<PAGE>

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                                 UNITED STATES
                       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 MARCH 31, 1999

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

                       Commission File Number: 000-26100

                               ----------------
                              DISCREET LOGIC INC.
             (Exact name of registrant as specified in its charter)

                 Quebec                                 98-0150790
    (State or other jurisdiction of                  (I.R.S. employer
     incorporation or organization)                 Identification No.)

      10 Duke St., Montreal, Quebec,                      H3C 2L7
                 Canada                                 (Zip Code)
      (Address of principal executive
                offices)

       Registrant's telephone number, including area code: (514) 393-1616

                               ----------------
          Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
Title
 of
each               Name of each exchange
class               on which registered
-----              ---------------------
<S>    <C>
None                        None
</TABLE>

          Securities registered pursuant to Section 12(g) of the Act:

                   Class E voting common shares, no par value

                 Class F non-voting common shares, no par value

           Exchangeable non-voting shares, par value $15.08 per share

                                (Title of Class)

                               ----------------
   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 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. [X]

   The capital stock of the Registrant is not publicly traded.

   As of June 28, 1999, the Registrant had outstanding 100 Class A voting
common shares, no par value, 100 Class C non-voting preferred shares, no par
value, 150,000 Class D non-voting preferred shares, no par value, 24,496,905
Class E voting common shares, no par value, 24,496,905 Class F non-voting
common shares and 1,813,604 Exchangeable non-voting shares, par value $15.08
per share.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Certain parts of the following documents are incorporated by reference to
Part IV of this report: (i) the Joint Proxy Statement/Prospectus on Form S-4 of
Autodesk, Inc., a Delaware corporation ("Autodesk"), the former Discreet Logic
Inc., a Quebec Company ("Old Discreet"), 9066-9771 Quebec Inc., a Quebec
company and an indirect wholly owned subsidiary of Autodesk ("Amalgamation
Sub"), and 9066-9854 Quebec Inc., a Quebec company and an indirect wholly owned
subsidiary of Autodesk ("Autodesk Quebec"), filed on September 30, 1998, as
amended on November 13, 1998, November 25, 1998 and February 5, 1999
(Registration No. 333-65075), (ii) the Current Report on Form 8-K of Autodesk
filed on March 16, 1999 (File No. 000-14338) and (iii) the Annual Report on
Form 10-K of Discreet for the fiscal year ended June 30, 1998 filed on
September 28, 1998, as amended on October 29, 1998 and February 4, 1999 (File
No. 000-26100). Old Discreet, Amalgamation Sub and Autodesk Quebec are
predecessor entities of the Registrant. See Part I, Item 1, "Business--
General."

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<PAGE>

                                     PART I
                          FORWARD-LOOKING INFORMATION

   The forward-looking statements included in this report, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
the forward-looking statements included herein as a result of a number of
factors, including but not limited to those discussed in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 1. BUSINESS

General

   On March 16, 1999, pursuant to the terms of the Second Amended and Restated
Agreement and Plan of Acquisition and Amalgamation dated as of November 18,
1998, as amended on December 18, 1998 and on January 18, 1999 (the "Acquisition
Agreement"), by and among Autodesk, Autodesk Development, B.V., a Netherlands
corporation and an indirect wholly-owned subsidiary of Autodesk ("Dutchco"),
Amalgamation Sub, Autodesk Quebec, Autodesk Canada Inc., an Ontario company and
an indirect wholly-owned subsidiary of Autodesk, ("ACI"), and Old Discreet,
Dutchco acquired all voting shares of Discreet Logic Inc., a Quebec company,
and the successor company to Old Discreet resulting from the Amalgamation (as
defined below) ("Discreet") by way of an amalgamation under the Companies Act
of Quebec of Old Discreet, Amalgamation Sub and Autodesk Quebec (the
"Amalgamation") and certain related transactions described below (together with
the Amalgamation, the "Acquisition"). As a result of the Acquisition, Discreet
became an indirect subsidiary of Autodesk. Shortly prior to the Amalgamation,
substantially all of the assets of ACI were assigned to Autodesk Quebec as part
of a corporate reorganization. Upon the Amalgamation, such assets were assumed
by Discreet.

   Pursuant to the Acquisition Agreement, an aggregate of approximately 10
million shares of Autodesk common stock, par value $0.01 per share (the
"Autodesk Common Stock"), and Discreet shares exchangeable for Autodesk Common
Stock ("Exchangeable Shares"), were issued in exchange for all common shares of
Old Discreet, no par value per share (the "Old Discreet Common Shares"), issued
and outstanding immediately prior to the Amalgamation. Each Old Discreet Common
Share outstanding immediately prior to the Amalgamation was converted, through
a series of steps and at the election of its holder, into either
(i) 0.33 shares of Autodesk Common Stock, or (ii) 0.33 Exchangeable Shares. In
addition, Autodesk assumed all Old Discreet stock options outstanding
immediately prior to the Amalgamation granted under Old Discreet's Amended and
Restated 1994 Restricted Stock and Stock Option Plan, Non-Employee Director
Stock Option Plan, and 1997 Special Limited Non-Employee Director Stock Plan as
well as all outstanding purchase rights under Old Discreet's Employee Stock
Purchase Plan, and these options and rights were converted into options and
rights to acquire Autodesk Common Stock with appropriate adjustments to the
number of shares and exercise price thereof based on the 0.33 exchange ratio.

   The Exchangeable Shares are not publicly traded and Discreet has no business
or other operations independent of Autodesk's. Each Exchangeable Share has
voting and economic rights that are substantially similar to one share of
Autodesk Common Stock. Holders of Exchangeable Shares may not transfer such
Shares. Exchangeable Shares may be exchanged at the election of the holder for
one share of Autodesk Common Stock at any time on or prior to March 16, 2010.

   As a result of the Acquisition, Discreet is obligated to file this report
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Discreet's reporting obligations under the Exchange Act
will terminate with the filing of this report.

                                       2
<PAGE>

   In addition to the information contained in this report, investors
interested in obtaining information about Autodesk and Discreet should refer to
the reports, proxy statements and other information filed by Autodesk with the
Securities Exchange Commission (the "Commission") pursuant to the Exchange Act.
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Website is http://www.sec.gov, Autodesk
Common Stock is quoted on the Nasdaq National Market under the symbol "ADSK."
Reports, proxy and information statements and other information concerning
Autodesk and Discreet may be inspected at The Nasdaq Stock Market at 1735 K
Street, N.W., Washington, D.C. 20006.

Business Overview and Recent Developments

   Discreet Logic Inc. ("Discreet" or the "Company") develops, assembles,
markets and supports non-linear, on-line digital systems and software for
creating, editing and compositing imagery and special effects for film, video,
HDTV, broadcast and the Web. Discreet's systems and software are utilized by
creative professionals for a variety of applications, including feature films,
television programs, commercials, music and corporate videos, interactive game
production, live broadcasting, as well as Web design. Discreet's systems have
played key roles in the creation of special visual effects for films such as
Armageddon, Titanic, Forrest Gump, Independence Day, The Fifth Element, Batman
& Robin, Contact and Air Force One; television programs and special events such
as ABC's on-air broadcast of the 1998 US congressional elections; Fox's Sunday
Night Football shows as well as their Super Bowl XXXIII broadcast; ABC's "World
News Tonight with Peter Jennings"; music videos by artists including U2, REM,
Rolling Stones and The Beatles; and commercials for clients such as Nike,
Pepsi, AT&T and McDonald's. Discreet has recently been recognized by the
Academy of Motion Picture Arts and Sciences with a Scientific and Engineering
Award for flame* and inferno*. Discreet believes that creative professionals
and designers require tools that simplify their work, enabling them to devote
more time to creative activities and less time to technical tasks.

   Discreet offers turnkey systems for high end post production and broadcast
facilities focused towards three markets: special effects, editing and
broadcast production (its "Advanced Systems"). Discreet's Advanced Systems are
comprised of proprietary software utilizing workstations manufactured by
Silicon Graphics, Inc. ("SGI"), scalable disk arrays and other peripherals.
These can be networked together to enable users to manage data more efficiently
and collaborate in an integrated production environment. Discreet's systems
include its inferno*, flame*, and flint* systems (special effects), its fire*
and smoke* systems (editing), and its frost* system (broadcast production).
Discreet's special effects and editing Advanced Systems are used to manipulate
digital media in an on-line, real-time environment, providing instant feedback
to the creative professional. These systems are currently or are currently
being designed to be resolution independent and to allow users to work on
uncompressed images from a variety of media sources in the full range of
resolutions necessary for film, video and HDTV. In the broadcast production
market, Discreet offers its frost* system, a set of modeling, animation and
rendering tools for the creation and manipulation of 3D environments, including
virtual sets, for broadcast companies. Discreet sells its Advanced Systems
worldwide through a direct sales force as well as through high-end,
sophisticated distributors.

   Discreet also offers editing and special effects software products, which
serve the new media market place. These products run on the Microsoft Windows
NT and the Apple Macintosh operating systems. The new media market is
characterized by institutional and educational customers, designers, and
prosumers (professional consumer). Discreet's desktop or new media software
(its "New Media Software") products include its edit* software (formerly D-
Vision OnLine) (video editing), its effect* software (formerly Illuminaire
Composition) (special effects), its paint* software (formerly Illuminaire
Paint) (special effects), and its light* software (also known as Lightscape)
(radiosity).

                                       3
<PAGE>

Discreet's New Media Software is primarily used to create, manipulate, and
finish computer graphics images, interactive and on-line content. effect*
provides 3D video composition, clip animation, and visual effects enabling
artists to combine, enhance and modify video frames or sequences of frames with
a very high level of efficiency and interactivity. paint* is a vector-based,
object-oriented painting and animation system for the manipulation and
enhancement of both multi-frame clips and single-frame graphic images. edit* is
a real-time, non-linear, compressed editing software solution that performs
compositing, keying and visual effects on the desktop. light* is a 3D rendering
solution that uses advanced radiosity techniques to enhance realism and
lighting accuracy in 3D environments created for virtual sets, film and video
effects, interactive games and architectural design projects.

   In addition to the new media market noted above, Discreet also offers a
number of other design software products that are geared towards the
Architecture, Engineering, and Construction ("AEC") market; the Mechanical
Computer-Aided Design ("CAD") market; and the Personal Solutions Group ("PSG")
market. AEC software is used to automate every phase of a building's life
cycle-from conceptual design through construction, maintenance, and renovation.
The Mechanical CAD market is dedicated to providing mechanical engineers,
designers, and drafters with software solutions that are designed to solve
their professional design challenges. The PSG market is dedicated to providing
tools for professionals, occasional users and consumers who draft, diagram and
draw. Prior to the Amalgamation, these were substantially all of ACI's product
offerings.

   Discreet's goal is to become a leading supplier of digital tools used to
manipulate still and moving pictures to the high-end professional, post-
production and broadcast markets, the desktop or new media market, and the
consumer markets. To achieve this goal, Discreet plans to further expand and
leverage its technology base, customer relationships and existing reputation,
extend its product line to include other aspects of the content creation
process, and expand its worldwide sales and distribution organization.

Recent Developments

 Sale of Subsidiaries

   On May 3, 1999, Discreet transferred eight of its direct and indirect
subsidiaries to Autodesk. These subsidiaries included Bandit Communications,
Inc. ("Bandit"), and, as a consequence, Bandit's three subsidiaries Discreet
Logic USA, Inc., Discreet Logic Investment Inc., and Discreet Logic Research,
Inc., Lightscape Technologies, Inc. ("Lightscape") and, as a consequence,
Lightscape's subsidiary Lightscape Graphics, Inc., D-Vision Systems Inc., and
Discreet Logic (Desktop) Inc. Discreet's operations continue to include
activities related to the operations of the aforementioned subsidiaries which
are now owned directly or indirectly by Autodesk, Discreet's ultimate parent
company.

                                       4
<PAGE>

Products

   The following table sets forth the Discreet products, their market, the date
of first shipment by Discreet, and their platform or operating system.

<TABLE>
<CAPTION>
                                                          Date of First
                                                           Shipment by
               Product                      Market          Discreet    Platform/Operating System
 ----------------------------------- -------------------- ------------- -------------------------
 <C>                                 <C>                  <C>           <S>
 Advanced Systems
 inferno*........................... Special effects      October 1995   SGI Onyx2/Unix
 flame*............................. Special effects      January 1993   SGI Octane/Unix
 flint*............................. Special effects      December 1993  SGI Octane/Unix
 effect*............................ Special effects      December 1993  SGI O2/Unix
 fire*.............................. Editing              October 1996   SGI Onyx2/Unix
 smoke*............................. Editing              October 1997   SGI Octane/Unix
 frost* (includes product                                                SGI Onyx2 and SGI
  formerly sold as Vapor)........... Broadcast Production October 1995   Octane/Unix
 New Media Software
 effect* (formerly Illuminaire                                           Microsoft NT and Apple
  Composition)...................... Special effects      June 1997      Macintosh
 paint* (formerly Illuminaire                                            Microsoft NT and Apple
  Paint)............................ Special effects      June 1997      Macintosh
 edit* (formerly D-Vision OnLine)... Editing              July 1997      Microsoft NT
 light* (also known as Lightscape).. Radiosity            December 1997  Microsoft NT
 3D Studio MAX...................... Animation            April 1996     Microsoft Windows and NT
 Design Software
 AutoCAD............................ General purpose CAD  May 1983       Microsoft Windows and NT
 Mechanical Desktop................. MCAD                 March 1996     Microsoft Windows and NT
</TABLE>

Advanced Systems

   Discreet's systems are designed to be intuitive and easy to use. Discreet's
systems provide the speed and operational flexibility demanded by the
professional film and video industries. The systems use a consistent interface
through which operations are controlled via on-screen menus (which users can
organize to fit their preferences) and a pressure-sensitive stylus. Discreet's
systems include a sparks* developers kit, which allows customers to integrate
their own proprietary software or third party software into Discreet's systems'
environments. Discreet's systems also offer comprehensive image input/output
("I/O") functions, allowing image or object data to be captured and exchanged
between workstations in a studio environment in a variety of formats. For sites
with multiple systems, work generated on other platforms can be imported and
placed directly onto Discreet's systems' local disk array for integration into
the current production. In addition, Discreet's image files can be transferred
among local disk arrays. For example, if a user prepares a production on an
effect* system, the user can transfer video or film data to the flame* or
inferno* systems or video data to the fire* system, for finishing with the
client. The flexible systems architecture can result in different system
configurations and enables clients to differentiate themselves from their
competitors by allowing them to customize their systems.

 Special Effects Systems

   flame*. flame* is an on-line, resolution-independent, non-linear,
uncompressed digital system. The system is used by creative professionals to
create, edit and composite special visual effects in an on-line, real-time
environment. Easily integrated into a suite environment and possessing the
power and features necessary to serve as the core of a fully digital suite,
flame* is designed to allow the operator to create desired effects with near
instantaneous feedback. A complete flame* system includes the flame* software,
an SGI Octane workstation, Discreet Storage and various I/O devices.

                                       5
<PAGE>

   inferno*. inferno* is an on-line, non-linear, resolution-independent,
uncompressed digital system providing all the features of flame* with film
tools, and increased image resolution and color control for digital film and
HDTV work. The system also features tools for grain management, wire and
scratch removal and colour calibration. A complete inferno* system includes the
inferno* software, an SGI Onyx2 workstation, Discreet Storage and various I/O
devices.

   flint*. flint* is a resolution-independent, non-linear, uncompressed digital
system used by creative professionals to create, edit and composite special
visual effects. flint* provides 3D video composition, clip animation, and
visual effects enabling artists to combine, enhance and modify video frames or
sequences of frames with a high level of efficiency and interactivity. A
complete flint* system includes the flint* software, an SGI Octane workstation,
Discreet Storage (formerly stone*) and various I/O devices.

   effect*. effect* is a resolution-independent, non-linear, uncompressed
digital system used by creative professionals to create, edit and composite
special visual effects. effect* provides 3D video composition, clip animation,
and visual effects enabling artists to combine, enhance and modify video frames
or sequences of frames with a high level of efficiency and interactivity. A
complete effect* system includes the effect* software, an SGI O2 workstation,
Discreet Storage and various I/O devices.

 Editing Systems

   fire*. fire* is an uncompressed, on-line, non-linear, digital video editing
system with special effects capabilities. fire* includes a sophisticated
toolset and a gestural, picture-based editing interface, which Discreet
believes specifically address the new and expanding requirements needed for on-
line finishing. Discreet recently released a resolution independent (including
HDTV resolution) fire* system. A complete fire* system includes the fire*
software, an SGI Onyx2 workstation, Discreet Storage and various I/O devices.

   smoke*. smoke*, like fire*, is an uncompressed, on-line, non-linear, digital
video editing system with more limited special effects capabilities. smoke*
uses the same gestural, picture-based editing interface as fire*. The primary
difference in the two systems is the greater speed of interactivity and
processing of fire* as well as greater special effects capabilities than those
of smoke*. A complete smoke* system includes the smoke* software, an SGI Octane
workstation, Discreet Storage and various I/O devices.

 Broadcast Production Systems

   frost*. frost* is a computer-based set of modeling, animation and rendering
tools for the creation and manipulation of 3D graphics, including virtual sets,
for broadcast. Virtual sets are computer generated locales typically used for
news, sports and entertainment programming. frost* is designed to operate on
the SGI Onyx2 or SGI Octane workstation and allows the user to work completely
in real-time or through a combination of real-time and post-produced
components.

System Components

 The Workstation

   inferno*, fire*, and frost* run on SGI Onyx2 workstations, typically
configured with four or eight processors. flame*, flint*, smoke* and frost* run
on the SGI Octane workstation. effect* and frost* run on the SGI O2
workstation. The SGI hardware platforms are scaleable and upgradeable (within
the same machine) to fit the price and performance criteria of the customer.
Each system can be connected to other Discreet systems and to numerous third
party software, systems and devices.

                                       6
<PAGE>

 Storage

   Discreet offers Discreet Storage (formerly stone*), a disk-based storage
system for use with its video and high-performance film and HDTV applications,
which is targeted at the production, post-production and broadcast markets.
Discreet Storage, is designed to allow real-time playback of uncompressed video
frames in any order, efficiently store any mix of resolutions and ensure image
integrity by remaining operational in the event of disk or power supply
failure. A disk array is comprised of a number of disks working co-operatively
to handle high speed data flows. flame*, inferno*, fire*, smoke*, flint*, and
frost* must be used with Discreet Storage.

 Networking

   Discreet offers Discreet Networking (formerly wire*), a high-performance
transport system for digital film and video for use with multiple Discreet
Storage disk arrays. Discreet Networking builds on Discreet's disk technology
and is designed, if the network provides sufficient bandwidth, to provide real-
time CCIR-601 instant access to images located on a disk anywhere within a
post-production facility. Discreet Networking can be configured as a
centralized or distributed network, or both.

 I/O

   Third party video tape recorders can be controlled with flame*, inferno*,
fire*, flint*, effect* and smoke*'s stylus and tablet. I/O edits can be
implemented sequentially using the EDL capabilities of the flame*, inferno*,
fire* and smoke* systems. Other third party devices, such as film scanners and
recorders, can also be used with Discreet systems for HDTV and film transfers.

New Media Software

   Discreet also offers software-only solutions which run on the Windows NT and
the Apple Macintosh platforms. These software solutions are part of Discreet's
strategy to expand the range of creative professionals served by Discreet and
to extend its product line to include other aspects of the content creation
process. Discreet's New Media Software is primarily used to create, manipulate,
and finish computer graphics images, interactive and on-line content.

Special Effects Software

   effect*. Discreet offers two versions of its effect* software: effect* on
the SGI O2 workstation (see above) and effect* on the Apple Macintosh and
Microsoft Windows NT operating systems (formerly Illuminaire Composition).
effect* is a resolution-independent, non-linear, uncompressed digital system
used by creative professionals to create, edit and composite special visual
effects. effect* provides 3D video composition, clip animation, and visual
effects enabling artists to combine, enhance and modify video frames or
sequences of frames with a very high level of efficiency and interactivity.
Discreet acquired the Illuminaire product line as part of Discreet's
acquisition of substantially all of the assets of Denim Software L.L.C.
("Denim") in June 1997 (the "Denim Acquisition").

   paint* (formerly Illuminaire Paint). paint* is an Apple Macintosh and
Microsoft Windows NT-based paint software for effects, interactive content and
graphic design creation. paint* is resolution-independent, vector-based,
object-oriented painting, rotoscoping, and animation system for the
manipulation and enhancement of both multi-frame clips and single-frame graphic
images. Discreet acquired the Illuminaire product line as part of the Denim
Acquisition.

 Editing Software

   edit* (formerly D-Vision OnLine). edit* is a real-time non-linear,
compressed editing software solution which performs compositing, keying and
visual effects on the desktop and runs on the Microsoft Windows NT operating
system. Discreet acquired edit* as part of the acquisition of all the
outstanding shares of capital stock of D-Vision Systems, Inc. ("D-Vision") in
July 1997 (the "D-Vision Acquisition").

                                       7
<PAGE>

 Radiosity Software

   light* (also known as Lightscape). light* is a 3D rendering solution that
uses advanced radiosity techniques to significantly enhance realism and
lighting accuracy in 3D environments created for virtual sets, film and video
effects, interactive games and architectural design projects. light* runs on
the Microsoft Windows NT operating system. Discreet acquired light* as part of
the acquisition of all the outstanding shares of capital stock of Lightscape
Technologies, Inc. in December 1997 (the "Lightscape Acquisition").

 Animation Software

   3D Studio MAX. 3D Studio MAX R2 software, which began shipping in the third
quarter ended October 31, 1997, is a 3D modeling and animation software package
specifically written to take advantage of advanced features offered by the
Windows NT operating system. With a real-time interface, multiple-processor
support, and 3D graphics acceleration capabilities, 3D Studio MAX delivers
workstation-class performance and functionality to PCs.

   The intuitive interface eliminates many of the commonly accepted boundaries
between modeling, rendering, and animation, and offers instant feedback; users
can see the results of their actions in real time, as they are applied. Shaded
views with real-time feedback allow users to visualize natural, real-world
environments in which they can directly manipulate objects, regardless of scene
complexity. Because 3D Studio MAX software maintains a data history of geometry
creation and modification, users can return to and change any step, at any
time, without having to redo prior work. 3D Studio MAX is also the only
environment that can run Character Studio(R), a powerful character-animation
and skinning plug-in software product offered by the ultimate parent company,
Autodesk, Inc.

Design Software

   AutoCAD. AutoCAD software is a general-purpose CAD tool used independently
and in conjunction with specific applications designed to work with AutoCAD in
fields ranging from architecture and mechanical design to plant design and
mapping. Professionals utilize AutoCAD for design, modeling, drafting, mapping,
rendering, and management tasks. AutoCAD runs on Microsoft Windows 95, Windows
98, and Windows NT for Intel. AutoCAD has historically represented a
significant percentage of Autodesk's total revenues.

   The most recent version, AutoCAD 2000 was introduced in March 1999. Built
for speed and efficiency, AutoCAD 2000 includes enhancements in areas that most
influence productivity, including: precision drawing tools such as AutoSnap,
data-sharing features like raster image and reference file clipping,
photorealistic rendering, solid fills, and TrueType fonts.

   AutoCAD software's open-system architecture allows users to adapt AutoCAD to
unique professional requirements with any of more than 5,000 independently
developed add-on applications. Many of these applications are based on
ObjectARX technology, a new generation of C++-based application programming
interfaces ("APIs"). ObjectARX-based applications utilize AutoCAD software's
object-oriented capabilities.

   Mechanical Desktop. Mechanical Desktop software is an integrated software
application that unites advanced 2D and 3D mechanical design capabilities for
PCs. Mechanical Desktop contains integrated modules for fully parametric
feature-based solid modeling, surface modeling, and assembly modeling; 2D
design/drafting and bi-directional associative drafting; as well as a built-in
Autodesk IGES Translator, which enables users to accurately exchange IGES
(Initial Graphics Exchange Specification) data with other systems. Mechanical
Desktop Release 3.0, which was released in August 1998, includes numerous
performance enhancements. Individual Face Drafting, Parting Line Definition,
Part Splitting, Face Splitting, 3D Helical Sweep, 3D Lofting, Feature
Suppression, Global Design Variables, Sketch Editing, new Balloon, Bill of
Material, and Part List Functionality and Drafting Standards Support, are among
the advanced features included in the latest release of Mechanical Desktop
software.

                                       8
<PAGE>

Customers

   Discreet's Advanced Systems are sold primarily to film and video production,
post-production, and broadcast companies. Discreet's New Media Software
products are sold in these markets as well as to institutional and educational
customers, designers, and professional consumers. Discreet's Design Software
products are sold primarily through resellers to engineers, designers,
drafters, and architects.

   In fiscal years 1997, 1998, and 1999, revenues from services provided on
behalf of Autodesk accounted for approximately 44%, 38%, and 31% of total
revenues. No customer accounted for 10% or more of the Company's total revenues
in the two-month period ended March 31, 1999.

Marketing and Sales

   Marketing Strategy. Discreet markets its Advanced Systems products primarily
to production and post-production companies in the film, video, and broadcast
industries. Discreet's principal marketing strategy has been to create
awareness of its systems and software through appearances at major
international computer graphics and broadcasting tradeshows, such as NAB, ACM
SIGGRAPH (U.S.), International Broadcasters Convention ("IBC") (Europe),
INTERBEE (Japan) and Montreaux (Europe). Discreet has supported this marketing
strategy with direct-mail advertising and advertisements in trade publications.
In addition, Discreet believes that the high quality of computer images
generated using its products results in significant industry awareness. With
permission from its customers, Discreet creates promotional materials utilizing
content created using Discreet's products.

   Discreet markets its New Media Software products primarily through direct
mail advertising, advertising in trade publications, seminars and roadshows, as
well as at both international and local tradeshows. In addition, Discreet
provides co-operative advertising funding to a number of its distributors who
locally advertise its products. As Discreet broadens the markets for these
products, Discreet intends to expand its marketing efforts accordingly.

   Discreet sells its Design Software products through two primary channels.
The first one is through distributors and resellers (value-added resellers or
"VARs") who distribute Discreet's products to end users. The second one is the
Premier account channel in which Discreet sells directly to the end user under
a volume license agreement. These end users have to meet certain volume
commitment criteria annually in order to qualify under this program. Authorized
resellers play a supporting role in these sales and provide all the post sale
support.

   Sales and Distribution. In North America, sales activities are conducted
from Discreet's Montreal headquarters, sales offices in Markham, Burnaby, Los
Angeles, Chicago and New York and field representatives based in Boston, San
Francisco, and Atlanta. In markets outside of North America, sales activities
are conducted from sales offices located in the United Kingdom, Spain, France,
Germany, Japan, Singapore, India, Hong Kong, and Brazil. Discreet's
headquarters and each of its sales offices have sales and demonstration
capabilities. Distributors and resellers may sell Advanced Systems products,
New Media Software products, or both. Generally, customers purchasing
Discreet's products and/or peripherals from the distributors will also purchase
the workstation hardware from the distributors. Discreet currently has
distribution relationships with over 340 distributors and resellers in over 80
countries. As of April 30, 1999, Discreet employed 66 Advanced Systems, 24 New
Media Software, and 20 Design Software sales, sales support and demonstration
personnel worldwide.

   Discreet's Advanced Systems products are sold through its direct sales
organization in its primary markets. In the United States, Discreet maintains a
direct sales presence in its primary markets including New York, Chicago and
Los Angeles. Outside of the United States, Discreet maintains a direct sales
presence in its primary markets, including London, Paris, Munich, Singapore and
Tokyo. In geographic areas generally not

                                       9
<PAGE>

served by Discreet's direct sales organization, Discreet's Advanced Systems
products are sold through high-end distributors and resellers, who are managed
by Discreet's sales managers. Discreet's strategy of marketing its products
directly to customers and indirectly through distributors may result in
distribution channel conflicts as Discreet's direct sales efforts may compete
with those of its indirect channels. Some of these distributors or resellers
may receive a finder's fee for customer system purchases from Discreet's direct
sales organization.

   Discreet's New Media and other design software products are sold through
distributors and resellers.

   Reseller Arrangements. Discreet is a master value added reseller ("VAR") of
SGI workstations. There are significant risks associated with this reliance on
SGI and Discreet may be impacted by the timing of the development and release
of products by SGI. In addition, Discreet has faced and may in the future face
unforeseen difficulties associated with adapting Discreet's products to future
SGI products. In May 1994, Discreet entered into a Value-Added Reseller
Agreement with SGI. The agreement grants to Discreet a non-exclusive right to
purchase and license certain hardware products from SGI, including the SGI
Onyx2, Octane, and O2 workstations for remarketing by Discreet in the United
States. Although the agreement contains no minimum purchase requirements, the
volume of systems purchased from SGI affects the percentage discount received
by Discreet. The agreement is subject to annual renewal in May of each year and
may be terminated by SGI for cause. The agreement with SGI has been extended
through July 31, 1999 and Discreet has no reason to believe that SGI will not
renew such agreement. Discreet also acts as a reseller and systems integrator
of certain peripheral devices used in Discreet's systems, including audio and
video I/O cards and electronic tablets. Discreet receives discounts for the
purchase price of these products. See "--Manufacturing and Suppliers."

   Backlog. Discreet has no significant backlog and does not believe that its
backlog at any particular point in time is indicative of future sales levels.

Systems Integration, Service and Support

   Discreet provides its customers with a variety of systems integration,
support and training services including on-site and telephone support, and in-
house and on-site training in the use of Discreet's products. These services
are generally provided under separately priced arrangements with Discreet's
customers. In some markets, these services are provided by Discreet's
distributors who are compensated for such services directly by the customer.
Discreet maintains a staff of persons dedicated to training its distributors in
the performance of these services. Discreet believes that its focus on customer
service provides it with important information about the evolving needs of its
customers.

   Discreet supports its customers in North and South America from Discreet's
Montreal and other North American offices, and through its distributors.
Customers in Europe and the Pacific Rim are supported from the offices of
Discreet's European and Asian subsidiaries and by distributors.

Research and Development

   Discreet's research and product development efforts are focused on the
continued enhancement of its Advanced Systems and its New Media Software
products and the development of new products. Discreet employs a modular
development approach which it believes allows it to bring innovative technology
to market more rapidly than traditional analog or proprietary hardware-based
digital solutions and enables it to take advantage of advances in general
purpose workstation technology as they become available. Discreet intends to
continue to enhance and upgrade these products on a regular basis.

   The markets for Discreet's systems and software are characterized by
evolving industry standards, changing technologies and frequent new product
introductions. Discreet believes that its future success will depend in part on
its ability to enhance its existing systems and software and to develop and
introduce new

                                       10
<PAGE>

products and features which meet changing customer requirements and emerging
industry standards on a timely basis. In addition, as a master VAR of SGI
workstations, Discreet obtains certain advance access to SGI technology, which
facilitates its efforts to develop compatible systems and to modify and improve
existing products. If Discreet were unable to obtain such advance access, it
could have an adverse impact on Discreet's business and results of operations.

   On March 4, 1998, Discreet entered into a Strategic Development Agreement
with Intel Corporation to develop a new high-end special effects product.
Discreet plans to develop new visual effects software for demanding real-time
compositing and image processing functions. The software will be designed to
run on multi-processor workstations based on the IA-64 processors and is
expected to deliver powerful performance capabilities for the visual effects
industry. Intel will provide access to IA-64 technology, aid in optimization of
the software, and design components of Merced processor-based workstations to
run the software optimally.

Proprietary Rights

   Discreet's success is dependent upon its proprietary technology. Discreet
relies principally on unregistered copyrights and trade secrets to protect its
intellectual property. Discreet generally seeks to enter into confidentiality
agreements with its employees and license agreements with its distributors and
to limit access to and distribution of its systems, software, documentation,
and other proprietary information. Prior to July 1996, substantially all of
Discreet's systems were sold without written license agreements. If Discreet
were to engage in litigation with respect to such licenses in order to protect
its intellectual property rights to the licensed systems, Discreet's business,
financial condition, and results of operations might be seriously harmed as a
result of litigation expenses and any judgement unfavorable to Discreet.
Discreet licenses its New Media Software products under "shrink-wrap" licenses
(i.e., licenses included as part of the product packaging). Shrink-wrap
licenses are not negotiated with or signed by individual licensees, and purport
to take effect upon the opening of the product package. Certain provisions of
such licenses, including provisions protecting against unauthorized use,
copying, transfer, and disclosure of the licensed program, may be unenforceable
under the laws of many jurisdictions.

   Discreet uses both software and hardware keys with respect to its systems
and software but otherwise does not copy-protect its systems and software. It
may be possible for unauthorized third parties to copy Discreet's products or
to reverse engineer or obtain and use information that Discreet regards as
proprietary. Discreet's competitors may independently develop technologies that
are substantially equivalent or superior to Discreet's technologies. In
addition, the laws of certain countries in which Discreet's products are or may
be distributed do not protect Discreet's products and intellectual property
rights to the same extent as the laws of Canada or the United States. As the
number of software products in the industry increases and the functionality of
these products further overlaps, Discreet believes that software products
generally may increasingly become the subject of claims that such software
products infringe the rights of others.

   Any claims against Discreet, whether they are with or without merit, may be
time-consuming, result in costly litigation and diversion of technical and
management personnel or require Discreet to develop non-infringing technology.
If a claim is successful, Discreet may be required to obtain a license or
royalty agreement under the intellectual property rights of those parties
claiming the infringement. If Discreet is unable to obtain such license or
royalty agreement, Discreet may be unable to market and sell its products.
Limitations on Discreet's ability to market and sell its products and delays
and costs associated with monetary damages and redesigns in compliance with an
adverse judgment or settlement could harm Discreet's business, financial
condition and results of operation.

Manufacturing and Suppliers

   Discreet has historically relied on third-party vendors to manufacture and
supply all of the hardware components used in Discreet's systems. Manufacturing
at Discreet consists of assembly (including disk array assembly), testing, and
value added systems integration.

                                       11
<PAGE>

   Discreet's flame*, effect*, inferno*, flint*, fire*, smoke* and frost*
software currently run on workstations manufactured by SGI. There are
significant risks associated with this reliance on SGI and Discreet may be
impacted by the timing of the development and release of products by SGI. In
addition, there may be unforeseen difficulties associated with adapting
Discreet's products to future SGI products. Discreet is an authorized master
VAR of workstations manufactured by SGI. Discreet's agreement with SGI is
subject to annual renewal in May of each year and termination by SGI for cause.
The agreement with SGI has been extended through July 31, 1999 and Discreet has
no reason to believe that SGI will not renew such agreement. In addition,
although Discreet has no reason to believe that it will be unable to obtain
sufficient quantities of SGI workstations on a timely basis or that its status
as a master VAR will be changed, Discreet may not continue to be able to
procure such workstations in sufficient quantities on a timely basis or that
SGI will continue to recognize Discreet as a master VAR. The success of
Discreet also depends, in part, on the continued market acceptance of SGI
workstations, in general, and by the professional film and video industries, in
particular. Although Discreet intends to continue to evaluate new hardware
platforms and may adapt its products as technological advances and market
demands dictate, and although Discreet has now entered the market for content
creation software which runs on the Apple Macintosh and Windows NT operating
systems, Discreet believes that it will continue to derive substantially all of
its revenue for the foreseeable future from the sale and maintenance of systems
designed to include SGI workstations. As a result, financial, market and other
developments adversely affecting SGI or the sales of workstations, the
introduction or acquisition by SGI of products which are competitive with those
of Discreet, or the unanticipated timing or pricing of SGI products that could
cause customers to defer the decision to buy or determine not to buy Discreet's
then available products or systems, could have an adverse effect upon
Discreet's business and results of operations. As a master VAR, Discreet also
obtains certain advance access to SGI technology in order to develop compatible
systems and to modify and improve existing products. If Discreet were unable to
obtain such advance access, it could have an adverse impact on Discreet's
business and results of operations.

   Discreet is dependent on SGI as Discreet's sole source for video I/O cards
used in Discreet's systems. Discreet also purchases electronic tablets
manufactured by Wacom Technology Corporation and believes that, while
alternative suppliers are available, alternative electronic tablets may not be
functionally equivalent or be available on a timely basis or on similar terms.
Discreet generally purchases sole source or other components pursuant to
purchase orders placed from time to time in the ordinary course of business and
has no written agreements or guaranteed supply arrangements with its sole
source suppliers. Discreet has experienced quality control problems and supply
shortages for sole source components in the past and Discreet may experience
significant quality control problems or supply shortages for these components
in the future. Discreet does not maintain an extensive inventory of these
components, and an interruption in supply could have a material adverse effect
on Discreet's business and results of operations. Because of Discreet's
reliance on these vendors, Discreet may also be subject to increases in
component costs, which could adversely affect Discreet's business and results
of operations.

Competition

   The market in which Discreet competes is characterized by intense
competition. In the high-end of the special effects market, Discreet's flame*
system competes with Quantel Limited's ("Quantel") Henry product. In certain
applications in the non-real-time segment of the market, Discreet's effect* on
the SGI O2 workstation competes with Avid Technology, Inc.'s ("Avid") Illusion
product. Discreet's inferno* system competes with Quantel's Domino product.
Discreet's fire* and smoke* systems competes with Quantel's Editbox product and
Sony Corporation's ("Sony") range of proprietary editing equipment. In
addition, the products gained from the Denim Acquisition and the D-Vision
Acquisition compete with Adobe Systems Incorporated's ("Adobe") special effects
products and Avid's and Media 100 Inc.'s ("Media 100") range of editing
products. Discreet's other design software products compete with companies such
as Bentley Systems, Inc.; Computervision Corporation (a subsidiary of
Parametric Technology Corporation); CADAM Systems Company, Inc.; Diehl
Graphsoft, Inc.; EaglePoint Software; International Microcomputer Software,
Inc.; Intergraph Corporation; Nemetschek Systems, Inc.; Visio Corporation;
Visionary Design Systems; Hewlett-

                                       12
<PAGE>

Packard Corporation; Parametric Technology Corporation; Structural Dynamics
Research Corporation; Unigraphics; Dassault Systemes ("Dassault"); SolidWorks
Corporation (a subsidiary of Dassault); Baystate Technologies, Inc.; think3;
Macromedia, Inc.; Silicon Graphics, Inc.; Micrografx Inc.; and others. Many of
Discreet's current and prospective competitors, including Quantel, Avid, Sony,
and Adobe, have greater financial, technical, manufacturing and marketing
resources than Discreet. Moreover, these companies may introduce additional
products that are competitive with those of Discreet, and Discreet's products
may not compete effectively with such products. In addition, as personal
computers become more powerful, software suppliers may be able to introduce
products for personal computers that would be competitive with Discreet's
products in terms of performance and price for professional users.

   Discreet believes that its ability to compete depends on elements both
within and outside its control, including the success and timing of new product
development and introduction by Discreet and its competitors, product
performance and price, distribution and customer support. Discreet may not be
able to compete successfully with respect to these factors. Although Discreet
believes that it has certain technological and other advantages over its
competitors, maintaining such advantages will require continued investment by
Discreet in research and development, sales and marketing and customer service
and support. Discreet may not have sufficient resources to make such
investments or Discreet may not be able to make the technological advances
necessary to maintain such competitive advantages. In addition, as Discreet
enters new markets, distribution channels, technical requirements, and levels
and bases of competition may be different from those in Discreet's current
markets. As a result, Discreet may not be able to compete favorably in these
markets. Furthermore, competitive pressures or other factors, including
Discreet's entry into new markets, may result in significant price erosion that
could have a material adverse effect on Discreet's business, financial
condition, and results of operations.

Employees

   As of April 30, 1999, Discreet had 454 full-time employees. Of such
employees, 162 were employed in research and development, 90 in sales, 26 in
marketing, 84 in customer support, 13 in manufacturing, 53 in administration
and finance, and 26 in the Canadian operations of Autodesk. Discreet believes
that its future success will depend in large part upon its ability to attract
and retain highly skilled technical, management and sales and marketing
personnel. Moreover, because the development and marketing of Discreet's
Advanced Systems New Media, and other design software requires knowledge of
film and video production and post-production, key technical personnel must be
proficient in a number of disciplines. Competition for such technical personnel
is intense, and the failure of Discreet to hire and retain talented technical
personnel or the loss of one or more key employees could have an adverse effect
on Discreet's business and results of operations. Discreet's employees are not
represented by a labor union, and Discreet considers its employee relations to
be good. In addition, the Company may experience increased compensation costs
to attract and retain skilled personnel.

ITEM 2. PROPERTIES

   Discreet's headquarters and offices related to product development, domestic
marketing and sales, and production are located in leased office space in
Montreal, Canada. The Company also leases office space in various locations
throughout Canada for local sales, development, and technical support
personnel.

   Discreet's foreign subsidiaries lease office space for their operations. In
August 1995, Old Discreet purchased an approximately 10,000 square foot office
building in London, England for use as a sales facility for approximately
(Pounds)1,148,000 (or approximately $1,858,000). In the eleven-month period
ended June 30, 1997, the carrying value of the London building was written down
to its estimated fair market value and the building was classified as assets
held for resale. In May 1999, Discreet sold the London building for net
proceeds of (Pounds)2,946,000 (or approximately $4,770,000) recognizing a gain
of (Pounds)319,000 (or approximately $516,000).

   Discreet believes that its existing facilities and offices are adequate to
meet its requirements for the foreseeable future.

                                       13
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

   On June 2, 1998, Old Discreet was named as a defendant in a breach of
warranty action filed in the Supreme Court of the State of New York for the
County of New York entitled Griffith & Tekushan, Inc. v. Discreet Logic, Inc.
(Index No. 602684/98) (the "Action"). The complaint alleges, among other
things, that the Company breached certain warranties arising out of a software
licensing agreement and seeks damages of $1 million. On July 10, 1998, the
Action was removed from state court to the United States District Court for the
Southern District of New York (Case No. 98 Civ. 4909 (BSJ)) (the "U.S. District
Court"). On July 17, 1998, the Company, which succeeded Old Discreet as the
defendant in the Action filed a motion to dismiss the Action in its entirety.
On May 28, 1999, the U.S. District Court entered an order dismissing the Action
without prejudice based on plaintiff's request for voluntary dismissal. Though
the Company intends to contest this case vigorously if plaintiff files a new
complaint against the Company, the ultimate outcome of the case cannot be
predicted at this time.

   On August 28, 1998, a complaint was filed in the Marin County, California,
Superior Court, entitled [Jerry Krim, on Behalf of Himself and All Others
Similarly Situated, v. Discreet Logic Inc., et al.,] case No. 174792 (the "Krim
Complaint"). The lawsuit names as defendants Old Discreet, Old Discreet's
directors and certain unidentified "John Does." The Krim Complaint alleged that
the defendants breached their fiduciary duties to Old Discreet's shareholders
in connection with the Acquisition. The Krim Complaint asked the court to
enjoin the consummation of the Acquisition or, alternatively, sought to rescind
the Acquisition or an award of unspecified damages from the defendants in the
event the Acquisition were consummated. The Company believes the claims
asserted in the complaint are without merit and intends to vigorously contest
them.

   On September 29, 1998, a second complaint was filed in the Marin County,
California, Superior Court (the "Superior Court"), entitled William Clark, et
al. v. Discreet Logic Inc., et al., case No. 175037 (the "Clark Complaint").
The Clark Complaint was substantially similar to the Krim Complaint and named
as defendants the Company, certain of the Company's directors and certain
unidentified "John Does." The Clark Complaint alleged that the defendants
breached their fiduciary duties to Old Discreet's shareholders in connection
with the Acquisition. The Clark Complaint asks the court to enjoin the
consummation of the transaction or, alternatively, seeks to rescind the
transaction or an award of unspecified damages from the defendants in the event
the transaction is consummated. The Company believes the claims asserted in the
complaint are without merit and intends to vigorously contest them.

   On December 2, 1998, the Superior Court entered an order consolidating the
Clark and Krim actions. On December 11, 1998, the Superior Court entered an
order on Old Discreet's October 26, 1998 motions to dismiss. The order
dismissed both the Krim and the Clark Complaints as against Old Discreet for
failing to state a claim against Old Discreet. The Superior Court's order
granted plaintiffs a 30-day leave to replead their complaints. On January 11,
1999, plaintiffs filed a consolidated amended complaint with the Superior Court
(the "Amended Complaint") which asserts the same breach of fiduciary duty cause
of action against Old Discreet, certain of the Old Discreet's directors and
certain unidentified "John Does," and seeks the same relief.

   On April, 9, 1999, the Superior Court entered an order denying Old
Discreet's and certain of the individual defendants' motions to dismiss the
Amended Complaint on the grounds of inconvenient forum and certain of the
individual defendants' motions to dismiss for lack of personal jurisdiction. On
April, 16, 1999, the Company, which succeeded Old Discreet as a defendant in
the action filed a demurrer (a motion to dismiss the Amended Complaint) for
failure to state a claim as against Old Discreet. On April 26, 1999, certain of
the individual defendants filed a petition for writ of mandate with the
California Court of Appeal (the "Court of Appeal"), appealing the Superior
Court's April 9, 1999 order as to them. On May 26, 1999, the Court of Appeal
issued an Alternative Writ of Mandate, directing the Superior Court, by June
30, 1999, to reverse its April 9, 1999 denial of certain of the individual
defendants' motions to dismiss on personal jurisdiction grounds or show cause
why it has not done so. On June 16, 1999, the Superior Court entered an order
sustaining the Company's demurrer to the Amended Complaint, dismissing the
Company from the action without leave to amend. On June 18, 1999, the Superior
Court entered an order reversing the April 9, 1999 order and granting certain
of the individual defendants' motions to dismiss for lack of personal
jurisdiction.

                                       14
<PAGE>

   The Company believes the claims asserted in the Amended Complaint are
without merit and intends to vigorously contest them.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   During the period from March 16, 1999 to March 31, 1999, no matters were
submitted to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Market information

   There is no established public trading market for any of Discreet's
outstanding equity securities.

Dividends

   To date, Discreet has not declared or paid dividends on its capital stock.

Record Holders

   As of June 28, 1999, the approximate number of record holders of each class
of common equity of Discreet was as follows:

<TABLE>
<CAPTION>
   Class of Common Equity                                      Number of Holders
   ----------------------                                      -----------------
   <S>                                                         <C>
   Class A voting common shares, no par value.................          1
   Class E voting common shares, no par value.................          1
   Class F non-voting common shares, no par value.............          1
</TABLE>

   In addition, as of June 28, 1999, there were 20 record holders of
Exchangeable Shares, which are non-voting shares with a par value of $15.08 per
share. Each Exchangeable Share may be exchanged for one share of Autodesk
Common Stock.

Recent Sales of Unregistered Securities

   On or immediately after the Amalgamation, Discreet issued and sold 100 of
its Class A voting common shares, no par value, to Dutchco in exchange for all
100 issued and outstanding shares of Amalgamation Sub.

   On or immediately after the Amalgamation, Discreet issued and sold 100 of
its Class C non-voting preferred shares, no par value, to ACI in exchange for
all 100 issued and outstanding shares of Autodesk Quebec.

   Immediately after the Acquisition and pursuant to pre-existing binding
obligations, Discreet issued 150,000 Class D non-voting preferred shares, no
par value, in payment of a portion of the fees incurred by a predecessor of
Discreet in connection with the Acquisition. 112,500 of such shares were issued
to Piper Jaffray Inc., financial advisor to Autodesk and ACI in connection with
the Acquisition, and the remaining 37,500 shares were issued to Aird & Berlis,
Canadian legal counsel to Autodesk, Dutchco and ACI.

   The offers, sales and issuances of the above securities were deemed to be
exempt from registration under the Securities Act of 1933, as amended, in
reliance on Section 4(2) of the Securities Act, or Regulation D promulgated
thereunder. The recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof. All recipients
had adequate access, through their relationships with Discreet, to information
about Discreet.


                                       15
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

   The following selected financial data presents certain financial highlights
of Discreet. This financial information has been summarized from Discreet's
consolidated financial statements prepared under the basis of presentation as
described in Notes 1 and 2 of those statements.

<TABLE>
<CAPTION>
                               Two months         Year ended January 31,
                                 ended      -----------------------------------
                             March 31, 1999  1999    1998   1997   1996   1995
                             -------------- ------- ------ ------ ------ ------
                              (In thousands, except share and per share data)
<S>                          <C>            <C>     <C>    <C>    <C>    <C>
For the Period
  Total revenues............  $    10,195   $11,419 $8,951 $7,524 $7,545 $5,986
  Income from operations....        2,024     1,469  1,416    619    752    506
  Net income................        1,104       751    685    261    381    276
At Period End
  Total assets..............      120,507     4,730  3,831  1,776  1,390  1,387
  Long-term liabilities.....        2,097       --     --     --     --     --
Common Stock Data
  Basic net income per
   share....................  $      0.09   $   751 $  685 $  261 $  381 $  276
  Diluted net income per
   share....................  $      0.09   $   751 $  685 $  261 $  381 $  276
  Shares used in computing
   basic net income per
   share....................   12,917,166         1      1      1      1      1
  Shares used in computing
   diluted net income per
   share....................   12,917,166         1      1      1      1      1
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

   The discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains trend analyses and other 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. All statements,
trend analyses, and other information contained herein relative to markets for
Discreet's products and trends in revenues, as well as other statements
including such words as "anticipate," "believe," "plan," "estimate," "expect,"
"goal," and "intend" and other similar expressions, constitute forward-looking
statements. These forward-looking statements are subject to business and
economic risks, and Discreet's actual results could differ materially from
those set forth in the forward-looking statements.

General

   On March 16, 1999, pursuant to the Acquisition Agreement, by and among
Autodesk, Dutchco, Amalgamation Sub, Autodesk Quebec, ACI and Old Discreet,
Dutchco acquired all voting shares of Discreet by way of the Acquisition. As a
result of the Acquisition, Discreet became an indirect subsidiary of Autodesk.
Shortly prior to the Amalgamation (pursuant to which Old Discreet, Amalgamation
Sub and Autodesk Quebec were amalgamated to form Discreet), substantially all
of the assets of ACI were assigned to Autodesk Quebec. Upon the Amalgamation,
such assets were assumed by Discreet. Discreet adopted a fiscal year end of
March 31st.


   The financial statements included in this report include the consolidated
results of operations, financial position, and cash flows of ACI for the years
ended January 31, 1997, 1998 and 1999. For the two-month period ended March 31,
1999, the financial statements include the consolidated results of operations
of ACI for the period from February 1st until the Amalgamation on March 16,
1999 and the results of operations of Old Discreet, Autodesk Quebec and
Amalgamation Sub for the period after the Amalgamation, of these entities under
common control, from March 16, 1999 through March 31, 1999. As a result,
changes in operations from January 31, 1999 through March 31, 1999 are largely
a result of adding the results of operations of Old

                                       16
<PAGE>

Discreet, which were not included in the January 31, 1999, 1998, or 1997
amounts. Consequently, the results of the two months ended March 31, 1999 are
not comparable to any of the preceding periods reported. The related balance
sheets as of March 31, 1999 include the accounts of the Company and its
subsidiaries. All subsidiaries are wholly owned as of March 31, 1999.


Results of Operations

   The following table sets forth, as a percentage of net revenues,
consolidated statement of operations data for the periods indicated. These
operating results are not necessarily indicative of results for any future
periods.

<TABLE>
<CAPTION>
                                                    Two months   Year ended
                                                      ended     January 31,
                                                    March 31,  ----------------
                                                       1999    1999  1998  1997
                                                    ---------- ----  ----  ----
<S>                                                 <C>        <C>   <C>   <C>
  Product revenues.................................     95%     69%   62%   56%
  Service revenues.................................      5      31    38    44
                                                       ---     ---   ---   ---
    Total revenues.................................    100     100   100   100
                                                       ---     ---   ---   ---
  Cost of product revenues.........................     47      57    49    47
  Cost of service revenues.........................      4      28    34    40
                                                       ---     ---   ---   ---
    Total cost of revenues.........................     51      85    83    87
                                                       ---     ---   ---   ---
  Sales and marketing..............................     19       2     1     5
  Research and development.........................      5     --    --    --
  General and administrative.......................      5     --    --    --
                                                       ---     ---   ---   ---
    Total operating expenses.......................     29       2     1     5
                                                       ---     ---   ---   ---
    Operating income...............................     20      13    16     8
  Other income (expense)...........................     (3)    --     (1)  --
                                                       ---     ---   ---   ---
    Income before income taxes.....................     17      13    15     8
  Provision for income taxes.......................      6       6     7     5
                                                       ---     ---   ---   ---
    Net income.....................................     11%      7%    8%    3%
                                                       ===     ===   ===   ===
</TABLE>

Year ended January 31, 1999 compared to year ended January 31, 1998 and year
 ended January 31, 1998 compared to year ended January 31, 1997

 Product revenues

   Discreet's product revenues for the year ended January 31, 1999 were $7,876
thousand, which represented a 41 percent increase from the year ended January
31, 1998 product revenues of $5,587 thousand. The increased revenues resulted
primarily from increased license revenues from new and upgrade product
offerings from the Company's market groups. Product revenues in the year ended
January 31, 1998 increased 32 percent from the $4,245 thousand posted in the
year ended January 31, 1997, primarily due to higher sales of AutoCAD software
and significant growth in ACI's market group revenues.

 Service Revenues

   The Company provides services on behalf of Autodesk, its ultimate parent
company. These services are charged back under a cost-plus arrangement and
recognized as revenues. For the year ended January 31, 1999 service revenues
were $3,543 thousand, which represented an increase of 5 percent from the year
ended January 31, 1998 service revenues of $3,364 thousand. The increase is
largely due to increases in advertising and promotional services provided
related to the launch of certain new and enhanced products introduced by the
Company during the year ended January 31, 1999. Service revenues increased
slightly from $3,279 thousand in fiscal year 1997 to $3,364 thousand in the
year ended January 31, 1998 (an increase of 3 percent).


                                       17
<PAGE>

 Cost of product revenues

   Cost of product revenues are based on an inter-company transfer price with
Autodesk. This transfer price has been unchanged from 1997 to 1999. When
expressed as a percentage of product revenues, cost of product revenues
increased approximately 4 percent in the year ended January 31, 1999 as
compared to the year ended January 31, 1998 and decreased approximately 5
percent in the year ended January 31, 1998 from the year ended January 31,
1997. These fluctuations in cost of revenues are a result of price changes on
the associated product sales.

 Cost of service revenues

   Cost of service revenues represent the cost of services provided on behalf
of Autodesk. When expressed as a percentage of service revenues, cost of
service revenues has remained constant at 91% of service revenues from 1997 to
1999.

 Sales and marketing

   Sales and marketing expenses include salaries, sales commissions, travel,
and facility costs for the Company's marketing, sales, dealer training, and
support personnel. These expenses also include programs aimed at increasing
revenues, such as advertising, trade shows, and expositions, as well as various
sales and promotional programs designed for specific sales channels and end
users. When expressed as a percentage of total revenues, sales and marketing
expenses increased from 1 percent in fiscal year 1998 to 2 percent in the year
ended January 31, 1999. The increase in spending was largely due to higher
employee costs and increases in advertising and promotional costs associated
with the launch of certain new and enhanced products introduced by the
Company's market groups during the year ended January 31, 1999. For the year
ended January 31, 1998 sales and marketing expenses decreased 4 percent over
the year ended January 31, 1997 expenses. The Company expects to continue to
invest in sales and marketing of its products, to develop market opportunities,
and to promote the Company's competitive position. Accordingly, the Company
expects sales and marketing expenses to continue to be significant, both in
absolute dollars and as a percentage of net revenues.

 Provision for income taxes

   The Company's effective income tax rate was 47.8 percent in fiscal year 1999
compared to 49.1 percent and 58.2 percent in fiscal years 1998 and 1997,
respectively. The decrease in the effective income tax rates in fiscal years
1999 and 1998 compared to fiscal year 1997 was due to the decrease of items
deducted for accounting purposes but not benefitted for tax purposes, in
comparison to the increase in the Company's total revenues and expenditures.
See Note 11 to the consolidated financial statements for an analysis of the
differences between the Canadian federal statutory and effective income tax
rates.

 Recent Accounting Pronouncements

   In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position (SOP) 98-4, which amends certain
provisions of SOP 97-2. The Company believes it is in compliance with the
provisions of SOP 97-2 as amended by SOP 98-4. In December 1998, the AICPA
issued Statement of Position 98-9 ("SOP 98-9"), which amends certain provisions
of SOP 97-2 and extends the deferral of the application of certain passages of
SOP 97-2 provided by SOP 98-4 until the beginning of the Company's fiscal year
2001. The Company does not expect the adoption of this standard to have a
material effect on its consolidated operating results or financial position.

   In June 1998, the Financial Accounting Standards Board "FASB" issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the

                                       18
<PAGE>

values of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. SFAS 133 will be
effective for the Company's fiscal year ending March 31, 2002. The Company does
not expect the adoption of this standard to have a material effect on its
consolidated operating results or financial position.

 Year 2000

   The Company has made preliminary assessments of its products and information
systems and has determined that they are Year 2000 compliant, or that only a
limited effort will be required to achieve compliance. Discreet is currently
proceeding with detailed reviews of every application used. It is expected that
some will have to be upgraded to Year 2000 compliant applications. Some
Discreet products run on platforms, or work with peripherals that are currently
not Year 2000 compliant. Accordingly, it is expected that some customers may
experience some difficulties related to non Discreet products, which may affect
the performance of Discreet products and, therefore, lead to an unusually high
number of calls to the Company's technical support department. Discreet
anticipates that the costs related to the detailed assessments, application
upgrades, and responding to the increased volume of support calls will not be
material to its results of operations, liquidity and capital resources.
Although management does not expect Year 2000 issues to have a material impact
on its business or future results of operations, there can be no assurance that
the potential problems described above, related to the platforms and
peripherals on and with which Discreet's products operate, will be resolved in
a timely manner, and that the Company will not experience significant costs or
delays in developing versions of its products that are compatible with Year
2000 compliant versions of these platforms and peripherals.

Liquidity and Capital Resources

   Cash totaled $2,943 thousand at January 31, 1999, compared to $1,640
thousand at January 31, 1998. The $1,303 thousand increase in cash was due
primarily to cash generated from operations ($1,418 thousand). This increase
was offset by cash used to purchase fixed assets ($43 thousand) and the effect
of exchange rate changes on cash ($73 thousand).

   The Company's principal commitments at March 31, 1999, consisted of
obligations under operating leases for facilities. For additional information,
see Note 12 to the consolidated financial statements. The Company believes that
its existing cash, and cash generated from operations will be sufficient to
satisfy its currently anticipated cash requirements for fiscal year 2000.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

   Not Applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The Company's Financial Statements and Schedules, together with the
auditors' reports thereon, appear at pages F-1 through F-50 and S-1 through
S-4, respectively, of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

   Not applicable.

                                       19
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Occupations of Directors and Executive Officers

   The following table sets forth the directors and the executive officers of
Discreet, their ages and the positions currently held by each such person with
Discreet.

<TABLE>
<CAPTION>
                    Name                Age               Position
                    ----                ---               --------
      <S>                               <C> <C>
      Eric B. Herr.....................  51        Director and President
      Steve Cakebread..................  47 Director and Chief Financial Officer
      Marcia K. Sterling...............  55        Director and Secretary
</TABLE>

   These directors and executive officers have held office since the
Amalgamation. The directors, subject to the provisions of the Quebec Act, will
manage the business and affairs of the Company.

   Eric B. Herr has been a director and the President of Discreet since the
Amalgamation. In addition, he has been Autodesk's President and Chief Operating
Officer since September 1996, having also served as the Acting Vice President,
AEC Market Group, from September 1996 through March 1997. Mr. Herr served as
the Chief Financial Officer from the time he joined Autodesk in May 1992 until
September 1996. From December 1992 through January 1995, Mr. Herr served as
Vice President, Emerging Businesses. From January 1995 to May 1995, Mr. Herr
served as Vice President, Finance and Administration.

   Steve Cakebread has been a director and the Chief Financial Officer of
Discreet since the Amalgamation. Mr. Cakebread joined Autodesk in April 1997 as
Vice President and Chief Financial Officer. From April 1993 through March 1997,
he served as Vice President, Finance World Trade Corporation at Silicon
Graphics. He held various finance and general management positions at Hewlett-
Packard from January 1972 through March 1993.

   Marcia K. Sterling has been a director and the Secretary of Discreet since
the Amalgamation. She joined Autodesk in October 1995 as Vice President,
Business Development and General Counsel. From September 1982 to October 1995,
she practiced corporate and securities law at Wilson Sonsini Goodrich & Rosati,
where she was a member.

ITEM 11. EXECUTIVE COMPENSATION

Compensation and Other Information Concerning Directors and Officers

 Executive Compensation Summary

   Discreet's directors and officers are not compensated for their services to
the Company.

 Option Grants in Last Fiscal Year / Aggregate Option Exercises in Last Fiscal
 Year and Fiscal Year-End Values

   No Discreet stock options have been granted to and/or exercised by any
directors or officers.

Employment Agreements and Severance Arrangements

   There are no employment agreements or severance arrangements with any of the
executive officers or directors of Discreet.


                                       20
<PAGE>

Compensation Committee Interlocks and Insider Participation

   Discreet does not have a compensation committee.

Compensation of Directors

   The directors of Discreet do not receive compensation for their service as
members of the Board of Directors.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners and Management of Discreet

   Autodesk Development B.V., a Netherlands corporation and indirect wholly-
owned subsidiary of Autodesk, is the sole beneficial owner of the voting
securities, no par value, of Discreet, which shares are not publicly traded.

   None of the executive officers or directors of Discreet beneficially owns
any Discreet equity securities.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   In fiscal years 1997, 1998, and 1999, revenues from services provided on
behalf of Autodesk accounted for approximately 44%, 38%, and 31% of total
revenues.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

   (a) The following documents are filed as a part of this Report:

  1. Financial Statements of Discreet Logic Inc. and Subsidiaries:

       Consolidated Statements of Operations--Years Ended January 31, 1997,
       1998, and 1999, and the two months ended March 31, 1999

       Consolidated Balance Sheets--January 31, 1998, 1999 and March 31,
       1999

       Consolidated Statements of Cash Flows--Years Ended January 31, 1997,
       1998, and 1999, and the two months ended March 31, 1999

       Consolidated Statement of Shareholders' Equity--Years Ended January
       31, 1997, 1998 and 1999 and the two months ended March 31, 1999

       Notes to Consolidated Financial Statements

       Report of Arthur Andersen & Cie., Independent Public Accountants

  2. Financial Statement Schedule: The following financial statement schedule
     of Discreet Logic, Inc., for the years ended January 31, 1997, 1998, and
     1999, and the two months ended March 31, 1999, is filed as part of this
     Report and should be read in conjunction with the Consolidated Financial
     Statements of Discreet Logic, Inc.

<TABLE>
      <S>                                                                    <C>
       Schedule II--Valuation and Qualifying Accounts....................... S-1
</TABLE>

    Schedules not listed above have been omitted because they are not
    applicable or are not required or the information required to be set
    forth therein is included in the Consolidated Financial Statements or
    Notes thereto.


                                      21
<PAGE>

  3. Financial Statements of Discreet Logic, Inc. and Subsidiaries (Old
     Discreet)

       Consolidated Statements of Operations--Eleven months ended June 30,
       1997, year ended June 30, 1998 and the period from July 1, 1998 to
       March 16, 1999

       Consolidated Balance Sheets--June 30, 1998 and March 16, 1999

       Consolidated Statements of Cash Flows--Eleven months ended June 30,
       1997, year ended June 30, 1998 and the period from July 1, 1998 to
       March 16, 1999

       Consolidated Statement of Shareholders' Equity--Eleven months ended
       June 30, 1997, year ended June 30, 1998 and the period from July 1,
       1998 to March 16, 1999

       Notes to Consolidated Financial Statements

       Report of Arthur Andersen & Cie., Independent Public Accountants

  4. Financial Statement Schedule: The following financial statement schedule
     of Discreet Logic, Inc. ("Old Discreet") and subsidiaries, for the
     fiscal years ended June 30, 1997, 1998, and the period from July 1, 1998
     to March 16, 1999.

<TABLE>
       <S>                                                                   <C>
       Schedule II--Valuation and Qualifying Accounts....................... S-4
</TABLE>

     Schedules not listed above have been omitted because they are not
     applicable or are not required or the information required to be set
     forth therein is included in the Consolidated Financial Statements or
     Notes thereto.


  5. Exhibits: The Exhibits listed on the accompanying Index to Exhibits
     immediately following the financial statement schedules are filed as
     part of, or incorporated by reference into, this Report.

<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------
 <C>         <S>
   2.1 (1)   Second Amended and Restated Agreement and Plan of Acquisition and
             Amalgamation by and among Autodesk, Inc., Autodesk Development
             B.V., 9066-9771 Quebec Inc., Autodesk Canada Inc., 9066-9854
             Quebec Inc. and Discreet Logic Inc., dated as of November 18,
             1998, as amended on December 18, 1998 and January 18, 1999.
   2.2 (1)   Second Amended and Restated Amalgamation Agreement by and among
             Discreet Logic Inc., 9066-9854 Quebec Inc., 9066-9771 Quebec Inc.
             and Autodesk, Inc. dated as of January 18, 1999.
   3.1 (2)   Articles of Amalgamation filed with the Inspector General of
             Financial Institutions of the Province of Quebec pursuant to
             Section 123.118 of the Companies Act of Quebec.
   3.4       Bylaws of Registrant.
   9.1       Voting and Exchange Trust Agreement dated March 16, 1999 among
             Autodesk, Inc., the Registrant, Autodesk Development B.V., and
             Montreal Trust Company of Canada.
  10.1       Support Agreement by and among Autodesk, Inc., Autodesk
             Development B.V. and the Registrant dated as of March 16, 1999.
  10.8(3)    Silicon Graphics, Inc. Value-Added Reseller Agreement, dated May
             9, 1994, by and between the Company and Silicon Graphics, Inc.


  10.16(3)   Letter Agreement of Amendment, dated July 22, 1997, by and between
             Old Discreet Logic Inc. and Banque Nationale de Paris (Canada).
  10.19(3)   Land Transfer Agreement, dated August 25, 1995, by and between Old
             Discreet and Safeland PLC.
  10.30      Silicon Graphics, Inc. Value-Added Reseller Agreement Extension
             dated June 16, 1999, by and between the Registrant and Silicon
             Graphics, Inc.
  21.1       Subsidiaries of the Registrant.
</TABLE>

                                       22
<PAGE>


<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------

 <C>         <S>
    24.1     Power of Attorney (included on the signature page of this Report
             on Form 10-K).

    27.1     Financial Data Schedule.

    27.2     Financial Data Schedule.

    (1)      Incorporated by reference to the appendix filed with Autodesk,
             Inc.'s Discreet Logic Inc.'s, 9066-9771 Quebec Inc.'s and 9066-
             9854 Quebec Inc.'s Joint Proxy Statement/Prospectus on Form S-4
             filed on September 30, 1998, as amended on November 13, 1998,
             November 25, 1998 and February 5, 1999 (Registration No. 333-
             9771).

    (2)      Incorporated by reference to the exhibit filed with Autodesk,
             Inc.'s Current Report on Form 8-K filed on March 31, 1999 (File
             No. 000-14338).

    (3)      Incorporated by reference to the exhibit filed with Discreet Logic
             Inc.'s Annual Report on Form 10-K for the fiscal year ended June
             30, 1998 filed on September 28, 1998, as amended on October 29,
             1998 and February 4, 1999 (File No. 000-26100).
</TABLE>

                                       23
<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.

                                          Discreet Logic Inc.

                                                    /s/ Eric B. Herr
                                          By:__________________________________
                                                       Eric B. Herr
                                                  President and Director

   Dated: June 28, 1999

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS, that Eric B. Herr and Steve Cakebread,
whose signatures appear below, constitute and appoint Marcia K. Sterling as
their attorney-in-fact, with the power of substitution, for them in any and all
capacities, to sign any amendments to this report, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or her substitute or substitutes, may do or cause to be
done by virtue hereof.

   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 and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
             Signature                           Title                    Date
             ---------                           -----                    ----
<S>                                  <C>                           <C>
        /s/ Eric B. Herr             President and Director           June 28, 1999
____________________________________ (Principal Executive Officer)
           Eric B. Herr

       /s/ Steve Cakebread           Chief Financial Officer and      June 28, 1999
____________________________________ Director
         Steve Cakebread             (Principal Financial and
                                     Accounting Officer)

     /s/ Marcia K. Sterling          Secretary and Director           June 28, 1999
____________________________________
        Marcia K. Sterling
</TABLE>

                                       24
<PAGE>

                  REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS

To Discreet Logic Inc.:

   We have audited the accompanying consolidated balance sheets of Discreet
Logic Inc. (a Quebec corporation) and subsidiaries (See Note 1 to the
Consolidated Financial Statements) as at January 31, 1998 and 1999 and March
31, 1999, and the related consolidated statements of operations, shareholders'
equity and cash flows, for the years ended January 31, 1997, 1998 and 1999 and
for the two-month period ended March 31, 1999. 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 in Canada, which are in substantial agreement with those in the
United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Discreet Logic Inc. and subsidiaries as at January 31, 1998 and 1999, and
March 31, 1999, and the results of their operations and their cash flows for
the years ended January 31, 1997, 1998 and 1999, and for the two-month period
ended March 31, 1999, in accordance with generally accepted accounting
principles in the United States of America.

                                          ARTHUR ANDERSEN & CIE
                                          Chartered Accountants
                                          General Partnership

Montreal, Canada
June 23, 1999

                                      F-1
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
           (amounts in thousands of U.S. Dollars, except share data)

<TABLE>
<CAPTION>
                                             January 31, January 31, March 31,
                                                1998        1999       1999
                   ASSETS                    ----------- ----------- ---------
<S>                                          <C>         <C>         <C>
Current Assets:
  Cash and cash equivalents.................   $ 1,640     $ 2,943   $  52,616
  Accounts receivable (less reserves for
   uncollectible accounts of $41, $99, and
   $3,484, respectively)....................       830       1,291      13,737
  Related party receivable..................     1,338         435         977
  Inventory--
     Resale.................................       --          --        8,512
     Demonstration..........................       --          --        6,895
  Income taxes receivable...................       --          --          418
  Other current assets......................         2           2       6,138
                                               -------     -------   ---------
                                                 3,810       4,671      89,293
Property and equipment--less accumulated
 depreciation and amortization..............        21          31       8,682
Deferred income taxes.......................       --           28         728
Other assets................................       --          --       17,554
Assets held for resale......................       --          --        4,250
                                               -------     -------   ---------
                                               $ 3,831     $ 4,730   $ 120,507
                                               =======     =======   =========
    LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Borrowings under line of credit...........   $   --      $   --    $   1,847
  Accounts payable..........................       279         410      22,445
  Related party payable.....................       977         841       2,099
  Accrued expenses..........................       299         383      11,795
  Deferred revenue..........................       169         441       7,866
  Customer deposits.........................       --          --          309
  Income taxes payable......................       327         198       3,228
                                               -------     -------   ---------
                                                 2,051       2,273      49,589
                                               -------     -------   ---------
Deferred income taxes.......................       --          --        2,097
                                               -------     -------   ---------
Commitments and Contingencies (Notes 5, 12,
 and 14)
Shareholders' Equity:
  Preferred shares--
   Class C: no par value; authorized-
    unlimited; issued and outstanding-0, 0,
    100 shares, respectively................       --          --            1
   Class D: no par value; authorized-150,000
    shares; issued and outstanding-0, 0,
    150,000 shares, respectively............       --          --           71
                                               -------     -------   ---------
                                                   --          --           72
                                               -------     -------   ---------
  Common shares--
   Class A: no par value; authorized-
    unlimited; issued and outstanding-0, 0,
    and 100 shares, respectively............       --          --            1
   Class B: no par value; authorized-
    unlimited; issued and outstanding-0, 0,
    and 0 shares, respectively..............       --          --          --
   Class E: no par value; authorized-
    unlimited; issued and outstanding-0, 0,
    and 24,496,905 shares, respectively.....       --          --       82,540
   Class F: no par value; authorized-
    unlimited; issued and outstanding-0, 0,
    and 24,496,905 shares, respectively.....       --          --            1
   Exchangeable: $15.08 per share par value;
    authorized-unlimited; issued and
    outstanding-0, 0, and 1,813,604 shares,
    respectively............................       --          --       27,349
   Common shares--no par value; authorized-
    unlimited; issued and outstanding-1, 1
    and 0 shares, respectively..............         3           3         --
                                               -------     -------   ---------
                                                     3           3     109,891
                                               -------     -------   ---------
  Total Capital Stock.......................         3           3     109,963
                                               -------     -------   ---------
  Retained earnings (deficit)...............     1,897       2,648     (35,466)
  Deferred compensation.....................       --          --         (403)
  Accumulated other comprehensive loss......      (120)       (194)     (5,273)
                                               -------     -------   ---------
     Total shareholders' equity.............     1,780       2,457      68,821
                                               -------     -------   ---------
                                               $ 3,831     $ 4,730   $ 120,507
                                               =======     =======   =========
</TABLE>

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

                                      F-2
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
     (amounts in thousands of U.S. Dollars except share and per share data)

<TABLE>
<CAPTION>
                                                                              Two Months
                            Year Ended       Year Ended       Year Ended        Ended
                         January 31, 1997 January 31, 1998 January 31, 1999 March 31, 1999
                         ---------------- ---------------- ---------------- --------------
<S>                      <C>              <C>              <C>              <C>
Product Revenues........      $4,245           $5,587          $ 7,876       $     9,711
Service Revenues........       3,279            3,364            3,543               484
                              ------           ------          -------       -----------
  Total revenues........       7,524            8,951           11,419            10,195
                              ------           ------          -------       -----------
Cost of product
 revenues...............       3,537            4,351            6,475             4,749
Cost of service
 revenues...............       2,981            3,058            3,221               440
                              ------           ------          -------       -----------
  Total cost of
   revenues.............       6,518            7,409            9,696             5,189
                              ------           ------          -------       -----------
    Gross margin........       1,006            1,542            1,723             5,006
                              ------           ------          -------       -----------
Operating expenses:
  Research and
   development, net of
   tax credits of $0,
   $0, $0, and $61,
   respectively.........         --               --               --                502
  Sales and marketing...         387              126              254             1,949
  General and
   administrative.......         --               --               --                531
                              ------           ------          -------       -----------
    Total operating
     expenses...........         387              126              254             2,982
                              ------           ------          -------       -----------
    Operating income....         619            1,416            1,469             2,024
                              ------           ------          -------       -----------
Other income (expense):
  Interest income
   (expense)............         --                38               50               (51)
  Foreign currency
   exchange gain
   (loss)...............           6             (108)             (81)             (233)
                              ------           ------          -------       -----------
    Total other income
     (expense)..........           6              (70)             (31)             (284)
                              ------           ------          -------       -----------
  Income before income
   taxes................         625            1,346            1,438             1,740
Provision for income
 taxes..................         364              661              687               636
                              ------           ------          -------       -----------
  Net income............      $  261           $  685          $   751       $     1,104
                              ======           ======          =======       ===========
Earnings per share:
    Basic...............      $  261           $  685          $   751       $      0.09
                              ======           ======          =======       ===========
    Diluted.............      $  261           $  685          $   751       $      0.09
                              ======           ======          =======       ===========
Weighted average common
 shares outstanding:
  Basic.................           1                1                1        12,917,166
                              ======           ======          =======       ===========
  Diluted...............           1                1                1        12,917,166
                              ======           ======          =======       ===========
</TABLE>

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

                                      F-3
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     (amounts in thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                             Year Ended  Year Ended  Year Ended   Two months
                             January 31, January 31,  January   ended March 31,
                                1997        1998      31, 1999       1999
                             ----------- ----------- ---------- ---------------
<S>                          <C>         <C>         <C>        <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Net income.................   $   261     $   685    $   751      $  1,104
 Adjustments to reconcile
  net income to net cash
  provided by (used in)
  operating activities--
  Depreciation and
   amortization.............       116          58         32           917
  Deferred income taxes.....       --          --         (28)          128
  Net gain on property and
   equipment sales and
   disposals................       --          --          (1)          --
  Compensation expense
   relate to stock options..       --          --         --             25
  Changes in assets and
   liabilities--
   Accounts receivable......    (1,319)      1,375       (461)       (1,273)
   Intercompany receivable..       749      (2,087)       903          (542)
   Inventory................       --          --         --           (144)
   Income taxes receivable..       --          --         --            (40)
   Other current assets.....       (10)         10        --            367
   Borrowings under line of
    credit..................       --          --         --              1
   Accounts payable.........        20          99        131           100
   Intercompany payable.....       245         705       (136)        1,260
   Accrued expenses.........       (33)        172         84           509
   Deferred revenue.........       --          169        272          (712)
   Customer deposits........       --          --         --            (45)
   Income taxes payable.....      (179)        377       (129)          273
                               -------     -------    -------      --------
    Net cash provided by
     (used in) operating
     activities.............      (150)      1,563      1,418         1,928
                               -------     -------    -------      --------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
 Purchase of property and
  equipment.................       (20)         (9)       (43)         (244)
 Proceeds from property and
  equipment sales and
  disposals.................         4           5          1           --
                               -------     -------    -------      --------
    Net cash used in
     investing activities...       (16)         (4)       (42)         (244)
                               -------     -------    -------      --------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
 Proceeds from issuance of
  common shares, net of
  issuance costs............       --          --         --             72
                               -------     -------    -------      --------
    Net cash provided by
     financing activities...       --          --         --             72
                               -------     -------    -------      --------
Foreign exchange effect on
 cash.......................        70        (149)       (73)         (119)
                               -------     -------    -------      --------
Increase (decrease) in cash
 and cash equivalents.......       (96)      1,410      1,303         1,637
Cash and cash equivalents,
 beginning of year..........       326         230      1,640         2,943
Discreet cash and cash
 equivalents, March 16,
 1999.......................                                         48,036
                               -------     -------    -------      --------
Cash and cash equivalents,
 end of year................   $   230     $ 1,640    $ 2,943      $ 52,616
                               =======     =======    =======      ========
Supplemental disclosure of
 cash flow information:
  Income taxes paid.........   $   492     $   428    $   828      $     52
                               =======     =======    =======      ========
</TABLE>

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

                                      F-4
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                     (amounts in thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                                                                                Accumulated
                          Common Stock                  Accumulated                                Other         Total
                     -----------------------  Preferred  Earnings     Deferred   Comprehensive Comprehensive Shareholders'
                        Shares      Amount      Stock    (Deficit)  Compensation    Income     Income (loss)    Equity
                     ------------  ---------  --------- ----------- ------------ ------------- ------------- -------------
<S>                  <C>           <C>        <C>       <C>         <C>          <C>           <C>           <C>
Balance, January
 31, 1996..........             1  $       3    $--      $    951      $  --                      $    40      $     994
Comprehensive
 income:
 Net income........                                           261                    $ 261                           261
 Change in
  cumulative
  translation
  adjustment.......                                                                     (9)            (9)            (9)
                                                                                     -----
Comprehensive
 income............                                                                  $ 252
                     ------------  ---------    ----     --------      ------        =====        -------      ---------
Balance, January
 31, 1997..........             1          3     --         1,212         --                           31          1,246
Comprehensive
 income............
 Net income........                                           685                      685                           685
 Change in
  cumulative
  translation
  adjustment.......                                                                   (151)          (151)          (151)
                                                                                     -----
Comprehensive
 income............                                                                  $ 534
                     ------------  ---------    ----     --------      ------        =====        -------      ---------
Balance, January
 31, 1998..........             1          3     --         1,897         --                         (120)         1,780
Comprehensive
 income:
 Net income........                                           751                      751                           751
 Change in
  cumulative
  translation
  adjustment.......                                                                    (74)           (74)           (74)
                                                                                     -----
Comprehensive
 income............                                                                  $ 677
                     ------------  ---------    ----     --------      ------        =====        -------      ---------
Balance, January
 31, 1999..........             1          3     --         2,648         --                         (194)         2,457
Exchange of
 Autodesk Canada,
 Inc. Common Shares
 for Class C
 shares............            (1)        (3)      1                                                                  (2)
Discreet Logic Inc.
 Shareholders'
 Equity March 16,
 1999..............    29,992,674    109,890              (39,218)       (428)                     (4,963)        65,281
Exchange of
 Discreet Logic
 Inc. Common
 Shares............   (29,992,674)  (109,890)                                                                   (109,890)
Issuance of Class B
 shares from
 exchange of
 Discreet Logic
 Inc.
 Common Shares.....    29,992,674    109,890                                                                     109,890
Redemption of Class
 B shares..........    (5,495,769)   (27,349)                                                                    (27,349)
Issuance of
 Exchangeable
 Shares from
 redemption of
 Class B shares....     1,813,604     27,349                                                                      27,349
Conversion of Class
 B shares..........   (24,496,905)   (82,541)                                                                    (82,541)
Issuance of Class E
 shares............    24,496,905     82,540                                                                      82,540
Issuance of Class F
 shares............    24,496,905          1                                                                           1
Issuance of Class D
 shares............                               71                                                                  71
Issuance of Class A
 shares............           100          1                                                                           1
Compensation
 expense related to
 stock options.....                                                        25                                         25
Comprehensive
 income:
 Net income........                                         1,104                    1,104                         1,104
 Change in
  cumulative
  translation
  adjustment.......                                                                   (116)          (116)          (116)
                                                                                     -----
Comprehensive
 income............                                                                  $ 988
                     ------------  ---------    ----     --------      ------        =====        -------      ---------
Balance, March 31,
 1999..............    50,807,514  $ 109,891    $ 72     $(35,466)     $ (403)                    $(5,273)     $  68,821
                     ============  =========    ====     ========      ======                     =======      =========
</TABLE>

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

                                      F-5
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (Amounts in U.S. Dollars)

(1) Operations and Basis of Presentation

   On March 16, 1999, pursuant to the terms of that certain Second Amended and
Restated Agreement and Plan of Acquisition and Amalgamation dated as of
November 18, 1998, as amended on December 18, 1998 and on January 18, 1999 (the
"Acquisition Agreement"), by and among Autodesk, Inc., a Delaware corporation
("Autodesk"), Autodesk Development, B.V., a Netherlands corporation and an
indirect wholly owned subsidiary of Autodesk ("Dutchco"), 9066-9771 Quebec
Inc., a Quebec Company and a wholly owned subsidiary of Dutchco ("Amalgamation
Sub"), 9066-9854 Quebec Inc., a Quebec Company and an indirect wholly owned
subsidiary of Autodesk ("Autodesk Quebec"), Autodesk Canada Inc., an Ontario
company and an indirect wholly owned subsidiary of Autodesk, ("ACI"), and
Discreet Logic Inc., a Quebec company ("Old Discreet"), Dutchco acquired all
voting shares of Discreet Logic Inc., a Quebec company, and the successor
company to Old Discreet resulting from the Amalgamation (as defined below)
("Discreet" or "the Company") by way of an amalgamation of entities under
common control under the Companies Act of Quebec of Old Discreet, Amalgamation
Sub and Autodesk Quebec (the "Amalgamation") and certain related transactions
described below (together with the Amalgamation, the "Acquisition"). As a
result of the Acquisition, Discreet became an indirect subsidiary of Autodesk.
Shortly prior to the Amalgamation, substantially all of the assets of ACI were
assigned to Autodesk Quebec as part of a corporate reorganization. Upon the
Amalgamation, such assets were assumed by Discreet. Discreet adopted a fiscal
year end of March 31st.

   The financial statements included in this Form 10-K include the results of
operations, financial position, and cash flows of ACI for the fiscal years
ended January 31, 1997, 1998 and 1999. For the two-month period ended March 31,
1999, the financial statements include the results of operations of ACI for the
period from February 1 up through the Amalgamation on March 16, 1999 and the
combined results of operations of Old Discreet, Autodesk Quebec, and
Amalgamation Sub for the period after the Amalgamation from March 16, 1999
through March 31, 1999.

   The related consolidated balance sheets as of March 31, 1999 include the
accounts of the Company and its subsidiaries. All subsidiaries are wholly owned
as of March 31, 1999. All significant intercompany accounts and transactions
have been eliminated upon consolidation.

   Following the Amalgamation, the Company's operations also included
development, assembly, marketing and support of non-linear, digital systems and
software for creating, editing and compositing imagery and special effects for
film, video, HDTV, broadcast and the Web. The Company's systems and software
are utilized by creative professionals, for a variety of applications,
including feature films, television programs, commercials, music and corporate
videos, interactive game production, live broadcasting as well as Web design.

   The Company sells its advanced systems and other products through its direct
sales force, as well as through distributors and resellers. The Company markets
and sells its systems directly in North America and in certain European and
Pacific Rim countries. Sales activities in North America are conducted from the
Company's Montreal headquarters, sales offices in Los Angeles, New York and
Chicago and field representatives based in Boston, San Francisco and Atlanta.
The Company also markets its systems through sales offices located in the
United Kingdom, France, Germany, Singapore, Brazil, Spain, India, Hong Kong,
Japan, and through a network of distributors and resellers in over 80
countries.

   The Company also markets a number of other design software products that are
geared towards the Architecture, Engineering, and Construction market ("AEC");
the Mechanical Computer-Aided Design ("CAD") market; other easy-to-use,
affordable tools for professionals, occasional users, or consumers who draft,
diagram, and draw through its Personal Solutions Group ("PSG") market.
Architecture, Engineering, and

                                      F-6
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Construction software is used to automate every phase of a building's life
cycle-from conceptual design through construction, maintenance, and renovation.
The Mechanical CAD market is dedicated to providing mechanical engineers,
designers, and drafters with advanced, value-based software solutions that are
designed to solve their professional design challenges. Prior to the
Amalgamation, these were substantially all of the Company's product offerings.

(2) Significant Accounting Policies

   The accompanying consolidated financial statements reflect the application
of the following significant accounting policies, as described below and
elsewhere in the notes to consolidated financial statements. These consolidated
financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America, and are presented in
United States dollars ("U.S. Dollars").

   The preparation of consolidated 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 consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results may differ from these estimates.

 (a) Revenue Recognition

   The Company's revenue recognition policy is in compliance with the
provisions of the American Institute of Certified Public Accountants' Statement
of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by
Statement of Position 98-4 ("SOP 98-4"). Revenue is recognized at the time of
shipment, provided that no significant vendor obligations exist and collection
of the resulting receivable is deemed probable. The Company recognizes revenue
from post contract customer support and other related services ratably, as the
obligations are fulfilled, or when the related services are performed.

   Agreements with the Company's Value Added Resellers ("VARs") generally do
not contain specific product-return privileges. However, the Company permits
its VARs to return product in certain instances, generally during periods of
product transition and during update cycles. The Company establishes allowances
for product returns based on estimated future returns of product as a direct
reduction of revenue and accounts receivable. Actual returns have not differed
materially from these estimates.

 (b) Net Income (Loss) per Common Share

   In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.
The new standard simplifies the computation of earnings per share (EPS) and
increases comparability to international standards. Under SFAS No. 128, primary
EPS is replaced by "Basic" EPS, which excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. "Diluted" EPS, which is computed
similarly to fully diluted EPS, reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. The Company is required to disclose both basic and
diluted EPS. All prior period EPS data have been restated to conform to SFAS
No. 128.

                                      F-7
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table presents, in thousands (except share and per share data)
a reconciliation of Basic EPS to Diluted EPS as required by SFAS No. 128:

<TABLE>
<CAPTION>
                              Year Ended         Year Ended         Year Ended        Two Months Ended
                           January 31, 1997   January 31, 1998   January 31, 1999      March 31, 1999
                          ------------------ ------------------ ------------------ -----------------------
                          Income Shares EPS  Income Shares EPS  Income Shares EPS  Income   Shares    EPS
                          ------ ------ ---- ------ ------ ---- ------ ------ ---- ------ ---------- -----
<S>                       <C>    <C>    <C>  <C>    <C>    <C>  <C>    <C>    <C>  <C>    <C>        <C>
Basic EPS
 Income available to
  Common shareholders...   $261     1   $261  $685     1   $685  $751     1   $751 $1,104 12,917,166 $0.09
                                        ====               ====               ====                   =====
Effect of Dilutive
 Securities
 Impact of exercise of
  stock options under
  treasury stock
  method................    --    --     --    --    --     --    --    --     --     --         --    --
                           ----   ---   ----  ----   ---   ----  ----   ---   ---- ------ ---------- -----
Diluted EPS
 Income available to
  common shareholders
  and assumed
  exercises.............   $261     1   $261  $685     1   $685  $751     1   $751 $1,104 12,917,166 $0.09
                           ====   ===   ====  ====   ===   ====  ====   ===   ==== ====== ========== =====
</TABLE>

 (c) Research and Development Expenses

   The Company charges to operations research and development costs as incurred
and presents such expenses net of income tax credits from the Canadian federal
and Quebec provincial governments (see Note 7). Software development costs are
considered for capitalization when technological feasibility is established in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. The Company sells software in a market that is subject to rapid
technological change, new product introductions and changing customer needs.
Accordingly, the Company has not capitalized software development costs due to
its inability to estimate the useful life of software under development.

 (d) Translation of Foreign Currencies

   The accounts of the Company are translated in accordance with SFAS No. 52,
Foreign Currency Translation. The Company's management has elected to present
these consolidated financial statements in U.S. dollars. The financial
statements of the Company and its subsidiaries are translated from their
functional currency into the reporting currency, the U.S. dollar, utilizing the
current rate method. Accordingly, assets and liabilities are translated at
exchange rates in effect at the end of the year, and revenues and expenses are
translated at the weighted average exchange rate during the year. All
cumulative translation gains or losses from the translation into the Company's
reporting currency are included as a component of shareholders' equity in the
consolidated balance sheets.

   Foreign currency transaction gains (losses) included in other income
(expense) in the accompanying consolidated statements of operations were
$6,000, $(108,000), $(81,000), and $(233,000) for the years ended January 31,
1997, 1998, 1999, and the two-month period ended March 31, 1999, respectively.

 (e) Concentration of Credit Risk

   The Company has a Maximum Liability Agreement, with a leasing company, which
provides that the Company is contingently liable up to a maximum percentage of
the remaining principal payments outstanding related to the purchase of the
Company's products by customers financed by said leasing company. The maximum
liability is contingent on certain factors as defined in the agreement. As at
March 31, 1999, the Company had accrued $637,000, the maximum amount of the
contingent liability.


                                      F-8
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company has no other significant off-balance sheet concentration of
credit risk such as foreign exchange contracts, option contracts or other
foreign currency hedging arrangements. The Company maintains the majority of
cash balances with three financial institutions and its accounts receivable
credit risk is not concentrated within any geographic area. There were no
accounts receivable from a single customer which exceed 10 percent of total
accounts receivable as of January 31, 1998, 1999, and March 31, 1999.

 (f) Postemployment and Postretirement Benefits

   The Company does not provide postemployment and postretirement benefits.

 (g) Cash Equivalents

   Cash equivalents are carried at cost, which approximates market value. Cash
equivalents are short-term, highly liquid investments with original maturities
of less than three months. Cash equivalents consist of commercial paper and
money market mutual funds at January 31, 1998, 1999, and March 31, 1999.

 (h) Inventory

   Inventory consists of hardware purchased for resale and is valued at the
lower of cost (determined on a first-in, first-out basis) or net realizable
value. Demonstration inventory consists of hardware inventory used by the
Company and potential customers for product demonstrations which will be
subsequently sold.

 (i) Property and Equipment

   Property and equipment are stated at cost. Computer equipment, video
equipment, software, furniture and fixtures are depreciated using the straight-
line and declining balance methods over the estimated useful lives of the
assets, which range from two to five years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the estimated useful
life or the lease term. Property and equipment includes the following (in
thousands):

<TABLE>
<CAPTION>
                                              January 31, January 31, March 31,
              Asset Classification               1998        1999       1999
              --------------------            ----------- ----------- ---------
   <S>                                        <C>         <C>         <C>
   Computer equipment, video equipment
    and software.............................    $ 282       $ 279    $ 22,799
   Leasehold improvements....................       18          38       1,824
   Furniture and fixtures....................      114         109       2,825
                                                 -----       -----    --------
                                                   414         426      27,448
   Less: Accumulated depreciation and
    amortization.............................     (393)       (395)    (18,766)
                                                 -----       -----    --------
                                                 $  21       $  31    $  8,682
                                                 =====       =====    ========
</TABLE>

 (j) Other Assets

   Other assets include acquired technology, goodwill, and other deferred
charges, and are amortized on a straight-line basis over the estimated useful
lives of the assets, which range from three to ten years. The Company evaluates
the realizability and the related periods of amortization of these assets on a
regular basis.

                                      F-9
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Other assets included the following amounts:

<TABLE>
<CAPTION>
                                              January 31, January 31, March 31,
            Asset Classification                 1998        1999       1999
            --------------------              ----------- ----------- ---------
<S>                                           <C>         <C>         <C>
Acquired technology..........................    $ --        $ --     $  6,938
Goodwill.....................................      --          --       30,873
Other deferred charges.......................      --          --          862
                                                 -----       -----    --------
                                                   --          --       38,673
Less-Accumulated amortization................      --          --      (21,119)
                                                 -----       -----    --------
                                                 $ --        $ --     $ 17,554
                                                 =====       =====    ========
</TABLE>

 (k) Legal Costs

   The Company accrues legal costs to be incurred when such amounts are
probable and the amounts can be reasonably estimated. Material assumptions used
to estimate the amounts accrued include, primarily, the advice of legal counsel
regarding the nature, length and estimated legal costs of each case. These
liabilities are not discounted to reflect their present values.

 (l) Comprehensive Income

   As of February 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this statement had no impact on the
Company's net income or stockholders' equity. SFAS 130 requires foreign
currency translation adjustments to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.

 (m) Recent Accounting Pronouncements

   In March 1998, the AICPA issued Statement of Position (SOP) 98-4, which
amends certain provisions of SOP 97-2. The Company believes it is in compliance
with the provisions of SOP 97-2 as amended by SOP 98-4. In December 1998, the
American Institute of Certified Public Accountants ("AICPA") issued Statement
of Position 98-9 ("SOP 98-9"), which amends certain provisions of SOP 97-2 and
extends the deferral of the application of certain passages of SOP 97-2
provided by SOP 98-4 until the beginning of the Company's fiscal year 2001. The
Company does not expect the adoption of this standard to have a material effect
on its consolidated operating results or financial position.

   In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 will be effective for the
Company's fiscal year ending March 31, 2002. The Company does not expect the
adoption of this standard to have a material effect on its consolidated
operating results or financial position.

                                      F-10
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(3) Other Current Assets

   Other current assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                               January 31, January 31, March 31,
                                                  1998        1999       1999
                                               ----------- ----------- ---------
<S>                                            <C>         <C>         <C>
     Prepaid expenses.........................    $ --        $ --      $4,099
     Sales tax receivable.....................      --          --       1,766
     Other....................................        2           2        273
                                                  -----       -----     ------
                                                  $   2       $   2     $6,138
                                                  =====       =====     ======
</TABLE>


(4) Accrued Expenses

   Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
                                               January 31, January 31, March 31,
                                                  1998        1999       1999
                                               ----------- ----------- ---------
      <S>                                      <C>         <C>         <C>
      Payroll and payroll related.............    $ 48        $141      $ 3,755
      Professional fees.......................     --          --           891
      Commissions.............................     124          88        1,159
      Sales tax and VAT payable...............     --          --           177
      Accrued restructuring expenses..........     --          --           689
      Maximum liability accrual...............     --          --           637
      Acquisition costs.......................     --          --           930
      Merger costs............................     --          --           864
      ESPP Witholdings........................      67          53          134
      Other...................................      60         101        2,559
                                                  ----        ----      -------
                                                  $299        $383      $11,795
                                                  ====        ====      =======
</TABLE>

(5) Litigation and Related Settlement Expenses

 (a) Griffith & Tekushan, Inc.

   On June 2, 1998, Old Discreet was named as a defendant in a breach of
warranty action filed in the Supreme Court of the State of New York for the
County of New York entitled Griffith & Tekushan, Inc. v. Discreet Logic, Inc.
(Index No. 602684/98) (the "Action"). The complaint alleges, among other
things, that the Company breached certain warranties arising out of a software
licensing agreement and seeks damages of $1 million. On July 10, 1998, the
Action was removed from state court to the United States District Court for the
Southern District of New York (Case No. 98 Civ. 4909 (BSJ)) (the "U.S. District
Court"). On July 17, 1998, the Company, which succeeded Old Discreet as the
defendant in the Action filed a motion to dismiss the Action in its entirety.
On May 28, 1999, the U.S. District Court entered an order dismissing the Action
without prejudice based on plaintiff's request for voluntary dismissal. Though
the Company intends to contest this case vigorously if plaintiff files a new
complaint against the Company, the ultimate outcome of the case cannot be
predicted at this time.

 (b) Class Action Litigation

                                      F-11
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   On August 28, 1998, a complaint was filed in the Marin County, California,
Superior Court, entitled Jerry Krim, on Behalf of Himself and All Others
Similarly Situated, v. Discreet Logic Inc., et al., case No. 174792 (the "Krim
Complaint"). The lawsuit names as defendants Old Discreet, Old Discreet's
directors and certain unidentified "John Does." The Krim Complaint alleged that
the defendants breached their fiduciary duties to Old Discreet's shareholders
in connection with the Acquisition. The Krim Complaint asked the court to
enjoin the consummation of the Acquisition or, alternatively, sought to rescind
the Acquisition or an award of unspecified damages from the defendants in the
event the Acquisition were consummated. The Company believes the claims
asserted in the complaint are without merit and intends to vigorously contest
them.

   On September 29, 1998, a second complaint was filed in the Marin County,
California, Superior Court (the "Superior Court"), entitled William Clark, et
al. v. Discreet Logic Inc., et al., case No. 175037 (the "Clark Complaint").
The Clark Complaint was substantially similar to the Krim Complaint and named
as defendants the Company, certain of the Company's directors and certain
unidentified "John Does." The Clark Complaint alleged that the defendants
breached their fiduciary duties to Old Discreet's shareholders in connection
with the Acquisition. The Clark Complaint asks the court to enjoin the
consummation of the transaction or, alternatively, seeks to rescind the
transaction or an award of unspecified damages from the defendants in the event
the transaction is consummated. The Company believes the claims asserted in the
complaint are without merit and intends to vigorously contest them.

   On December 2, 1998, the Superior Court entered an order consolidating the
Clark and Krim actions. On December 11, 1998, the Superior Court entered an
order on Old Discreet's October 26, 1998 motions to dismiss. The order
dismissed both the Krim and the Clark Complaints as against Old Discreet for
failing to state a claim against Old Discreet. The Superior Court's order
granted plaintiffs a 30-day leave to replead their complaints. On January 11,
1999, plaintiffs filed a consolidated amended complaint with the Superior Court
(the "Amended Complaint") which asserts the same breach of fiduciary duty cause
of action against Old Discreet, certain of the Old Discreet's directors and
certain unidentified "John Does," and seeks the same relief.

   On April, 9, 1999, the Superior Court entered an order denying Old
Discreet's and certain of the individual defendants' motions to dismiss the
Amended Complaint on the grounds of inconvenient forum and certain of the
individual defendants' motions to dismiss for lack of personal jurisdiction. On
April, 16, 1999, the Company which succeeded Old Discreet, as a defendant in
the action filed a demurrer (a motion to dismiss the Amended Complaint) for
failure to state a claim as against Old Discreet. On April 26, 1999, certain of
the individual defendants filed a petition for writ of mandate with the
California Court of Appeal (the "Court of Appeal"), appealing the Superior
Court's April 9, 1999 order as to them. On May 26, 1999, the Court of Appeal
issued an Alternative Writ of Mandate, directing the Superior Court, by June
30, 1999, to reverse its April 9, 1999 denial of certain of the individual
defendants' motions to dismiss on personal jurisdiction grounds or show cause
why it has not done so. On June 16, 1999, the Superior Court entered an order
sustaining the Company's demurrer to the Amended Complaint and dismissing the
Company from the action without leave to amend. On June 18, 1999, the Superior
Court entered an Order reversing the April 9, 1999 Order and granting certain
of the individual defendants' motions to dismiss for lack of personal
jurisdiction.

   The Company believes the claims asserted in the Amended Complaint are
without merit and intends to vigorously contest them.

(6) Demand Line of Credit, Leasing and Tax Credit Facilities

   The Company has a revolving demand line of credit and leasing facility with
its bank which provides for a revolving demand line of credit under which it
can borrow up to Cdn$7,000,000 (approximately $4,630,000 at March 31, 1999).
Advances under the line accrue interest monthly at the Canadian prime rate
(6.75% at

                                      F-12
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

March 31, 1999) plus 0.25%. Additionally, the agreement provides for a
Cdn$600,000 (approximately $397,000 at March 31, 1999) demand leasing facility,
and a Cdn$600,000 (approximately $397,000 at March 31, 1999) demand research
and development tax credit facility. Advances under these facilities accrue
interest monthly at the Canadian prime rate (6.75% at March 31, 1999) plus 1%.
The line and facilities are secured by essentially all of the Company's North
American assets. As additional security, the Company assigned to the bank its
insurance on these assets. The Company is required to maintain certain
financial ratios, including minimum levels of working capital, debt service
coverage and equity to asset ratios. As of March 31, 1999, there were no
amounts outstanding under the demand leasing and demand research and
development tax credit facilities, however, the amount available to Discreet
under the line of credit was reduced by the letter of guarantee discussed
below.

   The Company's Japanese subsidiary has a line of credit agreement with its
bank. Under this agreement, the subsidiary can borrow up to $3,000,000.
Advances under this line accrue interest at the prevailing overnight rate for
the period (approximately 1.725% at March 31, 1999) and are secured by a letter
of guarantee, in the amount of $3,000,000, issued by the Company in favor of
the subsidiary's bank. As of March 31, 1999, the subsidiary had borrowed
(Yen)221,468,000 (approximately $1,847,000 at March 31, 1999).

(7) Canadian Federal and Provincial Income Tax Credits

   The Company is entitled to research and development incentives in the form
of income tax credits from the Canadian federal government ("Federal") and from
the Province of Quebec ("Provincial"). Federal income tax credits are received
on qualified Canadian research and development expenditures and equipment
purchases. Provincial income tax credits are received on qualified research and
development salaries in the Province of Quebec. The Federal and Provincial
income tax credits are earned at 20% of qualified research and development
expenditures. Additionally, the Federal credit may be limited to a credit
against income taxes payable.

   The Company recorded $61,000 of income tax credits as a reduction of
research and development expenses for the two-month period ended March 31,
1999. These income tax credits represent credits earned based on qualifying
research and development expenditures. In addition, the Company recorded,
$14,000 of income tax credits as a reduction in the carrying value of property
and equipment for the two-month period ended March 31, 1999. These income tax
credits represent credits earned based on qualifying property and equipment
purchases.

(8) Employee Benefit Plans

 Stock option plans

   The Company's employees are eligible to receive option grants under
Autodesk's stock option plans. Under these stock option plans, incentive and
nonqualified stock options may be granted to officers, employees, directors,
and consultants to purchase shares of Autodesk's common stock. Options vest
over periods of one to five years and generally have terms of up to ten years.
The exercise price of the stock options is determined by Autodesk's Board of
Directors on the date of grant and is at least equal to the fair market value
of the stock on the grant date. At March 31, 1999, there were 1,157,437 options
outstanding at exercise prices ranging from $0.15 to $73.49.

 Employee stock purchase plan

   Autodesk has an employee stock purchase plan ("plan") for all employees,
including the Company's employees, meeting certain eligibility criteria. Under
the plan, eligible employees may purchase shares of Autodesk's common stock, at
their discretion up to 15 percent of their compensation subject to certain
limitations, at not less than 85 percent of fair market value as defined in the
plan.

                                      F-13
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(9) Shareholders' Equity

 (a) Common Shares

   On March 15, 1999, ACI contributed substantially all of its assets to 9066-
9854 Quebec Inc. ("Autodesk Quebec"), a Quebec company and indirect wholly-
owned subsidiary of Autodesk, on March 16, 1999, Discreet Logic Inc.
amalgamated with Autodesk Quebec and 9066-9771 Quebec Inc., a Quebec company
and indirect wholly owned subsidiary of Autodesk ("Amalgamation Sub") (the
"Amalgamation"). One hundred Class A and 100 Class C shares were issued to the
sole shareholders of Autodesk Quebec and Amalgamation Sub. 150,000 shares were
issued in payment of fees to financial and legal advisors. Upon the
Amalgamation, Old Discreet common shareholders received 1 Class B share for
each Old Discreet Common Share held at that date. Approximately 29,993 thousand
Class B shares were issued. Subsequently, approximately 24,497 thousand Class B
shares were converted to Discreet Units (each Discreet Unit consists of 1 Class
E share and 1 Class F share) and approximately 5,496 thousand Class B shares
were exchanged for Exchangeable shares, according to the election made by each
holder of Old Discreet common shares. For the years ended January 31, 1997,
1998, and 1999, ACI had one share of common stock issued and outstanding. As of
March 31, 1999, the capitalization of Discreet consisted of the following:

<TABLE>
<CAPTION>
   Class of
   Equity         Authorized     Issued & Outstanding         Voting Rights
   --------       ----------     --------------------     --------------------
   <C>            <C>            <C>                      <S>
   Exchangeable   Unlimited           1,813,604           Non-voting common
   Class A        Unlimited           100                 Voting common
   Class B        Unlimited           None                Non-voting common
   Class C        Unlimited           100                 Non-voting preferred
   Class D        150,000             150,000             Non-voting preferred
   Class E        Unlimited           24,496,905          Voting common
   Class F        Unlimited           24,496,905          Non-voting common
</TABLE>

                                      F-14
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (b) Dividends

   The Company has never declared or paid cash dividends and does not
anticipate paying any cash dividends on its capital stock in the foreseeable
future. In the event cash dividends are declared or paid, the Company
anticipates that they would be declared and paid in U.S. dollars. Part 1A of
the Quebec Companies Act prohibits the Company from paying dividends that would
prevent it from discharging its liabilities when due or that would bring the
book value of its assets to an amount less than the sum of its liabilities and
its issued and paid-up share capital account. At March 31, 1999, the Company
could not distribute any dividends.

(10) Related Party Transactions

 (a) Sales to Related Parties

   During fiscal years 1997, 1998, 1999, and the two-month period ended March
31, 1999, the Company recorded revenue from services provided on behalf of
Autodesk, Inc., the ultimate parent company, of $3,279 thousand, $3,364
thousand, $3,543 thousand, and $484 thousand, respectively. At March 31, 1999,
approximately $953 thousand remained outstanding and has been classified as a
related party receivable.

 (b) Purchases from Related Parties

   During the fiscal years ended January 31, 1997, 1998, 1999, and the two-
month period ended March 31, 1999, purchases of $3,537 thousand, $4,351
thousand, $6,475 thousand, and $4,749 thousand were made from Autodesk, Inc. At
March 31, 1999, a payable of $1,768 thousand remained outstanding and is
classified as a related party payable.

   During the two-month period ended March 31, 1999, $325 thousand and $6
thousand of operating expenses were paid, on behalf of the Company, by Autodesk
and ACI, respectively. These amounts have been classified in the related party
payable as of March 31, 1999.

(11) Income Taxes

   The Company applies the provisions of SFAS No. 109, Accounting for Income
Taxes. Under the provisions of SFAS No. 109, the Company recognizes a current
tax liability or asset for current taxes payable or refundable and a deferred
tax liability or asset for the estimated future tax effects of temporary
differences between the carrying value of assets and liabilities for financial
reporting and their tax basis and carryforwards to the extent they are
realizable.

                                      F-15
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The components of the deferred income tax assets and the deferred income tax
liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
                                              January 31, January 31, March 31,
                                                 1998        1999       1999
                                              ----------- ----------- ---------
<S>                                           <C>         <C>         <C>
Deferred income tax assets--
  Foreign tax loss carryforwards.............    $ --        $ --      $ 5,808
  Restructuring expenses.....................      --          --          241
  Initial and secondary public offering
   issuance costs............................      --          --          306
  Other temporary differences................      --           28       3,465
                                                 -----       -----     -------
                                                   --           28       9,820
  Less: Valuation allowance..................      --          --       (9,092)
                                                 -----       -----     -------
                                                 $ --        $  28     $   728
                                                 =====       =====     =======
Deferred income tax liabilities--
  Difference between book and tax basis of
   property and equipment....................    $ --        $ --      $   824
  Federal research and development tax
   credits...................................      --          --          222
  Other temporary differences................      --          --        1,051
                                                 -----       -----     -------
                                                 $ --        $ --      $ 2,097
                                                 =====       =====     =======
</TABLE>

   The Company provides deferred income taxes for research and development tax
credits earned in the current year, which are included in taxable income in the
subsequent year. In accordance with Canadian tax laws, stock issuance costs are
deductible over a five-year period.

   The Company has recorded a valuation allowance against certain deferred
income tax assets including the tax benefit of certain foreign net operating
loss carryforwards as the tax benefits do not meet the recognition criteria set
forth in SFAS 109 due to the uncertainty of their realization.

   The following table presents income before income taxes for the entities
incorporated in the following jurisdictions (in thousands):

<TABLE>
<CAPTION>
                            Year ended       Year ended       Year ended    Two months ended
                         January 31, 1997 January 31, 1998 January 31, 1999  March 31, 1999
                         ---------------- ---------------- ---------------- -----------------
<S>                      <C>              <C>              <C>              <C>
Canada..................      $ 625           $ 1,346           $1,438           $2,128
United States...........        --                --               --                75
United Kingdom..........        --                --               --              (663)
European and Other......        --                --               --               200
                              -----           -------           ------           ------
                              $ 625           $ 1,346           $1,438           $1,740
                              =====           =======           ======           ======
</TABLE>

                                      F-16
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The income tax provision is composed of the following (in thousands):

<TABLE>
<CAPTION>
                            Year ended       Year ended       Year ended    Two months ended
                         January 31, 1997 January 31, 1998 January 31, 1999  March 31, 1999
                         ---------------- ---------------- ---------------- ----------------
<S>                      <C>              <C>              <C>              <C>
Current--
  Federal...............      $ 236             $428             $463            $ 605
  Provincial............        128              233              252              208
  Foreign...............        --               --               --              (156)
                              -----             ----             ----            -----
                                364              661              715              657
                              -----             ----             ----            -----
Deferred--
  Federal...............        --               --               (18)             (21)
  Provincial............        --               --               (10)             --
  Foreign...............        --               --               --               --
                              -----             ----             ----            -----
                                --               --               (28)             (21)
                              -----             ----             ----            -----
    Total provision.....      $ 364             $661             $687            $ 636
                              =====             ====             ====            =====
</TABLE>

   The reconciliation between the Canadian federal statutory income tax rate
and the effective tax rate is as follows:

<TABLE>
<CAPTION>
                             Year ended       Year ended       Year ended    Two months ended
                          January 31, 1997 January 31, 1998 January 31, 1999  March 31, 1999
                          ---------------- ---------------- ---------------- ----------------
<S>                       <C>              <C>              <C>              <C>
Provision at the
 Canadian federal
 statutory rate.........        38.0%            38.0%            38.0%            38.0 %
Foreign taxes...........         --               --               --               0.3
Effect of basis
 differences not
 benefited..............        13.4              4.3              3.0             (0.5)
Provincial taxes, net of
 federal tax
 abatements.............         5.8              5.8              5.8             (0.3)
Other items.............         1.0              1.0              1.0             (1.0)
                                ----             ----             ----             ----
  Tax provision.........        58.2%            49.1%            47.8%            36.5 %
                                ====             ====             ====             ====
</TABLE>

   The Company has $15,024,000 of cumulative foreign net operating loss
carryforwards, which may be available to reduce future income tax liabilities
in those jurisdictions. The loss carryforwards will expire beginning June 30,
2001.

   These net operating loss carryforwards are subject to review and adjustment
by the respective tax authorities and may be limited in certain cases upon a
significant ownership change of the corporation, as defined. Reorganizations of
the corporate structure as discussed in Note 1 of the consolidated financial
statements may diminish the realizability of these losses.

                                      F-17
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(12) Commitments and Contingencies

 (a) Lease commitments

   The Company has operating lease commitments for certain facilities and
equipment, which expire at various dates through June 2007. The following
schedule outlines the future minimum rental payments under these leases at
March 31, 1999 (in thousands):

<TABLE>
   <S>                                                                  <C>
   Year ended March 31,
     2000.............................................................. $ 1,849
     2001..............................................................   1,926
     2002..............................................................   1,443
     2003..............................................................   1,225
     2004 and thereafter...............................................   5,954
                                                                        -------
     Total future minimum rental payments.............................. $12,397
                                                                        =======
</TABLE>

   Rent expense was $262,000, $162,000, and $171,000, for the years ended
January 31, 1997, January 31, 1998, and January 31, 1999, respectively. Rent
expense for the two-month period ended March 31, 1999, was $95,000.

 (b) Letters of Guarantee

   The Company has provided letters of guarantee in the amount of $3,000,000 as
of March 31, 1999.

(13) Segments

   During the year ended January 31, 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for reporting information about a company's operating segments. Prior
year amounts have been restated to conform to the current year's presentation.

   Management identified the Company's reportable segments based on differences
in customer type and distribution method. The Company operates in three
segments--the Design Solutions segment (consisting of the MCAD and AECAD market
groups), the Personal Solutions Group ("PSG"), and New Media/Advanced Systems
(consisting of the Discreet and Kinetix market groups). The Design Solutions
segment derives revenues from the sales of design software products whose end
users include architects, engineers, construction firms, designers, and
drafters. The Personal Solutions Group develops and sells design software
products for professionals, occasional users, or consumers who design, draft,
and diagram. Finally, the New Media/Advanced Systems segment derives revenues
from the sale of its products to creative professionals for a variety of
applications, including feature films, television programs, commercials, music
and corporate videos, interactive game production, live broadcasting and Web
design. All segments distribute their respective products through authorized
dealers and distributors. The PSG and New Media/Advanced Systems segments also
sell their products directly to end users.

                                      F-18
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company evaluates each segment's performance on the basis of income from
operations before income taxes. The Company currently does not separately
accumulate and report asset information by market group. Information concerning
the operations of the Company's reportable segments is as follows:

<TABLE>
<CAPTION>
                                        Year ended                Two-month
                            -----------------------------------  period ended
                            January 31, January 31, January 31,   March 31,
                               1997        1998        1999          1999
                            ----------- ----------- ----------- --------------
                                              (In thousands)
<S>                         <C>         <C>         <C>         <C>
Net revenues:
  Design Solutions.........   $7,023      $8,297      $10,372      $ 1,425
  Personal Solutions
   Group...................      120         166          362           61
  New Media/Advanced
   Systems.................      381         488          685        8,709
                              ------      ------      -------      -------
                              $7,524      $8,951      $11,419      $10,195
                              ======      ======      =======      =======
<CAPTION>
                                        Year  ended
                            -----------------------------------   Two-month
                            January 31, January 31, January 31,  period ended
                               1997        1998        1999     March 31, 1999
                            ----------- ----------- ----------- --------------
                                              (In thousands)
<S>                         <C>         <C>         <C>         <C>
Income from operations:
  Design Solutions.........   $  373      $1,138      $ 1,084      $   137
  Personal Solutions
   Group...................       28          39           74           15
  New Media/Advanced
   Systems.................      218         239          311        1,872
                              ------      ------      -------      -------
                              $  619      $1,416      $ 1,469      $ 2,024
                              ======      ======      =======      =======
<CAPTION>
                                        Year ended                Two-month
                            -----------------------------------  period ended
                            January 31, January 31, January 31,   March 31,
                               1997        1998        1999          1999
                            ----------- ----------- ----------- --------------
                                              (In thousands)
<S>                         <C>         <C>         <C>         <C>
Depreciation and
 Amortization:
  Design Solutions.........   $  121      $   61      $    32      $     4
  Personal Solutions
   Group...................      --          --           --           --
  New Media/Advanced
   Systems.................      --          --           --           913
                              ------      ------      -------      -------
                              $  121      $   61      $    32      $   917
                              ======      ======      =======      =======

   Information regarding the Company's operations by geographic area is as
follows:

<CAPTION>
                                        Year ended                Two-month
                            -----------------------------------  period ended
                            January 31, January 31, January 31,   March 31,
                               1997        1998        1999          1999
                            ----------- ----------- ----------- --------------
                                              (In thousands)
<S>                         <C>         <C>         <C>         <C>
Net revenues:
  Canada...................   $7,524      $8,951      $11,419      $ 2,584
  United States............      --          --           --         3,639
  Other Americas...........      --          --           --           157
                              ------      ------      -------      -------
  Total Americas...........    7,524       8,951       11,419        6,380
  Europe...................      --          --           --         2,340
  Asia Pacific.............      --          --           --         1,475
                              ------      ------      -------      -------
Total net revenues.........   $7,524      $8,951      $11,419      $10,195
                              ======      ======      =======      =======
</TABLE>

                                      F-19
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                              January 31, January 31, March 31,
                                                 1998        1999       1999
                                              ----------- ----------- ---------
                                                       (In thousands)
<S>                                           <C>         <C>         <C>
Long-lived assets:
  Canada.....................................    $ 21        $ 59     $  96,850
  United States..............................     --          --         18,642
  Other Americas.............................     --          --          8,753
                                                 ----        ----     ---------
  Total Americas.............................      21          59       124,245
  Europe.....................................     --          --         22,617
  Asia Pacific...............................     --          --          1,438
Consolidating eliminations...................     --          --       (117,814)
                                                 ----        ----     ---------
Total long-lived assets......................    $ 21        $ 59     $  30,486
                                                 ====        ====     =========
</TABLE>

Revenues from services provided on behalf of the Company's parent company,
Autodesk, Inc., accounted for 44%, 38%, and 31% of total revenues in the years
ended January 31, 1997, 1998, and 1999, respectively. No single customer
accounted for more than 10% of total revenues in the two-month period ended
March 31, 1999.

(14) Dependence on Key Suppliers

   The Company is dependent on Silicon Graphics, Inc. to manufacture and supply
a large proportion of the workstations and certain peripherals used in the
Company's systems. The Company purchases electronic tablets manufactured by
Wacom Technology Corporation ("Wacom") and believes that while alternative
suppliers are available, there can be no assurance that alternative electronic
tablets would be functionally equivalent or be available in a timely manner or
on similar terms.

(15) Purchase of Land and Facilities

   In August 1995, Old Discreet purchased land and an office building in
London, England for approximately (Pounds)1,148,000 (or approximately
$1,857,000 at March 31, 1999). In the year ended July 31, 1996, the carrying
value of the London building was written down to its estimated fair market
value and this building was classified as asset held for resale. In May 1999,
the Company sold the London building for net proceeds of (Pounds)2,946,000 (or
approximately $4,770,000) realizing a gain of (Pounds)319,000 (or approximately
$516,000).

(16) Government Assistance

 (a) SDI loan

   Old Discreet entered into a loan agreement with the Societe de Developpement
Industriel du Quebec dated as of May 7, 1998, whereby an interest free loan was
granted to the Company by the Quebec government in the amount of Cdn$2,800,000
(approximately $1,852,000 at March 31, 1999). The loan is conditional to the
Company meeting certain criteria:

     1. During the five-year period following the disbursement of the loan by
  the Quebec government, the Company is required to create 200 jobs and
  maintain each of these jobs for a five-year period after their creation.

     2. The loan should not exceed Cdn$2,800,000 or 20% of the costs incurred
  by Old Discreet for the acquisition of Lightscape Technologies, Inc.

                                      F-20
<PAGE>

                      DISCREET LOGIC INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The loan is payable in four annual installments of Cdn$600,000
(approximately $397,000 at March 31, 1999) commencing in July 2004 and a final
installment of Cdn$400,000 (approximately $265,000 at March 31, 1999) in July
2008. The loan is interest free until July 2004, after which it will bear
interest at the Canadian prime rate (approximately 6.75% at March 31, 1999)
plus 1.5%. In the situation where the criteria mentioned above are not
respected, a portion of the loan may have to be repaid at an earlier date. The
loan was disbursed to Old Discreet in July 1998. As of March 31, 1999, the loan
has been classified in accounts payable.

 (b) PACST Subsidy Program

   The Company entered into a financial assistance contract with the Quebec
Government dated as of March 27, 1998 under a subsidy program designed to
improve competencies in science and technology. The contract provides that the
Company is eligible to receive up to Cdn$3,012,000 (approximately $1,992,000 at
March 31, 1999) in the form of reimbursement of expenses incurred by the
Company for new employee training (mainly reimbursement of salary). The
Company's job creation estimate provided to the Quebec Government at the time
of signature of the contract was 251 science and technology related jobs to be
created over a three-year period. As of March 31, 1999, an advance of
Cdn$350,000 (approximately $231,000 at March 31, 1999) was received which
covers 40% of the first year estimated subsidy. The program requires the
Company to meet certain criteria in order to earn the subsidies. Since the
criteria have not yet been met by the Company, the advance has been classified
as a liability in accrued expenses at March 31, 1999.

(17) Quarterly Financial Information (Unaudited)

   Summarized quarterly financial information for the years ended January 31,
1999 and 1998 is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                           1st     2nd     3rd     4th   Fiscal
                                         quarter quarter quarter quarter  year
                                         ------- ------- ------- ------- -------
<S>                                      <C>     <C>     <C>     <C>     <C>
Year ended January 31, 1999
  Net revenues.......................... $3,160  $2,955  $2,586  $2,718  $11,419
  Gross margin..........................    573     492     231     427    1,723
  Income from operations................    531     388     225     325    1,469
  Net income............................    292     137     109     213      751
  Basic net income per share............    292     137     109     213      751
  Diluted net income per share..........    292     137     109     213      751
Year ended January 31, 1998
  Net revenues.......................... $2,216  $1,826  $2,226  $2,683  $ 8,951
  Gross margin..........................    344     345     400     453    1,542
  Income from operations................    302     304     426     384    1,416
  Net income............................    139     161     182     203      685
  Basic net income per share............    139     161     182     203      685
  Diluted net income per share..........    139     161     182     203      685
</TABLE>

(18) Subsequent Events

   On May 3, 1999, Discreet transferred eight of its direct and indirect
subsidiaries to Autodesk, Inc. (Autodesk). These subsidiaries included Bandit
Communications, Inc. ("Bandit"), and Bandit's three subsidiaries Discreet Logic
USA, Inc., Discreet Logic Investment Inc., and Discreet Logic Research, Inc.,
Lightscape Technologies, Inc. ("Lightscape") and Lightscape's subsidiary
Lightscape Graphics, Inc., D-Vision Systems Inc., and Discreet Logic (Desktop)
Inc. Discreet's operations continue to include activities related to the
operations of the aforementioned subsidiaries which are now owned directly or
indirectly by Autodesk, Discreet's ultimate parent company.

                                      F-21
<PAGE>

                  REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS

To Discreet Logic Inc.:

   We have audited the accompanying consolidated balance sheets of Discreet
Logic Inc. (a Quebec corporation) and subsidiaries, as at June 30, 1998 and
March 16, 1999 and the related consolidated statements of operations,
shareholders' equity and cash flows for the eleven-month period ended June 30,
1997, the year ended June 30, 1998 and the period from July 1, 1998 to March
16, 1999. 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 in Canada, which are in substantial agreement with those in the
United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Discreet Logic Inc. and subsidiaries as at June 30, 1998 and March 16, 1999,
and the results of their operations and their cash flows for the eleven-month
period ended June 30, 1997, the year ended June 30, 1998 and the period from
July 1, 1998 to March 16, 1999, in accordance with generally accepted
accounting principles in the United States of America.

                                          ARTHUR ANDERSEN & CIE
                                          Chartered Accountants
                                          General Partnership

Montreal, Canada
June 23, 1999

                                      F-22
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

                          CONSOLIDATED BALANCE SHEETS
                  (amounts in U.S. Dollars except share data)

<TABLE>
<CAPTION>
                                                       June 30,     March 16,
                                                         1998          1999
                                                     ------------  ------------
<S>                                                  <C>           <C>
                      ASSETS
Current Assets:
  Cash and cash equivalents........................  $ 46,459,113  $ 48,036,230
  Accounts receivable (less reserves for
   uncollectible accounts of $3,654,000
   and $3,436,000 respectively)....................    32,102,444    11,172,969
  Inventory--
    Resale.........................................     7,880,378     8,368,099
    Demonstration..................................     4,776,387     6,895,314
  Income taxes receivable..........................           --        378,190
  Other current assets.............................     4,718,671     6,502,637
                                                     ------------  ------------
                                                       95,936,993    81,353,439
Property and equipment--less accumulated
 depreciation and amortization.....................     9,576,129     8,590,988
Deferred income taxes..............................       877,514       699,963
Other assets.......................................    25,635,785    18,285,905
Assets held for resale.............................     4,384,160     4,250,419
                                                     ------------  ------------
                                                     $136,410,581  $113,180,714
                                                     ============  ============
       LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Borrowings under line of credit..................  $  2,713,131  $  1,845,760
  Accounts payable.................................    23,265,953    21,934,256
  Accrued expenses.................................    12,833,320    10,903,561
  Deferred revenue.................................     6,544,620     8,136,812
  Customer deposits................................       288,113       354,248
  Income taxes payable.............................     9,882,485     2,755,660
                                                     ------------  ------------
                                                       55,527,622    45,930,297
Deferred income taxes..............................     2,228,634     1,969,027
                                                     ------------  ------------
Commitments and Contingencies (Notes 5, 12, and 15)
Shareholders' Equity:
  Preferred shares--no par value
   Authorized--unlimited number of shares
   Issued and outstanding--none
   Common shares--no par value
   Authorized--unlimited number of shares
   Issued and outstanding--29,617,504 shares at
   June 30, 1998
   and 29,992,674 shares at March 16, 1999.........   107,748,709   109,890,493
  Accumulated deficit..............................   (24,163,115)  (39,218,956)
  Deferred compensation............................      (907,491)     (427,821)
  Accumulated other comprehensive loss.............    (4,023,778)   (4,962,326)
                                                     ------------  ------------
    Total shareholders' equity.....................    78,654,325    65,281,390
                                                     ------------  ------------
                                                     $136,410,581  $113,180,714
                                                     ============  ============
</TABLE>

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

                                      F-23
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  (amounts in U.S. Dollars except share data)

<TABLE>
<CAPTION>
                                                                  Period from
                                   Eleven Months                  July 1, 1998
                                       Ended       Year Ended          to
                                   June 30, 1997  June 30, 1998  March 16, 1999
                                   -------------  -------------  --------------
<S>                                <C>            <C>            <C>
Total revenues.................... $ 101,923,931  $ 151,558,128  $  66,824,472
Cost of revenues..................    47,571,342     62,033,320     33,395,284
                                   -------------  -------------  -------------
    Gross profit..................    54,352,589     89,524,808     33,429,188
                                   -------------  -------------  -------------
Operating expenses:
  Research and development, net of
   tax credits of $696,000,
   $1,108,000, and $983,000,
   respectively...................     9,707,890     14,847,019     11,159,557
  Sales and marketing.............    23,206,070     34,320,612     23,599,341
  General and administrative......     6,500,705     16,307,022     12,548,464
  Write-off of purchased research
   and development (Note 15)......     2,263,000      6,915,000            --
  Gain on sale of investment (Note
   16)............................           --      (2,500,000)           --
  Costs of terminated agreement
   (Note 17)......................           --       1,712,860            --
  Costs of merger transaction
   (Note 1).......................           --             --       6,378,000
  Restructuring expense (Note
   19)............................           --      (1,504,472)           --
  Litigation and related
   settlement expenses (Note 5)...     6,500,000       (405,000)           --
                                   -------------  -------------  -------------
    Total operating expenses......    48,177,665     69,693,041     53,685,362
                                   -------------  -------------  -------------
    Operating income (loss).......     6,174,924     19,831,767    (20,256,174)
                                   -------------  -------------  -------------
Other income (expense):
  Interest income.................     1,233,924      1,118,343      1,705,804
  Interest expense................       (55,318)      (135,625)       (71,513)
  Foreign currency exchange gain
   (loss).........................      (187,843)     1,083,450        895,876
                                   -------------  -------------  -------------
    Total other income (expense)..       990,763      2,066,168      2,530,167
                                   -------------  -------------  -------------
  Income (loss) before income
   taxes..........................     7,165,687     21,897,935    (17,726,007)
Provision for (recovery of) for
 income taxes.....................     6,489,343     10,853,995     (2,670,166)
                                   -------------  -------------  -------------
  Net income (loss)............... $     676,344  $  11,043,940  $ (15,055,841)
                                   =============  =============  =============
Earnings (loss) per share:
  Basic........................... $        0.02  $        0.38  $       (0.50)
                                   =============  =============  =============
  Diluted......................... $        0.02  $        0.36  $       (0.50)
                                   =============  =============  =============
Weighted average common shares
 outstanding:
  Basic...........................    27,947,807     29,029,147     29,842,536
                                   =============  =============  =============
  Diluted.........................    28,893,652     30,792,932     29,842,536
                                   =============  =============  =============
</TABLE>

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

                                      F-24
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  (amounts in U.S. Dollars except share data)
<TABLE>
<CAPTION>
                                Common Stock
                          ------------------------
                                                                                                Accumulated
                                                                                                   Other          Total
                                                     Accumulated     Deferred   Comprehensive  Comprehensive  Shareholders'
                            Shares      Amount         Deficit     Compensation Income (Loss)      Loss          Equity
                          ---------- -------------  -------------  ------------ -------------  -------------  -------------
<S>                       <C>        <C>            <C>            <C>          <C>            <C>            <C>
Balance, July 31, 1996..  27,699,426 $  78,922,914  $ (35,883,399)  $      --                  $   (696,499)  $ 42,343,016
Exercise of common stock
 options................     321,577     1,128,256                                                               1,128,256
Issuance of shares
 through Employee Stock
 Purchase Plan..........      96,412       350,499                                                                 350,499
Grant of compensatory
 stock options..........                   673,750                    (673,750)                                        --
Comprehensive income:
 Net income.............                                  676,344               $    676,344                       676,344
 Change in cumulative
  translation
  adjustment............                                                            (117,520)      (117,520)      (117,520)
                                                                                ------------
Comprehensive income....                                                        $    558,824
                          ---------- -------------  -------------   ----------  ------------   ------------   ------------
Balance, June 30, 1997..  28,117,415    81,075,419    (35,207,055)    (673,750)                    (814,019)    44,380,595
Exercise of common stock
 options................     253,163     1,136,747                                                               1,136,747
Issuance of shares
 through Employee Stock
 Purchase Plan .........      46,926       524,165                                                                 524,165
Issuance of shares to D-
 Vision (Note 15(b))....     555,000    10,649,063                                                              10,649,063
Issuance of shares to
 Intel, net of issuance
 costs of $17,625 (Note
 8(d))..................     645,000    13,527,375                                                              13,527,375
Grant of compensatory
 stock options..........                   835,940                    (835,940)                                        --
Compensation expense
 related to stock
 options................                                               602,199                                     602,199
Comprehensive income:
 Net income.............                               11,043,940                 11,043,940                    11,043,940
 Change in cumulative
  translation
  adjustment............                                                          (3,209,759)    (3,209,759)    (3,209,759)
                                                                                ------------
Comprehensive income....                                                        $  7,834,181
                          ---------- -------------  -------------   ----------  ------------   ------------   ------------
Balance, June 30,
 1998...................  29,617,504   107,748,709    (24,163,115)    (907,491)                  (4,023,778)    78,654,325
Exercise of common stock
 options................     307,673     1,471,306                                                               1,471,306
Issuance of shares
 through Employee Stock
 Purchase Plan .........      67,497       695,476                                                                 695,476
Cancellation of
 compensatory stock
 options................                   (24,998)                     24,998                                         --
Compensation expense
 related to stock
 options................                                               454,672                                     454,672
Comprehensive loss:
 Net loss...............                              (15,055,841)               (15,055,841)                  (15,055,841)
 Change in cumulative
  translation
  adjustment............                                                            (938,548)      (938,548)      (938,548)
                                                                                ------------
Comprehensive loss......                                                        $(15,994,389)
                          ---------- -------------  -------------   ----------  ============   ------------   ------------
Balance, March 16,
 1999...................  29,992,674 $ 109,890,493  $ (39,218,956)  $ (427,821)                $ (4,962,326)  $ 65,281,390
                          ========== =============  =============   ==========                 ============   ============
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-25
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (amounts in U.S. Dollars)

<TABLE>
<CAPTION>
                                    Eleven Months                   Period from
                                        Ended       Year Ended    July 1, 1998 to
                                    June 30, 1997  June 30, 1998  March 16, 1999
                                    -------------  -------------  ---------------
<S>                                 <C>            <C>            <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Net income (loss)................. $    676,344   $ 11,043,940    $ (15,055,841)
 Adjustments to reconcile net
  income (loss) to cash provided by
  operating activities--
 Depreciation and amortization.....    5,987,256     16,384,309       12,299,106
 Deferred income taxes.............      503,699      3,769,945          (82,056)
 Write-off of purchased research &
  development......................    2,263,000      6,915,000              --
 Write-off of assets for
  restructuring....................          --         610,472              --
 Reversal of restructuring
  reserve, net.....................          --      (1,504,472)             --
 Gain on sale of investment in
  Essential Communications
  Corporation......................          --      (2,500,000)             --
 Compensation expense related to
  stock options....................          --         602,199          454,672
 Changes in assets and liabilities
  (net of effect of
  acquisitions)--
  Settlement of class action
   litigation......................          --     (10,800,000)             --
  Insurance proceeds related to
   class action litigation.........          --       3,459,000              --
  Accounts receivable..............  (10,819,617)    (4,326,039)      20,929,475
  Inventory........................    2,986,146      3,378,732       (2,909,876)
  Income taxes receivable..........    2,743,232        448,059         (378,190)
  Other current assets.............     (248,546)      (682,982)      (1,783,966)
  Accounts payable.................   14,336,101     (3,880,117)      (3,160,097)
  Accrued expenses.................      799,643     (8,328,774)      (1,929,759)
  Deferred revenue.................    3,333,788     (1,558,674)       1,592,192
  Income taxes payable.............    4,734,484      5,148,001       (7,126,825)
  Customer deposits................   (1,258,442)    (1,071,506)          66,135
  Due to related parties...........      (25,535)           --               --
                                    ------------   ------------    -------------
   Net cash provided by operating
    activities.....................   26,011,553     17,107,093        2,914,970
                                    ------------   ------------    -------------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
 Purchase of property and
  equipment........................   (6,265,405)    (9,501,868)      (3,487,742)
 Proceeds from disposal of property
  and equipment....................        4,885        818,000              --
 Increase in other assets..........   (2,480,908)           --          (227,791)
 Cash paid for Denim acquisition
  and related costs................   (9,125,611)           --               --
 Cash paid for D-Vision acquisition
  and related costs................          --     (10,342,000)             --
 Proceeds from sale of investment
  in Essential Communications
  Corporation......................          --       2,500,000              --
                                    ------------   ------------    -------------
   Net cash used in investing
    activities.....................  (17,867,039)   (16,525,868)      (3,715,533)
                                    ------------   ------------    -------------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
 Proceeds from government loan.....          --             --         1,828,400
 Proceeds from (repayment of) line
  of credit........................          --       2,713,131       (1,595,862)
 Proceeds from issuance of common
  shares, net of issuance costs....          --      13,527,375              --
 Proceeds from the exercise of
  stock options....................    1,128,256      1,136,747        1,471,306
 Proceeds from the employee stock
  purchase plan....................      350,499        524,165          695,476
                                    ------------   ------------    -------------
   Net cash provided by financing
    activities.....................    1,478,755     17,901,418        2,399,320
                                    ------------   ------------    -------------
Foreign exchange effect on cash....      386,808     (3,691,658)         (21,640)
                                    ------------   ------------    -------------
Increase in cash and cash
 equivalents.......................   10,010,077     14,790,985        1,577,117
Cash and cash equivalents,
 beginning of year.................   21,658,051     31,668,128       46,459,113
                                    ------------   ------------    -------------
Cash and cash equivalents, end of
 year.............................. $ 31,668,128   $ 46,459,113    $  48,036,230
                                    ============   ============    =============
</TABLE>

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

                                      F-26
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

               CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)

<TABLE>
<CAPTION>
                                                                 Period from
                                    Eleven Months  Year Ended    July 1, 1998
                                        Ended       June 30,          to
                                    June 30, 1997     1998      March 16, 1999
                                    ------------- ------------  --------------
<S>                                 <C>           <C>           <C>
Supplemental disclosure of cash
 flow information:
  Interest paid during the year....  $   16,579   $    150,243    $   55,363
  Income taxes paid during the
   year............................   1,141,487      2,527,720     4,028,581
In connection with the acquisition
 of Lightscape in December 1997,
 the following non-cash transaction
 occurred:
  Fair value of assets acquired....  $      --    $  7,614,322    $      --
  Liabilities assumed..............         --      (7,614,322)          --
                                     ----------   ------------    ----------
Cash paid for acquisition, net of
 cash acquired.....................  $      --    $        --     $      --
                                     ==========   ============    ==========
In connection with the acquisition
 of D-Vision in July 1997, the
 following non-cash transaction
 occurred:
  Fair value of assets acquired....  $      --    $ 27,210,063    $      --
  Liabilities assumed..............         --      (5,811,000)          --
  Cash acquired....................         --        (408,000)          --
  Issuance of 555,000 shares of
   common stock....................         --     (10,649,063)          --
                                     ----------   ------------    ----------
Cash paid for acquisition, net of
 cash acquired.....................  $      --    $ 10,342,000    $      --
                                     ==========   ============    ==========
</TABLE>



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

                                      F-27
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (Amounts in U.S. Dollars)

(1) Operations

   Discreet Logic Inc. ("Discreet" or "the Company") was incorporated under
Part 1A of the Quebec Companies Act on September 10, 1991. The Company and its
subsidiaries develop, assemble, market and support non-linear, digital systems
and software for creating, editing and compositing imagery and special effects
for film, video, HDTV, broadcast and the Web. The Company's systems and
software are utilized by creative professionals, for a variety of applications,
including feature films, television programs, commercials, music and corporate
videos, interactive game production, live broadcasting as well as Web design.

   The Company sells its advanced systems and other products through its direct
sales force, as well as through distributors and resellers. The Company markets
and sells its systems directly in North America and in certain European and
Pacific Rim countries. Sales activities in North America are conducted from the
Company's Montreal headquarters, sales offices in Los Angeles, New York and
Chicago and field representatives based in Boston, San Francisco, and Atlanta.
The Company also markets its systems through sales offices located in the
United Kingdom, France, Germany, Singapore, Brazil, India, Hong Kong and Japan
and through a network of distributors and resellers in over 80 countries.

   On March 16, 1999, pursuant to the terms of that certain Second Amended and
Restated Agreement and Plan of Acquisition and Amalgamation dated as of
November 18, 1998, as amended on December 18, 1998 and on January 18, 1999 (the
"Acquisition Agreement"), by and among Autodesk, Inc., a Delaware corporation
("Autodesk"), Autodesk Development, B.V., a Netherlands corporation and an
indirect wholly owned subsidiary of Autodesk ("Dutchco"), 9066-9771 Quebec
Inc., a Quebec Company and a wholly owned subsidiary of Dutchco ("Amalgamation
Sub"), 9066-9854 Quebec Inc., a Quebec Company and an indirect wholly owned
subsidiary of Autodesk ("Autodesk Quebec"). Autodesk Canada, Inc., an Ontario
company and an indirect wholly owned subsidiary of Autodesk, ("ACI"), and
Discreet Logic, Inc., a Quebec company ("Old Discreet"), Dutchco acquired all
voting shares of the successor company to Discreet resulting from the
Amalgamation (as defined below) by way of an amalgamation of entities under
common control under the Companies Act of Quebec of Old Discreet, Amalgamation
Sub and Autodesk Quebec (the "Amalgamation") and certain related transactions
described below (together with the Amalgamation, the "Acquisition"). As a
result of the Acquisition, Discreet became an indirect subsidiary of Autodesk.
Shortly prior to the Amalgamation, substantially all of the assets of ACI were
assigned to Autodesk Quebec as part of a corporate reorganization. Upon the
Amalgamation, such assets were assumed by Discreet.

   In connection with the Acquisition, Discreet incurred costs of approximately
$6,000,000 primarily for investment banking, legal and accounting fees related
to the merger. These costs were charged to operations on March 16, 1999 upon
the closing of the Acquisition transactions. The Company also wrote-off certain
assets, in the amount of $378,000, which became redundant as a result of the
Acquisition.


                                      F-28
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(2) Significant Accounting Policies

   The accompanying consolidated financial statements reflect the application
of the following significant accounting policies, as described below and
elsewhere in the notes to consolidated financial statements. These consolidated
financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America, and are presented in
United States dollars ("U.S. Dollars").

 (a) Change of Fiscal Year

   On January 9, 1997, the Board of Directors of the Company approved the
change of the Company's fiscal year end from July 31 to June 30. This change
was effective beginning with the Company's second fiscal quarter of 1997.

   The consolidated financial statements are presented for the period from July
1, 1998 to March 16, 1999, the twelve-month period ended June 30, 1998, and the
eleven-month period ended June 30, 1997. Consequently, the results for the
twelve-month period ended June 30, 1998 are not directly comparable with those
for the eleven-month period ended June 30, 1997, or those for the period from
July 1, 1998 to March 16, 1999.

   The Company prepares consolidated financial statements, remeasures accounts
in foreign currencies to reflect changes in exchange rates, and examines and
adjusts certain reserve accounts at the end of each quarter.

 (b) Principles of Consolidation

   The consolidated financial statements include the accounts of the Company
and its subsidiaries. All subsidiaries are wholly owned as of March 16, 1999.
All significant intercompany accounts and transactions have been eliminated
upon consolidation.

   The preparation of consolidated 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 consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results may differ from these estimates.

 (c) Revenue Recognition

   In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 97-2, Software Revenue Recognition.
The statement provides specific industry guidance and stipulates that revenue
recognized from software arrangements is to be allocated to each element of the
arrangement based on the relative fair values of the elements, such as software
products, upgrades, enhancements, postcontract customer support, installation
or training. Under SOP 97-2, the determination of fair value is based on
objective evidence that is specific to the vendor. If such evidence of fair
value for each element of the arrangement does not exist, all revenue from the
arrangement is deferred until such time that the evidence of fair value does
exist or until all elements of the arrangement are delivered. Revenue allocated
to software products, specified upgrades, and enhancements is generally
recognized upon delivery of the related products, upgrades, and enhancements.
Revenue allocated to postcontract customer support is generally recognized
ratably over the term of the support, and revenue allocated to service elements
is generally recognized as the services are performed. SOP 97-2 was adopted by
the Company effective January 1, 1998 and has not had a material effect on
revenue recognition.

                                      F-29
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company recognizes revenue from software licenses, and the related
hardware and peripherals, upon shipment of the products. Sales of Discreet
products do not require significant production, modification or customization
of software. Installation of the software is routine, requires insignificant
effort and is not essential to the functionality of the system or software. The
Company documents evidence of its arrangements with customers, which include
the condition that the goods are FOB origin. The fees are fixed and are
specified in the arrangements. If collectibility is considered probable,
Discreet recognizes revenue upon delivery (shipment). The Company recognizes
revenue from post contract customer support and other related services ratably,
as the obligations are fulfilled, or when the related services are performed.
Post contract customer support, training, installation, systems integration and
rental services, are performed primarily under separately priced arrangements
under which the Company has recorded revenues of $13,606,000, $14,050,000 and
$8,553,000 for the eleven-month period ended June 30, 1997, the year ended June
30, 1998, and the period from July 1, 1998 to March 16, 1999, respectively.

   Revenues from sales to Value Added Resellers (VARs) and distributors are
recognized on the shipment of product to these parties. The Company has
reserves for estimated returns. Actual returns have not differed materially
from these estimates and have not been significant.

 (d) Net Income (Loss) per Common Share

   In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.
The new standard simplifies the computation of earnings per share (EPS) and
increases comparability to international standards. Under SFAS No. 128, primary
EPS is replaced by "Basic" EPS, which excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. "Diluted" EPS, which is computed
similarly to fully diluted EPS, reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. The Company is required to disclose both basic and
diluted EPS.

   The following table presents, in thousands (except for EPS amounts) a
reconciliation of Basic EPS to Diluted EPS as required by SFAS No. 128:

<TABLE>
<CAPTION>
                         Eleven Months Ended      Year Ended      Period from July 1, 1998 to
                            June 30, 1997       June 30, 1998            March 16, 1999
                         ------------------- -------------------- -----------------------------
                         Income Shares  EPS  Income  Shares  EPS     Loss      Shares    EPS
                         ------ ------ ----- ------- ------ ----- ----------  -----------------
<S>                      <C>    <C>    <C>   <C>     <C>    <C>   <C>         <C>      <C>
Basic EPS
 Income available to
  common shareholders...  $676  27,948 $0.02 $11,044 29,029 $0.38 $  (15,056)   29,843 $  (0.50)
                                       =====                =====                      ========
Effect of Dilutive
 Securities
 Impact of exercise of
  stock options under
  treasury stock
  method................   --      946           --   1,764              --        --
                          ----  ------       ------- ------       ----------  -------- --------
Diluted EPS
 Income available to
  common shareholders
  and assumed
  exercises.............  $676  28,894 $0.02 $11,044 30,793 $0.36 $  (15,056)   29,843 $  (0.50)
                          ====  ====== ===== ======= ====== ===== ==========  ======== ========
</TABLE>

   In accordance with SFAS No. 128, in periods that the Company incurs a net
loss, all outstanding options are excluded from the calculation of diluted EPS.
For the period from July 1, 1998 to March 16, 1999, the Company has excluded
all outstanding options from the calculation of diluted EPS as a result of
being in a loss position. In fiscal 1997 and 1998, 196,132 and 439,141
antidilutive weighted shares, respectively, have been excluded from the
calculation of diluted EPS.

                                      F-30
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (e) Research and Development Expenses

   The Company charges to operations research and development costs as incurred
and presents such expenses net of income tax credits from the Canadian federal
and Quebec provincial governments (see Note 7). Software development costs are
considered for capitalization when technological feasibility is established in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. The Company sells software in a market that is subject to rapid
technological change, new product introductions and changing customer needs.
Accordingly, the Company has not capitalized software development costs due to
its inability to estimate the useful life of software under development.

 (f) Translation of Foreign Currencies

   The accounts of the Company are translated in accordance with SFAS No. 52,
Foreign Currency Translation. The Company's management has elected to present
these consolidated financial statements in U.S. dollars. The financial
statements of the Company and its subsidiaries are translated from their
functional currency into the reporting currency, the U.S. dollar, utilizing the
current rate method. Accordingly, assets and liabilities are translated at
exchange rates in effect at the end of the year, and revenues and expenses are
translated at the weighted average exchange rate during the year. All
cumulative translation gains or losses from the translation into the Company's
reporting currency are included as a component of accumulated other
comprehensive income in the consolidated balance sheets.

   Foreign currency transaction gains (losses) included in other income
(expense) in the accompanying consolidated statements of operations were
$(187,843), $1,083,450 and $895,776 for the eleven-month period ended June 30,
1997, the year ended June 30, 1998, and the period from July 1, 1998 to March
16, 1999, respectively.

 (g) Concentration of Credit Risk

   During fiscal 1998, the Company amended and restated its Maximum Liability
Agreement with a leasing company. The agreement provides that the Company is
continently liable up to a maximum percentage of the remaining principal
payments outstanding related to the purchase of the Company's products by
customers financed by said leasing company. The maximum liability is contingent
on certain factors as defined in the agreement. As at June 30, 1998 and March
16, 1999, the Company had accrued $648,000 and $637,000, respectively, the
maximum amount of the contingent liability as a charge to general and
administrative expenses.

   The Company has no other significant off-balance sheet concentration of
credit risk such as foreign exchange contracts, option contracts or other
foreign currency hedging arrangements. The Company maintains the majority of
cash balances with three financial institutions and its accounts receivable
credit risk is not concentrated within any geographic area. There were no
accounts receivable from a single customer which exceeded 10 percent of total
accounts receivable as of June 30, 1998 and March 16, 1999.

 (h) Postemployment and Postretirement Benefits

   The Company does not provide postemployment and postretirement benefits.

   Cash equivalents are carried at cost, which approximates market value. Cash
equivalents are short-term, highly liquid investments with original maturities
of less than three months. Cash equivalents consist of commercial paper and
money market mutual funds at June 30, 1998 and March 16, 1999.

                                      F-31
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (j) Inventory

   Inventory consists of hardware purchased for resale and is valued at the
lower of cost (determined on a first-in, first-out basis) or net realizable
value. Demonstration inventory consists of hardware inventory used by the
Company and potential customers for product demonstrations which will be
subsequently sold.

 (k) Property and Equipment

   The Company provides for depreciation and amortization using the straight-
line and declining-balance methods over the estimated useful lives of the
assets as follows:

<TABLE>
<CAPTION>
                                    Estimated         June 30,     March 16,
   Asset Classification            Useful Life          1998          1999
   --------------------        -------------------- ------------  ------------
   <S>                         <C>                  <C>           <C>
   Computer equipment, video
    equipment and
    software..................      2-5 Years       $ 19,775,508  $ 22,274,474
                                Shorter of term of
   Leasehold improvements..... lease or useful life    1,735,401     1,785,492
   Furniture and fixtures.....       5 Years           2,503,772     2,718,865
                                                    ------------  ------------
                                                      24,014,681    26,778,831
   Less--Accumulated
    depreciation and
    amortization..............                       (14,438,552)  (18,187,843)
                                                    ------------  ------------
                                                    $  9,576,129  $  8,590,988
                                                    ============  ============
</TABLE>

 (l) Other Assets

   Other assets include acquired technology, goodwill, and other deferred
charges, and are amortized on a straight-line basis over the estimated useful
lives of the assets, which range from three to five years. The Company
evaluates the realizability and the related periods of amortization of these
assets on a regular basis.

   Other assets included the following amounts:

<TABLE>
<CAPTION>
                                                      June 30,     March 16,
   Asset Classification                                 1998          1999
   --------------------                             ------------  ------------
   <S>                                              <C>           <C>
   Acquired technology............................. $  6,938,137  $  6,938,137
   Goodwill........................................   30,873,542    30,873,542
   Other deferred charges..........................      639,840       861,873
                                                    ------------  ------------
                                                      38,451,519    38,673,552
   Less--Accumulated amortization..................  (12,815,734)  (20,387,647)
                                                    ------------  ------------
                                                    $ 25,635,785  $ 18,285,905
                                                    ============  ============
</TABLE>
 (m) Legal Costs

   The Company accrues legal costs to be incurred when such amounts are
probable and the amounts can be reasonably estimated. Material assumptions used
to estimate the amounts accrued include, primarily, the advice of legal counsel
regarding the nature, length and estimated legal costs of each case. These
liabilities are not discounted to reflect their present values.

                                      F-32
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (n) Recent Accounting Pronouncements

   In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 will be effective for the
Company's fiscal year ending June 30, 2002. Management believes that this
statement will not have a significant impact on the Company.

   In March 1998, the AICPA issued Statement of Position (SOP) 98-4, which
amends certain provisions of SOP 97-2. The Company believes it is in compliance
with the provisions of SOP 97-2 as amended by SOP 98-4. In December 1998, the
AICPA issued Statement of Position 98-9, which amends certain provisions of SOP
97-2 and extends the deferral of the application of certain passages of SOP 97-
2 provided by SOP 98-4 until the beginning of Discreet's fiscal year 2000.
Discreet is currently evaluating the impact of SOP 98-9 on its financial
statement and related disclosures.

(3) Other Current Assets

   Other current assets consist of the following:

<TABLE>
<CAPTION>
                                                            June 30,  March 16,
                                                              1998       1999
                                                           ---------- ----------
   <S>                                                     <C>        <C>
   Prepaid expenses....................................... $2,754,321 $4,099,155
   Sales tax receivable...................................  1,147,833  1,765,630
   Other receivables......................................    816,517    637,852
                                                           ---------- ----------
                                                           $4,718,671 $6,502,637
                                                           ========== ==========
</TABLE>
(4) Accrued Expenses

   Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                         June 30,    March 16,
                                                           1998        1999
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Payroll and payroll related......................... $ 4,180,410 $ 3,713,400
   Professional fees...................................     764,869     891,010
   Commissions.........................................   2,676,242   1,158,813
   Sales tax and VAT payable...........................   1,542,036     177,225
   Accrued restructuring expenses......................     825,000     689,373
   Maximum liability accrual...........................     647,667     637,098
   Acquisition costs...................................   1,021,305     930,254
   Other...............................................   1,175,791   2,706,388
                                                        ----------- -----------
                                                        $12,833,320 $10,903,561
                                                        =========== ===========
</TABLE>

(5) Litigation and Related Settlement Expenses

 (a) Class action securities litigation

   On May 29, 1996, June 13, 1996 and April 29, 1997, certain of the Company's
shareholders filed class action lawsuits alleging violations of federal
securities laws and other claims against the Company and certain of its
officers and directors among others. The three lawsuits were filed in the
Superior Court of the State of

                                      F-33
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

California, the United States District Court, District of Massachusetts and the
United States District Court, Northern District of California, respectively. On
or about November 25, 1997, a settlement of all three shareholder class actions
received final court approval. Under the $10,800,000 settlement, the Company
contributed approximately $7,400,000 from its own funds, with the remainder
provided by insurance.

   In the year ended July 31, 1996, the Company had provided a $2,506,000
litigation reserve for legal costs associated with defending the class action
lawsuits. During the eleven-month period ended June 30, 1997, the Company
recorded a provision of $6,500,000 to accrue the additional estimated
settlement costs to be borne by the Company.

   In the twelve-month period ended June 30, 1998, the Company reversed
$405,000 of litigation and related settlement expenses in order to adjust
previously estimated legal costs to the actual amount of costs incurred.

   The accrued litigation and settlement reserves were $0 and $0 as of June 30,
1998 and March 16, 1999, respectively.

 (b) Griffith & Tekushan, Inc.

   On June 2, 1998, the Company was named as a defendant in a breach of
warranty action filed in the Supreme Court of the State of New York for the
County of New York entitled Griffith & Tekushan, Inc. v. Discreet Logic, Inc.
(Index No. 602684/98) (the "Action"). The complaint alleges, among other
things, that the Company breached certain warranties arising out of a software
licensing agreement and seeks damages of $1 million. On July 10, 1998, the
Action was removed from state court to the United States District Court for the
Southern District of New York (Case No. 98 Civ. 4909 (BSJ)) (the "Court"). On
July 17, 1998, the Company filed a motion to dismiss the Action in its
entirety. On May 28, 1999, the Court entered an order dismissing the Action
without prejudice based on plaintiff's request for voluntary dismissal. The
Company intends to contest this case vigorously; however, the ultimate outcome
of the case cannot be predicted at this time.

 (c) Class Action Litigation

   On August 28, 1998, a complaint was filed in the Marin County, California,
Superior Court, entitled Jerry Krim, on Behalf of Himself and All Others
Similarly Situated, v. Discreet Logic Inc., et al., case No. 174792 (the "Krim
Complaint"). The lawsuit names as defendants the Company, the Company's
directors and certain unidentified "John Does." The Krim Complaint alleges that
the defendants breached their fiduciary duties to shareholders in connection
with the proposed merger transaction with Autodesk, Inc. The Krim Complaint
asks the court to enjoin the consummation of the transaction or, alternatively,
seeks to rescind the transaction or an award of unspecified damages from the
defendants in the event the transaction is consummated. The Company believes
the claims asserted in the complaint are without merit and intends to
vigorously contest them.

   On September 29, 1998, a second complaint was filed in the Marin County,
California, Superior Court, entitled William Clark, et al. v. Discreet Logic
Inc., et al., case No. 175037 (the "Clark Complaint"). The Clark Complaint is
substantially similar to the Krim Complaint and names as defendants the
Company, certain of the Company's directors and certain unidentified "John
Does." The Clark Complaint alleges that the defendants breached their fiduciary
duties to shareholders in connection with the proposed merger transaction with
Autodesk, Inc. The Clark Complaint asks the court to enjoin the consummation of
the transaction or, alternatively, seeks to rescind the transaction or an award
of unspecified damages from the defendants in the event the transaction is
consummated. The Company believes the claims asserted in the complaint are
without merit and intends to vigorously contest them.


                                      F-34
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   On December 2, 1998, the Marin County, California, Superior Court (the
"Court") entered an order consolidating the Clark and Krim actions. On December
11, 1998, the Court entered an order on the Company's October 26, 1998 motions
to dismiss. The order dismissed both the Krim and the Clark Complaints as
against the Company for failing to state a claim against the Company. The
Court's order granted plaintiffs 30-days leave to replead their complaints. On
January 11, 1999, plaintiffs filed a consolidated amended complaint with the
Court (the "Amended Complaint") which asserts the same breach of fiduciary duty
cause of action against the Company, certain of the Company's directors and
certain unidentified "John Does," and seeks the same relief.

   On April 9, 1999, the Court entered an order denying the Company's and
certain of the individual defendants' motions to dismiss the Amended Complaint
on the grounds of inconvenient forum and certain of the individual defendants'
motions to dismiss for lack of personal jurisdiction. On April 16, 1999, the
Company filed a demurrer (a motion to dismiss the Amended Complaint) for
failure to state a claim as against the Company. On April 26, 1999, certain of
the individual defendants filed a petition for writ of mandate with the
California Court of Appeal (the "Court of Appeal"), appealing the Court's April
9, 1999 order as to them. On May 26, 1999, the Court of Appeal issued an
Alternative Writ of Mandate, directing the Court, by June 30,
1999, to reverse its April 9, 1999 denial of certain of the individual
defendants' motions to dismiss on personal

                                      F-35
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

jurisdiction grounds or show cause why it has not done so. On June 16, 1999,
the Court entered an Order sustaining the Company's demurrer to the Amended
Complaint, dismissing the Company from the action without leave to amend. On
June 18, 1999, the Court entered an Order reversing the April 9, 1999 Order and
granting certain of the individual defendants' motions to dismiss for lack of
personal jurisdiction.

   The Company believes the claims asserted in the Amended Complaint are
without merit and intends to vigorously contest them.

(6) Demand Line of Credit, Leasing and Tax Credit Facilities

   In August 1997, the Company amended its revolving demand line of credit and
leasing facility with its bank. The new agreement provides for a revolving
demand line of credit under which it can borrow up to Cdn$7,000,000
(approximately $4,630,000 at March 16, 1999). Advances under the line accrue
interest monthly at the Canadian prime rate (6.75% at March 16, 1999) plus
0.25%. Additionally, the agreement provides for a Cdn$600,000 (approximately
$397,000 at March 16, 1999) demand leasing facility, and a Cdn$600,000
(approximately $397,000 at March 16, 1999) demand research and development tax
credit facility. Advances under these facilities accrue interest monthly at the
Canadian prime rate (6.75% at March 16, 1999) plus 1%. The line and facilities
are secured by essentially all of the Company's North American assets. As
additional security, the Company assigned to the bank its insurance on these
assets. The Company is required to maintain certain financial ratios, including
minimum levels of working capital, debt service coverage and equity to asset
ratios. As of March 16, 1999, there were no amounts outstanding under the
demand leasing and demand research and development tax credit facilities,
however, the amount available to the Company under the line of credit was
reduced by the letter of guarantee discussed below.

   During fiscal 1998, the Company's Japanese subsidiary entered into a line of
credit agreement with its bank. Under this agreement, the subsidiary can borrow
up to $3,000,000. Advances under this line accrue interest at the prevailing
overnight rate for the period (approximately 1.695% at March 16, 1999) and are
secured by a letter of guarantee, in the amount of $3,000,000, issued by the
Company in favor of the subsidiary's bank. As of June 30, 1998 and March 16,
1999, the subsidiary had borrowed (Yen)376,824,000 (approximately $2,725,000 at
June 30, 1998) and (Yen)221,468,000 (approximately $1,847,000 at March 16,
1999), respectively.

(7) Canadian Federal and Provincial Income Tax Credits

   The Company is entitled to research and development incentives in the form
of income tax credits from the Canadian federal government ("Federal") and from
the Province of Quebec ("Provincial"). Federal income tax credits are received
on qualified Canadian research and development expenditures and equipment
purchases. Provincial income tax credits are received on qualified research and
development salaries in the Province of Quebec. The Federal and Provincial
income tax credits are earned at 20% of qualified research and development
expenditures. Additionally, the Federal credit may be limited to a credit
against income taxes payable.

   The Company recorded $696,000, $1,108,000, and $983,000 of income tax
credits as a reduction of research and development expenses for the eleven-
month period ended June 30, 1997, the year ended June 30, 1998, and the period
from July 1, 1998 to March 16, 1999, respectively. These income tax credits
represent credits earned based on qualifying research and development
expenditures. In addition, the Company recorded, $196,000, $374,000 and
$246,000 of income tax credits as a reduction in the carrying value of property
and equipment for the eleven-month period ended June 30, 1997, the year ended
June 30, 1998, and the period from July 1, 1998 to March 16, 1999,
respectively. These income tax credits represent credits earned based on
qualifying property and equipment purchases.

                                      F-36
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(8) Shareholders' Equity

 (a) Preferred Shares

   The Board of Directors is authorized to issue preferred shares, in one or
more series, and to fix the rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, and the number of shares constituting any series or the
designations of such series, without further vote or action by the
shareholders.

 (b) Private Placement of Shares to Intel Corporation

   On March 4, 1998, Discreet completed a private placement of 645,000 common
shares, no par value per share, for proceeds to the Company of approximately
$13,527,000, net of issuance costs.

   Under a separate agreement, the Strategic Development Agreement (the
"Agreement") dated as of March 4, 1998 by and between Discreet and Intel
Corporation ("Intel") provides for the mutual collaboration of Intel and
Discreet regarding the possible development of real-time effects software
designed specifically to run on certain Intel products and to allow the free
flow of certain developmental information between the parties to facilitate
similar development efforts. The nature of the Agreement is preliminary and, as
such, the Agreement does not provide for extensive obligations or liability on
behalf of either party. Under the Agreement, Discreet agrees to provide a
perpetual, non-transferable, non-assignable, non-exclusive, world-wide,
royalty-free license, without the right to sublicense, to internally use, copy
and modify certain Discreet proprietary software and related material solely
for the purposes of performance analysis, optimization and design and sale of
certain Intel products.

   Discreet retains sole ownership on all such software, even if such software
is modified by Intel. There are no "purchase rights' under the Agreement. Under
the Agreement, each party will bear its own costs associated with performance
of the agreement, which will generally entail training, travel and related
meeting expenses. Discreet believes that the agreement is not material to
Discreet's operations.

 (c) Dividends

   The Company has never declared or paid cash dividends and does not
anticipate paying any cash dividends on its capital stock in the foreseeable
future. In the event cash dividends are declared or paid, the Company
anticipates that they would be declared and paid in U.S. dollars. Part 1A of
the Quebec Companies Act prohibits the Company from paying dividends that would
prevent it from discharging its liabilities when due or that would bring the
book value of its assets to an amount less than the sum of its liabilities and
its issued and paid-up share capital account. At March 16, 1999, the Company
could not distribute any dividends.

(9) Stock Option and Stock Purchase Plans

   The Company applies the Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock issued to Employees, in accounting for its stock-based
compensation plans. During the year ended June 30, 1997, the Company adopted
only the disclosure requirements of Statement of Financial Accounting Standards
No. 123 (SFAS 123), Accounting for Stock-Based Compensation. SFAS 123
establishes financial accounting and reporting standards based on a fair value
concept for stock-based employee compensation plans. This statement requires an
employer that continues to apply the accounting provisions of APB 25 to
disclose pro forma amounts reflecting the difference between compensation
costs, including tax effects, that would have been recognized in the income
statement, if the fair value based method had been used.

                                      F-37
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The table below presents pro forma net loss and EPS, had compensation cost
for the Company's stock-based employee compensation plans been determined using
the provisions of SFAS No. 123.

<TABLE>
<CAPTION>
                                                                 Period from
                                                                 July 1, 1998
                                                                      to
                                          1997         1998     March 16, 1999
                                       ----------  ------------ --------------
<S>                                    <C>         <C>          <C>
Net income (loss):
  As Reported......................... $  676,344  $ 11,043,940 $ (15,055,841)
  Pro forma........................... $ (982,638) $  5,983,221 $ (18,241,000)
Basic net income (loss) per share:
  As Reported......................... $     0.02  $       0.38 $       (0.50)
  Pro forma........................... $    (0.04) $       0.21 $       (0.61)
Diluted net income (loss) per share:
  As Reported......................... $     0.02  $       0.36 $       (0.50)
  Pro forma........................... $    (0.04) $       0.19 $       (0.61)
</TABLE>

   The fair value of each graded vesting option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in fiscal 1997, 1998 and the
period from July 1, 1998 to March 16, 1999: risk free interest rates between
5.0% and 6.3%; expected dividend yields of 0%; expected term after vest date of
approximately 0.4 to 0.5 years; and expected volatility of 100%.

   Because the fair value based method of accounting has not been applied to
options granted prior to August 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

 (a) Restricted Stock and Stock Option Plan

   On June 14, 1994, the Company's Board of Directors approved the
establishment of the 1994 Restricted Stock and Stock Option Plan (the "1994
Plan") for the Company's officers, employees, consultants and directors. Under
the 1994 Plan, the Compensation Committee of the Board of Directors (the
"Compensation Committee") may grant stock options for a maximum of 5,000,000
common shares. Under the terms of the 1994 Plan, the purchase price, which
approximates fair market value, and vesting schedule applicable to each option
grant is determined by the Compensation Committee.

   On August 12, 1996, the Company's Board of Directors authorized the
repricing of 106,600 stock options previously granted under the 1994 Plan. The
repricing provided for the exercise price of the 106,600 options to be reduced
to $6.375 per share, representing the fair value per common share on the date
of repricing. Prior to the repricing, such options had exercise prices ranging
from $19.25 to $28.50 per share. In exchange for the repriced options, the
159,900 stock options remaining from these grants were forfeited.

   On November 20, 1997, the shareholders approved an amendment to the
Company's 1994 Amended and Restated Restricted Stock and Stock Option Plan to
reserve an additional 2,000,000 shares of common stock for issuance under this
plan.

 (b) 1995 Nonemployee Director Stock Option Plan

   On March 27, 1995, the Company's Board of Directors adopted, and in April
1995, the shareholders approved, the 1995 Non-Employee Director Stock Option
Plan (the "Director Plan"). Under the Director Plan, the Compensation Committee
may grant options to purchase up to 200,000 common shares to non-employee
directors of the Company. The Director Plan authorizes the grant (a) to each
person who becomes a member of the Board of Directors and who is not an
employee, officer or direct and indirect owner of 5% or more of the

                                      F-38
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

common shares of the Company (a "Non-Employee Director"), on the date such
person is first elected to the Board of Directors without further action by the
Compensation Committee, of an option to purchase 20,000 common shares and (b)
to each person receiving an option pursuant to clause (a) who is a Non-Employee
Director on the fifth anniversary of the date such person was first elected to
the Board of Directors, during the term of the Director Plan, of an option to
purchase 15,000 common shares, provided that such person has continuously
served as a Non-Employee Director during such 5-year period. The exercise price
will be the fair market value at the date of grant and the options will expire
10 years from the date of grant. All options vest in three equal annual
installments, with the first vesting on the date of grant. As of March 16,
1999, 60,000 options were granted and outstanding at fair market value under
the Director Plan.

 (c) 1995 Employee Stock Purchase Plan

   On March 27, 1995, the Company's Board of Directors adopted, and in April
1995, the shareholders approved, the 1995 Employee Stock Purchase Plan, whereby
the Company has reserved and may issue to employees up to an aggregate of
300,000 common shares in semiannual offerings over a ten year period. Common
shares are sold at 85% of fair market value. As of March 16, 1999, 227,563
shares had been issued under the plan.

 (d) 1997 Special Limited Non-Employee Director Stock Option Plan

   On February 10, 1997, the Company's Board of Directors adopted the 1997
Special Limited Non-Employee Director Stock Option Plan (the "1997 Plan").
Under the 1997 Plan, options to purchase 10,000 of the Company's common shares
were granted to each of two of the Company's non-employee directors at the Fair
Market Value (as defined in the 1997 Plan) of the shares on the date of the
grant, February 10, 1997. The total number of common shares originally
available for grant under the 1997 Plan was 20,000. The options granted
pursuant to the 1997 Plan expire 10 years from the date of grant and vest in
three equal annual installments. As of March 16, 1999, 20,000 options were
granted and outstanding under the 1997 Plan.

 (e) Stock Option Activity

   The following is a summary of all stock option activity:

<TABLE>
<CAPTION>
                         Eleven Months ended      Year ended      Period from July 1, 1998
                            June 30, 1997       June 30, 1998        to March 16, 1999
                         -------------------- ------------------- ----------------------------
                                     Weighted            Weighted                 Weighted
                                     Average             Average                   Average
                                     Exercise            Exercise                 Exercise
                           Shares     Price    Shares     Price      Shares         Price
                         ----------  -------- ---------  -------- -------------  -------------
<S>                      <C>         <C>      <C>        <C>      <C>            <C>
Beginning Outstanding...  2,744,646   $7.77   2,505,913   $ 5.64      3,020,570   $     9.53
Options Granted.........  1,689,638    5.41     901,771    19.03      1,086,000        11.16
Options Exercised.......   (321,577)   3.51    (253,163)    4.49       (307,673)        4.05
Options Canceled........ (1,606,794)   9.63    (133,951)   10.31       (372,826)        9.63
                         ----------           ---------           -------------
Ending Outstanding......  2,505,913    5.64   3,020,570     9.53      3,426,071        10.52
                         ----------           ---------           -------------
Exercisable.............    389,832   $4.71     469,122   $ 5.10        838,554   $     8.34
                         ==========           =========           =============
Weighted Average Fair
 Value of Options
 Granted During the
 Year...................              $3.85               $13.87                  $     6.87
</TABLE>

                                      F-39
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table provides further detail on the options granted during
1997, 1998, and the period from July 1, 1998 to March 16, 1999 in relation to
their respective fair values as calculated above:

<TABLE>
<CAPTION>
                                 1997              1998              1999
                          ------------------ ---------------- ------------------
                                    Weighted         Weighted           Weighted
                                    Average          Average            Average
                                    Exercise         Exercise           Exercise
                           Shares    Price   Shares   Price    Shares    Price
                          --------- -------- ------- -------- --------- --------
<S>                       <C>       <C>      <C>     <C>      <C>       <C>
Exercise price equal to
 fair value.............  1,472,238  $5.18   424,198  $16.47  1,086,000  $11.16
Exercise price greater
 than fair value........    147,400   6.48   386,000   24.25        --      --
Exercise price less than
 fair value.............     70,000   7.88    91,573    8.94        --      --
                          ---------  -----   -------  ------  ---------  ------
                          1,689,638  $5.41   901,771  $19.03  1,086,000  $11.16
                          =========  =====   =======  ======  =========  ======
</TABLE>

   The following table summarizes the options outstanding and exercisable as at
March 16, 1999:

<TABLE>
<CAPTION>
                                        Weighted   Weighted             Weighted
                                         Average   Average              Average
         Range of            Options   Contractual Exercise   Number    Exercise
     Exercise Prices       Outstanding    Life      Price   Exercisable  Price
     ---------------       ----------- ----------- -------- ----------- --------
<S>                        <C>         <C>         <C>      <C>         <C>
$0.05-$2.88...............    168,732     5.54      $ 1.21    168,732    $ 1.21
$4.50-$4.63...............    291,435     7.41      $ 4.50    114,551    $ 4.50
$5.50-$6.03...............    862,750     7.81      $ 5.85    170,000    $ 5.56
$6.38-$8.94...............    385,654     7.35      $ 7.41    193,355    $ 7.09
$11.00-$11.56.............    975,000     9.53      $11.17        --     $  --
$15.75-$24.25.............    742,500     8.45      $21.19    191,916    $20.61
                            ---------     ----      ------    -------    ------
$0.05-$24.25..............  3,426,071     8.24      $10.52    838,554    $ 8.34
                            =========     ====      ======    =======    ======
</TABLE>

(10) Related Party Transactions

 (a) Sales to Related Parties

   During fiscal 1998, the Company recorded revenue from system sales made to
Behaviour Entertainment Inc. and Behaviour Studios, Inc., companies controlled
by the Company's Chairman and Chief Executive Officer, in the amounts of
$320,573 and $1,837,077, respectively. At June 30, 1998, approximately $445,000
remained outstanding and is included in other current assets.

   In accordance with the Company's policy, these sales were on terms no less
favorable to the Company than provided by the Company to unrelated third
parties.

 (b) Purchases from Related Parties

   The Company purchased consulting services, in the amount of $64,000 and
$106,244, from BHVR Communications Inc., purchased marketing services in the
amount of $409,000 and $1,383,639 from Behaviour Design Inc. for the period
from July 1, 1998 to March 16, 1999 and the year ended June 30, 1998,
respectively. The Company purchased marketing services in the amount of
$223,090 from Behaviour Entertainment Inc. for the year ended June 30, 1998.
These related parties are companies controlled by the Company's Chairman and
Chief Executive Officer. At March 16, 1999, approximately $208,000 remained
outstanding and is included in accounts payable.

                                      F-40
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company made rental payments in the amount of $1,089,583 and $941,151
to TGR Zone Corporation ("TGR Zone"), a company indirectly owned by Discreet
Logic's Chairman and Chief Executive Officer, for space in its new
headquarters in Montreal for the period from July 1, 1998 to March 16, 1999
and the year end June 30, 1998, respectively. The commitments related to the
lease on this building are disclosed in Note 12.

   In accordance with the Company's policy, the purchase of these services was
on terms no less favorable to the Company than could be obtained by the
Company from unrelated third parties.

(11) Income Taxes

   The Company applies the provisions of SFAS No. 109, Accounting for Income
Taxes. Under the provisions of SFAS No. 109, the Company recognizes a current
tax liability or asset for current taxes payable or refundable and a deferred
income tax liability or asset for the estimated future tax effects of
temporary differences between the carrying value of assets and liabilities for
financial reporting and their tax basis and carryforwards to the extent they
are realizable.

   The components of the deferred income tax assets and the deferred income
tax liabilities are as follows:

<TABLE>
<CAPTION>
                                                  June 30, 1998 March 16, 1999
                                                  ------------- --------------
   <S>                                            <C>           <C>
   Deferred income tax assets--
     Foreign tax loss carryforwards..............  $ 5,499,216   $ 5,807,862
     Restructuring expenses......................      278,009       240,916
     Initial and secondary public offering
      issuance costs.............................      686,776       305,568
     Other temporary differences.................    2,005,176     3,437,492
                                                   -----------   -----------
                                                     8,469,177     9,791,838
     Less: Valuation allowance...................    7,591,663     9,091,875
                                                   -----------   -----------
                                                   $   877,514   $   699,963
                                                   ===========   ===========
   Deferred income tax liabilities--
     Difference between book and tax basis of
      property and equipment.....................  $ 1,250,871   $   824,452
     Federal research and development tax
      credits....................................      330,568       221,561
     Other temporary differences.................      647,195       923,014
                                                   -----------   -----------
                                                   $ 2,228,634   $ 1,969,027
                                                   ===========   ===========
</TABLE>

   The Company provides deferred income taxes for research and development tax
credits earned in the current year, which are included in taxable income in
the subsequent year. In accordance with Canadian tax laws, stock issuance
costs are deductible over a five-year period.

   The Company has recorded a valuation allowance against certain deferred
income tax assets including the tax benefit of certain foreign net operating
loss carryforwards as the tax benefits do not meet the recognition criteria
set forth in SFAS 109 due to the uncertainty of their realization.

                                     F-41
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table presents income (loss) before income taxes for the
entities incorporated in the following jurisdictions:

<TABLE>
<CAPTION>
                                                                 Period from
                                    Eleven Months  Year Ended   July 1, 1998
                                        Ended       June 30,    to March 16,
                                    June 30, 1997     1998          1999
                                    ------------- ------------  -------------
   <S>                              <C>           <C>           <C>
   Canada..........................  $ 6,110,923  $ 19,215,124  $  (9,123,374)
   United States...................    1,486,294    19,536,559       (302,431)
   United Kingdom..................     (320,982)    3,261,899       (496,872)
   European and Other..............     (110,548)  (20,115,647)    (7,803,330)
                                     -----------  ------------  -------------
                                     $ 7,165,687  $ 21,897,935  $ (17,726,007)
                                     ===========  ============  =============

   The income tax provision (recovery) is composed of the following:

<CAPTION>
                                                                 Period from
                                    Eleven Months  Year Ended   July 1, 1998
                                        Ended       June 30,    to March 16,
                                    June 30, 1997     1998          1999
                                    ------------- ------------  -------------
   <S>                              <C>           <C>           <C>
   Current--
     Federal.......................  $ 3,641,996  $  1,131,398  $  (1,192,323)
     Provincial....................      930,323       248,972       (383,158)
     Foreign.......................    1,979,000     5,703,680       (949,874)
                                     -----------  ------------  -------------
                                       6,551,319     7,084,050     (2,525,355)
                                     ===========  ============  =============
   Deferred--
     Federal.......................      229,580     2,683,103       (243,021)
     Provincial....................      190,996       394,825        (45,422)
     Foreign.......................     (482,552)      692,017        143,632
                                     -----------  ------------  -------------
                                        (61,976)     3,769,945       (144,811)
                                     -----------  ------------  -------------
         Total provision
          (recovery)...............  $ 6,489,343  $ 10,853,995  $  (2,670,166)
                                     ===========  ============  =============
</TABLE>

   The reconciliation between the Canadian federal statutory income tax rate
and the effective tax rate is as follows:

<TABLE>
<CAPTION>
                                                                  Period from
                                     Eleven Months                July 1, 1998
                                         Ended      Year Ended         to
                                     June 30, 1997 June 30, 1998 March 16, 1999
                                     ------------- ------------- --------------
   <S>                               <C>           <C>           <C>
   Provision (benefit) at the
    Canadian federal statutory
    rate...........................       38.0%         38.0%        (38.0%)
   Foreign taxes...................        4.5           2.6          (2.6)
   Effect of not benefiting foreign
    subsidiaries' tax losses.......       11.9           7.3           6.6
   Effect of basis differences not
    benefited......................       47.0          23.7          15.1
   Provincial taxes, net of federal
    tax abatement..................        2.7           1.4           1.0
   Utilization of net operating
    losses not previously
    benefited......................      (13.2)        (22.1)          0.0
   Other items.....................       (0.3)         (1.3)          2.8
                                         -----         -----         -----
     Tax provision (recovery)......       90.6%         49.6%        (15.1%)
                                         =====         =====         =====
</TABLE>


                                      F-42
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The Company has $15,024,000 of cumulative foreign net operating loss
carryforwards, which may be available to reduce future income tax liabilities
in those jurisdictions. The loss carryforwards will expire beginning June 30,
2001.

   These net operating loss carryforwards are subject to review and adjustment
by the respective tax authorities and may be limited in certain cases upon a
significant ownership change of the corporation, as defined.

(12) Commitments and Contingencies

 (a) Lease commitments

   The Company has operating lease commitments for certain facilities and
equipment, which expire, at various dates, through June 2007. The following
schedule outlines the future minimum rental payments under these leases at
March 16, 1999:

<TABLE>
   <S>                                                              <C>
   Period ended March 16,
     2000.......................................................... $ 1,716,714
     2001..........................................................   1,804,279
     2002..........................................................   1,410,133
     2003..........................................................   1,224,607
     2004 and thereafter...........................................   5,954,088
                                                                    -----------
     Total minimum lease payments.................................. $12,109,821
                                                                    ===========
</TABLE>

   The above commitments include leases for locations, which the Company plans
to close under the restructuring plan (see Note 19).

   Rental expenses related to the operating leases were approximately
$1,600,000, $1,985,000 and $1,683,000 for the eleven-month period ended June
30, 1997, the year ended June 30, 1998, and the period from July 1, 1998 to
March 16, 1999, respectively. Included in the minimum lease payment commitment
is approximately Cdn$12,342,935 (approximately $8,163,370 at March 16, 1999)
representing future payment due to a related party from which the Company
leases office space in Montreal.

 (b) Letters of Guarantee

   The Company has provided letters of guarantee in the amount of $3,000,000 as
of June 30, 1998 and March 16, 1999.

                                      F-43
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(13) Financial Information by Geographic Area

   The Company operates in one operating segment primarily digital image
processing solution systems for creating, editing and compositing special
visual effects for film and video, including training and other services
incidental to these products.

   Revenues by geographic destination and as a percentage of total revenues are
as follows:

<TABLE>
<CAPTION>
                                     Eleven Months                 Period from
                                         Ended      Year Ended   July 1, 1998 to
   Geographic Area by Destination    June 30, 1997 June 30, 1998 March 16, 1999
   -------------------------------   ------------- ------------- ---------------
   <S>                               <C>           <C>           <C>
   North America...........          $ 43,752,904  $ 70,866,936    $33,177,069
   Europe..................            36,839,458    45,385,523     19,492,697
   Pacific Rim.............            15,396,131    26,745,421     11,361,796
   Other...................             5,935,438     8,560,248      2,792,910
                                     ------------  ------------    -----------
                                     $101,923,931  $151,558,128    $66,824,472
                                     ============  ============    ===========
</TABLE>

<TABLE>
<CAPTION>
                                     Eleven Months                 Period from
                                         Ended      Year Ended   July 1, 1998 to
   Geographic Area by Destination    June 30, 1997 June 30, 1998 March 16, 1999
   -------------------------------   ------------- ------------- ---------------
   <S>                               <C>           <C>           <C>
   North America...........               42.9%         46.8%          49.6%
   Europe..................               36.1          29.9           29.2
   Pacific Rim.............               15.2          17.6           17.0
   Other...................                5.8           5.7            4.2
                                         -----         -----          -----
                                         100.0%        100.0%         100.0%
                                         =====         =====          =====
</TABLE>

   Revenues are attributed to countries based on the geographic location of
external customers.

   Revenues from external customers and long-lived assets for the Company's
Canadian, U.S., U.K., German, French and other operations are as follows:

<TABLE>
<CAPTION>
                         Canada       U.S.        U.K.       France      Germany      Other    Eliminations   Consolidated
                       ----------- ----------- ----------- ----------- ----------- ----------- -------------  ------------
<S>                    <C>         <C>         <C>         <C>         <C>         <C>         <C>            <C>
1997--
Revenues from
 external customers..  $ 5,872,359 $42,135,249 $16,596,218 $10,298,958 $12,388,084 $14,633,063 $         --   $101,923,931
Long-lived assets....  $88,377,863 $ 4,581,953 $ 6,184,521 $ 6,158,373 $ 4,580,216 $45,321,144 $(132,135,797) $ 23,068,273
1998--
Revenues from
 external customers..  $10,174,057 $65,461,287 $20,434,970 $14,640,546 $14,132,721 $26,714,547 $         --   $151,558,128
Long-lived assets....  $94,554,066 $25,715,267 $ 5,167,747 $ 3,926,255 $ 4,266,631 $26,361,245 $(120,395,135) $ 39,596,076
1999--
Revenues from
 external customers..  $ 3,790,587 $31,091,427 $ 8,313,588 $ 5,755,868 $ 6,511,209 $11,361,793 $         --   $ 66,824,472
Long-lived assets....  $91,284,005 $22,324,068 $ 4,752,430 $ 4,309,270 $ 2,783,792 $16,302,827 $(110,629,079) $ 31,127,313
</TABLE>

                                      F-44
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



   "Other" includes the revenues and long-lived assets of the Company's Asian
and less significant European subsidiaries.

   Revenues from external customers by product are as follows:

<TABLE>
<CAPTION>
                Advanced
            Systems Products   New Media Products    Services        Total
            ----------------   ------------------   -----------   ------------
   <S>      <C>                <C>                  <C>           <C>
   1997--     $ 71,054,278        $17,263,203       $13,606,450   $101,923,931
   1998--     $124,929,272        $12,578,686       $14,050,170   $151,558,128
   1999--     $ 50,818,145        $ 7,452,889       $ 8,553,438   $ 66,824,472
</TABLE>

   Export sales from Canada were $4,334,962 and $1,704,944 for the fiscal year
ended June 30, 1998 and the period from July 1, 1998 to March 16, 1999,
respectively.

(14) Dependence on Key Suppliers

   The Company is dependent on Silicon Graphics, Inc. to manufacture and supply
a large proportion of the workstations and certain peripherals used in the
Company's systems. The Company purchases electronic tablets manufactured by
Wacom Technology Corporation ("Wacom") and believes that while alternative
suppliers are available, there can be no assurance that alternative electronic
tablets would be functionally equivalent or be available on a timely manner or
on similar terms.

(15) Acquisitions

 (a) Denim Software

   On June 12, 1997, the Company, through its wholly-owned subsidiary 3380491
Canada Inc. ("Acquisition Sub"), acquired substantially all of the assets and
assumed certain liabilities of Denim Software L.L.C., a Delaware limited
liability company ("Denim"), pursuant to the terms of an Asset Purchase
Agreement dated as of June 12, 1997 among Acquisition Sub, Denim, Sam Khulusi,
Frank Khulusi, Westco Denim Investments Group, Ltd., a California limited
partnership, and Frank Khulusi Family Limited Partnership, a California limited
partnership. The purchased assets consist primarily of Denim software products,
including ILLUMINAIRE Paint, ILLUMINAIRE Composition and ILLUMINAIRE Studio and
related know-how and goodwill.

   The aggregate purchase price for these assets was comprised of the
following:

<TABLE>
   <S>                                                               <C>
   Cash consideration............................................... $ 9,126,000
   Transaction costs................................................     850,000
   Liabilities assumed..............................................   2,209,000
                                                                     -----------
   Total purchase price............................................. $12,185,000
                                                                     ===========
</TABLE>


   At closing, cash consideration, of approximately $9,126,000 and certain
liabilities, of approximately $655,000, were paid. The cash used by the Company
to fund the acquisition was derived primarily from operations. The transaction
has been accounted for using the purchase method. The Company incurred a one-
time charge of $2,263,000 based on an appraisal, or $0.08 per share, for in-
process research and development that had not yet reached technical feasibility
and had no alternative use, purchased and expensed in the eleven-month period
ended June 30, 1997. The terms of the transaction were the result of arms-
length negotiations between the representatives of Discreet and Denim.

                                      F-45
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Allocation of the aggregate purchase price was as follows:

<TABLE>
   <S>                                                              <C>
   In-process research and development............................. $ 2,263,000
   Acquired technology.............................................   1,463,991
   Goodwill........................................................   7,852,000
   Fair value of tangible assets acquired..........................     606,009
                                                                    -----------
                                                                    $12,185,000
                                                                    ===========
</TABLE>

 (b) D-Vision Systems

   On July 15, 1997, the Company acquired all of the outstanding shares of
capital stock of D-Vision Systems, Inc. ("D-Vision"), an Illinois corporation,
pursuant to a Stock Purchase Agreement dated as of July 10, 1997, among the
Company, D-Vision, the former stockholders of D-Vision (the "Selling
Stockholders") and certain other individuals (the "D-Vision Acquisition"). As a
result of the D-Vision Acquisition, the Company acquired the D-Vision OnLINE
and PRO software products for non-linear video and digital media editing
solutions including related know-how and goodwill. The purchase price was paid
in a combination of 555,000 newly issued Discreet Logic common shares and
approximately $10,750,000 in cash. In addition, approximately $4,000,000 of the
cash consideration was being held in escrow until September 30, 1999, subject
to (i) earlier release from escrow of up to $1,900,000 on September 30, 1998
and (ii) the resolution of any indemnification claims made by the Company
pursuant to the Stock Purchase Agreement. In June 1999, the escrow agent
released $1,900,000 of the escrow funds, less $30,000 which had previously been
released to pay legal expenses. The cash used by the Company to fund the
acquisition was derived primarily from cash flow from operations. The D-Vision
Acquisition was accounted for as a purchase and accordingly, the purchase price
and acquisition costs were allocated to the net assets acquired, consisting of
approximately $5,269,000 of in-process research and development and was changed
to operations in the fourth quarter of 1997. Approximately $19,747,000 was
allocated to intangible assets, which includes goodwill and acquired
technology, and is being amortized on a straight-line basis over 3 and 5 years,
respectively. A portion of the purchase price, net liabilities of D-Vision and
transaction costs was allocated to purchased in-process research and
development that had not yet reached technical feasibility and had not
alternative use for which the Company incurred a one-time charge against
earnings in the amount of $5,269,000 ($0.18 per share), based on an appraisal,
in the quarter ended September 30, 1997. The terms of the transaction and the
consideration received by the D-Vision stockholders were the result of arms-
length negotiations between the representatives of the Company and D-Vision. D-
Vision develops Microsoft Windows NT-based non-linear, digital editing
solutions.

   The aggregate purchase price for D-Vision was as follows:

<TABLE>
   <S>                                                               <C>
   Cash consideration............................................... $10,750,000
   Common shares issued.............................................  10,649,063
   Transaction costs................................................   1,500,000
   Liabilities assumed..............................................   4,311,000
                                                                     -----------
     Total purchase price........................................... $27,210,063
                                                                     ===========
</TABLE>

   Allocation of the aggregate purchase price was as follows:

<TABLE>
   <S>                                                              <C>
   In-process research and development............................. $ 5,269,000
   Acquired technology.............................................   3,100,000
   Goodwill........................................................  16,647,807
   Fair value of tangible assets acquired..........................   2,193,256
                                                                    -----------
                                                                    $27,210,063
                                                                    ===========
</TABLE>

                                      F-46
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (c) Lightscape Technologies, Inc.

   On December 2, 1997, Discreet entered into an Agreement and Plan of Merger
and Reorganization (the "Merger Agreement") with Lantern Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Discreet Logic ("Merger
Sub"), and Lightscape Technologies, Inc., a Delaware corporation
("Lightscape"). On December 30, 1997, pursuant to the Merger Agreement, and
upon the satisfaction of certain closing conditions, Merger Sub merged (the
"Lightscape Merger") with and into Lightscape with Lightscape as the surviving
corporation and a wholly-owned subsidiary of Discreet. As a result of the
Lightscape Merger, Discreet Logic acquired, among other products, the
Lightscape product, a software application which integrates radiosity and
raytracing with physically based lighting, including related know-how and
goodwill. The aggregate purchase price for Lightscape includes the assumption
of approximately $5,700,000 of net liabilities (of which approximately
$3,400,000 was paid at the closing), not including costs associated with the
transaction, and up to $6,800,000 in contingent consideration to be paid only
if certain revenue objectives are achieved by Lightscape in calendar 1999. The
acquisition has been accounted for as a purchase. A portion of the purchase
price and transaction costs was allocated to purchased in-process research and
development that had not yet reached technical feasibility and had no
alternative use for which Discreet Logic incurred a one-time charge against
earnings in the amount of $1,646,000 ($0.06 per share), based on an appraisal,
in the quarter ended December 31, 1997. The terms of the transaction were the
result of arm's-length negotiations between the representatives of Discreet and
Lightscape.

   The aggregate purchase price for Lightscape was as follows:

<TABLE>
   <S>                                                               <C>
   Transaction costs...............................................  $ 1,200,000
   Liabilities assumed.............................................    6,414,332
                                                                     -----------
     Total purchase price..........................................  $ 7,614,332
                                                                     ===========
</TABLE>

   Allocation of the aggregate purchase price was as follows:

<TABLE>
   <S>                                                              <C>
   In-process research and development............................. $ 1,646,000
   Acquired technology.............................................     990,000
   Goodwill........................................................   4,250,946
   Fair value of tangible assets acquired..........................     727,386
                                                                    -----------
                                                                    $ 7,614,332
                                                                    ===========
</TABLE>

 (d) Proforma Information

   The following presents, on an unaudited basis, certain items of the
Company's result of operations, for the fiscal years ended June 30, 1997 and
1998, as though the acquisitions discussed above had occurred on August 1,
1996:

<TABLE>
<CAPTION>
                                                      1997           1998
                                                  -------------  -------------
   <S>                                            <C>            <C>
   Revenues...................................... $ 108,151,000  $ 152,277,000
   Operating income (loss)....................... $   4,370,000  $  (3,093,000)
   Net loss...................................... $    (633,000) $ (11,888,000)
</TABLE>

                                      F-47
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(16) Gain on Sale of Investment

   During the quarter ended April 30, 1996, Discreet recorded a write-down of
its investment in the preferred shares of Essential Communications Corporation
("Essential"), in the amount of $2,500,000 to reflect the uncertainty regarding
the realizability of this investment. Discreet made the investment in Essential
in anticipation of realizing benefits from the networking technology that
Essential was developing. When it became doubtful that Essential would be able
to realize its development efforts, due to financial constraints, and that the
technological benefits may not be achieved on time to meet market demand, the
investment was written down to reflect the other than temporary impairment in
its value.

   In May 1998, Essential was sold. As a result of this sale, the Company
received proceeds of $2,500,000 in exchange for its preferred shares. Upon
receipt of the proceeds, the Company realized a gain of approximately
$2,500,000.

(17) Cost of Terminated Agreement with MGI

   In the quarter ended June 30, 1998, the Company announced a mutual
termination of its Arrangement Agreement entered into on March 9, 1998 with MGI
Software Corp. ("MGI"). Both the Company and MGI determined that, in light of
current conditions which could result in significant delays in the realization
of previously discussed anticipated benefits and synergies of the merger, it
was in the best interests of both companies to terminate the agreement and
remain independent companies. The Company incurred approximately $1,713,000 of
costs, expensed in the year ended June 30, 1998, related to this terminated
agreement.

(18) Purchase of Land and Facilities

   In August 1995, the Company purchased land and an office building in London,
England for approximately (Pounds)1,148,000 (or approximately $1,857,000 at
March 16, 1999). Additionally, in December 1995, the Company purchased land and
a building in Montreal for Cdn$1,730,000 (or approximately $1,250,000 at June
30, 1997). During fiscal 1996, the carrying value of the London and Montreal
buildings were written down to their estimated fair market values and these
buildings were classified as assets held for resale. In September 1997, the
Company sold its Montreal land and office building for a price not materially
different from its carrying value. In May 1999, the Company sold the London
building for net proceeds of (Pounds)2,946,000 (or approximately $4,770,000)
realizing a gain of (Pounds)319,000 (or approximately $516,000).

(19) Restructuring

   During the fiscal year ended July 31, 1996, the Company recorded a pre-tax
restructuring charge of $15 million to cover the direct costs of restructuring
the Company's operations and to bring operating expenses in line with the
Company's current revenue level. The focus of the Company's restructuring plan
was to solidify its senior management team, reduce operating expenses through
workforce reductions and office closings, consolidate research and development
activities in Montreal, discontinue certain product lines, and restructure its
sales force to emphasize indirect sales channels. The Company began
implementation of its restructuring plan in the fourth fiscal quarter of 1996
and had substantially completed the implementation of the plan at the end of
fiscal 1997. The major aspects of the restructuring plan and remaining amounts
in accrued liabilities are discussed below.

   The restructuring entailed the closing and moving of several offices in
North America and Europe. It also included the termination of approximately 110
positions across all departments and around the world.

                                      F-48
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The components of the restructuring charge are as follows:

<TABLE>
   <S>                                                              <C>
   Asset write down................................................ $ 5,621,000
   Lease terminations and leasehold improvements reserve...........   5,169,000
   Severance.......................................................   2,800,000
   Professional services and other.................................   1,410,000
                                                                    -----------
                                                                    $15,000,000
                                                                    ===========
</TABLE>

   The primary component of the asset write down is an amount of $2.2 million
for goodwill and acquired technology. The other components of the write down
are primarily fixed assets which have no future use.

   In the fourth quarter of fiscal 1998, the Company reversed approximately
$2,333,000 of excess reserves, related primarily to the estimated cost of
terminating leases, no longer considered necessary to complete the
restructuring plan.

   The charges against the restructuring reserve include the following amounts:

<TABLE>
<CAPTION>
                                                                                 Period from
                         Eleven months ended                                    July 1, 1998
                            June 30, 1997        Year ended June 30, 1998     to March 16, 1999
                         ------------------- -------------------------------- -----------------
                               Charges        Charges    Reversed    Total         Charges
                         ------------------- ---------- ---------- ---------- -----------------
<S>                      <C>                 <C>        <C>        <C>        <C>
Asset write down........     $1,056,000      $  359,000 $  141,000 $  500,000      $   --
Lease terminations and
 leasehold improvements
 reserve................      1,078,000         366,000  1,947,000  2,313,000          --
Severance...............      1,768,000         205,000    245,000    450,000          --
Professional services
 and other..............        460,000         234,000        --     234,000       98,000
                             ----------      ---------- ---------- ----------      -------
                             $4,362,000      $1,164,000 $2,333,000 $3,497,000      $98,000
                             ==========      ========== ========== ==========      =======
</TABLE>

   The following reflects the remaining accrued restructuring expense as of
June 30, 1998 and March 16, 1999, by major component:

<TABLE>
<CAPTION>
                                                             June 30, March 16,
                                                               1998     1999
                                                             -------- ---------
   <S>                                                       <C>      <C>
   Asset write down......................................... $    --  $    --
   Lease terminations and leasehold improvements reserve....  350,000  350,000
   Severance................................................      --       --
   Professional services and other..........................  425,000  327,000
                                                             -------- --------
                                                             $775,000 $677,000
                                                             ======== ========
</TABLE>

   During the fourth fiscal quarter of 1998, the Company accrued an additional
$829,000 charge, which is included as a component of the restructuring expense
in 1998, for the closure of its U.K. research and development facility, and the
related termination of 17 employees.

   The components of the charge are as follows:

<TABLE>
   <S>                                                                 <C>
   Asset write down................................................... $444,000
   Severance..........................................................  198,000
   Professional services and other....................................  187,000
                                                                       --------
                                                                       $829,000
                                                                       ========
</TABLE>

                                      F-49
<PAGE>

              DISCREET LOGIC INC. AND SUBSIDIARIES (OLD DISCREET)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   During the period from July 1, 1998 to March 16, 1999, approximately $38,000
of professional fees was charged against this restructuring reserve. As of
March 16, 1999, the Company still has approximately $12,000 in restructuring
reserves primarily for estimated cost of professional fees associated with the
winding down of its subsidiary.

(20) Government Assistance

 (a) SDI loan

   The Company entered into a loan agreement with the Societe de Developpement
Industriel du Quebec dated as of May 7, 1998 whereby an interest free loan was
granted to the Company by the Quebec government in the amount of Cdn$2,800,000
(approximately $1,852,000 at March 16, 1999) in relation with the Lightscape
acquisition. The loan is conditional to the Company meeting certain criteria:

     1. During the five-year period following the disbursement of the loan by
  the Quebec government, the Company is required to create 200 jobs and
  maintain each of these jobs for a five year period after their creation.

     2. The loan should not exceed Cdn$2,800,000 or 20% of the costs incurred
  by the Company for the Lightscape acquisition.

   The loan is payable in four annual installments of Cdn$600,000
(approximately $397,000 at March 16, 1999) commencing in July 2004 and a final
installment of Cdn$400,000 (approximately $265,000 at March 16, 1999) in July
2008. The loan is interest free until July 2004, after which it will bear
interest at the Canadian prime rate (approximately 6.75% at March 16, 1999)
plus 1.5%. In the situation where the criteria mentioned above are not
respected, a portion of the loan may have to be repaid at an earlier date. The
loan was disbursed to the Company in July 1998. The loan has been classified in
the accounts payable as at March 16, 1999.

 (b) PACST Subsidy Program

   The Company entered into a financial assistance contract with the Quebec
Government dated as of March 27, 1998 under a subsidy program designed to
improve competencies in science and technology. The contract provides that the
Company is eligible to receive up to Cdn$3,012,000 (approximately $1,992,000 at
March 16, 1999) in the form of reimbursement of expenses incurred by the
Company for new employee training (mainly reimbursement of salary). The
Company's job creation estimate provided to the Quebec Government at the time
of signature of the contract was 251 science and technology related jobs to be
created over a three-year period. As of March 16, 1999, an advance of
Cdn$350,000 (approximately $231,000 at March 16, 1999) was received which
covers 40% of the first year estimated subsidy. The program requires the
Company to meet certain criteria in order to earn the subsidies. Since the
criteria have not yet been met by the Company, the advance has been classified
as a liability in accounts payable at March 16, 1999.


                                      F-50
<PAGE>

            REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS ON SCHEDULE

To Discreet Logic Inc.:

   We have audited in accordance with generally accepted auditing standards in
Canada, which are in substantial agreement with those in the United States of
America, the consolidated financial statements of Discreet Logic Inc. and
subsidiaries, (See Note 1 to the consolidated financial statements) as at
January 31, 1998 and 1999 and March 31, 1999 and for the years ended January
31, 1997, 1998 and 1999 and the two-month period ended March 16, 1999 included
in this 10-K. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in Item 16 is
the responsibility of the Company's management and is presented for the
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 audits 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.

                                          /s/ Arthur Andersen & Cie
                                          Chartered Accountants
                                          General Partnership

Montreal, Canada
June 23, 1999

                                      S-1
<PAGE>


                                                                     SCHEDULE II

                              DISCREET LOGIC, INC.

                       Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                             Balance at       Effect of   Charged to costs and  Write     Balance at
Description              beginning of period amalgamation       expenses         offs    end of period
-----------              ------------------- ------------ -------------------- --------  -------------
<S>                      <C>                 <C>          <C>                  <C>       <C>
Two-month period ended
 March 31, 1999
  Allowance for doubtful
   accounts.............       $98,595        $3,436,000        $   --         $(50,229)  $3,484,366
  Restructuring
   reserve..............       $   --         $  689,000        $   --         $    --    $  689,000
Year ended January 31,
 1999
  Allowance for doubtful
   accounts.............       $40,935        $      --         $57,660        $    --    $   98,595
Year ended January 31,
 1998
  Allowance for doubtful
   accounts.............       $36,890        $      --         $ 4,045        $    --    $   40,935
Year ended January 31,
 1997
  Allowance for doubtful
   accounts.............       $11,988        $      --         $24,902        $    --    $   36,890
</TABLE>

                                      S-2
<PAGE>

            REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS ON SCHEDULE

To Discreet Logic Inc.:

   We have audited in accordance with generally accepted auditing standards in
Canada, which are in substantial agreement with those in the United States of
America, the consolidated financial statements of Discreet Logic Inc. and
subsidiaries, at June 30, 1998 and March 16, 1999, and the eleven-month period
ended June 30, 1997, the year ended June 30, 1998, and the period from July 1,
1998 to March 16, 1999, included in this 10-K. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 16 is the responsibility of the Company's
management and is presented for the 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 audits 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.

                                          /s/ Arthur Andersen & Cie
                                          Chartered Accountants
                                          General Partnership

Montreal, Canada
June 23, 1999

                                      S-3
<PAGE>

                                  SCHEDULE II

                      DISCREET LOGIC INC. AND SUBSIDIARIES

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                           Balance at   Addition   Charged to                     Balance at
                          Beginning of   Due to    Costs and  Write-  Translation   End of
       Description           Period    Acquisition  Expenses   offs   Adjustments   Period
       -----------        ------------ ----------- ---------- ------- ----------- ----------
<S>                       <C>          <C>         <C>        <C>     <C>         <C>
Allowance for Doubtful
 Accounts
 June 30, 1997..........   3,649,000         --         --     48,000   114,000   3,487,000
 June 30, 1998..........   3,487,000     309,000        --     88,000    54,000   3,654,000
 March 16, 1999.........   3,654,000         --     150,000   326,000    42,000   3,436,000
</TABLE>

<TABLE>
<CAPTION>
                           Balance at
                          Beginning of Charged to Costs Charged Against                   Balance at End of
                             Period      and Expenses       Reserve     Reserve Reversals      Period
                          ------------ ---------------- --------------- ----------------- -----------------
<S>                       <C>          <C>              <C>             <C>               <C>
Restructuring Reserve
 June 30, 1997..........   8,634,484           --          4,361,781              --          4,272,703
 June 30, 1998..........   4,272,703       829,000         1,943,088        2,333,615           825,000
 March 16, 1999.........     825,000           --            136,000              --            689,000
</TABLE>

                                      S-4