SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                   FOR ANNUAL AND TRANSITION REPORTS PURSUANT
          TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(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, 2002

                                       OR

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

       For the transition period from  _______ to _______

                        Commission File Number: 000-23453

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

            Delaware                                    06-1309427
  (State or Other Jurisdiction              (I.R.S. Employer Identification No.)
of Incorporation or Organization)

  Two Enterprise Drive, Shelton, CT                        06484
(Address of Principal Executive Offices)                (Zip Code)

       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]

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


<PAGE>


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,  2003 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,  2003,  Registrant  had  17,784,185  shares  of  Common  Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement for the  Registrant's  2003 Annual Meeting
of Stockholders to be held on Friday,  May 16, 2003 (the "2003 Proxy Statement")
which will be filed with the  Securities  and Exchange  Commission no later than
120 days after December 31, 2002, are  incorporated  by reference in Part III of
this Report on Form 10-K.  With the  exception of the portions of the 2003 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.  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 on Form 10-K for
the year ended  December  31, 2002 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
                               2002 ANNUAL REPORT

                               Table of Contents

PART I.                                                                     Page
-------                                                                     ----

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

PART II.
--------

Item 5.  Market for Company's Common Equity and Related Stockholder Matters.  6
Item 6.  Selected Consolidated Financial Data...............................  7
Item 7.  Management's Discussion and Analysis of Financial Condition and
            Results of Operations...........................................  8
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.......... 19
Item 8.  Financial Statements and Supplementary Data........................ 19
Item 9.  Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure............................................ 44

PART III.
--------

Item 10. Directors and Executive Officers of the Company.................... 44
Item 11. Executive Compensation............................................. 44
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 44
Item 13. Certain Relationships and Related Transactions..................... 44
Item 14. Controls and Procedures............................................ 44

PART IV.
--------

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 45
         Signatures......................................................... 46
         Exhibit Index...................................................... 48

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  FlexiFinancial  Enterprise
Suite of financial and accounting  software  applications and related 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 sell our software for use in traditional  in-house  accounting
operations as well as through our  accounting  outsourcing  service to companies
desiring to outsource their back office accounting processes.

      Our Financial  Management  Services  solution,  or FMS, a business process
outsourcing  (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 to expand regional
coverage rapidly,  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  handle the complete BPO service while others handle
the client relationship and Flexi will handle the hosting and accounting aspects
of the service. In 2001, we 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 continue to grow. However, we believe the full
acceptance of this solution is still several years away.

      We derive our revenue primarily from:

      o  noncancellable software license agreements entered into with respect to
         our products;

      o  royalties paid to us from third parties that distribute our products;

      o  to a lesser extent, third-party products distributed by us; and

      o  annual software maintenance agreements entered into with our customers.

      Our revenues have been derived from both domestic sales and  international
sales, with the international sales comprising 20.4% and 19.2% of total revenues
for 2002 and 2001, respectively. The international sales generally have the same
revenue  and  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
for certain countries,  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."

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,  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 "FlexiFDW"; and


                                       1
<PAGE>


         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, can be
licensed  separately  for use on a  stand-alone  basis or for  integration  with
products  from  third-party  vendors,  or can be 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

        o   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.

        o   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.

        o   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  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.

        o   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.

        o   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.

        o   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 FDW

      The ability to produce in-depth  management reports on the various aspects
of  a  business  is  crucial.  FlexiFDW  is  a  high-performance  financial  and
operational tool for performing analysis with  multi-dimensional  roll-ups,  and
drill-down and multi-

                                       2
<PAGE>


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  "FlexiFRE" 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 an  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.

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

        o   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.

        o   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.

        o   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 its 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.

                                       3
<PAGE>


      During the years ended  December 31, 2002,  2001,  and 2000, the Company's
international  revenues were  approximately  20.4%,  19.2%,  and 18.9%, 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, 2002,  2001,
and 2000, two customers represented 10% or more of the Company's total revenues,
or an aggregate of 34.2%, 40.6%, and 38.2% 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, 2002 were Citigroup and McKesson Information Services.

Employees

      As of December 31, 2002, the Company had 40 employees, 29 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 2008.  In  addition,  Flexi  maintains  approximately  2,700 square feet of
leased  office  space in Bonita  Springs,  Florida,  under a lease  expiring  in
December  2003 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). The Company is continuing to negotiate with McKesson and expects
a final settlement agreement in the first half of 2003.

      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, 2002 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 2003:

                                       4
<PAGE>



Name                    Age                          Position
----                    ---                          --------

Stefan R. Bothe          54                    Chairman of the Board,
                                   Chief Executive Officer, President and Acting
                                              Chief Financial Officer

Dmitry G. Trudov         30                 Chief Technology Officer and
                                        Vice President, Software Development

Maureen M. Okerstrom     41                  Vice President, USA Sales


      Mr. Bothe has served as Chairman of the Board and Chief Executive  Officer
of the  Company  since March 1993 and has been Acting  Chief  Financial  Officer
since August 2001.  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.

      Ms. Okerstrom has served as Vice President,  USA Sales since January 2003.
She rejoined Flexi in June 2002 as Sales Manager. She is responsible for Flexi's
direct sales, partnership programs and BPO efforts. Ms. Okerstrom previously was
with  Flexi from  August  1994 to  February  1999 in  various  sales  management
positions.  From  February  1999 to June  2002  she held  the  position  of Vice
President Sales of Alerio  Corporation and then Vice President,  Sales of Adivio
Corporation, a spin-off of Alerio Corporation. Ms. Okerstrom has also held sales
positions and sales management positions at IBM and Platinum Software.

      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:

      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

      Fiscal Year ended December 31, 2002(1)
      --------------------------------------
                                                       High               Low
                                                       ----               ---

      First Quarter...........................         $0.09             $0.06
      Second Quarter..........................         $0.10             $0.06
      Third Quarter...........................         $0.09             $0.05
      Fourth Quarter..........................         $0.09             $0.05

-----------

(1)   The high and low prices 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, 2003,  the  approximate  number of holders of record of the
Company's Common Stock was 139. 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.

<TABLE>
                                           Equity Compensation Plan Information

<CAPTION>
                                              (a)                            (b)                               (c)
                                                                                                       Number of securities
                                                                                                  remaining available for future
                                  Number of securities to be                                          issuance  under equity
                                    issued upon exercise of         Weighted-average exercise      compensation plans (excluding
                                 outstanding options, warrants    price of outstanding options,   securities reflected in column
                                          and rights                   warrants and rights                      (a))
<S>                                        <C>                                <C>                            <C>
  Equity compensation plans
 approved by security holders              1,305,435                          $0.95                          2,375,000

Equity compensation plans not
 approved by security holders                 --                               --                               --
</TABLE>


                                       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, 2002, 2001, 2000, 1999, and 1998, and for the years then ended, are
derived from the consolidated  financial statements of Flexi, which for 2002 and
2001 have been audited by Hill, Barth & King, LLC, for 2000 and 1999 by Deloitte
& Touche LLP, and for 1998 by PricewaterhouseCoopers  LLP, independent certified
public accountants.

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                        -------------------------------------------------------
                                                         2002        2001        2000        1999        1998
                                                       --------    --------    --------    --------    --------
                                                                 (in thousands, except per share data)
<S>                                                    <C>         <C>         <C>         <C>         <C>
Statement of Operations Data:
Revenues
       Software license ............................   $    839    $  2,917    $  4,112    $  3,385    $ 10,542
       Service and maintenance .....................      6,119       6,598       8,324      12,169      13,754
       Other operating revenue .....................        500        --          --          --          --
                                                       --------    --------    --------    --------    --------
                        Total revenues .............      7,458       9,515      12,436      15,554      24,296
                                                       --------    --------    --------    --------    --------
Cost of revenues:
       Software license ............................        155         684         636         586       1,757
       Service maintenance .........................      1,953       2,308       3,956       7,491      10,584
                                                       --------    --------    --------    --------    --------
                        Total cost of revenues .....      2,108       2,992       4,592       8,077      12,341
                                                       --------    --------    --------    --------    --------
                        Gross Profit ...............      5,350       6,523       7,844       7,477      11,955
                                                       --------    --------    --------    --------    --------
Operating expenses:
       Sales and marketing .........................      1,591       2,552       1,632       5,919      11,233
       Product development .........................      1,439       1,616       2,689       6,887      10,752
       General and administrative ..................      1,379       2,847       3,365       7,153       6,191
       Goodwill impairment .........................       --           862        --         4,224        --
       Restructuring charge ........................       --          --          --         1,824        --
       Acquired in-process research and  development       --          --          --          --         1,890
                                                       --------    --------    --------    --------    --------
                        Total operating expenses ...      4,409       7,877       7,686      26,007      30,066
                                                       --------    --------    --------    --------    --------
Operating income (loss) ............................        941      (1,354)        158     (18,530)    (18,111)
Net interest income (expense)
                                                            (27)        (29)         (1)         49         880
                                                       --------    --------    --------    --------    --------
Income (loss) before income taxes ..................        914      (1,383)        157     (18,481)    (17,231)
Income tax benefit .................................       (330)       --          --          --          --
                                                       --------    --------    --------    --------    --------
Net income (loss) ..................................   $  1,244    $ (1,383)   $    157    $(18,481)   $(17,231)
                                                       ========    ========    ========    ========    ========
Income (loss) per share:
       Basic .......................................       0.07      ($0.08)   $   0.01      ($1.06)     ($1.02)
                                                       ========    ========    ========    ========    ========
       Diluted .....................................       0.07      ($0.08)   $   0.01      ($1.06)     ($1.02)
                                                       ========    ========    ========    ========    ========
Weighted average shares:
              Basic ................................     17,784      17,713      17,669      17,414      16,938
              Diluted ..............................     17,784      17,713      17,669      17,414      16,938
</TABLE>

                                       7
<PAGE>


<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                        -------------------------------------------------------
                                                         2002        2001        2000        1999        1998
                                                       --------    --------    --------    --------    --------
                                                                 (in thousands, except per share data)

<S>                                                    <C>         <C>         <C>         <C>         <C>
Balance Sheet Data:
Cash and cash equivalents...........................   $    892    $    600    $  1,389    $  1,874    $  7,876
Marketable securities...............................        --          --          108(1)     --         3,000
Working capital (deficit)...........................     (1,952)     (2,648)     (3,304)     (5,197)      7,497
Total assets........................................      3,141       3,411       6,623      12,072      32,911
Stockholders' equity (deficit)......................     (1,677)     (2,887)     (1,515)     (1,918)     16,614
</TABLE>

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

    (1) Marketable securities are restricted.

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 "Certain Factors that May Affect Future
Operating Results"  commencing on page 14, as well as those otherwise  discussed
in this section and elsewhere in this Annual Report on Form 10-K.

Overview

      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  FlexiFinancial  Enterprise
Suite of financial and accounting  software  applications and related 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 sell our software for use in traditional  in-house  accounting
operations as well as through our  accounting  outsourcing  service to companies
desiring to outsource their back office accounting processes.

      Our Financial  Management  Services  solution,  or FMS, a business process
outsourcing  (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 to expand regional
coverage rapidly,  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.  In 2001, we 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  continue  to grow.  However,  we
believe the full acceptance of this solution is still several years away.

      We derive our revenue primarily from:

    o   noncancellable  software license agreements entered into with respect to
        our products;

    o   royalties paid to us from third parties that distribute our products;

    o   to a lesser extent, third-party products distributed by us; and

    o   annual software maintenance agreements entered into with our customers.


                                       8
<PAGE>


      Our revenues have been derived from both domestic sales and  international
sales, with the international sales comprising 20.4% and 19.2% of total revenues
for 2002 and 2001, respectively. The international sales generally have the same
revenue  and  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 products  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
for certain countries,  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."

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:

        o   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.

        o   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.

        o   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.

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

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

        o   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.

                                                   Years Ended December 31,
                                               -------------------------------
                                                2002         2001         2000
                                               ------       ------       -----
Statement of Operations Data:
Revenues
        Software License .............          11.2%        30.7%       33.1%
        Service and maintenance ......          82.1%        69.3%       66.9%
        Other operating revenue ......           6.7%         --          --
                                               ------       ------      ------
              Total revenues .........         100.0%       100.0%      100.0%
                                               ------       ------      ------
Cost of revenues:
        Software license .............           2.1%         7.2%        5.1%
        Service maintenance ..........          26.2%        24.2%       31.8%
                                               ------       ------      ------
              Total cost of revenues .          28.3%        31.4%       36.9%
                                               ------       ------      ------
              Gross Profit ...........          71.7%        68.6%       63.1%
                                               ------       ------      ------
Operating expenses:
        Sales and marketing ..........          21.3%        26.8%       13.1%
        Product development ..........          19.3%        17.0%       21.6%
        General and administrative ...          18.4%        29.9%       27.1%
        Goodwill impairment ..........           --           9.1%        --
                                               ------       ------      ------
              Total operating expenses          59.0%        82.8%       61.8%
                                               ------       ------      ------
Operating income (loss) ..............          12.7%       (14.2%)       1.3%
Net interest income (expense) ........           (.4%)        (.3%)       --
                                               ------       ------      ------
Income (loss) before income taxes ....          12.3%       (14.5%)       1.3%
Income tax benefit ...................          (4.4%)        --          --
                                               ------       ------      ------
Net income (loss) ....................          16.7%       (14.5%)       1.3%
                                               ======       ======      ======

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

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

      Revenues.  Total  revenues,  consisting of software  license  revenues and
service and maintenance  revenues,  decreased  21.6%,  from $9.5 million for the
year ended  December  31, 2001 to $7.5  million for the year ended  December 31,
2002.  Domestic  revenues,  those derived from sales in the U.S. decreased 22.8%
from $7.7  million for the year ended  December 31, 2001 to $5.9 million for the
year ended December 31, 2002.  International revenues,  those derived from sales
outside  of the U.S.,  decreased  16.8%  from $1.8  million  for the year  ended
December 31, 2001 to $1.5 million for the year ended December 31, 2002.

      Software license revenues  decreased 71.2%, from $2.9 million for the year
ended  December 31, 2001 to $0.8  million for the year ended  December 31, 2002.
The decrease is primarily due to a significant  reduction in royalties  from our
resellers and lack of new license activity with respect to our products.

      Service and maintenance revenues decreased 7.3%, from $6.6 million for the
year ended  December  31, 2001 to $6.1  million for the year ended  December 31,
2002. The decrease was  attributable  primarily to lower service  revenue due to
fewer active implementations of our products in 2002.

      Other  operating  revenue for the year ended December 31, 2002 is $500,000
from the sale of our rights to the URL dodge.com in the first quarter.  This was
a one-time sale.

      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

                                       10
<PAGE>


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  decreased 77.3%,  from $684,000 for the
year ended  December 31, 2001 to $155,000 for the year ended  December 31, 2002.
Cost of software  license  revenues as a percentage of software license revenues
decreased  from 23.4% for the year ended December 31, 2001 to 18.5% for the year
ended  December  31,  2002.  The  decrease  in cost of  revenues  in dollars was
primarily due to a decrease in new software  activations  requiring  third-party
software products distributed by the Company. 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  15.4%,  from $2.3
million for the year ended  December 31, 2001 to $2.0 million for the year ended
December 31, 2002.  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 35.0% for the year ended December 31, 2001 to 32.0% for
the year ended December 31, 2002, 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 37.7%,  from $2.6 million for the year ended December 31, 2001 to $1.6
million for the year ended  December 31, 2002. The decrease in dollar amount was
primarily  attributable to decreased  staffing levels in the sales and marketing
organization to a level consistent with anticipated  revenue  generation.  Sales
and marketing  expenses as a percentage of total  revenues  decreased from 26.8%
for the year ended  December  31, 2001 to 21.3% for the year ended  December 31,
2002. This decrease was primarily due to the aforementioned staff decreases.

      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 11.0%, from $1.6 million for the
year ended  December  31, 2001 to $1.4  million for the year ended  December 31,
2002. Product  development  expenses as a percentage of total revenues increased
from  17.0% for the year  ended  December  31,  2001 to 19.3% for the year ended
December  31,  2002.  This  decrease  in  product  development  expense  was due
primarily to maintaining a "standard level" of product development staffing with
decreasing revenue. 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 51.7%, from
$2.8  million for the year ended  December 31, 2001 to $1.4 million for the year
ended December 31, 2002 due to reductions in  administrative  staffing.  General
and  administrative  expenses as a percentage of total  revenues  decreased from
29.9% for the year ended  December 31, 2001 to 18.4% for the year ended December
31, 2002.

      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  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  and  cash  equivalents.  Net  interest  expense
decreased  slightly from $29,000 for the year ended December 31, 2001 to $27,000
for the year ended December 31, 2002 and represents  interest expense on capital
equipment leases less interest income on investable cash balances.


                                       11
<PAGE>


      Income Taxes.  Due to a strong net income for the year ended  December 31,
2002,  Flexi  recaptured  $330,000 of previously  recorded  valuation  allowance
against  deferred  income taxes.  No provision or benefit for federal,  state or
foreign  income  taxes was made for the year ended  December 31, 2001 due to the
operating  losses  incurred in the period.  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, 2002 were $28.3 million, consisting primarily of net operating loss
carryforwards. The Company's benefit of deferred tax assets has been reserved as
of  December  31,  2002 in the  amount of $28.0  million 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, 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
software  resellers  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 year 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.  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 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  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).


                                       12
<PAGE>


      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  decrease  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.

      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  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 interest  earned on 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 $29.3  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.

Liquidity and Capital Resources


                                       13
<PAGE>


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

      For the past  three  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  approximately  64% of the cash  resources of the
Company for fiscal 2002 and are expected to average  $246,000 per month in 2003.
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 notified in 2002
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 negatively  impacted Flexi's  maintenance  revenues by
$142,000 in 2002 and could negatively impact maintenance revenues by $995,000 in
2003.

      As of December  31,  2002,  the Company had cash and cash  equivalents  of
$892,000,  an increase of $292,000 from December 31, 2001. The Company's working
capital  deficit at December  31, 2002 was $2.0  million,  compared to a working
capital deficit of $2.6 million at December 31, 2001.

      The  Company's  operating  activities  resulted in net cash inflow of $0.8
million for the year ended  December 31, 2002 which was mainly the result of the
net  income  from the sale of the  Internet  URL  www.Dodge.com.  The  Company's
investing  activities resulted in net cash outflows of $0.3 million for the year
ended December 31, 2002, which was primarily related to the purchase of property
and equipment. At December 31, 2002, the Company had no material commitments for
capital  expenditures.  During the year ended December 31, 2002, the Company had
net cash outflows from financing activities of $0.2 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  $89,000  per  month  for  fiscal  2003.  Flexi  also  has  an
arbitration  award of $331,000  against the Company which the Company has agreed
to pay over 24 months starting March 2003. 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
                                                            1 year       1-3 years   4-5 years     After 5
Contractual Obligations                       Total                                                 years
-----------------------                    ----------     ----------     ---------   ---------     --------
<S>                                        <C>            <C>            <C>          <C>          <C>
Facilities Obligation ..............       $    745.9     $    279.8     $  241.5     $  177.3     $   47.3
Capital Lease Obligation ...........            283.0          283.0          --           --           --
Operating Leases ...................             21.8           21.8          --           --           --
Other Obligations ..................          1,309.7          451.5        469.9        120.0        268.3
                                                                              --           --           --
                                           ----------     ----------     --------     --------     --------
Total Contractual Cash Obligations .       $  2,360.4     $  1,036.1     $  711.4     $  297.3     $  315.6
                                           ==========     ==========     ========     ========     ========
</TABLE>


      During the year ended December 31, 2002, the Company has not engaged in:

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

        o   trading activities in non-exchange traded contracts; or

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

Certain Factors that May Affect Future Operating Results


                                       14
<PAGE>


      Accumulated Deficit; Net Losses. The Company had an accumulated deficit of
$58.2 million at December 31, 2002 and a net income of $1.2 million for the year
ended  December  31, 2002,  incurred a net loss of $1.4 million  during 2001 and
earned net income of $0.2 million in 2000.  Since inception in 1990, the Company
has only been  profitable for all four quarters in 2002,  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, 2002,  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, 2002, 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 nearly full  valuation  allowance  for its  deferred tax
assets at December 31, 2002.

      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 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.

      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.


                                       15
<PAGE>


      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
requires 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 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.

                                       16
<PAGE>


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, 2002,  2001, and 2000, two customers
each represented 10% or more of the Company's total revenues (or an aggregate of
34.2%,   40.6%,   and  38.2%,   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  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

                                       17
<PAGE>


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  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  20.4%, 19.2%, and 18.9% of total
revenues during 2002, 2001, and 2000, 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,


                                       18
<PAGE>


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 the  Company's  financial  results and  conditions,
primarily  foreign  currency  exchange  rates.  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 will
have a material effect on its future earnings, fair values or cash flows.

Item 8.    Financial Statements And Supplementary Data

                        FlexiInternational Software, Inc.
                   Index to Consolidated Financial Statements

                                                                            Page
                                                                            ----
Independent Auditors' Report...............................................  20
Independent Auditors' Report...............................................  21
Consolidated Balance Sheets as of December 31, 2002 and 2001...............  22
Consolidated Statements of Operations for the years ended December
   31, 2002, 2001 and 2000.................................................  23
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 2002, 2001 and 2000.....................................  24
Consolidated Statements of Cash Flows for the years ended December 31,
   2002, 2001 and 2000.....................................................  25
Notes to Consolidated Financial Statements.................................  26
Independent Auditors' Report on Financial Statement Schedule...............  41
Independent Auditors' Report on Financial Statement Schedule...............  42
Schedule II - Valuation and Qualifying Accounts............................  43


                                       19

<PAGE>


INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders of
FlexiInternational Software, Inc.
Bonita Springs, Florida


      We  have  audited  the   accompanying   consolidated   balance  sheets  of
FlexiInternational  Software, Inc. and subsidiary (the "Company") as of December
31,  2002  and 2001  and the  related  consolidated  statements  of  operations,
stockholders'  equity (deficit),  and cash flows for the years then ended. These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We did not audit the  financial  statements of
FlexiInternational  Software  Limited as of and for the year ended  December 31,
2002. Such statements are included in the consolidated  financial  statements of
FlexiInternational   Software,   Inc.  and   subsidiary  and  represent  20%  of
consolidated  revenues  for the year ended  December  31,  2002.  The  financial
statements  for  FlexiInternational  Software  Limited  were  audited  by  other
auditors  whose report has been  furnished to us and our opinion,  insofar as it
relates to amounts for  FlexiInternational  Software Limited,  for 2002 is based
solely upon the report of the other auditors.

      We  conducted  our  audits  in  accordance  with U.S.  generally  accepted
auditing standards.  Those standards require that we plan and perform the audits
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 and the report of the other  auditors
for 2002 provide a reasonable basis for our opinion.

      In our opinion,  based on our audits and the report of the other  auditors
for 2002,  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, 2002 and
2001 and the consolidated  results of its operations and their consolidated cash
flows for the years  then  ended in  conformity  with  U.S.  generally  accepted
accounting principles.


/s/ HILL, BARTH & KING LLC

Hill, Barth & King LLC
Certified Public Accounts

Naples, Florida
January 22, 2003, except for Note N,
as to which the date is March 4, 2003


                                       20
<PAGE>


INDEPENDENT AUDITORS' REPORT

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


We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders' deficit, and cash flows of FlexiInternational  Software,  Inc. and
subsidiary  (the  "Company")  for  the  year  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 audit.

We conducted our audit 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  audit  provides  a
reasonable basis for our opinion.

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


/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP

Hartford, Connecticut
February 27, 2001


                                       21
<PAGE>

                FlexiInternational Software, Inc. and Subsidiary

<TABLE>
                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2002 and 2001
                        (in thousands, except share data)


<CAPTION>
                                                                                      2002          2001
                                                                                    --------      --------
<S>                                                                                 <C>           <C>
            A S S E T S
            -----------
CURRENT ASSETS
    Cash and cash equivalents .................................................     $    892      $    600
    Interest bearing deposits .................................................           37            37
    Accounts receivable, net of allowance for doubtful accounts of
      $76 and $22, respectively ...............................................        1,034         1,954
    Prepaid expenses and other current assets .................................           92           126
                                                                                    --------      --------
                                                           TOTAL CURRENT ASSETS        2,055         2,717
                                                                                    --------      --------

PROPERTY AND EQUIPMENT (NOTE G) ...............................................          295           418

OTHER ASSETS
    Convertible promissory note receivable (Note F) ...........................          272            85
    Deposits ..................................................................          189           191
    Deferred taxes ............................................................          330          --
                                                                                    --------      --------
                                                             TOTAL OTHER ASSETS          791           276
                                                                                    --------      --------
                                                                                    $  3,141      $  3,411
                                                                                    ========      ========

            LIABILITIES AND STOCKHOLDERS' DEFICIT
            -------------------------------------

CURRENT LIABILITIES
    Accounts payable ..........................................................     $    308      $    511
    Accrued commissions .......................................................           14            21
    Accrued expenses ..........................................................          594         1,207
    Deferred revenue ..........................................................        2,480         3,478
    Current portion of long-term debt (Notes H and I) .........................          611           148
                                                                                    --------      --------
                                                      TOTAL CURRENT LIABILITIES        4,007         5,365
                                                                                    --------      --------

LONG-TERM DEBT LESS PRINCIPAL DUE WITHIN
ONE YEAR (Notes H and I) ......................................................          811           933

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, 17,784,185 issued and outstanding ...........................          178           178
    Additional paid-in-capital ................................................       56,117        56,117
    Accumulated deficit .......................................................      (58,233)      (59,477)
    Other accumulated comprehensive income ....................................          261           295
                                                                                    --------      --------
                                                    TOTAL STOCKHOLDERS' DEFICIT       (1,677)       (2,887)
                                                                                    --------      --------
                                                                                    $  3,141      $  3,411
                                                                                    ========      ========
</TABLE>

          See accompanying notes to consolidated financial statements

                                       22

<PAGE>

                FlexiInternational Software, Inc. and Subsidiary

<TABLE>
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 2002, 2001 and 2000
                    (in thousands, except per share amounts)


<CAPTION>
                                                                 2002          2001          2000
                                                               --------      --------      --------
<S>                                                            <C>           <C>           <C>
REVENUE
-------
       Software license ..................................     $    839      $  2,917      $  4,112
       Service and maintenance ...........................        6,119         6,598         8,324
       Other operating revenue ...........................          500          --            --
                                                               --------      --------      --------
                                            TOTAL REVENUE.        7,458         9,515        12,436
                                                               --------      --------      --------
COST OF REVENUE
---------------
       Software license ..................................          155           684           636
       Service and maintenance ...........................        1,953         2,308         3,956
                                                               --------      --------      --------
                                    TOTAL COST OF REVENUE.        2,108         2,992         4,592
                                                               --------      --------      --------
                                             GROSS PROFIT.        5,350         6,523         7,844
                                                               --------      --------      --------
OPERATING EXPENSES
------------------
       Sales and marketing ...............................        1,591         2,552         1,632
       Product development ...............................        1,439         1,616         2,689
       General and administrative ........................        1,379         2,847         3,365
       Goodwill impairment (Note E) ......................         --             862          --
                                                               --------      --------      --------
                                 TOTAL OPERATING EXPENSES.        4,409         7,877         7,686
                                                               --------      --------      --------
                            INCOME (LOSS) FROM OPERATIONS.          941        (1,354)          158

OTHER INCOME (DEDUCTIONS)
-------------------------
       Net interest expense ..............................          (27)          (29)           (1)
                                                               --------      --------      --------
                   INCOME (LOSS) BEFORE INCOME TAX CREDIT.          914        (1,383)          157

INCOME TAX CREDIT ........................................         (330)         --            --
                                                               --------      --------      --------
                                        NET INCOME (LOSS).     $  1,244      $ (1,383)     $    157
                                                               ========      ========      ========

INCOME (LOSS) PER SHARE
-----------------------
       Basic .............................................     $   0.07      $  (0.08)     $   0.01
                                                               ========      ========      ========
       Diluted ...........................................     $   0.07      $  (0.08)     $   0.01
                                                               ========      ========      ========
WEIGHTED AVERAGE SHARES
-----------------------
       Basic .............................................       17,784        17,713        17,669
                                                               ========      ========      ========
       Diluted ...........................................       17,784        17,713        17,669
                                                               ========      ========      ========
</TABLE>

           See accompanying notes to consolidated financial statements


                                       23
<PAGE>

                FlexiInternational Software, Inc. and Subsidiary

<TABLE>
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                  Years ended December 31, 2002, 2001, and 2000
                     (in thousands, except share data)


<CAPTION>
                                                                                           Other                     Total

                                                           Additional                   accumulated               stockholders'

                                         Common Stock        Paid-in     Accumulated   comprehensive   Treasury      equity
                                 -------------------------
                                   Shares       Amount       Capital       Deficit        income        Stock       (deficit)
                                 ----------   ----------   -----------   -----------   ------------  -----------   -----------

<S>                              <C>          <C>          <C>           <C>           <C>           <C>           <C>
Balance at December 31, 1999 .   17,683,133   $      177   $   56,128    $  (58,251)   $       63    $      (35)   $   (1,918)

       Shares issued for stock

             purchase plan ...         --           --           --            --            --              16            16

       Net income ............         --           --           --             157          --            --             157

       Currency translation

             adjustment ......         --           --           --            --             230          --             230
                                                                                                                   ----------
Comprehensive income .........         --           --           --            --            --            --             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 ..............         --           --           --          (1,383)         --            --          (1,383)

       Currency translation

             adjustment ......         --           --           --            --               2          --               2
                                                                                                                   ----------
Comprehensive loss ...........         --           --           --            --            --            --          (1,381)
                                 ----------   ----------   ----------    ----------    ----------    ----------    ----------
Balance at December 31, 2001 .   17,784,185          178       56,117       (59,477)          295          --          (2,887)

       Net income ............         --           --           --           1,244          --            --           1,244

       Currency translation

             adjustment ......         --           --           --            --             (34)         --             (34)
                                                                                                                   ----------
Comprehensive income .........         --           --           --            --            --            --           1,210
                                 ----------   ----------   ----------    ----------    ----------    ----------    ----------
Balance at December 31, 2002 .   17,784,185   $      178   $   56,117    $  (58,233)   $      261    $     --      $   (1,677)
                                 ==========   ==========   ==========    ==========    ==========    ==========    ==========
</TABLE>


           See accompanying notes to consolidated financial statements

                                       24
<PAGE>


                FlexiInternational Software, Inc. and Subsidiary

<TABLE>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2002, 2001 and 2000
                                 (in thousands)
<CAPTION>
                                                                               2002          2001         2000
                                                                              -------      -------      -------
<S>                                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
       Net income (loss) ................................................     $ 1,244      $(1,383)     $   157
       Adjustments to reconcile net income (loss) to net
       cash provided by (used in) operating activities:
            Depreciation and amortization ...............................         197          845        1,310
            Provision (credit) for doubtful accounts ....................          54         (310)         299
            Goodwill impairment .........................................        --            862         --
            Deferred taxes ..............................................        (330)        --           --
            (Gain) loss on disposal of assets ...........................        --              4           (3)
            Decrease in accounts receivable .............................         866          934        3,298
            Decrease in prepaid expenses and other assets ...............          36          165          160
            Increase (decrease ) in accounts payable and accrued expenses        (255)         297       (1,910)
            Decrease in accrued restructuring ...........................        --            (27)        (374)
            Decrease in deferred revenue ................................        (998)      (1,534)      (3,396)
                                                                              -------      -------      -------
                 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ....         814         (147)        (459)
                                                                              -------      -------      -------

CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
       Advances on promissory note receivable ...........................        (187)         (85)        --
       Purchases of marketable securities ...............................        --           --           (108)
       Sales of marketable securities ...................................        --            108         --
       Proceeds from sales of property and equipment ....................        --              1           40
       Purchases of property and equipment ..............................         (74)         (23)         (21)
                                                                              -------      -------      -------
                 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ....        (261)           1          (89)
                                                                              -------      -------      -------

CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
       Repayments on long-term debt .....................................        (146)        (185)         (50)
       Proceeds from issuance of long-term debt .........................          31         --           --
       Proceeds from employee stock purchase plan .......................        --              9            5
       Payments on capital lease obligations ............................        (112)        (432)        (122)
                                                                              -------      -------      -------
                               NET CASH USED IN FINANCING ACTIVITIES ....        (227)        (608)        (167)
                                                                              -------      -------      -------

       Effect of exchange rate changes on cash ..........................         (34)           2          230
                                                                              -------      -------      -------
                                          NET INCREASE (DECREASE) IN
                                          CASH AND CASH EQUIVALENTS .....         292         (752)        (485)

CASH AND CASH EQUIVALENTS
-------------------------
       Beginning of year ................................................         600        1,352        1,837
                                                                              -------      -------      -------
       End of year ......................................................     $   892      $   600      $ 1,352
                                                                              =======      =======      =======

                    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
       Interest paid ....................................................     $    44      $    66      $    50
                                                                              =======      =======      =======

       Conversion of accounts payable and accrued
            expenses into notes payable .................................     $   568      $   224      $   748
                                                                              =======      =======      =======
</TABLE>

           See accompanying notes to consolidated financial statements

                                       25
<PAGE>

                FlexiInternational Software, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        (in thousands, except 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, FlexiInfoAccess and FlexiTools -
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,  FlexiInternational  Software
Limited  (formerly  known as 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  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
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. 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.


                                       26
<PAGE>

                FlexiInternational Software, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------

FOREIGN CURRENCY TRANSLATION:

The   assets   and   liabilities   of   the   Company's   foreign    subsidiary,
FlexiInternational  Software  Limited,  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'
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, 2002, 2001 and 2000 were $0.

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
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 times 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.

TRADE ACCOUNTS RECEIVABLE:

Trade  accounts  receivable  are  presented  in  the  balance  sheets  net of an
allowance  for  doubtful  accounts.  Receivables  are  written off when they are
determined to be uncollectible. The allowance for doubtful accounts is estimated
based on the Company's  historical losses,  existing economic conditions and the
financial stability of its customers.

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.

                                       27

<PAGE>

                FlexiInternational Software, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------

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.

ACCOUNTING FOR STOCK BASED COMPENSATION:
Effective  December  15,  2002,  the  company  adopted  Statement  of  Financial
Accounting  Standards  No.  148  "Accounting  for  Stock-Based   Compensation  -
Transition and Disclosure"  (SFAS No. 148). This statement amends FASB statement
No. 123,  "Accounting  for Stock Based  Compensation".  It provides  alternative
methods of transition for an entity that  voluntarily  changes to the fair value
based method of accounting for employee stock based compensation. It also amends
the  disclosure  provision  of  FASB  statement  No.  123 to  require  prominent
disclosure  about the effects on reported  net income of an entity's  accounting
policy decisions with respect to stock-based employee compensation. As permitted
by SFAS No. 123 and amended by SFAS No. 148, the Company  continues to apply the
intrinsic value method under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting  for Stock  Issued to  Employees,"  to account  for its  stock-based
employee compensation arrangements.

No stock-based  employee  compensation  cost is reflected in net income,  as all
options  granted  under those  plans had an  exercise  price equal to the market
value of the  underlying  common stock on the date of grant.  If the Company had
recorded  compensation  cost  based  upon the fair  value at the grant  date for
awards under these plans, consistent with SFAS No. 123, the Company's net income
(loss) and net income (loss) per share would be the pro forma amounts  indicated
below:

<TABLE>
<CAPTION>
                                                            2002       2001       2000
                                                          -------    -------    -------
<S>                                                       <C>        <C>        <C>
Net income (loss) as reported .........................   $ 1,244    $(1,383)   $   157
Deduct:  Total stock-based compensation expense
determined under fair value based method for
all awards, net of related tax effects ................        (1)        (4)      (450)
                                                          -------    -------    -------
Net income (loss) pro forma ...........................   $ 1,243    $(1,387)   $  (293)
                                                          =======    =======    =======

Income (loss) per share as reported - basic and diluted   $  0.07    $ (0.08)   $  0.01
                                                          =======    =======    =======

Income (loss) per share pro forma - basic and diluted .   $  0.07    $ (0.08)   $ (0.02)
                                                          =======    =======    =======
</TABLE>

                                       28
<PAGE>


                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------

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.

NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS:

The Company has reviewed all new accounting  pronouncements  issued through 2002
and has  determined  that  none of them  would  have a  material  impact  on the
financial condition or results of operations other than as described previously.

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  stockholders 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,  2002,  2001,  and 2000,  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.

RECLASSIFICATIONS:

The consolidated financial statements for 2001 have been reclassified to conform
with the  presentation  for 2002.  Such  reclassifications  had no effect on net
results of operations.


                                       29
<PAGE>


                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

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 for the years ended
December 31, 2002,  2001, and 2000, and the Company's  international  long lived
assets at December  31,  2002,  2001 and 2000  resided  primarily  in the United
Kingdom.

REVENUES:                            2002      2001      2000
                                   -------   -------   -------

    United States ..............   $ 5,940   $ 7,691   $10,082
    International:
       United Kingdom ..........     1,518     1,824     2,354
                                   -------   -------   -------
                          TOTALS   $ 7,458   $ 9,515   $12,436
                                   =======   =======   =======

LONG LIVED ASSETS:                   2002      2001      2000
                                   -------   -------   -------

    United States ..............   $   266   $   385   $ 2,043
    International ..............        29        33        43
                                   -------   -------   -------
                          TOTALS   $   295   $   418   $ 2,086
                                   =======   =======   =======

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 34.2%, 40.6%, and 38.2%
of total revenues for each of the years ended December 31, 2002, 2001, and 2000,
respectively. Two and three customers represented approximately 74.7%, and 61.9%
of the  Company's  net  accounts  receivable  at  December  31,  2002 and  2001,
respectively.



                                       30
<PAGE>


                FlexiInternational Software, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE D - INCOME TAXES
---------------------

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

                                                       2002              2001
                                                     --------          --------

Net operating loss carryforwards ...........         $ 24,564          $ 25,442
Other ......................................            3,770             3,856
                                                     --------          --------
                                                       28,334            29,298
Valuation allowance ........................          (28,004)          (29,298)
                                                     --------          --------
Net deferred tax asset .....................         $    330          $   --
                                                     ========          ========

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 carryforwards
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.

Income tax expense consists of the following:

                                 2002          2001         2000
                                 ----          ----         ----
Deferred income taxes:
      Federal ........          $(275)         $ -          $ -
      State ..........            (55)           --           --
                                -----          -----        -----
                                $(330)         $ -          $ -
                                =====          =====        =====

Following is a reconciliation between tax expense using federal statutory tax
rates and actual effective tax:

<TABLE>
<CAPTION>
                                      2002                   2001                   2000
                               -----------------      -----------------      -----------------

<S>                            <C>        <C>         <C>        <C>         <C>        <C>
Statutory taxes (benefits)     $ 311         34%      $(470)        34%      $  53         34%
Valuation allowance ......      (648)      (71)%        463       (33)%        (62)      (40)%
Other ....................         7          1%          7        (1)%          9          6%
                               -----      -----       -----      -----       -----      -----
Actual taxes .............     $(330)       (36)%     $ --          -%       $ --           -%
                               =====      =====       =====      =====       =====      =====
</TABLE>

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.


                                       31
<PAGE>

               FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE E - ACQUISITION (CONTINUED)
--------------------------------

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 that 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.

During  2001,  management  conducted  a periodic  impairment  assessment  of the
intangible   assets  resulting  from  the  Dodge   acquisition.   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 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,  2002 and 2001 the  Company  had  loaned  $272 and $85 under  this
arrangement,  respectively.  After  December  31, 2002 but prior to February 28,
2003  either  party at their  option  could  convert the entire loan amount into
40,000 shares of the borrower's  common stock.  During January 2003, the Company
exercised  its option to convert the note  receivable  into 40,000 shares of the
borrower's common stock.

NOTE G - PROPERTY AND EQUIPMENT
-------------------------------

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

                                                              2002       2001
                                                             ------     ------
Computers ..............................................     $3,423     $3,427
Software ...............................................        679        652
Furniture and fixtures .................................        508        508
Leasehold improvements .................................        332        332
Office equipment .......................................         68         68
Vehicles ...............................................         31       --
                                                             ------     ------
                                                              5,041      4,987
Less accumulated depreciation ..........................      4,746      4,569
                                                             ------     ------
                              NET PROPERTY AND EQUIPMENT     $  295     $  418
                                                             ======     ======

                                       32
<PAGE>


                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE G - PROPERTY AND EQUIPMENT (CONTINUED)
-------------------------------------------

Depreciation  expense was $197,  $457, and $806 for the years ended December 31,
2002, 2001, and 2000, respectively.  All property and equipment has been pledged
as collateral for a master lease agreement (NOTE I).

NOTE H - NOTES 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.  During 2002, the
Company  refinanced  a  settlement  agreement  with one of its  customers  which
converted  other  accrued  liabilities.  The note is  unsecured,  has no  stated
interest  rate and is due in monthly  installments  of $8 until paid in full. In
addition,  the Company  refinanced a settlement  agreement on March 4, 2003 with
one of its  vendors  which  converted  other  accrued  liabilities.  The note is
unsecured,  has no stated interest rate,  requires an initial payment of $55 and
monthly installments of $13 thereafter.

Following is a summary of long-term debt as of December 31:

<TABLE>
<CAPTION>
                                                                    2002       2001
                                                                   ------     ------
<S>                                                                <C>        <C>
Note payable to vendor, no stated interest
     $5 monthly until paid in full ...........................     $  639     $  699
Note payable to vendor, no stated interest
     $8 monthly to August 2004 ...............................        150       --
Note payable to vendor, no stated interest, initial payment of
     $55, $13 monthly to January 2005 ........................        343       --
Note payable to finance company, no stated interest
     $1 monthly to December 2004, collateralized by vehicle ..         20       --
                                                                   ------     ------
                                                                    1,152        699
Less principal due within one year ...........................        341         60
                                                                   ------     ------
                                       TOTAL LONG-TERM DEBT ..     $  811     $  639
                                                                   ======     ======
</TABLE>

Following is a summary of estimated  principal amounts due on long-term debt for
each of the five years and thereafter following December 31, 2002:

               2003                                       $ 341
               2004                                         279
               2005                                          73
               2006                                          60
               2007                                          60
               Thereafter                                   339
                                                         -------
                                                  TOTAL  $ 1,152
                                                         =======

                                       33
<PAGE>


                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE I - CAPITAL LEASE OBLIGATION
---------------------------------

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, 2002
is $2,586 and $2,554 respectively.  The present value of the lease obligation at
December  31,  2002  is  $270.  Approximate  maturities  of such  capital  lease
obligation are as follows at December 31, 2002:

2003                                                                    $   283
Less amounts representing interest ...............................           13
                                                                        -------
                           TOTAL CAPITAL LEASE OBLIGATION ........          270
Less amounts due within one year .................................          270
                                                                        -------
                           LONG-TERM PORTION OF CAPITAL OBLIGATION      $  --
                                                                        =======

NOTE J - STOCKHOLDERS' EQUITY
-----------------------------

PREFERRED STOCK:
The Company has  authorized  capital  stock that  includes  5,000,000  shares of
preferred stock, $.01 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
issued 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.


                                       34
<PAGE>

                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

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.  The Purchase Plan was  discontinued  during 2002.  Under the Purchase
Plan, the Company  issued 0, 111,478,  and 8,695 shares to  participants  during
2002, 2001, and 2000, respectively.

STOCK OPTION 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, 2002, there are 34,125 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 2002, 2001, and 2000, 213,000,  529,760,
and 344,811 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  shares 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 2002, 2001, and 2000, 23,250,  10,500, and 18,000 options under
the Director Plan were granted, respectively.



                                       35
<PAGE>


                FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE K - EMPLOYEE STOCK PLANS (CONTINUED)
-----------------------------------------

The fair value of each option  grant is estimated on the date of the grant using
the Black-Scholes option pricing model.  Assumptions used in 2002, 2001 and 2000
include:  risk free interest rate of 3.40%,  5.08%, and 6.34%,  average expected
lives of 6.90,  7.91, and 3.00 years, a 0% dividend yield rate for all the years
presented,  and expected  volatility of 0.68, 1.04, and 1.60,  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, 2002, the Company has reserved  1,305,435 shares of common stock
for options outstanding under the 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 1,237,481 shares of common stock
at December 31, 2002,  for future grants under its  Incentive  Plan and Director
Plan. The following  table  describes the Company's  stock option activity under
all of its option plans:


                                           Number of   Weighted average exercise
                                            Options         price per share
                                        -------------- -------------------------
                                                       (priced at date of grant)
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 ................            (565,600)          $   0.52
                                           ---------           --------
Outstanding at December 31, 2001           1,309,704           $   1.02
      Granted ..................             236,250           $   0.08
      Cancelled ................            (240,519)          $   0.47
                                           ---------           --------
Outstanding at December 31, 2002           1,305,435           $   0.95
                                           =========           ========


                                       36
<PAGE>


                FlexiInternational Software, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE K - EMPLOYEE STOCK PLANS (CONTINUED)

                                                                   Weighted
                                                     Number of  average exercise
                                                      Options   price per share
                                                   ------------ ----------------
                                                                (priced at date)
                                                                   (of grant)
Exercisable at December 31, 2000 ...............       392,840     $   1.67
Exercisable at December 31, 2001 ...............       625,312     $   1.37
Exercisable at December 31, 2002 ...............       849,997     $   1.23
Options available for grant at December 31, 2002     1,237,481         --

The following table summarizes information regarding stock options granted under
all of the Company's option plans:
<TABLE>
<CAPTION>
                                                        Weighted        Weighted
                                      Number of     average exercise  average fair
                                  options granted        price            value
                                  ----------------  ----------------  ------------
<S>                                    <C>           <C>              <C>
2000
Options granted at market value:       362,811       $      0.68      $      0.62
2001
Options granted at market value:       540,260       $      0.17      $      0.13
2002:
Options granted at market value        236,250       $      0.08      $      0.08
</TABLE>

The following table  summarizes  information  regarding  options  outstanding at
December 31, 2002 under all of the Company's option plans:


<TABLE>
<CAPTION>
                                    Options outstanding                          Options exercisable
                        -----------------------------------------------   --------------------------------
                                        Weighted
                                         average
                                        remaining         Weighted                           Weighted
 Range of exercise         Number    contractual life  average exercise      Number       average exercise
      prices            outstanding      in years           price         exercisable     price per share
 -----------------      -----------  ----------------  ----------------   ------------    ----------------
<S>                       <C>             <C>             <C>                <C>             <C>
   $0.05-$ 0.09           218,250         9.10            $   0.09           23,250          $   0.09
   $0.15-$ 0.30           234,834         8.02            $   0.19           99,843          $   0.20
   $0.38-$ 0.38           167,888         6.82            $   0.38          167,888          $   0.38
   $0.59-$ 1.06           326,071         7.15            $   0.91          228,074          $   0.90
   $1.19-$ 1.44           207,875         3.71            $   1.27          207,035          $   1.27
   $1.63-$12.63           150,517         5.23            $   3.69          123,907          $   3.98
                         ---------        ----            --------          -------          --------
                 TOTAL   1,305,435                        $   0.95          849,997          $   1.23
                         =========                        ========          =======          ========
</TABLE>


                                       37
<PAGE>


                FlexiInternational Software, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

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  25%  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 $0,  $20,  and $72 for 2002,  2001,  and 2000,
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.   At  December  31,  2002,  the  Company  was  in  final
negotiations  for a  settlement  of the claim and  expects to finalize it during
2003. While the Company  currently  believes that it will receive  approximately
$450 as a result of the  settlement  claim,  there are  still  ongoing  disputes
regarding  the  terms  of the  settlement  agreement  and it has  not  yet  been
finalized.  As a result,  collectibility  of these amounts remains uncertain and
the Company has not recorded  this  transaction  as of December  31, 2002.  This
transaction will be recorded in the period when amounts are realized.

NOTE N - SUBSEQUENT EVENTS
--------------------------

On March 4, 2003 the Company arranged payment terms associated with a settlement
agreement  with one of its former  distributors  which  converted  other accrued
liabilities to current and long-term debt.

NOTE O - 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, 2002, the minimum annual rental payments
under the terms of such noncancellable  leases which expire at various dates are
as follows:

             2003                             $ 302
             2004                               142
             2005                               100
             2006                                86
             2007                                92
       Thereafter                                46
                                              -----
                                       TOTAL $ 768
                                              =====

Rent expense for the years ended  December 31, 2002,  2001, and 2000 amounted to
$407, $462 and $342, 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.


                                       38
<PAGE>


                FlexiInternational Software, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE P - 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 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.

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.

Detail of the restructuring charge is as follows:

                                         Severance       Excess
                                        and benefits   facilities    Total
                                        ------------   ----------    -----
Reserve balances, December 31, 1999        $ 401          $ --       $ 401
Cash payments .....................         (374)           --        (374)
                                           -----          ----       -----
Reserve balances, December 31, 2000           27            --          27
Cash payments .....................          (27)           --         (27)
                                           -----          ----       -----
Reserve balances, December 31, 2001        $ --           $ --       $ --
                                           =====          ====       =====

NOTE Q - BUSINESS PLAN
----------------------

Throughout  2002,  the  Company  focused its  efforts on further  reductions  of
operating expenses,  enhancing its relationships with current business partners,
resolving  preexisting  disputes and marketing its financial management services
solution, an accounting 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 and expanding
its third party  vendors.  The Company has  continued  to update its products to
remain  competitive.  The Company 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.


                                       39
<PAGE>


                FlexiInternational Software, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        (in thousands, except share data)

NOTE R - SELECTED QUARTERLY INFORMATION (UNAUDITED)
---------------------------------------------------

The following table sets forth certain unaudited  quarterly data for each of the
four quarters in the years ended  December 31, 2002 and 2001.  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.

                                 First      Second       Third       Fourth
Year ended December 31,         Quarter     Quarter     Quarter      Quarter
-----------------------         -------     -------     -------      --------
2002
     Total revenue ........     $ 2,275     $ 1,859     $ 1,723      $ 2,051
     Gross profit .........       1,671       1,304       1,195        1,624
     Net income ...........         547         230         122          703
     Income per share (1) .        0.03        0.01        0.01         0.04

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        --         (0.10)        0.01


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



                                       40
<PAGE>


INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

Board of Directors and Stockholders of
FlexiInternational Software, Inc.
Bonita Springs, Florida


      We   have   audited   the    consolidated    financial    statements    of
FlexiInternational  Software, Inc. and subsidiary (the "Company") as of December
31,  2002 and 2001 and for the years  then  ended,  and have  issued  our report
thereon dated January 22, 2003, except for Note N, as to which the date is March
4, 2003;  such  financial  statements and report are included in the 2002 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 15. 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.

/s/ Hill, Barth & King LLC
Hill, Barth & King LLC
Certified Public Accountants

Naples, Florida
January 22, 2003


                                       41
<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 for the year ended December 31,
2000 and have issued our report thereon dated February 27, 2001;  such financial
statements  and report are included in your 2002 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 15.
This financial  statement  schedule is the  responsibility  of the Corporation'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.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP

Hartford, Connecticut
February 27, 2001



                                       42
<PAGE>


                    FlexiInternational Software, Inc. and Subsidiary

<TABLE>
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (in thousands)

<CAPTION>
                                                             Charged to
                                                Balance at  (Credit from)                  Balance at
                                                January 1,    Costs and                    December 31,
         Description                               2002        Expenses      Deductions        2002
-------------------------------------          -----------  -------------   -----------    -------------

<S>                                              <C>           <C>            <C>            <C>
Allowance for doubtful accounts ..........       $    22       $   288        $  (234)       $    76
Valuation allowance for deferred tax asset       $29,298       $(1,294)       $  --          $28,004



<CAPTION>
                                                Balance at    Charged to                    Balance at
                                                January 1,    Costs and                    December 31,
         Description                               2001        Expenses      Deductions        2001
-------------------------------------          -----------  -------------   -----------    -------------

<S>                                              <C>           <C>            <C>            <C>
Allowance for doubtful accounts ..........       $   352       $  (310)       $   (20)       $    22
Valuation allowance for deferred tax asset       $23,560       $ 5,738        $  --          $29,298



<CAPTION>
                                                Balance at    Charged to                    Balance at
                                                January 1,    Costs and                    December 31,
         Description                               2000        Expenses      Deductions        2000
-------------------------------------          -----------  -------------   -----------    -------------

<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>





                                       43
<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 2003 Annual Meeting
of Stockholders to be held on Friday, May 16, 2003, which will be filed with the
Securities  and Exchange  Commission  not later than 120 days after December 31,
2002, 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 2003 Annual Meeting of Stockholders
to be held on Friday,  May 16, 2003, which will be filed with the Securities and
Exchange  Commission  not  later  than 120 days  after  December  31,  2002,  is
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 2003 Annual Meeting of Stockholders
to be held on Friday,  May 16, 2003, which will be filed with the Securities and
Exchange  Commission  not  later  than 120 days  after  December  31,  2002,  is
incorporated herein by reference.  The information  specified in Item 402(k) and
(l) of Regulation S-K and set forth in Flexi's  definitive  Proxy  Statement for
the 2003 Annual Meeting of Stockholders is not 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 2003 Annual Meeting of Stockholders
to be held on Friday,  May 16, 2003, which will be filed with the Securities and
Exchange  Commission  not  later  than 120 days  after  December  31,  2002,  is
incorporated herein by reference.

Item 14.   Controls and Procedures
           -----------------------

      Based on an evaluation of the Company's disclosure controls and procedures
performed by the Company's  Chief  Executive  Officer and Acting Chief Financial
Officer  within  90 days of the  filing  of this  report,  the  Company's  Chief
Executive  Officer  and  Acting  Chief  Financial  Officer  concluded  that  the
Company's disclosure controls and procedures have been effective.

      As used herein,  "disclosure  controls and procedures"  means controls and
other  procedures  of the Company that are  designed to ensure that  information
required to be  disclosed by the Company in the reports that it files or submits
under  the  Securities  Exchange  Act is  recorded,  processed,  summarized  and
reported within the time periods  specified in the rules and forms issued by the
Securities and Exchange Commission.  Disclosure controls and procedures include,
without limitation,  controls and procedures designed to ensure that information
required to be  disclosed by the Company in the reports that it files or submits
under  the  Securities  Exchange  Act is  accumulated  and  communicated  to the
Company's management,  including its principal executive officer or officers and
its  principal  financial  officer or  officer,  or persons  performing  similar
functions,   as  appropriate  to  allow  timely  decisions   regarding  required
disclosure.

      Since  the  date  of  the  evaluation   described  above,  there  were  no
significant  changes in the Company's internal controls or in other factors that
could significantly affect these controls,  and there were no corrective actions
with regard to significant deficiencies and material weaknesses.


                                       44
<PAGE>


                                     PART IV
                                     -------

Item 15.   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 43 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 are, pursuant to
Rule 12b-32 under the Securities  Exchange Act of 1934,  incorporated  herein by
reference.

      (b)  Reports on Form 8-K

      During the fourth  quarter of the fiscal year ended December 31, 2002, the
Company did not file any Current Reports on Form 8-K.


                                       45
<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 on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.


                                     FLEXIINTERNATIONAL SOFTWARE, INC.


      Date:  March 28, 2003          By: /s/    STEFAN R. BOTHE
                                        --------------------------------
                                         Stefan R. Bothe
                                         Chairman of the Board, Chief Executive
                                         Officer and President

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
Annual  Report on 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.


Signature                              Title                           Date
---------                              -----                           ----

/s/ STEFAN R. BOTHE         Chairman of the Board, Chief          March 28, 2003
----------------------      Executive Officer, President and
Stefan R. Bothe             Acting Chief Financial Officer
                            (Principal Executive and
                            Accounting Officer)


/s/ JENNIFER V. CHENG       Director                              March 28, 2003
----------------------
Jennifer V. Cheng




/s/ ROBERT A. DEGAN         Director                              March 28, 2003
----------------------
Robert A. Degan


                                       46
<PAGE>


                                  Certification
                           by Chief Executive Officer
                           and Chief Financial Officer
                             Pursuant to Rule 13a-14

        I, Stefan R. Bothe, certify that:

        1. I have reviewed this annual report on Form 10-K of FlexiInternational
Software, Inc.;

        2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

        3. Based on my knowledge, the financial statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

        4. I am responsible for establishing and maintaining disclosure controls
and  procedures  (as  defined in Exchange  Act Rules  13a-14 and 15d-14) for the
registrant and have;

           (a) designed such  disclosure  controls and procedures to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to me by others within those entities,  particularly
during the period in which this annual report is being prepared;

           (b)  evaluated  the  effectiveness  of  the  registrant's  disclosure
controls and  procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

           (c)  presented  in  this  annual  report  my  conclusions  about  the
effectiveness  of the disclosure  controls and procedures based on my evaluation
as of the Evaluation Date;

        5.  I  have  disclosed,  based  on my  most  recent  evaluation,  to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

           (a) all  significant  deficiencies  in the  design  or  operation  of
internal  controls  which could  adversely  affect the  registrant's  ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

           (b) any fraud,  whether or not material,  that involves management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

        6. I have  indicated  in this  annual  report  whether  there  were  any
significant  changes  in  internal  controls  or in  other  factors  that  could
significantly  affect internal controls subsequent to the date of my most recent
evaluation,   including  any  corrective  actions  with  regard  to  significant
deficiencies and material weaknesses.

Date:  March 28, 2003

                                      /s/    STEFAN R. BOTHE
                                      ------------------------------------
                                      Stefan R. Bothe
                                      Chairman of the Board, President, Chief
                                      Executive Officer and Acting Chief
                                      Financial Officer
                                      (Principal executive officer and
                                      principal financial officer)


                                       47
<PAGE>



Exhibit                        Exhibit Index
-------                        -------------
No.
---

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(6)+   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.
10.5(1)    Registration  Rights  Agreement dated May 7, 1996, as amended,  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.
10.12(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).
10.16(4)   Lease Agreement,  dated February 21, 2000, by and between the Company
           and Sommer  Holdings,  Ltd.  10.17(8) 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 Delloite & Touche LLP, independent auditors.
99         Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002.
------------------------------------

(1)   Incorporated herein by reference to the Company's  registration  statement
      on Form S-1 (Registration 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, 2001 (Registration 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.
(8)   Incorporated by reference to the Company's  annual report on Form 10-K for
      the year ended December 31, 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.


                                       48