<PAGE>   1
================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 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

Commission file number:  0-24756


                          EPIC DESIGN TECHNOLOGY, INC.
             (Exact name of registrant as specified in its charter)

CALIFORNIA                                                77-0135608
(State of other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification Number)

                              310 NORTH MARY AVENUE
                           SUNNYVALE, CALIFORNIA 94086
                    (Address of principal executive offices)

                         TELEPHONE NUMBER (408) 731-2900
              (Registrant's telephone number, including area code)




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


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

         As of December 31, 1996 there were 13,717,285 shares of the
Registrant's Common Stock outstanding.

================================================================================
<PAGE>   2
                          EPIC DESIGN TECHNOLOGY, INC.

                                    FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>
                                                                           Page No.
<S>                                                                          <C>
PART I - FINANCIAL INFORMATION


     ITEM 1 - Condensed Consolidated Financial Statements

              Condensed Consolidated Balance Sheets -                         3
                  December 31, 1996 and September 30, 1996

              Condensed Consolidated Statements of Income                     4
                  For the three months ended December 31, 1996 and 1995

              Condensed Consolidated Statement of Cash Flows                  5
                  For the three months ended December 31, 1996 and 1995


              Notes to Condensed Consolidated Financial Statements           6 - 7


     ITEM 2 - Managements's Discussion and Analysis of Financial Condition
              and Results of Operations                                      8 -16


PART II -OTHER INFORMATION


     ITEM 6 - Exhibits and Reports on Form 8-K                                17


              Signatures                                                      18

              Index to Exhibits                                               19
</TABLE>




                                     -2-

<PAGE>   3
PART  I.  FINANCIAL INFORMATION
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                          EPIC DESIGN TECHNOLOGY, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,   SEPTEMBER 30,
                                                                                      1996          1996 (1)
                                                                                  ------------   -------------
<S>                                                                                 <C>             <C>
ASSETS

Current assets:

         Cash and equivalents                                                       $ 18,579        $ 13,259
         Short-term investments                                                       20,742          26,268
         Accounts receivable (net of allowance of $216)                                9,949           6,300
         Prepaid expenses and other assets                                             1,141           1,026
         Deferred income taxes                                                         1,647           1,647
                                                                                    --------        --------
              Total current assets                                                    52,058          48,500


Property and equipment - net                                                           4,801           4,496
Other assets                                                                           1,660           1,795
                                                                                    --------        --------

              Total assets                                                          $ 58,519        $ 54,791
                                                                                    ========        ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Accounts payable                                                           $  1,110        $  1,091
         Income taxes payable                                                          1,909           1,538
         Accrued liabilities                                                           8,958          11,336
         Deferred revenue and customer deposits                                        5,357           3,772
                                                                                    --------        --------
              Total current liabilities                                               17,334          17,737
                                                                                    --------        --------

Shareholders' equity:
         Common stock, no par value: 20,000,000 shares authorized; 13,717,285
              and 13,641,539 shares issued and outstanding, respectively              45,746          44,608
         Unrealized gain/(loss) on investments                                            24             (20)
         Deferred stock compensation                                                     (87)           (110)
         Retained earnings                                                            (4,498)         (7,424)
                                                                                    --------        --------
              Total shareholders' equity                                              41,185          37,054
                                                                                    --------        --------

              Total liabilities and shareholders' equity                            $ 58,519        $ 54,791
                                                                                    ========        ========
</TABLE>

(1) The information in this column was derived from the Company's audited
    consolidated balance sheet as of September 30, 1996.



                                  -3-
<PAGE>   4
                          EPIC DESIGN TECHNOLOGY, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED
                                                        DECEMBER 31,
                                                   ---------------------
                                                      1996        1995
                                                     -------     -------
<S>                                                  <C>         <C>
Revenue:

       License                                       $11,240     $ 7,288
       Service                                         2,970       2,151
                                                     -------     -------
                   Total revenue                      14,210       9,439
                                                     -------     -------

Costs and expenses:
       Cost of license                                   337         454
       Cost of service                                   548         370
       Sales and marketing                             4,299       3,125
       Research and development                        3,630       2,065
       General and administrative                      1,105         744
                                                     -------     -------
                    Total operating expenses           9,919       6,758
                                                     -------     -------

Income from operations                                 4,291       2,681

Interest income                                          354         282
                                                     -------     -------

Income before income taxes                             4,645       2,963

Provision for income taxes                             1,719       1,096
                                                     -------     -------

Net income                                           $ 2,926     $ 1,867
                                                     =======     =======

Net income per share                                 $  0.20     $  0.14
                                                     =======     =======


Shares used in per share computation                  14,735      13,656
                                                     =======     =======
</TABLE>




                                     -4-

<PAGE>   5
                          EPIC DESIGN TECHNOLOGY, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands,unaudited)

<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED
                                                                                             DECEMBER 31,
                                                                                      ------------------------
                                                                                        1996            1995
                                                                                      --------        --------
<S>                                                                                   <C>             <C>
Cash Flows from Operating Activities:
    Net Income                                                                        $  2,926        $  1,867
    Adjustments to reconcile net income to net cash provided by
         (used in) operating activities:
              Depreciation and amortization                                                737             359
              Amortization of deferred stock compensation                                   23              24
              Unrealized gain/(loss) on investments                                        (44)
              Changes in assets and liabilities, net of effects of acquisition:
                      Accounts receivable                                               (3,649)           (860)
                       Prepaid expenses and other assets                                  (115)           (927)
                      Accounts payable                                                      19            (212)
                       Income taxes payable                                                371           1,204
                       Accrued liabilities                                              (2,378)           (374)
                      Deferred revenue and customer deposits                             1,585             969
                                                                                      --------        --------

               Net cash provided (used) by operating activities                           (525)          2,050
                                                                                      --------        --------


Cash Flows from Investing Activities:
    Purchases of short-term investments                                                 (9,653)         (7,412)
    Maturities of short-term investments                                                15,180           3,717
    Purchases of property and equipment, net                                              (820)           (528)
    Other assets                                                                          --                51
                                                                                      --------        --------
              Net cash used (provided) in investing activities                           4,707          (4,172)
                                                                                      --------        --------

Cash Flows from Financing Activities
    Proceeds from sales of common stock, net                                             1,138             534
                                                                                      --------        --------
              Net cash provided by financing activities                                  1,138             534
                                                                                      --------        --------

Net increase  (decrease) in cash and equivalents                                         5,320          (1,588)

Cash and equivalents, beginning of period                                               13,259          11,247
                                                                                      --------        --------

Cash and equivalents, end of period                                                   $ 18,579        $  9,659
                                                                                      ========        ========



Supplemental disclosure of cash flow information -
    Cash paid during the period for income taxes                                      $    819        $    145
</TABLE>


      See accompanying notes to Condensed Consolidated Financial Statements



                                         -5-

<PAGE>   6
                          EPIC DESIGN TECHNOLOGY, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       Basis of Presentation

         The unaudited condensed consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information or footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. The statements reflect all adjustments (only of a
normal and recurring nature) which are, in the opinion of management, necessary
to a fair statement of the results for the interim periods presented. These
financial statements should be read in conjunction with the Company's audited
consolidated financial statements as included in the Company's Annual Report on
Form 10-K for fiscal year 1996 as filed with the Commission on November 29,
1996. The interim results presented herein are not necessarily indicative of the
results of operations that may be expected for the full fiscal year ending
September 30, 1997, or any other future periods.

2.       Accounting for Stock-Based Compensation

         In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The new standard defines a fair value method of
accounting for stock options and other equity instruments, such as stock
purchase plans. Under this method, compensation cost is measured based on the
fair value of the stock award when granted and is recognized as an expense over
the service period, which is usually the vesting period. This standard became
effective for the Company beginning October 1, 1996 and requires measurement of
rewards made beginning October 1, 1995.

         The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net income and
earnings per share as if the Company had applied the new method of accounting.
As required, the Company will implement these disclosure requirements for its
employee stock option plans for the fiscal year beginning with its fiscal 1997
annual report. Based on the Company's current use of equity instruments,
adoption of the new standard is not expected to impact reported net income or
net income per share, and will not have any effect on the Company's cash flow.




                                    -6-

<PAGE>   7
3.       Increase in Authorized Share  of Common Stock

         At the Company's 1997 Annual Meeting of Shareholders, currently
scheduled for February 12, 1997, the Company shareholders will consider and vote
upon a proposal to increase the authorized number of shares of the Company's
Common Stock to 31,500,000 shares.

4.       Proposed Merger with Synopsys, Inc.

         On January 16, 1997, the Company entered into an Agreement and Plan of
Merger by and among the Company, Synopsys, Inc. ("Synopsys") and a wholly-owned
subsidiary of Synopsys ("Sub") pursuant to which Sub will be merged with and
into the Company (the "Merger"), whereby the Company will survive and become a
wholly-owned subsidiary of Synopsys. In connection with the merger, (i) each
share of the Company's Common Stock issued and outstanding at the effective time
of the Merger will be converted into 0.7485 (the "Exchange Ratio") of a share of
Synopsys Common Stock and (ii) each stock option to purchase shares of the
Company's Common Stock will be assumed by Synopsys and converted into an option
to purchase Synopsys Common Stock based upon the Exchange Ratio. Consummation of
the Merger is subject to customary conditions to closing including the approval
of the shareholders of each of Synopsys and the Company and certain regulatory
approvals. The Merger is intended to be treated as a pooling of interest for
accounting purposes and is intended to qualify as a tax-free reorganization for
federal income tax purposes.



 
                                   -7-

<PAGE>   8
                          EPIC DESIGN TECHNOLOGY, INC.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Certain Forward-Looking Information

         Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Report are
forward-looking statements based on current expectations, and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Such risks and
uncertainties are set forth below in the second paragraph under "Overview," in
the third and fourth paragraphs under "Liquidity and Capital Resources" and
under "Factors Affecting Future Operating Results." These forward-looking
statements include the last sentence of the first paragraph under "Overview",
the statement relating to future international license and service revenue in
the fourth paragraph under "Revenue", the last sentence under "Research and
Development" and the statement relating to the period of time through which the
Company's resources will be adequate to finance its operations in the last
paragraph under "Liquidity and Capital Resources."


Overview

         The Company develops, markets and supports a family of simulation and
analysis software tools that helps IC designers better manage the timing,
reliability and power characteristics of IC designs. The Company was founded in
1986 and licensed its first product, TimeMill(TM), in August 1987. The Company
began licensing PathMill(TM) in June 1989, PowerMill(TM) in March 1992,
Vertue(TM) in March 1994, RailMill(TM) in May 1995, AMPS(TM) in January 1996,
and its latest options, TimeMill ACE(TM) and PowerMill ACE(TM), which are based
on the Company's newly developed technology, in December 1996. With the
acquisition of Archer Systems, Inc. ("Archer") the Company also began licensing
Arcadia(TM), in November 1995. Substantially all of the Company's license
revenue to date has been derived from the licensing of Arcadia, PathMill,
PowerMill and TimeMill. The Company also derives service revenue primarily from
maintenance agreements which provide customers access to product enhancements,
training and customer support. Most of the Company's customers have purchased
annual maintenance contracts on initial licenses and have renewed such contracts
upon expiration. The Company has also recently acquired CIDA Technology, Inc.
("CIDA") which is developing a new technology in the area of layout
verification. The Company does not expect to generate any substantial revenue
from these products until they are formally released and receive market
acceptance.

         Most of the Company's products are based upon a single set of core
software technologies, and the licensing and support of all products are
expected to account for




                                  -8-

<PAGE>   9
substantially all of the Company's revenue for the foreseeable future.
Acceptance of the Company's products by existing and new customers and the
competitiveness of the products in an ever increasingly competitive environment
are critical to the Company's future success. There can be no assurance that the
markets for which the Company's products are best suited will continue to
develop or, if such markets do develop, that the Company's products will
continue to achieve the market acceptance required to maintain revenue growth
and continued profitability in the future.


Proposed Merger with Synopsys, Inc.

        On January 16, 1997, the Company entered into an Agreement and Plan of
Merger by and among the Company, Synopsys, Inc. ("Synopsys") and a wholly-owned
subsidiary of Synopsys ("Sub") pursuant to which Sub will be merged with and
into the Company (the "Merger"), whereby the Company will survive and become a
wholly-owned subsidiary of Synopsys. In connection with the Merger, (i) each
share of the Company's Common Stock issued and outstanding at the effective
time of the Merger will be converted into 0.7485 (the "Exchange Ratio") of a
share of Synopsys Common Stock and (ii) each stock option to purchase shares of
the Company's Common Stock will be assumed by Synopsys and converted into an
option to purchase Synopsys Common Stock based upon the Exchange Ratio.
Consummation of the Merger is subject to customary conditions to closing
including the approval of the shareholders of each of Synopsys and the Company
and certain regulatory approvals. The Merger is intended to be treated as a
pooling of interest for accounting purposes and is intended to qualify as a
tax-free reorganization for federal income tax purposes.




                                     -9-

<PAGE>   10
Results of Operations

         The following table sets forth, for the periods indicated, certain
statement of income data of the Company expressed as a percentage of total
revenue.

<TABLE>
<CAPTION>
                                           Three Months Ended December 31,
                                           -------------------------------
                                                 1996         1995
                                                 -----        -----
<S>                                              <C>          <C>
         Revenue:
           License                                79.1%        77.2%
           Service                                20.9         22.8
                                                 -----        -----
                  Total revenue                  100.0        100.0
                                                 -----        -----

         Costs and expenses:
           Cost of license                         2.4          4.8
           Cost of service                         3.8          3.9
           Sales and marketing                    30.3         33.1
           Research and development               25.5         21.9
           General and administrative              7.8          7.9
                                                 -----        -----
                  Total operating expenses        69.8         71.6
                                                 -----        -----

         Income from operations                   30.2         28.4
         Other income, net                         2.5          3.0
                                                 -----        -----
         Income before income taxes               32.7         31.4
         Provision for income taxes               12.1         11.6
                                                 -----        -----
         Net income                               20.6%        19.8%
                                                 =====        =====
</TABLE>

         Revenue. Revenue consists primarily of fees for licenses of the
Company's software products, maintenance and customer support. The Company
recognizes revenue from software licenses after shipment of the products and
fulfillment of acceptance terms, if any, and when no significant contractual
obligations remain outstanding. When the Company receives payment prior to
shipment or fulfillment of significant vendor obligations, such payments are
recorded as deferred revenue and customer deposits and are recognized as revenue
upon shipment or fulfillment of significant vendor obligations. Costs related to
insignificant vendor obligations for post-contract customer support are accrued
upon recognition of the license revenue. Maintenance revenue is deferred and
recognized ratably over the term of the maintenance agreement, which is
typically one year. Revenue from customer training, support and other services
is recognized as the service is performed. Total revenue for the first quarter
of fiscal 1997 increased by 50.5% to $14.2 million from $9.4 million in the
first quarter of fiscal 1996.

         License revenue for the first quarter of fiscal 1997 increased by 54.2%
to $11.2 million from $7.3 million in the first quarter of fiscal 1996. The
increase in license revenue was primarily due to increases in the licensing of
AMPS, Arcadia, RailMil, TimeMill and




                                    -10-

<PAGE>   11
various options for such products. To date, price increases have not been a
material factor in the Company's revenue growth.

         Service revenue for the first quarter of fiscal 1997 increased by 38.1%
to $3.0 million from $2.2 million in the first quarter of fiscal 1996. The
increase in service revenue was primarily attributable to maintenance contracts
in connection with the continued growth of the installed base of customers
licensing the Company's products. Most of the Company's customers have purchased
annual maintenance contracts on initial licenses and have renewed such contracts
upon expiration. The percentage of the Company's total revenue attributable to
service revenue decreased to 20.9% in the first quarter of fiscal 1997 from
22.8% in the first quarter of fiscal 1996. Service revenue as a percentage of
total revenue decreased primarily due to the faster growth of license revenue
compared to the growth rate of service revenue.

         International license and service revenue accounted for 39.0% and 44.9%
of total revenue in the first quarter of fiscal 1997 and 1996, respectively. The
decrease in international license and service revenue as a percentage of total
revenue was primarily attributable to the increases of volume purchase
agreements with major domestic customers . The Company expects that
international license and service revenues will continue to account for a
significant portion of its revenues in the future. License and service revenue
from Marubeni, the Company's exclusive distributor in Japan, accounted for 19.2%
and 24.9% of the total revenue in the first quarter of fiscal 1997 and 1996,
respectively. No other customer or distributor accounted for more than 10% of
total revenue during any of these periods.

         Cost of Revenue. Cost of license revenue includes third party software
license royalties, documentation and other production costs related to the
licensing of the Company's products. Cost of license revenue as a percentage of
total revenue decreased to 2.4% in the first quarter of fiscal 1997 from 4.8% in
the first quarter of fiscal 1996. The decrease in cost of license revenue as a
percentage of total revenue was due to lower third party software licensing
royalties and expenses increasing at a slower rate than the total revenue.

         Cost of service revenue as a percentage of total revenue remained
relatively constant at 3.8% for the first quarter of fiscal 1997 compared to
3.9% for the first quarter of fiscal 1996 as personnel and related operating
costs allocated to maintenance and other customer support services increased at
a similar rate as the total revenue.

         Sales and Marketing. Sales and marketing expenses consist of salaries,
commissions paid to internal sales and marketing personnel and certain
distributors, promotional costs and related operating expenses. Sales and
marketing expenses increased by 37.6% to $4.3 million in the first quarter of
fiscal 1997 from $3.1 million in the first quarter of fiscal 1996. Sales and
marketing expenses increased as the Company continued to expand its worldwide
direct sales and support organization, incurred higher commissions associated
with increased revenue and, to a lesser extent, increased




                                    -11-


<PAGE>   12
participation in domestic and international trade shows, conferences and
seminars. The number of sales and marketing personnel increased from 65 at the
end of the first quarter of fiscal 1996 to 91 at the end of the first quarter of
fiscal 1997. As a percentage of total revenue, sales and marketing expenses
decreased to 30.3% in the first quarter of fiscal 1997 from 33.1% in the first
quarter of fiscal 1996. The decrease was due to total revenues increasing at a
rate faster than the increases in sales and marketing expenses.

         Research and Development. Research and development expenses include all
costs associated with the development of new products and enhancements to
existing products. Research and development expenses increased by 75.8% to $3.6
million in the first quarter of fiscal 1997 from $2.1 million in the first
quarter of fiscal 1996. The increase in expenses resulted from the continued
investment in the number of research and development personnel, which grew from
61 at the end of the first quarter of fiscal 1996 to 95 at the end of the first
quarter of fiscal 1997, and for the continued development of new software
products, as well as enhancements to existing products. These increased expenses
include the additional headcount and costs relating to the CIDA business
acquired in the fourth quarter of fiscal 1996. As a percentage of total revenue,
these expenses increased to 25.5% in the first quarter of fiscal 1997 from 21.9%
in the first quarter of fiscal 1996. To maintain a competitive position in the
EDA market, the Company expects to continue to increase its investment in
research and development, although such expenses as a percentage of total
revenue may fluctuate.

         General and Administrative. General and administrative expenses
increased by 48.5% to $1.1 million in the first quarter of fiscal 1997 from
$744,000 in the first quarter of fiscal 1996. The increase was primarily
attributable to costs associated with new administrative personnel, professional
consulting fees in connection with legal and accounting services, and increases
in operating expenses associated with the continued growth of the Company. As a
percentage of total revenue, general and administrative expenses remained
relatively flat at 7.8% for the first quarter of fiscal 1997 compared to 7.9%
for the first quarter of fiscal 1996.

         Income Taxes. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The provision for income taxes as a percentage of income remained at
37.0% in the first quarter of fiscal 1997 as in the first quarter fiscal 1996.
These percentages are less than the federal and state combined statutory rate of
approximately 40.0% primarily due to tax exempt interest income and the benefits
of the Company's Foreign Sales Corporation (FSC).

Liquidity and Capital Resources

         The Company has financed its operations to date through private and
public sales of equity securities and with cash from operations. Private sales
of equity securities have yielded approximately $2.1 million. In addition, in
October 1994, the Company completed its initial public offering raising
approximately $17.4 million of cash,




                                      -12-

<PAGE>   13
net of expenses. Net cash used by operating activities was $525,000 in the three
months ended December 31, 1996, which resulted from an increase in accounts
receivable and a decrease in accrued liabilities, offset by net income, adjusted
by non-cash activities, and an increase in deferred revenue and customer
deposits. The increase in accounts receivable was primarily due to extended
payment terms on certain volume purchase agreements with major domestic
customers and the large number of products shipped late in the quarter. Cash
payments related to the acquisition of CIDA was the primary cause for the
decrease in accrued liabilities. The increase in deferred revenue and customer
deposits resulted from continued increase in the number of maintenance and
service contracts and a large advance payment from a major domestic customer.

         Cash provided by investing activities resulted primarily from the net
maturities of short-term investments, offset by additions to property and
equipment.

         Although the Company does not believe its products infringe the
proprietary rights of any third parties, there can be no assurance that
infringement claims will not be asserted against the Company or its customers in
the future. The Company could incur substantial costs and diversion of
management resources with respect to the defense of such claims and parties
making such claims could secure substantial damages, each of which could have a
material adverse effect on the Company's financial condition and results of
operations.

         As of December 31, 1996, the Company had working capital of $34.7
million, including cash, cash equivalents and short-term investments of $39.3
million. As of December 31, 1996, the Company had no bank indebtedness and no
long term commitments other than minimum operating lease obligations. The
Company believes that the existing cash, cash equivalents and short-term
investments along with funds generated from operations will provide the Company
with sufficient funds to finance its operations through at least the next 12
months. Thereafter, the Company may require additional funds to support its
working capital requirements or for other purposes and may seek to raise such
additional funds through public or private equity financing or from other
sources. No assurance can be given that additional financing will be available
or that, if available, such financing will be obtainable on terms favorable to
the Company or its shareholders.

Factors Affecting Future Results

         Quarterly Operating Results May Fluctuate; Dependence on Semiconductor
Industry. The Company's quarterly results have in the past and may in the future
vary significantly due to a number of factors, including the timing of customer
design and development projects; the timing of significant orders; the timing of
expenditures in anticipation of product releases or increased revenue; the
timing of new product announcements by the Company and its competitors;
competition and pricing in the semiconductor industry; customer acceptance of
new and enhanced versions of the Company's products; variations in the mix of
products




                                      -13-

<PAGE>   14
the Company licenses; and variations in product development or operating
expenditures. Any unfavorable changes in these or other factors could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's expense levels are based, in part, on its
expectations of future revenues. As a result, if anticipated revenue in any
quarter does not occur or is delayed, expenditure levels could be
disproportionately high as a percentage of revenues, and the Company's operating
results for that quarter would be adversely affected.

         The Company is dependent upon the semiconductor industry and, in
particular, new IC design projects. The semiconductor industry is highly
volatile due to rapid technological change, short product life cycles,
fluctuations in manufacturing capacity, and pricing and gross margin pressures.
The semiconductor industry periodically has experienced significant downturns,
often in connection with, or in anticipation of, declines in general economic
conditions during which the number of new design projects often decreases. The
Company's business, financial condition and results of operations may in the
future reflect substantial fluctuations from period-to-period as a consequence
of semiconductor industry patterns and general economic conditions.

         The EDA Industry is Highly Competitive. The EDA industry is highly
competitive. In general, competition in the EDA industry comes from major EDA
vendors, each of which has a longer operating history, significantly greater
financial, technical and marketing resources, greater name recognition and
larger installed customer bases than the Company. In addition, a variety of
small companies develop and introduce new products, and any of these companies
could become a significant competitor in the EDA industry in the future. The
Company also competes with the internal design groups of its existing and
potential customers, many of whom design and develop customized simulation and
analysis tools for their particular needs and therefore may be reluctant to
purchase products offered by independent vendors. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, financial condition and results of
operations. In particular, increased competition could result in price
reductions, reduced margins and loss of its competitive position, all of which
could materially adversely affect the Company. In addition, there can be no
assurance that current competitors or other entities will not develop similar
products that have significant advantages over the Company's core technology
which could have a material adverse affect on the Company's business, financial
condition and results of operations.

         The Company's Industry is Subject to Rapid Technological Change. The
EDA industry is characterized by extremely rapid technological change, frequent
new product introductions, evolving industry standards and changing customer
requirements. The Company's future success will depend upon its ability to
enhance its current products and to develop and introduce new products on a
timely and a cost-effective basis that keep pace with technological development
and evolving industry standards and methodologies, as well as address the
increasingly sophisticated needs of the Company's customers.




                                     -14-

<PAGE>   15
There can be no assurance that the Company will be successful in developing and
marketing product enhancements or new products that respond to technological
change, evolving industry standards and changing customer requirements, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products, or that
its new products and product enhancements will adequately meet the requirements
of the marketplace and achieve customer acceptance. Failure of the Company, for
technological or other reasons, to develop and introduce new products and
product enhancements in a timely and cost-efficient manner, would have a
material and adverse effect on the Company's business, financial conditions and
results of operations.

         Reliance Upon International Distributors. A substantial portion of the
Company's international license and service revenue results from a limited
number of distributors. The Company has no direct sales force, and relies on a
single distributor for licensing and support of its products, in each of Japan,
Korea and the ASEAN countries and in India. Accordingly, the Company is
dependent upon the continued viability and financial stability of its
distributors and in particular of Marubeni. Since the Company's products are
used by highly skilled professional engineers, effective distributors must
possess sufficient technical, marketing and sales resources and must devote
these resources to a lengthy sale cycles, customer training and product service
and support. Only a limited number of distributors possess these resources. In
addition, the Company's distributors generally offer products of several
different companies, including in some cases products that are competitive with
the Company's products. There can be no assurance that the Company's current
distributors will be able to continue to market or service and support the
Company's products effectively, that economic conditions or industry demand will
not adversely affect these or other distributors, that any distributor that
licenses the Company's products will choose to continue to license such products
or that theses distributors will not devote greater resources to licensing
products of other companies. The loss of, or a significant reduction in revenue
from, one of the Company's distributors could have a material adverse effect on
the Company's business, financial conditions and results of operations.

         Risk Associated with international Licensing. International license and
service revenue accounted for 39.7% and 39% of total revenue in fiscal 1996 and
the first quarter of fiscal 1997, respectively. The Company expects that
international license and service revenue will continue to account for a
significant portion of its revenues in the future. Theses revenues involve a
number of inherit risks, including the impact of recessionary environments in
economies outside the United States, generally longer receivable collection
periods, unexpected changes in regulatory requirements, reduced protection of
intellectual property rights in some countries, and tariffs and other trade
barriers. There can be no assurance that such factors will not have a material
adverse affect on the Company's future international license and service revenue
and, consequently, on the Company's business, financial conditions and results
of operations.




                                     -15-

<PAGE>   16
         The Company is Dependent Upon Proprietary Technology. Despite
precautions by the Company, it may be possible for a third party to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. In addition,
effective intellectual property protection may be unavailable or limited in
certain foreign countries. In addition, although the Company does not believe
its products infringe the proprietary rights of any third parties, there can be
no assurance that infringement claims will not be asserted against the Company
or its customers in the future. The Company could incur substantial costs and
diversion of management resources with respect to the defense of such claims
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, parties making such claims
could secure substantial damages, as well as injunctive or other equitable
relief which could effectively block the Company's ability to license its
products in the United States or abroad. Such a judgment could have a material
adverse affect upon the Company's business, financial condition and results of
operations.

         Future Acquisitions. During each fiscal 1996 and 1995, the Company
completed acquisitions of other companies. The Company's management frequently
evaluates the strategic opportunities available to it and may in the near-term
or long-term pursue acquisitions of complimentary businesses, products or
technologies. Future acquisitions by the Company may result in the diversion of
management's attention from the day-to-day operation of the Company's business
and may include numerous other risks, including difficulties in the integration
of the operations, products and personnel of the acquired companies. Future
acquisitions by the Company have the potential to result in dilutive issuances
of equity securities, the incurrence of additional debt and amortization
expenses related to goodwill and other intangible assets.




                                     -16-

<PAGE>   17
PART II - OTHER INFORMATION

ITEM 6:   Exhibits and Reports on Form 8-K



         (a)      Exhibit

                   2.1 Agreement and Plan of Merger, dated
                       as of January 16 1997, among Synopsys, Inc.,
                       EPIC Merger Co., Inc. and the Company. (1)  

                  11.1 Statement regarding computation of per share earnings

         (b)      Reports on Form 8-K

                  The Company did not file any reports on Form 8-K during the
                  three months ended December 31, 1996.


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


                 (1) Incorporated by reference to the Registration
                     Statement on Form S-4 (Reg. No. 333-21129)
                     of Synopsys, Inc. as filed with the Securities
                     and Exchange Commission on February 5, 1997.



                                        -17-

<PAGE>   18
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.




Dated:  February 4, 1997
                                    EPIC DESIGN TECHNOLOGY, INC.
                                    (Registrant)




                                    /s/ TAMMY LIU
                                    ____________________________________________
                                    Tammy Liu
                                    Chief Financial Officer and Secretary
                                    (Principal Financial and Accounting Officer)




                                   -18-

<PAGE>   19
                                INDEX TO EXHIBITS


                                                                    
                                                                        
        EXHIBIT                                                             
--------------------------------------------------------------------------------
11.1    Statement regarding computation of per share earnings                



         (a)      Exhibit

                   2.1 Agreement and Plan of Merger, dated
                       as of January 16 1997, among Synopsys, Inc.,
                       EPIC Merger Co., Inc. and the Company. (1)  

                  11.1 Statement regarding computation of per share earnings

         (b)      Reports on Form 8-K

                  The Company did not file any reports on Form 8-K during the
                  three months ended December 31, 1996.


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


                 (1) Incorporated by reference to the Registration
                     Statement on Form S-4 (Reg. No. 333-21129)
                     of Synopsys, Inc. as filed with the Securities
                     and Exchange Commission on February 5, 1997.