<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996


                         Commission File Number 0-21174

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


                  DELAWARE                      04-2977748
            (State or other jurisdiction of     (I.R.S. Employer
            incorporation or organization)      Identification No.)


                          METROPOLITAN TECHNOLOGY PARK
                                  ONE PARK WEST
                               TEWKSBURY, MA 01876
                    (Address of principal executive offices)


      Registrant's telephone number, including area code: (508) 640-6789


      Indicate  by check  mark  whether  the  registrant  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).

                                 Yes__X__ No _____


      Indicate by check mark  whether the  registrant  has been  subject to such
filing requirements for the past 90 days.

                                 Yes__X__No _____

The number of shares  outstanding of the registrant's  common stock as of May 6,
1996 was 21,089,566.

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                              AVID TECHNOLOGY, INC.

                                    FORM 10-Q

                FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996

                                TABLE OF CONTENTS


                                                                 PAGE



PART I.    FINANCIAL INFORMATION


ITEM 1.    Condensed Consolidated Financial Statements:

   a) Condensed Consolidated Statements of Operations for the
      three months ended March 31, 1996 and 1995....................1

   b) Condensed Consolidated Balance Sheets as of
      March 31, 1996 and December 31, 1995..........................2

   c) Condensed Consolidated Statements of Cash Flows
      for the three months ended March 31, 1996 and 1995............3

   d) Notes to Condensed Consolidated Financial Statements..........4


ITEM 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations......................7


PART II.   OTHER INFORMATION


ITEM 1.    Legal Proceedings.......................................13


ITEM 6.    Exhibits and Reports on Form 8-K........................14

Signatures.........................................................15


<PAGE>

PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

                                         Three Months Ended March 31,
                                        ------------------------------
                                           1996              1995
                                        ------------      ------------
                                         (unaudited)       (unaudited)

Net revenues                                $92,039           $83,895
Cost of revenues                             52,456            40,568
                                        ------------      ------------
  Gross profit                               39,583            43,327
                                        ------------      ------------

Operating expenses:
  Research and development                   17,616            12,209
  Marketing and selling                      30,433            21,658
  General and administrative                  5,498             4,234
  Nonrecurring costs                         20,150             5,456
                                        ------------      ------------
    Total operating expenses                 73,697            43,557
                                        ------------      ------------

Operating loss                              (34,114)             (230)
Interest income, net                            587               365
                                        ------------      ------------
Income (loss) before income taxes           (33,527)              135
Income taxes                                (10,729)            1,093
                                        ------------      ------------

Net loss                                   $(22,798)            $(958)
                                        ============      ============

Net loss per common share                   $(1.08)           $(0.05)
                                        ============      ============

Weighted average common shares               21,019            18,129
  outstanding                           ============      ============


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

<PAGE>
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)                             March 31,        December 31,
                                             1996              1995
                                        ---------------   ---------------
                                          (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents                    $25,750           $32,847
  Marketable securities                         27,064            17,543
  Accounts receivable, net of
    allowances of $7,585 and $6,472
    in 1996 and 1995, respectively              92,318           107,859
  Inventories                                   70,089            63,387
  Deferred tax assets                           23,735            13,006
  Other current assets                           7,472             8,311
                                        ---------------   ---------------
    Total current assets                       246,428           242,953

  Marketable securities                             --            30,102
  Property and equipment, net                   56,448            48,992
  Other assets                                   3,565             9,557
                                        ---------------   ---------------
    Total assets                              $306,441          $331,604
                                        ===============   ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                             $21,056           $29,836
  Current portion of notes payable               2,018             1,781
  Accrued expenses                              28,095            20,787
  Income taxes payable                           4,243             6,171
  Deferred revenues                             22,207            22,118
                                        ---------------   ---------------
    Total current liabilities                   77,619            80,693
                                        ---------------   ---------------

Long-term debt                                   2,559             2,945

Commitments and contingencies

Stockholders' equity:
  Preferred stock                                   --                --
  Common stock                                     211               209
  Additional paid-in capital                   210,490           208,918
  Retained earnings                             16,697            39,495
  Cumulative translation adjustment             (1,120)             (700)
  Net unrealized gains (losses) on
    marketable securities                          (15)               44
                                        ---------------   ---------------
    Total stockholders' equity                 226,263           247,966
                                        ---------------   ---------------
    Total liabilities and
      stockholders' equity                    $306,441          $331,604
                                        ===============   ===============

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

<PAGE>
AVID TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)                                   Three Months Ended March 31,
                                                 ---------------------------
                                                    1996           1995
                                                 ------------   ------------
                                                 (unaudited)    (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                          $(22,798)         $(958)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
    Depreciation and amortization                      6,730          3,975
    Provision for doubtful accounts                      920          1,023
    Deferred tax assets                              (10,729)           446
    Provision for product transition costs,
      non-cash portion                                 9,427             --
    Provision for restructuring charge,
      non-cash portion                                 1,659             --
    Changes in operating assets and
      liabilities, net of acquisition:
      Accounts receivable                             13,004         (6,713)
      Inventories                                    (15,869)        (8,552)
      Other current assets                             1,031            425
      Accounts payable                                (7,894)         1,843
      Accrued expenses and income taxes payable        3,256          8,574
      Deferred revenues                                  281            398
                                                 ------------   ------------
    NET CASH PROVIDED BY (USED IN)
      OPERATING ACTIVITIES                           (20,982)           461
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capitalized software development costs                (398)          (254)
  Purchases of property and other assets              (7,498)        (7,567)
  Purchases of marketable securities                  (8,119)        (1,000)
  Proceeds from sales of marketable securities        28,640         14,340
                                                 ------------   ------------
    NET CASH PROVIDED BY INVESTING ACTIVITIES         12,625          5,519
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from long-term debt                            --            218
  Payments of long-term debt                            (335)        (1,008)
  Proceeds from issuance of common stock               1,574          1,507
                                                 ------------   ------------
    NET CASH PROVIDED BY FINANCING ACTIVITIES          1,239            717
Effects of exchange rate changes
  on cash and cash equivalents                            21            449
                                                 ------------   ------------
Net increase (decrease) in cash
  and cash equivalents                                (7,097)         7,146
Cash and cash equivalents at
  beginning of period                                 32,847         23,255
                                                 ------------   ------------
Cash and cash equivalents at end of period           $25,750        $30,401
                                                 ============   ============
Supplemental  disclosure  of non-cash  transactions:
  For the three months ended March 31, 1996:
      Acquisition  of equipment  under  capital lease  obligations.....$186
The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

<PAGE>
PART I.     FINANCIAL INFORMATION

ITEM 1D.    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            (UNAUDITED)

1.    FINANCIAL INFORMATION

The  accompanying   condensed  consolidated  financial  statements  include  the
accounts  of  Avid  Technology,   Inc.  ("the  Company")  and  its  wholly-owned
subsidiaries.  The interim financial  statements are unaudited.  However, in the
opinion of management,  the condensed  consolidated financial statements include
all adjustments, consisting of only normal, recurring adjustments, necessary for
their fair  presentation.  Interim  results are not  necessarily  indicative  of
results  expected  for a full  year.  The  Company's  preparation  of  financial
statements in conformity with generally accepted accounting  principles requires
management to make estimates and assumptions  that affect the reported amount of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the dates of the financial  statements and the reported  amounts of revenues and
expenses during the reported periods. The most significant estimates included in
these financial  statements  include accounts  receivable and sales  allowances,
inventory  valuation and income tax valuation  allowances.  Actual results could
differ from those  estimates.  In January 1995,  the Company  completed a merger
with Digidesign,  Inc. ("Digidesign"),  accounted for as a pooling of interests.
The condensed consolidated financial statements for all periods presented herein
include the accounts of Avid  Technology,  Inc. and Digidesign.  These condensed
consolidated  financial  statements  should  be read  in  conjunction  with  the
consolidated  financial  statements  and related notes included in the Company's
Annual  Report on Form 10-K for the year ended  December  31, 1995 as filed with
the Securities and Exchange Commission on April 1, 1996 (SEC File No. 0-21174).

2.    NET LOSS PER COMMON SHARE

Net loss per common  share is based upon the weighted  average  number of common
shares outstanding during the period.  Common equivalent shares are not included
in the per  share  calculations  as the  effect  of  their  inclusion  would  be
anti-dilutive.  Common  equivalent  shares  result from the assumed  exercise of
outstanding  stock options,  the proceeds of which are then assumed to have been
used to repurchase outstanding common stock using the treasury stock method.

3.    INVENTORIES

Inventories consist of the following (in thousands):

                                 March 31,      December 31,
                                   1996             1995
                               --------------   --------------
Raw materials                        $61,970          $55,690
Work in process                        2,657            1,355
Finished goods                         5,462            6,342
                               --------------   --------------
                                     $70,089          $63,387
                               ==============   ==============

4.    PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following (in thousands):

                                       March 31,      December 31,
                                         1996             1995
                                     --------------   --------------
Computer and video equipment               $69,865          $61,085
Office equipment                             3,893            4,601
Furniture and fixtures                       5,783            4,800
Leasehold improvements                      12,104           10,404
                                     --------------   --------------
                                            91,645           80,890
Less accumulated depreciation
  and amortization                          35,197           31,898
                                     --------------   --------------
                                           $56,448          $48,992
                                     ==============   ==============

5.    ACQUISITIONS

In January 1995, the Company completed a merger with Digidesign,  a developer of
digital  audio  production  software and systems.  This  transaction,  which was
accounted  for as a pooling of interests,  was effected  through the exchange of
approximately  6,000,000 shares of the Company's common stock for all the issued
and  outstanding  shares of  Digidesign.  The condensed  consolidated  financial
statements  for all  periods  presented  herein  include  the  accounts  of Avid
Technology, Inc. and Digidesign.

In March  1995,  the  Company  acquired  Parallax  Software  Limited and 3 Space
Software  Limited,  developers of paint and  compositing  software,  and Elastic
Reality,  Inc., a developer of special  effects  software.  These  transactions,
which were  accounted  for as poolings of interests,  were effected  through the
exchange of approximately 1,500,000 shares of the Company's common stock for all
of the  issued and  outstanding  shares of these  entities.  The  operations  of
Parallax  Software Limited,  3 Space Software Limited and Elastic Reality,  Inc.
are not material to the Company's consolidated operations.

In connection with these acquisitions,  the Company in the first quarter of 1995
provided  for  merger  costs  of  approximately   $5,500,000.  Of  this  amount,
approximately  $3,900,000  represents provision for direct transaction expenses,
primarily  professional  fees, and $1,600,000  consists of provision for various
restructuring charges.

6.    LINE OF CREDIT

In June 1995, the Company  entered into an unsecured line of credit with a group
of banks. The agreement provides for up to $50,000,000 in revolving credit until
June 30,  1996,  when any unpaid  balance  becomes  due.  Under the terms of the
agreement,  the Company can  designate  the interest  rate on  revolving  credit
advances  at either the LIBOR rate plus 1.25% or the bank's base rate as defined
in the agreement.  The Company must pay an annual  commitment fee of 1/4% of the
average  daily  unused  portion of the  facility.  Additionally,  the Company is
required to maintain  certain  financial  ratios and  covenants  throughout  the
duration of the agreement,  including a restriction on the payment of dividends.
As of March  31,  1996,  the  Company  was out of  compliance  with a  financial
covenant;  the banks have waived  default for the quarter  ending March 31, 1996
and have amended the agreement to waive default for the quarter  ending June 30,
1996. The Company had no borrowings  against this facility as of March 31, 1996.
The Company has begun  negotiations  to amend and extend the  unsecured  line of
credit  agreement  beyond June 30, 1996.  There can be no assurance that such an
agreement will be reached.

7.    NONRECURRING COSTS

In the first  quarter of 1996,  the Company  recorded a  nonrecurring  charge of
$20.2 million, consisting of $7 million associated with restructuring, including
the Company's costs related to staff  reductions and the decision to discontinue
development  of certain  products and  projects,  and $13.2  million  related to
product  transition  costs  associated with the transition from NuBus to PCI bus
technology in some of the Company's  product  lines.  The  restructuring  charge
includes  approximately  $5 million of costs related to a staff  reduction of 70
employees and associated write-offs of fixed assets. Approximately $2 million of
the $7  million  restructuring  charge  relates to the  cancellation  of certain
products and development  projects.  The Company expects that the  restructuring
actions will be completed by the end of 1996.

8.    CONTINGENCIES

In December 1995, six purported  shareholder  class action complaints were filed
in the United States District Court for the District of Massachusetts naming the
Company and certain of its  officers  and  directors  as  defendants.  Principal
allegations  contained in the  complaints  included  claims that the  defendants
violated federal  securities laws and state common law by allegedly making false
and misleading  statements that were not true when made and by allegedly failing
to disclose material information that was required to be disclosed,  purportedly
causing  the  value of the  Company's  stock to be  artificially  inflated.  The
lawsuits were brought on behalf of all persons who bought the Company's stock at
various  times  between  the summer of 1995 and  December  20,  1995,  including
persons who bought the Company's stock pursuant to its September 21, 1995 public
offering. The plaintiffs have indicated that they soon intend to file an amended
complaint  consolidating the actions.  The original  complaints seek unspecified
damages for the  decline of the value of the  Company's  stock  during the class
period.  Although the Company  believes  that it and the other  defendants  have
meritorious  defenses to the  allegations  made by the plaintiffs and intends to
contest these  lawsuits  vigorously,  an adverse  resolution of this  litigation
could have a material  adverse  effect on the Company's  consolidated  financial
position  or results of  operations  in the  period in which the  litigation  is
resolved. No costs have been accrued for this possible loss contingency.

On March 11, 1996,  the Company was named as defendant in a patent  infringement
suit filed in the United States District Court for the Western District of Texas
by Combined Logic Company,  a California  partnership  located in Beverly Hills,
California.  The complaint  alleges  infringement  by Avid of U.S. patent number
4,258,385, issued in 1981, and seeks injunctive relief, treble damages and costs
and attorneys'  fees. The Company  believes that it has meritorious  defenses to
the  complaint  and  intends  to  contest  it  vigorously.  However,  an adverse
resolution  of this  litigation  could have an adverse  effect on the  Company's
consolidated  financial position or results of operations in the period in which
the litigation is resolved.

On April 23, 1996,  the Company was named as defendant in a patent  infringement
suit filed in the United States District Court for the District of Massachusetts
by Data  Translation,  Inc., of Marlboro,  Massachusetts.  The complaint alleges
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive
relief,  treble damages and costs and attorneys' fees. The Company believes that
it  has  meritorious  defenses  to  the  complaint  and  intends  to  defend  it
vigorously.  However,  an adverse  resolution of this  litigation  could have an
adverse effect on the Company's  consolidated  financial  position or results of
operations in the period in which the litigation is resolved.

<PAGE>
PART I.     FINANCIAL INFORMATION

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

OVERVIEW
      The text of this document may include forward-looking  statements.  Actual
results may differ  materially  from those described  herein,  depending on such
factors as are  described  herein,  including  under  "CERTAIN  FACTORS THAT MAY
AFFECT FUTURE RESULTS."

      The  Company  was  founded in 1987 to develop  and  market  digital  video
editing  systems for the production  and post  production  markets.  The Company
shipped its first  product,  the Avid/1  Media  Composer  system,  in the fourth
quarter of 1989.  The  Company is  currently  marketing  Media  Composer  system
version 6.1. In 1992, the Company began shipping its AudioVision  product to the
digital  audio  editing  segment  of the  post  production  market,  and in 1993
introduced  Film  Composer for the film editing  market and a line of disk-based
capture, editing and playback products for the broadcast news industry. In 1994,
the Company  acquired two  businesses,  SofTECH  Systems,  Inc. and the newsroom
systems  division of Basys Automation  Systems,  Inc., to expand its presence in
the newsroom  automation  systems market. In January 1995, the Company completed
its merger with Digidesign,  Inc.  ("Digidesign").  The Digidesign  merger added
digital audio production  software and related application lines. Pro Tools, the
most  significant  product  line  acquired in the  merger,  is marketed to audio
professionals.  The Media  Composer and Pro Tools product  lines,  together with
add-on software, storage devices and associated maintenance fees, have accounted
for a substantial majority of the Company's revenues to date. In March 1995, the
Company  acquired   Elastic   Reality,   Inc.,  a  developer  of  digital  image
manipulation  software,  and  Parallax  Software  Limited  and 3 Space  Software
Limited,  together  developers of paint and compositing  software,  all of whose
products are sold primarily to the film and video production and post-production
markets.  In March  1996,  the Company  began  shipments  of the Media  Composer
product line for use on PCI-based computers.

RESULTS OF OPERATIONS
      NET REVENUES. The Company's net revenues have been derived mainly from the
sales of  disk-based  digital,  nonlinear  media  editing  systems  and  related
peripherals,  licensing of related  software  and sales of software  maintenance
contracts. Net revenues increased by $8.1 million (9.7%) to $92.0 million in the
quarter  ended  March 31,  1996 from $83.9  million in the same  quarter of last
year. The increase in net revenues was primarily the result of worldwide  growth
in unit sales of the Media Composer product line, and to a lesser extent, to the
increase in sales of other products.  In March 1996, the Company began shipments
of the Media Composer product line for use on PCI-based  computers.  The Company
currently  expects to begin shipments of the Pro Tools product line on PCI-based
computers  in  the second  quarter of 1996.  To date, product  returns have been
immaterial.

      International  sales (sales to customers outside North America)  accounted
for  approximately  48.4% of the  Company's  1996  first  quarter  net  revenues
compared  to  approximately  49.0% for the same  quarter in 1995.  International
sales  increased by 8.4% for the first quarter 1996 compared to the same quarter
in 1995. The increase in international sales in 1996 was attributed to continued
sales growth in Europe and the Asia Pacific region.

      GROSS PROFIT. Cost of revenues consists primarily of costs associated with
the  acquisition  of components,  assembly,  test and  distribution  of finished
products,  warehousing,  shipping and post-sales  customer  support  costs.  The
resulting gross profit  fluctuates  based on factors such as the mix of products
sold, the proportion of third-party hardware included in the systems sold by the
Company,  the distribution  channels through which products are sold, the timing
of new product introductions,  the offering of product upgrades, price discounts
and other sales promotion programs,  and sales of third-party  computer hardware
to its  distributors.  Gross margin  decreased to 43.0% in the first  quarter of
1996  compared  to 51.6% in the first  quarter of 1995 due to accrued  costs for
sales  promotions for upgrading  certain  NuBus-based  Media Composer systems to
PCI-based systems, an increase in manufacturing  overhead associated with higher
facility costs and increased  provisions for inventory  obsolescence,  increased
hardware sales, as well as increased  rebates and discounts,  to distributors on
system  sales and an  increase  in the  percentage  of  customer  support  costs
allocated to cost of revenues.  The Company expects gross margins to continue to
be  affected  during  the  remainder  of  1996  by  continued  expansion  of the
manufacturing overhead, increased percentage of customer support costs allocated
to  post-sales  support  and  increased  sales  of  products  bearing  a  higher
proportion of third-party hardware.

      RESEARCH AND DEVELOPMENT.  Research and development expenses for the first
quarter of 1996 increased by $5.4 million (44.3%) from the first quarter of 1995
primarily due to additions to the Company's  engineering and product  management
staffs for the continued development of new and existing products.  Research and
development expenses increased as a percentage of net revenues from 14.6% in the
first quarter of 1995 to 19.1% in 1996 due to lower than  anticipated  revenues,
and  the  significant  resources  required  to  develop  various  new  products,
including  the PCI  versions  of Media  Composer  and Pro  Tools  products,  and
on-going  development  of the CamCutter and Media Server  products.  The Company
capitalized  software  development costs of approximately  $398,000,  or 2.2% of
gross research and development costs, during the first quarter of 1996, compared
to $254,000  and 2.0% of gross  research  and  development  costs,  in the first
quarter of 1995. The  capitalized  software  development  costs were  associated
primarily  with  enhancements  to the  Media  Composer  software,  and also with
enhancements,  initial  development  or purchase of software to be used in other
products. These costs will be amortized into cost of revenues over the estimated
life of the related products,  typically 12 to 24 months.  Amortization  totaled
approximately  $608,000 and $213,000  during the first quarter of 1996 and 1995,
respectively.

      MARKETING  AND  SELLING.  Marketing  and  selling  expenses  for the first
quarter of 1996 increased by $8.8 million (40.5%) from the first quarter of 1995
primarily  due to  expansion  of  the  Company's  sales  and  pre-sales  support
organization   and  the  opening  of  field  sales  offices   domestically   and
internationally  during the later part of 1995.  Marketing and selling  expenses
increased as a percentage  of net  revenues  from 25.8% in the first  quarter of
1995 to 33.1% in 1996 due  primarily to expansion of the  Company's  field sales
operations and lower than anticipated net revenues.

      GENERAL AND  ADMINISTRATIVE.  General and administrative  expenses for the
first quarter of 1996  increased by $1.3 million  (29.9%) from the first quarter
of 1995 primarily due to increased  staffing and associated  costs  necessary to
support the Company's growth,  as well as increased legal expenses.  General and
administrative  expenses  increased as a percentage of net revenues from 5.0% in
the first  quarter  of 1995 to 6.0% in 1996 due to higher  costs and lower  than
anticipated net revenues.

      NONRECURRING  COSTS.  In the first quarter of 1996,  the Company  recorded
charges for  nonrecurring  costs  consisting  of $7.0 million for  restructuring
charges related to staffing reductions and the Company's decision to discontinue
certain  products  and  development  projects  and  $13.2  million  for  product
transition  costs  in  connection  with  the  transition  from  NuBus to PCI bus
technology in certain of its product  lines.  In the first quarter of 1995,  the
Company acquired  Digidesign,  Inc., Parallax Software Limited, 3 Space Software
Limited and Elastic Reality, Inc. These transactions,  accounted for as poolings
of  interest,  were  effected  through the exchange of  approximately  7,500,000
shares of common  stock for all of the  issued and  outstanding  shares of these
entities. In connection with these acquisitions, the Company provided for merger
costs of approximately  $5.5 million,  of which $3.9 million  represented direct
transaction expenses and $1.6 million consists of various restructuring charges.

      INTEREST INCOME,  NET. Interest income, net consists primarily of interest
income and interest expense.  Interest income, net for the first quarter of 1996
increased  $222,000  from the first  quarter of 1995.  The  increase in interest
income, net is principally related to higher cash and investment balances in the
first quarter of 1996 compared to the first quarter of 1995.

      PROVISION FOR INCOME TAXES.  The Company's  effective tax rate was 32% for
the first quarter of 1996, compared to 31%, prior to the effect of merger costs,
for the first  quarter  of 1995.  The  provision  for the first  quarter of 1995
included  taxes of $1.7  million  on $5.6  million  of  earnings  before  merger
charges.  The 1995  provision  also included a tax benefit of $640,000 on merger
charges of $5.5 million, of which $1.6 million were tax deductible. The 1996 and
1995 first quarter  effective tax rates are less than the Federal statutory rate
of 35% primarily due to the impact of the Company's foreign subsidiaries,  which
are taxed in the aggregate at a lower rate.

LIQUIDITY AND CAPITAL RESOURCES.

      The Company has funded its  operations  to date through  private  sales of
equity securities,  public offerings of equity securities in 1993 and 1995 which
generated  net  proceeds  to the  Company of  approximately  $67 million and $88
million,  respectively,  as well as through  cash flows from  operations.  As of
March 31, 1996 the Company's  principal sources of liquidity included cash, cash
equivalents and marketable securities of approximately $52.8 million.

      The Company's operating activities used cash of $21.0 million in the first
quarter of 1996  compared  to cash  generated  of $461,000 in the same period of
1995.  Cash  during  the  first  quarter  of 1996 was used  principally  to fund
increases  in inventory  and  decreases in accounts  payable.  The  increases in
inventory were due primarily to the stocking of systems to support the Company's
participation in National  Association of Broadcasters  trade show held in April
1996 and the  increase of  inventory  related to the  Company's  Media  Spectrum
product line at beta customer sites.

      The Company  purchased  $7.5 million of property and  equipment  and other
assets in the first quarter of 1996, compared to $7.6 million in the same period
of 1995.  These  purchases  included  primarily  the purchase of  equipment  for
customer support and research and development.

      During  November 1994 and January 1995, the Company entered into equipment
financing arrangements with a bank for borrowings of up to $10 million, of which
$3.4 million was available at March 31, 1996. In June 1995, the Company  entered
into an  unsecured  revolving  line of credit  agreement  with four  banks.  The
agreement  provides  for up to $50 million in  revolving  credit  until June 30,
1996, when any unpaid balance becomes due. As of March 31, 1996, the Company was
out of compliance with a financial  covenant;  the banks have waived default for
the quarter ended March 31, 1996 and have amended the agreement to waive default
for the quarter ending June 30, 1996. The Company had no borrowings  outstanding
under this facility as of March 31, 1996. The Company has begun  negotiations to
amend and extend the unsecured  line of credit  agreement  beyond June 30, 1996.
There can be no  assurance  that such an  agreement  will be reached or that the
Company will not in the future be in default of financial  covenants included in
any new revolving credit agreement.  If the Company were in default, it could be
forced  by the  lending  banks to repay all  outstanding  amounts.  The  Company
believes existing cash and marketable securities, internally generated funds and
available  borrowings  under its bank credit line will be sufficient to meet the
Company's cash requirements,  including capital expenditures, through the end of
1996. In the event that the Company requires additional working capital, or that
the Company's net cash  expenditures  continue at levels  experienced  in recent
quarters,  the Company would need to seek additional  sources of capital.  While
the Company believes that it would be able to obtain such financing, there is no
assurance that it would be successful in doing so.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

      A number of  uncertainties  exist that could affect the  Company's  future
operating results, including, without limitation, the following:

      The Company's gross margin has fluctuated,  and may continue to fluctuate,
based on factors such as the mix of products sold, the proportion of third-party
hardware included in the systems sold by the Company, the distribution  channels
through which  products are sold, the timing of new product  introductions,  the
offering of product upgrade,  price discount and other sales promotion programs,
the costs of swapping or fixing  products  released to the market with errors or
flaws,  and sales of  third-party  computer  hardware to its  distributors.  The
Company's systems and software products typically have higher gross margins than
storage  devices and product  upgrades.  However,  the Company  expects that its
all-digital broadcast newsroom systems are likely to have lower margins than the
Company's  other  systems as a result of the higher  proportion  of  third-party
hardware,  including servers and storage devices,  incorporated in such systems.
Gross  profit  varies  from  product  to  product  depending  primarily  on  the
proportion of third-party  hardware  included in each product.  The Company from
time to time adds  functionality and features to its systems.  If such additions
are accomplished through the use of more, or more costly,  third-party hardware,
and if the Company  does not  increase the price of such systems to offset these
increased costs, the Company's gross margins may be adversely affected.

      The  Company's  operating  expense  levels  are  based,  in  part,  on its
expectations  of future  revenues.  Therefore,  if revenue  levels  fail to meet
internal  expectations,  the  Company's  operating  results  are  likely  to  be
adversely  affected and there can be no assurance  that the Company will be able
to maintain profitability.

      The Company has  expanded  its product  line to address the digital  media
production needs of the television broadcast news market and the emerging market
for multimedia  production tools. The Company has limited  experience in serving
these  markets,  and there can be no assurance  that the Company will be able to
develop  such  products  successfully,   or  that  such  products  will  achieve
widespread  customer  acceptance.  A significant portion of the Company's future
growth will depend on customer  acceptance  in these and other new markets.  Any
failure of such  products to achieve  market  acceptance,  or  incurring  by the
Company of additional  costs and expenses to improve  market  acceptance of such
products,  could have a material  adverse  effect on the Company's  business and
results of operations.

      The Company  expects to attempt to continue  the  installation  of a small
number of beta sites for advanced  "all-digital  newsrooms," which incorporate a
variety of the Company's  products,  as well as computers purchased from Silicon
Graphics,  Inc.  ("SGI") and storage  devices  purchased from other  third-party
vendors.  Because some of the products and technology in these installations are
new and  untested in live  broadcast  environments,  the  Company  has  provided
discounts to these beta customers. In addition, because some of the products and
technology  in  these  installations  are new  and  untested  in live  broadcast
environments, the Company has incurred greater than expected costs in completing
these initial  installations.  As a result,  the Company believes that the gross
margins on the  approximately  $8 million in revenues yet to be recognized  from
the sale of these initial all-digital newsrooms will be substantially lower than
the Company's  overall gross margin.  Revenues and costs  associated  with these
initial  installations  will be recognized upon acceptance of the systems by the
customers.  While there can be no assurance  that any or all of the systems will
be accepted,  or that the Company will not incur further costs in completing the
installations,  the Company  believes  that the systems  will be accepted in the
second quarter of 1996. The Company's  overall gross margin percentage is likely
to be reduced in this quarter or any quarters in which the revenues and expenses
associated with these initial installations are recognized.

      The Company's Media Composer and Pro Tools families of products  currently
operate only on Apple computers. Apple has adopted the PCI bus standard for data
transfer for its computers.  The Company  believes  certain of its prospects and
customers  have  delayed  purchases  or  have  purchased  PCI bus  systems  from
competing  vendors.  The Company began shipping Media Composer products based on
the PCI bus standard in March 1996 and currently  expects to begin  shipping Pro
Tools products based on the PCI bus in the second quarter of 1996. To the extent
that the Company is delayed in making this transition of the Pro Tools products,
customers may continue to elect to delay purchases.  Any delay or failure of the
Company to modify these Pro Tools  products to conform to the PCI bus  standard,
difficulty or delay by third-party developers in developing applications for use
on  PCI-bus  based Pro Tools  products,  any  failure  of the Pro Tools or Media
Composer PCI bus products to obtain market acceptance,  the delay or deferral of
customer  purchase  decisions,  the cost of any upgrade programs to PCI bus that
are  implemented  by the Company,  or the  inability of the Company to secure an
adequate supply of Apple computers or  PCI-compatible  video processor boards to
include in its systems  could have a material  adverse  effect on the  Company's
business and results of operations.

      The Company  has  announced  the  introduction  of several  new  products,
including the Avid Media Fusion and Avid Media Spectrum systems, which have been
designed to operate on  computers  from SGI,  including  systems  based on SGI's
Reality Engine 2 ("RE2") graphics  subsystem  technology.  The Avid Media Fusion
and Avid Media  Spectrum  systems are  expected to be  generally  available  for
commercial  sale during the second quarter of 1996. SGI has recently  introduced
new systems, based on its Infinite Reality ("IR") graphics subsystem technology,
which are designed  generally  to replace  RE2-based  systems.  Any delay in the
completion  or  introduction  of the Avid Media  Fusion and Avid Media  Spectrum
systems,  the failure of these products to achieve market acceptance,  the delay
or deferral of customer purchase decisions,  the delay or failure of the Company
to modify its  products to operate on the IR code base,  the cost of any upgrade
programs from RE2-based  systems to IR-based  systems that may be implemented by
the Company,  or the  inability  of the Company to secure an adequate  supply of
RE2-based systems could have a material adverse effect on the Company's business
and results of  operations.  The Avid Media Fusion system has also been designed
to run on SGI's Indigo  Impact  workstations.  Certain other digital media tools
suppliers  have  recently  publicly   reported   difficulty  in  procuring  such
computers.  The inability of the Company to secure an adequate  supply of Indigo
Impact  workstations or related  components could have a material adverse effect
on the Company's business and results of operations.

      The  Company has from time to time  developed  new  products,  or upgraded
existing products that incorporate advances in enabling technologies such as PCI
bus. The Company believes that further advances will occur in bus  architectures
and other enabling technologies,  such as microprocessors,  computers, operating
systems, storage devices and digital media formats. The Company may be required,
based on market demand,  to upgrade existing  products or develop other products
that  incorporate  these further  advances.  There can be no assurance  that the
Company will be successful in developing  such products,  or that they will gain
market  acceptance,  if  developed.  Any failure to develop  such  products in a
timely way or to gain market  acceptance for them could have a material  adverse
effect on the Company's business and results of operations.

      The Company has  experienced a period of rapid growth,  which has placed a
significant  strain on its  resources.  The Company has in the past  experienced
personnel  transitions  among its senior managers and expects  transitions  from
time to time in the future as the Company's  organizational  structure continues
to  evolve.  In  addition,  many of the  Company's  key  employees  have not had
experience in managing  organizations of the Company's size or larger. To manage
effectively  any future  growth,  the  Company  will be  required to continue to
improve its  operational and financial  systems and to expand,  train and manage
its employee base. The loss of key employees, any delay or failure in attracting
new  employees  or any  failure  by the  Company  to manage  any  future  growth
effectively could have a material adverse effect on the Company's business.

      The  Company is  dependent  upon sole  source  suppliers  for  certain key
components  used in its  products.  Products  purchased by the Company from sole
source vendors  include  computers from Apple and SGI; a video  processor  board
manufactured  by Truevision;  video  compression  chips  manufactured  by C-Cube
Microsystems; a small computer systems interface ("SCSI") accelerator board from
ATTO Technology; a 3D digital video effects board from Pinnacle Systems; certain
storage  devices from  Ciprico,  Inc.  and an  application  specific  integrated
circuit  ("ASIC") from AMI. The Company  purchases these sole source  components
pursuant to purchase orders placed from time to time. The Company generally does
not carry  significant  inventories  of these sole source  components and has no
guaranteed  supply  arrangements.  These  purchasing  arrangements can result in
delays in obtaining  products  from time to time. No assurance can be given that
sole  source  suppliers  will  devote the  resources  necessary  to support  the
enhancement  or  continued  availability  of such  components  or that  any such
supplier  will not  encounter  financial  difficulties.  While Avid has obtained
certain  manufacturing  rights from  Truevision,  there can be no assurance that
such  manufacturing  rights  would  enable the Company to obtain an  alternative
source of  supply if  Truevision  were  unable  for any  reason to  satisfy  the
Company's  requirements for video processor  boards.  While the Company believes
that  alternative  sources of supply  for its sole  source  components  could be
developed,  its business and results of operations could be materially adversely
affected if it were to encounter an interruption in its sources of supply.

      The markets for digital media editing and production systems are intensely
competitive and subject to rapid change. The Company  encounters  competition in
the film, video and audio production and  post-production,  television broadcast
news and multimedia tools markets. Many current and potential competitors of the
Company have substantially greater financial,  technical and marketing resources
than the Company.  Competitors  may be able to develop  products  comparable  or
superior to those of the Company or adapt more  quickly  than the Company to new
technologies or evolving  customer  requirements.  Accordingly,  there can be no
assurance  that the Company  will be able to compete  effectively  in its target
markets or that future  competition  will not adversely  affect its business and
results of operations.

      The Company recently began  converting its core  information  systems to a
new  system  developed  by  Systems,  Applications  and  Products  ("SAP").  Any
difficulties in this system  conversion could delay the shipment of orders,  the
release of  invoices  or  collection  of  receivables  which may have an adverse
effect on the Company's operations and cash flows.

      The  Company is  involved  in various  legal  proceedings,  and an adverse
resolution of any such  proceedings  could have a material adverse effect on the
Company's  business  and  results  of  operations.   See  Note  8  to  Condensed
Consolidated Financial Statements (unaudited) and Part II, Item 1, "Legal
Proceedings."

<PAGE>

P
ART II.    OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

DATA TRANSLATION, INC.

On April 23, 1996,  the Company was named as defendant in a patent  infringement
suit filed in the United States District Court for the District of Massachusetts
by Data  Translation,  Inc., of Marlboro,  Massachusetts.  The complaint alleges
infringement by the Company of U.S. patent number 5,488,695 and seeks injunctive
relief,  treble damages and costs and attorneys' fees. The Company believes that
it  has  meritorious  defenses  to  the  complaint  and  intends  to  defend  it
vigorously.  However,  an adverse  resolution of this  litigation  could have an
adverse effect on the Company's  consolidated  financial  position or results of
operations in the period in which the litigation is resolved.

OTHER

The  Company has also  received  inquiries  with  regard to possible  additional
patent  infringement  claims.  These inquiries have been referred to counsel and
are in various  stages of  discussion.  If any  infringements  are determined to
exist, the Company may seek licenses or settlements.  In addition,  from time to
time as a normal  incidence  of the nature of the  Company's  business,  various
claims,  charges and  litigation  are asserted or commenced  against the Company
arising  from or  related  to  contractual  relations  or  product  performance.
Management does not believe these claims would have a material adverse effect on
the financial position or results of operations of the Company.

<PAGE>

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

 (a)  Exhibits.

         Exhibit 27 - Financial Data Schedule

 (b)  Reports on Form 8-K.  For the fiscal  quarter  ended March 31,  1996,  the
      Company filed Current Reports on Form 8-K on January 16 and March 8, 1996.

<PAGE>

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.

                              Avid Technology, Inc.

Date:  May 14, 1996     By:   /S/ JONATHAN H. COOK
                              ---------------------
                              Jonathan H. Cook,
                              Vice President, Finance and Administration
                              Chief Financial Officer
                              (Principal Financial and Accounting Officer)



<PAGE>





<TABLE> <S> <C>


<ARTICLE>                     5
<LEGEND>
THIS   SCHEDULE  CONTAINS  SUMMARY  FINANCIAL  INFORMATION  EXTRACTED  FROM  THE
CONDENSED CONSOLIDATED BALANCE SHEET OF THE FORM 10-Q FOR THE PERIOD ENDED MARCH
31, 1996 (UNAUDITED) AND FROM THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED  MARCH 31, 1996 (UNAUDITED)  AND  IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>                 
<MULTIPLIER>                                   1,000
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                              DEC-31-1996
<PERIOD-START>                                 JAN-01-1996
<PERIOD-END>                                   MAR-31-1996
<CASH>                                              25,750
<SECURITIES>                                        27,064
<RECEIVABLES>                                       99,903
<ALLOWANCES>                                         7,585
<INVENTORY>                                         70,089
<CURRENT-ASSETS>                                   246,428
<PP&E>                                              91,645
<DEPRECIATION>                                      35,197
<TOTAL-ASSETS>                                     306,441
<CURRENT-LIABILITIES>                               77,619
<BONDS>                                                  0
<PREFERRED-MANDATORY>                                    0
<PREFERRED>                                              0
<COMMON>                                               211
<OTHER-SE>                                         226,052
<TOTAL-LIABILITY-AND-EQUITY>                       306,441
<SALES>                                             92,039
<TOTAL-REVENUES>                                    92,039
<CGS>                                               52,456
<TOTAL-COSTS>                                       52,456
<OTHER-EXPENSES>                                    73,697
<LOSS-PROVISION>                                         0
<INTEREST-EXPENSE>                                    (587)
<INCOME-PRETAX>                                    (33,527)
<INCOME-TAX>                                       (10,729)
<INCOME-CONTINUING>                                (22,798)
<DISCONTINUED>                                           0
<EXTRAORDINARY>                                          0
<CHANGES>                                                0
<NET-INCOME>                                       (22,798)
<EPS-PRIMARY>                                        (1.08)
<EPS-DILUTED>                                        (1.08)
        

</TABLE>