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, 1997

                                    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
                         North Tower, Sixth Floor
                          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 February  24, 1998 was approximately  $20,767,000.  For
purposes of this computation, all executive officers, directors and 5% owners of
the registrants have been deemed to be affiliates.

As of March 17, 1998,  there were 7,606,342  shares of the  Registrant's Common
Stock, $ .01 par value, outstanding.


                   DOCUMENTS INCORPORATED BY REFERENCE:

None.

                 Page 1 of 48.
          The exhibit index is on page 42.



<PAGE>



                              Index to Items


Part I                                                     Page

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

Item 2.  Properties...........................................8

Item 3.  Legal Proceedings....................................8

Item 4.  Submission of Matters to a Vote of Security
         Holders..............................................8


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..........................................34

Item 11. Executive Compensation..............................37

Item 12. Security Ownership of Certain Beneficial Owners
         and Management......................................40

Item 13. Certain Relationships and Related Transactions......42


Part IV

Item 14. Exhibits, Financial Statement Schedules, and
         Reports on Form 8-K.................................42

Signatures...................................................44


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 16 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 170
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 $15, 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 23.9 million units of Expert products have been sold since 1989,
with more than 5.6 million  units sold in 1997 and more than 4.8  million  units
sold in 1996.  Expert  products are  currently  available  at retailers  such as
Babbages Etc, Best Buy,  Computer City,  CompUSA,  Electronics  Boutique,  Micro
Center,  Office Depot,  OfficeMax,  PriceCostco,  Radio Shack,  Sam's Club,  and
Staples.

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").

"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.  Such PCs have improved enabling  technologies and standards,  such as
graphical user interfaces and the Windows operating system,  which have made PCs
easier to use for a broad range of applications  resulting in the transformation
of PCs into  general-purpose  tools.  These advanced  capabilities  have allowed
software   developers   to  produce  more   engaging   software   with  advanced
three-dimensional graphics, realistic sound and full motion video. Well-equipped
PCs are now  available  for $1,000 and less.  Today's  lower-priced  PCs feature
high-speed   microprocessors,   large  amounts  of  memory,   high-speed  CD-ROM
technology, and enhanced sound and graphics capabilities.

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 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  competition  from large
consumer product  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 upgraded graphical user  interfaces 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 170  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 is
further  expanding  its  distribution  in  consumer-oriented  channels  such  as
grocery,  drug and  convenience  stores.  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 also promotes its
products via the Internet.

Promote Brand Names.  Commencing in 1997 the Company promotes its products under
five brands:  Expert,  McDonaldland(R),  Bicycle(R)  ,Gamers' Choice(TM) and the
Sega PC  Collection(TM).  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  six  software  titles  in  this  line  were
introduced  during  the second  half of 1997.  Seven  titles  within the Sega PC
Collection(TM)  were  introduced  during the second  half of 1997.  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),  Gamers' Choice(TM)
and Sega PC  Collection(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 to supplement its
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.

Products

The Expert  product line  addresses a wide range of interests  and hobbies.  The
Company's  products sell in retail stores primarily for under $15, a price point
intended to generate impulse purchases in high-traffic mass market environments.
Currently,   the  Company's  product  line  includes  over  170  titles.  Expert
introduced 63 new titles in 1997, and over 50 new titles in 1996.

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  81% and 84% of its sales in 1997 and
1996,  respectively,  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. For example,  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)
and Sega PC Collection(TM) brands 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 personalized calendars,  adding clip art to
an Internet web site, creating personalized greeting cards, or creating a family
newsletter.  For example,  Calendar Shopo allows users to organize events daily,
weekly, monthly or yearly for events related to home, business,  school or clubs
and organizations.

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 home  design
product, a wedding planner and engaging screen savers. 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.

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. For example, 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  Babbages Etc, Best Buy,  Computer  City,  CompUSA,
Electronics Boutique, Micro Center, Office Depot, OfficeMax,  PriceCostco, Radio
Shack, Sam's Club, and Staples.

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 1997, Office Depot represented more than 10% of the Company's sales. In 1996,
Office  Depot and Ingram  Micro 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.

International  sales  represented  approximately  24%,  25%, and 15% of Expert's
sales in fiscal years ended 1997,  1996, and 1995,  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  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

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  depends  primarily upon third
parties for the acquisition or licensing of software  products or  technologies.
Development costs associated with externally  licensed  technology are generally
paid by royalties based on sales,  which are included in cost of revenues in the
accompanying  consolidated  financial  statements.  The Company may also acquire
products  through  the  acquisition  of  other  software  companies. Development
expenses,  including technical support to customers,  totaled $2.7 million, $3.3
million, and $2.2 million in 1997, 1996, and 1995, 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.

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

There can be no assurance  that the Company will be successful in developing and
marketing products for 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.

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.

The Company intends to manage and maintain inventory levels to support shipments
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.

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.  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  Cendant  Corporation,  GT  Interactive  Software Corp. and The Learning
Company,  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.

The Company licenses  software from third party developers under standard format
software  license  agreements  for multi-year  terms,  typically five years with
provisions  for  renewal.  In a few  instances,  however,  certain  third  party
developer  licenses contain other provisions.  For example,  the Company's June,
1997 software  license with Sega  Entertainment,  Inc. for seven titles provides
for (1) early  termination  by either  party in the event the  Company  fails to
achieve  aggregate  sales  targets as of March 31,  1998;  and (2)  provides the
Company  the  option  to  renew  this  license  for a single  one  year  term by
achievement  of  aggregate  sales  targets by August 31,  1998.  Similarly,  the
Company's  January,  1997  license  with  McDonald's   Corporation  for  use  of
McDonald's Marks on family-oriented  software has a five year term, and requires
the Company to pay minimum  royalty  guarantees  during the term.  The Company's
December 31, 1997 license with The United States Playing Card Company for use of
the trademark Bicycle(R) on software card games continues in effect until August
2001, with provisions for renewal.

Employees

As of December 31, 1997,  the Company had 109  employees,  including 33 in sales
and marketing,  19 in development,  18 in customer support and 39 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.


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 1998.


Item 3.                     Legal Proceedings

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.  In June 1997, the IRS proposed
assessments for additional taxes of $412,000,  $553,000 and $857,000 for the tax
years 1992, 1993 and 1994,  respectively,  plus interest to the date of payment.
The preliminary  adjustments proposed by the IRS would also reduce the Company's
federal income taxes for the years 1995, 1996 and 1997 by $242,000,  $68,000 and
$55,000,  respectively.  The Company believes that it has properly  reported its
income and paid its taxes in  accordance  with  applicable  laws and  intends to
contest the  proposed  adjustments  vigorously.  The Company  believes  that the
ultimate  resolution of this matter will not have a material  adverse  effect on
its financial position.


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  Market under the
symbol XPRT.  On February  24, 1998,  there were  approximately  100  registered
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.  The following  table sets forth the
high and low  sales  prices  for the  Common  Stock as  reported  by the  Nasdaq
National Market for each of the periods indicated.


<TABLE>
<CAPTION>


                                         High            Low
                                     ----------       ----------

<S>                                   <C>                <C>
Fiscal Year Ended December 31, 1997
Fourth Quarter ...............           8-1/4            2-7/8
Third Quarter ................         7-11/16            3-3/4
Second Quarter ...............           4-5/8            1-1/2
First Quarter ................           4-1/4            1-3/4

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

</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 should be read in conjunction with the
consolidated financial statements of the Company and the related notes.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                 --------------------------------------------
                                   1997     1996     1995     1994     1993
                                 -------- -------- -------- -------- --------

    Statement of Operations
    Data:
<S>                              <C>      <C>      <C>      <C>      <C>
    Net revenues................ $33,208  $31,012  $27,638  $19,727  $12,555
                                -------- -------- -------- -------- --------
    Operating costs and
    expenses:
       Cost of revenues (1).....  12,985   16,420   10,121    8,066    9,352
       Marketing and sales......  10,489    9,888    6,180    4,303    2,493
       General and
        administrative..........   4,554   10,124    4,293    2,824    1,631
       Development..............   2,744    3,320    2,192    1,328      545
       Purchased research and
        development.............      --       --    8,392       --       --
       Loss on impairment of
        assets..................      --    5,700       --       --       --
       Amortization of
        non-compete agreement...      --       --      338      417      417
                                -------- -------- -------- -------- --------
                                  30,772   45,452   31,516   16,938   14,438
                                -------- -------- -------- -------- --------
       Operating income (loss)..   2,436  (14,440)  (3,878)   2,789   (1,883)
    Other income (expense), net      268       92      369     (366)    (457)
                                -------- -------- -------- -------- --------
       Income (loss) before
        provision (benefit)
        for income taxes........   2,704  (14,348)  (3,509)   2,423   (2,340)
    Provision (benefit) for
     income taxes...............   1,001   (4,067)  (1,324)      90       --
                                -------- -------- -------- -------- --------
       Net income (loss)........  $1,703 $(10,281) $(2,185)  $2,333  $(2,340)
                                ======== ======== ======== ======== ========
       Diluted earnings (loss)
        per share of
        common stock............ $   .21  $ (1.37)   $(.33) $   .38  $  (.49)
                                ======== ======== ======== ======== ========

    Balance Sheet Data:
       Working capital..........  $7,916   $5,076   $10,651  $5,283   $2,825
       Total assets.............  22,233   19,077    29,069  10,682    7,762
       Subordinated debt........      --       --        --   2,200    2,357
       Total stockholders
        equity (deficit)........  12,532   10,425    20,634     355   (2,042)

<FN>
(1) Includes  amortization of software  technology  which amounted to $98,000 in
    1997,  $404,000 in 1996,  $283,000 in 1995, $477,000 in 1994, and $4,362,000
    in 1993.
</FN>
</TABLE>

<PAGE>

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

Results of Operations

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

                                           Years Ended
                                           December 31,
                                       --------------------
                                        1997   1996   1995
                                       ------ ------ ------
<S>                                     <C>    <C>    <C>
   Net revenues.....................    100.0% 100.0% 100.0%
   Operating costs and expenses:
      Cost of revenues.................  39.1   52.9   36.6
      Marketing and sales..............  31.6   31.9   22.4
      General and administrative.......  13.7   32.7   15.5
      Development......................   8.3   10.7    7.9
      Purchased research and
       development.....................    --     --     --
      Loss on impairment of assets.....    --   18.4     --
      Amortization of non-compete
       agreement.......................    --     --    1.2
                                       ------ ------ ------
                                         92.7  146.6  114.0
                                       ------ ------ ------
      Operating income (loss)..........   7.3  (46.6) (14.0)
   Other income (expense), net.........   0.8    0.3    1.3
                                       ------ ------ ------
   Income  (loss)  before  provision
   (benefit) for income taxes..........   8.1  (46.3) (12.7)
   Provision (benefit) for income taxes   3.0  (13.1)  (4.8)
                                       ------ ------ ------
      Net income (loss)................   5.1% (33.2)% (7.9)%
                                       ====== ====== ======
</TABLE>

Comparison of Years Ended December 31, 1997 and 1996

Net Revenues.  Net revenues  increased  7.1% to $33.2 million in 1997 from $31.0
million in 1996,  due primarily to broader  distribution  of product,  partially
offset by lower average sales prices.  Average  selling  prices  declined due to
increased  competition for shelf space at retail  outlets.  Net revenues for the
fourth  quarter of 1997 were affected by lower  McDonaldland(R)  software  sales
than anticipated and higher returns of such products than usually experienced by
the Company's other brands. Management believes this does not reflect a trend as
the Company is undertaking  additional marketing efforts to support the sales of
this product line.  International sales were approximately 24% of net revenues
in 1997 and 25% of net  revenues  in 1996.  CD-ROM  products represented  91% of
net  revenues in 1997  compared  to 82% in 1996.  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.

Net revenues consist of gross sales net of allowances for returns and discounts,
and royalty income related to licensing of products,  primarily to publishers in
Europe.  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, 1997, the Company's
allowance for potential returns and doubtful accounts was $4.4 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 Revenues. Cost of revenues decreased to $13.0 million in 1997 from $16.4
million in 1996 and  decreased  as a  percentage  of net  revenues to 39.1% from
52.9%.  This decrease was  primarily  due to the  provisions of $2.6 million and
$1.4 million  recorded in 1996 and  discussed  under  Comparison  of Years Ended
December 31, 1996 and 1995 below,  partially  offset by higher costs  associated
with  increased  sales  volume.  The Company  expects cost of revenues in future
periods  will  increase  modestly  over  those in the  current  year due to more
product  content  provided  with new and  promotional  items,  and continued mix
changes favoring boxed products,  which have higher packaging and freight costs.
The Company  believes  that  retailers  prefer such boxed  products due to their
additional marketing content and appeal.

Cost of revenues consists primarily of product cost, freight charges,  royalties
to  outside  programmers  and  content  providers,  as well as  amortization  of
software licenses and an inventory  provision for damaged and obsolete products,
if any. 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).

Marketing and Sales.  Marketing and sales expenses increased to $10.5 million in
1997 from $9.9 million in 1996 and  decreased as a percentage of net revenues to
31.6% from 31.9%. 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 decreased to
$4.6 million in 1997 from $10.1 million in 1996 and decreased as a percentage of
net  revenues to 13.7% from 32.7%.  This  decrease  was  primarily  due to lower
provision  for  doubtful  accounts  and legal costs .  Provisions  for  doubtful
accounts in 1996 included the additional $1.0 million adjustment discussed under
Comparison  of  Years  Ended  December  31,  1996 and 1995  below.  Legal  costs
decreased  due to the  settlement  in the fourth  quarter of 1996 of  litigation
involving the former owners of Swfte.

Development.  Development  expenses  decreased to $2.7 million in 1997 from $3.3
million in 1996 and  decreased  as a  percentage  of net  revenues  to 8.3% from
10.7%, mainly due to lower personnel costs.  Development  expenses include costs
relating to product  upgrades,  new  products  development  activities,  quality
control and expanded  customer  service  support.  During the fourth  quarter of
1996, the Company reduced development  personnel and did not renew the lease for
facilities  previously  occupied by Swfte,  which contributed to the decrease in
expenses in 1997. The Company currently believes that development  expenses will
increase  in future  periods due to  additional  costs to develop new brands and
titles,  including the development of products to take advantage of the Internet
and  other  on-line   capabilities,   and  the   localization   of  product  for
international sales.

Interest Income (Expense).  Net interest income increased to $268,000  in
1997 from $92,000 in 1996, due primarily to higher balances of
interest-bearing assets.

Tax Provision  (Benefit).  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.  The  effective  tax rate used in recording the
provision for income taxes was approximately 37% in 1997.


Comparison of Years Ended December 31, 1996 and 1995

Net  Revenues.  Net revenues  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 25% of net revenues in 1996 from 15%
of net revenues 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 revenues in 1996 compared
to 46% in 1995.

Cost of Revenues. Cost of revenues increased to $16.4 million in 1996 from $10.1
million in 1995 and  increased  as a  percentage  of net  revenues to 52.9% from
36.6%. The increase in cost of revenues 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 revenues.  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.  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.  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.

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 revenues 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.

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  revenues  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.

Purchased  Research and  Development.  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.

Development.  Development  expenses  increased to $3.3 million in 1996 from $2.2
million in 1995 and  increased  as a  percentage  of net  revenues 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.

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 then-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
determined their expected future sales to be minimal.

A  significantly  higher  level of returns  was  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  prompted
distributors  and retailers to return these products.  This overstock of product
and returns experience, 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  were  determined  not 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  indicated  that the minimum
royalties  required under certain  contracts and prepaid  royalties would not be
recouped in the ordinary course of business.  Approximately $0.3 million of such
royalties  were  therefore  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.



<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 revenues.  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>
<CAPTION>
                                          Three Months Ended
                        --------------------------------------------------------
                         Dec.   Sept.  June   March  Dec.   Sept.  June   March
                          31,    30,    30,    31,    31,    30,    30,    31,
                         1997   1997   1997   1997   1996   1996   1996   1996
                        ------ ------ ------ ------ ------ ------ ------ -------
<S>                     <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
  Net revenues..........$9,071 $9,035 $7,075 $8,027 $8,234 $6,401 $6,435 $10,383
                        ------ ------ ------ ------ ------ ------ ------ -------
  Operating costs and
  expenses:
    Cost of revenues.... 3,699  3,503  2,649  3,134  3,268  2,408  6,851   3,893
    Marketing and sales. 3,075  2,719  2,268  2,427  2,443  2,150  2,632   2,663
    General and
     administrative..... 1,068  1,162  1,109  1,215  1,389  3,953  3,029   1,753
    Development.........   636    724    743    641    592    978    890     860
    Loss on impairment of
     assets.............    --     --     --     --     --     --  5,700      --
                        ------ ------ ------ ------ ------ ------ ------ -------
                         8,478  8,108  6,769  7,417  7,692  9,489 19,102   9,169
                        ------ ------ ------ ------ ------ ------ ------ -------
    Operating income
     (loss).............   593    927    306    610    542 (3,448)(12,748) 1,214
  Other (expense) income,
      net...............   106     84     50     28      3     20     29      40
                        ------ ------ ------ ------ ------ ------ ------ -------
    Income (loss) before
     provision (benefit)
     for income taxes...   699  1,011    356    638    545 (3,428)(12,719) 1,254
  Provision (benefit)
     for income taxes...   259    374    132    236    201    --   (4,727)   459
                        ------ ------ ------ ------ ------ ------ -------  -----
    Net income (loss)...  $440   $637   $224   $402   $344$(3,428)$(7,992)  $795
                        ====== ====== ====== ====== ====== ====== ======== =====
  Diluted earnings (loss)
  per share of
  common stock.........   $.05   $.08   $.03   $.05   $.04  $(.46) $(1.07) $.10
                        ====== ====== ====== ====== ====== ====== ======== =====

  As a Percentage of Net
  Revenues:
  Net revenues........     100%  100%   100%   100%   100%    100%   100%   100%
  Operating costs and
  expenses:
    Cost of revenues....     41   39     37     39     40      37    108     38
    Marketing and sales.     34   30     32     30     30      34     41     26
    General and
      administrative....     12   13     16     15     17      62     48     17
    Development.........      7    8     10      8      7      15     14      8
    Loss on impairment of
      assets............     --   --     --     --     --      --     90     --
                           ---- ----   ----   ----   ----    ----   ----    ----
                             94   90     96     88     93     148    301     88
                           ---- ----   ----   ----   ----    ----   ----    ----
    Operating income....      6   10      4     12      7     (54)  (201)    12
  Other (expense)income,
    net.................      1    1      1     --     --      --     --     --
                           ---- ----   ----   ----   ----    ----   ----    ----
    Income before
    provision (benefit)
    for income taxes....      7   11      5     12      7     (54)  (200)    12
  Provision (benefit)
    for income taxes....      2    4      2      4      3      --    (74)     4
                           ---- ----   ----   ----   ----    ----   ----    ----
    Net income (loss)...      5%   7%     3%     8%     4%    (54)% (126)%    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 revenues 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 revenues and operating  results to continue
to reflect seasonality.


Liquidity and Capital Resources

As of  December  31,  1997,  the Company  had $7.9  million in working  capital,
including  $5.7  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
provided by operating  activities  was $2.6 million for the year ended  December
31, 1997.

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 loan  agreement with a bank which provides for a revolving line of credit
collateralized by substantially  all of the Company's  assets.  Borrowings under
the line are limited to a percentage of eligible  receivables  as defined in the
agreement  and may not exceed $5.0 million  through May 31,  1998,  the maturity
date.  The  loan  agreement  contains  restrictive  covenants.  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, or that the line of credit would be otherwise
available to the Company.

Over the last year, the Company has increased its stockholders' equity,  working
capital  and ratio of current  assets to  current  liabilities,  primarily  as a
result  of  profits  realized  during  the  period.   With  these  developments,
management  believes  that it has adequate  financial  resources for its planned
operations  through  1998.  Longer term,  management  believes  that its expense
reduction efforts,  together with anticipated revenue increases,  should provide
for positive cash flow to fund future operations.

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").  See Item 2, "Legal  Proceedings",  and Note 11 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.  The
Company has also engaged a financial advisor to assist it in assessing strategic
alternatives to enhance shareholder value.


Factors Affecting Future Operating Results

In  connection  with the "safe  harbor"  provisions  of the  Private  Securities
Litigation Reform Act of 1995, the Company is providing the following cautionary
statements  identifying  important factors that could cause the Company's actual
results to differ  materially  from its  historical  operating  results and from
those projected in any forward-looking  statements made by, or on behalf of, the
Company.

The Company  wishes to caution  readers that the  following  important  factors,
among others, in some cases have affected,  and in the future could affect,  the
Company's  actual results and could cause the Company's future actual results to
differ  materially from those expressed in any  forward-looking  statements made
by, or on behalf of, the Company.


<PAGE>

General Business and Economic Conditions

General  business  and  economic  conditions  have an  impact  on the  Company's
financial  results.  The Company's customer base, which is largely retailers and
distributors  for  resale  to  retailers,  may  be  impacted  by  weak  economic
conditions and, as a result,  may reduce required  inventory  levels of products
purchased  from the  Company.  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.  The Company's  financial  results could be affected by
the size and rate of growth of the  consumer  software  market and  consumer  PC
market.  The  consumer  software  business  is  seasonal  due  primarily  to the
increased  demand for  consumer  software  during the  year-end  holiday  buying
season.  General  business and economic  conditions and consumer  confidence may
impact retail sales of consumer software.  Currency fluctuations associated with
international  sales and  accounts  receivable  may also  affect  the  Company's
financial results.

Competition

The market for the Company's products is intensely and increasingly competitive.
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 even greater competition for the Company. There has been a
consolidation  among competitors in the market for the Company's  products,  and
many of the companies with which the Company  currently  competes or may compete
in the future have greater financial,  technical,  marketing, sales and customer
support  resources,  as well as greater name  recognition  and better  access to
consumers,  than the Company. The competition for retail space is also likely to
increase due to the proliferation of consumer software products and companies.

Dependence on Retailers and Distributors

Retailers  and  distributors  compete in a volatile  industry that is subject to
rapid change,  consolidation,  financial  difficulty and increasing  competition
from new distribution  channels.  Due to increased competition for limited shelf
space,  retailers and  distributors  are  increasingly  in a better  position to
negotiate  favorable  terms  of sale,  including  price  discounts,  promotional
support and product  return  policies.  The Company's  financial  results may be
impacted by the accuracy of retailers'  forecasts of consumer demand, the timing
of the receipt of orders from major customers,  account  cancellations or delays
in  shipment,  competitors'  marketing  strategies  and  promotions,  changes in
pricing  strategies by the Company or its competitors and the  collectibility of
accounts  receivable.  Furthermore,  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 is net revenues for the quarter or
to quickly  adapt its  spending  levels  within a quarter to reflect  changes in
demand for its products.

Uncertainty of Market Acceptance; Changes in Technology and Industry
Standards

The consumer software industry is undergoing rapid changes,  including  evolving
industry  standards,  frequent  product  introductions  and  changes in consumer
requirements and preferences. Consumer preferences are difficult to predict, and
few  consumer  products  achieve  sustained  market  acceptance.  The  Company's
financial  results  will be  impacted  by  market  acceptance  of the  Company's
products and those of its  competitors,  development  and  promotional  expenses
relating to the introduction of new products,  new versions of existing products
or new operating  systems,  evolving  distribution  channels,  and the growth in
popularity  of the  Internet and other new  technologies  which could impact the
distribution and purchase of software.

Other Factors

In addition to the important  factors  discussed above, the Company's  financial
results,  financial  position  and cash flows may be  impacted  by,  among other
factors,  future cash flow and working capital requirements,  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 the  acquisitions of new businesses by the Company and
related charges and write-offs.  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.

<PAGE>

The Year 2000 Issue

The Company  does not  believe  that it has  material  exposure to the Year 2000
issue with respect to its own information  system as the supplier of its primary
systems  has an updated  release of the  Company's  applications  software  that
correctly  identifies  the year 2000.  The Company  plans to  implement  the new
release beginning in 1998 and to complete the  implementation  before the fourth
quarter  of  1999.  However,  there  can  be no  assurance  that  this  software
implementation will be successfully  completed,  or that the implementation will
not have a material adverse impact on the Company's financial results, financial
position and cash flows.  The Company is seeking to determine if the information
systems  of its major  customers  and  vendors  (insofar  as they  relate to the
Company's  business)  comply  with Year 2000  requirements,  and there can be no
assurance  that the Year 2000 issue will not affect the  information  systems of
the  Company's  major  customers  and  vendors as they  relate to the  Company's
business,  or that any such impact of a major customer's or vendor's information
system would not have a material adverse effect on the Company.


Item 8. Consolidated Financial Statements and Supplementary Data



                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                    Page

Report of Independent Certified Public Accountants.................   19

Consolidated  Balance  Sheets as of December  31, 1997 and December
31, 1996...........................................................   20

Consolidated  Statements of Operations for the Years Ended December
31, 1997, 1996 and 1995............................................   21

Consolidated  Statements  of  Stockholders'  Equity  for the  Years
Ended December 31, 1997, 1996 and 1995.............................   22

Consolidated  Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995............................................   23

Notes to Consolidated Financial Statements.........................   25


<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) and subsidiaries as of December 31, 1997 and 1996
and the related consolidated statements of operations,  stockholders' equity and
cash flows for each of the three years in the period  ended  December  31, 1997.
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 consolidated  financial position of Expert Software,
Inc.  and  subsidiaries,  as of December  31, 1997 and 1996,  and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.



ARTHUR ANDERSEN LLP

Miami, Florida,
  February 6, 1998.


<PAGE>
<TABLE>
<CAPTION>


                           EXPERT SOFTWARE, INC.
                        CONSOLIDATED BALANCE SHEETS
                        December 31, 1997 and 1996
                     (in thousands, except share data)

                                                        1997      1996
                                                       -------   -------
ASSETS
CURRENT ASSETS:
<S>                                                     <C>       <C>
  Cash and cash equivalents...........................  $5,685    $2,959
  Accounts receivable, net............................   4,636     3,775
  Income taxes receivable.............................   1,924     2,397
  Inventories.........................................   2,922     1,256
  Prepaid expenses....................................     834       425
  Deferred income taxes...............................   1,616     2,616
                                                       -------   -------
   Total current assets...............................  17,617    13,428

PROPERTY AND EQUIPMENT, net...........................   1,270     1,897

ACQUIRED SOFTWARE TECHNOLOGY, net.....................      30       163
DEFERRED INCOME TAXES.................................   3,311     3,586
OTHER ASSETS..........................................       5         3
                                                       =======   =======
   Total assets....................................... $22,233   $19,077
                                                       =======   =======


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable....................................  $4,755    $3,226
  Accrued expenses....................................   4,900     5,038
  Current portion of capital lease obligations........      46        88
                                                       -------   -------
   Total current liabilities..........................   9,701     8,352
                                                       -------   -------
NONCURRENT LIABILITIES................................      --       300
                                                       -------   -------

COMMITMENTS and CONTINGENCIES (Note 12)

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; 7,604,775 and 7,507,804                         76        75
   shares issued and outstanding in 1997 and 1996,
respectively..........................................
  Additional paid-in capital..........................  23,601    23,198
  Accumulated deficit................................. (11,145)  (12,848)
                                                       -------   -------
   Total stockholders' equity.........................  12,532    10,425
                                                       -------   -------
   Total liabilities and stockholders' equity......... $22,233   $19,077
                                                       =======   =======
</TABLE>







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


<PAGE>


<TABLE>
<CAPTION>

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


                                      Years Ended December 31,
                                  ----------------------------------
                                     1997         1996       1995
                                   --------    --------   --------

<S>                                <C>         <C>        <C>
NET REVENUES .................     $ 33,208    $ 31,012   $ 27,638
                                   --------    --------   --------
OPERATING COSTS AND EXPENSES:
Cost of revenues .............       12,985      16,420     10,121
Marketing and sales ..........       10,489       9,888      6,180
General and administrative ...        4,554      10,124      4,293
Development ..................        2,744       3,320      2,192
Purchased research and
development ..................         --          --        8,392
Loss on impairment of assets .         --         5,700       --
Amortization of non-compete
agreement ....................         --          --          338
                                   --------    --------   --------
                                     30,772      45,452     31,516
                                   --------    --------   --------
Operating income (loss) ......        2,436     (14,440)    (3,878)
                                   --------    --------   --------
OTHER INCOME (EXPENSE):
Interest expense .............           (5)        (26)      (121)
Interest income ..............          273         118        490
                                   --------    --------   --------
                                        268          92        369
                                   --------    --------   --------

Income (loss) before
provision (benefit)
for income taxes .............        2,704     (14,348)    (3,509)


PROVISION (BENEFIT) FOR INCOME
TAXES ........................        1,001      (4,067)    (1,324)
                                   --------    --------   --------
Net income (loss) ............     $  1,703    $(10,281)  $ (2,185)
                                   ========    ========   ========

Earnings (Loss) per Share:
Basic ........................ $        .23    $  (1.37)  $   (.33)
                                   ========    ========   ========

Diluted ...................... $        .21    $  (1.37)  $   (.33)
                                   ========    ========   ========
</TABLE>











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


<PAGE>



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


                                Common Stock  Additional
                              ---------------  Paid-in   Accumulated
                               Shares   Amount Capital     Deficit     Total
                             ---------- ------ --------- ----------- ----------
<S>                           <C>       <C>    <C>        <C>         <C>

 Balance, December 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, December 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, December 31, 1996..  7,507,804    75     23,198  (12,848)     10,425
Issuance of common stock in
 connection with exercise of
 stock options..............     96,971     1        349       --         350
Compensation expense on
 stock option grants........        --     --         54       --          54
Net income..................        --     --         --    1,703       1,703
                             ---------- ------ --------- ---------   ---------
Balance, December 31, 1997..  7,604,775    $76   $23,601 $(11,145)    $12,532
                             ========== ====== ========= =========   =========

</TABLE>








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


<PAGE>


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

<TABLE>
<CAPTION>

                                                  Years Ended December 31,
                                              -------------------------------
                                                 1997        1996      1995
                                               --------    --------  --------
<S>                                             <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................   $1,703     $(10,281) $(2,185)
Adjustments to reconcile net income (loss)
to net cash  provided  by (used in)  operating
activities:
  Depreciation of property and equipment.....      817        1,105      496
  Amortization of acquired software technology     133          544      283
  Amortization of acquired intangibles.......       --           --       55
  Amortization of non-compete agreement......       --           --      338
  Compensation expense on stock option grants       54            7       --
  Loss on impairment of assets...............       --        5,700       --
  Purchased research and development.........       --           --    8,392
  Deferred income tax provision (benefit)....    1,275       (2,100)  (3,583)
Changes in net assets and liabilities :
  (Increase) decrease in accounts receivable.     (861)       1,899   (1,901)
  (Increase) decrease in income taxes
    receivable...............................      473       (2,397)      --
  (Increase) decrease in inventories.........   (1,666)       2,556   (1,759)
  (Increase) decrease in prepaid expenses....     (409)         (31)    (124)
  (Increase) decrease in other assets........       (2)          10       (1)
  Increase (decrease) in accounts payable....    1,529          405      (28)
  Increase (decrease) in accrued expenses....     (138)         934      644
  Increase (decrease) in income taxes payable       --       (2,125)   2,270
  Increase (decrease) in noncurrent
   liabilities...............................     (300)         300       --
                                               --------    --------  --------
    Net cash provided by (used in) operating
    activities...............................    2,609       (3,474)   2,897
                                               --------    --------  --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment.........     (191)        (644)  (1,681)
  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...............................     (191)       5,578  (15,577)
                                               --------    --------  --------
</TABLE>



                                  (Continued)





<PAGE>



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

                                (Continued)

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                              -------------------------------
                                                 1997        1996      1995
                                               --------    --------  --------
<S>                                              <C>        <C>        <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.......       --         --       18,972
Costs associated with issuance of common            --         --       (1,017)
stock........................................
Stock options exercised......................       350         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.........       (42)      (122)        (3)
Dividends paid on redeemable preferred stock.       --         --          (41)
                                                --------   --------   --------
Net cash provided by (used in) financing
activities...................................       308        (57)     10,039
                                                --------   --------   --------
Net increase (decrease) in cash and
equivalents..................................      2,726      2,047     (2,641)
CASH AND EQUIVALENTS, beginning of period....      2,959        912      3,553
                                                --------   --------   --------

CASH AND EQUIVALENTS, end of period..........   $  5,685   $  2,959   $    912
                                                ========   ========   ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION :
Cash paid during the period for interest.....   $      5   $     26   $    124
                                                ========   ========   ========
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, 1997 and 1996

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, 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.

Accounts Receivable and Concentration of Credit Risk--

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   $4,361,000   and   $5,061,000  at  December  31,  1997  and  1996,
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.  Retailers  and  distributors
compete in a volatile  industry that is subject to rapid change,  consolidation,
financial difficulty and increasing  competition from new distribution channels.
Due to increased competition for limited shelf space, retailers and distributors
are  increasingly  in a better  position to negotiate  favorable  terms of sale,
including price discounts,  promotional support and product return policies. The
Company's  financial  results  may be impacted  by the  accuracy  of  retailers'
forecasts  of  consumer  demand,  the timing of the receipt of orders from major
customers,  account cancellations or delays in shipment,  competitors' marketing
strategies and promotions,  changes in pricing  strategies by the Company or its
competitors  and the  collectibility  of  accounts  receivable.  Furthermore,  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 revenues for the quarter or to quickly adapt its spending levels
within a quarter to reflect changes in demand for its products.


<PAGE>

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>
<CAPTION>

                               Years Ended December 31,
                           --------------------------------
                              1997       1996       1995
                           ----------  ---------  ---------
<S>                           <C>        <C>        <C>
      Customer A...........    15.2%      19.6%     11.6%
      Customer B...........     4.5       10.4      14.4
      Customer C...........     4.8        7.8      11.3

</TABLE>

The two major customers at December 31, 1997 and 1996 also account for 10.5% and
22.1% of gross  outstanding  accounts  receivable at December 31, 1997 and 1996,
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, 1997 and 1996 the Company had one supplier
which  accounted  for  approximately  42.8% and  32.8%,  respectively,  of total
purchases. A second supplier accounted for 22.3% of total purchases in 1997.

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
97-2, "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 $98,000 and $459,000 on these assets was recorded
during  1997  and  1996,  respectively.  Accumulated  amortization  on  acquired
software  technology  totaled $4,454,000 and $3,672,000 at December 31, 1997 and
1996, respectively.

Royalties --

Royalties are accrued based on net revenues pursuant to agreements with external
software  developers  of software  products  published by the  Company.  Royalty
costs, which are included in cost of revenues, were $3,012,000,  $2,715,000, and
$2,575,000   during  the  years  ended   December  31,  1997,   1996  and  1995,
respectively.

<PAGE>

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  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 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.

Earnings Per Share of Common Stock --

In February 1997, the Financial  Accounting  Standards Board (the "FASB") issued
SFAS 128,  Earnings Per Share.  This  statement  simplifies  the  standards  for
computing and presenting earnings per share ("EPS") and makes them comparable to
international  EPS standards.  SFAS 128 replaces the presentation of primary EPS
with a presentation  of basic EPS. It also requires dual  presentation  of basic
and  diluted  EPS on the face of the  income  statement  for all  entities  with
complex capital structures.  SFAS 128 became effective for financial  statements
issued for periods after December 15, 1997 and requires restatement of all prior
periods  presented.  Basic EPS is  calculated  by dividing  income  available to
common  shareholders by the weighted average number of common shares outstanding
during each period.  Diluted EPS includes the  potential  impact of  convertible
securities and dilutive common stock equivalents using the treasury stock method
of accounting.  For periods in which the Company  reports a loss from continuing
operations,  diluted  earnings per share do not include  stock  options as their
effect would be 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.

<PAGE>

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>
<CAPTION>
<S>                                <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>

During the second quarter of 1996, management  reevaluated the carrying value of
the intangible assets recorded in connection with the acquisition of Swfte. This
reevaluation  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 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>
<CAPTION>
                                            1997     1996
                                          -------- --------
<S>                                          <C>      <C>

      Finished goods......................  $2,439   $1,101
      Raw materials.......................     483      155
                                          ======== ========
                                            $2,922   $1,256
                                          ======== ========
</TABLE>

4.  PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
                                                              Useful
                                                                Life
                                            1997     1996     in Years
                                          --------  --------  ---------
<S>                                          <C>      <C>       <C>
      Equipment...........................  $3,280   $3,199     3-5
      Furniture and fixtures..............     716      607     5-10
                                          --------  --------
                                             3,996    3,806
      Less: Accumulated depreciation......  (2,726)  (1,909)
                                          --------  --------
                                            $1,270   $1,897
                                          ========  ========
</TABLE>

Equipment includes $147,000 of 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>
<CAPTION>
                                            1997     1996
                                          -------   -------
<S>                                         <C>       <C>

      Royalties........................    $1,271   $1,110
      Marketing........................     1,953    1,276
      Settlement costs (Note 10).......       300      850
      Other............................     1,376    1,802
                                          -------   -------
                                           $4,900   $5,038
                                          =======   =======
</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, 1997, the Company was in
compliance with the agreement.

7.  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.

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,
1997 or 1996.

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.

8.  STOCK OPTIONS:

The Company has reserved 2,250,000 shares of its common stock for issuance under
its 1992 Stock Option Plan (the "1992  Plan"),  1,000,000  shares under its 1997
Stock Option Plan for  Officers and  Employees  (the "1997  Plan"),  and 250,000
shares under the 1997 Stock Option Plan for Directors (the  "Directors'  Plan"),
(the 1992 Plan,  the 1997 Plan and the  Directors'  Plan are  referred to herein
collectively as the "Plans").Under the Plans, 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 and vesting schedule of each option
agreement are determined by the Board of Directors; vesting typically is ratably
over four years.  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>
<CAPTION>
                                                               Weighted
                                                               Average
                                        Number of   Exercise   Exercise
                                          Shares   Price ($)  Price ($)
                                       ----------- ---------- ----------
<S>                                     <C>        <C>        <C>
Options outstanding, December 31, 1994.   771,565  0.10- 2.76   0.67
Granted................................   130,000  7.70-20.75  16.92
Exercised..............................  (136,628) 0.10- 9.35   0.23
Canceled...............................   (79,167) 0.10-20.75  13.14
                                        ----------
Options outstanding, December 31, 1995.   685,770  0.10-20.75   2.40
Granted................................   544,000  5.38-13.25   9.80
Exercised..............................   (37,353) 0.85-12.25   1.76
Canceled...............................  (137,000) 0.85-20.75  12.49
                                        ----------
Options outstanding, December 31, 1996. 1,055,417  0.10-15.25   4.97
Granted................................   605,000  2.00-6.625   2.44
Exercised..............................   (96,971) 0.85-5.375   3.60
Canceled...............................  (364,556) 0.85-15.25  10.75
                                        ----------
Options outstanding, December 31, 1997. 1,198,890  0.10-6.625   2.05
                                        ==========
</TABLE>

A summary of currently outstanding and exercisable options is as follows:
<TABLE>
<CAPTION>
          Options Outstanding                 Options Exercisable
-------------------------------------------   --------------------
                       Weighted
                       Average
                       Remaining   Weighted                Weighted
 Range of    Number    Contractual Average      Number     Average
 Exercise    Out-      Life        Exercise     Exercis-   Exercise
 Prices      standing  (Years)     Price        able       Price
 ---------- ---------  ----------- ----------   --------   ---------
<S>         <C>         <C>        <C>          <C>        <C>
$0.10-$0.85   480,070       5.6      $0.49       446,737     $0.46
      $2.00   443,505       6.8      $2.00        61,087     $2.00
$3.38-$3.80    60,000       9.0      $3.52        12,500     $3.55
$4.10-$6.63   215,315       8.8      $5.23        37,065     $5.23
            ---------  ----------- ----------   --------   ---------
            1,198,890       6.8      $2.05       557,389     $1.03
            ---------  ----------- ----------   --------   ---------
</TABLE>

At December 31, 1997,  options to purchase 1,716,965 shares of common stock were
available  for grant under the Plans.  Canceled  options  increase  the amount
of options available to be granted under the Plans.

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 Plans. Had compensation  been
recorded  based on the fair value at the grant dates for awards  under the Plans
consistent with the method of SFAS 123, the Company's proforma net income (loss)
and diluted  income  (loss) per share would have been as follows (in  thousands,
except per share data):
<TABLE>
<CAPTION>
                                                     1997    1996     1995
                                                  -------- -------- --------
<S>                                                   <C>    <C>       <C>
        Net income (loss), as reported.            $1,703 $(10,281) $(2,185)
        Net income (loss), proforma....            $1,237 $(10,469) $(2,243)

        Diluted earnings per share, as reported    $  .21  $(1.37)  $  (.33)
        Diluted earnings per share, proforma       $  .15  $(1.40)  $  (.34)
</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% to 70%,  risk-free interest
rate of 5%,  expected  dividends of $0 and expected lives of five years. In 1997
and 1996,  the  Company  recorded  compensation  expense of $54,000  and $7,000,
respectively,   related  to  options  to  purchase   common  stock   granted  to
non-employees of the Company accounted for under the provisions of SFAS 123.

9.  INCOME TAXES:

The  components of the  provision  (benefit) for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
                                           1997    1996     1995
                                          ------  -------  ------
<S>                                         <C>     <C>      <C>
      Current:
         Federal........................  $(243) $(1,711)  $1,931
         State..........................    (31)    (256)     328
                                          ------  -------  ------
                                           (274)  (1,967)   2,259
                                          ------  -------  ------
      Deferred:
         Federal........................  1,132   (1,930)  (3,292)
         State..........................    143     (170)    (291)
                                          ------  -------  ------
                                          1,275   (2,100)  (3,583)
                                          ------  -------  ------
                                         $1,001  $(4,067) $(1,324)
                                          ======  =======  =======
</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>
<CAPTION>

                                           1997    1996    1995
                                          ------  ------  -------
<S>                                         <C>    <C>      <C>
      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)   (3.6)
      Tax exempt interest income........     --      --    (3.7)
      Increase  in valuation allowance..     --     7.4      --
      Other, net........................   (0.6)    1.9     3.6
                                          ------  ------  -------
                                            37.0% (28.3)% (37.7)%
                                          ======  ======  =======
</TABLE>
<PAGE>

The  components  of the net  deferred  tax asset  recorded  in the  accompanying
consolidated balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
                                            1997     1996
                                           ------  -------
<S>                                          <C>    <C>
      Acquired software and intangibles...  $ --    $4,406
      Allowance for doubtful  accounts and
      potential returns...................    905    1,279
      Inventory reserves..................  1,029      866
      Net operating loss carryforward.....  4,311    1,825
      Other, net..........................  (158)      349
                                          -------  -------
        Gross deferred tax assets.........  6,087    8,725
      Valuation allowance................. (1,160)  (2,523)
                                          -------  -------
        Net deferred tax assets........... $4,927   $6,202
                                          =======  =======
</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.

10. EARNINGS PER SHARE

Basic  earnings per common share were computed by dividing  income  available to
common  shareholders  by the weighted  average  number of shares of common stock
outstanding  during the year.  Diluted  earnings  per share were  determined  by
including  assumptions of stock option conversions,  except for periods in which
the Company reported a loss from continuing  operations.  Effective December 31,
1997, the Company  adopted SFAS 128. As a result,  the earnings (loss) per share
of  common  stock  for the  years  ended  December  31,  1996 and 1995 have been
restated in accordance with the requirements of SFAS 128.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)      Income            Per-Share
Year Ended December 31,                       (Loss)   Shares   Amount
-------------------------------------------- -------- --------- -----------
<S>                                           <C>      <C>      <C>
1997
Basic Earnings Per Share
   Income available to common shareholders..  $1,703   7,533    $  .23
   Options assumed to be converted..........             635     ======
                                              -------  ------
Diluted Earnings Per Share
   Income available to common shareholders
   plus assumed conversions.................  $1,703   8,168    $  .21
                                              =======  ======    =====

1996
Basic and Diluted Earnings Per Share
   (Loss) available to common shareholders..$(10,281)  7,480    $(1.37)
                                              =======  ======    =====

1995
Net (Loss).................................  $(2,185)
Less:  Preferred stock dividends...........      (41)
                                              -------
Basic and Diluted Earnings Per Share
   (Loss) available to common shareholders.  $(2,226)  6,688    $ (.33)
                                              =======  ======    =====
</TABLE>


Options to purchase  approximately 172,300 shares of common stock at prices from
$5.375 to $6.625  were  outstanding  during  1997 but were not  included  in the
computation  of diluted EPS because the  options'  prices were  greater than the
average  market price of the common  shares.  The options,  which expire between
January 1999 and December 2001, were still outstanding at December 31, 1997.

11. 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.

12. COMMITMENTS AND CONTINGENCIES:

The Company  leases  office space under  operating  leases.  Rent expense  under
operating  leases was  $510,000,  $661,000,  and  $368,000  for the years  ended
December 31,  1997,  1996 and 1995,  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, 1997 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                          Operating   Capital
                                          Leases      Leases
                                          ---------   -------
      <S>                                 <C>         <C>
      1998................................  $558      $ 47
      1999................................   389        --
      2000................................   201        --
                                          ---------   -------
      Total future minimum payments.......  $1,148
                                          =========
      Less:  Interest.....................              (1)
                                                      -------
      Present value of future minimum
      lease payments......................            $ 46
                                                      =======
</TABLE>

The Company is subject to minimum royalty  guarantees  under certain  agreements
with developers and licensers.  Minimum royalty  guarantees under such contracts
are approximately $125,000,  $150,000, $175,000 and $200,000 for the years ended
December 31, 1998, 1999, 2000 and 2001, respectively.

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.  In June 1997, the IRS proposed
assessments for additional taxes of $412,000,  $553,000 and $857,000 for the tax
years 1992, 1993 and 1994,  respectively,  plus interest to the date of payment.
The preliminary  adjustments proposed by the IRS would also reduce the Company's
federal income taxes for the years 1995, 1996 and 1997 by $242,000,  $68,000 and
$55,000,  respectively.  The Company believes that it has properly  reported its
income and paid its taxes in  accordance  with  applicable  laws and  intends to
contest the  proposed  adjustments  vigorously.  The Company  believes  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.

<PAGE>

                                 PART III

Item 10.   Directors and Executive Officers of the Registrant


                      Information Regarding Directors

Set forth below is certain  information  regarding the Directors of the Company,
based on information furnished by them to the Company.
<TABLE>
<CAPTION>
                                                   Director
      Name                                   Age    Since
      ------------------------------------- ------ ---------
      <S>                                   <C>    <C>
      Class I -- Term Expires 1999

      Kenneth P. Currier..................   49     1992
      A. Bruce Johnston...................   38     1992

      Class II-Term Expires 2000

      Stephen J. Clearman.................   47     1992
      Charles E. Noell III................   46     1992

      Class III-Term Expires 1998

      Susan A. Currier....................   48     1992
      William H. Lane III.................   59     1997


      -------------------------------------
</TABLE>

The principal  occupation and business  experience during at least the last five
years for each Director of the Company is set forth below.

Kenneth P. Currier, a co-founder of the Company, has served as a
Director, Chief Executive Officer and Secretary of the Company since its
inception in October 1992.  Mr. Currier also co-founded the Company's
predecessor, Softsync, Inc. ("Softsync") a publisher of consumer
software, in 1982, and served as President of Softsync from 1990 until
formation of the Company in 1992.  Mr. Currier is the spouse of Susan A.
Currier, President and a Director of the Company.

A. Bruce Johnston has served as a Director of the Company since October
1992.  Mr. Johnston has been a Principal of TA Associates, a private
equity investor, since January 1996 and was a Vice President of TA
Associates from June 1992 to December 1995.  Prior to that, Mr. Johnston
was a General Manager of Lotus Development Corporation, a software
publisher, from June 1988 to June 1992.  Mr. Johnston serves as a
director of Restrac, Inc., a client-server application company, as well
as a number of privately-held companies.

Stephen J. Clearman has served as a Director of the Company since October
1992.  Mr. Clearman has been a general partner of Geocapital Partners, a
venture capital management firm, since he co-founded that firm in 1984.
Mr. Clearman also serves as a director of World Access, Inc., a repair
and manufacturing services provider to the telecommunications industry,
Memberworks, Inc., a consumer credit card membership services company,
and SeaMED, Corp., a designer and manufacturer of medical instruments.
Mr. Clearman also serves as a director of a number of privately-held
companies.

Charles E. Noell III has served as a Director of the Company since October 1992.
Mr. Noell has been President and Chief Executive Officer of JMI, Inc., a private
holding  company,  since January 1992.  Prior to that,  Mr. Noell was a Managing
Director of Alex.  Brown & Sons  Incorporated  from 1981 to 1992. Mr. Noell also
serves as a director of  Transaction  Systems  Architects,  Inc.,  an electronic
funds  transfer  software  company,  Homegate  Hospitality,  Inc., a provider of
services  to  the  hotel  industry,  Peregrine  Systems  Inc.,  a  developer  of
infrastructure  and  network  systems  management  software,  and  a  number  of
privately-held companies.

Susan A. Currier, a co-founder of the Company, has served as a Director
and President of the Company since its inception in October 1992.  Ms.
Currier also co-founded the Company's predecessor, Softsync, in 1982, and
served as Vice President responsible for sales and marketing of Softsync
from 1990 until formation of the Company in 1992.  Ms. Currier is the
spouse of Kenneth P. Currier, Chief Executive Officer and a Director of
the Company.

William H. Lane III has served as a Director of the Company since his
appointment by the  Board of Directors on January 29, 1997. Mr. Lane
retired as Vice President, Chief Financial Officer, Secretary and
Treasurer of Intuit, Inc. a software publisher, in July 1996. He held the
same positions at ChipSoft, Inc. from July 1991 until Intuit acquired
ChipSoft in December 1993. He also served as Vice President, Finance and
Administration for Honeywell Information Systems.  Mr. Lane also serves
as a director of MetaCreations Corporation, a visual computing software
publisher, Quarterdeck Corp., a PC utility software company, and Storm
Technology, Inc., a scanner device and software company.


                            Executive Officers

The names and ages of all  current  executive  officers  of the  Company and the
principal occupation and business experience during at least the last five years
for each are set forth below.

<TABLE>
<CAPTION>

   Name                           Age    Position
   ----------------------------  -----   -----------------------
<S>                               <C>    <C>
   Kenneth P. Currier.........    49     Chief Executive Officer and Secretary
   Susan A. Currier ..........    48     President
   Charles H. Murphy..........    53     Chief Financial Officer and Treasurer
   Timothy R. Leary...........    46     Executive Vice President of Sales
   Michael A. Appel...........    53     Vice President of Operations
   Anne E. Aitken.............    39     Vice President of Marketing
   David R. Turner............    32     Vice President of Development
   Katherine A. Brunn.........    50     Vice President of North American Sales
</TABLE>

Mr. Currier has held the positions of Chief Executive Officer and
Secretary of the Company since the Company's inception in October 1992.
Mr. Currier has also been a Director of the Company since 1992.  See
"Information Regarding Directors" above.

Ms. Currier has held the position of President of the Company since the
Company's inception in October 1992.  Ms. Currier has also been a
Director of the Company since 1992.  See "Information Regarding
Directors" above.

Charles H. Murphy has served as Chief  Financial  Officer of the  Company  since
April 1996.  Prior to that,  Mr. Murphy was Chief  Financial  Officer at Mergent
International,  Inc.,  a company  which  specializes  in desktop and  enterprise
security software applications,  from 1995 to 1996. Prior to Mergent, Mr. Murphy
was Vice  President  of Finance,  Secretary  and  Director at Package  Machinery
Company, a manufacturer of specialty machinery, from 1986 to 1995.

Timothy R. Leary has served as Executive  Vice President of Sales of the Company
since  January  1998,  and as Vice  President  of Sales of the Company  from its
formation in October 1992 until December 1997.

Michael A. Appel has served as Vice President of Operations of the Company since
March 1996.  Prior to that, Mr. Appel was Director of  Manufacturing  for Bleyer
Industries from January 1992 through February 1996. Prior to that, Mr. Appel was
Vice  President of Operations  for Superior Toy from June 1990 through  December
1991.

Anne E. Aitken has served as Vice President of Marketing of the Company
since March 1997.  Prior to that, Ms. Aitken served as Senior Director of
Marketing at Blockbuster Entertainment Inc. from September 1995 to
January 1997.  Prior to Blockbuster, Ms. Aitken was Director of
Advertising with Burger King Corporation from September 1992 to September
1995.

David R. Turner has served as Vice President of Development of the Company since
December  1997.  Prior to that, Mr. Turner was Director,  External  Applications
Engineering for Walt Disney  Interactive from April 1995 to December 1997. Prior
to Disney,  Mr.  Turner was Vice  President  and  Director  of  Development  for
IntraCorp, Inc., from October 1987 to March 1995.

Katherine A. Brunn has served as Vice  President of North  American Sales of the
Company since January 1998. Prior to that, Ms. Brunn was the President and Chief
Executive Officer of MicroTech Marketing Services,  Inc., a sales, marketing and
consulting firm serving the computer industry, since June 1984.

Each of the  officers  holds his  respective  office  until the  regular  annual
meeting of the Board of Directors  following the annual meeting of  stockholders
and until his  successor  is duly  elected  and  qualified  or until his earlier
resignation or removal.


    Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
officers  and  directors,  and  persons  who own more than 10% of the  Company's
outstanding  shares of Common Stock, to file reports of ownership and changes in
ownership  with the Securities  and Exchange  Commission  and Nasdaq.  Officers,
directors  and  greater  than  ten  percent  stockholders  are  required  by SEC
regulations  to furnish the Company with copies of all Section  16(a) forms they
file.

Based  solely on its  review  of the  copies of such  forms  received  by it, or
written  representations  from certain  reporting  persons that no Section 16(a)
reports were required for those  persons,  the Company  believes that during the
fiscal year ended December 31, 1997, all filing requirements were complied with,
except in the case of Susan A.  Currier  who  failed to timely  file one  report
regarding a scheduled sale of the Common Stock.

<PAGE>

Item 11.                 Executive Compensation

The  following  sections  of this  Annual  Report  set  forth  and  discuss  the
compensation  paid or awarded during the last three years to the Company's Chief
Executive Officer and the four other most highly compensated  executive officers
who  earned in excess of  $100,000  during  the year  ended  December  31,  1997
(collectively, the "Named Executives").


Summary Compensation Table

The following  table shows for the fiscal years ended  December 31, 1995,  1996,
and 1997 compensation paid by the Company to the Named Executives.

<TABLE>
<CAPTION>
                                             Long Term
                                             Compensation
                                        -----------------------
                Annual Compensation          Awards          Payouts
                --------------------   --------------------  ------
                              Other    Restric                         All
                              Annual   -ted       Securities           Other
Name and                      Compen-  Stock      Underlying  LTIP     Compen
Principal       Salary  Bonus -sation  Awards     Options     Payout   -sation
Position   Year  ($)    ($)    ($)      ($)       (#)         ($)      ($) (4)
--------------------------------------------------------------------------------
<S>        <C>  <C>     <C>    <C>     <C>        <C>         <C>     <C>
Kenneth P. 1997 170,000   --     --      --         70,000      --      5,579
Currier    1996 170,000   --     --      --        130,000(1)   --       --
Chief      1995 125,000 50,000   --      --            --       --       --
Executive
Officer
and Secretary

Susan A.   1997 170,000   --     --      --         70,000      --      5,579
Currier    1996 170,000   --     --      --        130,000(1)   --       --
President  1995 125,000 50,000   --      --            --       --       --


Charles H. 1997 143,333 26,509   --      --         50,000      --      4,536
Murphy     1996  90,167 20,000 48,122 (2)--         50,000      --       --
Chief
Financial
Officer
and Treasurer

Timothy R. 1997 100,000  7,551   --      --         65,000      --       --
Leary      1996 100,000 26,332   --      --         10,000      --       --
Executive  1995  90,000 71,820   --      --          5,000      --       --
Vice President
of Sales

Michael A. 1997 110,000 19,176   --      --         25,000      --      3,900
Appel      1996  85,297 17,750 14,876 (3)--         25,000      --       --
Vice
President of
Operations
<FN>
----------------

(1) The options granted to Mr. and Mrs. Currier during 1996 were canceled
    by the Board of Directors in April 1997.

(2) For 1996,  consists  of  reimbursed  moving  costs  paid  upon Mr.  Murphy's
    relocation in connection with beginning employment with the Company in April
    1996.

(3) For  1996,  consists  of  reimbursed  moving  costs  paid  upon Mr.  Appel's
    relocation in connection with beginning employment with the Company in March
    1996.

(4) Represents matching contributions to the accounts of each Named Executive
    participating under the Company's 401(k) savings plan, which was
    implemented January 1, 1997.
</FN>
</TABLE>

<PAGE>

Option Grants in Last Fiscal Year

The following  table sets forth each grant of stock  options  during 1997 to the
Named Executives. No stock appreciation rights ("SARs") have been granted.

<TABLE>
<CAPTION>
                                                                  Potential
                                                                 Realizable
                                                                  Value at
                                                               Assumed Annual
                                                               Rates of Stock
                                                                   Price
                                                                Appreciation
                                                                 for Option
                       Individual Grants                          Term (3)
              ---------------------------------------------   ---------------
                             % of
                             Total
              Number of      Options/SARs
              Securities     Granted
              Underlying     to           Exercise
              Options        Employees    or Base   Expir-
              Granted        in Fiscal    Price     ation
Name          (#) (1)        Year (2)     ($/Sh)    Date       5%($)   10%($)
-----------  -------------  ------------ -------- ----------- ------- -------
<S>             <C>           <C>        <C>      <C>         <C>     <C>
Kenneth P.      70,000        15.2%      2.000--  01/01/07--  105,340 266,952
Currier                                    3.375    04/17/07

Susan A.        70,000        15.2       2.000--  01/01/07--  105,340 266,952
Currier                                    3.375    04/17/07

Charles H.      50,000        10.8       2.000    04/17/07     62,889 159,374
Murphy

Timothy R.      65,000        14.1       2.000--  04/17/07--  125,386 317,752
Leary                                      4.100    11/07/07

Michael A.      25,000         5.4       2.000    04/17/07     31,445  79,687
Appel
<FN>

--------------

(1)  All options  were granted  pursuant to the Amended and Restated  1992 Stock
     Option Plan (the "1992 Option Plan") and vest in equal quarterly increments
     over a four year period.  Unvested shares accelerate and become vested upon
     a change of control of the Company.

(2)  Percentages  are based on a total of shares of Common Stock  underlying all
     options granted to employees of the Company in 1997.

(3)  This column shows the  hypothetical  gains or option spreads of the options
     granted based on assumed annual compound stock appreciation rates of 5% and
     10% over the full  10-year  terms of the  options.  The 5% and 10%  assumed
     rates of  appreciation  are  mandated  by the rules of the  Securities  and
     Exchange  Commission  and  do  not  represent  the  Company's  estimate  or
     projection of future Common Stock prices.
</FN>
</TABLE>

<PAGE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Values

The following  table sets forth the shares  acquired and the value realized upon
exercise  of stock  options  during  1997 by the Named  Executives  and  certain
information concerning the number and value of unexercised options.

<TABLE>
<CAPTION>
                                    Number of
                                    Securities         Value of
                                    Underlying         Unexercised
                                    Unexercised        In-the-Money
               Shares               Options at         Options at
               Acquired             FY-End (#)         FY-End ($) (1)
               on          Value    ------------------ ------------------
               Exercise    Realized Exercis-  Unexer-  Exercis-  Unexer-
Name           (#)         ($)      able      cisable  able      cisable
-------------- --------- ---------- --------- -------- --------- --------
<S>             <C>       <C>       <C>       <C>      <C>       <C>
 Kenneth P.         --      --       214,624   74,126   633,099   112,682
 Currier
 Susan A.           --      --       214,624   74,126   633,099   112,682
 Currier
 Charles H.     26,200  62,519            91   41,209       142    64,410
 Murphy
 Timothy R.         --      --        57,849   64,721   161,160    64,410
 Leary
 Michael A.     14,742  37,066           --    35,258       --     29,710
 Appel
<FN>

---------------


(1)  Based on the fair market  value of the Common  Stock on  December  31, 1997
     ($3.563 per share),  less the aggregate option exercise price.  Options are
     in-the-money  if the market value of the shares covered  thereby is greater
     than the option exercise price.
</FN>
</TABLE>

Compensation of Directors

The  compensation  plan for  non-employee  directors was amended by the Board on
February 3, 1997. In accordance with the plan, such outside directors receive an
annual  retainer  of $5,000,  $1,500  per Board  meeting  except for  telephonic
meetings, $250 per each telephonic Board meeting, and additional compensation to
members  of the  Audit and  Compensation  Committees  in the  amount of $500 per
meeting attended in person, and $250 per each telephonic  committee meeting. All
directors are reimbursed for expenses  incurred in connection with attendance at
meetings.

The Company has an Amended and Restated 1992 Stock Option Plan (the "1992 Option
Plan") pursuant to which eligible non-employee directors are entitled to receive
options  to  purchase  shares of Common  Stock in  accordance  with the  formula
provisions thereof.  Although the non-employee directors are eligible to receive
options  pursuant to certain  formula  provisions  of the 1992 Option  Plan,  no
options have been granted to date pursuant to such formula provisions.

The  Company  also has the 1997  Stock  Option  Plan for  Directors  (the  "1997
Directors  Plan")  pursuant to which  eligible  non-employee  directors  receive
non-qualified  options  to  purchase  30,000  shares of Common  Stock upon their
election or  appointment  as a director,  which  options  shall vest in calendar
quarterly  installments over four years; and options to purchase 5,000 shares of
Common Stock each January 1 during his/her service as a director,  which options
shall vest in quarterly  installments  over one year. All options  granted under
the 1997  Directors  Plan have a per share exercise price equal to the per share
fair market value of the Common Stock on the date of grant.


Employment Agreements and Change-in-Control Arrangements

As of February 23, 1995, the Company  entered into  employment  agreements  with
each of Kenneth  P.  Currier  and Susan A.  Currier  pursuant  to which they are
employed as Chief Executive Officer and President of the Company,  respectively.
These  employment  agreements  currently  provide  for the  payment of an annual
salary to each of the Curriers,  which is subject to change by the  Compensation
Committee of the Board of Directors.

These employment  agreements also entitle each of the Curriers to receive annual
cash bonuses in amounts,  and based upon the achievement of Company  objectives,
established from  year-to-year by the Compensation  Committee.  These agreements
are  subject to  automatic  one-year  extensions  on each  December  31st unless
earlier terminated by either the executive or the Company.  Under the employment
agreements,  each of the Curriers is entitled to severance benefits equal to six
months  salary and benefits plus a pro rated cash bonus in the event of either a
termination of their employment by the Company without cause or a termination by
the  executive  in response  to certain  changes in the  executive's  employment
circumstances,  subject to increase to one-year's salary and benefits plus a pro
rated cash bonus  after a change in control of the  Company  (as  defined in the
agreements)  in the event of either a  termination  of employment by the Company
without cause or a termination  by the executive in response to certain  changes
in  the  executive's  employment  circumstances.   On  February  25,  1998,  the
Compensation  Committee also approved a bonus equal to one-year's salary to each
of the  Curriers  in the  event  the  Company  is  sold  during  1998,  and  the
transaction closes at terms acceptable to the Board of Directors.

Under  the  terms of his  employment,  Mr.  Murphy  would  receive  six  months'
severance  pay in the event his  employment  is  terminated  without  cause,  or
one-year's  salary in the event his  employment is  terminated  due to change of
control.

Effective  February  18, 1998,  all  employees  of the Company  qualify  under a
program which entitles any employee who might lose their  employment as a result
of a change in control to receive three months base  compensation at the time of
separation,  provided  the employee  has  performed  their duties to the date of
separation. This policy is in effect for all employees until February 17, 1999.

Since April 1997, options granted to officers, employees and directors under the
Company's  stock option plans have provided for  acceleration of unvested shares
in the event of a change of control  of the  Company  (as  defined in the option
plans).  At December  31,  1997,  there were  options to purchase  approximately
443,000  shares of the  Company's  common stock that would become  vested in the
event of such a change in control of the Company.


Compensation Committee Interlocks and Insider Participation

During 1997, the members of the Compensation Committee of the Board of Directors
were Stephen J. Clearman and A. Bruce  Johnston.  Messrs.  Clearman and Johnston
are each associated with an investment  partnership  which owns Common Stock and
which  previously held shares of preferred stock of the Company and subordinated
notes  issued by the  Company.  During  1995,  the Company  redeemed  all of the
outstanding preferred stock and repaid all of its subordinated indebtedness. See
"Certain Relationships and Related  Transactions".  No executive officers of the
Company serve on the Compensation Committee.


Item 12.Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, to the best knowledge and belief of the Company,
certain information  regarding the beneficial  ownership of the Company's Common
Stock as of February  24, 1998 by (i) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding  Common Stock,  (ii) each of
the Company's Directors, (iii) each of the Named Executive Officers and (iv) all
of the Company's executive officers and Directors as a group.
<TABLE>
<CAPTION>
                                             Shares       Percent
     Directors,  Executive  Officers         Beneficially of
     and 5% Stockholders                     Owned (1)    Class (2)
     --------------------------------------- ------------ --------
     <S>                                     <C>          <C>
     TA Associates Group.................... 1,989,25(3)  26.2%
       High Street Tower, Suite 2500
       125 High Street
       Boston, MA  02110

     Geocapital II, L.P..................... 691,545       9.1%
       One Bridge Plaza
       Fort Lee, NJ  07024

     Waddell & Reed, Inc.................... 640,000 (4)   8.4%
       2001 Third Avenue South
       Birmingham, AL  35233

     Hambrecht & Quist Group................ 452,242 (5)   5.9%
       One Bush Street
       San Francisco, CA  94104

     Kenneth P. Currier.....................  741,892 (6)   9.2%
     Susan A. Currier.......................  741,892 (7)   9.2%
     A. Bruce Johnston......................   13,392 (8)      *
     Stephen J. Clearman....................  701,720 (9)   9.2%
     William H. Lane III....................   14,275 (10)     *
     Charles E. Noell III...................   41,438 (11)     *
     Charles H. Murphy......................   12,591 (12)     *
     Timothy R. Leary.......................  105,279 (13)  1.4%
     Michael A. Appel.......................    4,654 (14)     *
     All directors  and  executive  officers 1,663,62 (15) 20.2%
     as a group (13 persons)................

<FN>

     ----------------------------------------
     *  Represents   less  than  1%  of  the
     outstanding shares.



(1) Beneficial  ownership  is  determined  in  accordance  with the rules of the
    Securities  and  Exchange   Commission  and  generally  includes  voting  or
    investment power with respect to securities.  Shares of Common Stock subject
    to options that are currently  exercisable or exercisable  within 60 days of
    February 24, 1998 are deemed to be beneficially  owned by the person holding
    such options for the purpose of  computing  the  percentage  of ownership of
    such person, but are not treated as outstanding for the purpose of computing
    the purpose of an other person.

(2) Applicable  percentage  of ownership is based on 7,605,025  shares of Common
    Stock  outstanding as of February 24, 1998 together with applicable  options
    for each stockholder.

(3) Includes  1,136,310  shares of Common Stock held by Advent VI L.P.,  510,064
    shares held by Advent  Atlantic and Pacific II L.P.,  184,181 shares held by
    Advent Industrial II L.P.,  141,685 shares held by Advent New York L.P., and
    17,002  shares held by TA Venture  Investors,  L.P. The  respective  general
    partners of Advent VI L.P.,  Advent  Atlantic  and  Pacific II L.P.,  Advent
    Industrial  II L.P.,  Advent  New York L.P.  and TA Venture  Investors  L.P.
    (collectively,  the "TA  Associates  Group")  exercise sole  investment  and
    voting power with  respect to shares of Common Stock held by such  entities.
    A.  Bruce  Johnston,  a  Director  of  the  Company,  is a  Principal  of TA
    Associates.

(4) As  reported  in a Schedule  13G dated  January  30, 1998 and filed with the
    Securities and Exchange  Commission jointly by Waddell & Reed, Inc., Waddell
    & Reed  Investment  Management  Company,  Waddell  & Reed  Asset  Management
    Company,  Waddell & Reed Financial Services,  Inc.,  Torchmark  Corporation,
    United  Investors  Management  Company,  and Liberty National Life Insurance
    Company.

(5) As  reported  in a  Schedule  13D dated  April 7,  1997 and  filed  with the
    Securities  and  Exchange  Commission  jointly by  Hambrecht & Quist  Group,
    Hambrecht & Quist California, Hambrecht & Quist L.L.C. and Daniel H.
    Case III. On March 23, 1998, Hambrecht & Quist Group filed a Schedule
    13-D/A reporting ownership of 352,242 shares of Common Stock, which
    represents approximately 4.6% of the Common Shares outstanding as of
    February 24, 1998.

(6) Includes 335,296 shares of Common Stock  beneficially owned by Mr. Currier's
    wife,  Susan  A.  Currier,  as to which  Mr.  Currier  disclaims  beneficial
    ownership,  76,000 shares beneficially owned by Mr. and Ms. Currier jointly,
    and 233,096  shares which Mr. Currier may acquire upon the exercise of stock
    options within 60 days of February 24, 1998.

(7) Includes 330,596 shares of Common Stock  beneficially owned by Ms. Currier's
    husband,  Kenneth P. Currier,  as to which Ms. Currier disclaims  beneficial
    ownership,  76,000 shares beneficially owned by Mr. and Ms. Currier jointly,
    and 233,096  shares which Ms. Currier may acquire upon the exercise of stock
    options within 60 days of February 24, 1998.

(8) Includes  3,117  shares  of  Common  Stock  beneficially  owned by A.  Bruce
    Johnston through TA Venture  Investors L.P. which are included in the 17,002
    shares  described  in  footnote  (3)  above  as being  owned  by TA  Venture
    Investors  L.P. Does not include any shares  beneficially  owed by Advent VI
    L.P.,  Advent  Atlantic and Pacific II L.P.,  Advent  Industrial  II L.P. or
    Advent New York L.P., or the  remainder of the shares  described in footnote
    (2)  above as being  owned by TA  Venture  Investors  L.P.,  as to which Mr.
    Johnston  disclaims  beneficial  ownership.  Also includes  10,275 shares of
    Common  Stock  which Mr.  Johnston  may acquire  upon the  exercise of stock
    options within 60 days of February 24, 1998.

(9) Includes  691,545 shares of Common Stock held by Geocapital II, L.P. Stephen
    J. Clearman, BVA Associates, James Harrison and Irwin Lieber are the general
    partners (the "Geocapital  General Partners") of Softven Management which is
    the sole  general  partner of  Geocapital  II,  L.P.,  and share  voting and
    investment  power  with  respect to these  shares.  The  Geocapital  General
    Partners disclaim beneficial ownership of such shares,  except to the extent
    of each partner's  proportionate  pecuniary interest therein.  Also includes
    10,275  shares of Common  Stock  which Mr.  Clearman  may  acquire  upon the
    exercise of stock options within 60 days of February 24, 1998.

(10)Includes  10,275  shares of Common Stock which Mr. Lane may acquire upon the
    exercise of stock  options  within 60 days of February 24,  1998,  and 4,000
    shares of Common Stock owned by Mr. Lane's wife and grandchildren.

(11)Includes  10,275 shares of Common Stock which Mr. Noell may acquire upon the
    exercise of stock options within 60 days of February 24, 1998.

(12)Consists of 12,591  shares of Common Stock which Mr. Murphy may acquire upon
    the exercise of stock options within 60 days of February 24, 1998.

 (13)Includes  67,849  shares  which Mr.  Leary may acquire upon the exercise of
    stock options within 60 days of February 24, 1998.

(14)Consists of 4,654  shares of Common  Stock which Mr.  Appel may acquire upon
    the exercise of stock options within 60 days of February 24, 1998.

(15)Includes  approximately  620,670  shares  which  may be  acquired  upon  the
    exercise of stock options within 60 days of February 24, 1998.

</FN>
</TABLE>


Item 13.     Certain Relationships and Related Transactions

A. Bruce Johnston,  a Director of the Company,  is a Principal of TA Associates.
Stephen J.  Clearman,  a Director of the  Company,  is a general  partner of the
general  partner of Geocapital II, L.P.  Charles E. Noell III, a Director of the
Company,  is a general  partner of the general  partner of JMI Equity Fund, L.P.
Kenneth and Susan Currier, who are married to one another, are Directors and the
Chief Executive Officer and President of the Company, respectively.

The Company has a policy  whereby all  transactions  between the Company and its
officers,  directors and  affiliates  (other than  employment  and  compensation
matters)  will be  reviewed by the Audit  Committee  of the  Company's  Board of
Directors or a comparable committee.


                                  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 No.  Description

               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 (7)
             10.16  Announcement of Preliminary Fourth-Quarter Results (8)
                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
               (7)  Incorporated  by  reference  to the  designated  exhibit  of
                    registrant's  Annual  Report on Form 10-K for the year ended
                    December 31, 1996
               (8)  Incorporated by reference to the designated exhibit of
                    Form 8-K filed February 10,1998
               (U)  Confidential treatment granted as to portions of this
                    document.



      (b) Reports on Form 8-K

      On February 10, 1998,  the Company filed a report on Form 8-K in regard to
      its announcement of preliminary results for the fourth quarter of 1997.

      On February 13, 1998,  the Company filed a report on Form 8-K in regard to
      its  announcement  of results for the quarter and the year ended  December
      31, 1997.

      (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 30, 1998                     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 30, 1998
    /s/ KENNETH P. CURRIER      Executive Officer and
      Kenneth P. Currier        Secretary (Principal
                                Executive Officer)

                                Chief Financial         March 30, 1998
     /s/ CHARLES H. MURPHY      Officer and Treasurer
       Charles H. Murphy        (Principal Financial
                                Officer and Principal
                                Accounting Officer)


    /s/ STEPHEN J. CLEARMAN     Director                March 26, 1998
      Stephen J. Clearman


     /s/ SUSAN A. CURRIER       Director, President     March 30, 1998
       Susan A. Currier


                                Director                March __, 1998
     ---------------------
       A. Bruce Johnston


    /s/ WILLIAM H. LANE III     Director                March 26, 1998
      William H. Lane III


                                Director                March __, 1998
     ---------------------
     Charles E. Noell III




<PAGE>



      REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE



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 6, 1998.  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 6, 1998.




























                                    S-1


<PAGE>




                           EXPERT SOFTWARE, INC.

                                SCHEDULE II
                     VALUATION AND QUALIFYING ACCOUNTS
           FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                              (in thousands)
<TABLE>
<CAPTION>




                                Balance     Charged
                                at          to Costs              Balance at
                                Beginning   and                   End
Description                     of Period   Expenses  Deductions  of Period
----------------------------------------------------------------------------
<S>                             <C>        <C>       <C>        <C>

Allowance for doubtful
accounts and returns:

Fiscal year ended
December 31, 1997...........    $ 5,061    $6,868    $ 7,568    $ 4,361
                                ============================================
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
                                ============================================


</TABLE>






























                                    S-2


<PAGE>



                             INDEX TO EXHIBITS




                                                                    Sequential
                                                                       Page
        Exhibit No.    Description                                     Number
        -----------    -------------------------------------------- ----------

             23.1      Consent of Arthur Andersen LLP..............      50






<PAGE>


                                                               EXHIBIT 23.1




            CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




As  independent   certified  public  accountants,   we  hereby  consent  to  the
incorporation  of our  reports  included in this Form 10-K,  into the  Company's
previously filed Form S-8 Registration Statement File No.
33-93920.




ARTHUR ANDERSEN LLP

Miami, Florida,
  March 27, 1998.