##### 



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 March 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(State or Other Jurisdiction of Incorporation or Organization)
Two Enterprise Drive, Shelton, CT(Address of Principal Executive Offices) |  | 06-1309427(I.R.S. Employer Identification No.)
06484(Zip Code)

(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 March 31, 2002, there were 17,784,185 shares of FlexiInternational
Software, Inc. Common Stock outstanding.



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##### 



FLEXIINTERNATIONAL SOFTWARE, INC.

TABLE OF CONTENTS

|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|                                                                                              |  |     
|PART I. FINANCIAL INFORMATION                                                                 |  |     
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Condensed Consolidated Financial Statements                                           |  |     
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Condensed Consolidated Balance Sheets                                                         |  | 3   
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Condensed Consolidated Statements of Operations                                               |  | 4   
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Condensed Consolidated Statements of Cash Flows                                               |  | 5   
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Condensed Consolidated Statements of Stockholders Equity (Deficit)                           |  | 6   
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Notes to Condensed Consolidated Financial Statements                                          |  | 7   
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 8   
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|PART II. OTHER INFORMATION                                                                    |  |     
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |  | 13  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Quantitative and Qualitative Disclosures About Market Risk                            |  | 13  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Submission of Matters to a Vote of Security Holders                                   |  | 13  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 4. Exhibits and Reports on Form 8-K                                                      |  | 13  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Signature                                                                                     |  | 14  

2



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##### 



PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

FlexiInternational Software, Inc. and Subsidiary

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |              |   |  |        |  
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------ | ------------------------------------- | --------------------------- | - | ----------- | ------ | ------------ | - |  | ------ | -
|                                                                                                   |                                                                                                          |        |                                       |                             |   | March 31,   |        | December 31,
|                                                                                                   |                                                                                                          |        |                                       |                             |   | 2002        |        | 2001        
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                   |                                                                                                          |        |                                       |                             |   | (unaudited) |        | (audited)   
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                   |                                                                                                          | ASSETS |                                       |                             |   |             |        |              |   | 
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|CURRENT ASSETS                                                                                     |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Cash and cash equivalents                                                                                |        | $                                     | 705                         |   |             | $      | 637          |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Accounts receivable, net of allowance for doubtful accounts of
$360 and $22, respectively                |        |                                       | 1,508                       |   |             |        | 1,954        |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Prepaid expenses and other current assets                                                                |        |                                       | 250                         |   |             |        | 126          |  
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                   |                                                                                                          |        |                                       | TOTAL CURRENT ASSETS        |   |             | 2,463  |              |   |  | 2,717  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Property and equipment at cost, net of accumulated depreciation
of $4,593 and $4,569, respectively |                                                                                                          |        | 361                                   |                             |   |             | 418    |             
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Prepaid expenses and other current assets                                                          |                                                                                                          |        | 322                                   |                             |   |             | 276    |             
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                   |                                                                                                          | $      | 3,146                                 |                             |   | $           | 3,411  |             
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                   |                                                                                                          |        | LIABILITIES AND STOCKHOLDERS DEFICIT |                             |   |             |        |              |   |  |       
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|CURRENT LIABILITIES                                                                                |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Accounts payable and accrued expenses                                                                    |        | $                                     | 1,595                       |   |             | $      | 1,739        |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Deferred revenue                                                                                         |        |                                       | 2,848                       |   |             |        | 3,478        |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Current portion of long-term debt                                                                        |        |                                       | 191                         |   |             |        | 148          |  
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                   |                                                                                                          |        |                                       | TOTAL CURRENT LIABILITIES   |   |             | 4,634  |              |   |  | 5,365  |  
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             
|LONG-TERM DEBT LESS PRINCIPAL DUE WITHIN
ONE YEAR                                                  |                                                                                                          |        | 847                                   |                             |   |             | 933    |             
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|STOCKHOLDERS DEFICIT:                                                                             |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Preferred stock, par value $.01 per share, 5,000,000 shares
authorized, no shares issued and outstanding |        |                                       | 0                           |   |             |        | 0            |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | 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                                                                                      |        |                                       | (58,930                     | ) |             |        | (59,477      | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Other accumulated comprehensive income                                                                   |        |                                       | 300                         |   |             |        | 295          |  
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                   |                                                                                                          |        |                                       | TOTAL STOCKHOLDERS DEFICIT |   |             | (2,335 | )            |   |  | (2,887 | )
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             
|                                                                                                   |                                                                                                          | $      | 3,146                                 |                             |   | $           | 3,411  |             
|                                                                                                   |                                                                                                          |        |                                       |                             |   |             |        |             

See accompanying notes to condensed consolidated financial statements.

3



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##### 



FlexiInternational Software, Inc. and Subsidiary

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)
(unaudited)


|                          |                            |                            |   |                    |       |           |   |        |       | 
|------------------------- | -------------------------- | -------------------------- | - | ------------------ | ----- | --------- | - | ------ | ----- | 
|                          |                            |                            |   | Three Months Ended
|                          |                            |                            |   |                   
|                          |                            |                            |   | March 31,          |       | March 31,
|                          |                            |                            |   | 2002               |       | 2001     
|                          |                            |                            |   |                    |       |          
|REVENUE                   |                            |                            |   |                    |       |           |   |       
|                         
|                         
|                         
|                         
|                          | Software license           |                            | $ | 166                |       |           | $ | 1,377  |      
|                         
|                         
|                         
|                         
|                          | Other operating revenue    |                            |   | 500                |       |           |   | 0      |      
|                         
|                         
|                         
|                         
|                          | Service and maintenance    |                            |   | 1,609              |       |           |   | 1,777  |      
|                          |                            |                            |   |                    |       |           |   |       
|                          |                            | TOTAL REVENUE              |   |                    | 2,275 |           |   |        | 3,154 | 
|                          |                            |                            |   |                    |       |           |   |       
|COST OF REVENUE           |                            |                            |   |                    |       |           |   |       
|                         
|                         
|                         
|                         
|                          | Software license           |                            |   | 19                 |       |           |   | 105    |      
|                         
|                         
|                         
|                         
|                          | Service and maintenance    |                            |   | 585                |       |           |   | 782    |      
|                          |                            |                            |   |                    |       |           |   |       
|                          |                            | TOTAL COST OF REVENUE      |   |                    | 604   |           |   |        | 887   | 
|                          |                            |                            |   |                    |       |           |   |       
|                          |                            | GROSS PROFIT               |   |                    | 1,671 |           |   |        | 2,267 | 
|                          |                            |                            |   |                    |       |           |   |       
|OPERATING EXPENSES        |                            |                            |   |                    |       |           |   |       
|                         
|                         
|                         
|                         
|                          | Sales and marketing        |                            |   | 357                |       |           |   | 633    |      
|                         
|                         
|                         
|                         
|                          | Product development        |                            |   | 380                |       |           |   | 684    |      
|                         
|                         
|                         
|                         
|                          | General and administrative |                            |   | 375                |       |           |   | 842    |      
|                          |                            |                            |   |                    |       |           |   |       
|                          |                            | TOTAL OPERATING EXPENSES   |   |                    | 1,112 |           |   |        | 2,159 | 
|                          |                            |                            |   |                    |       |           |   |       
|                          |                            | INCOME FROM OPERATIONS     |   |                    | 559   |           |   |        | 108   | 
|                         
|                         
|                         
|                         
|OTHER INCOME (DEDUCTIONS) |                            |                            |   |                    |       |           |   |       
|                         
|                         
|                         
|                         
|                          | Net interest (expense)     |                            |   | (12                | )     |           |   | (11    | )    
|                          |                            |                            |   |                    |       |           |   |       
|                          |                            | INCOME BEFORE INCOME TAXES |   |                    | 547   |           |   |        | 97    | 
|                         
|                         
|                         
|                         
|INCOME TAXES              |                            |                            | 0 |                    |       |           | 0 |       
|                          |                            |                            |   |                    |       |           |   |       
|                          |                            | NET INCOME                 |   | $                  | 547   |           |   | $      | 97    | 
|                          |                            |                            |   |                    |       |           |   |       
|INCOME PER SHARE          |                            |                            |   |                    |       |           |   |       
|                         
|                         
|                         
|                         
|                          | Basic                      |                            | $ | 0.03               |       |           | $ | 0.01   |      
|                          |                            |                            |   |                    |       |           |   |       
|                          | Diluted                    |                            | $ | 0.03               |       |           | $ | 0.01   |      
|                          |                            |                            |   |                    |       |           |   |       
|WEIGHTED AVERAGE SHARES   |                            |                            |   |                    |       |           |   |       
|                         
|                         
|                         
|                         
|                          | Basic                      |                            |   | 17,784             |       |           |   | 17,675 |      
|                          |                            |                            |   |                    |       |           |   |       
|                          | Diluted                    |                            |   | 17,784             |       |           |   | 17,675 |      
|                          |                            |                            |   |                    |       |           |   |       

See accompanying notes to condensed consolidated financial statements

4



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##### 



FlexiInternational Software, Inc. and Subsidiary

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)


|                                                    |                                                   |   |                    |      |      |   |       |      |  
|--------------------------------------------------- | ------------------------------------------------- | - | ------------------ | ---- | ---- | - | ----- | ---- | -
|                                                    |                                                   |   | Three Months Ended
|                                                    |                                                   |   | March 31,         
|                                                    |                                                   |   |                   
|                                                    |                                                   |   | 2002               |      | 2001
|                                                    |                                                   |   |                    |      |     
|Cash flows from operating activities:               |                                                   |   |                    |      |      |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|Net income                                          |                                                   | $ | 547                |      |      | $ | 97    |     
|                                                   
|                                                   
|                                                   
|                                                   
|Non-cash items:                                     |                                                   |   |                    |      |      |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Depreciation and amortization                     |   |                    | 57   |      |   |       | 277  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Goodwill impairment                               |   |                    | 0    |      |   |       | 0    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Provision (credit) for doubtful accounts          |   |                    | 172  |      |   |       | (175 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Change in operating accounts:                       |                                                   |   |                    |      |      |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accounts receivable                               |   |                    | 274  |      |   |       | (628 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Prepaid expenses and other assets                 |   |                    | (170 | )    |   |       | (185 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accounts payable and accrued expenses             |   |                    | (144 | )    |   |       | 434  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accrued restructuring                             |   |                    | 0    |      |   |       | (27  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Deferred revenue                                  |   |                    | (630 | )    |   |       | (141 | )
|                                                    |                                                   |   |                    |      |      |   |       |     
|Net cash provided by (used in) operating activities |                                                   |   | 106                |      |      |   | (348  | )   
|                                                    |                                                   |   |                    |      |      |   |       |     
|Cash flows from investing activities:               |                                                   |   |                    |      |      |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Sales of marketable securities                    |   |                    | 0    |      |   |       | 61   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchases of property and equipment               |   |                    | 0    |      |   |       | (6   | )
|                                                    |                                                   |   |                    |      |      |   |       |     
|Net cash provided investing activities              |                                                   |   | 0                  |      |      |   | 55    |     
|                                                    |                                                   |   |                    |      |      |   |       |     
|Cash flows from financing activities:               |                                                   |   |                    |      |      |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Repayments of debt                                |   |                    | (15  | )    |   |       | (128 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from employee stock purchase plan        |   |                    | 0    |      |   |       | 1    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payments of capital lease obligations             |   |                    | (28  | )    |   |       | (144 | )
|                                                    |                                                   |   |                    |      |      |   |       |     
|Net cash used in financing activities               |                                                   |   | (43                | )    |      |   | (271  | )   
|                                                    |                                                   |   |                    |      |      |   |       |     
|Effect of exchange rate changes on cash             |                                                   |   | 5                  |      |      |   | (16   | )   
|                                                    |                                                   |   |                    |      |      |   |       |     
|Increase decrease in cash and cash equivalents      |                                                   |   | 68                 |      |      |   | (580  | )   
|                                                   
|                                                   
|                                                   
|                                                   
|Cash and cash equivalents at beginning of year      |                                                   |   | 637                |      |      |   | 1,389 |     
|                                                    |                                                   |   |                    |      |      |   |       |     
|Cash and cash equivalents at end of year            |                                                   | $ | 705                |      |      | $ | 809   |     
|                                                    |                                                   |   |                    |      |      |   |       |     
|Supplemental disclosures:                           |                                                   |   |                    |      |      |   |       |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Interest paid in cash                             |   | $                  | 12   |      |   | $     | 13   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Conversion of accounts payable into notes payable |   | $                  | 0    |      |   | $     | 189  |  

See accompanying notes to condensed consolidated financial statements.

5



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##### 



FlexiInternational Software, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

(in thousands, except share data)
(unaudited)


|                              |                                       |  |              |   |            |   |             |   |               |   |             |   |        |   |           |     |               |   |       |   |  |   |   |   |       |   |        |     | 
|----------------------------- | ------------------------------------- |  | ------------ | - | ---------- | - | ----------- | - | ------------- | - | ----------- | - | ------ | - | --------- | --- | ------------- | - | ----- | - |  | - | - | - | ----- | - | ------ | --- | 
|                              |                                       |  |              |   |            |   |             |   |               |   |             |   |        |   |           |     |               |   | Other |   |  |   |   |   | Total
|                              |                                       |  | Common Stock |   | Additional |   |             |   |               |   | accumulated |   |        |   |           |     | stockholders'
|                              |                                       |  |              |   | Paid-in    |   | Accumulated |   | comprehensive |   | Treasury    |   | equity
|                              |                                       |  | Shares       |   | Amount     |   | Capital     |   | Deficit       |   | income      |   | Stock  |   | (deficit)
|                              |                                       |  |              |   |            |   |             |   |               |   |             |   |        |   |          
|Balancce at December 31, 2001 |                                       |  | 7,784,185    |   |            | $ | 178         |   |               | $ | 56,117      |   |        | $ | (59,477   | )   |               | $ | 295   |   |  | $ | 0 |   |       | $ | (2,887 | )  
|                             
|                             
|                             
|                             
|                              | Shares issued for stock
purchase plan |  |              | 0 |            |   |             | 0 |               |   |             | 0 |        |   |           | 0   |               |   |       | 0 |  |   |   | 0 |       |   |        | 0   | 
|                             
|                             
|                             
|                             
|                              | Net income                            |  |              | 0 |            |   |             | 0 |               |   |             | 0 |        |   |           | 547 |               |   |       | 0 |  |   |   | 0 |       |   |        | 547 | 
|                             
|                             
|                             
|                             
|                              | Currency translation
adjustment       |  |              | 0 |            |   |             | 0 |               |   |             | 0 |        |   |           | 0   |               |   |       | 5 |  |   |   | 0 |       |   |        | 5   | 
|                              |                                       |  |              |   |            |   |             |   |               |   |             |   |        |   |           |     |               |   |       |   |  |   |   |   |       |   |        |    
|Comprehensive income          |                                       |  | 0            |   |            |   | 0           |   |               |   | 0           |   |        |   | 0         |     |               |   | 0     |   |  |   | 0 |   |       |   | 552    |    
|                              |                                       |  |              |   |            |   |             |   |               |   |             |   |        |   |           |     |               |   |       |   |  |   |   |   |       |   |        |    
|Balance at March 31, 2002     |                                       |  | 7,784,185    |   |            | $ | 178         |   |               | $ | 56,117      |   |        | $ | (58,930   | )   |               | $ | 300   |   |  | $ | 0 |   |       | $ | (2,335 | )  
|                              |                                       |  |              |   |            |   |             |   |               |   |             |   |        |   |           |     |               |   |       |   |  |   |   |   |       |   |        |    

See accompanying notes to consolidated financial statements

6



---



##### 



FlexiInternational Software, Inc. and Subsidiary

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31, 2002 and 2001
(unaudited)


NOTE 1  BASIS OF PRESENTATION

The condensed consolidated financial statements included herein have been
prepared by the Company, 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 U.S. generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Companys Annual Report on Form 10-K for the year ended December
31, 2001.

NOTE 2  NEW ACCOUNTING STANDARDS

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
adopted SFAS 142 in the first quarter of 2002. This will not have a material
effect on the financial statements.

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 Accounting for Derivative Instruments and Hedging Activities
(SFAS No. 133). This statement establishes accounting and reporting standards
for derivative instruments embedded in other contracts and hedging activities.
It requires that an entity recognize all derivatives as either other assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement did not have a material impact on financial
condition and results of operations.

NOTE 3  SIGNIFICANT EVENTS

The first quarter 2002 revenues included $500,000 under other revenue for the
sale of our rights for the URL dodge.com to the DaimlerChrysler Corporation.
Selling or renting access to our intellectual property is part of our regular
business. This sale was a one-time event and we have no further revenue
expectation from this transaction.

7



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##### 



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 license revenue,
service revenue, our new outsourcing business, 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, 2001.

Overview

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

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

We derive our revenue primarily from:



| |  |  | noncancellable software license agreements entered into with
respect to our products;
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | royalties paid to us from third parties that distribute our
products;                
|
| |  |  | to a lesser extent, third-party products distributed by us;
and                      
|
| |  |  | 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 15.6% and 17.5% of total revenues
for the quarters ended March 31, 2002 and 2001, respectively. Our international
sales generally have the same cost structure as our domestic sales. The majority
of our international sales are transacted in British pounds sterling and an
increase in the value of the British pound relative to the currency of the
country in which we are selling our product, could make our products more
expensive and potentially less competitive in these markets. In addition, our
international business may be subject to a variety of other risks, including
difficulties in collecting international accounts receivable or obtaining U.S.
export licenses, the introduction of non-tariff barriers and higher duty rates
and fiscal and monetary policies that adversely affect non-native firms. See
Certain factors that May Affect Future Operating Results.

8



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##### 



Results of Operations

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

|                          |                            |                            |     |                    |       |           |     |      |       |  
|------------------------- | -------------------------- | -------------------------- | --- | ------------------ | ----- | --------- | --- | ---- | ----- | -
|                          |                            |                            |     | Three Months Ended
|                          |                            |                            |     |                   
|                          |                            |                            |     | March 31,          |       | March 31,
|                          |                            |                            |     | 2002               |       | 2001     
|                          |                            |                            |     |                    |       |          
|REVENUE                   |                            |                            |     |                    |       |           |     |     
|                         
|                         
|                         
|                         
|                          | Software license           |                            |     | 7.3                | %     |           |     | 43.7 | %    
|                         
|                         
|                         
|                         
|                          | Other operating revenue    |                            |     | 22.0               | %     |           |     | 0.0  | %    
|                         
|                         
|                         
|                         
|                          | Service and maintenance    |                            |     | 70.7               | %     |           |     | 56.3 | %    
|                          |                            |                            |     |                    |       |           |     |     
|                          |                            | TOTAL REVENUE              |     |                    | 100.0 | %         |     |      | 100.0 | %
|                          |                            |                            |     |                    |       |           |     |     
|COST OF REVENUE           |                            |                            |     |                    |       |           |     |     
|                         
|                         
|                         
|                         
|                          | Software license           |                            |     | 0.8                | %     |           |     | 3.3  | %    
|                         
|                         
|                         
|                         
|                          | Service and maintenance    |                            |     | 25.7               | %     |           |     | 24.8 | %    
|                          |                            |                            |     |                    |       |           |     |     
|                          |                            | TOTAL COST OF REVENUE      |     |                    | 26.5  | %         |     |      | 28.1  | %
|                          |                            |                            |     |                    |       |           |     |     
|                          |                            | GROSS PROFIT               |     |                    | 73.5  | %         |     |      | 71.9  | %
|                          |                            |                            |     |                    |       |           |     |     
|OPERATING EXPENSES        |                            |                            |     |                    |       |           |     |     
|                         
|                         
|                         
|                         
|                          | Sales and marketing        |                            |     | 15.7               | %     |           |     | 20.1 | %    
|                         
|                         
|                         
|                         
|                          | Product development        |                            |     | 16.7               | %     |           |     | 21.7 | %    
|                         
|                         
|                         
|                         
|                          | General and administrative |                            |     | 16.4               | %     |           |     | 26.7 | %    
|                          |                            |                            |     |                    |       |           |     |     
|                          |                            | TOTAL OPERATING EXPENSES   |     |                    | 48.8  | %         |     |      | 68.5  | %
|                          |                            |                            |     |                    |       |           |     |     
|                          |                            | INCOME FROM OPERATIONS     |     |                    | 24.7  | %         |     |      | 3.4   | %
|                         
|                         
|                         
|                         
|OTHER INCOME (DEDUCTIONS) |                            |                            |     |                    |       |           |     |     
|                         
|                         
|                         
|                         
|                          | Net interest (expense)     |                            |     | (0.5               | )%    |           |     | (0.3 | )%   
|                          |                            |                            |     |                    |       |           |     |     
|                          |                            | INCOME BEFORE INCOME TAXES |     |                    | 24.2  | %         |     |      | 3.1   | %
|                         
|                         
|                         
|                         
|INCOME TAXES              |                            |                            | 0.0 | %                  |       |           | 0.0 | %   
|                          |                            |                            |     |                    |       |           |     |     
|                          |                            | NET INCOME                 |     |                    | 24.2  | %         |     |      | 3.1   | %
|                          |                            |                            |     |                    |       |           |     |     

Revenues. Total revenues, consisting of software license revenues,
service and maintenance revenues, decreased 28% from $3.2 million for the
quarter ended March 31, 2001 to $2.3 million for the quarter ended March 31,
2002. Software license revenues decreased 88% to $166,350 in the first quarter
of the current year from $1.4 million in the comparable period of the prior
year. The prior year quarter included $1.0 million invoice for royalties and
maintenance which we determined was due us and is currently subject to binding
arbitration (see Legal Proceedings). One customer accounted for 98% of the
software license revenue recognized during the first quarter of the current
year, and the same customer accounted for 74% of last years first quarter
software license revenue. Our license revenue will remain low in the foreseeable
future as we continue to focus on building our BPO service revenue.

Service and maintenance revenues decreased 9%, from $1.8 million for the
quarter ended March 31, 2001 to $1.6 million for the quarter ended March 31,
2002. This decrease continues to be primarily attributable to a 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 from new product licenses and BPO contracts.

Other revenues
accounts for $500,000 for the sale of our rights to the URL
dodge.com. This was a one-time sale.

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 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.

9



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##### 



Cost of software license revenue decreased 82%, from $105,000 for the
quarter ended March 31, 2001 to $19,000 for the quarter ended March 31, 2002.
This decrease is primarily attributable to decreased revenue. Cost of software
license revenues as a percentage of software license revenues increased to 11%
for the quarter ended March 31, 2002 from 8% for the quarter ended March 31,
2001 due to a higher component of third-party sales.

Cost of service and maintenance revenues decreased 25%, from $782,000 for
the quarter ended March 31, 2001 to $585,000 for the quarter ended March 31,
2002. This decrease is a result of a reduction in staffing due to a lower level
of client implementations.

Operating
Expenses. Aggregate operating expenses declined 49% in the
quarter ended March 31, 2002 to $1.1 million, from $2.2 million in the quarter
ended March 31, 2001. Over the past three years we have focused our efforts on
reducing expenses to attain a sustainable level of profitability.

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 decreased
44% to $357,000 for the first quarter of 2001 from $633,000 in the comparable
period of last year as result of a smaller, more focused sales force.

Product
Development. Product development expenses include software
development costs and consist primarily of engineering personnel costs. Product
development expenses decreased 44% to $380,000 for the quarter ended March 31,
2002 from $684,000 for the quarter ended March 31, 2001. The decrease in product
development expense was due primarily to the decrease in development personnel
as a result of the completion of the 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 solutions,
but does not anticipate the need to materially increase its development staff
from its current level.

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 56% to $375,000
for the quarter ended March 31, 2002 from $842,000 in the first quarter of
fiscal year 2001. This is primarily due to a reduction of legal expenses and
executive compensation.

Interest Income
and Interest Expense. Interest income represents income
earned on the Companys cash, cash equivalents and marketable securities. Net
interest expense was $12,000 for the quarter ended March 31, 2002 versus net
interest expense of $11,000 for the comparable period of last year. This
increase is primarily due to the additional interest expense 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
only tax losses to date and consequently have approximately $40.3 million and
$26.9 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. The Companys deferred tax
assets at December 31, 2001 were $24.5 million, consisting primarily of net
operating loss carryforwards. The Companys benefit of deferred tax assets has
been fully reserved as of December 31, 2001 as the realization of deferred taxes
is dependent on future events and earnings, if any, the timing and extent of
which are uncertain.

Liquidity and Capital Resources

Since inception, the Company has primarily financed its operations through
private placements of its capital stock, issuance of convertible promissory
notes and loans, equipment financing and other traditional borrowing
arrangements. In addition, in December 1997 Flexi consummated an initial public
offering of common stock.

For the past two years, however, Flexi has funded its operations primarily
through cash received from license and royalty revenues, annual maintenance
contracts, and consulting services provided to its clients. Maintenance fees
represented 63% of the cash resources of the Company for the first quarter of
2002 and are expected to average $450,600 per month in 2002. Given the critical
nature of software to our customers business, most maintenance contracts are
renewed regularly and cancellations are usually due to circumstances such as
mergers and acquisitions of Flexi clients with companies that are using a
competing product.

As of March 31, 2002, we had cash and cash equivalents of $705,000, an
increase of $68,000 from December 31, 2001 including the $500,000 received for
the sale of the dodge.com URL. The Companys working capital deficit at March
31, 2002 was $2.2 million, compared to a working capital deficit of $2.7 million
at December 31, 2001.

10



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##### 



The Companys operating activities resulted in a net cash inflow of
$106,000 for the period ended March 31, 2002 which was mainly the cause of a
decrease in accrued expenses and accounts payable and the cash received from the
sale of our rights to the URL dodge.com. The Companys investing activities
resulted in a net cash inflow of $0 for the period ended March 31, 2002. At
March 31, 2002, the Company had no material commitments for capital
expenditures. During the period ended March 31, 2002, the Company had net cash
outflows from financing activities of $43,000, 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 were $259,000 for the
period ending March 31, 2002 and are expected to amount to approximately $91,000
per month for fiscal 2002. Flexi also has an arbitration award of $331,000
against the Company for which collection attempts have been made recently and
payment terms are expected to be negotiated. Where appropriate, Flexi will seek
to negotiate extended payment terms with respect to its financial obligations.

|                                   |  |       |         |        |  |                                      |         |           |  |       |         |  |  |   |       |         |  |   |       | 
|---------------------------------- |  | ----- | ------- | ------ |  | ------------------------------------ | ------- | --------- |  | ----- | ------- |  |  | - | ----- | ------- |  | - | ----- | 
|                                   |  |       |         |        |  | Payments Due
by Period(In Thousands) |         |           |  |      
|                                   |  |       |         |        |  |                                      |         |           |  |      
|                                   |  |       |         |        |  | Less Than                            |         |           |  |       |         |  |  |   |       | After 5
|Contractual Obligations            |  | Total |         | 1 Year |  | 1-3 Years                            |         | 4-5 Years |  | Years
|                                   |  |       |         |        |  |                                      |         |           |  |      
|Facilities Obligation              |  | $     | 664.4   |        |  | $                                    | 363.9   |           |  | $     | 260.8   |  |  | $ | 39.7  |         |  |   |      | 
|                                  
|                                  
|                                  
|                                  
|Capital Lease Obligation           |  |       | 360.9   |        |  |                                      | 120.0   |           |  |       | 240.9   |  |  |   |      |         |  |   |      | 
|                                  
|                                  
|                                  
|                                  
|Operating Leases                   |  |       | 78.8    |        |  |                                      | 47.7    |           |  |       | 31.1    |  |  |   |      |         |  |   |      | 
|                                  
|                                  
|                                  
|                                  
|Other Obligations                  |  |       | 1,600.9 |        |  |                                      | 529.1   | (1)       |  |       | 638.5   |  |  |   | 120.0 |         |  |   | 313.3 | 
|                                  
|                                  
|                                  
|                                  
|Insurance Obligations              |  |       | 116.4   |        |  |                                      | 116.4   |           |  |       |        |  |  |   |      |         |  |   |      | 
|                                   |  |       |         |        |  |                                      |         |           |  |       |         |  |  |   |       |         |  |   |       | 
|Total Contractual Cash Obligations |  | $     | 2,821.4 |        |  | $                                    | 1,177.1 |           |  | $     | 1,171.3 |  |  | $ | 159.7 |         |  | $ | 313.3 | 
|                                   |  |       |         |        |  |                                      |         |           |  |       |         |  |  |   |       |         |  |   |       | 



---

|(1) |  | Partially offset by $215 insurance payment.
|--- |  | -------------------------------------------

Certain Factors that May Affect Future Operating Results

Unproven Market
Acceptance of our FMS Solution. 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 an accounting 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

11



---



##### 



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.

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

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

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.

12



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##### 



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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

The Company is also a party to various disputes and proceedings arising
from the ordinary course of general business activities including 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 2. 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 3. Submission of Matters to a Vote of Security Holders

None

Item 4. Exhibits and Reports On Form 8-K

|    |  |                    
|--- |  | -------------------
|(a) |  | Exhibits           
|   
|   
|   
|   
|   
|    |  | None               
|   
|   
|   
|   
|   
|(b) |  | Reports on Form 8-K
|   
|   
|   
|   
|   
|    |  | None               

13



---



##### 



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,
Chief Executive Officer and Acting Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)

Date: May 15, 2002

14