SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

                                 FORM 10-K

   [X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities
                           Exchange Act of 1934

                For the fiscal year ended December 31, 1996

                                    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 0-25646


                           EXPERT SOFTWARE, INC.

    State of Delaware - I.R.S. Employer Identification No.: 65-0359860

                             800 Douglas Road
                        Executive Tower, Suite #750
                          Coral Gables, FL 33134
                              (305) 567-9990

     Securities Registered Pursuant to Section 12(b) of the Act: None

        Securities Registered Pursuant to Section 12(g) of the Act:

                Common Stock (par value of $0.01 per share)





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 [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K [ ].

The aggregate market value of shares of Common Stock held by  non-affiliates  of
the registrant as of March 21, 1997 was approximately $12,675,000.  For purposes
of this  computation,  all  executive  officers,  directors and 5% owners of the
registrants have been deemed to be affiliates.

As of March 21, 1997,  there were 7,514,679  shares of the  Registrant's  Common
Stock, $ .01 par value, outstanding.


                   DOCUMENTS INCORPORATED BY REFERENCE:

  Portions of the following  documents have been  incorporated by reference into
the parts  indicated:  The  registrant's  definitive Proxy Statement to be filed
with the  Securities  and Exchange  Commission not later than 120 days after the
end of the fiscal year covered by this report - Part III.

                               Page 1 of 53.
                     The exhibit index is on page 34.



<PAGE>



                              Index to Items


Part I                                                     Page

Item 1.  Business.............................................3

Item 2.  Properties...........................................9

Item 3.  Legal Proceedings....................................9

Item 4.  Submission of Matters to a Vote of Security          
         Holders..............................................9


Part II

Item 5.  Market for the Registrant's Common Equity and        
         Related Stockholder Matters..........................9

Item 6.  Selected Financial Data.............................10

Item 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.................11

Item 8.  Consolidated Financial Statements and               
         Supplementary Data..................................18

Item 9.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure.................33


Part III

Item 10. Directors and Executive Officers of the             
         Registrant..........................................33

Item 11. Executive Compensation..............................33

Item 12. Security Ownership of Certain Beneficial Owners     
         and Management......................................33

Item 13. Certain Relationships and Related Transactions......33


Part IV

Item 14. Exhibits, Financial Statement Schedules, and        
         Reports on Form 8-K.................................34

Signatures...................................................36


  This Form 10-K  contains  forward-looking  statements  within  the  meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the forward-looking statements. Factors that might cause such
a difference are discussed in the section  entitled  "Factors  Affecting  Future
Operating Results" on page 17 of this Form 10-K.



<PAGE>



                                  PART 1

ITEM 1.                         BUSINESS

General

  Expert Software,  Inc.  ("Expert" or the "Company") is a leading  publisher of
high-quality,  value-priced  consumer  software that  addresses a broad range of
consumer  interests and everyday  tasks.  The Company  currently  sells over 125
products in the productivity, lifestyle, small office/home office, entertainment
and education market  categories.  The Company promotes the Expert brand name in
order to generate customer loyalty, encourage repeat purchases and differentiate
the Expert  products to  retailers  and  consumers.  Expert  targets the growing
audience of home PC users who value  fully-featured  and  easy-to-use  software.
Expert brand  products sell  primarily for under $20, a price point  intended to
generate impulse purchases in mass market environments.

  The Company seeks to develop a broad line of products in categories in which a
leading  market  share  can  be  attained.  The  Company  also  creates  product
franchises  by  upgrading   successful  products  and  developing  product  line
extensions  and  complementary  products.  The  Company's  titles are  primarily
available on the Windows operating  system,  and substantially all are available
on CD-ROM. Over 18.3 million units of Expert products have been sold since 1989,
with more than 4.8 million  units sold in 1996 and more than 3.6  million  units
sold in 1995. Expert products are currently  available at retailers such as Best
Buy, Computer City,  CompUSA,  Electronics  Boutique,  , Micro Center,  Babbages
Etc., Office Depot, OfficeMax,  PriceCostco, Radio Shack, Sam's Club, , Staples,
and Toys "R" Us.

     "Expert Software",  "Swfte" and all of Expert's logos and product names are
trademarks  of the  Company.  This annual  report also  contains  trademarks  of
companies other than those of the Company. The Company includes its wholly-owned
subsidiaries, Swfte International, Ltd. and ES International, Inc.

Industry Background

  In recent years, the installed base of PCs in homes has grown substantially as
prices have  declined  and as  improvements  in power and  capability  have been
achieved.  There  are a number  of  factors  driving  the sales of PCs into U.S.
households   beyond  the  general   impact  of  falling   prices  and  increased
performance.  Enabling  technologies  and  standards,  such  as  graphical  user
interfaces and the Windows operating  system,  have made PCs easier to use for a
broad  range  of  applications  resulting  in the  transformation  of  PCs  into
general-purpose   tools.   In   addition,   today's   PCs   feature   high-speed
microprocessors,  large amounts of memory, high-resolution monitors and enhanced
sound and graphics  capabilities.  These advanced  capabilities,  along with the
introduction of CD-ROM technology,  have allowed software  developers to produce
more engaging software with advanced three-dimensional graphics, realistic sound
and full motion video. The Company believes that CD-ROM technology will continue
to impact the growth of the consumer software market as software developers take
advantage of the increasing multimedia capabilities of this hardware technology.
There can be no assurance  that the Company will be successful in developing and
marketing products for certain advanced and emerging operating systems and media
formats,  including the Internet, and the introduction of new technologies could
render the Company's existing products obsolete or unmarketable.

  The increased penetration of PCs into the home has created a large and growing
mass market for consumer  software as consumers  wish to maximize the utility of
their PCs.  The  distribution  of consumer  software  has also  expanded  beyond
traditional  software  retailers  and  computer  stores to include  general mass
merchandisers. In response to these developments, increasing numbers of consumer
software  products  are being  developed  to address a broad  range of  consumer
interests and everyday tasks. Consequently,  the Company believes that consumers
are more frequently purchasing software on impulse in the same way that they buy
books,  music CDs and movie  videos and the  distribution  channels for consumer
software  could  continue  to expand to  include  book and music  stores,  video
outlets and supermarkets.  Consumer preferences for software products,  however,
are difficult to predict,  and few consumer  software products achieve sustained
market acceptance.

  As consumer  software  becomes more of a mass market  product,  it will become
increasingly   important  for  consumer   software   companies  to  have  direct
relationships  with  retailers  and to  effectively  market  their  products  to
consumers.  Competition for retail shelf space is also likely to increase due to
the proliferation of consumer software products and companies.  As a result, the
Company  believes that in order to be successful,  consumer  software  companies
must  have  a  consumer-driven  focus,  a  broad  offering  of  category-leading
products,  close  relationships  with retailers,  a recognized  brand name and a
cost-efficient business model.



Business Strategy

  The  Company's  objective  is  to  be a  leading  publisher  of  high-quality,
value-priced consumer software and plans to pursue the following strategies:

  Maintain  Consumer-Driven  Focus.  The Company  seeks to develop  creative and
innovative  products with mass appeal.  The Company believes that many consumers
base their software purchasing decisions largely on recognized brands,  quality,
value and ease of use.  As a result,  the  Company  is  committed  to  providing
products that are high quality and value priced,  and require minimal  technical
expertise  to  operate.  The  Company's   consumer-oriented  marketing  strategy
combines  attractive and  informative  packaging with  promotional  campaigns to
encourage impulse purchases. To enhance customer satisfaction,  the Company also
provides  technical  support for all of its products.  In addition,  the Company
revises  products  in response to consumer  feedback  and  upgrades  products to
utilize new technologies,  such as CD-ROM, Windows 95 and the Internet, as those
technologies gain broader acceptance in the consumer market.

  Develop  Diversified  Titles with Strong Franchise Value. The Company seeks to
develop a broad line of products in  sustainable  categories  in which a leading
market  share can be  obtained.  The  Company  currently  has over 125  products
available for sale in stores in the productivity,  lifestyle,  small office/home
office,  entertainment  and education  market  categories.  The Company  creates
franchises  by  upgrading   successful  products  and  developing  product  line
extensions  and  complementary  products.  For example,  Home Design  became the
foundation of a product  franchise  that includes Home Design 3D(R),  Landscape,
Landscape  Design 3D and Easy Home  Gardening.  The Company also seeks to create
evergreen titles with extended life cycles by upgrading  successful  products to
incorporate new features and to adapt to new technologies.

  Leverage  Distribution  Strengths.  The Company has established a distribution
network based largely upon direct sales to, and established  relationships with,
a broad base of retailers,  including office supply stores,  software  specialty
stores, warehouse clubs, consumer electronic stores,  mall-based chains and mass
merchants,  which it  believes  to be one of its major  strengths.  The  Company
believes   that   its   broad   product   line,    self-supporting    packaging,
consumer-oriented   marketing   programs,   and  retail  support  enable  it  to
effectively  sell  directly to  retailers.  Direct sales to retailers  allow the
Company to assist  retailers in offering a suitable  mix of Expert  products and
tracking inventory levels and sell-through  rates. In addition,  direct sales to
retailers  allow  the  Company  to  tailor  marketing  efforts,  promotions  and
merchandising  displays to fit the needs of specific  retailers.  This  strategy
enables  the  Company to  identify  and react to trends in the  retail  consumer
market  and to help build  incremental  sales.  The  Company  believes  that its
attention to detail at the retail level and careful  execution have been the key
factors to its successful  marketing  programs and have contributed to the sales
growth of its products.  The Company is also working to develop  Internet access
to  and   downloading   of  its   software  to  customers  at  its  web-site  at
http://www.expertsoftware.com.

  McDonaldland(R).  In January 1997,  Expert signed a licensing  agreement  with
McDonald's  Corporation  for use of  McDonaldland(R)  characters  and  marks  in
software  intended for family  entertainment.  Under this agreement,  Expert, in
cooperation  with McDonald's,  will develop and market family oriented  consumer
software  featuring  McDonaldland(R)   characters  through  a  wide  variety  of
distribution  channels.  The first software titles are expected to be introduced
during the second half of 1997.

  Promote  Brand Names.  Commencing  in 1997 the Company  promotes it's products
under four brands:  Expert,  McDonaldland(R),  Bicycle(R) and Gamers Choice(TM).
The  Company  promotes  the  Expert  brand name in order to  encourage  customer
loyalty and repeat  purchases.  Expert believes that its brand name products are
recognized   by  consumers  as   high-quality,   fully-featured   software  that
consistently  exceed consumer  expectations.  Drawing upon established  consumer
marketing  techniques,  the  Company  uses the  Expert  brand  name  and  easily
identifiable   packaging  which  emphasizes   high-impact  design  and  concise,
non-technical product information.

  The Company believes that by promoting recognizable brand names and consistent
packaging,  satisfied  consumers are more likely to purchase additional products
when faced with multiple options in a software category. The Company also has an
established  public relations  effort which seeks to broaden consumer  awareness
and acceptance of the Expert, McDonaldland(R),  Bicycle(R) and Gamers Choice(TM)
brand names. As the consumer  software  industry  becomes more of a mass market,
the Company  believes that brand name  recognition  will become an  increasingly
important means of product differentiation among retailers and consumers.

  Manage  Development  Process.  The  Company  seeks  to  carefully  manage  its
development  process to provide  consistent  product  quality,  shorter and more
predictable   delivery  schedules,   and  lower  investment  risks  and  overall
development costs. Historically, the Company's internal development efforts have
been  focused  primarily  on  product  design  and  features,   consistent  user
interfaces,  ease of use,  and  product  quality  and  consistency.  The Company
supplements its internal  product  development  resources by utilizing  existing
technologies  and externally  developed  programming  and content.  This process
allows  the  Company  to  maintain   internal  control  over  the  creative  and
market-driven  aspects of its product development  efforts,  while using outside
resources to lessen its development risks.

  Operate  Profitably  at Consumer  Price  Points.  To  maintain  its ability to
profitably  deliver  value-priced  consumer  software,   the  Company  seeks  to
carefully manage its development process,  control its component costs while out
sourcing its production  and  warehousing  overhead,  and invest in systems that
permit efficient  management of high sales volume.  As consumer software becomes
more of a mass market  driven by consumer  demand and lower  price  points,  the
Company  believes that the ability to profitably  develop,  produce,  market and
support value-priced products will be an important competitive factor.

  Acquire  Complementary  Products,  Technologies  and  Businesses.  The Company
believes that the consumer  software  industry will continue to  consolidate  in
response to pressures to expand market offerings and develop broad  distribution
channels. The Company intends to explore opportunities to expand its business by
acquiring or licensing products or technologies or acquiring businesses that are
consistent with its overall business strategy.  The Company anticipates that its
future acquisitions may be structured as purchases for accounting purposes. As a
result,  the Company expects that any such  acquisitions  will create intangible
assets which will be amortized over time and may be accompanied by write-offs of
purchased research and development and other intangible assets.

Acquisition

  On November 2, 1995, Expert acquired Swfte  International,  Ltd. ("Swfte"),  a
developer and publisher of consumer  software  (the "Swfte  Acquisition").  As a
result of the Swfte  acquisition,  the Company  develops and markets a series of
playing card software  products  under the  Bicycle(R)  brand name pursuant to a
licensing agreement with The United States Playing Card Company.

Products

  The Expert product line  addresses a wide range of interests and hobbies.  The
Company's  products sell in retail stores for under $20, a price point  intended
to  generate  impulse  purchases  in  high-traffic  mass  market   environments.
Currently,  the Company's  product line  includes over 125 titles.  During 1996,
Expert  introduced over 60 new titles,  compared to  approximately 40 new titles
during 1995.

  The Company  currently  targets  five  consumer  software  market  categories:
productivity,  lifestyle, small office/home office, entertainment and education.
Due to the diversity of its product  offerings,  the Company is not dependent on
any single product. In addition, the Company seeks to develop products with long
life  cycles;  as a  result,  approximately  84% of its  sales in 1996 came from
existing and upgraded products. Most of the Company's titles are compatible with
Windows and Windows 95, and substantially all are available on CD-ROM.

  Entertainment.   Expert   entertainment   products   target   users  who  seek
entertainment  which can be easily  mastered  and can provide  gratification  in
short  periods  of  time.  Casino  is an  entertainment  product  that  includes
blackjack,  roulette, draw poker, baccarat,  craps and slot machine games, using
graphics,   animation   and  sound   effects  to  simulate   actual  game  play.
Entertainment  products also include the  Bicycle(R)  brand playing card series,
the Gamers  Choice(TM)  brand of game  software  and the  McDonaldland(R)  brand
products.

  Productivity.  Expert  productivity  products enable users to more efficiently
accomplish  a wide  variety of tasks using their PCs. The Company has focused on
productivity tasks such as designing a new home,  landscaping a yard or creating
a family newsletter.  For example,  Home Design 3D(R) is a simple-to-use  design
program that can be used to lay out a  three-dimensional  building plan complete
with furniture objects that are provided with the program. Designs can be tested
with various color schemes and movable  walls,  rooms and furniture  that can be
resized or modified with simple design tools and the user can "walk through" the
three-dimensional design.

  Lifestyle.  Expert lifestyle  products are designed to provide  enrichment for
all family members.  The lifestyle  products  include an astronomy  product that
allows users to plot the night sky, a diet and nutrition advisor, a personalized
greeting card maker and engaging  screen  savers.  Travel Planner is a lifestyle
product  that  allows  users to plot the  fastest and  shortest  routes  between
locations  throughout  the United States and provides maps and detailed  written
itineraries which include specific directions,  mileage and estimated costs. The
CD-ROM  version  of Travel  Planner  also  provides  the user  with  interactive
multimedia videos, graphics of travel attractions and suggested scenic routes.

     Small  Office/Home  Office.  Small  office and home office  ("SOHO")  users
require powerful,  easy-to-use and inexpensive  software for business  functions
such as creating simple forms,  printing labels and generating standard business
agreements.  The CD-ROM version of Resume Writer is a SOHO product that provides
a variety  of tools for a job  search,  including  video  clips of  interviewing
advice and examples,  resume templates and sample resumes,  a word processor for
creating  cover letters and Internet  access to the Company's  exclusive  Career
Center  web-site with a database of names and addresses of various  companies to
whom resumes  could be sent by the user.  Resume  Writer also includes a contact
database to track where resumes were sent and an appointment  calendar to assist
in tracking appointments and follow up. 

     Education.  Expert  education  products  are  designed to make  learning an
interactive  adventure  for children and adults.  Typing  provides  personalized
lessons and tests  designed for varying  skill levels.  Speak Spanish  offers an
interactive  immersion  into a 3D city  where  the user  builds  vocabulary  and
pronunciation  skills,  while  Algebra  provides  animated  examples  to allow a
student to review and practice algebra at their own pace.

Sales and Marketing

  Consumers can purchase  Expert  products at over 25,000 retail stores.  Expert
sells its products primarily on a direct basis to office supply stores, software
specialty  stores,  warehouse clubs,  consumer  electronics  stores,  mall-based
chains and mass merchants,  as well as to  distributors.  Retailers  selling the
Company's  products  include  Best  Buy,  Computer  City,  CompUSA,  Electronics
Boutique,  Micro Center,  Babbages Etc., Office Depot,  OfficeMax,  PriceCostco,
Radio Shack, Sam's Club, Staples, and Toys "R" Us.

  The  Company's  customers  are  not  contractually  required  to  make  future
purchases of the Company's products and therefore could discontinue carrying the
Company's products in favor of a competitor's  products or for any other reason.
There can be no  assurance  that the Company will be able to increase or sustain
its current  amount of retail  shelf space or  promotional  resources,  and as a
result, the Company's operating results could be adversely affected.

  In 1996,  Office  Depot and Ingram Micro each  represented  10% or more of the
Company's  sales.  In  1995,  Ingram  Micro,  Office  Depot  and  Best  Buy each
represented 10% or more of the Company's  sales.  The Company believes that mass
market retailers will increasingly be significant outlets for consumer software.

  The Company believes that its broad product line,  self-supporting  packaging,
consumer-oriented   marketing   programs,   and  retail  support  enable  it  to
effectively sell directly to retailers.  Direct retailer sales allow the Company
to actively market and merchandise its products as well as to identify and react
more quickly to trends in the retail consumer market.

  The Company's direct retail accounts are managed by its sales  personnel,  who
work closely with corporate buyers and other purchasing and marketing personnel.
Expert  seeks to assure  that  retailers  are  carrying  a  suitable  mix of the
Company's products, that inventory levels are adequate, that stocking models are
properly  configured to avoid over- and  under-stocking,  and that merchandising
programs are properly executed. Offering a wide variety of products, the Company
can provide  retailers with an assortment of titles in categories of interest to
consumers.  The Company also supports its retailers by setting up special Expert
displays,  executing  targeted  promotions,  and analyzing  sales trends to help
build incremental sales. These efforts are supported by the Company's nationwide
network of field  merchandisers who closely monitor and support its large retail
accounts.  The Company  believes that such efforts have contributed to the sales
growth of its products.

  The Company  currently  intends to continue its efforts to expand its presence
in  additional  distribution  channels  with  retailers  such as book and  music
stores,  video outlets,  drug stores and supermarkets.  Additionally,  Expert is
incorporating  Internet capabilities into many of its new and upgraded products,
and has established a web-site at which customers and prospective  customers may
review the Company's  products.  Expert is developing  its on-line  capabilities
with the  objective of being able to download and sell its software to customers
on the Internet.

  The Company's  marketing  department  seeks to create and execute  high-impact
merchandising  programs with the goal of maximizing  Expert's  retail  exposure.
Drawing upon established  consumer  marketing  techniques,  the Company uses the
Expert brand name and easily identifiable packaging which emphasizes high-impact
design and concise, non-technical product information. The Company believes that
its  consumer-driven  marketing and the relatively  high perceived value and low
price points of its products lead to higher  visibility and impulse purchases of
Expert's  products  in retail  stores.  The  Company  seeks to tailor  marketing
efforts,  promotions  and  merchandising  displays  to fit the needs of specific
retailers and provides in-store support to execute its campaigns.

  International  sales  represented  approximately  24%,  15% and 7% of Expert's
sales in fiscal  years ended 1996,  1995 and 1994,  respectively.  International
sales have been primarily to customers in the United Kingdom,  Canada, Australia
and Western Europe. The Company began to broaden its international sales efforts
in 1994 by establishing relationships with foreign publishers and distributors.

  The Company provides technical support to customers by telephone and facsimile
machine at no  additional  charge.  The  Company has  installed a  sophisticated
telephone system and call handling center to facilitate its response to customer
inquiries. The Company has also begun offering technical support on its web page
on the Internet at http://www.expertsoftware.com.

  The  Company  is exposed to the risk of product  returns  from  retailers  and
distributors.  The Company establishes  reserves for returns that it believes to
be  adequate  based upon  historical  return  data and its  analysis  of current
customer inventory levels and sell-through rates.  Nonetheless,  the Company may
accept substantial  product returns to maintain its relationships with retailers
and its access to distribution  channels.  The Company's policies also allow for
returns of defective  merchandise for credit.  Any significant amount of product
returns  could  have  a  material  adverse  effect  on the  Company's  business,
operating  results and financial  condition.  Sales are typically made on credit
with varying terms,  and the Company does not hold collateral to secure payment.
If a significant  portion of the  Company's  accounts  receivable  was to become
uncollectible  or subject to extended  payment  terms,  the Company's  business,
operating results and financial condition could be adversely affected.

Development

  The Company  seeks to develop a broad line of products in  sustainable  market
categories.  The  Company  depends  on a  flow  of  creative  ideas  to  develop
high-quality,   value-priced  products.   Expert  believes  that  its  efficient
development  model has  certain  key  advantages  including  consistent  product
quality,  reliable delivery schedules, cost containment and low investment risk.
The Company may also acquire  products through the acquisition of other software
companies or the acquisition or licensing of software  products or technologies.
Development  expenses  totaled  $3.3  million,  $2.2 million and $1.3 million in
1996, 1995 and 1994, respectively.

  The Company's  product  managers  oversee the development of various  products
from conception through completion,  and control the content,  design, scope and
schedule of the  project.  New  product  ideas are  evaluated  based upon market
research on the subject area, the type and  demographics of the target consumer,
and the existence and characteristics of competitive products. The Company seeks
to design new products  which  incorporate  all of the  important  functions and
features of the leading  competitive  products  and to add  innovative,  helpful
concepts  and  upgrades.  Once a product is approved for  development,  a design
specification  is  created  that  includes  the  product's  features.   Whenever
possible,  the software is designed to incorporate  technology  used in existing
Company  products  in an effort to shorten  the  development  cycle and  improve
quality  and  consistency.  The overall  product,  including  documentation,  is
designed  to meet a  manufacturing  specification  that will meet the  Company's
margin requirements at consumer price points.

  The  product  managers  then  execute the  project  with a team that  includes
programmers,   artists,  designers,  writers  and  testers.   Historically,  the
Company's  internal  development  efforts have been focused primarily on product
design and  features,  consistent  user  interfaces,  and  product  quality  and
consistency.  The Company supplements its internal product development resources
by utilizing  existing  technologies  and externally  developed  programming and
content when such  utilization can result in a more efficient method of creating
a higher quality  product.  Using this method,  the Company  maintains  internal
control over the creative and market-driven aspects of product development while
using  external  resources  to shorten  development  time and lower  development
risks.  Development  costs  associated with externally  licensed  technology are
generally  paid  by  royalties  based  on  sales,  which  lowers  the  Company's
investment risk.

  Products  under  development  are tested by the quality  assurance  department
before  being  released  for   production.   The  department   tests  for  bugs,
functionality,   ease-of-use  and   compatibility   with  the  many  popular  PC
configurations that are available to consumers.

  Product  managers  are  also  responsible  for  reviewing  customer  feedback,
competitive  products,  product  performance and market  positioning in order to
introduce upgrades that keep abreast of consumer tastes and trends.


Operations

  The Company controls all purchasing,  inventory,  scheduling, order processing
and  accounting  functions  related to its  operations,  with all production and
warehousing  performed  by  independent   contractors  in  accordance  with  the
Company's specifications. The Company invests in computer systems to handle high
sales volumes, including order processing, inventory management,  purchasing and
tracking of shipments.  The Company has electronic data interchange  (EDI) links
with key customers to increase the efficiency  and accuracy of order  processing
as well as to shorten order turnaround  time. By investing in automated  systems
to efficiently process high sales volumes,  the Company believes it can minimize
out-of-stock  positions.  The Company has  invested,  and intends to continue to
invest in, management  information  systems and other capital equipment which it
believes  are  necessary  to  achieve   operational   efficiencies  and  support
increasing sales volumes.

  Software  orders can be  automatically  tracked through to delivery to enhance
customer  satisfaction and prompt delivery.  Shipments are generally made within
48 hours of receiving an order. The Company has relatively little backlog at any
given date, and its backlog is not indicative of potential  sales for any future
period.

  The Company  prepares  master  software  CD-ROMs,  user manuals and  packaging
designs.  Disk and CD-ROM duplication,  printing of documentation and packaging,
as well as the  assembly of  purchased  components  and the shipment of finished
products,  are  performed  by third  parties in  accordance  with the  Company's
specifications.   The  Company  has  multiple  sources  for   substantially  all
components,  with  assembly and  shipping of the  Company's  products  currently
performed  by three  independent  fulfillment  houses.  By the end of the second
quarter of 1997, the Company will be using two such fulfillment houses. To date,
the Company  has not  experienced  any  material  difficulties  or delays in the
production  and  assembly  of its  products.  To the extent  that the  Company's
fulfillment houses do not continue to perform assembly and shipping functions in
a  cost-efficient  and timely manner,  and transition to substitute  fulfillment
houses is not completed in a timely fashion,  the Company's business,  operating
results and financial condition could be adversely affected.

Competition

  The market for the  Company's  consumer  software  products is  intensely  and
increasingly  competitive.  The Company's competitors range from small companies
with limited resources to large companies with substantially  greater financial,
technical and marketing  resources than those of the Company.  Existing consumer
software companies may broaden their product lines to compete with the Company's
products,  and  potential  new  competitors,  including  computer  hardware  and
software   manufacturers,   diversified  media  companies  and  book  publishing
companies,  may enter or increase their focus on the consumer  software  market,
resulting in greater competition for the Company.  Although the Company competes
with a number of  different  companies  across its  product  lines,  the Company
regards The Learning  Company,  Inc.  (formerly  known as SoftKey  International
Inc.), GT Interactive  Software Corp. and CUC International  Inc. as its closest
competitors  based upon price points and product  offerings.  In  addition,  the
Company  believes that new competitors,  including large software  companies and
diversified media companies, are increasing their focus on the consumer software
market, resulting in greater competition for the Company.

  Only a small percentage of products introduced in the consumer software market
achieve any degree of sustained market acceptance. Principal competitive factors
in marketing consumer software include product features,  quality,  reliability,
brand recognition,  ease of use, merchandising,  access to distribution channels
and retail shelf space,  marketing,  price,  and the availability and quality of
support  services.  The Company  believes that it competes  effectively in these
areas,  particularly in the areas of quality,  brand  recognition,  ease of use,
merchandising, access to distribution channels and retail shelf space and price.
To the extent  that  competitors  achieve  performance,  price or other  selling
advantages,  the Company could be adversely affected.  There can be no assurance
that the  Company  will have the  resources  required  to  respond  to market or
technological  changes or to compete  successfully  in the future.  In addition,
increasing competition in the consumer software market may cause prices to fall,
which could  adversely  affect the  Company's  business,  operating  results and
financial condition.

Proprietary Rights and Licenses

  The Company  regards its  software as  proprietary  and relies  primarily on a
combination  of trademark,  copyright and trade secret laws,  employee and third
party  nondisclosure  agreements  and other  methods to protect its  proprietary
rights. The Company does not include in its products any mechanism to prevent or
inhibit  unauthorized  copying.  Unauthorized copying occurs within the software
industry,  and if a significant amount of unauthorized  copying of the Company's
products were to occur, the Company's business,  operating results and financial
condition could be adversely affected.  Also, as the number of software products
in the  industry  increases  and the  functionality  of these  products  further
overlaps,  software developers and publishers may increasingly become subject to
infringement  claims.  There can be no  assurance  that third  parties  will not
assert  infringement  claims  against the Company in the future with  respect to
current or future products.  Any such claims, with or without merit, can be time
consuming and expensive to defend and resolve.

  The  Company  has in the  past  received  communications  suggesting  that its
products may incorporate material covered by the copyrights, trademarks or other
proprietary  rights  of third  parties.  All such  communications  were,  in the
Company's  judgment,  immaterial in nature.  However,  there can be no assurance
that there will not be any such  communications  in the  future.  The  Company's
policy is to investigate the factual basis of such communications and to resolve
such matters  promptly by negotiating  licenses,  enforcing its rights or taking
other appropriate actions.

  There has been substantial  litigation  regarding  copyright,  trademark,  and
other intellectual  property rights involving computer software  companies,  and
the  Company  has in the past  resorted  to  litigation  of a routine  nature to
protect its proprietary  rights. In the future, it may be necessary to resort to
litigation  again to  enforce  the  Company's  proprietary  rights,  to  protect
copyrights,  trademarks and trade secrets and other intellectual property rights
owned by the Company or its  licensors,  to defend the Company  against  claimed
infringements of the rights of others and to determine the scope and validity of
the proprietary rights of the Company and others.  Any such litigation,  with or
without merit, could be costly and a diversion of management's attention,  which
could  have a  material  adverse  effect on the  Company's  business,  operating
results and financial condition. Adverse determinations in such litigation could
result in the loss of the Company's  proprietary rights,  subject the Company to
significant liabilities, require the Company to seek licenses from third parties
or prevent the Company  from  selling  its  products,  any of which could have a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition.

Employees

  As of December 31, 1996, the Company had 104 employees,  including 30 in sales
and marketing,  22 in development,  18 in customer support and 34 in operations,
administration and finance.  None of the Company's employees is represented by a
labor union or is subject to a collective bargaining agreement.  The Company has
never  experienced  a work  stoppage and believes  that its  relations  with its
employees are good.

  In March 1997, Kenneth J. Tarolla, the Company's Vice President of Development
since December 1994, resigned effective March 28, 1997. The company has begun a 
search for a replacement.

Item 2.                        Properties

  Expert leases and subleases  approximately  33,000 square feet of office space
in Coral  Gables,  Florida.  A lease for  12,000  square  feet of the  Company's
current office space expires on March 31, 1999, and subleases for the additional
21,000 square feet expire in August,  2000. The Company  currently  expects that
these facilities will be sufficient for its needs at least through 1997.

Item 3.                     Legal Proceedings

  On October 21, 1996, the Company reported that it had settled  litigation with
David H. Goodman,  the former Chairman and Chief Executive Officer of Swfte, and
others. The original dispute involved the contingent  purchase price pursuant to
a certain  Agreement  and Plan of Merger among Expert,  ES I Acquisition  Corp.,
Swfte and the stockholders of Swfte,  dated as of October 16, 1995. The suit, as
well as  counterclaims  filed by Expert,  were settled in the Court of Chancery,
New Castle County,  Delaware.  The results for the third quarter ended September
1996 include  expenses of $1.9 million for the  settlement and related legal and
associated costs.

Item 4.    Submission of Matters to a Vote of Security Holders

  None.

                                  PART II

Item 5.Market for Registrant's Common Equity and Related Stockholder Matters.

  The Company's common stock is traded on the Nasdaq National Stock Market under
the symbol XPRT.  On December  31, 1996,  there were 83 holders of record of the
Company's  common  stock,  although  the  Company  believes  that the  number of
beneficial owners of its common stock as of that date was substantially greater.
The  Company  does not  currently  pay  dividends  on its  common  stock  and is
generally  restricted  from  paying  dividends  pursuant  to  the  terms  of its
revolving credit agreement. The Company currently intends to retain its earnings
for future growth and, therefore,  does not anticipate paying any cash dividends
in the foreseeable future.

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>




                                            High     Low
                                           ------   ------
Fiscal Year Ended December 31, 1996
Fourth Quarter.........................     7-1/8    3-3/8
Third Quarter..........................     8-1/4        5
Second Quarter.........................    16-1/2    6-7/8
First Quarter..........................    14-3/4        8

Fiscal Year ending December 31, 1995
Fourth Quarter.........................    23-1/2   12-3/4
Third Quarter..........................    24-1/4   13-1/4
Second Quarter (Commencing April 11,
1995 ).................................    19-1/4   14-1/4
</TABLE>


<PAGE>

Item 6.                  Selected Financial Data

  The selected  financial data set forth has been derived from the  consolidated
financial statements of the Company and the Predecessor.  The pro forma combined
statement of  operations  data for 1992 does not purport to  represent  what the
Company's  results of  operations  would have been if the 1992  Acquisition  had
actually  occurred on January 1, 1992.  The following  selected  financial  data
should be read in conjunction with the consolidated  financial statements of the
Company and the related notes.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                         Pro
                       Pre-      The    Forma
                      decessor Company Combined        The Company
                       ------- ------- ------- ------------------------------- 
                                Period
                                 From
                               Inception
                       January  (October
                       1,1992   23,1992)
                       through  through        Years Ended December 31,
                       Oct.22  Dec.31  ---------------------------------------
                         1992    1992    1992    1993    1994    1995    1996
                       ------- ------- ------- ------- ------- ------- -------
                                  (in thousands, except per share data)
 Statement of Operations Data:
 Net sales............. $6,812  $1,795  $8,607 $12,555 $19,727 $27,638 $31,012
                       ------- ------- ------- ------- ------- ------- -------
 Operating costs and expenses:
   Cost of sales (1).... 3,304   1,073   4,377   9,352  8,066   10,121  16,420
   Marketing and sales.. 1,390     283   1,673   2,493  4,303    6,180   9,888
   General and   
    administrative......   761     274   1,035   1,631  2,824    4,293  10,124
   Development..........   221      47     268     545  1,328    2,192   3,320
   Purchased research   
    and development.....    --      --      --      --     --    8,392      --
   Loss on impairment    
    of assets...........    --      --      --      --     --       --   5,700
   Amortization of    
 non-compete agreement..    --      79      79     417    417      338     --
                       ------- ------- ------- ------- ------- ------- -------
                         5,676   1,756   7,432  14,438  16,938  31,516  45,452
                       ------- ------- ------- ------- ------- ------- -------
   Operating income 
     (loss)............  1,136      39   1,175  (1,883)  2,789  (3,878)(14,440)
 Other income    
 (expense), net........     --     (84)    (84)   (457)   (366)    369      92
                       ------- ------- ------- ------- ------- ------- -------
  Income  (loss)  before
   provision (benefit)    
   for income taxes....  1,136     (45)  1,091  (2,340)  2,423  (3,509)(14,348)
 Provision (benefit)   
 for income taxes......    421      --     421      --      90  (1,324) (4,067)
                       ------- ------- ------- ------- ------- ------- -------
   Net income (loss)... $  715  $  (45) $  670 $(2,340)$ 2,333 $(2,185)$(10,281)
                       ======= ======= ======= ======= ======= ======= =======                  
                        
   Net income (loss) per
    share of common
     stock.............         $(.01)          $(.47)   $.38   $(.31) $(1.33)
                               =======         ======= ======= ======= =======
 Weighted average number
    of common stock and
    common stock equivalents
    outstanding........         5,294           5,294   5,795   7,153    7,750
                               =======         ======= ======= ======= =======       


<PAGE>

                                                     The Company
                                                     -----------       
                                                     December 31,
                                       ---------------------------------------
                                         1992    1993    1994    1995    1996
                                       ------- ------- ------- ------- -------              
                                                (in thousands)
 Balance Sheet Data:
   Working capital........                $811  $2,825  $5,283 $10,651  $5,076
   Total assets...........              10,419   7,762  10,682  29,069   9,077
   Subordinated debt......               2,225   2,357   2,200      --     --
   Total stockholders                      430  (2,042)    355  20,634  10,425
 equity (deficit).........
</TABLE>
 ------------------------
(1) Includes  amortization  of software  technology  which  amounted to $324,000
during the period from inception through December 31, 1992,  $4,362,000 in 1993,
$477,000 in 1994, $283,000 in 1995 and $404,000 in 1996.


Item 7.Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overview

  The  Company  designs,   develops,  markets  and  supports  a  broad  line  of
high-quality,  value-oriented  consumer software products. The Company currently
derives  substantially  all of its net sales from products sold to retailers and
distributors.  The Company's products are targeted for the consumer mass market.
Expert  products  were  first sold in 1989 by  Softsync,  Inc.  ("Softsync"),  a
software  company  founded by Kenneth  and Susan  Currier to develop  and market
personal  computer  software for the home and small  business  market.  In March
1990,  the Curriers  sold  Softsync to Bloc  Development  Corporation  ("Bloc"),
although the Curriers  continued to manage the Expert  product  line. In October
1992,  the Company was formed by the Curriers and a group of investors,  and the
Company purchased  substantially all of the software licenses and certain assets
and business of the Expert  Division of Softsync (the  "Predecessor")  from Bloc
for approximately $8.4 million (the "1992 Acquisition").

  As technology and consumer  preferences  have changed,  the Company has had to
respond to these  changes in a timely  fashion.  Starting  in 1994,  the Company
experienced a significant  increase in the sale of its CD-ROM  products.  CD-ROM
products  represented  3%, 19%, 46%, and 82% of gross sales in 1993,  1994, 1995
and 1996, respectively. The Company also experienced a significant shift in late
1993 to  Windows-based  products from  DOS-based  products.  As a result of this
shift,  the  Company  recognized  a  write-down  in 1993 of $2.6  million of the
DOS-based software licenses acquired in the 1992 Acquisition.

  Net sales consist of gross sales net of allowances for returns,  discounts and
other  adjustments.  The Company  adjusts its  allowance for returns as it deems
appropriate.  The Company may accept  substantial  product returns or make other
concessions to maintain its  relationships  with retailers and  distributors and
its access to  distribution  channels.  If the Company chooses to accept product
returns,  some of that product may be  defective,  shelf-worn or damaged and may
not  therefore  be salable in the ordinary  course of business.  At December 31,
1996, the Company's  allowance for potential  returns and doubtful  accounts was
$5.1  million.  See  Note 1 of  Notes to the  Company's  Consolidated  Financial
Statements.  There  can be no  assurance,  however,  that the  Company  will not
experience  significant  returns,  which  could be  greater  than the  Company's
provision for returns or could have a material  adverse  affect on the Company's
results of operations.  In accordance with its policy, the Company will continue
to reassess  market  conditions and adjust its provision for returns as it deems
appropriate.

  Cost of sales consists primarily of product cost,  freight charges,  royalties
to outside  programmers and content  providers,  and an inventory  provision for
damaged and obsolete products. In addition,  cost of sales includes amortization
of  software  licenses  acquired  by the  Company  in  connection  with the 1992
Acquisition and the Swfte  Acquisition.  The Company currently  licenses content
and programs from outside  providers and, from time to time, may seek to acquire
the providers of such content or programs.  Accordingly,  the Company could have
additional  material  amortization of software expense in future periods arising
from  software  acquired in future  acquisitions.  Product  costs consist of the
costs to purchase  the  underlying  materials  and print both boxes and manuals,
media costs (disks and CD-ROMs) and fulfillment (assembly and shipping).

  The Company's  customer mix has changed as a result of certain customers being
sold direct  rather  than  through  distributors,  a broader  customer  base and
increases in the  Company's  overall net sales.  The relative  percentage of net
sales to the Company's major customers varies from year to year.

Acquisition

  On November 2, 1995,  the Company  acquired all of the capital stock of Swfte.
Pursuant  to  the  terms  of  the  merger  agreement,  the  purchase  price  was
approximately  $7.0 million in cash,  subject to post-closing  adjustments,  and
320,630 unregistered shares of Expert Common Stock.

  The  acquisition  has been accounted for as a purchase.  The Company  expensed
approximately $8.4 million,  or approximately 65%, of the initial purchase price
for Swfte as  purchased  research  and  development  during the  quarter  ending
December 31, 1995.  Approximately $4.5 million of the initial purchase price for
Swfte was recorded as intangible  assets and is being  amortized over two to two
and one-half years.  Such purchase price  allocation was determined  based on an
independent  appraisal,  and related amortization was approximately $0.5 million
and $0.3  million in 1996 and 1995,  respectively.  Additionally,  approximately
$3.5 million of such intangibles  were written-off  during 1996. See General and
Loss on Impairment of Assets under  "Comparison of Years Ended December 31, 1996
and 1995" below.
<PAGE>

Results of Operations

  The following table sets forth, for the periods indicated,  the percentages of
net sales  represented  by each item  reflected in the  Company's  statements of
operations.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                     Years Ended December 31,
                                  ----------------------------- 
                                    1996       1995      1994
                                  --------  --------  -------- 
   Net sales.....................   100.0%    100.0%    100.0%
   Operating costs and expenses:
     Cost of sales...............    52.9      36.6      40.9
     Marketing and sales.........    31.9      22.4      21.8
     General and administrative..    32.7      15.5      14.3
     Development.................    10.7       7.9       6.7
     Purchased research and   
     development.................    --        30.4      --
     Loss on impairment of assets    18.4      --        --
     Amortization of non-compete    
     agreement...................    --         1.2       2.2
                                  --------  --------  --------                                   
                                    146.6     114.0      85.9
                                  --------  --------  -------- 
       Operating income (loss)...   (46.6)    (14.0)     14.1
                                  --------  --------  --------  
     Other income (expense), net.     0.3       1.3      (1.9)
                                  --------  --------  -------- 
                              
       Income (loss) before
       provision (benefit) 
       for income taxes..........   (46.3)    (12.7)     12.2     
     Provision (benefit) for   
     income taxes................   (13.1)     (4.8)      0.4
                                  --------  --------  -------- 
       Net income (loss).........   (33.2)%    (7.9)%    11.8%
                                  ========  ========  ======== 
</TABLE>

General

  Results of  operations  for 1996 were  adversely  impacted by certain  charges
recorded in the second and third quarters.  Results for the second quarter ended
June 30, 1996 were impacted  significantly  by a slowdown of sales at the retail
level  during the three  months  then ended;  provisions  for  potential  excess
inventories of $2.6 million and a reduction in the estimated inventory value for
product returned of $1.4 million;  an increase in estimated product returns that
exceeded expectations by $0.5 million; an increase in the provision for doubtful
accounts  of $1.0  million;  and a loss on  impairment  of  intangibles  of $5.7
million in connection with the Swfte  acquisition.  The slowdown in retail sales
resulted in the  Company not meeting  sales  objectives,  which  contributed  to
excess inventories.  In addition, the Company experienced temporary difficulties
in the implementation of new management information systems which contributed to
purchasing  higher levels of inventory  than were necessary in the normal course
of  business.  Additionally,  higher  levels of returns  resulted  in  increased
inventory. Based on the foregoing, management determined that the value assigned
to the returned goods should be lower than that assigned in prior  periods,  and
reserves  for  potential  excess  inventories  should be  increased,  causing an
increase in the cost of sales.

  Additionally,  the products  obtained in the Swfte acquisition were selling at
levels  substantially  below projected levels.  Together with other developments
which are described  below under "Loss on Impairment of  Intangibles",  this led
management to record a material loss on the impairment of the intangible  assets
arising from the Swfte acquisition.  This loss includes  additional reserves for
returns and  marketing  allowances  against the  acquired  accounts  receivable,
additional  reserves  against the  acquired  inventories,  adjustments  to fixed
assets, and accruals for guaranteed royalty agreements entered into prior to the
acquisition  that are not  expected  to be recouped  in the  ordinary  course of
business.  See the discussion at "Loss on Impairment of  Intangibles"  below for
further information on these adjustments.

  Results for the third quarter ended September 30, 1996 were adversely affected
by provisions of $1.9 million for the  settlement  of the Swfte  litigation  and
related legal and associated  costs, as well as the continued  slowdown of sales
at retail during that period.  Management  determined that, under the prevailing
retail  conditions,  the Company could not operate profitably with the operating
overhead then being  incurred,  and responded by reducing  expenses,  including,
among other actions, reducing personnel significantly.

Comparison of Years Ended December 31, 1996 and 1995

  Net Sales. Net sales increased 12% to $31.0 million in 1996 from $27.6 million
in 1995, due primarily to broader  distribution of product,  partially offset by
lower  average  sales prices and increased  provisions  for  potential  returns.
Average selling prices declined due to increased  competition for shelf space at
retail  outlets.  Provisions for potential  returns  increased  primarily due to
additional  returns  associated  with the decline in  sell-through of product at
retail.  International  sales  increased to 24% of net sales in 1996 from 15% of
net sales in 1995 as the Company continued to broaden its international  efforts
by establishing  more  relationships  with foreign  publishers and distributors.
CD-ROM  products  represented  82% of net sales in 1996 compared to 46% in 1995.
Management  expects CD-ROM  products to remain the dominant media choice of most
its  customers.  Average  selling  prices may continue to decline as the Company
expands  its  distribution  network,  particularly  in  the  mass  merchandising
channel. Returns of Swfte products are not likely to impact future operations as
significantly as they did in 1996 as such inventory in the channel is lower than
in 1995.

  Cost of Sales.  Cost of sales  increased  to $16.4  million in 1996 from $10.1
million in 1995 and  increased as a percentage of net sales to 52.9% from 36.6%.
The increase in cost of sales was primarily attributable to increased unit sales
volume  and the  charges  for excess and  obsolete  inventory  during the second
quarter.  In the  second  quarter  of  1996,  the  Company's  evaluation  of the
estimated  inventory value for products  returned from customers was changed and
resulted in a $1.4  million  charge to cost of sales.  The  Company's  valuation
reflects  principally the impact of new product versions rendering older product
versions obsolete or unsalable, the return of slow-moving products, and existing
excess quantities of inventory. Such slow-moving products and products for which
new  versions  have been  released are  difficult  to sell  through  alternative
channels.  When the sales objectives for the June quarter were not achieved,  an
evaluation  of  inventories  was  performed  and a valuation  adjustment of $2.6
million  was  recorded,  of which  $1.2  million  related  to Swfte  inventories
acquired  subsequent  to the  acquisition  and  $1.4  million  of  Expert  brand
inventories  for  which  on  hand  quantities  exceed  expected  future  demand.
Amortization  expense associated with acquired software technology  increased to
$404,000 in 1996 from  $259,000 in 1995.  The Company  expects  cost of sales in
future  periods will decrease over 1996 levels due to the adverse impact on 1996
results  of  operations  of the  charges  discussed  above,  and an  anticipated
decrease in media costs.

  Marketing and Sales. Marketing and sales expenses increased to $9.9 million in
1996 from $6.2 million in 1995 and  increased  as a  percentage  of net sales to
31.9% from 22.4%.  The increase in dollar  amount was primarily due to increased
marketing  activities  to  promote  the  Company's  products  and  brand  names,
increased personnel and increased competition for shelf space in retail outlets.
The  Company  intends  to  continue  to  launch  new  and  innovative  marketing
promotions and to hire additional  personnel as needed. As a result, the Company
expects  marketing and sales expenses to increase in dollar amount,  and expects
competition for shelf space to continue.

  General and Administrative.  General and administrative  expenses increased to
$10.1 million in 1996 from $4.3 million in 1995 and increased as a percentage of
net sales to 32.6% from 15.5%.  These increases were primarily due to additional
provisions for doubtful accounts of $1.3 million,  the provision of $1.9 million
during the third quarter related to the Swfte settlement,  legal fees associated
with the Swfte lawsuit and increased staff and associated overhead expenses. The
Company  anticipates  that it will  continue  to incur  risks for  uncollectible
accounts. The Company expects general and administrative expenses to decrease in
1997 as a result of the settlement of the Swfte litigation.

  Development.  Development expenses increased to $3.3 million in 1996 from $2.2
million in 1995 and  increased as a percentage  of net sales to 10.7% from 7.9%.
Development  expenses include costs relating to product  upgrades,  new products
development  activities,  quality control and expanded customer service support.
The increase was principally due to additional  staffing,  mostly as a result of
the acquisition of Swfte. During the fourth quarter of 1996, the Company reduced
development  personnel and did not renew the lease for the facilities previously
occupied  by Swfte,  which will help to contain  development  expenses in future
periods.  The  Company  currently  believes  that  the  steps  taken  to  reduce
development  expenses in 1996 will be offset by additional  costs to develop new
brands and titles,  including the  development  of products to take advantage of
the Internet and other on-line capabilities.

   Loss on  Impairment  of Assets.  During the three months ended June 30, 1996,
management  reevaluated the carrying value of the intangible  assets recorded in
connection with the November 1995 acquisition of Swfte.  These intangible assets
consisted  of  acquired  software  technology,  a license  agreement  to use the
Bicycle(R)  brand name in certain card game  software,  the assembled  workforce
acquired,  and Swfte's customer list. This reevaluation of the intangible assets
was  necessitated  by  management's  determination  based on recent  results  of
operations that the expected sales and cash flows from the acquired assets would
be substantially lower than had been previously expected by management.

   The  acquired  Swfte  products  originally  projected  to  generate  the most
significant sales and cash flows sold at substantially lower than expected rates
in 1996. Certain of those titles now face new competition from other publishers,
which has taken market share away from those  titles.  In  particular,  the card
games  category  has become  more  competitive  as a result of recent  marketing
efforts by Sierra On Line,  and others.  Additionally,  certain  other  acquired
titles were released shortly before the acquisition of Swfte. Based on low sales
rates,  some retailers  discontinued  certain of these new titles and management
has determined their expected future sales to be minimal.

   A  significantly  higher  level  of  returns  has been  experienced  with the
products  acquired in the acquisition over the rate of returns  experienced with
the Company's other products.  Management believes that certain titles were sold
into the  distribution  and retail  channel prior to the  acquisition  at higher
rates  than could be  supported  by sales  through  to the end  users.  This has
prompted distributors and retailers to return these products.  This overstock of
product and returns experience has, in management's judgment,  damaged the brand
and reduced their expected future sales levels.

   Lower than expected  acceptance of the acquired  products,  together with the
terminations  resulting  from  closing  the  Swfte  facilities  in  Delaware  to
consolidate  all  operations at the Company's  headquarters  in Florida,  caused
management to write-off the value originally ascribed to the workforce in place.

   Value  was   originally   ascribed  to  Swfte's   customer  list  based  upon
management's  assessment  of the value of Swfte's  experience  in  dealing  with
certain  educational  channels and  bookstores.  Due to the lower than  expected
sales rates and higher than expected  returns  rates for the acquired  products,
management no longer  believes this to be true, and  accordingly has written-off
the costs assigned to the customer list.

   These  factors are not  expected to be  short-term  or  temporary  in nature,
causing management to reduce the carrying value of the intangible assets by $3.5
million.  Management  also  determined  that the lower  demand for the  acquired
products and recent customer claims for  pre-acquisition  cooperative  marketing
and price protection  credits required an additional  provision for reserves for
returns of $1.1 million higher than originally provided on the acquired accounts
receivable; and a provision for reserves $0.2 higher than originally provided on
the acquired  inventory.  Such  provisions were recorded during the three months
ended June 30,  1996,  and are  included  in the stated  loss on  impairment  of
intangibles.  Additionally,  the  lower  than  expected  sales and  higher  than
expected  returns  levels on the  acquired  products  indicate  that the minimum
royalties  required  under certain  contracts and prepaid  royalties will not be
recouped in the ordinary course of business.  Approximately $0.3 million of such
royalties  have  therefore  been  accrued as part of the loss on  impairment  of
intangibles as of June 30, 1996.  Similarly,  losses on fixed assets and certain
other assets determined to have lower values than originally  assigned have been
accrued as part of the loss on impairment of intangibles as of June 30, 1996.

     Interest Income (Expense). Net interest income decreased to $92,000 in 1996
from  $370,000 in 1995,  due primarily to reduced  balances of  interest-bearing
assets.

     Tax Provision  (Benefit).  The benefit for income taxes increased to $(4.1)
million  in 1996  from  $(1.3)  million  in 1995,  due  primarily  to  increased
operating losses. The benefit for income taxes in 1996 also reflects an increase
in the  valuation  allowance  for  deferred  tax assets of $2.5  million,  which
reduced the benefit by $0.9 million compared to the expected benefit computed at
the statutory federal income tax rate.

Comparison of Years Ended December 31, 1995 and 1994

  Net Sales. Net sales increased 40% to $27.6 million in 1995 from $19.7 million
1994,  due  primarily  to  increased   sales  of  CD-ROM  products  and  broader
distribution,  as well as sales of Swfte products in November and December 1995.
CD-ROM  products  represented  46% in 1995 compared to 23% of net sales in 1994.
International  sales increased to 15% of net sales in the fiscal year ended 1995
from  7% of  net  sales  in  1994  as  the  Company  continued  to  broaden  its
international efforts by establishing  relationships with foreign publishers and
distributors.  To  a  lesser  degree,  sales  improved  as  the  result  of  the
introduction of a children's educational line of products.

  Cost of Sales.  Cost of sales  increased  to $10.1  million  in 1995 from $8.1
million in 1994 and  decreased as a percentage of net sales to 36.6% from 40.9%.
The increase in the dollar amount of cost of sales was primarily attributable to
increased  unit sales  volume.  The  decrease as a  percentage  of net sales was
principally  attributable to a decrease in amortization  expense associated with
acquired software technology. Such amortization expense decreased to $259,000 in
1995 from $477,000 in 1994.  The  percentage  decrease in cost of sales was also
attributable to lower per unit component costs due to higher volume purchases to
meet higher unit sales  volumes,  as well as lower  media  costs.  Additionally,
conversion of manuals and catalogs to CD-ROM has  contributed to cost savings by
reducing printing costs. Amortization of acquired software technology related to
the Swfte Acquisition included in costs of sales was $237,000 in 1995.

  Marketing and Sales. Marketing and sales expenses increased to $6.2 million in
1995 from $4.3 million in 1994 and  increased  as a  percentage  of net sales to
22.4% from 21.8%.  The increase in dollar  amount was primarily due to increased
marketing  activities  to  promote  the  Company's  products  and  brand  names,
increased personnel and increased "in-store  promotions" in retail outlets.  The
Company  intends to continue to launch new and innovative  marketing  promotions
and to hire  additional  personnel as needed.  As a result,  the Company expects
marketing and sales expenses to increase in dollar amount.

  General and Administrative.  General and administrative  expenses increased to
$4.3 million in 1995 from $2.8 million in 1994 and  increased as a percentage of
net  sales to 15.5%  from  14.3%.  These  increases  were  primarily  due to the
write-off of expenses  associated with a public offering of securities which was
not consummated and legal fees associated with the lawsuit  concerning the Swfte
Acquisition.  Additionally,  increased  staff and associated  overhead  expenses
necessary to manage and support the Company's growth contributed to the increase
in expenses.  As the Company  continues to grow,  staff and associated  overhead
will increase proportionally.

  Development.  Development expenses increased to $2.2 million in 1995 from $1.3
million in 1994 and  increased as a  percentage  of net sales to 7.9% from 6.7%.
Development  expenses include increased costs relating to product upgrades,  new
products development  activities,  quality control and expanded customer service
support. The increase also reflects increased staffing mostly as a result of the
acquisition of Swfte. In addition,  in 1995 the Company used an outside customer
support service to supplement its inside customer support during peak times.

  Purchased Research and Development. Purchased research and development of $8.4
million  in 1995  represents  the  immediate  write-off  of the  fair  value  of
incomplete   research  and  development   projects  at  Swfte  at  the  time  of
acquisition. These projects had not reached technological feasibility as defined
by SFAS No. 86. The fair value was determined by an independent appraisal and is
based on acceptable  valuation  techniques.  The write-off of this amount during
the quarter  ended  December 31, 1995 resulted in a loss for the quarter and the
year then  ended.  To the  extent  the  Company  acquires  new  technologies  or
businesses,  such  acquisitions  may entail  additional  write-offs  of acquired
research and development in the future.

  Amortization  of Non-Compete  Agreement.  Amortization  expenses  decreased to
$338,000 in 1995 from $416,000 in 1994. In February 1995,  the Company  released
Bloc from the remaining nine month term under the non-compete  agreement as part
of a  general  settlement  of the  parties'  obligations  relating  to the  1992
Acquisition  and, as a result,  the remaining net book value of the  non-compete
agreement was expensed in the first quarter of 1995.

  Interest Income (Expense). Interest changed to income of $370,000 in 1995 from
an expense of $366,000 in 1994. In February 1995, the Company  prepaid  $500,000
in  subordinated  debt,  thereby  eliminating  interest  on this  portion of its
subordinated  indebtedness.  In  connection  with the Company's  initial  public
offering in April 1995, the remainder of the  subordinated  indebtedness of $3.9
million was repaid,  eliminating that interest  expense going forward.  The 1995
interest  income was derived from the investment of the excess proceeds from the
Company's initial public offering as well as cash provided from operations.

  Tax  Provision  (Benefit).  The provision for income taxes in 1994 was $91,000
resulting in an effective  tax rate of 3.7%,  which  reflected  the benefit of a
reduction of $885,000 in the Company's  valuation  allowance for deferred taxes.
For 1995, the Company  recorded a tax benefit from income taxes of $1.3 million,
resulting from the write-off of incomplete  purchased  research and  development
from the Swfte Acquisition. For information regarding certain tax aspects of the
Swfte Acquisition, see "Recent Acquisition" above.

<PAGE>

Quarterly Results of Operations

  The  following  tables  set forth  certain  unaudited  financial  data for the
Company's eight most recent financial  quarters,  as well as such data expressed
as a  percentage  of the  Company's  net sales.  This data has been derived from
unaudited financial  statements that, in the opinion of management,  include all
adjustments (consisting of normal recurring adjustments and the charges recorded
in the second and third quarters of 1996 discussed  above)  necessary for a fair
presentation  of such quarterly  information  when read in conjunction  with the
Company's  Consolidated  Financial  Statements  and the  related  Notes  thereto
included in Item 8. The  operating  results for any quarter are not  necessarily
indicative of results for any future period.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                          Three Months Ended
                        --------------------------------------------------------
                          Dec.  Sept.  June   March   Dec.  Sept.  June    March
                         1996   1996   1996   1996    1995   1995   1995   1995
                        ------ ------ ------ ------- ------ ------ ------ ------
  Net sales............$8,234 $6,401  $6,354 $10,383 $8,784 $7,126 $5,771 $5,956
                       ------ ------  ------ ------- ------ ------ ------ ------
  Operating costs and
  expenses:
    Cost of sales.......3,268  2,408   6,851   3,893  3,216  2,564  2,141  2,200
    Marketing and sales.2,443  2,150   2,632   2,663  2,090  1,565  1,194  1,331
    General and              
     administrative.....1,389  3,953   3,029   1,753  1,651    973    894    775
    Development.........  592    978     890     860    691    497    509    495
    Purchased research and   
     development.........  --     --     --      --   8,392     --     --     --
    Loss on impairment of   
     assets..............  --     --  5,700      --      --     --     --     --
    Amortization of         
  non-compete agreement..  --     --     --      --      --     --     --    338
                       ------ ------  ------ ------- ------ ------ ------ ------
                        7,692  9,489  19,102  9,169  16,040  5,599  4,738  5,139
                       ------ ------  ------ ------- ------ ------ ------ ------
  Operating income(loss)  542 (3,448)(12,748) 1,214   7,256   1,527  1,034   817  
  Other(expense)income,    
      net..............     3     20      29     40     122     197    122  (72)
                       ------ ------  ------ ------- ------ ------ ------ ------
    Income (loss) before
    provision (benefit)          
    for income taxes... . 545 (3,428) (12,719) 1,254 (7,134)  1,724  1,156   745

  Provision (benefit) for                         
    income taxes........  202     --   (4,727)   459 (2,543)    536    404   279
                       ------ ------  ------ ------- ------ ------ ------ ------
    Net income (loss)... $343$(3,428) $(7,992)  $795$(4,591) $1,188   $752  $466
                       ====== ======  ======= ====== ====== ====== ====== ======
  Net income (loss) per
  share of common              
  stock................. $.04  $(.46) $(1.07)  $.10  $(.62)  $.15   $.10   $.07
                       ======= ====== ======= ====== ====== ====== ====== ======

  As a Percentage of Net Sales:
  Net sales              100%   100%    100%    100%   100%  100%   100%   100%
  Operating costs and
  expenses:
    Cost of sales.......  40     37     108      38     37    36     37     37
    Marketing and sales.  30     34      41      26     24    22     21     22
    General and
     administrative.....  17     62      48      17     19    14     15     13
    Development.........   7     15      14       8      8     7      9      8
    Purchased research and
     development........   --    --      --      --     95    --     --     --
    Loss on impairment of 
     assets.............   --    --      90      --     --    --     --     --
    Amortization of 
     non-compete agreement --    --      --      --     --    --     --      6
                       ------- ------ ------ ------- ------ ------ ------ ------
                          93    148     301      88    183    79     82     86
                       ------- ------ ------ ------- ------ ------ ------ ------
    Operating income....   7    (54)   (201)     12    (83)   21     18     14
  Other (expense) income,
     net................  --     --      --      --      2     3      2     (1)
                       ------- ------ ------ ------- ------ ------ ------ ------
    Income before provision
    (benefit) for income
      taxes.............   7    (54)   (200)     12    (81)   24     20     13
  Provision (benefit) for  
   income taxes........    3     --     (74)      4    (29)    7      7      5
                       ------- ------ ------ ------- ------ ------ ------ ------
  Net income (loss)....  4.2%   (54)%  (126)%    8%    (52)%  17%    13%     8%
                       ======= ====== ======= ====== ====== ====== ====== ======
</TABLE>

  The Company has experienced,  and may continue to experience,  fluctuations in
operating  results  due to a variety of factors,  including,  but not limited to
market  acceptance  of the  Company's  products  and  those of its  competitors,
development  and  promotional  expenses,  new  versions of existing  products or
operating  systems,  product  returns,  acquisitions  of new  businesses  by the
Company and related charges and write-offs, and those items included in "Factors
Affecting Future  Operating  Results"  discussed  below.  The Company's  expense
levels are based,  in part,  on its  expectations  as to future  sales and, as a
result, operating results would be disproportionately affected by a reduction in
sales or a failure to meet the Company's sales expectations.

  The  consumer  software  business is  seasonal.  Typically,  net sales are the
highest during the fourth calendar quarter and decline sequentially in the first
and second  calendar  quarters.  The  seasonal  pattern is due  primarily to the
increased  demand for  consumer  software  during the  year-end  holiday  buying
season.  The Company expects its net sales and operating  results to continue to
reflect seasonality.

Liquidity and Capital Resources

  Over  the  last  year,  the  Company  has   experienced  a  reduction  in  its
stockholders'  equity,  working  capital and ratio of current  assets to current
liabilities,  primarily as a result of net losses  realized  during that period.
Management has responded by reducing expenses,  including,  among other actions,
reducing personnel significantly. With these actions and the continuation of the
Company's  revolving  line of credit,  management  believes that it has adequate
financial  resources  for its planned  operations  through  1997.  Longer  term,
management   believes  that  its  expense  reduction   efforts,   together  with
anticipated  revenue  increases,  should return the Company to profitability and
provide for positive cash flow to fund future operations.

  As of December  31,  1996,  the Company had $5.1  million in working  capital,
including  $3.0  million in cash.  To date,  the Company has not invested in any
financial  instruments that involve a high level of complexity or risk. Net cash
used by operating  activities was $(3.5) million for the year ended December 31,
1996. Net cash provided by investing activities was $5.5 million,  primarily due
to the  maturity  and sales of  marketable  securities,  offset by  purchases of
property and equipment.

  The Company  believes that cash  generated by operations may be affected by an
increase in working capital  requirements as it continues to expand  operations.
In response to such growth in working capital requirements,  the Company entered
into a two-year,  $5.0 million  unsecured  revolving line of credit in May 1996.
Availability  under the line is based on an advance  rate  applied  to  eligible
receivables and the maintenance of certain  financial ratios. As a result of the
Company's  performance  in the second and third  quarters,  the  Company  was no
longer in compliance with the original financial ratios under its revolving line
of credit.  Amendments  to the line of credit were entered  into,  modifying the
financial  ratios to reflect its year to date results of operations and granting
a security interest in the Company's assets.  There can be no assurance that the
Company's  results of operations will continue to be in compliance with the line
of  credit  covenants  which,  among  other  things,  prohibit  two  consecutive
quarterly losses  commencing with the third quarter of 1996, or that the line of
credit would be otherwise  available to the Company. To date, there have been no
borrowings under the line of credit.

    The  Company's  federal tax filings with respect to the year ended  December
31, 1992 and  subsequent  years are  presently  being  reviewed by the  Internal
Revenue Service  ("IRS").  The IRS has questioned the allocation of the purchase
price  made by the  Company in  connection  with the  acquisition  of assets and
business of the Predecessor from Bloc in October 1992, and related  amortization
and other  deductions  with  respect  to the  acquired  assets.  The IRS has not
proposed any  assessment  from their review,  but it is expected to conclude its
audit  in the  near  future  and  has  indicated  that  it  intends  to  propose
adjustments to the Company's federal income tax returns claiming  additional tax
due. At this time, it is not possible to quantify the amount of additional taxes
the IRS will claim are due.  There can be no  assurance  that the  Company  will
prevail in its position,  or that the appeals,  if any, and final  resolution of
any IRS  claims  will  not  have a  material  adverse  impact  on the  Company's
liquidity, financial position, or results of operations. See Note 13 of Notes to
the Company's Consolidated Financial Statements at Item 8.

  From time to time, the Company evaluates  potential  acquisitions of products,
businesses  and  technologies  that would  complement  or expand  the  Company's
business. The Company currently does not have any commitments or agreements with
respect  to any  such  acquisitions.  There  can be no  assurance  that any such
acquisitions will be made or, if made, will be successfully integrated.

Factors Affecting Future Operating Results

  This Form 10-K  contains  forward-looking  statements  within  the  meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
its historical operating results and from those set forth in the forward-looking
statements and may fluctuate between operating periods. Factors that might cause
such a differences and fluctuations include, without limitation,  the following:
the size and rate of growth of the consumer  software  market,  consolidation of
the software industry among both customers and competitors, market acceptance of
the  Company's  products and those of its  competitors,  competitors'  marketing
strategies and promotions,  development and promotional expenses relating to the
introduction of new products, new versions of existing products or new operating
systems,  evolving  distribution  channels,  the  growth  in  popularity  of the
Internet  and other new  technologies  which could impact the  distribution  and
purchase of software,  product  returns,  acquisitions  of new businesses by the
Company  and related  charges and  write-offs,  the  collectibility  of accounts
receivable,  changes in pricing policies by the Company and its competitors, the
accuracy of  retailers'  forecasts of consumer  demand,  competition  for retail
space,  consumer  confidence,  the timing of the  receipt  of orders  from major
customers,  account  cancellations  or delays in shipment,  future cash flow and
working capital  requirements,  payment of the Company's  obligations  under the
settlement of the litigation with the former owners of Swfte, implementation and
expansion of the Company's  systems and operations to accommodate  the Company's
anticipated future revenues,  the outcome of current and future  examinations by
taxing  authorities,  and other  factors.  In addition,  the  consumer  software
business is seasonal due primarily to the increased demand for consumer software
during the year-end  holiday buying season.  Further,  a significant  portion of
sales within a quarter is typically not realized until late in that quarter.  As
a result,  it may be difficult  for the Company to predict its net sales for the
quarter  or to quickly  adapt its  spending  levels  within a quarter to reflect
changes in demand for its  products.  The market price of the  Company's  Common
Stock has been,  and in the  future  will  likely  be,  subject  to  significant
fluctuations in response to variations in quarterly  operating results and other
factors,  such as announcements of technological  innovations or new products by
the Company or its competitors, or other events.






Item 8. Consolidated Financial Statements and Supplementary Data



                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                    Page

Report of Independent Certified Public Accountants.................   20

Consolidated  Balance  Sheets as of December  31, 1996 and December   
31, 1995...........................................................   21

Consolidated  Statements of Operations for the Years Ended December   
31, 1996, 1995 and 1994............................................   22

Consolidated  Statements  of  Stockholders'  Equity  for the  Years   
Ended December 31, 1996, 1995 and 1994.............................   23

Consolidated  Statements of Cash Flows for the Years Ended December   
31, 1996, 1995 and 1994............................................   24

Notes to Consolidated Financial Statements.........................   26


<PAGE>





            REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS





To the Stockholders of
  Expert Software, Inc.:

  We have  audited  the  accompanying  consolidated  balance  sheets  of  Expert
Software, Inc. (a Delaware corporation) as of December 31, 1996 and 1995 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 1996.  These
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  conducted  our  audits in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit 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 provide a reasonable basis for our opinion.

  In our opinion,  the financial statements referred to above present fairly, in
all material respects,  the financial  position of Expert Software,  Inc., as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.




ARTHUR ANDERSEN LLP

Miami, Florida,
  February 12, 1997.


<PAGE>

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                           EXPERT SOFTWARE, INC.
                        CONSOLIDATED BALANCE SHEETS
                        December 31, 1996 and 1995
                     (in thousands, except share data)

                                                         1996     1995
                                                       --------  -------
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents...........................   $2,959    $ 912
  Marketable securities...............................       --    6,222
  Accounts receivable, net............................    3,775    6,570
  Income taxes receivable.............................    2,397       --
  Inventories.........................................    1,256    3,962
  Prepaid expenses....................................      425      504
  Deferred income taxes...............................    2,616      807
                                                        -------  -------
   Total current assets...............................   13,428   18,977

PROPERTY AND EQUIPMENT, net...........................    1,897    2,575

ACQUIRED SOFTWARE TECHNOLOGY, net.....................      163    3,575
ACQUIRED INTANGIBLES, net of accumulated amortization      
of $55 in 1995........................................       --      608
DEFERRED INCOME TAXES.................................    3,586    3,295
OTHER ASSETS..........................................        3       39
                                                        -------  -------
   Total assets.......................................  $19,077  $29,069
                                                        =======  =======   


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable....................................   $3,226   $2,581
  Accrued expenses....................................    5,038    5,745
  Current portion of capital lease obligations........       88       95
                                                        -------  -------
   Total current liabilities..........................    8,352    8,421
                                                        -------  -------

NONCURRENT LIABILITIES................................      300       14
                                                        -------  -------

COMMITMENTS and CONTINGENCIES (Note 13)

STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value, 1,000,000 shares 
   authorized; 975,000 shares undesignated,                     
   25,000 shares designated as Series A Junior
Participating Cumulative; none outstanding............      --      --
  Common stock, $.01 par value, 30,000,000 shares 
   authorized; 7,507,804 and 7,470,451 shares issued
   and outstanding in 1996 and 1995, respectively.....       75       75
  Additional paid-in capital..........................   23,198   23,126
  Accumulated deficit.................................  (12,848)  (2,567)
                                                        -------  -------
                                                               
   Total stockholders' equity.........................   10,425   20,634
                                                        -------  -------
   Total liabilities and stockholders' equity.........  $19,077  $29,069
                                                        =======  =======

</TABLE>





           The accompanying notes to consolidated financial statements
                  are an integral part of these balance sheets.


<PAGE>


<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                           EXPERT SOFTWARE, INC.
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                   (in thousands, except per share data)

                                      Years Ended December 31,
                                  -------------------------------
                                     1996       1995       1994
                                  ---------  ---------  ---------

  NET SALES....................... $31,012    $27,638    $19,727
                                  ---------  ---------  ---------
  OPERATING COSTS AND EXPENSES:
    Cost of sales.................  16,420     10,121      8,066
    Marketing and sales...........   9,888      6,180      4,303
    General and administrative....  10,124      4,293      2,824
    Development...................   3,320      2,192      1,328
    Purchased research and           
     development..................      --      8,392         --                        
    Loss on impairment of assets..   5,700         --         --
    Amortization of non-compete    
     agreement....................      --        338        417
                                  ---------  ---------  --------- 
                                    45,452     31,516     16,938
                                  ---------  ---------  ---------
    Operating income (loss)....... (14,440)    (3,878)     2,789
                                  ---------  ---------  ---------

  OTHER INCOME (EXPENSE):
    Interest expense..............     (26)      (121)      (450)
    Interest income...............     118        490         84
                                  ---------  ---------  ---------
                                        92        369       (366)
                                  ---------  ---------  ---------

    Income (loss) before
     provision (benefit)
     for income taxes......        (14,348)    (3,509)     2,423
  

  PROVISION (BENEFIT)FOR INCOME 
  TAXES                             (4,067)    (1,324)        90
                                  ---------  ---------  --------- 
    Net income (loss)............ $(10,281)   $(2,185)     2,333
                                  =========  =========  =========

  Net income (loss) per share of
   common stock..................  $ (1.33)   $  (.31)  $   .38
                                  =========  =========  ========= 
  Weighted average number of
   common stock and common stock
   equivalents outstanding........   7,750      7,153      5,795      
                                  =========  =========  =========


</TABLE>






   The accompanying notes to consolidated financial statements are an integral
                            part of these statements.


<PAGE>

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                           EXPERT SOFTWARE, INC.
              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     (in thousands, except share data)

                                Common Stock   Additional
                               -------------    Paid-in    Accumulated
                               Shares  Amount   Capital     Deficit      Total 
                              -------- ------ ----------- ------------ --------

    Balance, Dec. 31,1993.....5,000,000   $50     $450      $(2,542)   $(2,042)
     Dividends on redeemable
      preferred stock.........       --    --       --         (132)      (132)
     Issuance of common stock in
      connection with exercise
      of stock options........  313,193     3       28            --        31
     Compensation expense on
      stock option grants.....       --    --      165            --       165
     Net income...............       --    --       --         2,333     2,333
                              ---------  ----  -------     ---------   -------
    Balance, Dec. 31,1994.....5,313,193    53      643          (341)      355
    Dividends on  redeemable     
     preferred stock..........       --    --       --           (41)      (41)
    Initial public offering of
     common stock.............1,700,000    17   18,955           --     18,972
    Costs associated with 
     issuance of common stock.       --    --   (1,017)          --     (1,017)
    Issuance of common stock in
     connection with exercise of
     stock options............  136,628     2       30           --         32
    Issuance of common stock in
     connection with Swfte 
     acquisition..............  320,630     3    4,388           --      4,391
    Tax benefit related to the
     exercise of stock options       --    --      127           --        127
    Net loss..................       --    --      --         (2,185)   (2,185)
                              ---------  ----  -------     ---------   ------- 
    Balance, Dec.31,1995..... 7,470,451    75   23,126        (2,567)   20,634
    Issuance of common stock in
     connection with exercise of
     stock options............   37,353    --       65           --        65
    Compensation expense on stock
     option grants............       --    --        7           --         7
    Net loss..................       --    --       --       (10,281)  (10,281)
                              ---------  ----  -------     ---------   -------
    Balance, Dec.31,1996......7,507,804   $75  $23,198       $12,848)  $10,425
                              =========  ====  =======     =========   =======


</TABLE>








   The accompanying notes to consolidated financial statements are an integral
                            part of these statements.


<PAGE>

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                           EXPERT SOFTWARE, INC.
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                Years Ended December 31,
                                             -----------------------------
                                                1996      1995      1994
                                             --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................$(10,281)  $(2,185)   $2,333
Adjustments to reconcile net income (loss)
to net cash  provided  by (used in)  operating
activities:
  Depreciation of property and equipment.....   1,105       496       245
  Amortization of acquired software technology    544       283       477
  Amortization of acquired intangibles.......      --        55        --
  Amortization of non-compete agreement......      --       338       417
  Compensation expense on stock option grants       7        --       164
  Loss on impairment of assets...............   5,700        --        --
  Purchased research and development.........      --     8,392        --
  Deferred income tax benefit................  (2,100)   (3,583)     (228)
  Loss on disposition of equipment...........      --         --       21
Changes in net assets and liabilities :
  (Increase) decrease in accounts receivable.   1,899    (1,901)      (98)
  (Increase) decrease in income taxes 
    receivable...............................  (2,397)       --        --
  (Increase) decrease in inventories.........   2,556    (1,759)     (741)
  (Increase) decrease in prepaid expenses....     (31)     (124)      116  
  (Increase) decrease in other assets........      10        (1)       35
  Increase (decrease) in accounts payable....     405       (28)       78
  Increase in accrued expenses...............     934       644       644
  Increase (decrease) in income taxes payable  (2,125)    2,270        --
  Increase in noncurrent liabilities.........     300        --        --
                                             --------- --------- --------- 
    Net cash provided by (used in) operating 
     activities..............................  (3,474)    2,897     3,463
                                             --------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment.........    (644)   (1,681)     (881)
  Purchases of marketable securities.........      --    17,915)       --
  Maturities and sales of marketable  
   securities................................   6,222    11,693        --
  Cash used for acquisition, net of cash 
   acquired of $187..........................      --    (7,674)       --
                                             --------- --------- --------- 
    Net cash provided by (used in) investing  
     activities..............................   5,578   (15,577)     (881)
                                             --------- --------- ---------  



                               (Continued)





<PAGE>



                           EXPERT SOFTWARE, INC.
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)

                                (Continued)



                                               Years Ended December 31,
                                              --------------------------
                                                1996     1995     1994
                                              -------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock......     --   18,972       31
  Costs  associated  with  issuance  of  common
  stock........................................    --   (1,017)      --
  Stock options exercised.....................     65        32      --
  Payment of  subordinated  debt to related and   
   unrelated parties..........................     --   (4,400)      --
  Payment for redeemable preferred stock......     --   (2,200)      --
  Payments on note payable....................     --   (1,304)      --
  Payments on capital lease obligation........   (122)      (3)      --
  Dividends paid on redeemable preferred stock     --      (41)    (288)
                                              -------- -------- --------
    Net cash provided by (used in) financing  
     activities...............................    (57)   10,039    (257)
                                              -------- -------- --------
    Net increase (decrease) in cash and 
     equivalents..............................  2,047    (2,641)   2,325
CASH AND EQUIVALENTS, beginning of period.....    912     3,553    1,228
                                              -------- -------- --------   

CASH AND EQUIVALENTS, end of period...........  $2,959     $912   $3,553
                                              ======== ======== ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION :
  Cash paid during the period for interest....     $26     $124     $913
                                              ======== ======== ========
  Cash paid during the period for income taxes  $2,555     $139      --
                                              ======== ======== ========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
  On November 2, 1995 the Company purchased
   all of the capital stock
   of Swfte  International, Ltd. In connection
   with the acquisition, the
   following non cash transactions occurred:
  Fair value of assets acquired...............     --   $15,320      --
  Liabilities assumed.........................     --    (3,255)     --
  Issuance of common stock....................     --    (4,391)     --
                                              -------- -------- --------
  Cash paid for acquisition and direct costs.      --     7,674      --
                                              ======== ======== ========

  Fixed assets obtained under capital leases..   $102       --       --
                                              ======== ======== ========
</TABLE>





   The accompanying notes to consolidated financial statements are an integral
                            part of these statements.


<PAGE>



                           EXPERT SOFTWARE, INC.
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996 and 1995

1.  OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:

The Organization --

    Expert  Software,  Inc. (the "Company")  publishes and distributes  computer
software under the "Expert" trade name. The Company's  products  address a broad
range of consumer interest and everyday tasks for the  productivity,  lifestyle,
small office/home  office,  entertainment and education market  categories.  The
Company's titles are primarily  available on the Windows operating  system,  and
substantially  all are  available  on CD-ROM.  The  Company  sells its  products
directly to retailers, as well as to distributors.

Principles of Consolidation --

    The accompanying  consolidated  financial statements include the accounts of
the  Company  and its  wholly  owned  subsidiaries,  Swfte  International,  Ltd.
("Swfte") and ES International,  Inc. All intercompany transactions and balances
have been eliminated in consolidation.

Use of Estimates --

    The  preparation  of  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.

Financial Instruments --

    The carrying amounts of cash and cash  equivalents,  marketable  securities,
accounts  receivable,  accounts  payable and accrued  expenses  reflected in the
consolidated financial statements approximate fair value.

Cash Equivalents --

    The  Company  considers  all highly  liquid  investment  instruments  with a
maturity of three  months or less when  purchased to be cash  equivalents.  Cash
equivalents  include  investments in repurchase  agreements and tax-exempt  bond
instruments.

Marketable Securities --

    Marketable  securities  consist of investment  grade  municipal and tax free
bonds and tax exempt money market  funds.  The Company  accounts for  marketable
securities in accordance with Financial Accounting Standards Board Statement No.
115,  "Accounting  for Certain  Investments in Debt and Equity  Securities"  and
accordingly,  all such  instruments  are  classified  as  "available  for  sale"
securities  which are reported at fair value,  with unrealized  gains and losses
reported as a separate  component  of  stockholders'  equity,  net of taxes.  At
December 31, 1995, the cost of such instruments approximated fair value.

Accounts Receivable --

    Accounts  receivable are principally  from retailers and distributors of the
Company's  products.  The Company  performs  periodic credit  evaluations of its
customers and  maintains  allowances  for potential  credit losses and potential
returns  of   $5,061,000   and   $1,659,000  at  December  31,  1996  and  1995,
respectively.

    The  Company's  customers  are  invoiced  upon  shipment,  at  which  time a
provision is recorded for expected future returns. The Company estimates returns
based on management's  evaluation of historical  experience and current industry
trends and charges such estimates against gross revenues. The Company is subject
to rapid changes in technology and shifts in consumer  demand which could result
in  product  returns  in the near term that are  materially  different  than the
Company's reserves at December 31, 1996.

    Sales to the  Company's  customers  which  represented  10% or more of gross
sales less actual returns in any of the periods shown below are as follows:

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                Years Ended December 31,
                             -----------------------------  
                               1996      1995       1994
                             --------  --------   --------
      Customer A...........    19.6%     11.6%       8.8%
      Customer B...........    10.4      14.4       14.6
      Customer C...........     7.8      11.3        8.4
      Customer D...........     5.8       1.3       14.6
      Customer E...........     5.1       3.6       10.4

</TABLE>

    The three major  customers  at December  31, 1996 and 1995 also  account for
25.6% and 36.2% of gross  outstanding  accounts  receivable at December 31, 1996
and 1995, respectively.

Inventories --

    Inventories,  which consist primarily of software media, manuals and related
packaging  materials,  are  stated  at the  lower of cost or  market  with  cost
determined on a first-in, first-out ("FIFO") basis. Management performs periodic
assessments to determine the existence of obsolete,  slow-moving  and nonsalable
inventories and records  necessary  provisions to reduce such inventories to net
realizable value.

    During  the years  ended  December  31,  1996 and 1995 the  Company  had one
supplier which accounted for  approximately  32.8% and 26.4%,  respectively,  of
total purchases.

Property and Equipment --

    Property and  equipment  are stated at cost less  accumulated  depreciation.
Property and equipment are depreciated using the  straight-line  method over the
estimated  useful  lives  of  the  assets.  Depreciation  expense  includes  the
amortization of capital lease assets.

    Maintenance  and repairs are charged to expense when  incurred;  betterments
are capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation  are removed from the  accounts and any gain or loss is  recognized
currently.

Revenue Recognition --

    Sales are  recognized at the time the product is shipped,  net of allowances
for  returns,  in  accordance  with the  provisions  of the AICPA  Statement  of
Position 91-1,  "Software Revenue  Recognition."  While the Company has no other
obligation  to perform  future  services  subsequent  to  shipment,  the Company
provides  telephone  customer  support as an  accommodation to purchasers of its
products as a means of fostering  customer  loyalty.  Costs associated with this
effort  are  insignificant  and  immaterial  to the  financial  statements,  and
accordingly, are expensed as incurred.

Amortization --

      Acquired  software  technology  related to the 1995  acquisition  of Swfte
discussed in Note 2 represents the fair value of certain software technology and
licenses  acquired.  The recorded  value of $3,835,000  was based on independent
appraisal and was being amortized on a  straight-line  basis over two to two and
one-half  years,  the anticipated  period of benefit.  As discussed in Note 2, a
loss on impairment of these  intangibles  was recorded during the second quarter
of 1996.  Additionally,  amortization  of $459,000 on these  assets was recorded
during 1996.  Accumulated  amortization  on such  acquired  software  technology
totaled $3,672,000 and $260,000 at December 31, 1996 and 1995, respectively.

Royalties --

    Royalties  are  accrued  based on net  sales  pursuant  to  agreements  with
external  software  developers  of software  products  published by the Company.
Royalty costs, which are included in cost of sales, were $2,715,000, $2,575, 000
and  $1,960,  000 during  the years  ended  December  31,  1996,  1995 and 1994,
respectively.


Software Development Costs --

    In accordance with Statement of Financial Accounting Standards No. 86 ("SFAS
86"),  Accounting  for the Cost of  Capitalized  Software to be Sold,  Leased or
Otherwise  Marketed,  the Company examines its software  development costs after
technological  feasibility  has been  established  to  determine  the  amount of
capitalization  that is required.  For all periods  presented  herein,  software
development  costs incurred  subsequent to the  establishment  of  technological
feasibility have been immaterial and therefore expensed as incurred.

Stock-Based Compensation --

    Beginning in 1996,  the Company  implemented  the provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"),  Accounting for Stock-Based
Compensation,  in accounting for stock-based transactions with non-employees and
accordingly  records  compensation  expense in the  consolidated  statements  of
operations for such transactions.  The Company continues to apply the provisions
of APB 25 for transactions with employees, as permitted by SFAS 123.

Income Taxes --

    The Company  accounts  for income taxes under SFAS No. 109,  Accounting  for
Income Taxes,  which  requires that deferred  income taxes be recognized for the
tax consequences in future years of differences  between the tax basis of assets
and liabilities  and their  financial  reporting basis at rates based on enacted
tax  laws and  statutory  tax  rates  applicable  to the  periods  in which  the
differences are expected to affect taxable income.

    Valuation  allowances are established  when necessary to reduce deferred tax
assets to the  amount  expected  to be  realized.  Current  income  tax  expense
represents  the tax  payable  for the period.  The  deferred  income tax expense
(benefit)  represents  the change  during the period in the  balance of deferred
taxes.

Net Income (Loss) Per Share of Common Stock --

    Net  income  (loss) per share of common  stock is  determined  by  deducting
preferred  dividends from net income for the years ended December 31, 1996, 1995
and 1994 of $0,  $41,000 and $132,000,  respectively,  in order to determine net
income  attributable  to common  stockholders.  This  amount is  divided  by the
weighted  average  number of shares of common  stock and  dilutive  common stock
equivalents  outstanding,  after applying the treasury stock method. For periods
in which the Company reports a net loss, common stock equivalents do not include
stock options as their effect would be  antidilutive.  Primary and fully diluted
net income (loss) per share are the same for all periods presented.

    For the period prior to the effective  date of the Company's  initial public
offering  ("IPO") of common stock discussed in Note 9, common share  equivalents
include  the impact of the  issuance  of options  within one year of the IPO, at
exercise  prices less than the assumed IPO price  whether or not the effects are
antidilutive.

2.  ACQUISITION AND LOSS ON IMPAIRMENT OF ASSETS:

    In November 1995, the Company  acquired all of the outstanding  common stock
of Swfte International, Ltd., a developer of consumer software for the education
and entertainment  markets.  Total  consideration paid was $7.0 million in cash,
subject to  post-closing  adjustments,  and 320,630  unregistered  shares of the
Company's common stock which were  independently  valued at  approximately  $4.4
million.  Additionally,  the Company  assumed  $1.3 million of Swfte's bank debt
which  was  repaid  by  the  Company  subsequent  to  the  consummation  of  the
transaction.

    The  acquisition  of Swfte was  accounted  for using the purchase  method of
accounting  and,  accordingly,  the results of Swfte since  November 2, 1995 are
included in the accompanying consolidated statements of operations.  Based on an
independent  appraisal,  of the excess of purchase  price over the fair value of
the net assets acquired,  approximately $8.4 million or approximately 65% of the
purchase  price was  expensed  during  the  Company's  1995  fourth  quarter  as
incomplete  purchased  research and  development  projects  that had not reached
technological feasibility as defined by SFAS No. 86.

    Swfte assets and liabilities are included in the  accompanying  consolidated
balance  sheets at values  representing  an  allocation  of the purchase  price,
adjusted in 1996 for the impairment of these assets discussed below.

    The aggregate  purchase price was allocated based upon the fair value of the
tangible and  intangible  assets and the  liabilities  acquired,  summarized  as
follows (in thousands):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

      Current assets............  $1,952
      Equipment.................     478
      Purchased research and       
      development...............   8,392
      Acquired intangibles......   4,498
      Current liabilities.......  (1,951)
      Notes payable.............  (1,304)
                                 -------
      Total cost of             
      acquisition............... $12,065
                                 =======       
</TABLE>

    The following summarized,  unaudited pro forma results of operations for the
years ended December 31, 1995 and 1994 assume the acquisition occurred as of the
beginning of the  respective  periods  (dollars in  thousands,  except per share
amounts):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                   1995     1994
                                 -------- --------                                             
      Net sales..................$36,637  $25,177
      Net income.................  3,116    1,031
      Net income per common share   0.41     0.17
</TABLE>

    This pro forma  information has been prepared for comparative  purposes only
and does not purport to be indicative  of the results that  actually  would have
been achieved if the operations had been combined  during the periods  presented
and is not intended to be a projection of future results.

    During the second quarter of 1996, management reevaluated the carrying value
of the intangible  assets  recorded in connection with the acquisition of Swfte.
This reevalution was necessitated by management's  determination based on recent
results of operations  that the expected  sales and cash flows from the acquired
assets  would  be  substantially  lower  than had been  previously  expected  by
management.  Since these factors were not expected to be short-term or temporary
in nature, the carrying value of the intangible assets was reduced by $3,478,000
in accordance  with Statement of Financial  Accounting  Standards No. 121 ("SFAS
121"),  Accounting  for the  Impairment of Long-Lived  Assets and for Long-Lived
Assets to Be Disposed Of.  Management  also determined that the lower demand for
the  acquired  products  and  claims  from  customers  arising  during  1996 for
pre-acquisition  cooperative  marketing and price protection credits required an
additional  provision for returns of $1,065,000 higher than originally  provided
on the acquired  accounts  receivable;  and a provision  for  reserves  $150,000
higher than  originally  provided on the  acquired  inventories.  The lower than
expected sales and higher than expected returns levels on the acquired  products
indicate that the minimum  royalties will not be recouped in the ordinary course
of business and $339,000 of such  royalties  were accrued as part of the loss on
impairment of intangibles during the second quarter.  Similarly, losses totaling
$668,000  on fixed  assets and certain  other  assets  determined  to have lower
values than  originally  assigned were accrued as part of the loss on impairment
of  intangibles  as of June 30, 1996.  Such losses  totaled  $5,700,000  and are
reflected as "Loss on  impairment  of assets" in the  accompanying  consolidated
statements of operations.

3.  INVENTORIES:

    Inventories consisted of the following at December 31 (in thousands):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                            1996      1995
                                          --------  -------- 
      Finished goods......................  $1,101   $2,699
      Raw materials.......................     155    1,263
                                          ========  ======== 
                                            $1,256    $3,962
                                          ========  ========
</TABLE>

4.  PROPERTY AND EQUIPMENT:

    Property and equipment consisted of the following at December 31 (in
    thousands):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                               Useful
                                                                Life
                                             1996     1995    in Years
                                           -------- -------- ---------
      Equipment...........................  $3,199   $2,905     3-5
      Furniture and fixtures..............     607      474     5-10
                                           -------- -------- 
                                             3,806    3,379
      Less: Accumulated depreciation......  (1,909)    (804)
                                           ======== ======== 
                                            $1,897   $2,575
                                           ======== ======== 
</TABLE>

    Equipment  includes $122,000 for capital lease assets.  Amortization of such
costs is computed by the  straight-line  method over the primary lease terms and
is included in depreciation expense in the accompanying  consolidated  financial
statements.

5.  ACCRUED EXPENSES:

    Accrued expenses consisted of the following at December 31 (in thousands):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                            1996     1995
                                          -------- --------
      Royalties............................$1,110   $  784
      Marketing............................ 1,276    1,252
      Income and other taxes...............    18    2,144
      Legal fees...........................   113      547
      Settlement costs (Note 12)...........   850       --
      Other................................ 1,671    1,018
                                          ======== ========
                                           $5,038   $5,745
                                          ======== ========
</TABLE>

6.  REVOLVING LINE OF CREDIT

    The  Company  has  entered  into  a loan  agreement  with  a  bank  (also  a
shareholder  of the  Company)  which  provides  for a  revolving  line of credit
collateralized by substantially  all of the Company's  assets.  Borrowings under
the line of credit are limited to a percentage of eligible  accounts  receivable
as defined in the agreement and may not exceed $5,000,000  through May 31, 1998,
the  maturity  date.  Interest is payable at the bank's base rate plus 1.5%.  To
date, there have been no borrowings under the line.

    The loan agreement contains restrictive covenants, including the achievement
of certain  earnings,  as defined in the  agreement,  and the  maintenance  of a
minimum net worth and  various  financial  ratios.  At December  31,  1996,  the
Company was in compliance with the agreement.

7.  SUBORDINATED DEBT:

    Subordinated debt consisted of the following at December 31 (in thousands):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                             1995      1994
                                          -------- ---------
      Note  payable to Bloc in connection
      with the acquisition of assets as
      described in Note 1.
      Interest at 10% payable annually.
      Principal payable December 31, 1997..   --       $ 500
      Notes payable to stockholders.
      Interest at 10% payable quarterly.
      Principal payable September 30, 1997.   --       3,900
                                          ======== =========
                                              --      $4,400
                                          ======== =========
</TABLE>


    In February  1995,  the Company  repaid the  $500,000  note payable to Bloc,
released Bloc from its  non-compete  agreement  and  terminated  its  consulting
agreement  with Bloc for a  termination  fee of $50,000.  The  repayment  of the
$500,000 note and the write-off of the  non-compete  agreement was accounted for
in the first quarter of 1995.  Additionally,  the Company  repaid the $3,900,000
note payable to stockholders, including accrued interest, with proceeds from the
initial public offering discussed in Note 9.

8.  REDEEMABLE PREFERRED STOCK:

    In October 1992,  the Company  issued 2,200 shares of  redeemable  preferred
stock at $1,000 per share and received  total cash  proceeds of  $2,200,000.  As
required,  the  Company  redeemed  the  preferred  stock  at  $1,000  per  share
immediately  upon the closing of the initial public  offering of common stock on
April 19,1995 described in Note 9. The holders of the redeemable preferred stock
were entitled to an annual  cumulative  cash dividend of $60 per share,  payable
quarterly.



<PAGE>


9.  COMMON STOCK:

    In February  1995,  in  connection  with its initial  public  offering,  the
Company  increased the amount of authorized  common stock to 30,000,000  shares,
authorized the issuance of up to 1,000,000  shares of $.01 par value,  preferred
stock and increased the shares of common stock  reserved for issuance  under the
Company's 1992 stock option plan to 2,250,000.

     In April  1995,  the  Company  completed  an  initial  public  offering  of
3,105,000 shares of its common stock of which 1,700,000 were sold by the Company
and 1,405,000 shares were offered by certain of the Company's stockholders.  The
offering price was $12.00 per share and the proceeds to the Company,  net of the
underwriters discount of $1,428,000, were $18,972,000. Costs associated with the
offering  include legal,  accounting  and other direct costs of $1,017,000.  The
Company used  $2,241,000 of net proceeds to redeem  preferred  stock,  including
interest and dividends,  and $4,019,000 including interest to repay subordinated
debt.  Assuming the issuance only of sufficient shares to repay the subordinated
debt plus  accrued  interest  and  redeem  the  preferred  shares  plus  related
dividends,  supplementary  proforma net income  (loss) per share of common stock
and common  stock  equivalents  would be $(0.33)  and $0.41 for the years  ended
December 31, 1995 and 1994, respectively.

    In November  1995,  the Company  adopted a  Shareholder  Rights Plan and the
Board of  Directors  declared a dividend  distribution  of one  preferred  stock
purchase right for each  outstanding  share of common stock to  stockholders  of
record as of the close of business on November 29, 1995. Initially, these rights
will not be exercisable  and will trade with the shares of the Company's  common
stock.  Under the  Shareholder  Rights Plan, the rights become  exercisable if a
person  becomes an  "acquiring  person" by  acquiring  15% or more of the common
stock of Expert  Software,  if a person who owns 10% or more of the common stock
of  the  Company  is  determined  to be an  "adverse  person"  by the  Board  of
Directors,  or if a person  commences a tender  offer that would  result in that
person owning 15% or more of the common stock of the Company.  In the event that
a person becomes an "acquiring person" or is declared an "adverse person" by the
Board,  each holder of a right (other than the  acquiring  person or the adverse
person)  would be entitled to acquire such number of shares of  preferred  stock
which are equivalent to Expert Software common stock having a value of twice the
then-current exercise price of the right. If the Company is acquired in a merger
or other business combination transaction after any such event, each holder of a
right would then be entitled to purchase,  at the then current  purchase  price,
shares  of the  acquiring  company's  common  stock  having a value of twice the
exercise price of the right.  The rights will expire at the close of business on
November 9, 2005,  unless  previously  redeemed or exchanged by the Company.  In
connection with the Shareholder  Rights Plan, the Board of Directors  authorized
the  designation  of 25,000 shares of Series A Junior  Participating  Cumulative
Preferred Stock,  $0.01 par value, none of which are outstanding at December 31,
1996 or 1995.

    In March  1997,  pursuant  to its  obligations  under the Swfte  acquisition
agreement, the Company completed a registration with the Securities and Exchange
Commission  of  substantially  all the shares of Company  common stock issued in
connection with the Swfte acquisition.



<PAGE>


10. STOCK OPTIONS:

     The Company has reserved  2,250,000 shares of its common stock for issuance
under its 1992 Stock Option Plan (the  "Plan").  Under the Plan,  options may be
granted to purchase  common stock at exercise prices  generally  determined by a
committee of the Board of Directors.  Incentive  stock options may be granted at
exercise  prices not less than the fair market  value of the common stock at the
date of grant, and in certain instances, at prices in excess of the current fair
market  value.  Non-employee  members  of the  Board of  Directors  are  granted
non-qualified  options annually at a price equal to the fair market value of the
common stock at the date of the grant.  Incentive stock options are available to
officers,  directors who are also  employees and other  full-time  employees and
non-qualified  options are available to the same group and consultants and other
key  persons  who  provide  services  to the  Company.  The terms of each option
agreement are  determined by the Board of Directors.  All options  expire on the
date specified in the agreement and in no event later than the tenth anniversary
of the date which the option was granted.  A summary of stock option activity is
as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                              Number of    Exercise
                                                Shares       Price
                                              ----------   ----------
 
      Options outstanding, December 31, 1993..  752,500    0.10-0.85
      Granted.................................  390,000    0.85-2.76
      Exercised............................... (313,193)   0.10
      Canceled................................  (57,742)   0.10-0.85
                                              ----------   ----------
      Options outstanding, December 31, 1994..  771,565    0.10-2.76
      Granted.................................  130,000    7.70-20.75
      Exercised............................... (136,628)   0.10-9.35
      Canceled................................  (79,167)   0.10-20.75
                                              ----------   ----------
      Options outstanding, December 31, 1995..  685,770    0.10-20.75
      Granted.................................  544,000    5.38-13.25
      Exercised...............................  (37,353)   0.85-12.25
      Canceled................................ (137,000)   0.85-20.75
                                              ----------   ----------
      Options outstanding, December 31, 1996..1,055,417    0.10-15.25
                                              ==========   ==========
      Outstanding options exercisable at  
      December 31, 1996.......................  555,500    0.10-15.25
                                              ==========   ==========
</TABLE>

    At December 31,  1996,  options to purchase  707,409  shares of common stock
were available for grant under the Plan. Canceled options increase the amount of
options available to be granted under the Plan.

    In December 1994,  the Company  issued options to purchase  60,000 shares of
common  stock in  connection  with the  employment  of two key  officers,  at an
exercise price subsequently determined to be below fair market value at the date
of grant.  The Company recorded  compensation  expense of $165,000 for financial
reporting purposes, to reflect the difference between the exercise price and the
fair market value, as determined by management.

    The Company applied APB Opinion 25 and related interpretations in accounting
for its stock option plans. Accordingly,  no compensation cost for stock options
granted to employees has been recognized under the Plan. Had  compensation  been
recorded  based on the fair value at the grant  dates for awards  under the Plan
consistent with the method of SFAS 123, the Company's proforma net loss and loss
per share would have been as follows (in thousands, except per share data):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                     1996      1995
                                  --------- ---------
           Net Loss
           --------
                     As reported..$(10,281) $(2,185)
                     Proforma.....$(10,469) $(,2.43)

           Loss Per Share
           --------------
                     As reported..$(1.33)   $  (.31)
                     Proforma...  $(1.33)   $  (.32)

</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the  Black-Sholes  option  pricing  model with the  following  weighted  average
assumptions:  expected  volatility ranging from 40.0% to 70%, risk-free interest
rate of 5%, expected  dividends of $0 and expected lives of five years. In 1996,
the  Company  recorded  compensation  expense  of $7,000  related  to options to
purchase  8,000 shares of common stock granted in October 1996 to  non-employees
of the Company.


<PAGE>


11. INCOME TAXES:

The components of the provision (benefit) for income taxes are as follows (in
thousands):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                           1996     1995     1994
                                         -------- -------- --------
      Current:
         Federal..... ...................$(1,711)  $1,931     $272
         State........  ..................  (256)     328       46
                                         -------- -------- --------
                                          (1,967)   2,259      318
                                         -------- -------- --------
      Deferred:
         Federal..........................(1,930)  (3,292)    (201)
         State............................  (170)    (291)     (27)
                                         -------- -------- --------
                                          (2,100)  (3,583)    (228)
                                         -------- -------- --------
                                         $(4,067) $(1,324)     $90
                                         ======== ======== ========
</TABLE>

    A reconciliation  of the provision for income tax expense (benefit) with the
expected income tax (benefit)  computed by applying the federal statutory income
tax rate to income (loss) before income taxes is as follows:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                            1996    1995    1994
                                          ------- ------- -------

      Income tax (benefit) computed at
      federal statutory tax rate..........(34.0)% (34.0)%   34.0%
      State and local taxes (net of 
      federal benefit)... ................ (3.6)   (3.6)     3.5
      Tax exempt interest income..........  --     (3.7)     --
      Increase (Decrease) in valuation 
      allowance...........................  7.4     --     (34.0)
      Other, net..........................  1.9     3.6      0.2
                                          ------- ------- -------
                                          (28.3)% (37.7)%    3.7%
                                          ======= ======= ======= 
</TABLE>

    The  components of the net deferred tax asset  recorded in the  accompanying
consolidated balance sheets are as follows (in thousands):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                            1996    1995
                                          ------- -------
      Acquired software and intangibles... $4,406  $3,301
      Allowance for doubtful  accounts and  
      potential returns...................  1,279     612
      Inventory reserves..................    866     183
      Net operating loss carryforward.....  1,825      --
      Other, net..........................    349       6
                                          ------- ------- 
        Gross deferred tax assets.........  8,725   4,102
      Valuation allowance................. (2,523)    --
                                          ------- ------- 
        Net deferred tax assets........... $6,202  $4,102
                                          =======  ====== 
</TABLE>

    A valuation  allowance  is provided to reduce the  deferred  tax assets to a
level which,  more likely than not,  will be realized.  The net deferred  assets
reflects  management's estimate of the amount which will be realized from future
profitability which can be predicted with reasonable certainty.

12. LEGAL PROCEEDINGS:

    In October 1996, the Company settled  litigation with David H. Goodman,  the
former Chairman and Chief Executive  Officer of Swfte  International,  Ltd., and
others.  The original  dispute  involved the  contingent  purchase  price to the
Agreement and Plan of Merger among Expert, ES I Acquisition Corp., Swfte and the
Stockholders  of Swfte,  dated as of October 16, 1995. The results for the third
quarter of 1996 include  expenses of $1,900,000 for the  settlement,  as well as
related legal and associated  costs. A portion of the settlement will be paid in
agreed-upon installments through April 1, 1998.

13. COMMITMENTS AND CONTINGENCIES:

    The Company leases office space under operating  leases.  Rent expense under
operating  leases  was  $661,000,  $368,000  and  $178,000  for the years  ended
December 31,  1996,  1995 and 1994,  respectively.  The Company  leases  certain
equipment  under  capital  leases,  which are  recorded at the present  value of
future   minimum  lease   payments.   Future   minimum  lease   payments   under
non-cancelable  operating  leases and capital leases at December 31, 1996 are as
follows (in thousands):
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                         Operating  Capital
                                          Leases    Leases
                                          -------- --------
      1997................................  $546     $ 54
      1998................................   558       41
      1999................................   389       --
      2000................................   201       --
                                          -------- --------
      Total future minimum payments.......  $1,694     95
                                          ========
      Less:  Interest.....................             (7)
                                                   ========
      Present value of future minimum                $ 88
      lease payments......................         ========

</TABLE>

    The  Company's  federal tax filings with respect to the year ended  December
31, 1992 and  subsequent  years are  presently  being  reviewed by the  Internal
Revenue Service  ("IRS").  The IRS has questioned the allocation of the purchase
price  made by the  Company in  connection  with the  acquisition  of assets and
business of the Predecessor from Bloc in October 1992, and related  amortization
and other  deductions  with  respect  to the  acquired  assets.  The IRS has not
proposed any  assessment  from their review,  but it is expected to conclude its
audit  in the  near  future  and  has  indicated  that  it  intends  to  propose
adjustments to the Company's federal income tax returns claiming  additional tax
due. At this time, it is not possible to quantify the amount of additional taxes
the IRS will claim are due. However,  the Company expects to contest  vigorously
any proposed IRS deficiency and believes that it has strong defenses against any
such claim. The Company continues to expect that the ultimate resolution of this
matter will not have a material adverse effect on its financial position.


Item 9.Changes and Disagreements With Accountants on Accounting and Financial 
Disclosure

    None.

                                 PART III

Item 10.   Directors and Executive Officers of the Registrant

    The  information  required in this section is incorporated by reference from
the portion of the  Company's  definitive  proxy  statement  for its 1997 Annual
Meeting  of the  Stockholders  to be filed  with  the  Securities  and  Exchange
Commission (the "Proxy Statement") captioned "Proposal I Election of Directors".

Item 11.                 Executive Compensation

    The  information  required in this section is incorporated by reference from
the portion of the Proxy Statement captioned "Executive Compensation".

Item 12.Security Ownership of Certain Beneficial Owners and Management

    The  information  required in this section is incorporated by reference from
the  portion  of the  Proxy  Statement  captioned  "Principal  Stockholders  and
Management".

Item 13.     Certain Relationships and Related Transactions

    The  information  required in this section is incorporated by reference from
the portion of the Proxy Statement captioned "Certain Transactions".

<PAGE>

                                  PART IV


ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

      (a) (1) Financial statements:

      Reference is made to the Index set forth on page 25 of this Annual Report
      on Form 10-K.

        (2) Financial Statements Schedules:
                                                                  Page

      Report of Independent Certified Public Accountants
      on Schedules.................................................S-1

      Schedule II- Valuation and Qualifying Accounts...............S-2

      All other schedules for which provision is  made in the  applicable
      accounting regulations of the Securities and Exchange Commission are not
      required under the related instructions or are not applicable and
      therefore have been omitted.

        (3) Exhibits

          Exhibit  Description
              No.

              3.1  Restated Articles of Incorporation of the Company (5)
              3.2  Amended and Restated By-Laws of the Company (5)
             10.1  Employment Agreement between the Company and Kenneth
                   Currier dated as of February 23, 1995 (2)
             10.2  Employment Agreement between the Company and Susan
                   Currier dated as of February 23, 1995 (2)
             10.3  Amended and Restated Stockholders Agreement among
                   the Company and certain stockholders dated as of
                   October 31, 1995 (5)
             10.4  Lease between the Company and Douglas Entrance
                   Holdings Limited Partnership dated February 25, 1994
                   (3)
             10.5  Sublease Agreement between the Company and Commodore
                   Cruise Line, Limited dated May 9, 1994 (3)
             10.6  1992 Stock Option Plan, as amended (3)
             10.7  Revolving Credit Agreement between the Company and
                   the First  National  Bank of Boston  dated as of October  23,
                   1992, as amended in December  1993 and on May 19, 1994,  June
                   30, 1994 and August 1, 1994 (3)
             10.8  Summary of the Company's Management Incentive Plan
                   (3)
            10.10  Agreement and Plan of Merger among the Company, ESI
                   Acquisition Corp., Swfte and the stockholders of Swfte dated
                   as of October 16, 1995 (5) (U)
            10.11  Registration Rights Agreement by and among the
                   Company and certain stockholders dated as of
                   November 2, 1995 (5)
            10.12  Shareholders Rights Agreement between the Company
                   and The First National Bank of Boston dated November
                   9, 1995 (4)
            10.13  Amended and Restated  Licensing  Agreement  between Swfte and
                   The United States  Playing Card Company dated as of May 1993,
                   as amended on July 14,  1994,  July 7, 1995 and July 21, 1995
                   (5) (U)
            10.14  Licensing and Royalty Agreement between the Company
                   and McDonald's Corporation dated as of January 2,
                   1997 (6)
            10.15  Sublease Agreement Between the Company and
                   Enterprise Consulting, Inc. dated as of May 1, 1996
                   (1)
             11.1  Computation of Earnings Per Share (1)
               21  Subsidiaries of the Company (5)
             23.1  Consent of Arthur Andersen LLP (1)
               27  Financial Data Schedule (EDGAR filing only)

        ----------

              (1)  Filed herewith.
              (2)  Incorporated by reference to the designated exhibit
                   of Amendment No. 1 to the Registration Statement on
                   Form S-1 (No. 33-89758 filed March 30, 1995).
              (3)  Incorporated by reference to the designated exhibit
                   of the Registration Statement on Form S-1 (No.
                   33-89758 filed February 24, 1995).
              (4)  Incorporated by reference to the designated exhibit of
                   registrant's Form 8-K (filed November 12, 1995).
              (5)  Incorporated by reference to the designated exhibit of
                   registrant's Annual Report on Form 10-K for the year ended
                   December 31, 1995
              (6)  Incorporated by reference to the designated exhibit
                   of Form 8-K filed February 26, 1997
              (U)  Confidential treatment granted as to portions of
                   this document.







      (b) Reports on Form 8-K

      On October 23, 1996, the Company filed a report on Form 8-K in regard to
      the settlement of the Swfte litigation (see Part I, Item 3).

      (c) Exhibits required by Item 601 of Regulation S-K

      The index to exhibits  that are listed in Item 14(a)(3) of this report and
      not incorporated by reference follows the "Signatures" section hereof and
      is incorporated by reference.

      (d) Financial Statement Schedules required by Regulation S-X

      Reference is made to Item 14(a)(2).



<PAGE>


                                SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) 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.

                                          EXPERT SOFTWARE, INC.


Date:  March 27, 1997                     By:  /s/ KENNETH P. CURRIER
                                               ----------------------
                                               Kenneth P. Currier
                                               Chief Executive Officer


  Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant in the capacities and on the dates indicated.

           Signature                     Title               Date
                                Director, Chief         March 27, 1997
    /s/ KENNETH P. CURRIER      Executive Officer and
        -------------------     Secretary (Principal
        Kenneth P. Currier      Executive Officer)

                                Chief Financial         March 27, 1997
    /s/ CHARLES H. MURPHY       Officer and Treasurer
        -------------------    (Principal Financial
        Charles H. Murphy       Officer and Principal
                                Accounting Officer)


    /s/                         Director                March 27, 1997
       ---------------------
       Stephen J. Clearman


   /s/ SUSAN A. CURRIER         Director, President     March 27, 1997
       ---------------------    
       Susan A. Currier

   /s/ A. BRUCE JOHNSTON        Director                March 27, 1997
       ---------------------
       A. Bruce Johnston


   /s/                          Director                March 27, 1997
       ----------------------     
       William H. Lane III

   /s/ CHARLES E. NOELL III     Director                March 27, 1997
       ----------------------
       Charles E. Noell III



<PAGE>





      REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES



To the Stockholders
  of Expert Software, Inc.:

We have audited in accordance with generally  accepted auditing  standards,  the
consolidated financial statements included in this Form 10-K and have issued our
report  thereon dated  February 12, 1997.  Our audit was made for the purpose of
forming an opinion on those  statements  taken as a whole.  The schedule  listed
under  Item  14(a) of this  Form  10-K is the  responsibility  of the  Company's
management  and is presented for purposes of complying  with the  Securities and
Exchange  Commission's rules and is not part of the basic financial  statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic  financial  statements  and, in our opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.




ARTHUR ANDERSEN LLP

Miami, Florida,
  February 12, 1997.



















                                    S-1


<PAGE>


<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                           EXPERT SOFTWARE, INC.

                                SCHEDULE II
                     VALUATION AND QUALIFYING ACCOUNTS
           FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                              (in thousands)
  

                                 
                                Balance at  Charged to              Balance at
          Description           Beginning   Costs and                 End of
                                of Period   Expenses   Deductions    Period   
------------------------------ ----------- ----------- ----------- -----------

Allowance for doubtful
accounts and returns:

Fiscal year ended December        
31,1996........................   $1,659      $7,311     $(3,909)      $5,061
                               =========== =========== =========== ============
Fiscal year ended December 31,   
1995...........................   $2,099      $3,171      $3,611       $1,659
                               =========== =========== =========== ============
Fiscal year ended December 31,    
1994...........................     $933      $4,561      $3,395       $2,099
                               =========== =========== =========== ============


</TABLE>



















                                    S-2


<PAGE>



                             INDEX TO EXHIBITS




                                                                      Sequential
                                                                      Page
        Exhibit    Description                                        Number
              No.

            10.15  Sublease Agreement Between the Company and
                   Enterprise Consulting, Inc. dated as of May 1,
                   1996...............................................  46
             11.1  Computation of Earnings Per Share..................  52
             23.1  Consent of Arthur Andersen LLP.....................  53