<PAGE>
 
================================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-Q

(MARK ONE)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934.

For the Quarterly Period ended March 31, 1997

                                       OR

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

For the Transition Period from           to

                        Commission file number 0-26100

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

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


           QUEBEC                                  98-0150790
 (State or other jurisdiction                    (IRS Employer
of incorporation or organization)             Identification Number)


                     5505 BOULEVARD ST. LAURENT, SUITE 5200
                        MONTREAL, QUEBEC, CANADA H2T 1S6
                    (Address of principal executive offices)
                                   (Zip code)

       Registrant's telephone number, including area code: (514) 272-0525

  Indicate by check mark whether registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes    X    No 
    -------    -------

28,027,583 shares of the registrant's Common shares, without par value, were
outstanding as of May 12, 1997.

================================================================================

<PAGE>
 
                     DISCREET LOGIC INC. AND SUBSIDIARIES

                                   Form 10-Q

                     For the Quarter ended March 31, 1997

                                   Contents
<TABLE>
<CAPTION>
 
ITEM NUMBER                                                              PAGE
-----------                                                            ---------
<S>                          <C>                                       <C>
PART I:   FINANCIAL INFORMATION
Item 1.   Condensed Consolidated Financial Statements
            Balance Sheets:........................................       3
            July 31, 1996 and March 31, 1997
            Statements of Operations:..............................       4
              Three months ended April 30, 1996 and
              March 31, 1997
              Nine months ended April 30, 1996 and
              Eight months ended March 31, 1997
            Statements of Cash Flows:..............................       5
              Nine months ended April 30, 1996 and
              Eight months ended March 31, 1997
            Notes to Condensed Consolidated Financial Statements...       6
Item 2.   Management's Discussion and Analysis of Financial Condition 
            and Results of Operations..............................       8
          Certain Factors That May Affect Future Results...........      14
PART II:  OTHER INFORMATION
Item 1.   Legal Proceedings........................................      15
Item 4.   Submission of Matters to a Vote of Security Holders......      16
Item 6.   Exhibits and Reports on Form 8-K.........................      17
Signatures.........................................................      18
</TABLE>

                                       2
<PAGE>
 
                     DISCREET LOGIC INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

       (All amounts in thousands of U.S. dollars, except for share data)
<TABLE>
<CAPTION>
 
                                            July 31,       March 31,
                                              1996           1997
                                            --------       --------
                                                          (Unaudited)
<S>                                         <C>           <C>
                    ASSETS
Current Assets:
  Cash and cash equivalents..............   $ 21,658       $ 40,982
  Accounts receivable (less reserves for      
    doubtful accounts)...................     16,074         14,680
  Inventory-
    Resale...............................     11,556          9,867
    Demonstration........................      4,274          2,570
  Income taxes receivable................      3,191              - 
  Other current assets...................      3,640          4,025
                                            --------       --------
                                              60,393         72,124
Property and equipment-less accumulated       
  depreciation and amortization..........     10,037          8,267
Deferred income taxes....................      4,722          5,360
Other assets.............................      1,140            952
Assets held for resale...................      3,856          5,149
                                            --------       --------
                                            $ 80,148       $ 91,852
                                            ========       ========
    LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current Liabilities:
  Accounts payable and accrued expenses..   $ 28,950       $ 33,009
  Deferred revenue.......................      4,770          7,690
  Income taxes payable...................          -          1,440
  Customer deposits......................      2,618            891
  Due to related parties.................         25              -
                                            --------       --------
                                              36,363         43,030
                                            --------       --------
Deferred income taxes....................      1,442          1,711
                                            --------       --------
Shareholders' equity:
  Preferred shares-no par value
    Authorized-unlimited number of shares
    Issued and outstanding-none
  Common shares-no par value
    Authorized-unlimited number of shares
    Issued and outstanding-27,699,426           
     shares at July 31, 1996 and
     28,014,887 at March 31, 1997........     78,923         79,925
  Accumulated deficit....................    (35,883)       (31,692)
  Cumulative translation adjustment......       (697)        (1,122)
                                            --------       --------
    Total shareholders' equity...........     42,343         47,111
                                            --------       --------
                                            $ 80,148       $ 91,852
                                            ========       ========
</TABLE>

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

                                       3
<PAGE>
 
                      DISCREET LOGIC INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

     (All amounts in thousands of U.S. dollars, except for per share data)
                                  (Unaudited)
<TABLE>
<CAPTION>
 
                                            Three            Three            Nine            Eight
                                            Months          Months           Months          Months
                                            Ended            Ended           Ended            Ended
                                          April 30,        March 31,       April 30,        March 31,
                                             1996            1997             1996            1997
                                          ----------     -----------       ---------      ----------
<S>                                       <C>            <C>               <C>             <C>
Total revenues.........................   $  14,677      $  27,044         $  64,946        $ 67,139
Cost of revenues.......................      12,008         11,255            36,324          31,545
                                          ---------      ---------         ---------        --------
  Gross profit.........................       2,669         15,789            28,622          35,594
                                          ---------      ---------         ---------        --------
Operating expenses.....................
  Research and development (net of tax
   credits)............................       6,567          2,746            12,461           6,998
  Sales and marketing..................       7,224          6,534            18,810          17,162
  General and administrative...........       4,016          1,842             7,580           4,547
  Charge for purchased research and           
   development.........................           -              -             8,500               - 
                                          ---------      ---------         ---------        --------
     Total operating expenses..........      17,807         11,122            47,351          28,707
                                          ---------      ---------         ---------        --------
     Operating income (loss)...........     (15,138)         4,667           (18,729)          6,887
Other income (expense), net............      (1,334)            46               437             940
                                          ---------      ---------         ---------        --------
  Income (loss) before income taxes....     (16,472)         4,713           (18,292)          7,827
Provision (benefit) for income taxes...      (1,363)         1,674             1,249           3,636
                                          ---------      ---------         ---------        -------- 
  Net income (loss)....................   $ (15,109)      $  3,039         $ (19,541)       $  4,191
                                          =========      =========         =========        ========
Net income (loss) per common share.....   $    (.55)      $    .11         $    (.74)       $    .15
                                          =========      =========         =========        ========
Weighted average common shares         
 outstanding...........................      27,398         28,711            26,557          28,542
                                          =========      =========         =========        ========
</TABLE>
  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       4
<PAGE>
 
                      DISCREET LOGIC INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                   (All amounts in thousands of U.S. dollars)
                                  (Unaudited)
<TABLE>
<CAPTION>
 
                                                                    Nine Months     Eight Months
                                                                       Ended           Ended
                                                                  April 30, 1996   March 31, 1997
                                                                ----------------   --------------
<S>                                                             <C>                <C>
Cash flows from operating activities:  
Net income (loss).......................................             $(19,541)         $ 4,191
Adjustments to reconcile net income (loss) to 
  cash provided by (used in) operating activities--                           
  Depreciation and amortization.........................                4,143            4,043
  Deferred income taxes.................................               (1,592)            (433)
  Write off of in process research and                                
   development..........................................                8,500                -                          
  Changes in assets and liabilities--                                 
    Accounts receivable.................................               (4,604)           1,393
    Inventory...........................................               (8,960)           4,176
    Income taxes receivable.............................                    -            3,191
    Other current assets................................                 (865)            (571)
    Accounts payable and accrued expenses...............               10,832            4,304
    Deferred revenue....................................                1,194            2,920
    Income taxes payable................................               (7,273)           1,440
    Customer deposits...................................                  185           (1,727)
    Due to related parties..............................                  (16)             (25)
                                                                     --------          -------
  Net cash provided by (used in) operating activities...              (17,997)          22,902 
                                                                     --------          -------
Cash flows from investing activities:                                 
  Purchase of property and equipment....................              (13,678)          (4,206)
  Increase in other assets..............................                 (200)               -
  Cash paid for COSS/IMP acquisition and related costs..               (5,545)               -
                                                                     --------          -------
    Net cash used in investing activities...............              (19,423)          (4,206)
                                                                     --------          -------
Cash flows from financing activities:                                 
  Proceeds from issuance of common shares, net of                     
    issuance costs......................................               27,382                - 
  Proceeds from subscription receivable.................                1,645                -
  Proceeds from option exercises........................                1,119              640
  Proceeds from employee stock purchase plan............                  302              201
  Payment of capital lease obligations..................                 (250)               -
                                                                     --------          -------
    Net cash provided by financing activities...........               30,198              841
                                                                     --------          -------
Foreign exchange effect on cash.........................                  103             (213)
                                                                     --------          -------
Increase (decrease) in cash and cash equivalents........               (7,119)          19,324
Cash and cash equivalents, beginning of period..........               40,987           21,658
                                                                     --------          -------
Cash and cash equivalents, end of period................             $ 33,868          $40,982
                                                                     ========          =======
Supplemental disclosure of cash flow information:                     
  Interest paid during the period.......................             $    264          $    17
                                                                     --------          -------
   Income taxes paid during the period..................             $  7,932          $   807
                                                                     --------          -------
In connection with the acquisition of  COSS/IMP in                    
  October 1995, the following non cash transaction                    
  occurred:                                                           
    Fair value of assets acquired.......................             $ 12,408          $     -
    Liabilities assumed.................................                 (344)               -
    Cash acquired.......................................                 (519)               -
    Issuance of 300,000 shares of Common Stock..........               (6,000)               -
                                                                     --------          -------
Cash paid for acquisition, net of cash acquired.........             $  5,545          $     -
                                                                     ========          =======
</TABLE>
 The accompanying notes are an integral part of these condensed consolidated 
                             financial statements.

                                       5
<PAGE>
 
                      DISCREET LOGIC INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

(1)   BASIS OF PRESENTATION

  The accompanying unaudited condensed consolidated financial statements have
been prepared by Discreet Logic Inc. ("Discreet Logic" or "the Company")
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
July 31, 1996. The accompanying condensed consolidated financial statements
reflect all adjustments (consisting solely of normal, recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
results for the interim periods presented. The results of operations for the
three month and eight month periods ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full fiscal year.


(2)   CHANGE IN FISCAL YEAR

  On January 9, 1997, the Board of Directors of the Company approved the change
of the Company's fiscal year end from July 31 to June 30. This change was
effective beginning with the Company's second fiscal quarter of 1997. The
condensed consolidated financial statements are presented for the three month
period ended March 31, 1997 and three month period ended April 30, 1996 and the
eight month period ended March 31, 1997 and nine month period ended April 30,
1996. The Company prepares consolidated financial statements, re-measures
accounts in foreign currencies to reflect changes in exchange rates, and
examines and adjusts certain reserve accounts at the end of each quarter.
Therefore, it is not practicable to recast prior quarterly results to reflect
the new fiscal period. Consequently, the results for the eight month period
ended March 31, 1997 are not directly comparable with those for the nine month
period ended April 30, 1996 and the current eight month period's results are not
necessarily indicative of results for a full nine month period.


(3)   LITIGATION

  On May 29, 1996, a lawsuit entitled Sandra Esner and Jerry Krim, On Behalf of
Themselves and All Others Similarly Situated, vs. [...]Discreet Logic Inc., et
al., case No. 978584, was filed in the Superior Court of the State of
California, City and County of San Francisco. Named as defendants are the
Company, certain of the Company's former and existing directors, officers, and
affiliates, and certain underwriters and financial analysts. The plaintiffs
purport to represent a class of all persons who purchased the Company's common
stock between September 13, 1995, and May 1, 1996. The complaint alleges
violations of California law through material misrepresentations and omissions,
among other things. The Company believes the allegations in the complaint are
without merit and intends to defend the lawsuit vigorously.

  On June 13, 1996, a lawsuit entitled Bruce Friedberg, On Behalf of Himself and
All Others Similarly Situated, vs. Discreet Logic Inc., et al., civ. No. 96-
11232-EFH, was filed in the United States District Court, District of
Massachusetts. Named as defendants are the Company and certain of the Company's
former and existing directors and officers. The plaintiff purports to represent
a class of all persons who purchased the Company's common stock between November
14, 1995, and February 13, 1996. On October 11, 1996, the plaintiff filed an
amended complaint which asserts substantially the same factual allegations as
the first complaint and proposes the identical class period. The complaint
alleges violations of United States Federal Securities law through material
misrepresentations and omissions. The Company believes the allegations in the
amended complaint are without merit and intends to defend the lawsuit
vigorously.

  On April 29, 1997, a lawsuit entitled Anton Paparella, Sandra Esner and
Geoffrey L. Sherwood, On Behalf of Themselves and All Others Similarly Situated
vs. Discreet Logic Inc., et al., case No. C-97-1570, was filed in the United
States District Court, Northern District of California. Named as defendants are
the Company and certain of the Company's former and existing officers, directors
and affiliates, and certain underwriters. The complaint asserts, in all material
respects, the same factual allegations and proposes the same class period as the
above-described California state court complaint filed in May 1996, except
asserts claims under federal securities law instead of state law. The Company
believes the allegations in the California federal complaint are without merit
and intends to defend the lawsuit vigorously.

  Although the Company denies all material allegations of these complaints and
intends to vigorously defend against these claims brought against it, the
ultimate outcome, including amount of possible loss, if any, of litigation
cannot be 

                                       6
<PAGE>
 
determined at this time. No provision for any liability that may
result from this litigation has been recorded. However, in the fourth fiscal
quarter of 1996, the Company accrued $2,506,000 as estimated legal fees to
defend against these lawsuits, of which $1,741,000 remained in accounts payable
and accrued expenses at March 31, 1997. There can be no assurance that the
ultimate outcome of these matters will not have a material adverse effect on the
Company's business and results of operations.

                                       7
<PAGE>
 
                      DISCREET LOGIC INC. AND SUBSIDIARIES

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Overview

  Discreet Logic develops, assembles, markets and supports non-linear, on-line,
digital systems for creating, editing and compositing imagery and special
effects for film and video. The Company's systems are utilized by creative
professionals for a variety of applications, including feature films, television
programs, commercials, music videos, interactive game production and live
broadcasting.


Recent Developments

  On January 9, 1997, the Board of Directors of the Company approved the change
of the Company's fiscal year end from July 31 to June 30. This change was
effective beginning with the Company's second fiscal quarter of 1997. The
condensed consolidated financial statements are presented for the three month
period ended March 31, 1997 and three month period ended April 30, 1996 and the
eight month period ended March 31, 1997 and nine month period ended April 30,
1996. The Company prepares consolidated financial statements, re-measures
accounts in foreign currencies to reflect changes in exchange rates, and
examines and adjusts certain reserve accounts at the end of each quarter.
Therefore, it is not practicable to recast prior quarterly results to reflect
the new fiscal period. Consequently, the results for the eight month period
ended March 31, 1997 are not directly comparable with those for the nine month
period ended April 30, 1996 and the current eight month period's results are not
necessarily indicative of the results for a full nine month period.

  In response to the fiscal 1996 financial results and other developments facing
the business, the Company developed a restructuring plan during the fourth
fiscal quarter of 1996. The focus of the Company's restructuring plan was to
solidify its senior management team, reduce operating expenses through workforce
reductions and office closings, consolidate software research and development in
its Montreal headquarters, discontinue certain product lines, and restructure
its sales force to place more emphasis on indirect sales channels. The Company
began implementation of its restructuring plan in the fourth fiscal quarter of
1996 and expects implementation to continue throughout fiscal 1997.

  The Company's restructuring plan included a 28% reduction in its workforce,
approximately 110 positions, bringing the Company's headcount to a level which
the Company believes is more closely aligned with its current revenues. This
headcount reduction commenced in the fourth fiscal quarter of 1996 and was
substantially completed as of the end of the third fiscal quarter of
1997. As a result of the Company's consolidation of key research and development
functions, the Company has closed the following research and development
offices: Cambridge, Massachusetts (including administrative offices);
Connecticut; London; and Innsbruck. The Company expects to complete the closure
of its research and development office in Paris by the end of the Company's
fourth fiscal quarter of 1997.

  In connection with the restructuring plan, the Company has expanded and
expects to further expand the number of distributors selling the Discreet Logic
systems. In addition, a significant number of distributors will now be allowed
to sell FLAME, INFERNO, and FIRE systems as well as FLINT systems which they
previously distributed.

  There can be no assurance that management will be successful in completing the
implementation of the restructuring plan or that the Company will not take
further restructurings or be profitable in the future. Furthermore, the
implementation of the restructuring plan may cause a diversion of management's
time and resources and may result in other unforeseen disruptions and unexpected
expenses.

                                       8
<PAGE>
 
RESULTS OF OPERATIONS

  The following table sets forth the percentages of total revenues represented
by certain line items in the statements of operations:
<TABLE>
<CAPTION>
 
                                            Three       Three        Nine       Eight
                                            Months      Months      Months      Months
                                            Ended       Ended       Ended       Ended
                                          April 30,   March 31,   April 30,   March 31,
                                             1996        1997        1996        1997
                                          ---------   ---------   ---------   ---------
<S>                                       <C>         <C>         <C>         <C>
Total revenues........................       100%        100%        100%        100%
Cost of revenues......................        82          42          56          47
                                             ---         ---         ---         ---
  Gross profit........................        18          58          44          53
Operating expenses:                                                              
  Research and development.............       45          10          19          10
  Sales and marketing..................       49          24          29          26
  General and administrative...........       27           7          12           7
  Charge for purchased research and                                              
    development........................        -           -          13           -
                                             ---         ---         ---         ---
     Total operating expenses..........      121          41          73          43
                                             ---         ---         ---         ---
  Operating income (loss)..............     (103)         17         (29)         10
Other income (expense), net............       (9)          -           1           1
                                             ---         ---         ---         ---
Income (loss) before income taxes......     (112)         17         (28)         11
Provision (benefit) for income                                                  
  taxes................................       (9)          6           2           5
                                             ---         ---         ---         ---
    Net income (loss)..................     (103)%        11%        (30)%         6%
                                             ===         ===         ===         === 
</TABLE>
Three Month Periods Ended March 31, 1997 and April 30, 1996 and Eight Month
Period Ended March 31, 1997 and Nine Month Period Ended April 30, 1996

  Total Revenues.   Total revenues were $27,044,000 for the three month period
ended March 31, 1997, and $14,677,000 for the three month period ended April 30,
1996. Total revenues were $67,139,000 for the eight month period ended March 31,
1997 and $64,946,000 for the nine month period ended April 30, 1996. Revenues
from FLAME software and systems, including software and hardware, were
$7,262,000 (27% of total revenues) and $7,213,000 (49% of total revenues) for
the three month periods ended March 31, 1997 and April 30, 1996, respectively,
and $18,005,000 (27% of total revenues) and $34,917,000 (54% of total revenues)
for the eight month period ended March 31, 1997 and nine month period ended
April 30, 1996, respectively. The flatness in FLAME revenues for the three month
period ended March 31, 1997 as compared to the three month period ended April
30, 1996 was primarily a result of customers opting for the Company's premier
resolution-independent effects system, INFERNO, combined with the significant
growth in total revenues generated primarily from sales of FIRE and FLINT RT,
both of which were introduced during fiscal 1997. The decrease in FLAME revenues
for the eight month period ended March 31, 1997 as compared to the nine month
period ended April 30, 1996 was primarily a result of customers opting for the
Company's premier resolution-independent effects system, INFERNO, combined with
some softening of demand for FLAME and an aggressive sales program during the
three month period ended October 31, 1996, including system discounts, designed
to reduce the inventory on hand at the end of the fourth fiscal quarter of 1996.
The decrease in FLAME revenues was offset by the increase in INFERNO and FLINT
revenues as a result of their increased market penetration and by the initial
commercial shipment of FLINT RT. Sales of FLINT software and systems, including
software and hardware, were $5,584,000 (21% of total revenues) and $3,185,000
(22% of total revenues) for the three month periods ended March 31, 1997 and
April 30, 1996, respectively, and $12,503,000 (19% of total revenues) and
$9,712,000 (15% of total revenues) for the eight month period ended March 31,
1997 and nine month period ended April 30, 1996, respectively. Sales of INFERNO
software and systems, including software and hardware, were $4,203,000 (16% of
total revenues) and $1,538,000 (10% of total revenues) for the three month
periods ended March 31, 1997 and April 30, 1996, respectively, and $10,898,000
(16% of total revenues) and $7,711,000 (12% of total revenues) for the eight
month period ended March 31, 1997 and nine month

                                       9
<PAGE>
 
period ended April 30, 1996, respectively. Commercial shipments of FIRE systems,
including software and hardware, began in October 1996. Sales of FIRE software
and systems, including software and hardware, were $6,032,000 (22% of total
revenues) and $14,814,000 (22% of total revenues) for the three month and eight
month periods ended March 31, 1997, respectively. Revenues from VAPOUR and FROST
systems, including software and hardware, were $498,000 (2% of total revenues)
and $157,000 (1% of total revenues) for the three month periods ended March 31,
1997 and April 30, 1996, respectively, and $2,159,000 (3% of total revenues) and
$4,509,000 (7% of total revenues) for the eight month period ended March 31,
1997 and nine month period ended April 30, 1996, respectively. Due to the high
average sales price, the timing of purchase orders and the lengthy sales cycle
of VAPOUR and FROST systems, a limited number of these systems sales could
account for a substantial portion of the Company's total revenues. VAPOUR and
FROST revenues for the three month period ended March 31, 1997 included the sale
of a full system, including software and hardware, explaining the increase in
VAPOUR and FROST revenues when compared to the three month period ended April
30, 1996 which included the sale of software only. VAPOUR and FROST revenues for
the eight month period ended March 31, 1997 declined when compared to the nine
month period ended April 30, 1996 because the nine month period ended April 30,
1996 includes the sale of several systems. The VAPOUR and FROST technology was
purchased on October 24, 1995 when the Company acquired all of the outstanding
shares of Computer-und Serviceverwaltungs AG, located in Innsbruck, Austria
("COSS") and certain assets of IMP Innovative Medientechnik-und Planungs-GmbH,
located in Geltendorf/Kaltenberg, Germany ("IMP") related to the research,
development, manufacturing, marketing, sale, distribution or procurement of
real-time broadcast animation products, including software. Software only
revenues were $2,033,000 and $954,000 for the three month periods ended March
31, 1997 and April 30, 1996, respectively, and $5,022,000 and $3,910,000 for the
eight month period ended March 31, 1997 and nine month period ended April 30,
1996, respectively. Hardware only revenues were $1,421,000 and $970,000 for the
three month periods ended March 31, 1997 and April 30, 1996, respectively, and
$4,261,000 and $3,573,000 for the eight month period ended March 31, 1997 and
nine month period ended April 30, 1996, respectively. System revenues, which
include software and hardware, were $20,125,000 and $10,168,000 for the three
month periods ended March 31, 1997 and April 30, 1996, respectively, and
$49,096,000 and $56,845,000 for the eight month period ended March 31, 1997 and
nine month period ended April 30, 1996, respectively. The fluctuations in the
software only, hardware only and system revenues are primarily due to the high
average sales price of the Company's products, such that a limited number of
sales can account for a substantial portion of total revenues.

  Maintenance revenues were $2,573,000 (10% of total revenues) for the three
month period ended March 31, 1997, and $1,733,000 (12% of total revenues) for
the three month period ended April 30, 1996. Maintenance revenues were
$6,450,000 (10% of total revenues) for the eight month period ended March 31,
1997 and $4,548,000 (7% of total revenues) for the nine month period ended April
30, 1996. Maintenance revenues increased for the three and eight month periods
ended March 31, 1997 as compared to the three and nine month periods ended April
30, 1996 due to the continued increase in the installed base of the Company's
FLAME, FLINT, INFERNO and FIRE systems. Other revenues were $892,000 (2% of
total revenues) for the three month period ended March 31, 1997, and $851,000
(6% of total revenues) for the three month period ended April 30, 1996. Other
revenues were $2,310,000 (3% of total revenues) for the eight month period ended
March 31, 1997 and $3,549,000 (6% of total revenues) for the nine month period
ended April 30, 1996. Other revenues for all periods consisted primarily of
rentals, systems integration, and training services provided to customers. Other
revenues decreased for the eight month period ended March 31, 1997 as compared
to the nine month period ended April 30, 1996 due to a decrease in rentals of
the Company's FLAME systems.

  Revenues from customers outside of North America were $17,413,000 (64% of
total revenues) and $6,694,000 (46% of total revenues) for the three month
periods ended March 31, 1997 and April 30, 1996, respectively, and $39,193,000
(58% of total revenues) and $32,930,000 (51% of total revenues) for the eight
month period ended March 31, 1997 and nine month period ended April 30, 1996,
respectively. Revenues from customers outside of North America increased for the
three month period ended March 31, 1997 as compared to the three month period
ended April 30, 1996 as well as for the eight month period ended March 31, 1997
as compared to the nine month period ended April 30, 1996 as a result of the
Company's increased penetration into the Asian markets, combined with North
American customers' tendency to defer some purchasing decisions until the
completion of the Annual Conference of the

                                       10
<PAGE>
 
National Association of Broadcasters (NAB) which is held in April, during the
Company's fourth fiscal quarter. Due to the change in the Company's fiscal year
end, NAB took place in the Company's third fiscal quarter in 1996 rather than
its fourth fiscal quarter, as in the current fiscal year. The Company expects
that revenues from customers outside of North America will continue to account
for a substantial portion of its total revenues, but as North American revenues
increase, revenues from customers outside North America should decrease slightly
as a percentage of total revenues.

  Cost of Revenues. Cost of revenues consists primarily of the cost of hardware
sold (mainly workstations manufactured by Silicon Graphics Inc. ("SGI")), cost
of hardware service contracts, costs for integration and hardware assembly, cost
of service personnel and the facilities, computing, benefits and other
administrative costs allocated to such personnel. Cost of revenues was
$11,255,000 (42% of total revenues) and $12,008,000 (82% of total revenues) for
the three month periods ended March 31, 1997 and April 30, 1996, respectively,
and $31,545,000 (47% of total revenues) and $36,324,000 (56% of total revenues)
for the eight month period ended March 31, 1997 and nine month period ended
April 30, 1996, respectively. The decrease in cost of revenues as a percentage
of total revenues for the three month period ended March 31, 1997 as compared to
the three month period ended April 30, 1996 as well as for the eight month
period ended March 31, 1997 as compared to the nine month period ended April 30,
1996 was due primarily to the following factors: (1) software only revenues
increased as a percentage of total revenues when compared to the prior fiscal
periods, (2) the SGI workstation component of cost of revenues declined as the
Company's installed base purchased additional software and storage media to add
on to existing workstations, (3) the Company's growing penetration into the
Asian markets where customers typically purchase only software or software and
storage media bundles from the Company, and (4) during the quarter ended April
30, 1996, a $3,000,000 inventory reserve was recorded. The Company believes that
cost of revenues as a percentage of total revenues was low in the quarter ended
March 31, 1997 and should be approximately in the range of 45% to 47% of total
revenues in future periods.

  Research and Development. Research and development expenses consist primarily
of the cost of research and development personnel and the facilities,
depreciation on research and development equipment, computing, benefits and
other administrative costs allocated to such personnel. Expenditures for
research and development, after deducting Canadian federal and provincial tax
credits, were $2,746,000 (10% of total revenues) and $6,567,000 (45% of total
revenues) for the three month periods ended March 31, 1997 and April 30, 1996,
respectively, and $6,998,000 (10% of total revenues) and $12,461,000 (19% of
total revenues) for the eight month period ended March 31, 1997 and nine month
period ended April 30, 1996, respectively. The decrease in the research and
development expenses, after deducting tax credits, for the three month period
ended March 31, 1997 as compared to the three month period ended April 30, 1996
as well as for the eight month period ended March 31, 1997 as compared to the
nine month period ended April 30, 1996 was due primarily to the following
factors: (1) the provision, in the amount of $2,500,000, recorded during the
quarter ended April 30, 1996, to reflect the uncertainty regarding the
realizability of the Company's investment in the preferred shares of Essential
Communications Corporation, and (2) the implementation of the Company's
restructuring plan which included reduction of personnel, closure of certain
research and development offices, and consolidation of software research and
development in its Montreal headquarters during the fourth fiscal quarter of
1996 and the eight month period ended March 31, 1997. These decreases were
partially offset by general salary increases. Research and development costs are
expensed as incurred. Software development costs are considered for
capitalization once technical feasibility has been established. The Company has
not capitalized any software development costs to date. Certain research and
development expenditures are incurred substantially in advance of related
revenue and in some cases do not generate revenues. The Company expects that
research and development expenses will increase from their current levels and as
a percentage of revenues.

  Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related benefits, facilities and administrative costs
allocated to the Company's sales and marketing personnel, tradeshow expenses and
dealer commissions. Sales and marketing expenses were $6,534,000 (24% of total
revenues) and $7,224,000 (49% of total revenues) for the three month periods
ended March 31, 1997 and April 30, 1996, respectively, and 17,162,000 (26% of
total revenues) and $18,810,000 (29% of total revenues) for the eight month
period ended March 31, 1997 and nine month period ended April 30, 1996,
respectively. The decrease in sales and marketing expenses for the three month
period ended March 31, 1997 as compared to the three month period ended April
30, 1996 as well as for the eight month period ended March 31, 1997 as compared
to the nine month period ended April 30, 1996 resulted primarily from the
implementation of the Company's restructuring plan, which included a reduction
of personnel and the closure of the Florida sales office and the relocation of
the New York demonstration center during the fourth fiscal quarter

                                       11
<PAGE>
 
of 1996. These decreases were partially offset by the continued expansion of the
Company's direct and indirect sales organization, including the operating costs
of domestic sales offices and foreign subsidiaries. The Company expects that
sales and marketing expenses will increase from their current levels. However,
should revenues increase, the Company believes that sales and marketing expenses
as a percentage of revenues should decrease.

  General and Administrative. General and administrative expenses include the
costs of finance and accounting, human resources, facilities, corporate
information systems, legal and other administrative functions of the Company and
reserves for doubtful accounts receivable. General and administrative expenses
were $1,842,000 (7% of total revenues) and $4,016,000 (27% of total revenues) 
for the three month periods ended March 31, 1997 and April 30, 1996 
respectively, and $4,547,000 (7% of total revenues) and $7,580,000 (12% of total
revenues) for the eight month period ended March 31, 1997 and nine month period
ended April 30, 1996, respectively. The decrease in general and adminstrative
expenses for the three month period ended March 31, 1997 as compared to the
three month period ended April 30, 1996 as well as for the eight month period
ended March 31, 1997 as compared to the nine month period ended April 30, 1996
resulted primarily from the implementation of the Company's restructuring plan
which included the reduction of administrative personnel as well as the closure
of administrative offices in Cambridge, Massachussetts. Additionally, in the
quarter ended April 30, 1996, the Company recorded a provision of $1,600,000 to
increase its reserves for potentially uncollectible accounts receivable and to
reflect certain recourse provisions associated with third party financing
arrangements, and reduced the carrying value of a building purchased in Montreal
by CDN$500,000 (approximately $365,000) to reflect the value expected to be
realized upon sale. The Company believes that general and administrative
expenses should increase from their current levels. However, the Company expects
that general and administrative expenses, as a percentage of revenues, should
remain approximately the same.

  Charge for Purchased Research and Development.   In connection with the
COSS/IMP acquisition, the Company expensed $8,500,000 of in process research and
development in the nine month period ended April 30, 1996. This write-off
represented approximately 13% of total revenues for the nine month period ended
April 30, 1996.

  Other Income.   Other income primarily consists of foreign currency gains and
losses and interest income and expense. The Company recorded foreign currency
translation losses of approximately $445,000 for the three month period ended
March 31, 1997 as compared to losses of $1,810,000 for the three month period
ended April 30, 1996. The Company recorded foreign currency translation gains of
$13,000 for the eight month period ended March 31, 1997 as compared to
$1,232,000 for the nine month period ended April 30, 1996. The gains and losses
are primarily a result of the Company and each subsidiary translating inter-
company balances denominated in a currency other than its own functional
currency. These balances are re-measured into the functional currency of each
company every reporting period. This re-measurement results in either unrealized
gains or losses depending on the exchange rate fluctuation between the
functional currency of each company and the currency in which the monetary asset
or liability is denominated.

  Provision (Benefit) for Income Taxes.   The Company's provision for income
taxes for the three month period ended March 31, 1997 was $1,674,000
as compared to a benefit for income taxes for the three month period ended April
30, 1996 of $1,363,000.  The Company's provision for income taxes was $3,636,000
and $1,249,000 for the eight month period ended March 31, 1997 and nine month
period ended April 30, 1996, respectively. The provision for all periods was
based on the Canadian federal statutory rate of 38% and reflects the impact of
various tax credits and foreign taxes. The tax provision for the three and eight
month periods ended March 31, 1997 resulted from taxable earnings in
jurisdictions where the Company did not have available tax loss carry-forwards
partially offset by the realization of the benefit for some prior year tax
losses for which no benefit was previously recorded. In the nine month period
ended April 30, 1996 the Company recorded a charge of $8,500,000 for acquired
research and development and for which no tax benefit was recorded due to the
uncertainty of realizing the future tax benefit of such charge. The Company
expects the provision as a percentage of pre-tax income to remain approximately
the same as that for the quarter ended March 31, 1997.


Liquidity and Capital Resources

  The Company has funded its operations to date primarily through cash flow from
operations (including deferred revenue and customer deposits), borrowings under
its demand line of credit, capital leases, the private and public sales of
equity securities, and the receipt of research and development tax credits from
the Canadian federal government and the 

                                       12
<PAGE>
 
Province of Quebec. As of March 31, 1997, the Company had cash of approximately
$40,982,000. The Company has a demand line of credit with a bank under
which the Company may borrow at a rate of prime plus 1% up to CDN$3,600,000 (or
approximately $2,599,000 at March 31, 1997). Advances under the line are based
on 75-90% of accounts receivable balances and 60% of Canadian federal and
provincial research and development tax credits. Additionally, the
Company has a CDN$600,000 (or approximately $433,000 at March 31, 1997) demand
leasing facility. The line and leasing facility are secured by all of the
Company's assets, its insurance on the life of a key
executive and its Canadian federal and provincial research and development
tax credits receivable. The Company is required to maintain certain financial
ratios, including minimum levels of working capital, debt service coverage and
equity to assets ratios. As of March 31, 1997, no amounts were outstanding under
the leasing facility or under the line of credit.

  The Company's operating activities, including research and development tax
credits, provided cash of $22,902,000 for the eight month period ended March 31,
1997 and used $17,997,000 of cash for the nine month period ended April 30,
1996. The principal sources of cash for the eight months ended March 31, 1997
were the increase in net income, the decreases in accounts receivable,
inventory, and income taxes receivable, and the increases in deferred revenue,
accounts payable and accrued expenses. These sources of cash were offset by the
increase in other current assets, and the decrease in customer deposits.
Accounts receivable decreased during the eight months ended March 31, 1997 as a
result of the Company's efforts to collect older accounts receivable as well as
increased levels of payments received for sales during the eight month period.
Due to the anticipated release of FIRE, the Company received a high level of
deposits at the end of fiscal 1996 and during the three month period ended
October 31, 1996 related to sales recorded during the eight month period ended
March 31, 1997. Inventory levels decreased during the eight month period ended
March 31, 1997 as a result of an aggressive sales program during the three month
period ended October 31, 1996, including product discounting, designed to reduce
the inventory on hand at the end of the fourth fiscal quarter of 1996 as well as
close monitoring of inventory throughout the eight month period ended March 31,
1997. This decrease in inventory was partially offset by the increased level of
inventory purchases at the end of March 1997 for the NAB trade show which is
held in April. During the eight month period ended March 31, 1997, the Company
used approximately $368,000 in cash to pay for various restructuring expenses,
primarily related to severance, lease costs and professional fees. Net cash used
in the nine month period ended April 30, 1996 was composed primarily of
increases in accounts receivable, inventory and income taxes receivable, offset
by increases in accounts payable and accrued expenses and deferred revenue.

  The Company's investing activities used cash of $4,206,000 for the eight month
period ended March 31, 1997, primarily for the renovations to the office
building in London, England and the purchase of computer equipment and software
used in the operations of the Company's business, primarily in the research and
development area. The Company's investing activities used cash of $19,423,000
for the nine month period ended April 30, 1996 primarily for the acquisition of
COSS/IMP (approximately $5,545,000), the purchase of an office building in
London, England ((Pounds)1,148,000, or approximately $1,730,000), the purchase
of land and an office building in Montreal, Quebec (CDN$1,730,000, or
approximately $1,250,000) and the purchase of computer equipment and
software, general office equipment, leasehold improvements, and furniture and
fixtures used in the operations of the Company.

  Financing activities provided cash of $841,000 for the eight month period
ended March 31, 1997, from proceeds from common stock option exercises and the
issuance of shares under the Employee Stock Purchase Plan. Financing activities
provided cash of $30,198,000 for the nine month period ended April 30, 1996,
primarily from proceeds from the issuance of approximately 971,000 common shares
in a secondary public offering which was completed in December 1995, proceeds
from the repayment of subscriptions receivable, and proceeds from common stock
option exercises less payment of capital lease obligations.

  As of March 31, 1997, the Company did not have any material commitments for
capital expenditures.

  The Company's ability to meet its future liquidity requirements is dependent
upon its ability to operate profitably, or in the absence thereof, to obtain
additional financing. The Company has undertaken a restructuring that has
decreased operating expenses from levels experienced during the fourth fiscal
quarter of 1996, however there can be no assurance that the Company will not
have to take further restructurings or be profitable in the future. Should the
Company need to secure additional financing to meet its future liquidity
requirements, there can be no assurance that the Company will be able to secure
such financing, or that such financing, if available, will be on terms favorable
to the Company. Subject to the factors discussed below, the Company believes
that, with its current levels of working capital together with funds 

                                       13
<PAGE>
 
generated from operations, it has adequate sources of cash to meet its
operations and capital expenditure requirements through calendar 1997.


Certain Factors That May Affect Future Results

  Information provided by the Company from time to time including statements in
this Form 10-Q which are not historical facts, are so-called forward-looking
statements, and are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and releases of the Securities and
Exchange Commission. In particular, statements contained in the Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical facts (including, but not limited to, the implementation of
the restructuring plan, statements regarding the adequacy of cash to meet
operations, statements concerning anticipated expense levels and such expenses
as a percentage of revenues, statements about the portion of revenues from
customers outside North America, and statements regarding the Company's
anticipated tax provision) may constitute forward-looking statements. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below, and the other risks
discussed in the Company's Form 10-K for the year ended July 31, 1996 and from
time to time in the Company's other filings with the Securities and Exchange
Commission.

  The Company's future results are subject to substantial risks and
uncertainties. The Company has derived a substantial portion of its historical
revenue from sales of FLAME and FLINT systems and related maintenance and
support services. The Company's future financial performance will depend in part
on the successful development, introduction and customer acceptance of its
existing and new or enhanced products. In addition, in order for the Company to
achieve sustained growth, the market for the Company's systems must continue to
develop and the Company must expand this market to include additional
applications within the film and video industries and develop new products for
use in related markets. There can be no assurance that the Company will be
successful in marketing its existing or any new or enhanced products. The market
in which the Company competes is characterized by intense competition and many
of the Company's current and prospective competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company.
These companies may introduce additional products that are competitive with
those of the Company, and there can be no assurance that the Company's products
would compete effectively with such products. In addition, as the Company enters
new markets and distribution channels, technical requirements and levels and
basis of competition may be different from those in the Company's current
markets and there can be no assurance that the Company will be able to compete
successfully. Furthermore, competitive pressures or other factors, including the
Company's entry into new markets, may result in significant price erosion that
could have a material adverse effect on the Company's business and results of
operations.

  The Company's systems currently include workstations manufactured by SGI.
There are significant risks associated with this reliance on SGI and the Company
may be impacted by the timing of the development and release of products by SGI.
In addition, there may be unforeseen difficulties associated with adapting the
Company's products to future SGI products, including recently announced SGI
workstations. To date, the Company has depended to a significant extent upon a
number of key management and technical employees and the Company's ability to
manage its operations will require it to continue to recruit and retain senior
management personnel and to motivate and effectively manage its employee base.
The loss of the services of one or more of these key employees could have a
material adverse effect on the Company's business and results of operations. The
Company relies principally on unregistered copyrights and trade secrets to
protect its intellectual property. Any invalidation of the Company's
intellectual property rights or lengthy and expensive defense of those rights
could have a material adverse effect on the Company. The Company derives a
significant portion of its total revenues from foreign sales. Foreign sales are
subject to significant risks, including unexpected legal, tax and exchange rate
changes and other barriers. In addition, foreign customers may have longer
payment cycles and the protection of intellectual property in foreign countries
may be more difficult to enforce. The Company currently markets its systems
through its direct sales organization and through distributors. This marketing
strategy may result in distribution channel conflicts as the Company's direct
sales efforts may compete with those of its indirect channels. There can be no
assurance that these factors will not have a material adverse effect on the
Company's future international sales and consequently, on the Company's business
and results of operations.

                                       14
<PAGE>
 
  The Company is in the process of implementing a restructuring plan. There can
be no assurance that the Company will be successful in implementing the
restructuring plan, or that the Company will not have to take further
restructurings or be profitable in the future. Furthermore, the implementation
of the restructuring plan may cause a diversion of management's time and
resources and may result in other unforeseen disruptions and unexpected
expenses.

  As discussed in Note 3 to the accompanying Condensed Consolidated Financial
Statements, the Company has been named as a defendant in three class action
lawsuits. Although the Company denies all material allegations of these
complaints and intends to vigorously defend against all claims brought against
it, the ultimate outcome, including amount of possible loss, if any, of
litigation cannot be determined at this time. No provision for any liability
that may result from this litigation has been made in the accompanying Condensed
Consolidated Financial Statements. However, the Company recorded an accrual of
$2,506,000, as estimated legal fees to defend against these lawsuits, during the
fourth fiscal quarter of 1996, of which $1,741,000 remained in accounts payable
and accrued expenses at March 31, 1997. There can be no assurance that the
ultimate outcome of these matters will not have a material adverse effect on the
Company's business and results of operations.

  The market price of the Company's common shares could be subject to
significant fluctuations in response to quarter-to-quarter variations in the
Company's operating results, announcements of technological innovations or new
products by the Company or its competitors and other events or factors. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that have particularly affected the market prices of many
technology companies. These fluctuations, as well as general economic and market
conditions, may materially and adversely affect the market price of the
Company's common shares.

  The Company's revenues and operating results are subject to quarterly and
other fluctuations. A limited number of systems sales may account for a
substantial percentage of the Company's quarterly revenues because of the high
average sales price of such systems and the timing of purchase orders. Prior to
fiscal 1996, the Company generally experienced greater revenues during its third
and fourth quarters following the completion of the annual conference of the
National Association of Broadcasters ("NAB"), which is held in April. The
Company's expense levels are based, in part, on its expectations of future
revenues. Therefore, if revenue levels are below expectations, particularly
following NAB, the Company's operating results are likely to be adversely
affected, as was the case for the three month periods ended April 30, 1996 and
July 31, 1996. In addition, the timing of revenue is influenced by a number of
other factors, including: the timing of individual orders and shipments, other
industry trade shows, competition, seasonal customer buying patterns and changes
in product development and sales and marketing expenditures. Because the
Company's operating expenses are based on anticipated revenue levels and a high
percentage of the Company's expenses are relatively fixed in the short term,
variations in the timing of recognition of revenue could cause significant
fluctuations in operating results from quarter-to-quarter and may result in
unanticipated quarterly earnings shortfalls or losses. The Company believes that
quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.


PART II: OTHER INFORMATION

Item 1.   Legal Proceedings

  On May 29, 1996, a lawsuit entitled Sandra Esner and Jerry Krim, On Behalf of
Themselves and All Others Similarly Situated, vs. [...]Discreet Logic Inc., et
al., case No. 978584, was filed in the Superior Court of the State of
California, City and County of San Francisco. Named as defendants are the
Company, certain of the Company's former and existing directors, officers, and
affiliates, and certain underwriters and financial analysts. The plaintiffs
purport to represent a class of all persons who purchased the Company's common
stock between September 13, 1995, and May 1, 1996. The complaint alleges
violations of California law through material misrepresentations and omissions,
among other things. The Company believes the allegations in the complaint are
without merit and intends to defend the lawsuit vigorously.

  On June 13, 1996, a lawsuit entitled Bruce Friedberg, On Behalf of Himself and
All Others Similarly Situated, vs. Discreet Logic Inc., et al., civ. No. 96-
11232-EFH, was filed in the United States District Court, District of

                                       15
<PAGE>
 
Massachusetts. Named as defendants are the Company and certain of the Company's
former and existing directors and officers. The plaintiff purports to represent
a class of all persons who purchased the Company's common stock between November
14, 1995, and February 13, 1996. On October 11, 1996, the plaintiff filed an
amended complaint which asserts substantially the same factual allegations as
the first complaint and proposes the identical class period. The complaint
alleges violations of United States Federal Securities law through material
misrepresentations and omissions. The Company believes the allegations in the
amended complaint are without merit and intends to defend the lawsuit
vigorously.

  On April 29, 1997, a lawsuit entitled Anton Paparella, Sandra Esner and
Geoffrey L. Sherwood, On Behalf of Themselves and All Others Similarly Situated
vs. Discreet Logic Inc., et al., case No. C-97-1570, was filed in the United
States District Court, Northern District of California. Named as defendants are
the Company and certain of the Company's former and existing officers, directors
and affiliates, and certain underwriters. The complaint asserts, in all material
respects, the same factual allegations and proposes the same class period as the
above-described California state court complaint filed in May 1996, except
asserts claims under federal securities law instead of state law. The Company
believes the allegations in the California federal complaint are without merit
and intends to defend the lawsuit vigorously.

  Although the Company denies all material allegations of these complaints and
intends to vigorously defend against all claims brought against it, the ultimate
outcome, including amount of possible loss, if any, of litigation cannot be
determined at this time. No provision for any liability that may result from
this litigation has been taken. However, in the fourth fiscal quarter of 1996,
the Company accrued $2,506,000 as estimated legal fees to defend against these
lawsuits, of which $1,741,000 remained in accounts payable and accrued expenses
at March 31, 1997. There can be no assurance that the ultimate outcome of these
matters will not have a material adverse effect on the Company's business and
results of operations.


ItemS 2.-3.   Not Applicable

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

  At the Annual Meeting of Shareholders held on January 9, 1997 pursuant to the
Notice of Annual Meeting of Shareholders dated November 27, 1996:

  1. the proposal to elect the following nominees as directors, to serve for a
     two-year term or until their successors are elected and qualified, was
     approved (vote results as follows):
<TABLE>
<CAPTION>
                         Class of               Votes
        Nominee          Director  Votes for   Withheld  Abstained
-----------------------  --------  ----------  --------  --------- 
<S>                      <C>       <C>         <C>       <C>
Brian P. Drummond......      II     22,271,811    72,272        0
Perry M. Simon.........      II     22,275,751    68,332        0
Gary G. Tregaskis......      II     22,237,626   106,457        0
</TABLE>

         At the Annual Meeting of Shareholders held on January 18, 1996, Messrs.
      Richard Szalwinski and Thomas Cantwell were elected to Class I of the
      Company's Board of Directors to hold office until the Annual Meeting of
      Shareholders for fiscal 1997 and until their successors have been duly
      elected and qualified.

         Subsequent to the January 9, 1997 Annual Meeting of Shareholders, the
      Company's Board of Directors elected Mr. Pierre Desjardins as a Class I
      director of the Company's Board of Directors to fill the vacancy on the
      Board of Directors created by the resignation of Mr. Robert Hogan, a Class
      I director, effective as of the date of the January 9, 1997 Annual Meeting
      of Shareholders.

  2. the proposal to appoint Arthur Andersen & Cie as independent accountants
     for the Company for fiscal 1997 and to authorize the Board of Directors to
     fix their remuneration was approved (22,268,850 shares in favor; 54,093
     shares against, with 21,140 shares abstaining).

  There were no other matters submitted to a vote of the Company's shareholders
during the third quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.

Item 5.   Not applicable

                                       16
<PAGE>
 
Item 6. Exhibits and Reports on Form 8-K.
 
(a) Exhibits.

  Exhibit                         Description of Exhibit
  -------                         ----------------------

  Exhibit 27.1                    Financial Data Schedule
 
(b) Reports on Form 8-K.
 
  Date of Report                  Items Required
  --------------                  --------------
 
  January 9, 1997                 Item 8. Change in Fiscal Year

                                       17
<PAGE>
 
                              DISCREET LOGIC INC.

                                   SIGNATURES

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


                                  Discreet Logic Inc.


                                  by:  /s/ Francois Plamondon
                                      --------------------------
                                          Francois Plamondon
                                        Senior Vice President,
                                       Chief Financial Officer,
                                       Treasurer and Secretary

May 15, 1997

                                       18