<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 December 31, 1996

                                       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 Identification Number)
 of incorporation or organization)


                     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
   -----     -----    

28,012,565 shares of the registrant's Common shares, without par value, were
outstanding as of February 12, 1997.

<PAGE>
 
                      DISCREET LOGIC INC. AND SUBSIDIARIES

                                   FORM 10-Q

                    FOR THE QUARTER ENDED DECEMBER 31, 1996

                                    CONTENTS


<TABLE>
<CAPTION>
Item Number                                                                                              Page
-------------                                                                                            ----
<S>                                                                                                     <C>

PART I:  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements
               Balance Sheets:.........................................................................   3
                    July 31, 1996 and December 31, 1996
               Statements of Operations:...............................................................   4
                    Three months ended January 31, 1996 and
                    Two months ended December 31, 1996
                    Six months ended January 31, 1996 and
                    Five months ended December 31, 1996
               Statements of Cash Flows:...............................................................   5
                    Six months ended January 31, 1996 and
                    Five months ended December 31, 1996
               Notes to Condensed Consolidated Financial Statements....................................   6
 
Item 2.  Management's Discussion and Analysis of Financial.............................................   8
             Condition and Results of Operations
 
         Certain Factors That May Affect Future Results................................................  14
 
PART II:  OTHER INFORMATION
 
Item 1.  Legal Proceedings.............................................................................  16
 
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,      December 31,
                                                                         1996            1996
                                                                      ----------    -------------
                 ASSETS 
                                                                                    (Unaudited)
<S>                                                                  <C>            <C>  
Current  Assets:
  Cash and cash equivalents.......................................     $ 21,658          $ 36,267
  Accounts receivable (less reserves for doubtful accounts).......       16,074            13,460 
  Inventory-
     Resale.......................................................       11,556             5,174
     Demonstration................................................        4,274             2,315 
  Income taxes receivable.........................................        3,191               284
  Other current assets............................................        3,640             3,982
                                                                       --------          --------
                                                                         60,393            61,482
Property and equipment - less accumulated depreciation and
  amortization....................................................       10,037             8,946
Deferred income taxes.............................................        4,722             5,390
Other assets......................................................        1,140             1,023
Assets held for resale............................................        3,856             5,053
                                                                       --------          --------
                                                                       $ 80,148          $ 81,894
                                                                       ========          ========
                   LIABILITIES AND SHAREHOLDERS' EQUITY   
 
Current Liabilities:
  Accounts payable and accrued expenses...........................     $ 28,950          $ 26,290
  Deferred revenue................................................        4,770             8,064
  Customer deposits...............................................        2,618             1,683
  Due to related parties..........................................           25                -
                                                                       --------          --------
                                                                         36,363            36,037
                                                                       --------          --------
  Deferred income taxes...........................................        1,442             1,585
                                                                       --------          --------        
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 27,962,598 at December 31, 1996...........      78,923            79,763
  Accumulated deficit..............................................     (35,883)          (34,730)
  Cumulative translation adjustment................................        (697)             (761)
                                                                       --------          --------
    Total shareholders' equity....................................       42,343            44,272
                                                                       --------          --------
                                                                       $ 80,148          $ 81,894
                                                                       ========          ========   

</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          Two           Six            Five
                                                                Months        Months        Months         Months
                                                                 Ended        Ended          Ended          Ended 
                                                              January 31,  December 31,  January 31,    December 31,
                                                                 1996          1996          1996           1996
                                                            ------------   ------------  -------------  -------------
 <S>                                                      <C>              <C>           <C>            <C>  

Total revenues.........................................     $ 25,225          $ 16,833       $ 50,269       $ 40,096
Cost of revenues.......................................       13,752             8,003         24,316         20,290
                                                            --------          --------       --------       --------
      Gross profit.....................................       11,473             8,830         25,953         19,806 
                                                            --------          --------       --------       --------

Operating expenses.....................................        
      Research and development (net of tax credits)....        3,522             1,575          5,893          4,253
      Sales and marketing..............................        6,153             4,610         11,586         10,627
      General and administrative.......................        2,022             1,189          3,564          2,705  
      Charge for purchased research and 
         development...................................          -                 -            8,500             -
                                                            --------          --------       --------       --------
           Total operating expenses....................       11,697             7,374         29,543         17,585
                                                            --------          --------       --------       --------
           Operating income (loss).....................         (224)            1,456         (3,590)         2,221

Other income, net......................................        1,495             1,819          1,770            894
                                                            --------          --------       --------       --------
      Income (loss) before income taxes................        1,271             3,275         (1,820)         3,115
Provision for income taxes.............................          496             1,310          2,613          1,962
                                                            --------          --------       --------       --------
        
      Net income (loss)................................     $    775          $  1,965       $ (4,443)      $  1,153
                                                            ========          ========       ========       ========
Net income (loss) per common share.....................     $   0.03          $   0.07       $  (0.17)      $   0.04    
                                                            ========          ========       ========       ========
Weighted average common shares outstanding.............       29,146            28,444         26,165         28,413
                                                            ========          ========       ========       ========

</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>
                                                                            Six Months          Five Months
                                                                               Ended               Ended
                                                                         January 31, 1996    December 31, 1996
                                                                        ------------------   ------------------
<S>                                                                       <C>                   <C>

Cash flows from operating activities:
  Net income (loss).....................................................     $ (4,433)            $  1,153  
  Adjustments to reconcile net income (loss) to cash provided                                               
    by (used in) operating activities-                                                                      
    Depreciation and amortization.......................................        2,075                2,597  
    Deferred income taxes...............................................       (1,592)                (463)  
    Write off of in process research and development....................        8,500                   -   
    Changes in assets and liabilities-                                                                      
       Accounts receivable..............................................       (8,503)               2,614  
       Inventory........................................................          596                9,089  
       Income taxes receivable..........................................           -                 2,907  
       Other current assets.............................................         (731)                (527)  
       Accounts payable and accrued expenses............................        5,128               (2,415)  
       Deferred revenue.................................................          703                3,294   
       Income taxes payable.............................................       (5,557)                  -   
       Customer deposits................................................          (42)                (934)  
       Due to related parties...........................................          (20)                 (25)  
                                                                             --------             --------     
    Net cash provided by (used in) operating activities.................       (3,876)              17,290  
                                                                             --------             --------  
Cash flows from investing activities:                                                                       
  Purchase of property and equipment....................................       (8,898)              (3,084)  
  Cash paid for COSS/IMP acquisition and related costs..................       (5,545)                  -   
                                                                             --------             --------  
    Net cash used in investing activities...............................      (14,443)              (3,084)  
                                                                             --------             --------  
Cash flows from financing activities:                                                                       
  Proceeds from issuance of common shares, net of issuance costs........       27,382                  -    
  Proceeds from subscription receivable.................................        1,654                  -    
  Proceeds from option exercises........................................          894                  640   
  Proceeds from employee stock purchase plan............................           -                   200  
  Payment of capital lease obligations..................................         (206)                  -   
                                                                             --------             --------           
    Net cash provided by financing activities...........................       29,715                  840  
                                                                             --------             --------  
Foreign exchange effect on cash.........................................       (1,121)                (437)  
                                                                             --------             --------  
Increase in cash and cash equivalents...................................       10,275               14,609  
Cash and cash equivalents, beginning of period..........................       40,987               21,658  
                                                                             --------             --------  
Cash and cash equivalents, end of period................................     $ 51,262             $ 36,267  
                                                                             ========             ========  
Supplemental disclosure of cash flow information:                                                           
  Interest paid during the period.......................................     $    126             $     14   
                                                                             --------             --------  
  Income taxes paid during the period...................................     $  7,056             $    622  
                                                                             --------             --------  
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 two month and five month periods ended
     December 31, 1996 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 is effective beginning with the Company's second fiscal quarter of
     1997. The condensed consolidated financial statements are presented for the
     two month period ended December 31, 1996 and three month period ended
     January 31, 1996 and the five month period ended December 31, 1996 and six
     month period ended January 31, 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 two and five month periods ended December
     31, 1996 are not directly comparable with those of the fiscal 1996 periods
     presented and the current periods' results are not necessarily indicative
     of results for full quarterly periods.

(3)  Secondary Offering

     In December 1995, the Company completed a secondary offering of 970,120
     Common Shares at a per share price of $30.25, resulting in proceeds of
     approximately $28,158,000 net of issuance costs and their related tax
     effects.


(4)  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.

                                       6
<PAGE>
 
     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.

     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 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 $2,125,000
     remained in accounts payable and accrued expenses at December 31, 1996.
     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 is
effective beginning with the Company's second fiscal quarter of 1997.  The
condensed consolidated financial statements are presented for the two month
period ended December 31, 1996 and three month period ended January 31, 1996 and
the five month period ended December 31, 1996 and six month period ended January
31, 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 two and five month 
periods ended December 31, 1996 are not directly comparable with those of the 
fiscal 1996 periods presented and the current periods' results are not 
necessarily indicative of results for full quarterly periods.

    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 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 first 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 third
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 implementing
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           Two           Six           Five
                                             Months        Months         Months        Months
                                             Ended          Ended         Ended          Ended
                                          January 31,   December 31,   January 31,   December 31,
                                              1996          1996           1996          1996
                                        -------------  ------------- ------------- -------------
<S>                                       <C>           <C>            <C>           <C>
Total revenues........................       100%           100%          100%          100%
Cost of revenues......................        55             48            48            51
                                             ---            ---           ---           ---
  Gross profit........................        45             52            52            49
                                             ---            ---           ---           ---
Operating expenses:
  Research and development............        14              9            12            10 
  Sales and marketing.................        24             27            23            26
  General and administrative..........         8              7             7             7
  Charge for purchased research and
    development.......................        -              -             17            -
                                             ---            ---           ---           --- 
  Total operating expenses............        46             43            59            43
                                             ---            ---           ---           ---
  Operating income (loss).............        (1)             9            (7)            6
Other income, net.....................         6             11             3             2
                                             ---            ---           ---           ---
Income (loss) before income taxes.....         5             20            (4)            8
Provisions for income taxes...........         2              8             5             5
                                             ---            ---           ---           ---
  Net income (loss)...................         3%            12%           (9)%           3%
                                             ===            ===           ===           ===
</TABLE> 
Two Month Period Ended December 31, 1996 and Three Month Period Ended January
31, 1996 and Five Month Period Ended December 31, 1996 and Six Month Period
Ended January 31, 1996

    Total Revenues. Total revenues were $16,833,000 for the two month period
ended December 31, 1996, and $25,225,000 for the three month period ended
January 31, 1996. Total revenues were $40,096,000 for the five month period
ended December 31, 1996 and $50,269,000 for the six month period ended January
31, 1996. Revenues from FLAME software and systems, including software and
hardware, were $3,813,000 (23% of total revenues) and $13,632,000 (54% of total
revenues) for the two month period ended December 31, 1996 and three month
period ended January 31, 1996, respectively, and $10,743,000 (27% of total
revenues) and $27,705,000 (55% of total revenues) for the five month period
ended December 31, 1996 and six month period ended January 31, 1996,
respectively. The decrease in FLAME revenues as a percentage of total revenues
for the two month period ended December 31, 1996 as compared to the three month
period ended January 31, 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. The decrease in FLAME revenues as a
percentage of total revenues for the five month period ended December 31, 1996
as compared to the six month period ended January 31, 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 as a
percentage of total revenues was partially offset by the increase in FLINT and
INFERNO revenues as a percentage of total revenues due to the initial commercial
shipment of FLINT RT and the increased market penetration of both FLINT and
INFERNO. Sales of FLINT software and systems, including software and hardware,
were $3,467,000 (20% of total revenues) and $3,200,000 (13% of total revenues)
for the two month period ended December 31, 1996 and three month period ended
January 31, 1996, respectively, and $6,920,000 (17% of total revenues) and
$6,527,000 (13% of total revenues) for the five month period ended December 31,
1996 and six month period ended January 31, 1996, respectively. Sales of INFERNO
software and systems, including software and hardware, were $3,413,000 (20% of
total revenues) and $3,388,000 (13% of total revenues) for the two month period
ended December 31, 1996 and three month period ended January 31, 1996,
respectively, and $6,695,000 (16% of total revenues) and $6,173,000 (12% of
total revenues) for the five month period ended December 31, 1996 and six month
period ended January 31, 1996, respectively. Commercial
                                       9
<PAGE>
 
shipments of FIRE systems, including software and hardware, began in October
1996. Sales of FIRE software and systems, including software and hardware, were
$4,128,000 (25% of total revenues) and $8,783,000 (22% of total revenues) for
the two month and five month periods ended December 31, 1996, respectively.
Revenues from VAPOUR and FROST systems, including software and hardware, were
$76,000 (1% of total revenues) and $2,335,000 (9% of total revenues) for the two
month period ended December 31, 1996 and three month period ended January 31,
1996, respectively, and $1,661,000 (4% of total revenues) and $4,352,000 (9% of
total revenues) for the five month period ended December 31, 1996 and six month
period ended January 31, 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
as a percentage of total revenues for the two month period ended December 31,
1996 as compared to the three month period ended January 31, 1996 as well as for
the five month period ended December 31, 1996 as compared to the six month
period ended January 31, 1996 decreased because there were no VAPOUR and FROST
system sales in the two month period ended December 31, 1996. 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 $1,767,000 and $806,000 for the two month period
ended December 31, 1996 and three month period ended January 31, 1996,
respectively, and $2,990,000 and $2,957,000 for the five month period ended
December 31, 1996 and six month period ended January 31, 1996, respectively.
Hardware only revenues were $431,000 and $1,362,000 for the two month period
ended December 31, 1996 and three month period ended January 31, 1996,
respectively, and $2,840,000 and $2,604,000 for the five month period ended
December 31, 1996 and six month period ended January 31, 1996, respectively.
System revenues, which include software and hardware, were $12,699,000 and
$20,386,000 for the two month period ended December 31, 1996 and three month
period ended January 31, 1996, respectively, and $28,972,000 and $39,195,000 for
the five month period ended December 31, 1996 and six month period ended January
31, 1996, respectively. The fluctuations in the software only, hardware only and
system revenues are 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 $1,429,000 (8% of total revenues) for the two
month period ended December 31, 1996, and $1,495,000 (6% of total revenues) for
the three month period ended January 31, 1996.  Maintenance revenues were
$3,876,000 (10% of total revenues) for the five month period ended December 31,
1996 and $2,815,000 (6% of total revenues) for the six month period ended
January 31, 1996.  Maintenance revenues increased as a percentage of total
revenues for the two month period ended December 31, 1996 as compared to the
three month period ended January 31, 1996 as well as for the five month period
ended December 31, 1996 as compared to the six month period ended January 31,
1996 due to the continued increase in the installed base of the Company's FLAME,
FLINT, INFERNO and FIRE systems.  The decrease in maintenance revenues, as a
percentage of total revenues, for the two month period ended December 31, 1996
as compared to the five month period ended December 31, 1996 was as a result of
a change in the Company's software support pricing model.  Other revenues were
$507,000 (3% of total revenues) for the two month period ended December 31,
1996, and $1,176,000 (5% of total revenues) for the three month period ended
January 31, 1996.  Other revenues were $1,418,000 (4% of total revenues) for the
five month period ended December 31, 1996 and $2,698,000 (5% of total revenues)
for the six month period ended January 31, 1996.  Other revenues for all periods
consisted primarily of rentals, systems integration, and training services
provided to customers.  Other revenues decreased as a percentage of total
revenues for the two month period ended December 31, 1996 as compared to the
three month period ended January 31, 1996 as well as for the five month period
ended December 31, 1996 as compared to the six month period ended January 31,
1996 due to a decrease in rentals of the Company's FLAME systems in the two
month and five month periods ended December 31, 1996.

    Revenues from customers outside of North America were $10,225,000 and
$12,893,000 for the two month period ended December 31, 1996 and three month
period ended January 31, 1996, respectively, and $21,779,000 and $26,235,000 for
the five month period ended December 31, 1996 and six month period ended January
31, 1996,

                                       10
<PAGE>
 
respectively. These revenues accounted for approximately 61% and 51% of total
revenues for the two month period ended December 31, 1996 and three month period
ended January 31, 1996, respectively, and 54% and 52% of total revenues for the
five month period ended December 31, 1996 and six month period ended January 31,
1996, respectively. Revenues from customers outside of North America increased
as a percentage of total revenues for the two month period ended December 31,
1996 as compared to the three month period ended January 31, 1996 as well as for
the five month period ended December 31, 1996 as compared to the six month
period ended January 31, 1996 as a result of the Company's increased penetration
into the Asian markets. The Company expects that revenues from customers outside
of North America will continue to account for a substantial portion of its total
revenues.

    Cost of Revenues. Cost of revenues consists primarily of the cost of
hardware sold (mainly SGI workstations), 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 $8,003,000 and $13,752,000 for the two month
period ended December 31, 1996 and three month period ended January 31, 1996,
respectively, as compared to $20,290,000 and $24,316,000 for the five month
period ended December 31, 1996 and six month period ended January 31, 1996,
respectively.  Cost of revenues was 48% and 55% of total revenues for the two
month period ended December 31, 1996 and three month period ended January 31,
1996, respectively, and 51% and 48% of total revenues for the five month period
ended December 31, 1996 and six month period ended January 31, 1996,
respectively.  The decrease in cost of revenues as a percentage of total
revenues for the two month period ended December 31, 1996 as compared to the
three month period ended January 31, 1996 was due to (1) an increase in
software only revenues as a percentage of total revenues during the two month
period ended December 31, 1996 as compared to the three month period ended
January 31, 1996, and, (2) lower margins being realized on the sale of systems
including SGI ONYX workstations, in the three month period ended January 31,
1996, primarily as a result of the Company's reducing the selling price of these
systems.  The increase in cost of revenues as a percentage of total revenues for
the five month period ended December 31, 1996 as compared to the six month
period ended January 31, 1996 was due to (1) lower margins realized on systems
sold under an aggressive sales program during the three month period ended
October 31, 1996, including product discounts, designed to reduce the inventory
on hand at the end of the fourth fiscal quarter of 1996, and, (2) the
recognition in the six month period ended January 31, 1996 of previously
deferred and upgrade software revenue for INFERNO software of approximately
$1,000,000.  Should revenues increase, the Company believes that cost of
revenues as a percentage of revenues should remain approximately the same.

    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 $1,575,000 and $3,522,000 for the two month period ended December
31, 1996 and three month period ended January 31, 1996, respectively, and
$4,253,000 and $5,893,000 for the five month period ended December 31, 1996 and
six month period ended January 31, 1996, respectively.  Research and development
expenses, after deducting tax credits, were 9% and 14% of total revenues for the
two month period ended December 31, 1996 and three month period ended January
31, 1996, respectively, and 10% and 12% of total revenues for the five month
period ended December 31, 1996 and six month period ended January 31, 1996,
respectively.  The decrease in the research and development expenses, after
deducting tax credits, as a percentage of total revenues, for the two month
period ended December 31, 1996 as compared to the three month period ended
January 31, 1996 as well as for the five month period ended December 31, 1996 as
compared to the six month period ended January 31, 1996 was a result of the
Company's restructuring plan which included reduction of personnel, closure of
certain research and development offices, and consolidation of all software
research and development in its Montreal headquarters during the fourth fiscal
quarter of 1996 and the five month period ended December 31, 1996.  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 its post-restructuring
levels and as a percentage of revenues.

                                       11
<PAGE>
 
    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 $4,610,000 and $6,153,000
for the two month period ended December 31, 1996 and three month period ended
January 31, 1996, respectively, and $10,627,000 and $11,586,000 for the five
month period ended December 31, 1996 and six month period ended January 31,
1996, respectively.  Sales and marketing expenses as a percentage of total
revenues were 27% and 24% for the two month period ended December 31, 1996 and
three month period ended January 31, 1996, respectively, and 26% and 23% for the
five month period ended December 31, 1996 and six month period ended January 31,
1996, respectively.  The increase in sales and marketing expenses as a
percentage of total revenues for the two month period ended December 31, 1996 as
compared to the three month period ended January 31, 1996 as well as for the
five month period ended December 31, 1996 as compared to the six month period
ended January 31, 1996 resulted primarily from the continued expansion of the
Company's direct and indirect sales organization, including the operating costs
of domestic sales offices and foreign subsidiaries. These increases were
partially offset by 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 of 1996.  The Company expects that sales and marketing expenses
will increase from its post-restructuring 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 $1,189,000 and $2,022,000 for the two month period ended December 31, 1996
and three month period ended January 31, 1996, respectively, and $2,705,000 and
$3,564,000 for the five month period ended December 31, 1996 and six month
period ended January 31, 1996, respectively.  General and administrative
expenses as a percentage of total revenues were 7% and 8% for the two month
period ended December 31, 1996 and three month period ended January 31, 1996,
respectively, and 7% for both the five month period ended December 31, 1996 and
six month period ended January 31, 1996.  The Company believes that general and
administrative expenses should increase from its post-restructuring levels.
However, the Company expects that general and administrative expenses, as a
percentage of revenues, will 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 six month period ended January 31, 1996.  This write-off
represented approximately 17% of total revenues for the six month period ended
January 31, 1996.

    Other Income. Other Income primarily consists of foreign currency gains and
losses and interest income. The Company recorded foreign currency translation
gains of approximately $1,593,000 for the two month period ended December 31,
1996 as compared to $832,000 for the three month period ended January 31, 1996.
The Company recorded foreign currency translation gains of $458,000 for the five
month period ended December 31, 1996 as compared to $579,000 for the six month
period ended January 31, 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 for Income Taxes. The Company's provision for income taxes for the
two month period ended December 31, 1996 and for the three month period ended
January 31, 1996 was $1,310,000 and $496,000, respectively and $1,962,000 and
$2,613,000 for the five month period ended December 31, 1996  and six month
period ended January 31, 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 two month and
five month periods ended December 31, 1996 resulted from taxable earnings in
jurisdictions where the Company did not have tax loss carry-forwards.  In the
six month period ended January 31, 1996 the Company 

                                       12
<PAGE>
 
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.

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 Province of Quebec. As of December 31,
1996, the Company had cash of approximately $36,267,000. 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 $2,627,000 at December
31, 1996).    Advances under the line are based on 75-90% of accounts receivable
balances and 60% of Canadian federal and provincial research and development
grants. Additionally, the Company has a CDN$600,000 (or approximately $438,000
at December 31, 1996) demand leasing facility.  The line and leasing facility
are secured by all of the Company's assets, its insurance on the lives of key
executives 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 December 31, 1996, no amounts were outstanding
under the leasing facility or under the line of credit.  The Company is in
breach of certain covenants and does not plan to obtain a waiver, therefore,
these credit facilities are not available.

    The Company's operating activities, including research and development tax
credits, provided cash of $17,290,000 for the five month period ended December
31, 1996 and used $3,876,000 of cash for the six month period ended January 31,
1996.  The principal sources of cash for the five months ended December 31, 1996
were the decrease in accounts receivable, the decrease in inventory, the
increase in deferred revenue, and the decrease in income taxes receivable.
These sources of cash were offset by the decrease in accounts payable and
accrued expenses and the decrease in customer deposits.  Accounts receivable
decreased during the five months ended December 31, 1996 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 five 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 five month period ended December 31, 1996.
Inventory levels decreased during the five month period ended December 31, 1996
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
aggressive inventory management throughout the five month period ended December
31, 1996.  During the five month period ended December 31, 1996, the Company
used approximately $1,940,000 in cash to pay for various restructuring expenses,
primarily related to severance and lease costs.  Net cash used in the six month
period ended January 31, 1996 was composed primarily of increases in accounts
receivable, and decreases in income taxes payable offset by increases in
accounts payable and accrued expenses.

    The Company's investing activities used cash of $3,084,000 for the five
month period ended December 31, 1996, 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
$14,443,000 for the six month period ended January 31, 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,
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 $840,000 for the five month period
ended December 31, 1996, from proceeds from common stock option exercises and
the issuance of shares under the Employee Stock Purchase Plan.  Financing
activities provided cash of $29,715,000 for the six month period ended January
31, 1996, primarily from proceeds from the issuance of approximately 971,000
common shares in a secondary public offering which was 

                                       13

<PAGE>
 
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 December 31, 1996, 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 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, and the portion of revenues from customers outside
North America) 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 substantially all 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

                                       14
<PAGE>
 
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.

    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 4 to the accompanying Condensed Consolidated Financial
Statements, the Company has been named as a defendant in two 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 $2,125,000 remained in accounts payable
and accrued expenses at December 31, 1996.  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 revenue 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.

                                       15
<PAGE>
 
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
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.

    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 $2,125,000 remained in accounts payable and accrued expenses
at December 31, 1996.  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.

                                       16
<PAGE>
 
   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 second quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.


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.




February 14, 1997              by:  /s/ FRANCOIS PLAMONDON
                                  ----------------------------
                                        Francois Plamondon
                                      Senior Vice President,
                                     Chief Financial Officer,
                                     Treasurer and Secretary

                                       18