SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    FORM 10-Q



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

               For the quarterly period ended September 30, 1996



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


              For the transition period from _______ to  ________



                         Commission File Number 0-25646





                              EXPERT SOFTWARE, INC.

     State of Delaware  -  I.R.S. Employer Identification No.:  65-0359860
                                800 Douglas Road
                           Executive Tower, Suite #750
                             Coral Gables, FL 33134
                                 (305) 567-9990



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  Registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes [ x ] No [ ]

As of October 31, 1996 there were 7,487,180  shares of the  Registrant's  Common
Stock, $ .01 par value, outstanding.

                       The exhibit index is on page 12.

                                  Page 1 of 13.


<PAGE>



                              EXPERT SOFTWARE, INC.

                               INDEX TO FORM 10-Q

                      Nine months ended September 30, 1996


                                                                          Page
                                                                         ------
Part I - Financial Information                                             
Item 1.  Financial Statements.
   Condensed Consolidated Balance Sheets as of

     September 30, 1996 and December 31, 1995................................3
   Condensed Consolidated Statements of Operations for the

     Three Months and Nine Months ended September 30, 1996 and 1995..........4
   Condensed Consolidated Statements of Cash Flows for the

     Nine Months ended September 30, 1996 and 1995...........................5
   Notes to Condensed Consolidated Financial Statements......................6
Item 2.  Management's Discussion and Analysis of Financial Condition         
and Results of Operations....................................................7


Part II - Other Information
Item 1.  Legal Proceedings..................................................12
Item 6.  Exhibits and Reports on Form 8-K...................................12

Signatures..................................................................13







   This Form 10-Q  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 12 of this Form 10-Q.




<PAGE>



                         PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements.


                       EXPERT SOFTWARE, INC.
               CONDENSED CONSOLIDATED BALANCE SHEETS
                           (In thousands)

                                              September   December
                                                 30,         31,
                                                1996        1995
                                             ------------------------
                   ASSETS                    (unaudited)
CURRENT ASSETS:
   Cash and equivalents.....................   $ 1,922     $   912
   Marketable securities....................        --       6,222
   Accounts receivable, net.................     2,988       6,570
   Inventories, net.........................     1,613       3,962
   Income taxes receivable..................     1,401          --
   Prepaid expenses.........................       687         504
   Deferred income taxes....................     3,103         807
                                             ------------------------
                                            
      Total current assets..................    11,714      18,977
                                             ------------------------
PROPERTY AND EQUIPMENT, net.................     2,125       2,575
ACQUIRED SOFTWARE TECHNOLOGY, net...........       155       3,575
ACQUIRED INTANGIBLES, net...................        42         608
DEFERRED INCOME TAXES.......................     4,471       3,295
OTHER ASSETS................................         5          39
                                             ------------------------
      Total assets..........................   $18,512     $29,069
                                             ========================

    LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable.........................   $ 1,947     $ 2,581
   Accrued expenses.........................     5,902       5,745
   Current portion of capital lease                111          95
obligations.................................
                                             ------------------------
                                                         
      Total current liabilities.............     7,960       8,421
                                             ------------------------
OTHER OBLIGATIONS, net of current portion...       500          14
                                             ------------------------
STOCKHOLDERS' EQUITY:
   Preferred stock..........................        --          --
   Common stock.............................        75          75
   Additional paid-in capital...............    23,169      23,126
   Accumulated deficit......................   (13,192)     (2,567)
                                             ------------------------
      Total stockholders' equity............    10,052      20,634
                                             ========================
      Total liabilities and stockholders'      $18,512     $29,069
equity......................................
                                             ========================



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


<PAGE>



                              EXPERT SOFTWARE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share and share data)
                                   (Unaudited)




                                      Three Months Ended    Nine Months Ended
                                        September 30,         September 30,
                                     --------------------- --------------------
                                       1996       1995      1996        1995
                                     ---------- ---------- ---------  ---------

NET SALES..............................$6,041     $7,126    $22,778     $18,854
                                     ---------- ---------- ---------  ---------
OPERATING COSTS AND EXPENSES:
  Cost of sales........................2,408.     2,565     13,152       6,905
  Marketing and sales..................2,150.     1,565      7,445       4,090
  General and administrative...........3,953.       973      8,735       2,642
  Development............................978.       497      2,728       1,501
  Loss on impairment of intangible        --         --      5,700          --
assets.......................................
  Amortization of non- compete            --         --         --         338
agreement....................................
                                     ---------- ---------- ---------  ---------

    Total operating costs and          9,489      5,600     37,760      15,476
expenses.....................................
                                     ---------- ---------- ---------  ---------

    Operating income (loss)............(3,448)    1,526      (14,982)    3,378

Other income, net.........................20.       196         89         246
                                     ---------- ---------- ---------  ---------

  Income (loss) before provision
(benefit) for                          (3,428)    1,722      (14,893)    3,624
    income
taxes.............................

Provision (benefit) for income taxes.....--..       535     (4,268)      1,218
                                     ---------- ---------- ---------  ---------

  Net income (loss)....................$(3,428)   $1,187    $(10,625)   $2,406
                                     ========== ========== =========  =========

  Net income (loss) per share of       $  (.46)   $   .15   $  (1.38)   $   .33
common stock.................................
                                     ========== ========== =========  =========

Weighted average number of common
stock and stock equivalents            7,481      7,745      7,675       7,093
outstanding..................................
                                     ========== ========== =========  =========



















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




                              EXPERT SOFTWARE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

                                                 Nine Months Ended
                                                   September 30,
                                              -------------------------
                                    860999975    1996         1995
                                              ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................  $(10,625)   $   2,406
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
  Depreciation of property and equipment......      881           305
  Amortization of acquired software                 425            22
technology....................................
  Amortization of acquired intangibles........       83            --
  Provision for sales returns and doubtful        5,471         2,047
accounts......................................
  Provision for inventory reserves............    2,920           249
  Loss on impairment of intangibles...........    5,700            --
  Amortization of non-compete agreement.......       --           338
  Deferred income tax benefit.................   (3,472)         (253)
Changes in current assets and liabilities:
  (Increase) decrease in accounts receivable..   (2,783)       (2,599)
  (Increase) decrease in income tax              (1,401)           --
receivable....................................
  (Increase) decrease in inventories..........     (721)         (205)
  (Increase) decrease in prepaid expenses.....     (293)         (492)
  (Increase) decrease in other assets.........       10            (5)
  Increase (decrease) in accounts payable.....     (873)         (241)
  Increase (decrease) in accrued expenses.....    2,316         1,956
  Increase (decrease) in income taxes payable.   (2,144)           --
                                              ------------ ------------
    Net cash (used in) provided by operating     (4,506)        3,528
activities....................................
                                              ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Maturities of marketable securities.........    6,222            --
  Purchases of property and equipment.........     (750)       (1,294)
                                              ------------ ------------
    Net cash provided by (used in) investing      5,472        (1,294)
activities....................................
                                              ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from issuance of common stock..       --        17,955
  Stock options exercised.....................       43            --
  Payment of subordinated debt to unrelated          --          (500)
parties.......................................
  Payment of subordinated debt to related            --        (3,900)
parties.......................................
  Payment of redeemable preferred stock.......       --        (2,200)
  Dividends paid on redeemable preferred             --           (41)
stock.........................................
  Borrowings under capital lease obligations..      102            --
  Payments on capital lease obligations.......     (100)           --
                                              ------------ ------------
    Net cash provided by financing activities.       45        11,314
                                              ------------ ------------

    Net increase in cash and equivalents......    1,010        13,548
CASH AND EQUIVALENTS, beginning of period.....      912         3,553
                                              ------------ ------------
CASH AND EQUIVALENTS, end of period...........  $ 1,922     $  17,101
                                              ============ ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
  Cash paid during the period for interest....  $    27     $     119
                                              ============ ============

  Cash paid during the period for income        $ 2,748     $      78
taxes.........................................
                                              ============ ============

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


<PAGE>


                              EXPERT SOFTWARE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996
                                   (Unaudited)

1.  BASIS OF PRESENTATION

   The condensed  consolidated  balance sheet as of December 31, 1995, which has
been  derived from  audited  financial  statements,  and the  unaudited  interim
condensed  consolidated financial statements included herein, have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain  information and note disclosures  normally included in annual financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted pursuant to those rules and regulations, although
the  Company  believes  that  the  disclosures  made  are  adequate  to make the
information presented not misleading.  These financial statements should be read
in conjunction  with the financial  statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995.

   In the  opinion  of the  Company,  the  accompanying  condensed  consolidated
financial  statements  contain all  adjustments  necessary to present fairly the
financial  position of the Company as of September 30, 1996,  and the results of
operations  and cash flows for the three months and nine months ended  September
30, 1996 and 1995. In addition to the normal recurring  accruals,  as previously
reported, material adjustments were recorded to the financial statements for the
three  months ended June 30,  1996.  As more fully  discussed in Part I, Item 2,
these adjustments  included recognizing a loss from the impairment of intangible
assets,  recording inventory losses, and providing additional allowances against
accounts  receivable for possible future returns from customers and for doubtful
accounts.  Results of operations and cash flows for the period ending  September
30, 1996 are not  necessarily  indicative  of the results of  operations  of the
entire fiscal year.

   The accounting  policies followed for quarterly  financial reporting purposes
are the same as those disclosed in the Company's  audited  financial  statements
for the year ended December 31, 1995, included in the Form 10-K.

2.  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  sells  its  products  directly  to  large  retailers,  as  well  as  to
distributors.

3. INVENTORIES

   Inventories  consisted of the following as of September 30, 1996 and December
31, 1995 (in thousands):

                                       1996       1995
                                      ----------  ----------
        Finished  goods................ $1,097      $2,699
        Raw materials..................    516       1,263
                                      ---------- -----------
                                        $1,613      $3,962
                                      ========== ===========

4. INITIAL PUBLIC OFFERING

   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, was $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.



<PAGE>


5. ACQUISITION AND LEGAL PROCEEDINGS

   In November 1995, the Company acquired all of the outstanding common stock of
Swfte  International,  Ltd.  ("Swfte"),  a developer  and  publisher of consumer
software for the educational and entertainment markets. 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  Company's
consolidated  statements  of  operations.  Swfte  assets  and  liabilities  were
recorded in the accompanying  consolidated  balance sheet at values representing
an allocation of the purchase price.  Approximately  $4.5 million of the initial
purchase price for Swfte was recorded as intangible  assets to be amortized over
two to two and  one-half  years.  During the three months ended June 30, 1996, a
loss on the  impairment of these  intangible  assets was recorded.  See "Loss on
Impairment of Intangibles" under Item 2 below.

   In October 1996,  the Company  settled  litigation  with the former owners of
Swfte and others.  The original dispute  involved the contingent  purchase price
under the Swfte acquisition agreement.  The suit, as well as counterclaims filed
by Expert, were settled and the results for the quarter ended September 30, 1996
include  expenses  of  $1,900,000  for the  settlement  and  related  legal  and
associated costs.



Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.


Results of Operations

   The  following  table sets forth certain  statement of  operations  data as a
percentage of net sales, for comparative purposes, for the periods indicated.


                                                Three Months     Nine Months
                                                   Ended            Ended
                                               September 30,    September 30,
                                              ----------------------------------
                                                1996    1995    1996     1995
                                              ------------------------- --------

      Net sales................................ 100%      100%    100%     100%
                                              ------------------------- --------
      Operating costs and expenses:
        Cost of sales..........................  40        36      58       37
        Marketing and sales....................  36        22      33       22
        General & administrative...............  65        14      38       14
        Development............................  16         7      12        8
        Loss on impairment of intangibles......  --        --      25       --
        Amortization of non- compete agreement.  --        --      --        2
                                                               
                                              ------------------------- --------
                                                157        79     166       82
                                              ------------------------- --------

      Operating income (loss).................. (57)       21     (66)      18
      Other income (expense)...................  --         3      --        1
                                              ------------------------- --------
                                                               

      Income (loss) before provision            (57)       24     (66)      19
      (benefit) for income taxes...............
      Provision (benefit) for income taxes.....  --         7     (19)       6
                                              ------------------------- --------

      Net income (loss)........................ (57)%      17%    (47)      13%
                                              ========================= ========



<PAGE>


General

Results of operations for the periods ended  September 30, 1996 were impacted by
a slowdown of sales at the retail  level  during the second and third  quarters.
Results for the three months ended September 30, 1996 include provisions of $1.9
million  for the  settlement  of the  Swfte  litigation  and  related  legal and
associated costs.

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

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


Comparison of Three Months Ended September 30, 1996 and 1995

Net Sales. Net sales for the three months ended September 30 decreased from $7.1
million in 1995 to $6.0 million in 1996, a decrease of $1.1 million, or 15%. The
Company experienced a drop off of domestic sales in the third quarter of 1996 as
a  result  of  increased  competition,  a  more  pronounced  seasonality  in the
business,  retailers keeping tighter  inventory levels and increased  provisions
for returns.  International  sales increased from 9% of net sales in 1995 to 22%
in  1996  as  the  Company  increased  unit  sales  to  existing   international
distributors,  continued to broaden its  international  efforts by  establishing
relationships with foreign publishers and distributors, and as a result of lower
domestic sales.

Cost of Sales. Cost of sales decreased from $2.6 million in 1995 to $2.4 million
in 1996, a decrease of $0.2 million,  or 6%, due primarily to lower sales volume
and royalties. As a percentage of net sales, cost of sales increased from 36% in
1995 to 40% in 1996, due primarily to increased  provisions  for returns,  which
reduced net sales.  Cost of sales  consists  primarily of product costs (printed
material,  boxes,  disk and CD costs,  assembly and shipping),  freight charges,
reserves  for  excess  and  obsolete  inventories,   and  royalties  to  outside
programmers and content  providers.  The Company expects cost of sales in future
periods will increase over historical  levels due to the change in the estimated
value of products returned from customers discussed above.

Marketing and Sales.  Marketing and sales expense increased from $1.6 million in
1995 to $2.2 million in 1996, an increase of $0.6 million, or 37%, and increased
as a percentage of net sales from 22% of net sales in 1995 to 36% in 1996.  This
increase was primarily  the result of higher  promotional  costs,  and increased
personnel costs. As a result of not meeting sales expectations,  marketing costs
represented  a higher  percentage  of revenues in 1996 than in 1995.  Additional
costs were also incurred to open new sales  channels.  The  Company's  marketing
spending  consists  principally of activities to promote the Company's  products
and brand name,  including  costs to promote and support the  Company's  growing
international sales, personnel and "in-store" promotions. The Company intends to
continue to launch new marketing  promotions and to hire additional personnel as
needed. As a result the Company expects marketing and sales expenses to increase
in dollar amount, but to be lower as a percentage of sales in the future.

General and Administrative. General and administrative ("G&A") expense increased
from $1.0 million in 1995 to $4.0  million in 1996 an increase of $3.0  million,
or  306%,  and  increased  as a  percentage  of  net  sales  from  14%  to  65%,
respectively.  This  increase  was  primarily  due to increased  provisions  for
doubtful accounts,  provisions for settlement and associated legal costs related
to a lawsuit with the former owners of Swfte, increased staff and other expenses
necessary to support the Company's growth,  and increased  facilities costs. The
Company  anticipates  that it will  continue  to incur  risks for  uncollectible
accounts.  The  Company  also  anticipates  that G&A  expenses  for at least the
remainder of 1996 will reflect higher  expenditures for personnel and facilities
costs, as compared to 1995.

Development.  Development  expense  increased  from $0.5 million in 1995 to $1.0
million in 1996,  an  increase  of $0.5  million,  or 97%,  and  increased  as a
percentage of net sales from 7% of net sales in 1995 to 16% in 1996. Development
expense includes  increased  expenses related to product  upgrades,  new product
activities,  quality control and expanded  customer service  support,  including
increased  staffing and other  expenses  associated  with the Swfte  development
activities.  The Company anticipates that development costs will decrease in the
fourth  quarter of 1996 as a result of cost  reductions in personnel,  with less
emphasis on developing product and a return to its traditional publishing model.

Other Income. Other income, which includes interest income and interest expense,
decreased from $196,000 in 1995 to $20,000 in 1996, primarily due to the reduced
balance of interest bearing deposits and investments.

Provision  (Benefit)  for Income  Taxes.  The Company  accounts for income taxes
under SFAS No. 109,  Accounting  for Income Taxes,  which requires that deferred
income  taxes  be  recognized  for the  tax  consequences  in  future  years  of
differences  between the tax basis of assets and liabilities and their financial
reporting  basis at rates  based on  enacted  tax laws and  statutory  tax rates
applicable  to the  periods  in which the  differences  are  expected  to affect
taxable income.  Valuation  allowances are established  when necessary to reduce
deferred tax assets to the amount expected to be realized. No benefit for income
taxes was recorded in 1996 as a valuation  allowance  for deferred tax assets of
an equal amount offsets any such provision.


Comparison of Nine Months Ended September 30, 1996 and 1995

Net Sales. Net sales for the nine months ended September 30 increased from $18.9
million in 1995 to $22.8 million in 1996,  an increase of $3.9 million,  or 21%.
The increase was due  primarily to  increased  units sold.  International  sales
increased  from 10% of net sales to 25% in 1996 as the  Company  increased  unit
sales to  existing  international  distributors  and  continued  to broaden  its
international efforts by establishing  relationships with foreign publishers and
distributors.  The  Company  experienced  a drop off of sales in the  second and
third quarters of 1996 as a result of increased competition and seasonality, and
retailers  keeping tighter  inventory  levels.  As the software industry becomes
more consumer oriented, it could be subject to more seasonality. As a result the
Company  anticipates  a more  pronounced  seasonal  trend to  develop  in future
periods.

Cost of  Sales.  Cost of sales  increased  from  $6.9  million  in 1995 to $13.2
million in 1996,  an  increase  of $6.3  million,  or 90%,  and  increased  as a
percentage  of net  sales  from 37% in 1995 to 58% in 1996.  This  increase  was
primarily  due to increased  sales volume,  a decrease in the value  assigned to
returned goods, and second quarter inventory adjustments.  In the second quarter
of 1996,  the Company  evaluated  the  estimated  inventory  value for  products
returned  from  customers  which  resulted in a $1.4  million  charge to cost of
sales. The Company's valuation principally reflected product development efforts
resulting  in new product  versions,  the return of  slow-moving  products,  and
existing excess quantities of inventory.  Such slow-moving products and products
for  which new  versions  have  been  released  are  difficult  to sell  through
alternative channels.  When the sales objectives were not achieved in the second
quarter,  an  evaluation  of  the  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  which do not have future
sales  benefit  for  the  Company.  The  remaining  $1.4  million  consisted  of
inventories for which on hand quantities  exceeded expected future demand.  Cost
of sales consists primarily of product costs (printed material,  boxes, disk and
CD costs,  assembly  and  shipping),  freight  charges,  reserves for excess and
obsolete inventories and royalties to outside programmers and content providers.

Marketing and Sales.  Marketing and sales expense increased from $4.1 million in
1995 to $7.4 million in 1996, an increase of $3.3 million, or 82%, and increased
as a percentage of net sales from 22% of net sales in 1995 to 33% in 1996.  This
increase  was  primarily  the  result of  higher  advertising  costs,  increased
promotional  costs,  and increased  personnel  costs. As a result of not meeting
sales expectations,  marketing costs represented a higher percentage of revenues
in 1996 than in 1995.  Additional  costs  were also  incurred  to open new sales
channels. The Company's marketing spending consists principally of activities to
promote the Company's  products and brand name,  including  costs to promote and
support the Company's  growing  international  sales,  personnel and  "in-store"
promotions.  The Company intends to continue to launch new marketing  promotions
and to hire  additional  personnel  as needed.  As a result the Company  expects
marketing  and sales  expenses to increase in dollar amount but to be lower as a
percentage of sales in the future.

General and Administrative. General and administrative ("G&A") expense increased
from $2.6 million in 1995 to $8.7  million in 1996 an increase of $6.1  million,
or  231%,  and  increased  as a  percentage  of  net  sales  from  14%  to  38%,
respectively.  This increase was attributable  primarily to increased provisions
for doubtful  accounts,  provisions for  settlement  and associated  legal costs
related to a lawsuit with the former owners of Swfte,  increased staff and other
expenses  necessary to support the Company's  growth,  and increased  facilities
costs. The Company also anticipates that G&A expenses for at least the remainder
of 1996 will reflect higher  expenditures  for personnel and facilities costs as
compared to 1995.

Development.  Development  expense  increased  from $1.5 million in 1995 to $2.7
million in 1996,  an  increase  of $1.2  million,  or 82%,  and  increased  as a
percentage of net sales from 8% of net sales in 1995 to 12% in 1996. Development
expense includes increased expenses principally related to product upgrades, new
product  activities,  quality  control and expanded  customer  service  support,
including  increased  staffing  and  other  expenses  associated  with the Swfte
development activities.

Loss on Impairment of Intangibles.  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  brand name in  certain  card game  software,  the  assembled  workforce
acquired,  and Swfte's customer list. This reevaluation of the intangible assets
was  necessitated  by  management's  determination  based on recent  results  of
operations  that the expected sales and cash flows from the acquired assets will
be substantially lower than had been previously expected.

The  acquired  Swfte  products   originally   projected  to  generate  the  most
significant  sales and cash  flows  are  selling  at  substantially  lower  than
expected  rates.  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 are  discontinuing  certain of these titles and
management determined their expected future sales are minimal.

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

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

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

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

Amortization of Noncompete  Agreement.  Amortization expense decreased from $0.3
million in 1995 to zero in 1996.  In February  1995,  the Company  released Bloc
Development Corporation from the remaining nine month term under the non-compete
agreement as a part of a general settlement of the parties' obligations relating
to the 1992  Acquisition  and, as a result,  the remaining net book value of the
non-compete agreement was expensed in the first quarter of 1995.

Other Income. Other income, which includes interest income and interest expense,
decreased from $246,000 in 1995 to $89,000 in 1996, primarily due to the reduced
balance of interest bearing deposits and investments.

Provision  for Income Taxes.  The  provision  (benefit) for income taxes changed
from a provision of $1.2 million in 1995 to a benefit of $4.3 million in 1996.


Liquidity and Capital Resources

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

   As of September  30, 1996,  the Company had $3.8 million in working  capital,
including  $1.9  million in cash.  To date,  the Company has not invested in any
financial  instruments that involve a high level of complexity or risk. Net cash
used by  operating  activities  was  $4.5  million  for the  nine  months  ended
September 30, 1996,  primarily due to the payment of approximately  $2.7 million
for income taxes related to 1995 and 1996, and increased  investment in accounts
receivable.  Increases in gross accounts receivable were offset by the increases
in  provisions  for returns and  doubtful  accounts  discussed  above.  Net cash
provided by investing activities was $5.5 million, primarily due to the maturity
and sales of certain marketable securities,  offset by purchases of property and
equipment.

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

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.



<PAGE>



Factors Affecting Future Operating Results

   This Form 10-Q  contains  forward-looking  statements  within the  meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
its historical operating results and from those set forth in the forward-looking
statements and may fluctuate between operating periods. Factors that might cause
such a differences and fluctuations include the following:  the size and rate of
growth of the consumer  software market,  consolidation of the software industry
among  both  customers  and  competitors,  market  acceptance  of the  Company's
products and those of its  competitors,  competitors'  marketing  strategies and
promotions, development and promotional expenses relating to the introduction of
new  products,  new  versions of existing  products  or new  operating  systems,
evolving  distribution  channels,  the growth in  popularity of the Internet and
other new  technologies  which could  impact the  distribution  and  purchase of
software,  product  returns,  acquisitions  of new businesses by the Company and
related  charges and  write-offs,  the  collectibility  of accounts  receivable,
changes in pricing policies by the Company and its competitors,  the accuracy of
retailers' forecasts of consumer demand,  competition for retail space, consumer
confidence,  the timing of the receipt of orders from major  customers,  account
cancellations  or delays in  shipment,  future  cash  flow and  working  capital
requirements,  payment of the Company's  obligations under the settlement of the
litigation with the former owners of Swfte,  implementation and expansion of the
Company's systems and operations to accommodate the Company's anticipated future
revenues,  and other factors.  In addition,  the consumer  software  business is
seasonal due primarily to the increased demand for consumer  software during the
year-end holiday buying season. Further, a significant portion of sales within a
quarter is typically not realized  until late in that quarter.  As a result,  it
may be difficult  for the Company to predict its net sales for the quarter or to
quickly adapt its spending  levels within a quarter to reflect changes in demand
for its products.  The market price of the Company's  Common Stock has been, and
in the future will likely be, subject to significant fluctuations in response to
variations  in  quarterly   operating   results  and  other  factors,   such  as
announcements of technological innovations or new products by the Company or its
competitors, or other events.


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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


Item  6. Exhibits and Reports on Form 8-K.

(a)                             Exhibit 10.14.

   Revolving Credit Agreement between the Company and the First National Bank of
   Boston  dated as of May 31, 1996,  as amended on June 30, 1996 and  September
   30, 1996.

(b)                               Exhibit 11.

   Statement regarding computation of earnings per share.

(c)                               Exhibit 27.

   Financial Data Schedule (EDGAR filing only).

(d)                          Reports on Form 8 K.

   Form 8-K was  filed  October  23,  1996,  reporting  settlement  of the Swfte
litigation (See Part II, Item 1).

<PAGE>
                                       1



                                   SIGNATURES

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


                                          Expert Software, Inc.


                                          /s/ Kenneth P. Currier
                                          Kenneth P. Currier,
                                          Chief Executive Officer

                                          /s/ Charles H. Murphy
                                          Charles H. Murphy,
                                          Chief Financial Officer
                                          (Principal Financial and Accounting
Officer)


Dated:  November 14, 1996


<PAGE>



                                                                 Exhibit  11

                              EXPERT SOFTWARE, INC.

                         COMPUTATION OF INCOME PER SHARE
                         (In thousands except per share)




                                    Three Months Ended   Nine Months Ended
                                      September 30,        September 30,
                                    -------------------  -------------------
                                      1996      1995       1996     1995

-------------------------------------
Net income (loss) as reported........$(3,428)   $1,187     $(10,625)$2,406
-------------------------------------

-------------------------------------
Less preferred  stock dividends..........--       --          --       41
                                    -------------------  -------------------

Income applicable to common stock....$(3,428)   $1,187     $(10,625)$2,365
                                    ===================  ===================

Weighted average common stock         7,481     7,145      7,481    6,489
outstanding...............................

Dilutive stock options...................--      600         194      604
                                    -------------------  -------------------

Weighted average number of common
stock and common stock equivalents
for primary earnings per share........7,481     7,745      7,675    7,093
                                    ===================  ===================

Net income per share.................$.(0.46)   $0.15      $(1.38)  $ 0.33
                                    ===================  ===================





   Primary and fully  diluted  net income per share are
   the same for all periods presented.