<PAGE>


                                ZYCAD CORPORATION
                               CORPORATE OVERVIEW

Zycad Corporation (the Company), founded in 1981, develops, manufactures and
markets a broad range of high performance tools, design services and electronic
components that help designers speed the process of moving their electronic
products from concept to manufacturing.   Zycad calls this process, "Design
Realization."  It encompasses performing the steps necessary to complete design
verification and get to market in the quickest way possible.

Zycad's Design Realization offerings include hardware and software simulation
verification tools, rapid prototyping vehicles, high-density programmable
Application-Specific Integrated Circuits (ASICs) and related desktop design and
programming tools.  This suite of products enable electronic designers to
quickly and accurately verify their designs prior to production and support
initial and low volume ASIC production. Verification has the goal of minimizing
downstream problems and risks (i.e., avoiding the expensive and time-consuming
process of redesign should a final design not work or not meet the customer
requirements).  This process of Design Realization via comprehensive and fast
verification throughout the design cycle ensures a high quality, production-
ready product that meets the customers' time-to-market goals.

Zycad's twofold business emphasis is on providing both the highest performance
verification product offerings (including both simulation and rapid prototyping)
in the Electronic Design Automation (EDA) market, and the highest density
programmable ASICs to the ASIC designer for both design verification and design
realization through use as a reprogrammable component. All development
activities are focused on optimizing their future development and the
integration of these technologies to solve customer's high-end, complex
verification problems - the most dramatic being that of "system on a chip" or
"system on silicon" design verification.

Zycad's corporate office, and its product divisions are located in Fremont,
California.  Sales and support offices are located throughout the United States,
Europe, Japan and Asia.

                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
(IN THOUSANDS, EXCEPT PER SHARE
  AMOUNTS)                              1996         1995          1994          1993           1992
------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>           <C>           <C>           <C>
OPERATING RESULTS:
------------------
Revenues (a)                       $   33,577     $ 51,117      $  50,051     $  41,478     $  45,154

Gross profit                       $   16,569     $ 33,624      $  30,094     $  24,769     $  28,949

Operating income (loss)            $ (18,435)     $  2,550      $ (9,511)     $ (8,565)     $  (3,940)

Net income (loss) (b) (c)          $ (21,376)     $  1,957      $ (9,748)     $ (4,480)     $  (2,798)

Net income (loss) per share        $   (1.03)     $   0.09      $  (0.52)     $  (0.26)     $   (0.18)

Weighted average common shares
 and common share equivalents
  outstanding                         20,655        21,233        18,598        16,908         15,850

------------------------------------------------------------------------------------------------------
YEAR END FINANCIAL DATA:
------------------------
Working capital (deficit)          $ (1,240)      $  6,741      $  1,621      $  6,030      $  10,829

Total assets (d)                   $  29,527      $ 28,980      $ 29,825      $ 28,606      $  30,913

Long-term debt                     $   8,061      $  1,207      $  1,874      $     81      $     309
------------------------------------------------------------------------------------------------------
</TABLE>

(a) Revenues, net income or loss and net income or loss per share for 1995 and
1994 included amounts related to a technology distributed by Zycad and owned by
a U.K. Company.  Effective January 1, 1996, a joint venture was formed by the
two companies.  Consequently, specific revenues and costs related to this
product will no longer be consolidated in Zycad's financial statements (see Note
11 of Notes to Consolidated Financial Statements).
 (b) The net loss in 1994 included a charge for asset write-downs and staff
reductions of $6,800,000, primarily related to the Company's decision to
discontinue selling the Paradigm ViP-TM- (VHDL instruction processor) product
(see Note 4 of Notes to Consolidated Financial Statements).
 (c)  The net loss in 1993 included $2,900,000 of staff reduction costs and
asset write downs and $3,900,000 of gain related to the sale of another
company's common stock.
 (d)  Total assets included a reduction of the purchase price of Attest
Software, Inc. in the quarter ended June 1996 of $345,000 relating to the value
ascribed to Zycad restricted stock issued to Attest shareholders.


                                        1
<PAGE>


                                ZYCAD CORPORATION
                               TO OUR STOCKHOLDERS

1996 has been a year of transition for Zycad  in a very fragile market
environment. When we went to the Design Automation Conference in June, 90% of
our demonstrations represented new product introductions by our Verification and
GateField divisions.

While the year was disappointing from a financial perspective, significant
technical and business achievements were realized:

-   The LightSpeed Simulation Server-TM- family was introduced at the Design
    Automation Conference in June with the first shipments in late Q3.
    LightSpeed offers customers unparalleled performance over existing solutions
    in the market place. Customer acceptance has been excellent with over 20
    systems in the field since late Q3.

-   GateField presented its 51,000 gate ProASIC-TM- (programmable ASIC)
    technology in 0.8 micron structures and began development of a prototyping
    vehicle that combines GateField technology with partitioning software and
    multi-chip module technology.

    The GateField products created a great level of interest in the market
    place.  However, it was learned that the performance features of the
    products needed to be enhanced.  Consequently a very aggressive transfer
    into finer line geometries was initiated, resulting in "first time right"
    working silicon, offering complexity to 100,000 total gates. This product
    was delivered to customers during December 1996.

    Customer acceptance of GateField is also excellent, with 14 customer design
    wins in the fourth quarter of 1996. Major corporations in Japan and the U.S.
    were committing design resources to the new GateField product.

-   The services and consulting business was merged with the GateField division
    during 1996.

-   We completed the acquisition of Attest Software, Inc. in May 1996, further
    strengthening our test and fault product  offerings.

-   A second DARPA contract, valued at $2.3 million for the development of a
    reconfigurable computing engine, based on GateField technology, was awarded
    in September 1996.

-   The Company raised $10.0 million through subordinated convertible debentures
    note in May 1996.

In January 1996, Zycad and Quality Systems Software Ltd., an U.K. Company and
owner of the DOORS technology, established a joint venture, QSS, Inc., to
continue the distribution operations of the DOORS technology and other products
in the North American market. In December 1996, the entire company, including
the U.K. subsidiary, was consolidated under QSS, Inc.  Zycad's current
ownership at the end of 1996 is 22% (see Note 11 of Notes to Consolidated 
Financial Statements).

In summary, both divisions contributed in 1996, however, the financial
performance was a major disappointment to everyone, including our employees, who
have been tireless in their efforts to support us throughout this transition
period. On the positive side, the LightSpeed product was delivered to customers
in production volume in the fourth quarter.  The GateField 100K gate ProASIC was
introduced and shipped in the fourth quarter.  The engineering and consulting
services added positively to our performance throughout the year.

What are the challenges and opportunities for 1997 as we look forward?  The
LightSpeed Simulation Server family of products is expected to begin shipping
with the HDL interfaces for Verilog and VHDL in 1997. The VHDL interface should
be available in the first quarter of 1997. The Verilog interface should be
available in the second quarter of 1997. These interfaces are strategic to
addressing the broad logic simulation marketplace. The combination of LightSpeed
hardware and these strategic software interfaces should secure success
throughout 1997.

Our test and fault simulation product lines continue to be the industry standard
and contribute significantly to the Company's overall results. Several new
complimentary software and hardware products will be added to the hardware
accelerated fault simulation product line in 1997. In addition, significant
feature and function enhancements will be made to the software test products
associated with the Attest acquisition. These include improved support for HDL
interfaces and multiprocessing.  These additional capabilities should
significantly increase the market interest for these products in the second half
of 1997.

We believe that Zycad can and will be a leader in providing high density
reprogrammable ASICs to the $20 billion ASIC market.  No other suppliers are
delivering reprogrammable ASICs with logic gate densities equal to our 100K gate
part.  As we take advantage of advanced manufacturing processes, we should gain
even greater density advantages.  GateField is now shipping 0.6 micron parts and
by the third quarter of 1998 we expect to be shipping .35 micron parts which
will yield 400,000 reconfigurable logic-gates of capacity, much larger than any
current vendor can even contemplate in the 1998 timeframe.


                                        2
<PAGE>


GateField has proven that it can design and manufacture a part that is
competitive on speed, performance and functionality. We continue to focus on
design wins, as that is the primary driving force for growing market share.  A
design win positions Zycad competitively to vie for production volume business.
The customer typically moves towards product volume six to nine months after he
makes his initial design win selection.  GateField is achieving great success,
particularly in the Japanese market. A number of the big Japanese companies
became customers in the fourth quarter of 1996 and we expect continued growth in
1997.

It was a difficult year for all of us. We appreciate your patience, continued 
interest and loyalty during this transition year.  We remain committed to 
building a strong company. The tremendous investments, which were made in 
GateField are expected to yield significant results in the years ahead.

     Sincerely,



     Phillips W. Smith
     President and CEO


                                        3
<PAGE>


                                ZYCAD CORPORATION
                      MANAGEMENT'S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

OVERVIEW

The net loss for 1996 was $21.4 million, compared to net income in 1995 of $2.0
million. Total revenues for 1996 were $33.6 million, down $17.5 million from
1995. The reduction in revenue resulted in decreased gross margin:  $16.6
million for 1996 compared to $33.6 million in 1995. The loss in 1996 was
significantly impacted by one-time charges to cost of sales of $1.8 million (see
Gross Profit), as well as an additional $1.8 million of restructuring charges
and bad debt (see Operating Expenses). In addition the company expensed $2.5
million related to accelerated amortization of discount on the  $10.0 million
subordinated convertible debenture  notes (see Note 5 of Notes to Consolidated
Financial Statements).

Operating expenses increased by $3.9 million in 1996 to $35.0 million. This
increase reflects the Company's continued research and development investment in
the GateField division plus the introduction of the LightSpeed Simulation
Server.

The Company completed the acquisition of Attest Software, Inc. in May 1996 for
approximately $2.1 million further strengthening our test and fault product
offerings.

REVENUES
Total revenues decreased 34% to $33.6 million in 1996 from $51.1 million in 1995
and increased 2% in 1995 from $50.1 million in 1994.  Product revenues decrease
to $18.2 million in 1996 compared to $28.4 million in 1995, a decrease of  36%.
The decrease in product revenues in 1996 as compared to 1995 was primarily due
to decreased shipments of the Company's accelerator products and delays in
shipments of the next generation, faster LightSpeed accelerator product family,
introduced in late September 1996.  Product revenues decreased to $28.4 million
in 1995 compared to $29.4 million in 1994, a decrease of 3%.  This decrease was
primarily due to a decrease in Paradigm ViP and Paradigm RP-TM- product revenues
as the ViP product was discontinued at the end of 1994.  Additionally, emphasis
on the RP product was reduced, pending introduction of the GateField high-
density Programmable ASICs.  These decreases in revenues were partially offset
by purchases of the Paradigm XP-TM- products by the Company's largest customer.

Service revenues were $15.3 million, $22.7 million and $20.7 million in 1996,
1995 and 1994, respectively.  The decrease in service revenues from 1996 as
compared to 1995 was mainly due to the exclusion (i.e. non-consolidation)of 
revenue relating to the DOORS technology from revenue amounts in 1996, as 
well as reduced maintenance revenues related to older generation accelerator 
products and price reductions related to government contracts (see Note 2 of 
Notes to Consolidated Financial Statements).  The increase in service 
revenues in 1995 as compared to 1994 was primarily due to increased demand 
for the DOORS technology and increases in commercial contracts.

GROSS PROFIT
Gross profit from total revenues was $16.6 million, $33.6 million and $30.1
million in 1996, 1995 and 1994, respectively.  Gross profit as a percentage of
total revenues was 49%, 66% and 60% for the same years ended December 31, 1996,
1995 and 1994, respectively.

Gross profit from product revenues was $9.8 million, or 54% of product sales in
1996 compared to $22.0 million, or 77% of product sales in 1995.  This decrease,
both in dollars and as a percentage of product revenues was primarily due to
decreased product revenues as well as certain one-time charges of approximately
$1.8 million related to the write down of inventories in 1996. Other factors
contributing to the decrease in gross profit from product revenues in 1996 were
product mix of the LightSpeed product line, which included lower margins during
introduction, and higher discounts offered to customers for older generation
products.  Gross profit from product revenues increased $0.9 million in 1995,
despite lower revenues as compared to gross profit from product revenues in
1994, primarily due to a shift in product mix to shipments of the higher-margin
Paradigm XP products.

Gross profit from service revenues was $6.8 million, $11.6 million and $9.0
million in 1996, 1995 and 1994, respectively.  Gross profit as a percentage of
service revenues was 44%, 51% and 43% for the years ended December 31, 1996,
1995 and 1994, respectively.  The decrease in gross profit from service revenues
in 1996 compared to 1995 was primarily due to decreased maintenance revenues in
1996 as well as the exclusion of DOORS revenues, which generally had a higher
profit margin.  Gross profit from service revenues increased $2.6 million in
1995 compared to 1994, while service revenues increased $2.0 million.  This
increase in gross margin was mainly due to a shift to sales of higher-value
commercial service contracts from lower-margin service contracts affiliated with
the mil/aero products in 1994.


OPERATING EXPENSES

SALES AND MARKETING
Sales and marketing expenses were $14.3 million, or 43% of total revenues, $16.9
million, or 33% of total revenues and $18.9 million, or 38% of total revenues in
1996, 1995 and 1994, respectively.  The decrease in actual expenses for 1996
compared to 1995 was primarily due to the inclusion of DOORS expenses of $2.1
million in 1995 (see Note 2 of Notes to Consolidated Financial Statements).  The
increase in sales and marketing expenses as a percentage of total


                                        4
<PAGE>


revenues for 1996 as compared to 1995 was attributable to reduced revenues as
well as higher marketing expenses in 1996 related to the introduction of the
LightSpeed product.  In 1995, sales and marketing expenses decreased 11%, or
$2.0 million, compared to 1994, primarily due to reduced staffing levels
resulting from the restructuring actions taken in December 1994.

RESEARCH  AND DEVELOPMENT
The Company's research and development expense was $15.8 million, $11.3 million
and $11.2 million in 1996, 1995 and 1994, respectively.  The increase in
research and development expense in 1996 compared to 1995 was mainly due to
additional staffing levels and higher levels of engineering project activity
associated with the introduction of both the LightSpeed and the high-density
programmable ASICs product lines.

Research and development expense was relatively constant in 1995 and 1994.  Due
to the restructuring in December 1994, personnel expense was lower in the first
half of 1995, but increased in the second half of 1995 as the Company began its
development for the next generation accelerator, LightSpeed and GateField
Programmable ASICs programs.

GENERAL AND ADMINISTRATIVE
General and administrative expenses were $4.9 million, $2.9 million and $2.7
million in 1996, 1995 and 1994, respectively.  The increase in general and
administrative expenses for  1996 was primarily due to $1.0 million of bad debt
expense for potential uncollectable accounts receivable.  An additional $0.8
million of expense in the second half of 1996 was attributable to the Company's
decision to restructure the organization in order to seek profitability and
growth.  These expenses included severance and other fringe benefits related to
a reduction in force.

General and administrative expenses increased $0.2 million, or 6%,  in 1995 over
1994.  This increase remained relatively constant as a percentage of revenues
and was primarily due to increases necessary to support revenue growth as well
as higher special project costs.

ASSET WRITE-DOWNS AND STAFF REDUCTIONS
In the fourth quarter of 1994, the Company decided to discontinue selling its
VHDL accelerator product, the Paradigm ViP.  This decision resulted from
disappointing financial performance in 1994 and the re-direction of the product
diversification strategy.  Non-recurring costs of $6.8 million, principally
related to write-downs of capitalized software and inventory for the ViP product
line and staff  reduction costs, were charged against income (see Note 4 of
Notes to Consolidated Financial Statements).

OTHER INCOME AND EXPENSE
Interest expense was $3.2 million in 1996 compared to $0.3 million in 1995 and
$0.2 million in 1994.  This increase in 1996 was primarily due to $2.5 million
of the acceleration of amortization of discount expense related to the portion
of the Company's subordinated convertible debenture notes (see Note 5 of Notes
to Consolidated Financial Statements).  Additionally, the Company recorded
higher interest expense related to higher borrowings and higher interest rates.

Other income was $0.2 million in 1996 and other expense was $0.3 million and
$0.1 million in 1995 and 1994, respectively.  This fluctuation from year to year
was primarily due to transaction gains and losses related to foreign currency
adjustments.

INCOME TAXES
The Company did not record income tax expense (benefit) in 1996, 1995 and 1994
due to losses or the availability of net operating loss carryforwards (see Note
8 of Notes to Consolidated Financial Statements).

NET INCOME (LOSS)
The net loss for 1996 was $21.4 million, compared to net income in 1995 of $2.0
million and a net loss in 1994 of $9.7 million.  In addition to reduced revenues
and decreased gross margin percentage  for 1996, the loss in 1996 was
significantly impacted by one-time charges to cost of sales of $1.8 million,
discussed above in "Gross Profit", an additional $1.8 million of bad debt and
restructuring charges as discussed in "General and Administrative" and $2.5
million of amortization expense related to debenture discounts as discussed in
"Other Income and Expense".

The Company's net income of $2.0 million in 1995 represents an $11.7 million
improvement over the 1994 financial results based on increased revenues of $1.1
million.  The Company's net income was comprised of $5.4 million profit
attributable to revenues from its accelerator  business activity, $1.6 million
profit related to marketing and distribution of requirements management
technology, DOORS, owned by a third-party U.K. company, offset by $5.0 million
of expenses related to the development of the GateField Programmable ASICs.

The loss in 1994 included $6.8 million of asset write-downs and restructuring
costs as the Company continued to sell its ViP product and concentrated on fewer
product technology areas, as discussed in "Asset Write-Downs and Staff
Reductions".

FACTORS AFFECTING FUTURE RESULTS
The Company's revenues during 1994 through 1996 consisted principally of its 
fault and simulation products, such as the Paradigm PXP and TDX products. 
Revenue for these products declined during the three year period. The 
Company's plans to offset this trend is principally dependent on the 
successful introduction of the GateField high-density reprogrammable ASICs.

The Company continues to seek improvement in operating results through
introduction of new products, including verification tools and Field
Programmable Gate Array (FPGA) products. However, there can be no assurance that
the Company will be successful in its efforts. In the future, the Company's
operating results may be impacted by a number of factors, including
cancellations 

                                        5
<PAGE>


or delays of customer orders, interruptions or delays in the supply of key 
components, changes in customer base or product mix, seasonal patterns of 
capital spending by customers, new product announcements by the Company or 
its competitors, pricing pressures and changes in general economic 
conditions. Historically, a significant portion of the Company's shipments 
have been made in the last month of each quarter. As a result, a shortfall in 
revenue compared to expectation may not evidence itself until late in the 
quarter. Additionally, the timing of expenditures for research and 
development activities and sales and marketing programs, as well as the 
timing of orders by major customers, may cause operating results to fluctuate 
between quarters and between years.

LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used internally generated funds, public and private
offerings of common stock, sale and leaseback arrangements and bank financing
and credit lines to finance its business.  Cash used in operations was $12.6
million in 1996 compared to cash generated by operations of $5.4 million in
1995. The increase in cash used in operations in 1996 was primarily due to the
net loss generated by operations, net sales under capital leases and a growth in
inventories, partially offset by a growth in accounts payable and accrued
liabilities.  Cash generated by operations of $5.4 million in 1995 was the
result of net income of $2.0 million, an increase in accounts payable and a
decrease in accounts receivable and other assets, offset by an increase in
inventories and a decrease in accrued expenses.  Cash used in investing
activities was $3.5 million in 1996, compared to $2.0 million in 1995, relating
primarily to capital equipment purchases and increased levels of capitalized
software.  Net cash generated by financing activities was $13.9 million in 1996,
compared to net cash used in financing activities of $2.6 million in 1995.  Cash
generated by financing activities in 1996 was primarily attributable to a $10.0
million subordinated convertible debenture notes offering in the second quarter,
$3.2 million in bank borrowings through use of factoring agreements, as well as
$0.7 million provided by the issuance of the Company's Common Stock.

At December 31, 1996 the Company had cash and cash equivalents of $1.7 million
and a working capital deficit of $(1.2) million at December 31, 1996 compared to
working capital of $6.7 million at December 31, 1995.  The Company has a $3.1
million factoring arrangement with a bank which expires in October 1997, of
which $1.8 million was outstanding at December 31, 1996 (see Note 5 of Notes to
Consolidated Financial Statements). The Company's Japan subsidiary also has bank
factoring agreements for $1.4 million (see Note 5 of Notes to Consolidated
Financial Statements).  Additionally, the Company, subsequent to December 31,
1996, obtained a $5.0 million line of credit with a lender that allows for the
use of substantially all of the Company's tangible assets as collateral (see
Note 11 of Notes to Consolidated Financial Statements).

The Company continues to work with certain vendors to facilitate extended trade
terms, thus reducing the Company's immediate cash requirements to meet
established payments and other normal, recurring period expenses.  It is
anticipated that minimum working capital will be required to meet sales demands
because levels of PXP and LightSpeed inventories should meet demands through the
second quarter of 1997.

The Company's operating and product development activities have required
significant cash. In anticipation of meeting the Company's 1997 cash
requirements, in February 1997, the Company completed a $5.0 million private
placement financing agreement with investors whereby the Company issued 6%
subordinated convertible debenture notes which can be converted into shares of
the Company's Common Stock.  This funding is available to the Company in
traunches of $3.5 million upon closure of the debenture agreement and $1.5
million upon registration of additional shares of the Company's Common Stock
through the effective filing of an S-3 Registration Statement under the
Securities Act of 1933.  The discount expense relating to these subordinated
convertible debenture notes is $0.9 million for the $3.5 million of funding and
$0.4 million for the $1.5 million of funding.  This discount will be amortized
within 180 days of receipt of the cash (see Note 11 of Notes to Consolidated
Financial Statements).

The Company's debenture agreements specify certain events of default upon 
which the debentures would become immediately payable, including a delisting 
of the Company's Common Stock from the Nasdaq Stock Market. At December 31, 
1996, the Company was not in compliance with the requirement of the Nasdaq 
National Market (a distinct tier of the Nasdaq Stock Market) to maintain 
minimum net tangible assets (as defined) of $4,000,000. A hearing is 
scheduled for April 23, 1997 for Nasdaq to consider the Company's plans to 
come into compliance with such requirement. The Company believes that if its 
stock were delisted from the Nasdaq National Market, it would be eligible for 
listing in the Nasdaq SmallCap Market, which is another tier of the Nasdaq 
Stock Market, and, accordingly, believes it would remain in compliance with 
the debenture requirement to trade on the Nasdaq Stock Market; however, no 
assurances can be given.

The Company anticipates that by attaining revenue projections for 1997 and by 
relying on the new credit line, together with sources of additional liquidity 
such as private or public offerings, equipment lease lines and the sale of 
certain Company assets (see Note 11 of Notes to Consolidated Financial 
Statements) the Company expects to meet short-term liquidity needs.  Should 
additional funding be required, however, there can be no assurance that such 
funding will be available on acceptable terms as and when required by the 
Company.


                                        6
<PAGE>

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT Except for the 
historical information contained herein, the President's letter and 
Management's Discussion and Analysis contain certain forward-looking 
statements that involve potential risks and uncertainties.  The Company's 
future results could differ materially from those discussed herein.  Factors 
that could cause or contribute to such differences  include, but are not 
limited to, potential fluctuations in quarterly results, market acceptance of 
the Company's products, competition, new products and the impact of new 
technologies, dependence on certain suppliers, including sole and limited 
source suppliers, customer concentration, proprietary technology rights, 
international sales and risks inherent with international business 
activities, dependence on key personnel, possible volatility of the Company's 
stock price and continued listing on Nasdaq.  Readers are cautioned not to 
place undue reliance on these forward-looking statements, which speak only at 
the date hereof.  The Company undertakes no obligation to revise or update 
these forward-looking statements to reflect events or circumstances that 
arise after the date of to reflect the occurrence of unanticipated events.

                                      7
<PAGE>
                                ZYCAD CORPORATION
                           CONSOLIDATED BALANCE SHEETS

                                                              December 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)                         1996      1995
------------------------------------------------------------------------------
ASSETS
Current assets
  Cash and cash equivalents                              $  1,703    $  3,722
  Short-term investments                                      100         224
  Accounts receivable, less allowance for doubtful
    accounts of $1,337 in 1996 and $296 in 1995            12,088      12,123
  Inventories                                               2,664       1,788
  Other current assets                                        956         765
                                                         --------    --------
    Total current assets                                   17,511      18,622

Property and equipment, net                                 5,101       5,598
Purchased technology                                        2,776       1,129
Other assets                                                4,139       3,631
                                                         --------    --------
    Total assets                                         $ 29,527    $ 28,980
                                                         --------    --------
                                                         --------    --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Bank financing                                         $  3,203    $      -
  Current portion of long-term obligations                  1,958       1,028
  Accounts payable                                          5,715       3,968
  Accrued expenses                                          5,345       3,955
  Deferred revenues                                         2,530       2,930
                                                         --------    --------
    Total current liabilities                              18,751      11,881

Subordinated convertible debenture notes                    7,342           -
Long-term obligations                                         719       1,207
Other long-term liabilities                                   146         213
                                                         --------    --------
    Total liabilities                                      26,958      13,301
Commitments and contingencies
Stockholders' equity
  Preferred stock
    $0.10 par value; 2,000,000 shares authorized;               -           -
    shares issued and outstanding:  none
  Common stock
    $0.10 par value; 40,000,000 shares authorized;
    shares issued and outstanding: 23,226,444 in
    1996 and 19,752,653 in 1995                             2,323       1,975
  Additional paid-in capital                               55,784      47,837
  Accumulated translation adjustments                         (48)        (19)
  Accumulated deficit                                     (55,490)    (34,114)
                                                         --------    --------
    Total stockholders' equity                              2,569      15,679
                                                         --------    --------
    Total liabilities and stockholders' equity           $ 29,527    $ 28,980
                                                         --------    --------
                                                         --------    --------


 SEE ACCOMPANYING NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS.


                                        8
<PAGE>

                                ZYCAD CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                    Years Ended December 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)        1996         1995         1994
-------------------------------------------------------------------------------
Revenues
  Product                                    $  18,232   $  28,422   $  29,350
  Service                                       15,345      22,695      20,701
                                             ---------   ---------   ---------
     Total revenues                             33,577      51,117      50,051
                                             ---------   ---------   ---------

Cost of revenues
  Product                                        8,439       6,407       8,224
  Service                                        8,569      11,086      11,733
                                             ---------   ---------   ---------
     Total cost of revenues                     17,008      17,493      19,957
                                             ---------   ---------   ---------

     Gross profit                               16,569      33,624      30,094
                                             ---------   ---------   ---------

Operating expenses
  Sales and marketing                           14,325      16,911      18,895
  Research and development                      15,783      11,263      11,172
  General and administrative                     4,896       2,900       2,738
  Asset write-downs and staff reductions             -           -       6,800
                                             ---------   ---------   ---------
     Total operating expenses                   35,004      31,074      39,605
                                             ---------   ---------   ---------

Operating income (loss)                        (18,435)      2,550      (9,511)
                                             ---------   ---------   ---------

Other income (expense)
  Interest expense, net                         (3,184)       (343)       (172)
  Other income (expense), net                      243        (250)        (65)
                                             ---------   ---------   ---------
     Total other income (expense)               (2,941)       (593)       (237)
                                             ---------   ---------   ---------

Net income (loss)                            $ (21,376)  $   1,957   $  (9,748)
                                             ---------   ---------   ---------
                                             ---------   ---------   ---------

Net income (loss) per share                  $   (1.03)  $    0.09   $   (0.52)
                                             ---------   ---------   ---------
                                             ---------   ---------   ---------

Weighted average common shares and
  common share equivalents outstanding          20,655      21,233      18,598
                                             ---------   ---------   ---------
                                             ---------   ---------   ---------

SEE ACCOMPANYING NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS.


                                        9
<PAGE>


                                ZYCAD CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                        Treasury Stock
                                         Common Stock    Additional   and Notes Receivable    Accumulated
                                      ------------------  Paid-In     --------------------    Transaction  Accumulated
(IN THOUSANDS)                         Shares    Amount    Capital    Shares        Amount     Adjustments   Deficit     Total
------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>     <C>       <C>          <C>       <C>           <C>          <C>       <C>
Balances, December  31, 1993           18,043  $  1,805  $  44,992     (778)    $  (3,566)     $  (337)    $(25,292) $  17,602
Exercise of common stock
  options                                 195        19        190        -             -            -            -        209

Sale of common stock to
  employees                                74         7        194        -             -            -            -        201

Foreign stock issue                       722        72      1,363      778         2,666            -       (1,031)     3,070

Current translation adjustment              -         -          -        -             -          181            -        181

Net loss                                    -         -          -        -             -            -       (9,748)    (9,748)
------------------------------------------------------------------------------------------------------------------------------
Balances, December  31, 1994           19,034     1,903     46,739        -          (900)        (156)     (36,071)    11,515

Exercise of common stock
  options                                 636        64        877        -             -            -            -        941

Sale of common stock to
  employees                                28         3         38        -             -            -            -         41

Issuance of common stock
  under warrants, net                      54         5        183        -             -            -            -        188

Collection of note receivable
  from stockholder                          -         -          -        -           900            -            -        900

Current translation adjustment              -         -          -        -             -          137            -        137

Net income                                  -         -          -        -             -            -        1,957      1,957
------------------------------------------------------------------------------------------------------------------------------
Balances, December  31, 1995           19,752     1,975     47,837        -             -          (19)     (34,114)    15,679

Exercise of common stock
  options                                 370        37        609        -             -            -            -        646

Sale of common stock to
  employees                                26         3         75        -             -            -            -         78

Issuance of common stock
  for purchase of Attest, net             387        39      2,101        -             -            -            -      2,140

Issuance of common stock
  for debentures, net                   2,691       269      5,162        -             -            -            -      5,431

Current translation adjustment              -         -          -        -             -          (29)           -        (29)

Net loss                                    -         -          -        -             -            -      (21,376)   (21,376)
------------------------------------------------------------------------------------------------------------------------------
Balances, December  31, 1996           23,226  $  2,323  $  55,784        -          $  -       $  (48)    $(55,490)  $  2,569
------------------------------------------------------------------------------------------------------------------------------
</TABLE>



See accompanying Notes to Consolidated  Financial Statements.


                                        10
<PAGE>

<TABLE>
<CAPTION>
                                                      ZYCAD CORPORATION
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                 Years Ended December 31,
(IN THOUSANDS)                                                                  1996        1995          1994
---------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>        <C>
Operating activities
  Net income (loss)                                                        $  (21,376)    $  1,957   $  (9,748)
  Reconciliation to net cash provided by (used in) operating activities
    Depreciation and amortization                                               4,307        4,732       4,431
    Subordinated convertible debt interest capitalized                          2,773            -           -
    Asset write-downs and staff reductions                                          -          233       4,422
    Loss on disposition of property and equipment                                   -          226         326
    Sales under capital leases                                                 (1,420)        (854)       (885)
    Collections under capital leases                                              459          209         285
    Changes in assets and liabilities
      Accounts receivable                                                         724          845      (2,912)
      Inventories                                                                (876)        (840)        220
      Other assets                                                                (90)         382          83
      Accounts payable and accrued expenses                                     3,174         (966)        978
      Deferred revenues                                                          (292)        (527)        751
                                                                           ----------     --------   ---------
         Net cash provided by (used in) in operating activities               (12,617)       5,397      (2,049)
                                                                           ----------     --------   ---------
Investing activities
  Property and equipment purchases, net                                        (1,773)      (1,775)     (3,770)
  Capitalized software                                                         (1,698)      (1,683)     (3,492)
  Collection of notes receivable                                                    -        1,500           -
                                                                           ----------     --------   ---------
         Net cash used in investing activities                                 (3,471)      (1,958)     (7,262)
                                                                           ----------     --------   ---------
Financing activities
  Proceeds from issuance of convertible debenture notes, net                   10,000            -           -
  Proceeds from sales of common stock                                             724        1,170       3,480
  Bank financing, net                                                           3,203       (2,897)      2,897
  Lease receivables sold with recourse                                              -            -         612
  Borrowings under debt obligations                                               882          217       1,985
  Repayments of debt obligations                                                 (930)      (1,084)       (585)
                                                                           ----------     --------   ---------
         Net cash provided by (used in) financing activities                   13,879       (2,594)      8,389
                                                                           ----------     --------   ---------

Effect of exchange rate changes on cash and cash equivalents                      190           16          (7)
                                                                           ----------     --------   ---------

Net change in cash and cash equivalents                                        (2,019)         861        (929)

Cash and cash equivalents, beginning of year                                    3,722        2,861       3,790
                                                                           ----------     --------   ---------
Cash and cash equivalents, end of year                                       $  1,703     $  3,722   $   2,861
                                                                           ----------     --------   ---------
                                                                           ----------     --------   ---------

Supplemental disclosure of cash flow information
  Noncash activities
    Common stock exchanges for convertible debentures                        $  5,431      $     -    $     -
    Common stock issued for the acquisition of all the
      outstanding shares of Attest Software, Inc.                            $  2,140      $     -    $     -
    Promissory notes issued in exchange for reduction of
      accounts payable                                                       $    901      $     -    $     -
    Equipment acquired under capital leases                                  $    490      $   229    $  1,125
  Cash activities
    Cash paid during the year for interest                                   $    471      $   562    $    385
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS.


                                       11
<PAGE>


                                ZYCAD CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND OPERATIONS
Zycad Corporation (the Company), based in Fremont, California, designs,
manufactures, markets and services high-performance, simulation acceleration
technology  and related software that address the issues associated with the
design verification of complex integrated circuits (ICs), application specific
integrated circuits (ASICs) and electronic systems as well as high density
reprogrammable ASIC technology (ProASIC).  The Company also provides system
engineering services and custom solutions to military, aerospace and commercial
companies, primarily in the U.S., Asia and Europe.

The Company  incurred a loss of $21,376,000 in 1996 and had a working capital
deficit of $1,240,000 as of year end.  Management's plan to sustain operations
in 1997 includes obtaining additional financing and the sale of certain Company
assets.  This plan was implemented in early 1997 and has resulted in the
completion of two financing agreements and one asset sale agreement (see Note 
2 and Note 11).

PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The functional currency of
the Company's foreign subsidiaries is the local currency.

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

CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit with banks and money market
instruments with original maturities of three months or less.

SHORT-TERM INVESTMENTS
Short-Term investments consist of Certificates of Deposit, stated at cost plus
accrued interest, which approximates  market.

CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, short-term
investments and trade accounts receivable.  The Company invests only in high
credit quality short-term debt investments and limits the amount of credit
exposure to any one entity.  The majority of the Company's trade accounts
receivable are derived from sales to manufacturers in the semiconductor,
computer, military and aerospace industries. The Company performs ongoing credit
evaluations of its customers financial condition and limits the amount of credit
extended when deemed necessary, but generally requires no collateral.  The
Company maintains reserves for potential credit losses.

INVENTORIES
Inventories are stated at the lower of standard cost, which approximates actual
cost on a first-in, first-out basis, or market.

PROPERTY AND EQUIPMENT
Property and equipment is stated at cost.  Equipment acquired under capital
lease obligations is stated at the lower of fair value or the present value of
future minimum lease payments at the inception of the lease.  Depreciation and
amortization is provided over the estimated useful lives of the assets or over
the life of the lease, as applicable, using the straight-line method.  Field
spares are amortized over the estimated life of the related product.

On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of".  The adoption of this
standard had no effect on the Company's financial condition or results of
operations.

CAPITALIZED SOFTWARE
The Company capitalizes software development costs in accordance with Statement
of Financial Accounting Standards No. 86 (SFAS No. 86), "Accounting for the
Costs of Computer Software to be Sold, Leased or otherwise Marketed".
Amortization of capitalized software development costs begins upon initial
product shipment. Software development costs are amortized (a) over the
estimated life of the related product, generally thirty-six months, using the
straight-line method, or (b) based on the ratio of current revenues from the
related products to total estimated revenues for such products, whichever is
greater.

STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees".  The Company has presented the pro
forma disclosures of compensation expense under the fair value provisions of the
recently issued Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation" in Note 10.


                                       12
<PAGE>

REVENUE RECOGNITION
The Company generally recognizes product revenues at the time of shipment, but
may delay revenue recognition until products are installed or accepted,
depending on the particular product and contract terms. Design and verification
service revenues are recognized as the services are performed.  Revenues from
the sale of maintenance contracts are recognized  over the term of the
respective contract.

INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109 (SFAS
No. 109), "Accounting for Income Taxes," which requires an asset and liability
approach to account for income taxes and requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities and net operating loss and tax credit carryforwards.

NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common shares outstanding during each period including dilutive common share
equivalents, which consist of common stock options and warrants.  Net loss per
share is computed using the weighted average number of common shares
outstanding. Common share equivalents are not included in the net loss per share
calculation because the effect would be anti-dilutive.

RECLASSIFICATION
Certain previously reported amounts in the 1995 and 1994 consolidated financial
statements and notes have been reclassified to conform with the 1996
presentation.


NOTE 2:  CERTAIN TRANSACTIONS

JOINT VENTURE
The Company's financial statements include the activities related to the
distribution of third-party owned technology, DOORS, for the years ended
December 31,  as follows (in thousands):

                                 1995        1994
                              --------   --------
Service revenues              $  5,400   $  2,100
Cost of service revenues         1,700        600
                              --------   --------
Gross profit                     3,700      1,500
Sales and marketing expenses     2,100        600
                              --------   --------
Operating income              $  1,600   $    900
                              --------   --------
                              --------   --------

The net assets related to the DOORS activities are not material.  In January
1996, the Company and Quality Systems Software, Ltd. (QSS Ltd.), a U.K. company
and owner of the DOORS technology, established a joint venture, QSS Inc., to
continue the distribution operations of the DOORS technology and other products
in the North American market.

During 1996, the Company reported its 40% ownership of QSS Inc. on a 
non-consolidated, one-line equity basis rather than in the detail as shown 
above, for 1995 and 1994.  For the year ended December 31, 1996, the 40% 
equity share of the joint venture profit was $160,000 (included in Other 
Income).  In January 1997, QSS Inc. was restructured so that QSS Ltd. became 
a subsidiary of QSS Inc.  The Company's ownership as a result of the QSS Inc. 
restructuring became 22% (see Note 11 concerning the subsequent sale of the 
Company's interest).

COMPANY STOCK TRANSACTION
On March 14, 1994 the Company raised $3,100,000 of cash, net of broker fees and
discounts through the sale of 1,500,000 shares of its Common Stock including all
of its treasury shares.  These shares were sold to foreign investors under the
provisions of Regulation S of the Securities Act of 1933, as amended (the
Securities Act).

NOTE 3:  PURCHASED TECHNOLOGY

In June 1996, the Company acquired Attest Software, Inc. (Attest), located in
Santa Clara, California, in exchange for approximately 387,000 shares of the
Company's Common Stock, valued at approximately $2,140,000, for all the
outstanding Common Stock of Attest.  This transaction was accounted for as a
purchase; accordingly, the operations of Attest have been included in the
consolidated results of the Company since the day of acquisition.  The operating
results of Attest prior to the acquisition were not significant. As part of this
transaction, the technology purchased, used for fault simulation and automatic
test pattern generation (ATPG) tools, was valued at $2,055,000 which is being
amortized over seven years. Accumulated amortization was $165,000 at December
31, 1996.

In September 1993, the Company acquired Integrated Circuit Applications, Ltd.
(InCA), located in Ascot, United Kingdom for $450,000 cash and 460,000 shares of
the Company's Common Stock valued at approximately $1,322,000. This transaction
was accounted for as a purchase; accordingly, the operations of InCA have been
included in the Consolidated Results of the Company since the date of
acquisition.  The operating results of InCA prior to the acquisition were not
significant..  As part of this transaction the technology purchased was valued
at $1,692,000 which is being amortized over seven years. Accumulated
amortization was $806,000,  $564,000 and $322,000 at December 31, 1996, 1995 and
1994, respectively.  The technology is utilized in the rapid prototyping and
emulation product markets  and has been incorporated into the GateField
Programmable ASICs technology.


                                       13
<PAGE>


NOTE 4: ASSET WRITE-DOWNS AND STAFF REDUCTIONS

During fourth quarter 1994, the Company recorded $6,800,000 of expenses, of
which $5,300,000 related to discontinuing its Paradigm ViP product line.  The
remaining $1,500,000 was primarily related to various asset write-downs and
staff reductions.  Details of the write-off are as follows (in thousands):

NON-CASH ASSET WRITE-DOWNS
 ViP inventory                                $    750
 ViP related capital equipment,
  including demos and spares                       500
 Capitalized ViP software                        2,872
 Other assets                                      300
                                              --------
                                                 4,422

CHARGES RELATING TO CASH OUTFLOWS
 ViP inventory purchase commitments                870
 Vacated facilities ($200 long-term)               300
 Severance and other staff reduction costs         908
 Other                                             300
                                              --------
  Total                                       $  6,800
                                              --------
                                              --------

NOTE 5:  BANK FINANCING AND LONG-TERM DEBT

BANK BORROWINGS
The Company has a $3,125,000 factoring agreement  which bears an interest rate
of 1.5% per month and certain administrative fees, that expires in October 1997.
Under the factoring agreement, the Company can sell up to 80% of any receivable
listed on an invoice and the buyer may exercise its sole discretion in approving
the credit of each Account Debtor before buying any receivable.  At December 31,
1996, the balance outstanding under this factoring agreement was $1,840,000.
Additionally, the Company's Japan subsidiary has promissory notes  discounted
with banks in the amount of $1,363,000 that have been classified as bank
borrowings in accordance with Statement of Financial Accounting Standards  No.
77 (SFAS No. 77), "Reporting by Transferors for Transfers of Receivables with
Recourse."

TERM LOANS
In 1995 and 1996, the Company entered into long-term loan agreements totalling
$2,179,000 that bear interest rates of 10.66% to 15.33% and mature over 36
months.  These loans are secured by specific capital assets.  At December 31,
1996, the balance outstanding under these loans was $810,000,  with $644,000 due
in 1997 and  $246,000 in 1998.  In 1996, the Company obtained promissory notes
totalling $901,000 from key vendors that bear interest rates from 12% to 18%.
These notes are payable in the first nine months of 1997.

SUBORDINATED CONVERTIBLE DEBENTURE NOTES
In May 1996, the Company sold a total of $10,000,000 of subordinated convertible
debenture notes (the Notes) to institutional investors as part of a private
placement.  The Notes accrue interest at an annual rate of 6%, beginning on the
date of issue, with the principal due and payable three years from the date of
issue if and to the extent that the Notes are not previously converted.  The
Notes are convertible at the option of the noteholders (subject to the maximum
share limitations set forth below) into Common Stock at a price equal to 80% to
85% of the average closing bid price for the Common Stock on the Nasdaq National
Market for the five trading days prior to the date of conversion.  In addition,
the investors received warrants to purchase up to 100,000 additional shares of
the Company's stock at $10.00 per share, subject to certain conditions.

The conversion of the Notes at 80% to 85% of the average closing bid price of
the Company's Common Stock results in the Notes being issued at a 15% to 20%
discount (the Conversion Discount).  The Conversion Discount is being recognized
by the Company as non-cash interest expense from the date of issuance through
the date the security is most favorably convertible to the noteholders, with a
corresponding increase to the original principal amount of the Notes.  Upon
conversion of the Notes, any portion of the Conversion Discount not previously
recognized is recorded as interest expense on that date.  In addition, the
stated 6% annual interest is being recognized ratably over the term of the
Notes.  During the year ended December 31, 1996, a total of $2,836,000 was
recorded as interest expense relating to the Notes, including $2,500,000
relating to the Conversion Discount.

The $10,000,000 original principal amount of the Notes is convertible up to 
the maximum number of shares of the Company's Common Stock legally available 
therefor, with each individual Note limited to a pro-rata amount of such 
number of shares.  To the extent that the debentures are still outstanding 
after 180 days, the Company is obligated to issue a 2 1/2 year warrant to 
purchase 10,000 shares of Zycad Common Stock at an exercise price of $10 per 
share for each $1,000,000 of debentures outstanding to a maximum of 100,000 
shares (pro-rated for each part $1,000,000).  The warrants are redeemable by 
the Company for $0.01 for each 10,000 share warrant if the Zycad stock price 
is above $12.  The Company issued 59,500 warrants in 1996.  No value was 
assigned to the warrants as the value was deemed to be nominal.  During 1996, 
an aggregate of $5,431,000 ($4,300,000 of the original principal of the Notes 
and $1,131,000 of accrued interest) had been converted into 2,691,000 shares 
of Common Stock.  At December 31, 1996, the $7,342,000 outstanding balance of 
the Notes consisted of $5,700,000 of the original principal amount of the 
Notes and $1,642,000 of accrued interest. At December 31, 1996 approximately 
3,179,000 shares of Common Stock had been reserved for conversion of the 
remaining debentures.

In the event that the shares of Common Stock underlying a particular Note cannot
be issued upon request for conversion due to the above referenced maximum share
limitations, the Company is immediately obligated to repay the original
principal of that portion of the Note which is presented for 


                                       14
<PAGE>


conversion which cannot be converted plus a premium equal to 2%, starting 
on the 31st day and each 30-day period thereafter, of such principal plus any 
accrued and unpaid interest.

The debenture agreement specifies certain events of default, upon which the
debentures would become immediately payable, including a delisting of the
Company's Common Stock from the Nasdaq Stock Market.  At December 31, 1996, the
Company was not in compliance with the requirement of the Nasdaq National Market
(a distinct tier of the Nasdaq Stock Market) to maintain minimum net tangible
assets (as defined) of $4,000,000.  A hearing is scheduled for April 23, 1997
for Nasdaq to consider the Company's plans to come into compliance with such
requirement.  The Company believes that if its stock were delisted from the
Nasdaq National Market, it would be eligible for listing in the Nasdaq SmallCap
Market, which is another tier of the Nasdaq Stock Market, and, accordingly,
believes it would remain in compliance with the debenture requirement to trade
on the Nasdaq Stock Market.

Based on the conversion of $3,970,000 of subordinated convertible debenture 
notes and accrued interest to common stock in the first quarter of 1997 and 
$256,000 in the second quarter, through April 14, 1997, and the agreement to 
sell its interest in QSS, all as discussed in Note 11, and its projected 
results for 1997, the Company believes it will remain listed on Nasdaq in 
1997 and, accordingly, not cause an event of default with its debenture 
agreement; however, no assurance can be given.

NOTE 6:  LEASES AND COMMITMENTS

The Company leases its facilities and other equipment under operating lease
agreements which expire at various dates through 2002.  The Company also leases
certain manufacturing equipment under capital leases which expire in 1999.
Approximate future minimum lease payments under these leases are as follows (in
thousands):


                                            Capital  Operating
Year                                         Leases     Leases
--------------------------------------------------------------
1997                                       $  537   $  1,896
1998                                          441        965
1999                                           48        434
2000                                            -          7
2001                                            -          2
Thereafter                                      -          9
--------------------------------------------------------------
                                            1,026   $  3,313
                                                    ---------
                                                    ---------
Less amount representing
 imputed interest                            142
                                          ------
                                             884
Less current portion                         412
                                          ------
                                          $  472
                                          ------
                                          ------


Total  operating   lease   expense   was    approximately $1,954,000 in 1996,
$1,638,000 in 1995 and $2,143,000 in 1994.  Accumulated depreciation of
equipment under capital leases totalled $561,000 and $297,000 at December 31,
1996 and 1995, respectively.  Depreciation expense on equipment under capital
leases was $264,000 in 1996, $204,000 in 1995 and $93,000 in 1994.

The Company leases office facilities under operating leases. Rent expense of 
$1,732,000, $1,602,000 and $2,248,000 was incurred in 1996, 1995, and 1994, 
respectively. During 1994, the Company sold $612,000 of its lease receivables 
to certain finance companies.  At December 31, 1996, the Company remains 
contingently liable in the event of uncollectability for $128,000 to these 
finance companies. During 1993, the Company entered into a joint development 
agreement with a European company under which the Company agreed to spend 
approximately $2.5 million over three years.  At December 31, 1996, 
approximately $185,000 remained under this obligation.


NOTE 7:  SELECTED BALANCE SHEET INFORMATION

Selected Balance Sheet information is summarized as follows (in thousands):


December 31,                                                  1996       1995
------------------------------------------------------------------------------
Accounts receivable
 Accounts receivable                                       $ 12,344   $ 12,111
 Current portion lease receivables                            1,081        308
 Less allowance for doubtful
  accounts                                                   (1,337)      (296)
                                                           --------   --------
                                                           $ 12,088   $ 12,123
                                                           --------   --------
Inventories
 Raw materials and supplies                                $  2,045   $  1,035
 Finished goods                                                 619        753
                                                           --------   --------
                                                           $  2,664   $  1,788
                                                           --------   --------

Property and equipment
 Engineering, manufacturing, and
   general office equipment                                $ 18,842   $ 19,131
 Leasehold improvements                                       1,559      1,525
 Equipment under capital lease                                1,714      1,208
                                                           --------   --------
                                                             22,115     21,864
 Less accumulated depreciation
   and amortization                                         (17,014)   (16,266)
                                                           --------   --------
                                                           $  5,101   $  5,598
                                                           --------   --------

Other Long-Term Assets
 Capitalized software                                      $  6,208   $  4,510
 Accumulated amortization                                    (2,799)    (1,649)
                                                           --------   --------
                                                              3,409      2,861
 Long-term portion of
   employee loans                                                25        100
 Long-term portion of
   lease receivables                                            348        323
 Other assets                                                   357        347
                                                           --------   --------
                                                           $  4,139   $  3,631
                                                           --------   --------

Accrued expenses
 Salaries and commissions                                  $  1,771   $  1,416
 Warranty expense                                               550        220
 Other accrued expenses                                       3,024      2,319
                                                           --------   --------
                                                           $  5,345   $  3,955
                                                           --------   --------


                                       15
<PAGE>


NOTE 8:  INCOME TAXES

The provision (benefit) for income taxes reconciles to the amount computed by
applying the statutory federal rate to income or loss before taxes as follows
(in thousands):

                                                      Years Ended December 31,
                                                 -----------------------------
                                                      1996      1995      1994
                                                 ---------  -------- ---------
Provision (benefit) at
 statutory rate                                  $  (7,482) $    757 $  (3,388)
Foreign losses not
 currently utilizable                                  217        21        91
Foreign income taxed
 at different rates                                      -         -        67
Increase (decrease) in
 valuation allowance
 for reversing temporary
 differences                                             -    (1,056)        -
Domestic losses not
 currently utilizable                                6,986       164     3,108
Other                                                  279       114       122
                                                 ---------  -------- ---------
                                                 $       -  $      - $      -
                                                 ---------  -------- ---------


The Company was not required to pay income taxes in 1996, 1995 or 1994 due to
its net operating loss carryforwards.

Significant components of the Company's deferred tax asset are as follows:

                                                             December 31,
                                                            1996        1995
                                                        ---------   ---------
Deferred tax asset
  Net operating loss
     carryforwards                                      $  18,112   $  10,540
  Tax credit carryforwards                                  3,114       3,036
  Capitalized software and
     other research and
     development                                             (933)       (682)
  Tax basis depreciation                                    1,411       1,330
  Accruals and reserves
     recognized in
     different periods                                      2,340       1,058
  Other                                                        80          38
  Valuation allowance                                     (24,124)    (15,320)
                                                        ---------   ---------
                                                        $       -   $       -
                                                        ---------   ---------

The valuation allowance was established due to uncertainty regarding the
utilization of the net operating loss carryforwards.  The net change in
valuation allowance was an increase of $8,804,000, a decrease of $991,000 and an
increase of $4,365,000 in 1996, 1995 and 1994, respectively.

Net pretax foreign income (losses) were ($620,000),  $185,000 and $(261,000) in
1996, 1995 and 1994, respectively.  The Company intends to indefinitely reinvest
the unremitted earnings of its foreign subsidiaries.  The Company has net
operating loss carryforwards of approximately $46,300,000  for federal tax
purposes that will begin to expire in 2005.  State operating loss carryforwards
expires as follows: $5,000,000 in 1997, $335,000 in 1998, $30,000 in 1999,
$90,000 in 2000 and $10,710,000 in the year 2001.  The Company's tax credit
carryforwards of  $2,800,000 and $378,000 available to reduce future federal and
California income taxes, respectively. These credits will expire beginning in
1999. The Company also has foreign net operating loss carryforwards of
approximately $3,500,000 which may be used to offset future foreign taxable
income.

The Tax Reform Act of 1986 and California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating losses and tax
credit carryforwards in the event of an "ownership change" as defined by the
Internal Revenue Code.  If there should be such a change, the Company's ability
to utilize the stated carryforwards could be significantly limited.


NOTE 9:  GEOGRAPHIC SEGMENT INFORMATION

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

Net revenues to unaffiliated customers by geographic region (in thousands):

                                   1996        1995       1994
                               ---------   ---------  ---------
United States                  $  25,396   $  42,107  $  39,271
Europe                             2,307       4,355      5,196
Japan                              5,874       4,655      5,584
                               ---------   ---------  ---------
                               $  33,577   $  51,117  $  50,051
                               ---------   ---------  ---------

The amounts reported for Europe and Japan reflect amounts sold by foreign
subsidiaries.  Included in the domestic revenue amounts are sales directly to
Japan and other Asian countries amounting to $2,116,000 in 1996, $6,100,000 in
1995 and $2,200,000  in 1994.  Outside the United States, the Company operates
three subsidiaries  in Europe, one subsidiary  in Japan and also supports a
branch office in Taiwan.  For the years ended December 31, 1996, 1995 and 1994,
export sales (including sales by foreign subsidiaries), principally to Europe
and Japan,  comprised approximately  31%, 30% and  26% of consolidated revenues,
respectively.  During 1996, 1995 and 1994, one customer accounted  for 10%, 17%
and 14% of consolidated revenues, respectively.

Operating results and identifiable assets by geographic location are as follows
(in thousands):


                                    1996        1995        1994
                               ---------   ---------  ----------
Operating income (loss)
  United States               $  (17,338)  $   2,836   $  (9,235)
  Europe                            (861)       (383)       (606)
  Japan                             (236)         97         330
                               ---------   ---------  ----------
                              $  (18,435)  $   2,550   $  (9,511)
                               ---------   ---------  ----------

                                    1996        1995        1994
                               ---------   ---------  ----------
Identifiable assets
  United States                $  25,324   $  25,040   $  24,120
  Europe                           2,171       2,785       3,108
  Japan                            2,032       2,155       2,597
                               ---------   ---------  ----------
                               $  29,527   $  29,980   $  29,825
                               ---------   ---------  ----------


                                       16
<PAGE>

NOTE 10: STOCKHOLDERS' EQUITY

PREFERRED STOCK
The Company's Articles of Incorporation were duly amended by a proposal by the
Board of Directors November 1, 1996 and by vote of the stockholders at a special
meeting on December 5, 1996, to authorize the issuance of 2,000,000 shares of
undesignated Preferred Stock at $0.10 par value.  There were no outstanding
shares of Preferred Stock at December 31, 1996.

COMMON STOCK
The Company's Articles of Incorporation were duly amended by a proposal by the
Board of Directors November 1, 1996 and by vote of the stockholders at a special
meeting on December 5, 1996, to increase the Company's Common Stock by
10,000,000 shares from 30,000,000 to 40,000,000 shares of Common Stock
authorized at $0.10 par value.  At December 31, 1996 there were 23,226,444
shares of the Company's Common Stock outstanding.

STOCK COMPENSATION PLANS
Under the Company's stock option plans, options to purchase shares of Common
Stock may be granted to employees and directors at not less than the fair market
value on the effective date of the grant, as determined by the Board of
Directors.  Dependent on the plan, options typically vest at specified intervals
over a three to four year period, and expire eight to ten years after the grant
date.  In the event of termination, the Company has the right to cancel any
vested options not exercised within 90 days of the termination.  Cancelled
options are returned to the options plans and are available for future grants.

Options granted to officers subsequent to June 22, 1990 provide for acceleration
of exercisability in the event of an acquisition of the Company that meets
certain defined criteria. The plans also permit the granting of incentive and
nonstatutory stock options and stock appreciation rights (SARs). At December 31,
1996, there were no SARs outstanding.  In October 1996, the Company's Board of
Directors adopted the 1996 Stock Option Plan which was ratified by shareholders
in December, 1996.  Under this plan, 750,000 shares of the Company's Common
Stock were reserved for issuance under this plan.  In August 1993, the Company's
Board of Directors adopted the 1993 Stock Option Plan which was ratified by
shareholders in December 1995.  Under this plan, 1,500,000 shares of the
Company's Common Stock were reserved for issuance in 1993, and subsequently
increased to 3,000,000 in 1995. In September, 1993, the CEO of the Company
exercised 900,000 options granted under the 1984 Stock Option Plan for a
$900,000 secured promissory note which was paid in 1995.

During 1995 stockholders approved a Non-Employee Directors' stock option plan,
whereby 200,000 additional shares have been reserved for issuance to outside
directors. No options have been issued under this plan.

In October 1996, the Company agreed to exchange outstanding options to purchase
the Company's Common Stock held by all employees for an equal number of options
with an exercise price of $1.63, the then-current fair market value of the
Company's Common Stock.  In return, participating employees who chose to
exchange their options agreed to accept stock options which will vest on a
quarterly basis upon achievement of certain management goals to be established
quarterly for each such employee, or in any event, in October 2000, should the
employee still be employed by the Company.  Options covering a total of
1,040,100 shares were exchanged under this program.  The effect of such exchange
reduced the weighted average exercise price of the outstanding options from
$3.24 to $1.90 per share.  The effect of the exchange has been included in the
accompanying table as options granted and cancelled.

In October 1995, the Financial Accounting Standards  Board issued SFAS No. 123,
which establishes financial accounting and reporting standards for stock-based
employee compensation plans.  This statement defines a fair value based method
of accounting for an employee stock option of similar equity instrument.  Under
these method, compensation costs are measured at the grant date based on the
value of the award and are recognized over the service period, which is the
vesting period.

The Company continues to account for its stock-based awards using the intrinsic
value method in accordance with APB No. 25 and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock option plans (see Note 1).  Had compensation cost
for the Company's various stock option plans been determined consistent with
SFAS No. 123, the Company's net income or loss and net income or loss per share
would have been changed to the pro forma amounts indicated below (in thousands,
except net income or loss per share amounts):

                                               December 31,
                                             1996          1995
                                        ----------      --------
Net income (loss)      As reported      $  (21,376)     $  1,957
                       Pro forma        $  (22,280)     $  1,793

Net income (loss)      As reported      $    (1.03)     $   0.09
     per share         Pro forma        $    (1.08)     $   0.08


The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively; expected volatility
of 90% for 1996 and 84% for 1995, risk-free interest rates of 6.07% and 6.16%
for 1996 and 1995, respectively, and expected lives of 3.5 years from the grant
date  for both 1996 and 1995.


                                       17
<PAGE>


Options under the employee stock option plans have been granted, exercised and
cancelled as follows:

                                                 Options Outstanding
                                                -----------------------
                                                              Weighted-
                                      Shares                   average
                                     Available                 exercise
                                     for Grant     Shares       price
                                  -------------------------------------

Balance,
December 31, 1993                     839,645    2,897,917   $  1.849
Granted                              (438,000)     438,000      2.644
Exercised                                   -     (195,974)     1.074
Cancelled                             516,005     (741,620)     2.463
                                  -------------------------------------

Balance,
December 31, 1994                     917,650    2,398,323      1.868
Additional shares
     authorized                     1,500,000            -        -
Granted                            (1,538,826)   1,538,826      4.347
Exercised                                   -     (634,983)     1.472
Cancelled                             221,190     (428,262)     2.060
                                  -------------------------------------

Balance,
December 31, 1995                   1,100,014    2,873,904      3.254
Additional shares
     authorized                       750,000            -        -
Granted                            (2,311,120)   2,311,120      2.353
Exercised                                   -     (369,877)     1.531
Cancelled                           1,517,026   (1,517,026)     5.286
                                  -------------------------------------

Balance,
December 31, 1996                   1,055,920    3,298,121   $  1.881
                                  -------------------------------------


The weighted average per share fair value of the stock options granted in 
1996 and 1995 was $2.35 and $4.35, respectively.  At December 31, 1996, 1995 
and 1994, outstanding options under the employees stock option plans were 
exercisable for 1,065,835, 1,067,024 and 1,349,321 shares respectively.  All 
outstanding options are nonqualified options.

The following tables summarize information about stock options outstanding at
December 31, 1996:

                                          Options Outstanding
                           ----------------------------------------------
                                               Weighted-avg
    Exercise Price               Number          Remaining   Weighted-avg
 -----------------            Outstanding       Contractual    Exercise
    From        To            at 12/31/96          Life         Price
 ------------------------------------------------------------------------
 $  0.75    $  1.00              624,735           4.02      $  0.998
 $  1.31    $  1.50                9,000           8.30         1.339
 $  1.56    $  2.06            2,228,932           8.10         1.713
 $  2.38    $  3.50              220,446           5.55         2.781
 $  3.63    $  5.31              118,508           6.98         4.436
 $  6.00    $  8.06               96,500           7.01         6.711
 ------------------------------------------------------------------------
 $  0.75    $  8.06            3,298,121           6.88      $  1.881
 ------------------------------------------------------------------------


                                    Options Exercisable
                           ---------------------------------
  Exercise Price                Number        Weighted-avg
 ------------------           Outstanding       Exercise
  From           To          at 12/31/96          Price
 -----------------------------------------------------------
 $  0.75    $  1.00              474,151      $  0.998
 $  1.31    $  1.50                7,666         1.321
 $  1.56    $  2.06              378,895         2.037
 $  2.38    $  3.50              167,306         2.803
 $  3.63    $  5.31               21,942         3.638
 $  6.00    $  8.06               15,875         6.820
 -----------------------------------------------------------
 $  0.75    $  8.06            1,065,835      $  1.794
 -----------------------------------------------------------


EMPLOYEE STOCK PURCHASE PLAN
Through the Company's Employee Stock Purchase Plan, eligible employees of the
Company may purchase Common Stock at the fair market value of the stock at the
beginning or end of each offering period (calendar quarters), whichever is
lower. Each participant may contribute from 3% to 10% of total compensation, up
to a limit of $25,000 annually.  Additionally, each participant is prohibited
from owning more than 5% of the Company's Common Stock.  In December 1995,
200,000 shares of Common Stock were made available for purchase under this plan,
of which 25,913 shares were issued at December 31, 1996, for prices ranging from
$1.72 per share to $5.25 per share and an average price of $2.98 per share.  At
December 31, 1996, 174,087 shares were reserved for future issuance under the
Purchase Plan.  The fair value of the 1996 awards was not considered
significant.

EMPLOYEE 401(k) PLAN
Through the Company's elective 401(k) savings plan, eligible U.S. employees of
the Company may contribute up to 20% of their pre-tax earnings, subject to
current IRS restrictions.  Under the plan, the Company may make discretionary
matching contributions up to 25% up to the first 10% of an employee's
contributions.  The participants vest in the Company's contribution over five
years.  Company contributions to this plan were $200,000 in 1996, $198,000 in
1995 and $256,000 in 1994.

WARRANTS
At December 31, 1996, total warrants outstanding were 194,500.  Purchase price
of the securities subject to these warrants range from $1.00 to $10.00 and they
expire at various dates through February 2000.

During 1996, 59,500 warrants were issued relating to the subordinated
convertible debenture note.  No warrants were exercised or cancelled in 1996.

In 1995, warrants for 53,860 shares were exercised and warrants for 32,058
issued in prior years were cancelled.  During 1994, warrants for 50,000 shares
were issued to Dr. Fiebiger, who was elected to the Board of Directors in 1994,
at an exercise price of $3.63.  Warrants for an additional 5,918 shares were
given in lieu of cash to Dr. Fiebiger for consulting services valued at $16,800.
The exercise price for these warrants is $0.  During 1993, 50,000 warrants
issued to a Director were exercised at an exercise price of $1.00 and 30,000
warrants each were issued to two Directors at an exercise price of $2.06.


NOTE 11: SUBSEQUENT EVENTS

BANK LINE OF CREDIT
On January 6, 1997 the Company obtained a $5,000,000 revolving credit facility
that bears interest at the bank's prime rate (currently 8.25%) plus 2.25%, which
expires on January 31, 1999.  The line of credit agreement is secured by
substantially all of the Company's assets.  Under the agreement, the Company is
required to meet certain financial covenants involving


                                       18
<PAGE>


capital spending levels and debt ratio, and may not declare or make any cash or
stock dividends.

1996 SUBORDINATED CONVERTIBLE DEBENTURE NOTES
During the first quarter of 1997, an aggregate of $3,970,000 ($3,150,000 of the
original principal of the Notes and $820,000 of accrued interest) has been
converted into 2,158,195 shares of the Company's Common Stock.  During the first
fourteen days of the second quarter of 1997, an aggregate of $256,000 ($200,000
of the original principal of the Notes and $56,000 of accrued interest) has been
converted into 170,502 shares of the Company's Common Stock.


1997 SUBORDINATED CONVERTIBLE DEBENTURE NOTES
On February 13, 1997, the Company completed a $5,000,000 private placement
financing agreement with investors, whereby the Company issued 6% subordinated
convertible debenture notes, which can be converted into shares of the Company's
Common Stock to be registered under Regulation D of the Securities Act of 1933.
The Company received $3,500,000 of the convertible subordinated debenture in
February 1997 and will receive the remaining $1,500,000 upon registration of
additional shares of the Company's Common Stock upon the effective filing of an
S-3 Registration Statement under the Securities Act of 1933.  Conversion rights
on these debentures  may be exercised at various dates, beginning on May 16,
1997, at discounts that range from 15% to 20% below the market price at the date
of conversion.  The amortized discount expense will be $1,250,000 and will be
expensed over the first 180 days upon receipt of the cash.  In addition, the
investors received warrants to purchase up to 500,000 additional shares of the
Company's Common Stock at $2.25 per share, subject to certain conditions.  
The debenture agreement specifies certain events of default, upon which the 
debentures would become immediately payable, including a delisting of the 
Company's Common Stock from the Nasdaq Stock Market (see Note 5).


QSS INC.
On April 14, 1997, the Company signed an agreement to sell its ownership in QSS
Inc., a joint venture established with QSS Ltd., for $3,500,000 cash.  Closing
is anticipated by April 30, 1997 (see Note 2).


                                       19
<PAGE>


                                ZYCAD CORPORATION
                          INDEPENDENT AUDITORS' REPORT


TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ZYCAD CORPORATION

We have audited the accompanying consolidated balance sheets of Zycad
Corporation and its subsidiaries at December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Zycad Corporation and its
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.

As discussed in Note 5 to the Consolidated Financial Statements, the Company 
is required to continue trading on Nasdaq to comply with its debenture 
agreements. The Company is in discussions with Nasdaq concernings its 
eligibility to continue trading on the exchange. The outcome of this matter 
is uncertain, which raises substantial doubt about the Company's ability to 
remain in compliance with its debt agreements and continue as a going 
concern. Management's views concerning this matter are also described in Note 5.
The consolidated financial statements do not include any adjustments that 
might result from the outcome of this uncertainty.


/s/ DELOITTE & TOUCHE LLP

San Jose, California
March 11, 1997 (April 14, 1997 as to the last paragraph of Note 5
and as to Note 11)


                                       20
<PAGE>


                                ZYCAD CORPORATION
                              CORPORATE INFORMATION

 CORPORATE OFFICERS

 Phillips W. Smith
 President and Chief Executive Officer

 Stephen A. Flory
 Vice President and Chief Financial Officer

 Douglas E. Klint
 Vice President, General Counsel
 and Corporate Secretary

 Horst G. Sandfort
 President, GateField Division

 ADMINISTRATIVE AND DIVISIONAL
 OFFICERS

 Martin J. Baynes
 VP Engineering
 Accelerator Division

 James J. Ensell
 VP Sales, East/Europe, GateField Division

 Charlie Parr
 VP Sales, GateField Division

 Reg Simpson
 VP Manufacturing, GateField Division

 Timothy Saxe
 VP Engineering
 GateField Division

 Vince Calandra
 VP Sales, Eastern Region and Europe

 John R. Walsh
 VP Operations
 Verification Division

 Mike Gianfagna
 VP Sales, Western Region and Asia Pacific

 Makoto Yamada
 Managing Director
 Zycad Japan, K.K.

 Peter Feist
 VP Business Development
 GateField Division

 Richard Freeman
 VP General Manager
 GateField Division

 INDEPENDENT AUDITORS

 Deloitte & Touche LLP
 San Jose, California

 LEGAL COUNSEL

 Wilson, Sonsini, Goodrich & Rosati
 Palo Alto, California

 TRANSFER AGENT & REGISTRAR

 The Bank of Boston
 Boston, Massachusetts

 DIRECTORS

 Phillips W. Smith
 President and Chief Executive Officer
 Zycad Corporation

 James R. Fiebiger
 Industry Consultant, Chairman & Managing Director
 Thunderbird Technology, Inc.

 Benjamin Huberman
 President
 Huberman Consulting Group

 Horst G. Sandfort
 President, GateField Division

 AUDIT COMMITTEE AND
 COMPENSATION COMMITTEE

 James R. Fiebiger
 Benjamin Huberman

 ANNUAL MEETING OF STOCKHOLDERS

 The annual meeting of stockholders will be held at Zycad's corporate office,
 47100 Bayside Parkway, Fremont, California  94538, on Wednesday, August 27,
 1997, at 3:30 P.M. Pacific Daylight Time.

 FORM 10-K

 The Company has filed an annual report with the Securities and Exchange
 Commission on Form 10-K. Stockholders may obtain a copy of this report, without
 charge, by writing:

     Zycad Corporation
     Attention:  Investor Relations
     47100 Bayside Parkway
     Fremont, CA   94538-9942

     Email:  info@zycad.com
     Internet:  http://www.zycad.com


                                       21
<PAGE>


STOCK LISTING

The Company's Common Stock is traded in the over-the-counter market under the
Nasdaq National Market symbol ZCAD (see Note 5 of Notes to the Consolidated 
Financial Statements).  The following table sets forth the range of high and 
low trading prices during each quarter for the two years ended December 31, 
1996:

                          High          Low
--------------------------------------------
1996
First Quarter          $  9.13       $  4.88
Second Quarter         $  8.88       $  4.63
Third Quarter          $  6.13       $  3.44
Fourth Quarter         $  3.63       $  1.56
--------------------------------------------

1995
First Quarter          $  1.94       $  0.94
Second Quarter         $  4.31       $  1.31
Third Quarter          $ 10.75       $  3.25
Fourth Quarter         $ 10.13       $  5.38
--------------------------------------------

The Company has never paid cash dividends on its Common Stock.  The Company
presently intends to retain any earnings for use in its business and is
currently restricted from declaring or paying and cash or stock dividends.  At
April 4, 1997, there were 1,269 stockholders of record.


                                       22