**FORM 10-Q**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
**(Mark One)**
______X_____     QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2003
OR
____________     TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from  _______ to _______

Commission File Number:  000-23453
**FLEXIINTERNATIONAL SOFTWARE, INC.**
**(Exact Name of Registrant as Specified in Its Charter)**
Delaware 
06-1309427
**(State or Other Jurisdiction of Incorporation orOrganization)** 
**(I.R.S. Employer Identification No.)**
Two Enterprise Drive, Shelton, CT 
06484
**(Address of Principal Executive Offices)** 
**(Zip Code)**
(203) 925-3040
**(Registrant's telephone number, including area code)**

Indicate by check mark whether the registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.
Yes __X__        No _____
Indicate by check mark whether the registrant is an accelerated filer (asdefined in Rule 12b-2 of the Exchange Act)
Yes _____         No __X__
As of June 30, 2003, there were 17,784,185 shares of FlexiInternationalSoftware, Inc. Common Stock outstanding.****   
 
**FLEXIINTERNATIONAL SOFTWARE, INC.** 
**Table of Contents**   
**Page**

**PART I.  FINANCIAL INFORMATION**

****

Item 1.

Consolidated FinancialStatements

3 
Consolidated Balance Sheets

3 
Consolidated Statements ofOperations

4 
Consolidated Statements of CashFlows

5 
Consolidated Statement ofStockholders' Deficit

6 
Notes to Consolidated FinancialStatements

7
Item 2.

Management's Discussion and Analysisof Financial Condition and Results of Operations

8
Item 3.

Quantitative and QualitativeDisclosures About Market Risk

15
Item 4.

Controls and Procedures

15 
**PART II.  OTHER INFORMATION**
 
Item 1.

Legal Proceedings

16
Item 4.

Submission of Matters to a Voteof Security Holders

16
Item 6.

Exhibits and Reports on Form8-K

16 
Signature
 
16 
**2**   

**PART I.     FINANCIALINFORMATION**
**Item 1.     ****ConsolidatedFinancial Statements**
**FlexiInternational Software, Inc. and Subsidiary**
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
     
June 30, 
December 31,     
2003
 
2002
   
ASSETS
 
(unaudited) 
(audited)        
CURRENT ASSETS
     
Cash and cash equivalents

$

1,026
$
892 
Interest bearing deposits
 
287 
37
  Accounts receivable, net of allowance for doubtful accounts of $36and $76,     respectively
 
674 
1,034 
Prepaid expenses and other current assets
 
399
 
219
   
TOTAL CURRENT ASSETS 
2,386 
2,182        
Property and equipment at cost, net of accumulated depreciation of $4,904     and $4,746, respectively
 
239 
295
Other assets
 
392
 
664

$

3,017

$
3,141
        
LIABILITIES AND STOCKHOLDERS' DEFICIT
            
CURRENT LIABILITIES
     
Accounts payable and accrued expenses

$

778
$
916 
Deferred revenue
 
2,382 
2,480 
Current portion of long-term liabilities
 
437
 
611
   
TOTAL CURRENT LIABILITIES 
3,597 
4,007        
LONG-TERM LIABILITIES (net of current maturities) 
 
663
 
811

       TOTAL LIABILITIES 
4,260
 
4,818
        
STOCKHOLDERS' DEFICIT: 
    
  Preferred stock, par value $.01 per share, 5,000,000 sharesauthorized; no      shares issued andoutstanding
 
- 
-
  Common stock, par value $.01 per share, 50,000,000 sharesauthorized;      17,784,185 shares issued andoutstanding
 
178 
178 Additional paid-in-capital 
56,117 
56,117 
Accumulated deficit
 
(57,795) 
(58,233) 
Other accumulated comprehensive income
 
257
 
261

TOTAL STOCKHOLDERS' DEFICIT 
(1,243)
 
(1,677)
 
$

3,017

$
3,141
        
See accompanying notes to consolidated financial statements.**3**   

**FlexiInternational Software, Inc. andSubsidiary**CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, exceptper share amounts)(unaudited)
    

Three Months Ended 

Six Months Ended     
June 30,
June 30, 
June 30,
June 30,     
2003

2002
 
2003

2002

REVENUE
          
Software license

$

477

$
301 

$

1,178
$
467 
Service and maintenance
 
1,071 
1,557  
2,206 
3,166 
Other operating revenue
 
357 
-  
357 
500   
      
 
      
  
      
 
      
  
TOTAL REVENUE

1,905
 
1,858
  
3,741
 
4,133
          
COST OF REVENUE
          
Software license
 
4 
63  
40 
82 
Service and maintenance
 
391 
491  
841 
1,076
Other operating revenue
 
272 
-  
272 
-   
      
 
      
  
      
 
      
 
TOTAL COST OF REVENUE 
667
 
554
  
1,153
 
1,158
 
GROSS PROFIT 
1,238
 
1,304
  
2,588
 
2,975
          
OPERATING EXPENSES
          
Sales and marketing
 
365 
381  
792 
738 
Product development
 
357 
339  
675 
719 
General and administrative     
 
405
 
351
  
668
 
726
 
TOTAL OPERATING EXPENSES 
1,127
 
1,071
  
2,135
 
2,183
 
INCOME FROM OPERATIONS 
111 
233  
453 
792           
OTHER INCOME (EXPENSE)
          
Net interest income (expense)

(7)
 
(3)
  
(15)
 
(15)
 
INCOME BEFORE INCOME TAXES

104
 
230
  
438
 
777

NET INCOME

$

104

$

230
 

$

438

$

777
          
INCOME PER SHARE
          
Basic

$

0.01
 
0.01
 
$

0.02

$
0.04
 

Diluted

$

0.01

$
0.01
 

$

0.02

$

0.04

WEIGHTED AVERAGE SHARES
          
Basic
 
17,784
 
17,784
  
17,784
 
17,784
 
Diluted
 
17,784
 
17,784
  
17,784
 
17,784

See accompanying notes to consolidated financial statements.**4**   

**FlexiInternational Software, Inc. andSubsidiary**CONSOLIDATED STATEMENTS OF CASH FLOWS(inthousands)(unaudited)
 
 Six Months Ended  
June 30, 
June 30,  
2003

 

2002 

Cash flows from operating activities:
    
Net income

$
438
$
777
Non-cash items:
    
  Depreciation and amortization
 
73 
100 
  Provision for bad debts
 
154 
251      
Change in certain assets and liabilities:
    
  Interest bearing deposits
 
(250) 
-
  Accounts receivable
 
205 
644
  Convertible promissory note
 
272 
-
  Prepaid expenses and other assets
 
(180) 
(172) 
  Accounts payable and accrued expenses
 
(137) 
(153)
  Deferred revenue
 
(98)
 
(532) 

Net cash provided by operating activities
 
477
 
915
     
Cash flows from investing activities:
    
  Purchases of property and equipment
 
(17)
 
(4)
          
Cash flows from financing activities:
    
  Repayments of long-term liabilities 
 
(322)
 
(81)

Net cash used in financing activities
 
(322)
 
(81)
     
Effect of exchange rate changes on cash and cash equivalents
 
(4)
 
(18)
     
Increase (decrease) in cash and cash equivalents
 
134 
812
Cash and cash equivalents at beginning of period
 
892
 
637 

Cash and cash equivalents at end of period

$
1,026

$
1,449 
     
Supplemental disclosures:
    
  Interest paid

$
18
$
22 
  Income taxes paid

$
-
$
-
  Conversion of convertible promissory note receivableinto     investment in common stock 

$

272
$
-     
See accompanying notes to consolidated financial statements.**5**   

**FlexiInternational Software, Inc. andSubsidiary**
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(in thousands, except share data)
(unaudited)
             
Other           
Additional   
Accumulated 
Total     
Common Stock
 
Paid-in 
Accumulated 
Comprehensive 
Stockholders'     
Shares
 
Amount
 
Capital
 
Deficit
 
Income
 
Deficit

Balance at December 31, 2002

17,784,185
$
  178
$
  56,117
$
   (58,233)
$
       261
$
(1,677) 
Net Income

- 
- 
- 
438 
- 
438 
Currency Translation Adjustment

- 
- 
- 
- 
(4) 
(4)
Comprehensive Income

-
 
-
 
-
 
-
 
-
 
-

Balance at June 30, 2003

17,784,185

$
  178

$
  56,117

$
(57,795)

$
257

$
(1,243)
                
See accompanying notes to consolidated financialstatements.
**6**   

**FlexiInternational Software, Inc. and Subsidiary**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSix monthsended June 30, 2003 and 2002(unaudited)
**Note 1-Basis of Presentation**
The accompanying unaudited consolidated financial statements include theaccounts of FlexiInternational Software, Inc. and its wholly owned subsidiary,FlexiInternational Software, Ltd. (collectively "the Company").  All significantintercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared by theCompany, without audit, pursuant to the rules and regulations of the Securitiesand Exchange Commission.  In the opinion of management, all adjustments(consisting of normal and recurring adjustments) considered necessary for a fairpresentation have been included; however, certain information and footnotedisclosures normally included in financial statements prepared in accordancewith U.S. generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations.  Accordingly, the Companybelieves that the financial statements should be read in conjunction with theconsolidated financial statements and the notes thereto included in theCompany's Annual Report on Form 10-K for the year ended December 31, 2002.Operating results for the six months ended June 30, 2003 are not necessarilyindicative of the results that may be expected for the year ended December 31,2003. 
Effective December 15, 2002, the Company adopted Statement of FinancialAccounting Standards No. 148 "Accounting for Stock-Based Compensation -Transition and Disclosure" (SFAS 148). This statement amends FASB statement 123,"Accounting for Stock Based Compensation". It provides alternative methods oftransition for an entity that voluntarily changes to the fair value based methodof accounting for employee stock based compensation.  It also amends thedisclosure provision of FASB statement No. 123 to require prominent disclosureabout the effects on reported net income of an entity's accounting policydecisions with respect to stock-based employee compensation.  As permitted bySFAS 123 and amended by SFAS 148, the Company continues to apply the intrinsicvalue method under Accounting Principles Board ("APB") Opinion No. 25,"Accounting for Stock Issued to Employees," to account for its stock-basedemployee compensation arrangements.
No stock-based employee compensation cost is reflected in net income, as alloptions granted under those plans had an exercise price equal to the marketvalue of the underlying common stock on the date of grant.  If the Company hadrecorded compensation under SFAS 123, the Company's net income and net incomeper share would be the pro forma amounts indicated below for the six-monthperiods ended June 30 (in thousands except per share amounts): 
 
2003
 
2002

Net income as reported

$438   
$  777
Less stock-based compensation expense determined under fair value based methodfor all awards, net of related tax effects

-
 
-

Net income pro forma

$438  
 
$  777
    
Income per share as reported - basic and diluted

$0.02 
 
$ 0.04

Income per share pro forma - basic and diluted

$0.02 
 
$ 0.04

**Note 2-Significant Events**
The second quarter 2003 revenues include $357,000 of other operating revenuearising from the Company's share of the sale of one of its Business ProcessOutsourcing Partners.  In addition, first quarter 2003 license revenue included$450,000 of one-time revenue related to a settlement with a reseller.  
**7**   
**Item 2.     Management'sDiscussion 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, amongother things our license revenue, service revenue, our new outsourcing business,the length of our sales cycle and future expenses.  For this purpose, anystatements contained herein that are not statements of historical fact may bedeemed to be forward-looking statements.  Without limiting the foregoing, thewords "believes," "anticipates," "plans," "expects," and similar expressions areintended to identify forward-looking statements.  Readers are cautioned not toplace undue reliance on these forward-looking statements, which reflectmanagement's opinions only as of the date hereof.  We undertake no obligation torevise or publicly release the results of any revision to these forward-lookingstatements.  Readers should carefully review the risk factors described in otherdocuments that we file from time to time with the Securities and ExchangeCommission, including our Annual Report on Form 10-K for the year ended December31, 2002.
**Overview**
       The Company designs, develops, marketsand supports the FlexiFinancial Enterprise Suite of financial and accountingsoftware applications and related tools.  The Flexi solution - composed ofFlexiFinancials, FlexiFinancial Datawarehouse or FlexiFDW, FlexilnfoAccess andFlexiTools - is designed to address the needs of users with sophisticatedfinancial accounting and operational analysis requirements.  We sell oursoftware for use in traditional in-house accounting operations as well asthrough our accounting outsourcing service to companies which want to outsourcetheir back office accounting processes.  
       Our Financial Management Servicessolution, or FMS, a business process outsourcing (BPO) service, is designed toleverage our suite of accounting products and our expertise in back officeprocessing of accounting data.  We believe that many mid-sized and start-up fastgrowing companies would benefit substantially from outsourcing their back officeaccounting processes to enable them to better focus on financial analysis, cashmanagement and the strategic issues of their businesses.  As part of our BPOsales strategy to expand regional coverage rapidly, we recruit regionalresellers of our FMS solution which will pay us a percentage of the fee theycollect for using our software and related solutions.  Some resellers willhandle the complete BPO service while others will handle the client relationshipand Flexi will handle the hosting and accounting aspects of the service.  In2001, we signed a BPO reseller agreement in which we provided the reseller aconvertible loan, in the aggregate principal amount of $272,000, to help launchthe reseller's BPO service.  As of December 31, 2002, we opted to exercise ourconversion rights under this instrument.  On April 14, 2003, the reseller wasacquired by a larger BPO provider.  Flexi was paid $357,000 immediately for itsownership share of the reseller and may realize an additional gain of up to$400,000 if certain earn-out targets are achieved by the reseller over the nexttwo years.  The acquirer of the reseller intends to continue to utilizeFlexiFinancials in its BPO operations.  According to industry analysts, thefinance and accounting outsourcing segment of the BPO market is in the earlyadoption phase and is expected to double in size over the next three years.However, the full acceptance of this solution is still several yearsaway.**8**   

 We derive our revenue primarily from: 
- royalties paid to us from third parties that distribute our products;
- non-cancelable software license agreements entered into with respect to ourproducts;
- payment from our BPO Partners for use of products and services;
- to a lesser extent, third-party products distributed by us; and
- annual software maintenance agreements entered into with ourcustomers.

       Our revenues have been derived fromboth domestic sales and international sales, with the international salescomprising 15.5% and 16.7% of total revenues for the six-month periods endedJune 30, 2003 and June 30, 2002, respectively.  Our international salesgenerally have the same cost structure as our domestic sales.  The majority ofour international sales are transacted in British pounds sterling, and anincrease in the value of the British pound relative to the currency of thecountry in which we are selling our product could make our products moreexpensive and potentially less competitive in these markets.  In addition, ourinternational business may be subject to a variety of other risks, includingdifficulties in collecting international accounts receivable or obtaining U.S.export licenses for certain countries, the introduction of non-tariff barriersand higher duty rates and fiscal and monetary policies that adversely affectnon-native firms.  See "Certain Factors that May Affect Future OperatingResults."**9**   

**Results of Operations**
 The following table sets forth certain financial data as a percentage ofrevenues for the periods indicated.
     

Three Months Ended 

Six Months Ended     
June 30,
June 30, 
June 30,
June 30,     
2003

2002
 
2003

2002

REVENUE
          
Software license
 
25.0% 
16.2%  
31.5% 
11.3% 
Service and maintenance
 
56.3% 
83.8%  
59.0% 
76.6% 
Other operating revenue
 
18.7% 
0.0%  
9.5% 
12.1%   
      
 
      
  
      
 
      
  
TOTAL REVENUE
 
100.0%
 
100.0%
  
100.0%
 
100.0%

COST OF REVENUE
          
Software license
 
0.2% 
3.4%  
1.1% 
2.0% 
Service and maintenance
 
20.5% 
26.4%  
22.5% 
26.0% 
Other operating revenue
 
14.3% 
-  
7.3% 
-   
      
 
      
  
      
 
      
 
TOTAL COST OF REVENUE 
35.0%
 
29.8%
  
30.9%
 
28.0%
 
GROSS PROFIT 
65.0%
 
70.2%
  
69.1%
 
72.0%

OPERATING EXPENSES
          
Sales and marketing
 
19.2% 
20.5%  
21.2% 
17.9% 
Product development
 
18.7% 
18.2%  
18.0% 
17.4% 
General and administrative
 
21.3% 
18.9%  
17.9% 
17.6%   
      
 
      
  
      
 
      
 
TOTAL OPERATING EXPENSES 
59.2%
 
57.6%
  
57.1%
 
52.9%
 
INCOME FROM OPERATIONS 
5.8% 
12.6%  
12.0% 
19.1%          
OTHER INCOME (EXPENSE)
          
Net interest (expense)
 
-0.4%
 
-0.2%
  
-0.3%
 
-0.4%
 

NET INCOME 
5.4%
 

12.4%
  
11.7%
 

18.7%

**10**   

*       Revenues.*Total revenues foreach of the quarters ended June 30, 2002 and 2003 approximated $1.9 million.Total revenues for the six-month period ended June 30, 2003 decreased 9.5% to$3.7 million from $4.1 million for the corresponding period of the prior year.Software license revenues increased 58.5% to $477,000 in the second quarter ofthe current year from $301,000 in the comparable period of the prior year.   Theprior year six-month period included $215,000 of one-time revenue related to asettlement with a client while the six-month period ended June 30, 2003 includeda settlement with a reseller which resulted in $450,000 in one-time revenue.One reseller customer accounted for 77.3% of the software license revenuerecognized during the second quarter of the current year.  Our license revenuewill remain low in the foreseeable future as we continue to focus on buildingour BPO service and reseller revenue.
       Service and maintenance revenuesdecreased 31.2%, from $1.6 million for the quarter ended June 30, 2002 to $1.1million for the quarter ended June 30, 2003.  This decrease continues to beprimarily attributable to a decline in service revenue due to fewer activeclient implementations.  We do not expect this trend to be reversed until webegin to experience a higher level of new product sales from new productlicenses and BPO contracts.  
       Other operating revenue for the sixmonths ended June 30, 2002 of $500,000 is for the sale of our rights to the URLdodge.com in the first quarter.  This was a one-time sale.  Other revenues forthe six months ended June 30, 2003 of $357,000 arises from the Company's shareof the sale of one of its BPO Partners.
*       Cost of Revenues.*Our cost ofrevenues consists substantially of cost of software license revenues and cost ofservice and maintenance revenues.  Cost of software license revenues consists ofthe cost of third-party software products distributed by us and the cost ofproduct media, manuals and shipping.  Cost of service and maintenance revenuesconsists of the cost of providing consulting, implementation and training tolicensees of our products and the cost of providing software maintenance tocustomers, technical support services and periodic upgrades of software.
       Cost of software license revenuedecreased 93.7%, from $63,000 for the quarter ended June 30, 2002 to $4,000 forthe quarter ended June 30, 2003 and decreased 51.2% from $82,000 for thesix-month period ended June 30, 2002 to $40,000 for the same six-month period of2003.  While increases or decreases of cost of software license revenue aredirectly related to increases or decreases of new license revenue, thepercentage of third-party revenue will also impact the cost of software licenserevenue as third-party revenue has a higher cost component than our ownsoftware.  Cost of software license revenues as a percentage of software licenserevenues decreased to 0.8% for the quarter ended June 30, 2003 from 20.9% forthe quarter ended June 30, 2002 and decreased to 3.4% for the six months endedJune 30, 2003 from 17.6% for the same period of 2002 due to a lower component ofthird-party sales.
       Cost of service and maintenancerevenues decreased 20.4%, from $491,000 for the quarter ended June 30, 2002 to$391,000 for the quarter ended June 30, 2003.  Cost of service and maintenancerevenue decreased 21.8% from $1.1 million for the six-month period ended June30, 2002 to $841,000 for the six-month period ended June 30, 2003.  Thissix-month decrease is a result of a reduction in staffing due to a lower levelof client implementations.
 In addition, costs of other operating revenue for the six-month periodended June 30, 2003 represents $272,000 arising from Flexi's portion of the saleof one of our Business Process Outsourcing Partners.
*       Operating Expenses.* Aggregateoperating expenses increased 5.2% in the quarter ended June 30, 2003 to $1.12million, from $1.07 million in the quarter ended June 30, 2002.  Aggregateoperating expenses declined 2.2% for the six-month period ended June 30, 2003 to$2.14 million from $2.18 million for the corresponding six-month period in 2002.Over the past three years we have focused our efforts on reducing expenses toattain a level of profitability.
*       Sales and Marketing.*Sales andmarketing expenses consist primarily of salaries, commissions, travel andpromotional expenses, and facility and communication costs for our sales staff.Sales and marketing expenses decreased 4.2% to $365,000 for the second quarterof 2003 from $381,000 in the comparable period of last year and increased 7.3%for the six-month period as a result of a small increase in sales forcestaffing.  
*       Product Development.*Productdevelopment expenses include software development costs and consist primarily ofengineering personnel costs.  Product development expenses increased 5.3% to$357,000 for the quarter ended June 30, 2003 from $339,000 for the quarter endedJune 30, 2002.   For the six-month period ended June 30, 2003 these expensesdeclined 6.1% to $675,000 from $719,000 of the comparable period for 2002.  Thedecrease in product development expense for the six months ended June 30, 2003was due primarily to the decrease in development activities.  The Companyexpects to continue to enhance the functionality of its core financialaccounting and reporting applications and its BPO solutions but does notanticipate the need to materially increase its development staff from itscurrent level.  **11**   

*       General and Administrative.*General and administrative expenses consist primarily of salaries ofexecutive, administrative and financial personnel, as well as provisions fordoubtful accounts, amortization of goodwill and outside professional fees.General and administrative expenses increased 15.4% to $405,000 for the quarterended June 30, 2003 from $351,000 in the second quarter of fiscal year 2002.For the six-month period, these expenses declined 8.0% from $726,000 in 2002 to$668,000 in the same period of 2003.  This is primarily due to continuedreduction efforts to attain a level of profitability.  
*       Net Interest Expense.*  Interestincome represents income earned on the Company's cash and cash equivalents andinterest bearing deposits while interest expense represents interest paid undercertain liabilities.  Net interest expense was $7,000 for the quarter ended June30, 2003 versus net interest expense of $3,000 for the comparable period of lastyear.  For the six-month periods of 2002 and 2003 the net interest expenseremained the same at $15,000.
*       Income Taxes.*No provision orbenefit for federal, state or foreign income taxes was made for any of theperiods reported upon due to current earnings being offset by operating losscarryforwards.  Due to a strong net income for the year ended December 31, 2002,Flexi recaptured $330,000 of previously recorded valuation allowance againstdeferred income taxes.  Flexi will continue to assess whether further recaptureis warranted as the year progresses but none is deemed necessary for the quarterended June 30, 2003.  We have reported only tax losses to date and consequentlyhave approximately $40.3 million and $26.9 million of U.S. and foreign netoperating loss carryforwards, respectively, which expire during the years 2005through 2020, available to offset future taxable income.  The utilization ofsuch net operating losses is subject to limitations as a result of ownershipchanges.  The annual limitation and the timing of attaining profitability willresult in the expiration of net operating loss carryforwards before utilizationand therefore a valuation reserve has been set up for any deferred tax assets.The Company's deferred tax assets at December 31, 2002 were approximately $28.3million, consisting primarily of net operating loss carryforwards.  TheCompany's benefit of deferred tax assets has been reserved as of December 31,2002 and June 30, 2003 in the amount of $28.0 million as the realization ofdeferred taxes is dependent on future events and earnings, if any, the timingand extent of which are uncertain.
**Liquidity and Capital Resources**
       Since inception, the Company hasprimarily financed its operations through private placements of its capitalstock, issuance of convertible promissory notes and loans, equipment financingand other traditional borrowing arrangements.  In addition, in December 1997Flexi consummated an initial public offering of common stock.
       For the past two years, however, Flexihas funded its operations primarily through cash received from license and otherrevenues, annual maintenance contracts, and consulting services provided to itsclients.  Given the critical nature of software to our customers' business, mostmaintenance contracts are renewed regularly and cancellations are usually due tocircumstances beyond our control, such as mergers and acquisitions of Flexiclients with companies that are using a competing product.  
       As of June 30, 2003, we had cash andcash equivalents of $1.0 million, an increase of $134,000 from December 31,2002.  Additionally, as of June 30, 2003, we had $287,000 in short-term interestbearing certificates of deposit, an increase of $250,000 from December 31, 2002.The Company's working capital deficit at June 30, 2003 was $1.2 million,compared to a working capital deficit of $1.8 million at December 31, 2002.
       The Company's operating activitiesresulted in a net cash inflow of $477,000 for the period ended June 30, 2003.The Company's investing activities resulted in a net cash outflow of $17,000 forthe period ended June 30, 2003 for purchases of property and equipment.  At June30, 2003, the Company had no material commitments for capital expenditures.During the six months ended June 30, 2003, the Company had net cash outflowsfrom financing activities of $322,000 which was primarily related to payments ofcertain long-term liabilities.
       Flexi's contractual cash obligationsare outlined in the table below including its equipment lease and office rentalobligations, as well as payments due under payment terms negotiated withcompanies for current debt and settlements of payment disputes.  These cashobligations were $260,000 for the period ending June 30, 2003 and are expectedto amount to approximately $86,000 per month for the twelve-month period offiscal 2003.  Where appropriate, Flexi will seek to negotiate extended paymentterms with respect to its financial obligations.
**12**    
Payments Due by Period(inthousands)
Contractual Obligations

Total
 
Less than 1 year
 
1-3 years
 
4-5 years
 
After 5 years

Facilities Obligations and Other      

$ 593.6     
197.0 
213.4 
183.2 
-
               OperatingLeases
         
Other Obligations

1,195.7
 
552.6
 
284.8
 
120.0
 
238.3

Total Contractual Cash Obligations

$ 1,789.3
 
749.6
 
498.2
 
303.2
 
238.3

________________________________

**Certain Factors that May Affect Future Operating Results**
*       Unproven Market Acceptance of ourFMS Solution.*If our FMS Solution does not gain market acceptance, ourbusiness will be adversely affected.**The growth of our business willdepend largely on the successful implementation of our recently introduced FMSsolution.  This solution is an accounting business processing outsource serviceor BPO, which we anticipate will allow us to leverage our suite of accountingsoftware products and our expertise in back office processing of accountingdata.  We expect to derive a portion of our revenues in the future from our BPOservice in conjunction with our existing software suites.  If our BPO servicedoes not gain market acceptance, our revenues may decline and our business maybe adversely affected.  Factors that may affect the market acceptance of our BPOservice, 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 existingproduct suites; and
- the availability, price, quality and performance of competing products andservices.

*       Potential Fluctuations in QuarterlyPerformance; Seasonality.*The Company's revenues and operating results havevaried substantially from quarter to quarter.  The Company's quarterly operatingresults may continue to fluctuate due to a number of factors, including thetiming, size and nature of the Company's licensing transactions and royaltypayments from our resellers; the market acceptance of new services, products orproduct enhancements by the Company or its competitors; product and pricecompetition; 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 theCompany's partners; foreign currency exchange rates; and fluctuations ineconomic and financial market conditions.
       The timing, size and nature ofindividual licensing transactions and royalty payments from our resellers areimportant factors in the Company's quarterly results of operations.  Many suchtransactions involve large dollar amounts, and the sales cycles for thesetransactions are often lengthy and unpredictable.  In addition, the sales cyclesassociated with these transactions are subject to a number of uncertainties,including customers' budgetary constraints, the timing of customers' budgetcycles and customers' internal approval processes.  There can be no assurancethat the Company will be successful in closing such large transactions on atimely basis or at all.  Software license revenues under the Company's licenseagreements are recognized upon delivery and installation of the product and whenall significant contractual obligations have been satisfied.  Significantobligations would include future promises of enhancements and/or modificationthat are essential to the product.  Delays in the installation of the Company'ssoftware, including potential delays associated with contractual enhancements tothe Company's software products, could materially adversely affect the Company'squarterly results of operations.  In addition, as the Company derives asignificant proportion of total revenues from license revenues, the Company mayrealize a disproportionate amount of its revenues and income in the last monthof each quarter and, as a result, the magnitude of quarterly fluctuations maynot become evident until late in, or at the end of, a given quarter.Accordingly, delays in product delivery and installation or in the closing ofsales near the end of a quarter could cause quarterly revenues and, to a greaterdegree, results of operations to fall substantially short of anticipated levels.
       The Company's expense levels arebased, in significant part, on its expectations as to future revenues and arelargely fixed in the short term.  As a result, the Company may be unable toadjust spending in a timely manner to compensate for any unexpected shortfall inrevenues.  Accordingly, any significant shortfall of revenues in relation to theCompany's expectations would have an immediate and material adverse effect onthe Company's business, financial condition and results of operations.
       The Company has experienced, and mayexperience in the future, significant seasonality in its business, and theCompany's financial condition or results of operations may be affected by suchtrends in the future.  In past years, the Company had greater demand for itsproducts in its fourth quarter and has experienced lower revenues in itssucceeding first quarter.  These fluctuations are caused primarily by pressureson prospects to complete purchases before year-end to achieve their goals anduse the allocated budgets. **13**   

       Due to all of the foregoing factors,the Company believes that period-to-period comparisons of its results ofoperations are not necessarily meaningful and that such comparisons cannot berelied upon as indicators of future performance.  The Company's future revenuesand results of operations may vary substantially.  It is also possible that insome future quarter the Company's results of operations will be below theexpectations of public market analysts and investors.  In either case, the priceof the Company's Common Stock could be materially adversely affected.
*       Dependence on Key Personnel.*The Company's performance depends substantially on the performance of itsChief Executive Officer, Stefan R. Bothe.  The Company has experiencedsignificant turnover in its management and is therefore operating with a limitedgroup of executive officers and key employees.  In addition, the Company hasexperienced personnel turnover with respect to its sales force and softwareprofessionals.  The Company is dependent on its ability to attract, retain andmotivate high-quality personnel, especially its management, sales staff andhighly skilled development team.  The loss of the services of the Company'sexecutive officer or other key employees could have a material adverse effect onthe Company's business, financial condition and results of operations.  TheCompany maintains a key person insurance policy on Stefan R. Bothe.
*       Lengthy Sales Cycle.*TheCompany's software is often used for business-critical purposes, and itsimplementation involves significant capital commitments by customers.  Potentialcustomers generally commit significant resources to an evaluation of availablesoftware and require the Company to expend substantial time, effort and moneyeducating potential customers about the value of the Company's solutions.  Salesof the Company's software products requires an extensive education and marketingeffort throughout a customer's organization because decisions to license suchsoftware generally involve the evaluation of the software by a significantnumber of customer personnel in various functional and geographic areas, eachhaving specific and often conflicting requirements.  A variety of factors,including factors over which the Company has little or no control, may causepotential customers to favor a competing vendor or to delay or forego apurchase.  As a result of these or other factors, the sales cycle for theCompany's products is long, typically ranging between three and nine months.Due to the length of the sales cycle for its software products, including delaysin implementing the Company's software across several functional and geographicareas of an organization, the Company's ability to forecast the timing andamount of specific sales is limited, and the delay or failure to complete one ormore large license transactions could have a material adverse effect on theCompany's business, financial condition or results of operations.
*       Competition.*The market forthe Company's products and services is intensely competitive and ischaracterized by rapid change in technology and user needs and the frequentintroduction of new products.  In recent quarters, the Company has beenobserving increasingly aggressive pricing practices and/or unusual terms andconditions offered to customers by its competitors and increasing competition inthe middle market from competitors which previously focused principally onlarger corporations.  A number of the Company's competitors are moreestablished, benefit from greater name recognition and have substantiallygreater financial, technical and marketing resources than the Company and itspartners and distributors.  In addition, the Company's partners may develop oroffer products and services that compete with the Company's products andservices.  The Company's partners may not give higher priority to the sales ofthese or other competitive products and services.  The Company may not be ableto compete successfully against current and future competitors or competitivepressures faced by the Company could materially adversely affect the Company'sbusiness, financial condition and results of operations.
*       Risks Associated with Third-PartyChannels.*The Company addresses certain vertical and geographic marketsthrough its partners for its outsourcing and software business.  The Companyrelies on its third-party channels to provide sales and marketing presence andname recognition, as well as the resources necessary to offer industry-specificfinancial accounting solutions.  Although the Company expects to dedicatesignificant resources to develop its partners, the Company may not be able toattract and retain qualified firms in its targeted vertical or regional markets.The failure of the Company to maintain its current third-party channels or findother third-party channels, the Company's inability to adequately support suchchannels, the development of competitive products and services by the Company'sthird-party channels or the entry by such firms into alliances with competitorsof the Company could substantially limit the Company's ability to provide itsproducts and services and, accordingly, have a material adverse effect on theCompany's business, financial condition and results of operations.  Although theCompany has attempted to seek partners in distinct vertical markets anddistributors in distinct geographic markets, and to manage them in a manner toavoid potential channel conflicts, channel conflicts may develop.  Any suchconflicts may adversely affect the Company's relationship with third-partychannels or adversely affect its ability to develop newchannels.**14**   

**Item 3.     Quantitative andQualitative Disclosures About Market Risk**
       Market risk refers to the potentialeffects of unfavorable changes in certain prices and rates on the Company'sfinancial results and conditions, primarily foreign currency exchange rates andinterest rates on marketable securities.  The Company does not utilizederivative instruments in managing its exposure to such changes.  The Companydoes not believe that near-term changes in foreign currency exchange rates orinterest rates will have a material effect on its future earnings, fair valuesor cash flows.
**Item 4.     Controls andProcedures**
       Based on an evaluation of theeffectiveness of the Company's disclosure controls and procedures performed bythe Company's management, with the participation of the Company's ChiefExecutive Officer and Acting Chief Financial Officer as of the end of the periodcovered by this report, the Company's Chief Executive Officer and Acting ChiefFinancial Officer concluded that the Company's disclosure controls andprocedures have been effective.
       As used herein, "disclosure controlsand procedures" means controls and other procedures of the Company that aredesigned to ensure that information required to be disclosed by the Company inthe reports that it files or submits under the Securities Exchange Act isrecorded, processed, summarized and reported, within the time periods specifiedin Commission's rules and forms.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by the Company in the reports that it files or submitsunder the Securities Exchange Act is accumulated and communicated to theCompany's management, including its principal executive and principal financialofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure.
       There were no changes in the Company'sinternal control over financial reporting identified in connection with theevaluation described in the preceding paragraph that occurred during theCompany's fiscal quarter ended June 30, 2003 that has materially affected, or isreasonably likely to affect, the Company's internal control over financialreporting. **15**   

**PART II.  OTHER INFORMATION**
**Item 1.      Legal Proceedings******
       The sales tax audit by the State ofConnecticut referred to in prior report has been completed and the Company feelsthat it will not have a material effect on the course of future business.
**Item 4.       Submission of Matters to a Vote ofSecurity Holders**
       (a) The Company held its AnnualMeeting of Stockholders on May 16, 2003 (the "Annual Meeting").  There wererepresented at the meeting in person or by proxy the holders of 14,862,423shares of Common Stock, $.01 par value per share, of the Company, out of a totalof 17,784,185 shares of Common Stock of the Company issued, outstanding andentitled to vote at the meeting.
       (b) Not applicable pursuant toInstruction 3 to Item 4 of Form 10-Q.
       (c) The only matter voted on at theAnnual Meeting was the election of one director to serve for a three-year termending at the Annual Meeting of Stockholders to be held in 2006.  The followingtable sets forth the votes cast for and the shares for which authority to votewas withheld.  There were no broker nonvotes.

Nominee
For
Withheld Authority
Robert A. Degan
14,785,024
77,399
       (d) Not applicable.

**Item 6.      Exhibits andReports on Form 8-K**
       (a) Exhibits
             31     Rule13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Acting ChiefFinancial Officer
             32     Section1350 Certification
       (b) Reports on Form 8-K
             OnJuly 7, 2003, we filed a Current Report on Form 8-K dated June 27, 2003 toreport under Item 4 a change in certifying accountants.
             OnJuly 31, 2003, we filed a Current Report on Form 8-K dated July 25, 2003 toreport under Items 7 and 12 our second quarter earningspress           release. 
**SIGNATURE**

       Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe 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: August 14, 2003**16**   

Exhibit 31
**Certification****by Chief Executive Officer****and ActingChief Financial Officer****Pursuant to Rule 13a-14**
       I, Stefan R. Bothe, certify that:
       I have reviewed this quarterly reporton Form 10-Q of FlexiInternational Software, Inc.;
       Based on my knowledge, this reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respectto the period covered by this report;
       Based on my knowledge, the financialstatements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisreport;
       I am responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e) for the registrant and have:
                   (a)     Designedsuch disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under my supervision, to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries,is made known to me by others within those entities, particularly during theperiod in which this report is being prepared;
                   (b)     Evaluatedthe effectiveness of the registrant's disclosure controls and procedures andpresented in this report my conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and 
                   (c)     Disclosedin this report any change in the registrant's internal control over financialreporting that occurred during the registrant's most recent fiscal quarter (theregistrant's fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, theregistrant's internal control over financial reporting; and
                   Ihave disclosed, based on my most recent evaluation of internal control overfinancial reporting, to the registrant's auditors and the audit committee of theregistrant's board of directors (or persons performing the equivalentfunctions):  
                   (a)     Allsignificant deficiencies and material weaknesses in the design or operation ofinternal control over financial reporting which are reasonably likely toadversely affect the registrant's ability to record, process, summarize andreport financial information; 
                   (b)     Anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant's internal control over financialreporting.
Date:     August 14, 2003
 
/s/    STEFAN R. BOTHE
 
Stefan R. Bothe
 
Chairman of the Board, President, Chief Executive Officer and Acting ChiefFinancial Officer
(Principal executive officer and principal financial officer)
**17**   
Exhibit 32
**CERTIFICATION PURSUANT TO**
**18 U.S.C. SECTION 1350,**
**AS ADOPTED PURSUANT TO**
**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

                   Inconnection with the Quarterly Report of FLEXIINTERNATIONAL SOFTWARE, INC. (the"*Company*") on Form 10-Q for the period ended June 30, 2003 asfiled with the Securities and Exchange Commission on the date hereof (the"*Report*"), I, Stefan R. Bothe, as Chief Executive Officer and ActingChief Financial Officer of the Company, certify, pursuant to 18 U.S.C.§ 1350, as adopted pursuant to § 906 of the Sarbanes-OxleyAct of 2002, that:
                   (1)     TheReport fully complies with the requirements of section 13(a) or 15(d) ofthe Securities Exchange Act of 1934; and
                   (2)     Theinformation contained in the Report fairly presents, in all material respects,the financial condition and results of operations of the Company.
  
By   /s/  Stefan R. Bothe
  Stefan R. Bothe
August 14, 2003**18**