<PAGE>   1

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(MARK ONE)

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

 For the quarterly period ended March 31, 2001

                                       OR

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

For the transition period from  _______ to _______

Commission File Number:  000-23453

                        FLEXI INTERNATIONAL SOFTWARE, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


<TABLE>
<S>                                                                     <C>
                          Delaware                                                   06-1309427
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)          (I.R.S. EMPLOYER IDENTIFICATION NO.)
              Two Enterprise Drive, Shelton, CT                                        06484
           (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                                  (ZIP CODE)
</TABLE>

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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                Yes [X]    No [ ]

As of March 31, 2001, there were 17,678,248 shares of FlexiInternational
Software, Inc. Common Stock outstanding.



<PAGE>   2

                        FLEXIINTERNATIONAL SOFTWARE, INC.

                                TABLE OF CONTENTS

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

Item 1. Condensed Consolidated Financial Statements
            Condensed Consolidated Balance Sheets...............................    3
            Condensed Consolidated Statements of Income.........................    4
            Condensed Consolidated Statements of Cash Flow......................    5
            Condensed Consolidated Statement of Stockholders' Deficit...........    6
            Notes to Condensed Consolidated Financial Statements................    7
Item 2. Management's Discussion and Analysis of Financial
            Condition and Results of Operations.................................    8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............   13

PART II.          OTHER INFORMATION
Item 6.           Exhibits and Reports on Form 8-K..............................   13


Signature         ..............................................................   14
</TABLE>


                                       2
<PAGE>   3

PART I.  FINANCIAL INFORMATION

ITEM 1.           CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                        FLEXIINTERNATIONAL SOFTWARE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          MARCH 31,      DECEMBER 31,
                                                                                             2001            2000
                                                                                          ---------      ------------
<S>                                                                                       <C>            <C>
     ASSETS
Current assets:
  Cash and cash equivalents                                                               $    809         $  1,389
  Marketable securities - restricted                                                            47              108
  Accounts receivable, net of allowance for doubtful accounts of $177 at March 31,
     2001 and $352 at December 31, 2000                                                      3,343            2,558
  Prepaid expenses and other current assets                                                    522              322
                                                                                          --------         --------
     Total current assets                                                                    4,721            4,377

Property and equipment at cost, net of accumulated depreciation
     of $4,305 and $4,154, respectively                                                        696              841
Goodwill, net of accumulated amortization of $6,710 and $6,582, respectively                 1,117            1,245
Other assets                                                                                   139              160
                                                                                          --------         --------

     TOTAL ASSETS                                                                         $  6,673         $  6,623
                                                                                          ========         ========

     LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable and accrued expenses                                                   $  1,890         $  1,666
  Accrued restructuring                                                                         --               27
  Short term portion of long-term debt                                                         929              976
  Deferred revenues                                                                          4,836            5,012
                                                                                          --------         --------
     Total current liabilities                                                               7,655            7,681

Long term debt-less current portion                                                            420              457
                                                                                          --------         --------
     Total liabilities                                                                       8,075            8,138
                                                                                          --------         --------

Stockholders' deficit:
Preferred stock: $.01 par value; 5,000,000 shares authorized; none issued                       --               --
Common stock: $.01 par value; 50,000,000 shares authorized; issued shares -
   17,683,133 and outstanding shares - 17,678,248 and 17,672,703, respectively                 177              177
Additional paid-in capital                                                                  56,119           56,128
Accumulated deficit                                                                        (57,997)         (58,094)
 Other accumulated comprehensive income                                                        308              293
 Common stock in treasury at cost - 4,885 and 10,430 shares,
   respectively                                                                                 (9)             (19)
                                                                                          --------         --------
     Total stockholders' deficit                                                            (1,402)          (1,515)
                                                                                          --------         --------

     TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                          $  6,673         $  6,623
                                                                                          ========         ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.



                                       3
<PAGE>   4

                        FLEXIINTERNATIONAL SOFTWARE, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED
                                                  -------------------------
                                                          MARCH 31,
                                                    2001             2000
                                                  --------         --------
<S>                                               <C>              <C>
REVENUES:
   Software license                               $  1,377         $  1,032
   Service and maintenance                           1,777            2,595
                                                  --------         --------
       Total revenues                                3,154            3,627
                                                  --------         --------

COST OF REVENUES:
   Software license                                    105              218
   Service and maintenance                             782            1,130
                                                  --------         --------
      Total cost of revenues                           887            1,348
                                                  --------         --------

GROSS PROFIT                                         2,267            2,279
                                                  --------         --------

OPERATING EXPENSES:
   Sales and marketing                                 633              411
   Product development                                 684              799
   General and administrative                          842            1,050
                                                  --------         --------
      Total operating expenses                       2,159            2,260
                                                  --------         --------

OPERATING INCOME                                       108               19

Net interest expense                                   (11)              (2)
                                                  --------         --------

INCOME BEFORE INCOME TAXES                              97               17
Provision for income taxes                              --               --
                                                  --------         --------
NET INCOME                                        $     97         $     17
                                                  ========         ========

BASIC NET INCOME PER SHARE                        $   0.01         $   0.00
                                                  ========         ========
Weighted average common shares outstanding          17,675           17,665
                                                  ========         ========

DILUTED NET INCOME PER SHARE                      $   0.01         $   0.00
                                                  ========         ========
Weighted average common shares outstanding          17,675           17,996
                                                  ========         ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>   5

                        FLEXIINTERNATIONAL SOFTWARE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED
                                                                       MARCH 31,
                                                               -------------------------
                                                                 2001             2000
                                                               --------         --------
<S>                                                            <C>              <C>
Cash flows from operating activities:
Net income                                                     $     97         $     17
Non-cash items:
  Depreciation and amortization                                     277              366
  Provision for doubtful accounts                                  (175)              60
  Loss on disposal of assets                                         --               12
Change in operating accounts:
  Accounts receivable                                              (628)             722
  Prepaid expenses and other assets                                (185)             (54)
  Accounts payable and accrued expenses                             434             (351)
  Accrued restructuring                                             (27)            (117)
  Deferred revenue                                                 (141)          (1,122)
                                                               --------         --------
Net cash used in operating activities                              (348)            (467)
                                                               --------         --------

Cash flows from investing activities:
  Sales of marketable securities                                     61               --
  Purchases of property and equipment                                (6)              (8)
                                                               --------         --------
Net cash provided by (used in) investing activities                  55               (8)
                                                               --------         --------

Cash flows from financing activities:
  Repayments of debt                                               (128)              --
  Proceeds from employee stock purchase plan                          1                8
  Payments of capital lease obligations                            (144)            (152)
                                                               --------         --------
                                                                   (271)            (144)
                                                               --------         --------

Effect of exchange rate changes on cash                             (16)            (117)
                                                               --------         --------

Decrease in cash and cash equivalents                              (580)            (736)
Cash and cash equivalents at beginning of year                    1,389            1,874
                                                               --------         --------
Cash and cash equivalents at end of year                       $    809         $  1,138
                                                               ========         ========

Supplemental disclosures:
  Interest paid in cash                                        $     13         $     26
  Conversion of accounts payable into notes payable            $    189
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       5
<PAGE>   6

                        FLEXIINTERNATIONAL SOFTWARE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                   Common Stock        Additional                     Other                    Total      Compre-
                               --------------------     paid-in      Accumulated  comprehensive  Treasury  stockholders'  hensive
                                 Shares      Amount     capital        deficit        income      stock       deficit     income
                               ----------    ------    ----------    -----------  -------------  --------  -------------  -------
<S>                            <C>           <C>       <C>           <C>          <C>            <C>       <C>            <C>
Balance at December 31, 2000   17,683,133     $177      $ 56,128       $(58,094)       $293        $(19)      $(1,515)
Shares issued for stock plan           --       --            (9)                        --          10             1
Net income                             --       --            --             97          --          --            97      $  97
Currency translation
 adjustment                            --       --            --             --          15          --            15         15
                                                                                                                           -----
Comprehensive income                   --       --            --             --          --          --            --      $ 112
                               ----------     ----      --------       --------        ----        ----       -------      =====

Balance at March 31, 2001      17,683,133     $177      $ 56,119       $(57,997)       $308        $ (9)      $(1,402)
                               ==========     ====      ========       ========        ====        ====       =======
</TABLE>



     See accompanying notes to condensed consolidated financial statements.



                                       6
<PAGE>   7

                        FLEXIINTERNATIONAL SOFTWARE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   THREE MONTHS ENDED MARCH 31, 2001 AND 2000
                                   (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 generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.

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


NOTE 2 - NEW ACCOUNTING STANDARDS

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

NOTE 3 - SIGNIFICANT EVENTS

In February the Company resolved a long standing and previously disclosed
dispute with a customer that resulted in the recognition of approximately
$1,017,000 in revenue during the first quarter, which included approximately
$410,000 of previously deferred revenue and an additional cash settlement of
$600,000.

During the first quarter of 2001, the Company completed an audit under the terms
of a contract with one of its partners, which encompassed several years of
royalty payments. The Company has invoiced the customer approximately $1.9
million, which the customer disputes. The Company recorded this amount in
accounts receivable and, because the amount is in dispute, has deferred the
entire amount that was invoiced. The Company will recognize the income when
either an agreement can be reached with the customer or it can be otherwise
determined that the Company can be assured of the collection of the amounts
owed.

NOTE 4 - RESTRUCTURING CHARGE

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


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<PAGE>   8

headcount. This action also included involuntary terminations of selected
personnel. Severance packages were offered to 18 employees.

As a result of both of these actions, the Company recorded a charge to
operations during the three month periods ended March 31, 1999 and September 30,
1999 of $1,896 and $125, respectively. Of the total amount of these charges,
$1,855 was related to severance costs, of which $1,258 was paid prior to
December 31, 1999, and $166 related to costs of idle facility space, of which
all of these amounts were paid during the year ended December 31, 1999.
Additionally, during the third quarter of 1999, one of the Company's former
employees, who was terminated earlier in the year, obtained employment
elsewhere, and the Company was no longer obligated to make payments totaling
$196. As such, the Company reversed this accrued liability during the three
months ended September 30, 1999. At December 31, 2000, there remained $27 of
severance costs, which will be paid in installments through February 2001. In
the quarters ended March 31, 2001 and 2000 $27 and $117, respectively, of
severance benefits were paid and charged against this reserve. The Company
believes that these actions resulted in sustainable cost savings, primarily
through the elimination of redundant functions in product development, due to
completion of development work on FlexiFinancials Release 4, and to a lesser
extent in the support and sales organizations.

Detail of the restructuring charge is as follows:

<TABLE>
<CAPTION>
                             Severance           Excess
                            & Benefits         Facilities           Total
                            ----------         ----------           -----
<S>                          <C>               <C>              <C>
Reserve balances,
December 31, 2000            $      27         $     -          $      27

Cash payments                      (27)              -                (27)
                             ----------        --------         ----------

Reserve balances,
March 31, 2001               $       -         $     -          $       -
                             =========         ========         =========
</TABLE>


NOTE 5-SUBSEQUENT EVENT

On April 23, 2001 we were informed of the outcome of an arbitration proceeding
initiated against us by Client Server Solutions Limited ("CSS") seeking
commissions of more than $2.3 million. The arbitrator awarded CSS approximately
$330,000 including expenses. This will be charged against existing reserves in
the second quarter of the current fiscal year.


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. 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. The Company undertakes 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 the
Company files from time to time with the Securities and Exchange Commission,
including the Annual Report on Form 10-K for the year ended December 31, 2000.

OVERVIEW

         FlexiInternational Software Inc. designs, develops, markets and
supports the FlexiFinancial Enterprise Suite of financial and accounting
software applications and related tools. The Flexi solution - composed of
FlexiFinancials, FlexiFinancial Datawarehouse (FlexiFDW), FlexiInfoAccess and
FlexiTools - is designed to address the needs of users with sophisticated
financial accounting and operational analysis requirements. In addition, we
recently began marketing our Financial Management Services (FMS) solution, a
business process outsourcing (BPO) service designed to leverage


                                       8
<PAGE>   9
our suite of accounting products and our expertise in back office processing of
accounting data. We believe that many mid-sized and fast growing start-up
companies want to outsource their back office accounting processes while they
focus on financial analysis, cash management and the strategic issues of their
business.

         Software license revenues include (i) revenues from noncancellable
software license agreements entered into between our customers and us with
respect to our products, (ii) royalties due us from third parties that
distribute our products and, to a lesser extent, (iii) third-party products
distributed by us. Software license royalties earned through our indirect sales
channel are recognized as such fees are reported to us. Revenues on all software
license transactions in which there are significant outstanding obligations are
not recognized until such obligations are fulfilled. Significant obligations
would include future promises of enhancements and/or modifications that are
essential to the product. Revenues for maintaining, supporting and providing
periodic upgrading are deferred and recognized ratably over the maintenance
period, which is generally one year. Revenues from training and consulting
services are recognized as such services are performed. We do not require
collateral for our receivables, and reserves are maintained for potential
losses.

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

         Historically, our revenues have been derived from both domestic sales
and international sales, with the international sales comprising 17.5% and 31.0%
of total revenues for the quarters ended March 31, 2001 and 2000, respectively.
The Company's international sales generally have the same cost structure as its
domestic sales. A majority of international sales are denominated in British
pounds. An increase in the value of the British pound relative to foreign
currencies could make the Company's products more expensive and, therefore,
potentially less competitive in foreign markets. In addition, the Company's
international business may be subject to a variety of risks, including
difficulties in collecting international accounts receivable or obtaining U.S.
export licenses, the introduction of non-tariff barriers and higher duty rates
and fiscal and monetary policies that adversely affect non-native firms.

RESULTS OF OPERATIONS

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


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                            --------------------------
                                                              2001              2000
                                                            --------          --------
                                                                   (unaudited)
          <S>                                               <C>               <C>
          REVENUES:
             Software license                                   43.7%             28.5%
             Services and maintenance                           56.3%             71.5%
                                                            --------          --------
                 Total revenues                                100.0%            100.0%
                                                            --------          --------
          COST OF REVENUES:
             Software license                                    3.3%              6.0%
             Services and maintenance                           24.8%             31.2%
                                                            --------          --------
                Total cost of revenues                          28.1%             37.2%
                                                            --------          --------
          GROSS PROFIT                                          71.9%             62.8%
                                                            --------          --------
          OPERATING EXPENSES:
             Sales and marketing                                20.1%             11.3%
             Product development                                21.7%             22.0%
             General and administrative                         26.7%             28.9%
                                                            --------          --------
                Total operating expenses                        68.5%             62.2%
                                                            --------          --------
          OPERATING INCOME                                       3.4%              0.6%
          Net interest expense                                  (0.3)%            (0.1)%
                                                            --------          --------
          INCOME BEFORE INCOME TAXES                             3.1%              0.5%
          Provision for income taxes                             0.0%              0.0%
                                                            --------          --------
          NET INCOME                                             3.1%              0.5%
                                                            ========          ========
</TABLE>


                                        9
<PAGE>   10

Quarter Ended March 31, 2001  Compared to Quarter Ended March 31, 2000

         Revenues. Total revenues, consisting of software license revenues and
service and maintenance revenues, decreased 11%, from $3.6 million for the
quarter ended March 31, 2000 to $3.2 million for the quarter ended March 31,
2001. Software license revenues increased 40% to $1.4 million in the first
quarter of the current year from $1.0 million in the comparable period last
year. One customer accounted for 74% of the software license revenue recognized
during the first quarter of the current year, and another customer accounted for
almost half of last year's first quarter's software license revenue.
Approximately $1.0 million of the current year's license revenue was previously
deferred income from a former customer, which was recognized upon settlement of
a long-standing dispute. We continued the process of rebuilding our sales force,
which we started in the fourth quarter of last year. We have gone from nine to
fifteen people in sales and marketing. While we expect that we should see some
results from this investment over the next three to six months, the normal sales
cycle for our products from lead generation to closing is two to three quarters
and can extend to over a year for very large orders.

         We intend to continue to our recovery by further rebuilding our sales
force, employing additional sales channels such as our Flexi Industry Partners',
and expanding our product offerings to include providing accounting outsourcing
for companies utilizing our software and internal resources. We believe the
addition of an accounting outsourcing product extension will, over time, provide
a solid, consistent and profitable source of revenue that will smooth out some
of the current seasonality of our business.

         Service and maintenance revenues decreased 31%, from $2.6 million for
the quarter ended March 31, 2000 to $1.8 million for the quarter ended March 31,
2001. The decrease was primarily attributable to a 64% drop 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. We
have instituted a number of programs designed to maintain our service revenue
until an increased level of new sales is realized. One such program which we
believe may begin to stabilize our service revenue is discounted implementation
of our major release version 4.3. This program has been well accepted by our
customers and we should start recognizing revenue from it beginning in the
second quarter of 2001.

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

         Cost of software license revenues decreased 52%, from $218,000 for the
quarter ended March 31, 2000 to $105,000 for the quarter ended March 31, 2001.
Cost of software license revenues as a percentage of software license revenues
decreased to 8% for the quarter ended March 31, 2001 from 21% for the quarter
ended March 31, 2000. The decrease in cost of software license revenues was
primarily due to a decrease in third-party software products distributed by us
in the first quarter of the current year.


                                       10
<PAGE>   11

         Cost of service and maintenance revenues decreased 27%, from $1.1
million for the quarter ended March 31, 2000 to $.8 million for the quarter
ended March 31, 2001. During the first quarter of the current year, we reduced
our level of staffing in the services area to meet the reduced demand for such
services.

         Operating Expenses. Aggregate operating expenses declined 4% in the
quarter ended March 31, 2001 to $2.2 million from $2.3 million in the quarter
ended March 31, 2000. Over the past two years we have focused our efforts on
reducing expenses to attain a sustainable level of profitability. We intend to
continue these efforts to maintain profitability while increasing our investment
in sales.

         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. Our investment in sales and marketing
increased 54% to $633,000 for the first quarter of 2001 from $411,000 in the
comparable period of last year. We have increased the number of direct sales
representatives selling our products while continuing our efforts to expand our
product line to the accounting outsourcing area and to continue the pursuit of
more Flexi Industry Partnership arrangements.

         Product Development. Product development expenses include software
development costs and consist primarily of engineering personnel costs. Product
development expenses decreased 14%, to $684,000 for the quarter ended March 31,
2001 from $799,000 for the quarter ended March 31, 2000. Product development
expenses are expected to increase slightly throughout the latter part of the
year as we supplement our core development area.

         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 23%, to $842,000
for the quarter ended March 31, 2001 from $1.1 million in the first quarter of
fiscal year 2000. This is primarily due to a reduction in headcount. We expect
general and administrative expenses to stay fairly constant over the next
several quarters. The Company expects to leverage its existing staff to provide
resources for the beginning stages of the accounting outsourcing product

         Interest Income and Interest Expense. Interest income represents income
earned on the Company's cash, cash equivalents and marketable securities. Net
interest expense was $2,000 for the quarter ended March 31, 2000 versus net
interest expense of $11,000 for the comparable period of this year. This
increase was primarily due to the reduced level of funds invested in the current
fiscal year as compared to the prior year, while our interest expense increased
as a result of interest on notes payable to vendors and borrowings under the
Company's line of credit.

         Income Taxes. No provision or benefit for federal, state or foreign
income taxes was made for the quarters ended March 31, 2001 or 2000 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
$47.9 million and $9.1 million of U.S. and foreign net operating loss
carryforwards, respectively, which expire during the years 2005 through 2020,
available to offset future taxable income. The utilization of such net operating
losses is subject to limitations as a result of ownership changes. The annual
limitation and the timing of attaining profitability will result in the
expiration of net operating loss carryforwards before utilization.

LIQUIDITY AND CAPITAL RESOURCES

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

         As of March 31, 2001, we had cash and cash equivalents of $809,000 a
decrease of $580,000 from December 31, 2000. Cash declined primarily as a result
of payments on trade accounts payable and long term financing arrangements. Our
working capital deficit at March 31, 2001 was $2.9 million, compared to $3.3
million at December 31, 2000. This working capital deficit is primarily the
result of deferred revenues of $5.0 million and $4.8 million at December 31,
2000 and March 31, 2001, respectively. Our operating activities resulted in net
cash outflow of $537,000 for the three months ended March 31, 2001, and results
primarily from payment of previously accrued liabilities and a reduction of
deferred revenue. Our financing activities resulted in a net cash outflow for
the three months ended March 31, 2001 of $82,000, principally from payment of
lease obligations and notes payable.

         While the Company believes that cash and cash equivalents and cash
generated internally by operations, will be sufficient to meet the Company's
working capital requirements for at least the next twelve months, it cautions
that this is contingent upon the Company continuing to have substantially
breakeven results over the next several quarters. The



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Company is currently evaluating financing alternatives; however, there can be no
assurance that capital will be available to the Company on favorable terms, or
at all.

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

CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

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

         Potential Fluctuations in Quarterly Performance; Seasonality. 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 modifications
that are essential to the product. Delays in the installation of the Company's
software, including potential delays associated with contractual enhancements to
the Company's software products, could materially adversely affect the Company's
quarterly results of operations. In addition, as the Company derives a
significant proportion of total revenues from license revenues, the Company may
realize a disproportionate amount of its revenues and income in the last month
of each quarter and, as a result, the magnitude of quarterly fluctuations may
not become evident until late in, or at the end of, a given quarter.
Accordingly, delays in product delivery and installation or in the closing of
sales near the end of a quarter could cause quarterly revenues and, to a greater
degree, results of operations to fall substantially short of anticipated levels.

         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 executive officers and key employees,
including the Company's sales force and software professionals, particularly
project managers, software engineers and other senior technical personnel. 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 Company does not have employment contracts with any of its key
personnel. 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, Chairman of the Board of
Directors and Chief Executive Officer.


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

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

         Risks Associated with Third-Party Channels. 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.


ITEM 2.  LEGAL PROCEEDINGS

On April 23, 2001 we were informed of the outcome of an arbitration proceeding
initiated against us by Client Server Solutions Limited ("CSS") seeking
commissions of more than $2.3 million. The arbitrator awarded CSS approximately
$330,000 including expenses. This will be charged against existing reserves in
the second quarter of the current fiscal year.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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


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PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                     None

         (b)      Reports on Form 8-K

                     None



                                    SIGNATURE


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

                              FLEXIINTERNATIONAL SOFTWARE, INC.



                              By   /s/  Stefan R. Bothe
                                -----------------------------------------------

                              Stefan R. Bothe, Chairman of the Board, President
                                   and Chief Executive Officer
                                   (Principal Executive Officer)

Date: May 15, 2001



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