
  Other...................................................       0         0       457
                                                            ------   -------   -------
          Totals..........................................  $9,515   $12,436   $15,554
                                                            ======   =======   =======
</Table>

LONG LIVED ASSETS:

<Table>
<S>                                                         <C>      <C>       <C>
United States.............................................  $  385   $ 2,043   $ 3,285
International.............................................      33        43       127
                                                            ------   -------   -------
          Totals..........................................  $  418   $ 2,086   $ 3,412
                                                            ======   =======   =======
</Table>

     Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
The Company controls this risk through credit approvals, customer limits and
monitoring procedures. The Company can, however, limit the amount of support
provided to its customers in the event of non-performance. Two customers
represented 10% or more of the Company's total revenues, or an aggregate of
40.6%, 38.2%, and 39% of total revenues for each of the years ended December 31,
2001, 2000, and 1999, respectively. Three customers represented approximately
61.9% and 67.7% of the Company's net accounts receivable at December 31, 2001
and 2000 respectively.

NOTE D -- INCOME TAXES

     Significant components of the Company's deferred tax assets at December 31,
are as follows:

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Net operating loss carryforwards............................  $ 22,849   $ 21,982
  Other.....................................................     1,651      1,578
                                                              --------   --------
     Subtotal...............................................    24,500     23,560
  Valuation allowance.......................................   (24,500)   (23,560)
                                                              --------   --------
  Net deferred tax asset....................................  $      0   $      0
                                                              ========   ========
</Table>

     At December 31, 2001, the company had U.S. and foreign net operating loss
carryforwards of approximately $40,292 and $26,960, respectively, which expire
during the years 2005 through 2021. For tax purposes, there is an annual
limitation on the utilization of the U.S. net operating loss carryfowards
resulting from an ownership change as defined by Internal Revenue Code Section
382. Due to this annual limitation, a portion of the U.S. net operating loss
carryforward may expire prior to when otherwise utilizable.

     No provision or benefit for federal, state, or foreign income taxes has
been made for the years ended December 31, 2001, 2000, and 1999 given the
Company's loss carryforward position. The Company's statutory

                                        30
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

income tax rate is 34%, however, no income tax benefit was recognized for 2001,
2000 and 1999 because the benefit of the net operating tax loss for each year
was reduced by a valuation allowance. The valuation allowance was recorded
because management believes, based on available evidence, it is more likely than
not that the income tax benefit of the net operating loss carryforward will not
be realized during the loss carryforward period.

NOTE E -- ACQUISITION

     On June 24, 1998, the Company completed the acquisition of Dodge, a
software developer that specializes in financial data warehouse solutions. As a
result of the acquisition, the Company wrote off $1.9 million for acquired
in-process research and development in the June 1998 quarter.

     Follow executive and staff cutbacks in connection with a first quarter 1999
restructuring program (NOTE O), management revised its plans for the existing
Dodge financial data warehouse business acquired in 1998. As a result, expected
revenues and cash flows from these software products were revised significantly
downward. Additionally, competitive pressures and a continuation of the general
business slowdown caused management to reassess the long-term potential of the
Dodge business and to reprioritize its investments.

     During June 1999, the Company reassessed the value of the intangible assets
recorded by the Company as a result of the acquisition. Prior to that
reassessment, the unamortized balance of the intangible assets was $6,263,
consisting of $1,728 of acquired software and $4,535 of goodwill. After
assessment of the acquired software asset, management concluded that the
carrying value approximated net realizable value for the software. Management
also assessed the related goodwill arising from the Dodge acquisition in
accordance with established policies. The economic factors indicated above
caused management to revise downward its estimates of future cash flows from
current and future products associated with the Dodge business as a whole. As a
result of management's analysis, and using the best information available,
management recorded a goodwill impairment charge of $4,224 in the second quarter
of 1999.

     In applying its policy for assessing the carrying amount of the goodwill
for impairment, management first estimated future cash flows from the acquired
Dodge business generated from existing and planned future product introductions
over the estimated remaining useful life as of June 30, 1999, and assumed a
terminal value factor after the fourth year based on a range of EBITDA multiples
for a sample of comparable public financial software companies. That estimate
was then compared to the carrying amount of the underlying assets, and on that
basis management concluded that an impairment existed. In measuring the
impairment, the estimated future cash flows were discounted to a net present
value at 25%, a rate consistent with that used in the original purchase
accounting for the Dodge business. The goodwill was then reduced accordingly to
reflect the difference between its carrying amount and estimated fair value.

     During 2001, management conducted a periodic impairment assessment of the
intangible assets resulting from the Dodge acquisition, which took place in June
of 1998. Prior to the reassessment, the unamortized balance of the intangible
assets was $862, consisting of $727 of acquired software and $135 of goodwill.
After assessment of the acquired intangibles, management concluded that the
Company's financial data warehouse product, based on older technologies, will
not be upgraded to current technology and therefore these products will not be
competitive in the future. While the Company expects to maintain these products
for its current customers, minimal revenue is expected from future sales. As a
result of management's analysis, and using the best information available,
management recorded an intangible asset impairment charge of $862 in the third
quarter of 2001.

NOTE F -- CONVERTIBLE NOTE RECEIVABLE

     In January 2001, the Company entered into a convertible note receivable
arrangement where the Company agreed to loan a total of $272 to a start-up
software company and third-party reseller of the

                                        31
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's software products. The loan accrues at a 0% interest factor until
January 31, 2003 at which time the loan begins to accrue at 7% per annum and
will be repaid in 120 equal monthly payments of principal and interest beginning
March 1, 2003. As of December 31, 2001, the Company had loaned $85 under this
arrangement and had agreed to continue funding the loan in equal semi-monthly
installments of $8 beginning January 15, 2002 and continuing until December 31,
2002. After December 31, 2002 but prior to February 28, 2003, either party at
their option may convert the entire loan amount into 40,000 shares of the
borrowers common stock. If there has been a loan advance default, the Company
forfeits their right to convert the loan agreement but the borrower may at their
option convert the loan into 147.06 shares of it's common stock for each $1 that
the Company had funded.

NOTE G -- PROPERTY AND EQUIPMENT

     The Company's property and equipment at December 31 consists of the
following:

<Table>
<Caption>
                                                               2001       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Computers...................................................  $ 3,427    $ 3,454
Software....................................................      652        652
Furniture and fixtures......................................      508        508
Leasehold improvements......................................      332        319
Office equipment............................................       68         62
                                                              -------    -------
                                                                4,987      4,995
Less: accumulated depreciation..............................   (4,569)    (4,154)
                                                              -------    -------
  Net property and equipment................................  $   418    $   841
                                                              =======    =======
</Table>

     Depreciation expense was $457, $806 and $1,446 for the years ended December
31, 2001, 2000 and 1999, respectively. All property and equipment has been
pledged as collateral for a master lease agreement (NOTE I).

NOTE H -- NOTE PAYABLE

     During 2001, the Company refinanced a note payable with one of its vendors
which also converted additional trade payables. The note is unsecured, has no
stated interest rate, and is due in monthly installments of $5 until paid in
full. The note requires any subsequent charges after the date of the note to be
paid currently in addition to the amortization of the note balance. The
outstanding balance on the note at December 31, 2001 and 2000 was $699 and $505,
respectively. Maturities of long-term borrowings for the next five years are as
follows at December 31:

<Table>
<S>                                                           <C>
2002........................................................  $60
2003........................................................   60
2004........................................................   60
2005........................................................   60
2006........................................................   60
                                                              ===
</Table>

NOTE I -- CAPITAL LEASE OBLIGATIONS

     In December 2001, the Company restructured its existing master lease
agreement with its lease vendor. As a condition to the restructured agreement,
the Company continued the grant of a blanket lien on all of its existing fixed
assets. The original cost and accumulated depreciation of this property at
December 31, 2001 is $2,586 and $2,538, respectively. The present value of the
lease obligation at December 31, 2001 is $382. Approximate maturities of such
capital lease obligations are as follows at December 31, 2001:

                                        32
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<S>                                                           <C>
2002........................................................  $120
2003........................................................   309
                                                              ----
          Total.............................................   429
Less amounts representing interest..........................    47
                                                              ----
          Total capital lease obligations...................   382
Less amounts due within one year............................    88
                                                              ----
Long-term portion capital lease obligations.................  $294
                                                              ====
</Table>

NOTE J -- STOCKHOLDERS' EQUITY

PREFERRED STOCK:

     The Company has authorized capital stock that includes 5,000,000 shares of
preferred stock, $0.1 par value. No shares are issued and outstanding.

     The Company's board of directors is authorized, subject to any limitations
prescribed by law, without stockholder approval, to issue such shares of
preferred stock in one or more series. Each such series of preferred stock shall
have such rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the board of directors.

     The purpose of authorizing the board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of preferred stock.

STOCK WARRANTS:

     In connection with the Company's 1995 financing arrangements, a warrant was
issue for the purchase of 5,129 shares of Series C preferred stock for $1.65 per
share. This warrant allows the holder to acquire 3,846 shares of common stock
for $2.20 per share and the warrant expires in December 2006.

     In connection with the Company's 1995 financing arrangements, a warrant was
issued for the purchase of 76,800 shares of Series B preferred stock for $1.50
per share. This warrant allows the holder to acquire 57,600 shares of common
stock for $2.00 per share and the warrant expires in July 2005.

     In connection with the Company's capital lease obligations in 1994, a
warrant was issued for the purchase of 43,103 shares of Series A preferred stock
for $1.16 per share. This warrant allows the holder to acquire 32,327 shares of
common stock for $1.546 per share and the warrant expires in June 2004.

NOTE K -- EMPLOYEE STOCK PLANS

EMPLOYEE STOCK PURCHASE PLAN:

     The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan")
authorizes the issuance of up to a total of 400,000 shares of common stock to
participating employees. Under the terms of the Purchase Plan, the purchase
price is an amount equal to 85% of the average market price (as defined) per
share of the common stock on either the first day or the last day of the
offering period, whichever is lower. Under the Purchase plan, the Company issued
111,478, 8,695 and 54,178 shares to participants during 2001, 2000 and 1999,
respectively.

                                        33
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK OPTIONS PLANS:

     The Company's 1992 Stock Option Plan (the "1992 Plan") provided for the
issuance of up to 1,362,000 shares of common stock through the granting of stock
options to employees, officers, directors, consultants, and advisors. The board
of directors had authority to determine awards and establish the exercise price.
As of December 31, 2001, there are 57,000 options outstanding under the 1992
Plan. Such options vest over various periods up to five years and expire on
various dates through 2007. No additional option grants will be made under the
1992 Plan.

     The Company's 1997 Stock Incentive Plan (the "Incentive Plan") is intended
to replace the 1992 Plan. Up to 2,375,000 shares of common stock (subject to
adjustment in the event of stock splits and other similar events) may be issued
pursuant to awards granted under the Incentive Plan. Options may be granted at
an exercise price which may be less than, equal to, or greater than the fair
market value of the common stock on the date of grant. Officers, employees,
directors, consultants, and advisors of the Company are eligible to receive
awards under the Incentive Plan. During 2001, 2000 and 1999, 529,760, 344,811
and 1,303,482 options under the Incentive Plan were granted, respectively.

     Under the terms of the Company's 1997 Director Stock Option Plan (the
"Director Plan"), directors of the Company who are not employees are eligible to
receive nonstatutory options to purchase share of common stock. A total of
150,000 shares of common stock may be issued upon exercise of options granted
under the Director Plan. The exercise price per share, for shares granted
initially, was equal to the initial public offering price ($11). The exercise
price per share for all          shares thereafter will be the closing price per
share of common stock on the date of grant. All options granted under the
Director Plan vest one year from the date of grant so long as the optionee
remains a director of the Company. During 2001, 2000 and 1999, 10,500, 18,000
and 63,439 options under the Director Plan were granted, respectively.

     The following table describes the Company's stock option activity under all
of its option plans:

<Table>
<Caption>
                                                        NUMBER OF   WEIGHTED AVERAGE EXERCISE
                                                         OPTIONS         PRICE PER SHARE
                                                        ---------   -------------------------
                                                                    (PRICED AT DATE OF GRANT)
<S>                                                     <C>         <C>
Outstanding at December 31, 1998......................  1,298,443             $1.73
  Granted.............................................  1,366,921             $1.09
  Exercised...........................................   (316,209)            $0.01
  Cancelled...........................................   (926,266)            $1.97
                                                        ---------             -----
Outstanding at December 31, 1999......................  1,422,889             $1.34
  Granted.............................................    362,811             $0.68
  Cancelled...........................................   (450,656)            $1.18
                                                        ---------             -----
Outstanding at December 31, 2000......................  1,335,044             $1.17
  Granted.............................................    540,260             $0.17
  Cancelled...........................................   (343,515)            $0.52
                                                        ---------             -----
Outstanding at December 31, 2001......................  1,531,789             $0.97
                                                        =========             =====
Exercisable at December 31, 1999......................    306,915             $2.02
Exercisable at December 31, 2000......................    392,840             $1.67
Exercisable at December 31, 2001......................    641,588             $1.35
Options available for grant at December 31, 2001......    534,002                --
</Table>

                                        34
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information regarding stock options granted
under all of the Company's option plans:

<Table>
<Caption>
                                                                    WEIGHTED    WEIGHTED
                                                       NUMBER OF    AVERAGE     AVERAGE
                                                        OPTIONS     EXERCISE      FAIR
                                                        GRANTED      PRICE       VALUE
                                                       ---------    --------    --------
<S>                                                    <C>          <C>         <C>
1999:
Options granted at market value......................  1,366,921     $1.09       $1.01
2000:
Options granted at market value......................    362,811     $0.68       $0.62
2001:
Options granted at market value......................    540,260     $0.17       $0.13
</Table>

     The following table summarizes information regarding options outstanding at
December 31, 2001 under all of the Company's option plans:

<Table>
<Caption>
                                                OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                        ------------------------------------   -----------------------
                                                       WEIGHTED
                                                        AVERAGE                              WEIGHTED
                                                       REMAINING    WEIGHTED                  AVERAGE
RANGE OF                                              CONTRACTUAL   AVERAGE                  EXERCISE
EXERCISE                                  NUMBER         LIFE       EXERCISE     NUMBER        PRICE
PRICES                                  OUTSTANDING    IN YEARS      PRICE     EXERCISABLE   PER SHARE
--------                                -----------   -----------   --------   -----------   ---------
<S>                                     <C>           <C>           <C>        <C>           <C>
$0.15-$ 0.30..........................     435,400       9.03        $0.19        31,752       $0.22
$0.38-$ 0.38..........................     258,778       7.82        $0.38       173,740       $0.38
$0.59-$ 1.06..........................     357,235       8.15        $0.92       137,882       $0.89
$1.19-$ 1.44..........................     326,825       6.86        $1.26       204,545       $1.31
$1.63-$12.63..........................     153,551       6.59        $3.64        93,669       $4.32
                                         ---------       ----        -----       -------       -----
          Total.......................   1,531,789                   $0.97       641,588       $1.35
                                         =========                   =====       =======       =====
</Table>

     If the Company had recorded compensation cost based upon the fair value at
the grant date for awards under these plans, consistent with SFAS 123, the
Company's net income (loss) and net income (loss) per share would be the pro
forma amounts indicated below:

<Table>
<Caption>
                                                         2001       2000       1999
                                                        -------    ------    --------
<S>                                                     <C>        <C>       <C>
Net income (loss) as reported.........................  $(1,383)   $  157    $(18,481)
Net loss pro forma....................................  $(1,387)   $ (293)   $(19,063)
Income (loss) per share as reported -- basic and
  diluted.............................................  $ (0.08)   $ 0.01    $  (1.06)
Loss per share pro forma -- basic and diluted.........  $ (0.08)   $(0.02)   $  (1.09)
</Table>

     The fair value of each option grant is estimated on the date of the grant
using the Black-Sholes option pricing model. Assumptions used in 2001, 2000 and
1999 include: risk free interest rate of 5.08%, 6.34% and 5.59%, average
expected lives of 7.91, 3.00 and 5.00 years, a 0% dividend yield rate for all
the years presented, and expected volatility of 1.04, 1.60 and 1.61,
respectively. In accordance with SFAS 123, the fair value method of accounting
has not been applied to options granted prior to January 1, 1995. Therefore, the
resulting pro forma impact may not be representative of that to be expected in
future years.

     At December 31, 2001, the Company has reserved 1,531,789 shares of common
stock for options outstanding under its 1992 Plan, Incentive Plan, and Director
Plan, and 93,773 shares of common stock for exercisable warrants. In addition to
the outstanding options, the Company has reserved 534,002 shares of common stock
at December 31, 2001 for future grants under its Incentive Plan and Director
Plan.

                                        35
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE L -- EMPLOYEE BENEFIT PLAN

     The Company maintains a 401(k) Savings Plan (the "Plan"). Employees are
eligible to participate in the Plan upon completion of one month of service with
the Company. Eligible employees may contribute up to 15% of their annual
compensation to the Plan on a pre-tax basis. Participant contributions to the
Plan are immediately vested. In addition, under the terms of the Plan, the
Company, at its discretion, may match all or a portion of participant's
contribution to the Plan up to 6% of the participant's compensation. The
Company's matching contribution is made on a monthly basis. Participants become
vested in Company matching contributions to the Plan over a five-year period.
The expense under this Plan was $20, $72 and $57 for 2001, 2000 and 1999,
respectively.

NOTE M -- GAIN CONTINGENCY

     During 2001 the Company filed suit against one of its third-party resellers
for software license fees and maintenance service revenue the Company believes
the reseller did not report and pay to the Company in accordance with their
contractual agreement. The Company believes that its reseller owes $1,846 in
license fees, license renewal fees, maintenance fees and interest as part of the
contract. At December 31, 2001, the suite had been submitted to binding
arbitration. The Company believes it is due all amounts indicated above but due
to the nature of arbitration hearings, the Company has not recorded any amount
associated with this receivable. The Company will record a receivable and
revenue for the amount awarded upon the completion of the arbitration.

NOTE N -- COMMITMENTS AND CONTINGENCIES

     The Company leases space in several buildings which it uses for offices and
development facilities, as well as various equipment and vehicles, all subject
to operating leases. As of December 31, 2001, the minimum annual rental payments
under the terms of such noncancellable leases which expire at various dates are
as follows:

<Table>
<S>                                                           <C>
2002........................................................  $326
2003........................................................   228
2004........................................................    96
                                                              ----
          Total.............................................  $650
                                                              ====
</Table>

     Rent expense for the years ended December 31, 2001, 2000 and 1999 amounted
to $462, $342 and $1,017, respectively.

     From time to time, the Company is a party to various disputes and
proceedings arising from the ordinary course of general business activities. In
the opinion of management, resolution of these matters is not expected to have a
material adverse effect on the results of operations of the Company. However,
depending on the amount and the timing, an unfavorable resolution of some or all
these matters could materially affect the Company's future results of operations
or cash flows in a particular period.

NOTE O -- RESTRUCTURING

     On February 26, 1999, management, with the approval of the board of
directors, took certain actions to reduce employee headcount in order to align
its sales, development and administrative organization with the current overall
organization structure, and to position the Company for profitable growth in the
future consistent with management's long-term objectives. In this regard, the
primary actions taken included involuntary terminations of selected personnel.
Severance packages were offered to 66 employees. This reduction in headcount
also led to the Company having excess leased facility space. In addition, during
the

                                        36
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

third quarter of 1999, the Company took additional actions to reduce employee
headcount. This action also included involuntary terminations of selected
personnel. Severance packages were offered to 18 employees.

     As a result of both of these actions, the Company recorded a charge to
operations during the three month periods ended March 31, 1999 and September 30,
1999 of $1,896 and $125, respectively. Of the total amount of these charges,
$1,855 was related to severance costs, of which $1,258 was paid prior to
December 31, 1999, and $166 related to costs of idle facility space, of which
all of these amounts were paid during the year ended December 31, 1999.
Additionally, during the third quarter of 1999, one of the Company's former
employees, who was terminated earlier in the year, obtained employment elsewhere
and the Company was no longer obligated to make payments totaling $196. As such,
the Company reversed this accrued liability during the three months ended
September 30, 1999.

     At December 31, 2000, there remained $27 of severance costs, which were
paid in installments through February 2001. The Company believes that these
actions resulted in sustainable cost savings, primarily through the elimination
of redundant functions in product development, due to completion of development
work on FlexiFinancials Release 4, and to a lesser extent in the support and
sales organizations.

     Details of the restructuring charge is as follows:

<Table>
<Caption>
                                                             SEVERANCE      EXCESS
                                                            & BENEFITS    FACILITIES   TOTAL
                                                            -----------   ----------   ------
<S>                                                         <C>           <C>          <C>
Initial accruals, February 26, 1999.......................    $1,730         $166      $1,896
  Additional charge September 30, 1999....................       125            0         125
  Change in estimate of severance costs September 30,
     1999.................................................      (196)           0        (196)
  Cash payments...........................................    (1,258)        (166)     (1,424)
                                                              ------         ----      ------
  Reserve balances, December 31, 1999.....................       401            0         401
  Cash payments...........................................      (374)           0        (374)
                                                              ------         ----      ------
  Reserve balances, December 31, 2000.....................        27            0          27
  Cash payments...........................................       (27)                     (27)
                                                              ------         ----      ------
  Reserve balances, December 31, 2001.....................    $    0         $  0      $    0
                                                              ======         ====      ======
</Table>

NOTE P -- BUSINESS PLAN

     Throughout 2001 the Company focused its efforts on further reductions of
operating expenses, through salary and employee reductions, enhancing its
relationships with current business partners, resolving preexisting disputes and
marketing its financial management services solution, a business process
outsourcing service. The Company has limited its investment of capital to
maintaining and enhancing its products to remain competitive in the marketplace,
focusing its direct sales force on its current customer base and expanding its
third-party vendors. The Company has continued to update its products to remain
competitive. The Company resolved a major dispute with a former customer and is
finalizing a sales tax audit with the State of Connecticut. The Company is also
pursuing an arbitration settlement with one of its third-party vendors for
software license fees and maintenance service revenue which the Company believes
the reseller did not properly report and pay to the Company.

     While the Company is funding its operations internally, it entered into
formal agreement with one of its vendors to convert additional accounts payable
to a longer-term note payable (see Note H). Additionally, the Company
restructured its existing master lease with its lease vendor (see Note I). The
Company is continually updating its business plan to identify areas to improve
cash flow in order to meet its operating cash needs for at least the next twelve
months to establish the customer base to generate a sustainable revenue stream.

                                        37
<PAGE>
                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE Q -- SELECTED QUARTERLY INFORMATION (UNAUDITED)

     The following tables set forth certain unaudited quarterly data for each of
the four quarters in the years ended December 31, 2001 and 2000. The data has
been derived from the Company's unaudited consolidated financial statements
that, in management's opinion, include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of such information
when read in conjunction with the Consolidated Financial Statements and Notes
thereto. The results of operations for any quarter are not necessarily
indicative of the results of operations for any future period.

<Table>
<Caption>
                                                           FIRST     SECOND      THIRD     FOURTH
YEAR ENDED DECEMBER 31,                                   QUARTER    QUARTER    QUARTER    QUARTER
-----------------------                                   -------    -------    -------    -------
<S>                                                       <C>        <C>        <C>        <C>
2001
Total revenue...........................................  $3,154     $2,279     $1,858     $2,224
Gross profit............................................   2,267      1,777        996      1,483
Net income (loss).......................................      97         29     (1,687)       178
Income (loss) per share(1)..............................    0.01       0.00      (0.10)      0.01
2000
Total revenue...........................................  $3,627     $2,897     $2,802     $3,110
Gross profit............................................   2,279      1,829      1,925      1,811
Net income..............................................      17         18         51         71
Income per share(1).....................................    0.00       0.00       0.00       0.00
1999
Total revenue...........................................  $3,988     $3,936     $3,575     $4,056
Gross profit............................................   1,319      1,868      1,915      2,376
Net loss................................................  (7,899)    (7,952)    (2,023)      (606)
Loss per share(1).......................................   (0.46)     (0.46)     (0.12)     (0.03)
</Table>

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

(1) Quarterly income (loss) per share may not equal the annual reported amounts.

                                        38
<PAGE>

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

Board of Directors and Stockholders of
FlexiInternational Software, Inc.

     We have audited the consolidated financial statements of FlexiInternational
Software, Inc. and subsidiary ("the Company") as of December 31, 2001 and for
the year then ended, and have issued our report thereon dated February 20, 2002;
such financial statements and report are included in the 2001 Annual Report to
Stockholders and are included herein. Our audit also included the financial
statement schedule of FlexiInternational Software, Inc. and subsidiary listed in
Item 14. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

Hill, Barth & King LLP
Certified Public Accounts

Naples, Florida
February 20, 2002

                                        39
<PAGE>

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

Board of Directors of
FlexiInternational Software, Inc.

     We have audited the consolidated financial statements of FlexiInternational
Software, Inc. and subsidiary as of December 31, 2000 and 1999 and for the years
then ended, and have issued our report thereon dated February 27, 2001; such
financial statements and report are included in your 2001 Annual Report to
Stockholders and are included herein. Our audits also included the financial
statement schedule of FlexiInternational Software, Inc. and subsidiary listed in
Item 14. This financial statement schedule is the responsibility of the
Corporations' management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

Deloitte & Touche LLP

Hartford, Connecticut
February 27, 2001

                                        40
<PAGE>

                       FLEXIINTERNATIONAL SOFTWARE, INC.

               SCHEDULE II -- VALUATION AND QUALIFYING ACCCOUNTS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                CHARGED TO
                                                               (CREDIT FROM)
                                               BALANCE AT        COSTS AND                     BALANCE AT
               DESCRIPTION                  JANUARY 1, 2001      EXPENSES      DEDUCTIONS   DECEMBER 31, 2001
               -----------                  ----------------   -------------   ----------   -----------------
<S>                                         <C>                <C>             <C>          <C>
Allowance for doubtful accounts...........      $   352           $ (310)       $   (20)         $    22
Valuation allowance for deferred tax
  asset...................................      $23,560           $  940        $    --          $24,500
</Table>

<Table>
<Caption>
                                                                CHARGED TO
                                                               (CREDIT FROM)
                                               BALANCE AT        COSTS AND                     BALANCE AT
               DESCRIPTION                  JANUARY 1, 2001      EXPENSES      DEDUCTIONS   DECEMBER 31, 2001
               -----------                  ----------------   -------------   ----------   -----------------
<S>                                         <C>                <C>             <C>          <C>
Allowance for doubtful accounts...........      $   843           $  299        $  (790)         $   352
Valuation allowance for deferred tax
  asset...................................      $22,601           $  959        $    --          $23,560
</Table>

<Table>
<Caption>
                                                                CHARGED TO
                                                               (CREDIT FROM)
                                               BALANCE AT        COSTS AND                     BALANCE AT
               DESCRIPTION                  JANUARY 1, 2001      EXPENSES      DEDUCTIONS   DECEMBER 31, 2001
               -----------                  ----------------   -------------   ----------   -----------------
<S>                                         <C>                <C>             <C>          <C>
Allowance for doubtful accounts...........      $   812           $1,643        $(1,612)         $   843
Valuation allowance for deferred tax
  asset...................................      $16,156           $6,445        $    --          $22,601
</Table>

                                        41
<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     The information required by Item 304 of Regulation S-K was previously
reported in a Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 21, 2001

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     See "Executive Officers of the Registrant" in Part I of this Annual Report
on Form 10-K. The information required by Items 401 and 405 of Regulation S-K
and appearing in Flexi's definitive Proxy Statement for the 2002 Annual Meeting
of Stockholders to be held on Friday, May 24, 2002, which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
2001, is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by Item 402 of Regulation S-K and appearing in
Flexi's definitive Proxy Statement for the 2002 Annual Meeting of Stockholders
to be held on Friday, May 24, 2002, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2001, is
incorporated herein by reference. The information specified in Item 402(k) and
(l) of Regulation S-K and set forth in the Proxy Statement is not incorporated
herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by Item 403 of Regulation S-K and appearing in
Flexi's definitive Proxy Statement for the 2002 Annual Meeting of Stockholders
to be held on Friday, May 24, 2002, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2001, is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 404 of Regulation S-K and appearing in
Flexi's definitive Proxy Statement for the 2002 Annual Meeting of Stockholders
to be held on Friday, May 24, 2002, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2001, is
incorporated herein by reference.

                                        42
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

     (a)(1) Financial Statements

     The consolidated financial statements filed as a part of this Annual Report
on Form 10-K are listed in the Index to Consolidated Financial Statements under
Item 8, which Index to Consolidated financial Statements is incorporated herein
by reference.

     (a)(2) Financial Statement Schedule

     The Schedule of Variation and Qualifying Accounts appears on page S-I of
this Annual Report on Form 10-K. Schedules other than those listed above are
omitted because they are either not required or not applicable.

     (a)(3) Exhibits

     The Exhibits filed as a part of this Annual Report on Form 10-K are listed
in the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference. Documents listed on such Exhibit Index, except
for documents identified by footnotes, are being filed herewith and, pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, reference is made to such
documents as previously filed as exhibits with the Securities and Exchange
Commission.

     (b) Reports on Form 8-K

     The Company filed a Current Report on Form 8-K on December 21, 2001, in
connection with the termination of its prior independent accountants and the
subsequent engagement of new independent accountants.

                                        43
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report and Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

                                          FLEXIINTERNATIONAL SOFTWARE, INC.

                                          By: /s/ STEFAN R. BOTHE
                                            ------------------------------------
                                            Stefan R. Bothe
                                            Chairman of the Board, Chief
                                            Executive
                                            Officer and President
Date: March 28, 2002

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report and Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<S>                                                    <C>                              <C>

/s/ STEFAN R. BOTHE                                    Chairman of the Board, and       March 28, 2002
-----------------------------------------------------  Chief Executive Officer and
Stefan R. Bothe                                        President (Principal Executive
                                                       Officer and Accounting Officer)

/s/ JENNIFER V. CHENG                                  Director                         March 28, 2002
-----------------------------------------------------
Jennifer V. Cheng

/s/ A. DAVID TORY                                      Director                         March 28, 2002
-----------------------------------------------------
A. David Tory

/s/ ROBERT A. DEGAN                                    Director                         March 28, 2002
-----------------------------------------------------
Robert A. Degan
</Table>

                                        44
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
  NO.                        DESCRIPTION OF EXHIBITS
--------                     -----------------------
<S>        <C>
2.1(3)     Agreement and Plan of Merger dated June 24, 1998 among the
           Registrant, Princess Acquisition Corporation and The Dodge
           Group, Inc.
3.1(1)     Amended and Restated Certificate of Incorporation
3.2(1)     Amended and Restated By-Laws
4.1(1)     Specimen Common Stock Certificate
10.1(1)+   1992 Stock Option Plan, as amended
10.2(7)+   1997 Stock Incentive Plan, including forms of incentive and
           nonstatutory stock option agreements
10.3(1)+   1997 Director Stock Option Plan, including form of option
           agreement
10.4(5)+   1997 Employee Stock Purchase Plan, as amended
10.5(1)    Registration Rights Agreement dated May 7, 1996, as amended,
           among the Registrant and the Purchasers (as defined therein)
10.6(1)    Series C Preferred Stock Purchase Agreement dated May 7,
           1996 among the Registrant and the Purchasers (as defined
           therein)
10.7(1)    Warrant Agreement dated June 28, 1994 held by CDC Realty,
           Inc.
10.8(1)    Warrant Agreement dated July 25, 1995 issued to Comdisco,
           Inc.
10.9(1)    Warrant Agreement dated July 25, 1995 issued to Comdisco,
           Inc.
10.10(1)   Warrant Agreement dated December 10, 1996 issued to
           Comdisco, Inc.
10.11(1)   Standard Sublease Agreement dated February 7, 1996 between
           the Registrant and Symantec Corporation
10.12(1)   Stockholders' Voting Agreement dated May 7, 1996 among the
           Registrant and the Stockholders (as defined therein)
10.13(1)   Participation Agreement dated May 7, 1996 among the
           Registrant and the Purchasers (as defined therein)
10.14(3)+  Severance and Settlement Agreement and Release dated
           February 2, 1999 between the Registrant and Jennifer V.
           Cheng
10.15(3)+  Amendment of Options dated May 12, 1999 between the
           Registrant and Jennifer V. Cheng
10.16(4)   Lease Agreement, dated February 21, 2000, by and between the
           Company and Sommer Holdings, Ltd.
10.17      Loan Agreement and Convertible Promissory Note, dated as of
           January 31, 2001, by and between the Company and Core3, Inc.
16.1(6)    Letter regarding change in certifying accountant
21.1(4)    Schedule of Subsidiaries
23.1       Consent of Hill, Barth & King, LLP, independent accountants
23.2       Consent of Deloitte & Touche LLP, independent accountants
</Table>

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

(1) Incorporated herein by reference to the Company's registration statement on
    Form S-1 (File No. 333-38403).
(2) Incorporated herein by reference to the Company's annual report on Form 10-K
    for the year ended December 31, 1997.
(3) Incorporated herein by reference to the Company's current report on Form
    8-K, dated June 29, 1998.
(4) Incorporated herein by reference to the Company's annual report on Form 10-K
    for the year ended December 31, 2000.
(5) Incorporated herein by reference to the Company's registration statement on
    Form S-8 filed on February 21, 2002 (File No. 333-83146).
(6) Incorporated herein by reference to the Company's current report on Form
    8-K, dated December 21, 2001.
(7) Incorporated by reference to the Company's 2001 definitive Proxy Statement,
    dated April 11, 2001.
 +  Management contract or compensation plan or arrangement required to be filed
    as an exhibit pursuant to Items 14(a) and 14(c) of Form 10-K.

                                        45