Cost of service and maintenance revenues decreased 15.4%, from $2.3 million for the year ended December 31, 2001 to $2.0 million for the year ended December 31, 2002.  The decrease of such costs resulted primarily from reduced staffing levels in the consulting organization, as the costs of this organization were reduced to a level consistent with anticipated revenues.  Cost of service and maintenance revenues as a percentage of service and maintenance revenues decreased from 35.0% for the year ended December 31, 2001 to 32.0% for the year ended December 31, 2002, due to the aforementioned alignment of costs to anticipated revenues (see “Revenues” above and “Restructuring” below).

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Sales and Marketing.  Sales and marketing expenses consist primarily of salaries, commissions, travel and promotional expenses, and facility and communication costs for direct sales offices.  Sales and marketing expenses decreased 37.7%, from $2.6 million for the year ended December 31, 2001 to $1.6 million for the year ended December 31, 2002.  The decrease in dollar amount was primarily attributable to decreased staffing levels in the sales and marketing organization to a level consistent with anticipated revenue generation.  Sales and marketing expenses as a percentage of total revenues decreased from 26.8% for the year ended December 31, 2001 to 21.3% for the year ended December 31, 2002.  This decrease was primarily due to t he aforementioned staff decreases.

Product Development.  Product development expenses include software development costs and consist primarily of engineering personnel costs.  The Company has made significant investments in product development in the past several years to bring its suite of component‑based, object‑oriented financial accounting products to market.

Product development expenses decreased 11.0%, from $1.6 million for the year ended December 31, 2001 to $1.4 million for the year ended December 31, 2002.  Product development expenses as a percentage of total revenues increased from 17.0% for the year ended December 31, 2001 to 19.3% for the year ended December 31, 2002.  This decrease in product development expense was due primarily to maintaining a “standard level” of product development staffing with decreasing revenue.  The Company expects to continue to enhance the functionality of its core financial accounting and reporting applications and its BPO solution, but does not anticipate the need to materially increase its development staff from its current levels.

General and Administrative.  General and administrative expenses consist primarily of salaries of executive, administrative and financial personnel, as well as provisions for doubtful accounts, amortization of goodwill and outside professional fees.  General and administrative expenses decreased 51.7%, from $2.8 million for the year ended December 31, 2001 to $1.4 million for the year ended December 31, 2002 due to reductions in administrative staffing.  General and administrative expenses as a percentage of total revenues decreased from 29.9% for the year ended December 31, 2001 to 18.4% for the year ended December 31, 2002.   

Goodwill Impairment.  During September 2001 management conducted a periodic impairment assessment of the intangible assets resulting from The Dodge Group acquisition.  As a result of that review, expected future revenue and cash flows from the acquired business were revised downward significantly, causing the impairment of goodwill.  Management concluded that an impairment had occurred with the goodwill and an $862,000 write down of goodwill to a zero carrying value was recorded in the third quarter of 2001.

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

          Income Taxes.  Due to a strong net income for the year ended December 31, 2002, Flexi recaptured $330,000 of previously recorded valuation allowance against deferred income taxes.  No provision or benefit for federal, state or foreign income taxes was made for the year ended December 31, 2001 due to the operating losses incurred in the period.  Except for 2003, the Company has reported tax losses to date and consequently has approximately $40.3 million and $27.0 million of U.S. and foreign net operating loss carryforwards, respectively, which expire during the years 2005 through 2021, available to offset future taxable income.  The utilization of such net operating losses is subject to limitations as a result of ownership changes.  The annual limitation and the timing of attaining profitability will result in the expiration of net operating loss carryforwards before utilization.  The Company’s deferred tax assets at December 31, 2002 were $28.3 million, consisting primarily of net operating loss carryforwards.  The Company’s benefit of deferred tax assets has been reserved as of December 31, 2002 in the amount of $28.0 million as the realization of deferred taxes is dependent on future events and earnings, if any, the timing and extent of which are uncertain.

Liquidity and Capital Resources

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

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For the past three years, however, Flexi has funded its operations primarily through cash received from license and royalty revenues, annual maintenance contracts, and consulting services provided to its clients.  Maintenance fees represented approximately 51% of the cash resources of the Company for fiscal 2003 and are expected to average $227,000 per month in 2004.  Given the critical nature of software to our customers’ business, most maintenance contracts are renewed regularly and cancellations are usually due to circumstances such as mergers and acquisitions of Flexi clients with companies that are using a competing product.  For instance, Flexi was notified in 2002 that due to its client Citibank’s merger with the Travelers, Citibank intends to move to another accounting solution as part of its strateg ic plan.  The loss of Citibank as a customer negatively impacted Flexi’s maintenance revenues by $142,000 in 2002 and by $995,000 in 2003.

As of December 31, 2003, the Company had cash and cash equivalents and interest bearing deposits of $1.1 million, an increase of $190,000 from December 31, 2002.  The Company’s working capital deficit at December 31, 2003 was $0.9 million, compared to a working capital deficit of $1.6 million at December 31, 2002.

          The Company’s operating activities resulted in net cash inflow of $0.6 million for the year ended December 31, 2003 which was the result of maintaining sales levels while managing cost levels.  The Company’s investing activities resulted in net cash outflows of $35,000 for the year ended December 31, 2003, which was primarily related to the purchase of property and equipment.  At December 31, 2003, the Company had no material commitments for capital expenditures.  During the year ended December 31, 2003, the Company had net cash outflows from financing activities of $0.6 million, which was primarily related to payments of capital lease obligations and repayments of debt.   

          Flexi’s contractual cash obligations are outlined in the table below including its equipment lease and office rental obligations, as well as payments due under payment terms negotiated with companies for current debt and settlements of payment disputes.  These cash obligations are expected to amount to approximately $53,000 per month for fiscal 2004.  Where appropriate, Flexi will seek to negotiate extended payment terms with respect to its financial obligations.

          During the year ended December 31, 2003, the Company has not engaged in:

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

·        trading activities in non-exchange traded contracts; or

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

Certain Factors that May Affect Future Operating Results

Accumulated Deficit; Net Losses.  The Company had an accumulated deficit of  $57.4 million at December 31, 2003 and a net income of $0.8 million for the year ended December 31, 2003, earned a net income of $1.2 million in 2002, and incurred a net loss of $1.4 million during 2001.  Since inception in 1990, the Company has only been profitable for all four quarters in 2003 and 2002, three quarters during the year 2001, the full year of 2000 and during the last two quarter s of 1997.  There can be no assurance that the Company will achieve profitability on a consistent basis, or at all in the future.  As of December 31, 2003, management of the Company evaluated the positive and negative evidence impacting the realizability of its deferred tax assets, which consist principally of net operating loss carryforwards.  Management has considered the history of losses and concluded that, as of December 31, 2003, it is more likely than not that the Company will not generate sufficient taxable income prior to the expiration of the net operating losses during the years 2005 through 2021.  Accordingly, the Company has recorded a nearly full valuation allowance for its deferred tax assets at December 31, 2003.

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          If our FOP Solution does not gain market acceptance, our business will be adversely affected.  If our FOP Solution does not gain market acceptance, our business will be adversely affected.  The growth of our business will depend largely on the successful implementation of our recently introduced FOP solution.  This solution is a business processing outsource service or BPO, which we anticipate will allow us to leverage our suite of accounting software products and our expertise in back office processing of accounting data.  We expect to derive a portion of our revenues in the future from our BPO service in conjunction w ith our existing software suites.  If our FOP solution does not gain market acceptance, our revenues may decline and our business may be adversely affected.  Factors that may affect the market acceptance of our BPO service, some of which are beyond our control, may include:

the growth, acceptance and changing requirements in the BPO industry;

the performance, quality and price of our new service and our existing product suites; and

the availability, price, quality and performance of competing products and services.

Potential Fluctuations in Quarterly Performance; Seasonality.  The Company’s revenues and operating results have varied substantially from quarter to quarter.  The Company’s quarterly operating results may continue to fluctuate due to a number of factors, including the timing, size and nature of the Company’s licensing transactions and closing of sales by our resellers; 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 and closing of sales by our resellers 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 and its partners 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 signing of the l icense agreement if product delivery is assured or notification of the closing of a sale by our resellers   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 license revenues, including sales by our resellers, and, to a greater degree, results of operations to fall substantially short of anticipated levels.  

The Company’s expense levels are based, in significant part, on its expectations as to future revenues and are largely fixed in the short term.  As a result, the Company may be unable to adjust spending in a timely manner to compensate for any unexpected shortfall in revenues.  Accordingly, any significant shortfall of revenues in relation to the Company’s expectations would have an immediate and material adverse effect on the Company’s business, financial condition and results of operations.

The Company has experienced, and may experience in the future, significant seasonality in its business, and the Company’s financial condition or results of operations may be affected by such trends in the future.  In past years, the Company had greater demand for its products in its fourth quarter and has experienced lower revenues in its succeeding first quarter.  These fluctuations are caused primarily by pressures on prospects to complete purchases before year-end to achieve their goals and use the allocated budgets.

Due to all of the foregoing factors, the Company believes that period‑to‑period comparisons of its results of operations are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance.  There can be no assurance that future revenues and results of operations will not vary substantially.  It is also possible that in some future quarter the Company’s results of operations will be below the expectations of public market analysts and investors.  In either case, the price of the Company’s Common Stock could be materially adversely affected.

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Dependence on Key Personnel.  The Company’s performance depends substantially on the performance of its Chief Executive Officer, Stefan R. Bothe.  The Company has experienced significant turnover in its management and is therefore operating with a limited group of executive officers and key employees. The Company is dependent on its ability to attract, retain and motivate high-quality personnel, especially its management, sales staff and highly skilled development team.  The loss of the services of any of the Company’s executive officers or other key employees could have a material adverse effect on the Company’s business, financial condition and results of operations.  The Company maintains a key person insurance policy on Stefan R. Bothe.

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

Product Concentration.  To date, substantially all of the Company’s revenues have been attributable to the licensing of its FlexiFinancials, FlexilnfoAccess and FlexiTools financial accounting products and the provision of consulting, training and software installation services in connection therewith.  Although Flexi is working to implement its BPO service, the Company currently expects that the royalties from licensing of its financial accounting software, and the provision of related services, will account for a substantial portion of its revenues in the near future.  As a result, factors adversely affecting the pricing of or demand for such products and services, such as competition or technological change, could have a material adverse ef fect on the Company’s business, financial condition and results of operations.  The Company’s future financial performance will depend, in significant part, on the continued market acceptance of the Company’s existing products and the successful development, introduction and customer acceptance of new and enhanced versions of its software products and services.  There can be no assurance that the Company will be successful in developing and marketing its financial accounting products.

Rapid Technological Change and Evolving Market.  The market for the Company’s products and services is characterized by rapidly changing technology, evolving industry standards and new product introductions and enhancements that may render existing products obsolete or less competitive.  As a result, the Company’s position in the financial applications software market could erode rapidly due to unforeseen changes in the features and functionality of competing products, as well as the pricing models for such products.  The Company’s future success will depend in part upon the widespread adoption of object‑oriented, component‑based standards and the development of the Internet as a viable commercial marketplace, as well as the Company’s ability to enhance its existing products and services and to develop and introduce new products and services to meet changing customer requirements.  The process of developing products and services such as those offered by the Company is extremely complex and is expected to become increasingly complex and expensive in the future with the introduction of new platforms and technologies.  In addition, the Company has on occasion experienced delays in the scheduled release of software products or the porting of such products to specific platforms or configurations.  There can be no assurance that an object‑oriented, component‑based standards will be adopted, or that the Company will successfully complete the development of new products i n a timely fashion or that the Company’s current or future products will satisfy the needs of potential customers.

Concentration of Customers.  Historically, a limited number of customers have accounted for a significant percentage of the Company’s revenues in each year.  In the year ended December 31, 2003, one customer represented 34% of the Company’s total revenues and in each of the years ended December 31, 2002, and 2001, two customers represented 10% or more of the Company’s total revenues, or an aggregate of 34.2% and 40.6% of total revenues, respectively.   The customers who each made up greater than 10% of the Company’s revenue for the year ended December 31, 2003 was McKesson Information Services and for 2002 and 2001 were Citigroup and McKesson Information Services.&nbs p; The Company anticipates that its results of operations in any given period will continue to depend to a significant extent upon revenues from a small number of customers.  The failure of the Company to enter into a sufficient number of licensing agreements during a particular period could have a material adverse effect on the Company’s business, financial condition and results of operations.

Competition.  The market for the Company’s products and services is intensely competitive and is characterized by rapid change in technology and user needs and the frequent introduction of new products.  In recent quarters, the Company has been observing increasingly aggressive pricing practices and/or unusual terms and conditions offered to customers by its competitors, and increasing competition in the middle market from competitors which previously focused principally on larger corporations.  A number of the Company’s competitors are more established, benefit from greater name recognition and have substantially greater financial, technical and marketing resources than the Company and its partners and distributors.  In additi on, 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.

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Potential for Product Liability.  The Company’s license agreements with its customers typically contain provisions designed to limit the Company’s exposure to potential product liability claims.  It is possible, however, that the limitation of liability provisions contained in the Company’s license agreements may not be effective under the laws of certain jurisdictions.  The sale and support of products by the Company and its partners may entail the risk of such claims, and there can be no assurance that the Company will not be subject to such claims in the future.  The Company attempts to limit contractually its liability for damages arising from negligent acts, errors, mistakes or omissions in rendering its products and services.  Despite this precaution, there can be no assurance that the limitations of liability set forth in its contracts would be enforceable or would otherwise protect the Company from liability for damages.  The Company maintains general liability insurance coverage, including coverage for errors or omissions.  However, there can be no assurance that such coverage will continue to be available on acceptable terms, or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim.  The successful assertion of one or more large claims against the Company that exceed available insurance coverage or changes in the Company’s insurance policies, including premium increases or the imposition of large deductible or co‑insurance requirements, could have a material adverse effect on the Company’s business, financial condit ion and results of operations.  Furthermore, litigation with respect to liability claims, regardless of its outcome, could result in substantial cost to the Company and divert management’s attention from the Company’s operations.  Any product liability claim or litigation against the Company could, therefore, have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company has included security features in its products that are intended to protect the privacy and integrity of customer data.  Despite the existence of these security features, the Company’s software products may be vulnerable to break‑ins and similar disruptive problems.  Such computer break‑ins and other disruptions may jeopardize the security of information stored in and transmitted through the computer systems of the Company’s customers, which may result in loss of or delay in market acceptance of the Company’s products.  Addressing these evolving security issues may require significant expenditures of capital and resources by the Company, which may have a material adverse e ffect on the Company’s business, financial condition or results of operations.

Software Errors or Bugs.  The Company’s software products are highly complex and sophisticated and could from time to time contain design defects or software errors that could be difficult to detect and correct.  Although the Company has not experienced material adverse effects resulting from any software errors, bugs or viruses, there can be no assurance that, despite testing by the Company and its customers, errors will not be found in new or existing products, which errors could result in a delay in or inability to achieve market acceptance and thus could have a material adverse impact upon the Company’s business, financial condition and results of operations.

Limited Protection of Proprietary Rights.  The Company’s success is heavily dependent upon its proprietary technology.  The Company relies on a combination of copyright, trademark and trade secret laws and license agreements to establish and protect its rights in its software products and other proprietary technology.  In addition, the Company currently requires its employees and consultants to enter into nondisclosure agreements to limit use of, access to and distribution of its proprietary information.  There can be no assurance that the Company’s means of protecting its proprietary rights in the United States or a broad will be adequate to prevent misappropriation.  Also, despite the steps taken by the Company to protect its proprietary rights, it may be possible for unauthorized third parties to copy aspects of the Company’s products, reverse engineer such products, develop similar technology independently or obtain and use information that the Company regards as proprietary.

In the future, the Company may receive notice of claims of infringement of other parties’ proprietary rights.  Although the Company does not believe that its products infringe the proprietary rights of third parties, there can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against the Company or that any such assertions or prosecutions will not materially adversely affect the Company’s business, financial condition or results of operations.

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Dependence on Third‑Party Technology.  The Company’s proprietary software is currently designed, and may in the future be designed, to work on or in conjunction with certain third‑party hardware and/or software products.  If any of these current or future third‑party vendors were to discontinue making their products available to the Company or to licensees of the Company’s software or to increase materially the cost for the Company or its licensees to acquire, license or purchase the third‑party vendors’ products, or if a material problem were to arise in connection with the ability of the Company to design its software to properly use or operate with any third‑party hardware and/or software products, the Company may be required to identify additional sources for such products.  In such an event, interruptions in the availability or functioning of the Company’s software and delays in the introduction of new products and services may occur until equivalent technology is obtained.  There can be no assurance that an alternative source of suitable technology would be available or that the Company would be able to develop an alternative product in sufficient time or at a reasonable cost.  The failure of the Company to obtain or develop alternative technologies or products o n a timely basis and at a reasonable cost could have a material adverse effect on the Company’s business, financial condition and results of operations.

Risks Associated with Third‑Party Channels.  The Company addresses certain vertical and geographic markets through its partners.  The Company relies on its third‑party channels to provide sales and marketing presence and name recognition, as well as the resources necessary to offer industry‑specific financial accounting solutions.  Although the Company expects to dedicate significant resources to develop its partners, there can be no assurance that the Company will be able to attract and retain qualified firms in its targeted vertical markets.   The failure of the Company to maintain its current third‑party channels or find other third‑party channels, the Company’s inability to adequately support such channels, the development of competitive products and services by the Company’s third‑party channels or the entry by such firms into alliances with competitors of the Company would substantially limit the Company’s ability to provide its products and services and, accordingly, have a material adverse effect on the Company’s business, financial condition and results of operations.  Although the Company has attempted to seek partners in distinct vertical markets and distributors in distinct geographic markets, and to manage them in a manner to avoid potential channel conflicts, there can be no assurance that channel conflicts may not develop.&n bsp; Any such conflicts may adversely affect the Company’s relationship with third‑party channels or adversely affect its ability to develop new channels.

Risks Associated with International Operations.  The Company’s international sales represented approximately 17.6%, 20.4%, and 19.2% of total revenues during 2003, 2002, and 2001, respectively.  The Company’s international presence increased by virtue of its acquisition of The Dodge Group.  As a result of the acquisition the Company now has an office in London and distributors in Hong Kong and Japan.  There can be no assurance that the Company will be able to maintain or increase international market demand for the Company’s products and services.  The Company’s international sales are generally denominated in British pounds. An increase in the value of the British pound relative to foreign currencies could make the Company’s products more expensive and, therefore, potentially less competitive in those markets.  Currently, the Company does not employ currency-hedging strategies to reduce this risk.  In addition, the Company’s international business may be subject to a variety of risks, including difficulties in collecting international accounts receivable or obtaining U.S. export licenses, potentially longer payment cycles, increased costs associated with maintaining international marketing efforts, the introduction of non‑tariff barriers and higher duty rates and difficult ies in enforcement of contractual obligations and intellectual property rights.  There can be no assurance that such factors will not have a material adverse effect on the Company’s future international sales and, consequently, on the Company’s business, financial condition or results of operations. 

          Risks Associated with the European Monetary Union (“EMU”).  The Company's internal business information systems are comprised of the same commercial application software products generally offered for license by the Company to end use r customers.  The Company’s latest software release contains EMU functionality that allows for dual currency reporting and information management.  The Company is not aware of any material operational issues or costs associated with preparing internal systems for the EMU.  However, the Company utilizes other third party software products that may or may not be EMU compliant. Although the Company is currently taking steps to address the impact, if any, of EMU compliance for such third party products, failure of any critical technology components to operate properly post EMU may have an adverse impact on business operations or require the Company to incur unanticipated expenses to remedy any problems.

Item 7A.          Quantitative and Qualitative Disclosure About Market Risk

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

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Item 8.            Financial Statements And Supplementary Data

FlexiInternational Software, Inc.

Index to Consolidated Financial Statements

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of

FlexiInternational Software, Inc. and Subsidiary

Shelton, Connecticut

                We have audited the accompanying consolidated balance sheet of FlexiInternational Software, Inc. and subsidiary (the "Company") as of December 31, 2003 and the related consolidated statements of operations, stockholders' deficit, and cash flows for the year then ended.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.  We did not audit the financial statements of FlexiInternational Software Limited as of and for the year ended December 31, 2003.  Such statements are included in the Company's consolidated financial statements and represent approximately 18% of consolidated revenues for the year ended December 31, 2003.  The financial statements for FlexiInternational Software Limited were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to amounts for FlexiInternational Software Limited for 2003 is based solely upon the report of the other auditors.

                We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe t hat our audit, and the report of the other auditors for 2003, provides a reasonable basis for our opinion.

                In our opinion, based on our audit and the report of the other auditors for 2003, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FlexiInternational Software, Inc. and subsidiary as of December 31, 2003 and the consolidated results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.  

Kingery, Crouse & Hohl, P.A.

Tampa, Florida

January 31, 2004

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INDEPENDENT AUDITORS’ REPORT

Board of Directors and Stockholders of

FlexiInternational Software, Inc.

Shelton, Connecticut

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

                We conducted our audits in accordance with U.S. generally accepted auditing standards.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits and the report of the other auditors for 200 2 provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors for 2002, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FlexiInternational Software, Inc. and subsidiary as of December 31, 2002 and the consolidated results of its operations and their consolidated cash flows for the years ended December 31, 2002 and 2001 in conformity with U.S. generally accepted accounting principles.

Hill, Barth & King LLC

Certified Public Accountants

Naples, Florida

January 22, 2003, except for Note N

As to which the date is March 4, 2003

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FLEXIINTERNATIONAL SOFTWARE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2003 AND 2002

(in thousands, except share data)

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FLEXIINTERNATIONAL SOFTWARE INC. AND SUBSIDIARY 

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

(in thousands, except per share amounts)