<PAGE>   1

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(MARK ONE)

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

 For the quarterly period ended June 30, 2001

                                       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)

<TABLE>
<CAPTION>

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

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

</TABLE>

                                 (203) 925-3040
              (Registrant's Telephone Number, Including Area Code)

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 [ ]

As of June 30, 2001, there were 17,678,248 shares of FlexiInternational
Software, Inc. Common Stock outstanding.



<PAGE>   2


                        FLEXIINTERNATIONAL SOFTWARE, INC.

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----
<S>         <C>                                                                                            <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements
            Condensed Consolidated Balance Sheets...........................................................  3
            Condensed Consolidated Statements of Income.....................................................  4
            Condensed Consolidated Statements of Cash Flow .................................................  5
            Condensed Consolidated Statement of Stockholders' Deficit.......................................  6
            Notes to Condensed Consolidated Financial Statements............................................  7

Item 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations.............................................................  8

Item 3.  Quantitative and Qualitative Disclosures About Market Risk ........................................ 13

PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K................................................................... 13

Signature .................................................................................................. 14

</TABLE>





                                       2
<PAGE>   3

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                        FlexiInternational Software, Inc.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                                    June 30,     December 31,
                                                                                      2001           2000
                                                                                    --------     ------------
<S>                                                                                 <C>            <C>
     ASSETS
Current assets:
  Cash and cash equivalents                                                         $    544       $  1,389
  Marketable securities - restricted                                                      47            108
  Accounts receivable, net of allowance for doubtful accounts of $175 and
     $352, respectively                                                                3,103          2,558
  Prepaid expenses and other current assets                                              470            322
                                                                                    --------       --------
     Total current assets                                                              4,164          4,377

Property and equipment at cost, net of accumulated depreciation
     of $4,305 and $4,154, respectively                                                  569            841
Goodwill, net of accumulated amortization of $6,838 and $6,582, respectively             989          1,245
Other assets                                                                             171            160
                                                                                    --------       --------
     TOTAL ASSETS                                                                   $  5,893       $  6,623
                                                                                    ========       ========

     LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable and accrued expenses                                             $  1,315       $  1,666
  Accrued restructuring                                                                   --             27
  Short term portion of long-term debt                                                   587            976
  Deferred revenues                                                                    4,788          5,012
                                                                                    --------       --------
     Total current liabilities                                                         6,690          7,681

Long term debt-less current portion                                                      575            457
                                                                                    --------       --------
     Total liabilities                                                                 7,265          8,138
                                                                                    --------       --------

Stockholders' deficit:
Preferred stock: $.01 par value; 5,000,000 shares authorized; none issued                 --             --
Common stock: $.01 par value; 50,000,000 shares authorized; issued shares -              177            177
   17,683,133 and outstanding shares - 17,678,248 and 17,672,703, respectively
 Additional paid-in capital                                                           56,119         56,128
 Accumulated deficit                                                                 (57,968)       (58,094)
 Other accumulated comprehensive income                                                  309            293
 Common stock in treasury at cost - 4,885 and 10,430 shares,
   respectively                                                                           (9)           (19)
                                                                                    --------       --------
     Total stockholders' deficit                                                      (1,372)        (1,515)
                                                                                    --------       --------

     TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                    $  5,893       $  6,623
                                                                                    ========       ========

</TABLE>


See accompanying notes to condensed consolidated financial statements.




                                       3
<PAGE>   4

                        FlexiInternational Software, Inc.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (in thousands, except per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended           Six Months Ended
                                                         June 30,                    June 30,
                                                -----------------------      -----------------------
                                                  2001           2000          2001           2000
                                                --------       --------      --------       --------
<S>                                             <C>            <C>           <C>            <C>
REVENUES:
   Software license                             $    530       $  1,013      $  1,907       $  2,046
   Service and maintenance                         1,749          1,884         3,526          4,479
                                                --------       --------      --------       --------
       Total revenues                              2,279          2,897         5,433          6,525
                                                --------       --------      --------       --------

COST OF REVENUES:
   Software license                                   48             42           153            200
   Service and maintenance                           454          1,026         1,236          2,217
                                                --------       --------      --------       --------
      Total cost of revenues                         502          1,068         1,389          2,417
                                                --------       --------      --------       --------

GROSS PROFIT                                       1,777          1,829         4,044          4,108
                                                --------       --------      --------       --------

OPERATING EXPENSES:
   Sales and marketing                               887            442         1,520            853
   Product development                               381            650         1,065          1,449
   General and administrative                        476            720         1,318          1,770
                                                --------       --------      --------       --------
      Total operating expenses                     1,744          1,812         3,903          4,072
                                                --------       --------      --------       --------

OPERATING INCOME                                      33             17           141             36

Net interest income (expense)                         (4)             1           (15)            (1)
                                                --------       --------      --------       --------

INCOME BEFORE INCOME TAXES                            29             18           126             35
Provision for income taxes                            --             --            --             --
                                                --------       --------      --------       --------
NET INCOME                                      $     29       $     18      $    126       $     35
                                                ========       ========      ========       ========

BASIC NET INCOME PER SHARE                      $   0.00       $   0.00      $   0.01       $   0.00
                                                ========       ========      ========       ========
Weighted average common shares outstanding        17,678         17,669        17,676         17,665
                                                ========       ========      ========       ========

DILUTED NET INCOME PER SHARE                    $   0.00       $   0.00      $   0.01       $   0.00
                                                ========       ========      ========       ========
Weighted average common shares outstanding        17,680         17,919        17,678         17,996
                                                ========       ========      ========       ========

</TABLE>



See accompanying notes to condensed consolidated financial statements.



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<PAGE>   5
                        FlexiInternational Software, Inc.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                Six Months Ended
                                                                    June 30,
                                                             ---------------------
                                                              2001           2000
                                                             -------       -------
<S>                                                          <C>           <C>
Cash flows from operating activities:
Net income                                                   $   126       $    35
Non-cash items:
  Depreciation and amortization                                  543           696
  Provision for doubtful accounts                                              120
  Loss on disposal of assets                                     (11)           14
Change in operating accounts:
  Accounts receivable                                           (563)        2,752
  Prepaid expenses and other assets                             (164)          199
  Accounts payable and accrued expenses                         (188)       (1,661)
  Accrued restructuring                                          (27)         (216)
  Deferred revenue                                              (188)       (3,234)
                                                             -------       -------
Net cash used in operating activities                           (472)       (1,295)
                                                             -------       -------

Cash flows from investing activities:
  Sales of marketable securities                                  60            --
  Purchases of property and equipment                             (5)          (12)
                                                             -------       -------
Net cash provided by (used in) investing activities               55           (12)
                                                             -------       -------

Cash flows from financing activities:
  Repayments of debt                                            (130)           --
  Proceeds from employee stock purchase plan                       1             8
  Additions to (payments of) capital lease obligations          (283)           95
                                                             -------       -------
Net cash provided by (used in) financing activities             (412)          103
                                                             -------       -------

Effect of exchange rate changes on cash                          (16)           27
                                                             -------       -------

Decrease in cash and cash equivalents                           (845)       (1,177)
Cash and cash equivalents at beginning of year                 1,389         1,874
                                                             -------       -------
Cash and cash equivalents at end of period                   $   544       $   697
                                                             =======       =======

Supplemental disclosures:
  Interest paid in cash                                      $    13       $    26
  Conversion of accounts payable into notes payable          $   142

</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       5
<PAGE>   6

                        FlexiInternational Software, Inc.
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                        (in thousands, except share data)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                                         Other            Total
                                            Common Stock     Additional                  compre-          stock-    Compre-
                                         ------------------   paid-in   Accumulated      hensive Treasury holder's  hensive
                                           Shares    Amount   capital      deficit       income   stock   deficit   income
                                         ----------  ------  ---------- ------------     ------- -------- --------  -------
<S>                                      <C>          <C>     <C>         <C>             <C>      <C>      <C>         <C>
Balance at December 31, 2000             17,683,133   $177    $ 56,128    $(58,094)       $ 293    $(19)    $ (1,515)
Shares issued for stock plan                     --     --          (9)         --           --      10            1
Net income                                       --     --          --         126           --      --          126    $126
Currency translation adjustment                  --     --          --          --           16      --           16      16
                                                                                                                        ----
Comprehensive income                             --     --          --          --           --      --           --    $142
                                         ----------   ----    --------    --------        -----    ----     --------    ====
Balance at June 30, 2001                 17,683,133   $177    $ 56,119    $(57,968)       $ 309    $ (9)    $ (1,372)
                                         ==========   ====    ========    ========        =====    ====     ========

</TABLE>







See accompanying notes to condensed consolidated financial statements.





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<PAGE>   7

                        FlexiInternational Software, Inc.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2001 AND 2000
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The condensed consolidated financial statements included herein have been
prepared by us, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, we believe that the disclosures are adequate to
make the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in our Annual Report on Form
10-K for the year ended December 31, 2000.

The unaudited condensed consolidated financial statements include the accounts
of FlexiInternational Software, Inc. and its subsidiary and reflect all
adjustments (which include only normal, recurring adjustments) which are, in the
opinion of management, necessary to state fairly the results for the interim
periods. The results of operations are not necessarily indicative of the results
expected for the full year.

NOTE 2 - NEW ACCOUNTING STANDARDS

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133") is effective for all fiscal years beginning after June 15, 2000.
SFAS 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Under SFAS 133, certain contracts
that were not formerly considered derivatives may now meet the definition of a
derivative. We adopted SFAS 133 effective January 1, 2001. The adoption of SFAS
133 did not have an impact on the consolidated financial position, results of
operations, or our cash flows.

On July 5, 2001, the Financial Accounting Standards Board approved Financial
Accounting Standard No. 142 - "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 142 includes requirements to test goodwill and indefinite lived
intangible assets for impairment rather than amortize them. SFAS 142 will be
effective for fiscal years beginning after December 15, 2001. The Company will
adopt SFAS 142 beginning in the first quarter of 2002. The financial statement
impact has not yet been determined. Amortization of goodwill and other assets
was $256,000 and $215,000 for the six months ended June 30, 2001 and 2000
respectively.

NOTE 3 - SIGNIFICANT EVENTS

During the first quarter of 2001, we completed an audit under the terms of a
contract with one of our partners which encompassed several years of royalty
payments. In the first quarter, we invoiced the customer approximately $1.9
million, which the customer disputes. We met on several occasions with this
customer during the second quarter in an attempt to settle this dispute without
success. However, as a result of these meetings, we reduced our claim to $1.7
million. We recorded this amount in accounts receivable and, because the amount
is in dispute, have deferred the entire amount that was invoiced. We will
recognize the income when either an agreement can be reached with the customer
or it can be otherwise determined that we are assured of the collection of the
amounts owed.

As is provided under the terms of the contract, we requested binding arbitration
to settle this dispute on July 18, 2001.




                                       7
<PAGE>   8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
        OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

      In addition to historical information, this Quarterly Report contains
forward-looking statements relating to, among other things, our sales staff, the
length of our sales cycle and future expenses. For this purpose, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's opinions only as of the date hereof. We undertake no obligation to
revise or publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the risk factors described in other
documents that we file from time to time with the Securities and Exchange
Commission, including our Annual Report on Form 10-K for the year ended December
31, 2000.

OVERVIEW

      FlexiInternational Software Inc. designs, develops, markets and supports
the FlexiFinancial Enterprise Suite of financial and accounting software
applications and related tools. The Flexi solution - composed of
FlexiFinancials, FlexiFinancial Datawarehouse (FlexiFDW), FlexiInfoAccess and
FlexiTools - is designed to address the needs of users with sophisticated
financial accounting and operational analysis requirements. In addition, we
recently began marketing our Financial Management Services (FMS) solution, a
business process outsourcing (BPO) service 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 fast growing start-up companies want to
outsource their back office accounting processes while they focus on financial
analysis, cash management and the strategic issues of their business.

      Software license revenues include (i) revenues from noncancellable
software license agreements entered into between our customers and us with
respect to our products, (ii) royalties due us from third parties that
distribute our products and, to a lesser extent, (iii) third-party products
distributed by us. Software license royalties earned through our indirect sales
channel are recognized as such fees are reported to us. 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. 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. We do not require
collateral for our receivables, and reserves are maintained for potential
losses.

      In accordance with Statement of Financial Accounting Standards No. 86,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE
MARKETED, the Company, 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. Therefore, we charge all of our product development
expenses to operations in the period incurred.

      Historically, our revenues have been derived from both domestic sales and
international sales, with the international sales comprising 18% of total
revenues for both of the six-month periods ended June 30, 2001 and 2000. Our
international sales generally have the same cost structure as our domestic
sales. A majority of international sales are denominated in British pounds. An
increase in the value of the British pound relative to foreign currencies could
make our products more expensive and, therefore, potentially less competitive in
foreign markets. In addition, our international business may be subject to a
variety of risks, including difficulties in collecting international accounts
receivable or obtaining U.S. export licenses, the introduction of non-tariff
barriers and higher duty rates and fiscal and monetary policies that adversely
affect non-native firms.



                                       8
<PAGE>   9


RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>

                                         Three Months Ended            Six Months Ended
                                              June 30,                      June 30,
                                        --------------------         --------------------
                                        2001           2000           2001           2000
                                        -----          -----         -----          -----
<S>                                      <C>            <C>           <C>            <C>
REVENUES:
   Software license                      23.3%          35.0%         35.1%          31.4%
   Service and maintenance               76.7%          65.0%         64.9%          68.6%
                                        -----          -----         -----          -----
       Total revenues                   100.0%         100.0%        100.0%         100.0%
                                        -----          -----         -----          -----

COST OF REVENUES:
   Software license                       2.1%           1.5%          2.8%           3.0%
   Service and maintenance               19.9%          35.4%         22.7%          34.0%
                                        -----          -----         -----          -----
      Total cost of revenues             22.0%          36.9%         25.5%          37.0%
                                        -----          -----         -----          -----

GROSS PROFIT                             78.0%          63.1%         74.5%          63.0%
                                        -----          -----         -----          -----

OPERATING EXPENSES:
   Sales and marketing                   38.9%          15.3%         28.0%          13.1%
   Product development                   16.7%          22.4%         19.6%          22.2%
   General and administrative            20.9%          24.8%         24.3%          27.2%
                                        -----          -----         -----          -----
      Total operating expenses           76.5%          62.5%         71.9%          62.5%
                                        -----          -----         -----          -----

OPERATING INCOME                          1.5%           0.6%          2.6%           0.5%

Net interest income (expense)            (0.2)%          0.0%         (0.3)%          0.0%
                                        -----          -----         -----          -----

INCOME BEFORE INCOME TAXES                1.3%           0.6%          2.3%           0.5%
Provision for income taxes                 --             --            --             --
                                        -----          -----         -----          -----
NET INCOME                                1.3%           0.6%          2.3%           0.5%
                                        =====          =====         =====          =====

</TABLE>


      REVENUES. Total revenues, consisting of software license revenues and
service and maintenance revenues, decreased 21%, from $2.9 million for the
quarter ended June 30, 2000 to $2.3 million for the quarter ended June 30, 2001.
Total revenues for the six-month period decreased 17% to $5.4 million.

       Software license revenues decreased 48% and 7% to $530,000 and $1.9
million in the second quarter and the first six-months of the current year from
$1.0 million and $2.0 million in the comparable periods of the prior year.
Software license revenue in the June 2000 quarter included $566,000 of
previously deferred income from a former customer, which accounted for
approximately 56% of our total software revenue for quarter. One customer
accounted for 74% of the software license revenue recognized during the first
quarter of the current year, and another customer accounted for almost half of
last year's first quarter's software license revenue. Approximately $1.0 million
of the current year's license revenue for the six month period was previously
deferred income from a former customer, which was recognized upon settlement of
a long-standing dispute. As we have noted in the past, we have recently tried to
rebuild the sales staff. While we hope to see some results from this investment
over the next three to six months, the normal sales cycle for our products from
lead generation to closing is two to three quarters and can extend to over a
year for very large orders and there can be no guarantee that this strategy will
be successful. We believe that with the soft economy and a limited marketing
budget, the sales cycle will be elongated.

        Service and maintenance revenues decreased 7%, from $1.9 million for the
quarter ended June 30, 2000 to $1.7 million for the quarter ended June 30, 2001
and 21% to $3.5 million for the six months ended June 30, 2001 from $4.5




                                       9
<PAGE>   10

million for the six months ended June 30, 2000. The decrease was primarily
attributable to a continued decline in service revenue due to fewer active
client implementations. We do not expect this trend to be reversed until we
begin to experience a higher level of new product sales.

      COST OF REVENUES. Our 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 us 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 our products and the cost of
providing software maintenance to customers, technical support services and
periodic upgrades of software.

      The cost of software license revenues were not indicative of our normal
operations because in both the first quarter of the current year and the first
and second quarter's of last year there were settlements with former customers
that resulted in the recognition of revenue without any associated cost of
revenues.

      Cost of service and maintenance revenues declined substantially in both
the second quarter and the six-month period of the current year versus the
comparable periods of the prior year as a direct result of a reduction in
staffing due to a lower level of client implementations.

      OPERATING EXPENSES. Aggregate operating expenses declined 4% in both the
second quarter and the six-month period ended June 30, 2001 versus the
comparable period the previous year. Over the past two years we have focused our
efforts on reducing expenses to attain a sustainable level of profitability. We
intend to continue these efforts to maintain profitability while focusing our
efforts on new revenue generation. In order to continue to invest in revenue
generation and our new business process outsourcing (BPO) and re-seller
business, we took a number of steps to reduce our expenses. Given the size of
Flexi, we have decided to realign our senior management team. Frank Grywalski is
stepping down as President and Chief Operating officer and will focus on adding
new partners to our FlexiIndustry Partner (FIP)program. Normand Bilodeau will be
stepping down as our Chief Financial Officer but continue in the consultant role
which he had before his appointment. Both of them will continue to assist the
chief executive officer in their respective areas, for the foreseeable future.
These organizational changes are designed to provide us with the maximum amount
of resources focused upon the generation of new revenue.

      SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses, and facility and
communication costs for our sales staff. Sales and marketing expenses increased
100% to $887,000 for the second quarter of 2001 from $442,000 in the comparable
period of last year and increased 78% to $1.5 million for the six-month period.
The amounts for the six-month period, of the current year, included
approximately $330,000 in commissions awarded to sales agents in arbitration,
which was previously disclosed. We have increased the number of direct sales
representatives selling our products while continuing our efforts to expand our
product line to the accounting outsourcing area and to continue the pursuit of
more Flexi Industry Partnership arrangements.

      PRODUCT DEVELOPMENT. Product development expenses include software
development costs and consist primarily of engineering personnel costs. Product
development expenses decreased 41%, to $381,000 for the quarter ended June 30,
2001 from $650,000 for the quarter ended June 30, 2000. For the six-month
period, these expenses declined 27% or $384,000 to $1.1 million. Product
development expenses are expected to continue to be at reduced levels until
revenue begins to increase.

      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 declined 34% and 26% to
$476,000 and $1.3 million for the quarter and six-month period ended June 30,
2001, respectively, from $720,000 and $1.8 million in the second quarter and
six-month period of fiscal year 2000. This is primarily due to a reduction in
headcount and reduced professional fees. We expect the level of general and
administrative expenses to continue to decline as we reduce our usage of outside
professionals and work to reduce other expenses in this area.

      INTEREST INCOME AND INTEREST EXPENSE. Interest income represents income
earned on the Company's cash, cash equivalents and marketable securities. Net
interest expense was $4,000 for the second quarter and $15,000 for the six-month
period of the current year. Net interest expense increased over the comparable
periods last year as a result the reduced level of funds invested in the current
fiscal year as compared to the prior year, while our interest expense increased
as a result of interest on notes payable to vendors and borrowings under our
equipment financing arrangements.

      INCOME TAXES. No provision or benefit for federal, state or foreign income
taxes was made for any of the periods reported upon due to current earnings
being offset by operating loss carry forwards. Until recently, we have reported




                                       10
<PAGE>   11

only tax losses to date and consequently have approximately $47.9 million and
$9.1 million of U.S. and foreign net operating loss carryforwards, respectively,
which expire during the years 2005 through 2020, available to offset future
taxable income. The utilization of such net operating losses is subject to
limitations as a result of ownership changes. The annual limitation and the
timing of attaining profitability will result in the expiration of net operating
loss carryforwards before utilization and therefore a valuation reserve has been
set up for any deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

      Since our inception, we have primarily financed our operations through
private placements of stock to private investors, issuances of convertible and
nonconvertible promissory notes and loans, equipment financing and traditional
borrowing arrangements, and in December 1997, an initial public offering of
Common Stock, resulting in net proceeds to the Company of approximately $22.2
million.

      As of June 30, 2001, we had cash and cash equivalents of $544,000 a
decrease of $845,000 from December 31, 2000. Cash declined primarily as a result
of payments on trade accounts payable and long term financing arrangements. Our
working capital deficit at June 30, 2001 was $2.5 million, compared to $3.3
million at December 31, 2000. This working capital deficit is primarily the
result of deferred revenues of $5.0 million and $4.8 million at December 31,
2000 and June 30, 2001, respectively. Our operating activities resulted in net
cash outflow of $472,000 for the six months ended June 30, 2001, and results
primarily from payment of previously accrued liabilities and a reduction of
deferred revenue. Our financing activities resulted in a net cash outflow for
the six months ended June 30, 2001 of $412,000, principally from payment of
lease obligations and notes payable.

      While we believe that cash and cash equivalents and cash generated
internally by operations, will be sufficient to meet our working capital
requirements for at least the next several quarters, we caution that this is
contingent upon the our continuing to have substantially breakeven results over
the next several quarters. We are currently evaluating financing alternatives;
however, there can be no assurance that capital will be available to us on
favorable terms, or at all.

      Management continues to take actions to reduce costs in response to lower
revenues and is prepared to take further actions, if necessary, in order to
continue to respond to competitive and economic pressures in the marketplace.
However, there can be no assurance that we will be able to reduce costs to a
level to appropriately respond to competitive pressures or to obtain additional
funding.

CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

      UNPROVEN MARKET ACCEPTANCE OF OUR FMS SOLUTION. We are still in the early
stages of marketing our FMS back office processing solution. Our future
financial performance could depend, in significant part, on the successful
introduction and customer acceptance of FMS. There can be no assurance that our
FMS solution will be successfully implemented or gain market acceptance.

      POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE; SEASONALITY. Our revenues
and operating results have varied substantially from quarter to quarter. Our
quarterly operating results may continue to fluctuate due to a number of
factors, including the timing, size and nature of our licensing transactions;
the market acceptance of new services, products or product enhancements by us or
its competitors; product and price competition; the relative proportions of
revenues derived from license fees, services and third-party channels; changes
in our operating expenses; personnel changes; the timing of the introduction,
and the performance of, our 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 our 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 we will
be successful in closing such large transactions on a timely basis or at all.
Software license revenues under our 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 modifications that are essential to the product.
Delays in the installation of the software, including potential delays
associated with contractual enhancements to our software products, could
materially adversely affect the quarterly results of operations. In addition, as
we derive a significant proportion of total revenues from license revenues, we
may realize a disproportionate amount our 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




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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.

      Due to all of the foregoing factors, we believe 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 our
results of operations will be below the expectations of public market analysts
and investors. In either case, the price of our Common Stock could be materially
adversely affected.

      DEPENDENCE ON KEY PERSONNEL. Our performance depends substantially on the
performance of its executive officers and key employees, including our sales
force and software professionals, particularly project managers, software
engineers and other senior technical personnel. We are dependent on our ability
to attract, retain and motivate high-quality personnel, especially its
management, sales staff and highly skilled development team. We do not have
employment contracts with any of our key personnel. The loss of the services of
any of our executive officers or other key employees could have a material
adverse effect on our business, financial condition and results of operations.
We maintain a key person insurance policy on Stefan R. Bothe, Chairman of the
Board of Directors and Chief Executive Officer.

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

      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.

      RISKS ASSOCIATED WITH THIRD-PARTY CHANNELS. We address certain vertical
and geographic markets through our partners. We rely on our 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 we expect to dedicate significant resources to develop our partners,
there can be no assurance that we will be able to attract and retain qualified
firms in its targeted vertical markets. Our failure of to maintain our current
third-party channels or find other third-party channels, our inability to
adequately support such channels, the development of competitive products and
services by our third-party channels or the entry by such firms into alliances
with our competitors would substantially limit the our ability to our products
and services and, accordingly, have a material adverse effect on our business,
financial condition and results of operations. Although we have 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 our relationship with third-party channels
or adversely affect its ability to develop new channels.





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PART II.  OTHER INFORMATION

ITEM 2. LEGAL PROCEEDINGS

On July 18, 2001 we initiated formal arbitration proceedings, as provided for
under our agreement, against one of our FIP's, McKesson HBOC. The dispute arose
after we completed an audit under the terms of the contract, which encompassed
several years of royalty payments. In the first quarter, we invoiced the
customer approximately $1.9 million, which the customer disputes. The two
parties met on several occasions during the second quarter in an attempt to
settle this dispute without success. However, as a result of these meetings, we
reduced our claim to $1.7 million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

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

                 (a) The Company held its Annual Meeting of Stockholders on June
26, 2001 (the "Annual Meeting"). There were represented at the meeting in person
or by proxy the holders of 9,042,038 shares of Common Stock, $.01 par value per
share, of the Company, out of a total of 17,698,222 shares of Common Stock of
the Company issued, outstanding and entitled to vote at the meeting.

                 (b) At the Annual Meeting, the stockholders elected Stephan R.
Bothe as a Class III director of the Company for a three-year term by a vote of
8,817,069 shares for, out of a total of 9,042,038 shares present in person or by
proxy and entitled to vote at the meeting.

                 (c) At the Annual Meeting, the stockholders ratified the
appointment of Deloitte & Touche LLP as the independent auditors of the Company
for the current fiscal year by a vote of 8,992,832 for, out of a total 9,042,038
present in person or by proxy and entitled to vote at the meeting.

                 (d) At the Annual Meeting, the stockholders approved an
amendment to the Company's 1997 Stock Incentive Plan increasing the number of
shares of Common Stock available for issuance under the 1997 Stock Incentive
Plan from 1,875,000 shares to 2,375,000 shares by a vote of 8,679,384 for, out
of a total 9,042,038 present in person or by proxy and entitled to vote at the
meeting.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits

            None

        (b) Reports on Form 8-K

            We filed a report on Form 8-K on May 7, 2001 relating to the
            adjournment of our annual meeting of shareholders.






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                                    SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                    FLEXIINTERNATIONAL SOFTWARE, INC.



                                    By: /s/ Stefan R. Bothe
                                        ----------------------------------------
                                        Stefan R. Bothe, Chairman of the Board,
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)


Date: August 14, 2001







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