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

                       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 quarter ended March 29, 1997 or
[ ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities 
Exchange Act of 1934 for the transition period from __________ to __________

COMMISSION FILE NUMBER 0-18623

 



                               IKOS SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)


            DELAWARE                                        77-0100318
  (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                         Identification No.)

 19050 PRUNERIDGE AVE., CUPERTINO, CA                          95014
  (Address of principal executive offices)                  (zip code)

              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (408) 255-4567



   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 
                                               ---      ---

   Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

        COMMON STOCK $.01 PAR VALUE                       8,425,000
        ---------------------------                       ---------
             (Title of Class)                (Outstanding as of March 29, 1997)

 ===============================================================================
<PAGE>
 
                               IKOS SYSTEMS, INC.
                                   FORM 10-Q
                          QUARTER ENDED MARCH 29, 1997


                                     INDEX
                                     -----


Part I:  Financial Information
 
         Item 1: Financial Statements
                                                                          PAGE
                 Consolidated Balance Sheets at
                  March 29, 1997 and September 28, 1996.............       3
 
                 Consolidated Statements of Income
                  for the three months ended
                  March 29, 1997 and March 30, 1996.................       4
 
                 Consolidated Statements of Cash Flows
                  for the three months ended
                  March 29, 1997 and March 30, 1996.................       5
 
                 Notes to Consolidated Financial Statements.........       6
 
         Item 2: Management's Discussion and Analysis
                  of Financial Condition and Results of Operations..       8
 
 
Part II: Other Information
 
         Item 4: Submission of Matters to a Vote of Security Holders      13
 
         Item 6: Exhibits and Reports on Form 8-K...................      14
 
         Signatures.................................................      17
 

                                       2
<PAGE>
 
                        PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                              IKOS SYSTEMS, INC.
                          CONSOLIDATED BALANCE SHEETS
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                                                    March 29,    September 28,
                                                      1997            1996
                                                   -----------   -------------
                                    ASSETS         (Unaudited)

Current assets:
  Cash and cash equivalents......................     $14,318        $10,590
  Short-term investments.........................      12,084         14,638
  Accounts receivable (net of allowances for
    doubtful accounts of $451 and $271, 
    respectively.................................      12,056          9,193
  Inventories....................................       3,934          3,514
  Deferred tax assets............................       3,451          4,187
  Prepaid expenses and other assets..............         479            537
                                                      -------        -------
       Total current assets......................      46,322         42,659
Equipment and leasehold improvements
  Office and evaluation equipment................       3,345          3,088
  Machinery and equipment........................       6,321          5,738
  Leasehold improvements.........................         328            331
                                                      -------        -------
                                                        9,994          9,157
    Less allowances for depreciation and 
      amortization...............................      (6,168)        (5,565)
                                                      -------        ------- 
                                                        3,826          3,592
Intangible assets (net of amortization of 
  $1,051 and $421, respectively).................       5,256          5,890
Deferred tax assets..............................       1,127          1,125
Other assets.....................................         431            205
                                                      -------        -------
                                                      $56,962        $53,471
                                                      =======        =======

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable...............................      $1,637         $4,775
  Accrued payroll and related expenses...........       2,005          2,406
  Accrued commissions............................         445            725
  Income taxes payable...........................       3,624          1,745
  Other accrued liabilities......................         877            496
  Deferred maintenance revenues..................       3,353          3,843
  Current portion of long-term debt..............         650            750
                                                      -------        -------
       Total current liabilities.................      12,591         14,740
Long-term debt, less current portion.............          --            350
Accrued rent.....................................         226            237
Commitements               
Stockholders' equity:
  Preferred stock, $.01 par value; 10,000 shares
    authorized, none issued......................          --             --  
  Common stock, $.01 par value; 50,000 shares
    authorized, 8,425 and 8,179 shares
    issued and outstanding, respectively.........          84             82
  Additional paid-in capital.....................      56,303         54,994
  Accumulated deficit............................     (12,242)       (16,932)
                                                      -------        -------
       Total stockholders' equity................      44,145         38,144
                                                      -------        -------
                                                      $56,962        $53,471
                                                      =======        =======

                See notes to consolidated financial statements.

                                       3
<PAGE>
 
                 IKOS SYSTEMS INC.
         CONSOLIDATED STATEMENTS OF INCOME
      (in thousands, except per share amounts)


<TABLE>
<CAPTION>
 
 
                                                                Three Months Ended        Six Months Ended
                                                             ------------------------  ------------------------
                                                            March 29,      March 30,   March 29,      March 30,
                                                               1997         1996         1997          1996
                                                               ----         ----         ----          ----
<S>                                                           <C>          <C>         <C>            <C>
Net revenues
  Product................................................     $12,022      $ 9,332     $23,874        $16,971
  Maintenance............................................       2,453        1,822       4,790          3,460
                                                             --------     --------    --------       --------
    Total net revenues...................................      14,475       11,154      28,664         20,431
                                                         
Cost of revenues                                         
  Product................................................       2,678        2,066       5,370          3,983
  Maintenance............................................         466          331         887            550
                                                             --------     --------    --------       --------
    Total cost of revenues...............................       3,144        2,397       6,257          4,533
                                                             --------     --------    --------       -------- 
    Gross profit.........................................      11,331        8,757      22,407         15,898
                                                         
Operating expenses:                                      
  Research and development...............................       2,509        1,727       4,860          3,268
  Sales and marketing....................................       3,758        3,417       7,958          6,911
  General and administration.............................       1,075        1,034       2,103          1,723
  Amortization of intangibles............................         315            -         630              -
                                                             --------     --------    --------       --------
    Total operating expenses.............................       7,657        6,178      15,551         11,902
                                                             --------     --------    --------       --------
Income from operations...................................       3,674        2,579       6,856          3,996
                                                         
Other income (expense):                                  
  Interest income........................................         285          285         562            482
  Interest expense.......................................           -          (24)          -            (42)
  Other..................................................          34           30          65             59
                                                             --------     --------    --------       --------
    Total other income...................................         319          291         627            499
                                                             --------     --------    --------       --------
                                                         
Income before provision for income taxes.................       3,993        2,870       7,483          4,495
Provision for income taxes...............................       1,478          460       2,793            710
                                                             --------     --------    --------       -------- 
    Net income...........................................     $ 2,515      $ 2,410     $ 4,690        $ 3,785
                                                             ========     ========    ========       ========
                                                         
Net income per share.....................................       $0.28        $0.31       $0.53          $0.49
                                                             ========     ========    ========       ========
Common and common equivalent shares used                 
  in computing per share amounts.........................       8,984        7,843       8,920          7,681
                                                             ========     ========    ========       ========

</TABLE> 

  See notes to consolidated financial statements.

                                       4
<PAGE>
 
                              IKOS SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
         Increase (decrease) in cash and cash equivalents in thousands
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                                                    Six Months Ended
                                                                                 ------------------------
                                                                                    March 29,   March 30,
                                                                                       1997        1996
                                                                                   -----------   ---------

<S>                                                                                   <C>       <C> 
Operating activities:
 Net income........................................................................    $ 4,690   $ 3,785
 Adjustments to reconcile net income to net                                        
  cash provided by operating activities:                                           
  Depreciation and amortization....................................................      1,292       493
  Loss on retirement of equipment..................................................         13        19
  Deferred tax assets..............................................................         (2)       --
  Accrued rent.....................................................................        (11)       (3)
 Changes in operating assets and liabilities:                                      
  Accounts receivable..............................................................     (2,863)    2,189
  Inventories......................................................................       (420)     (793)
  Prepaid expenses and other current assets........................................         58        (9)
  Other assets.....................................................................       (226)      (92)
  Accounts payable.................................................................     (3,138)    1,106
  Accrued payroll and related expenses.............................................       (401)      232
  Accrued commissions..............................................................       (280)     (511)
  Income taxes payable.............................................................      2,615        87
  Other accrued liabilities........................................................        381      (312)
  Deferred maintenance revenues....................................................       (490)      941
                                                                                   -----------   ---------
                                                                                   
   Net cash provided by operating activities.......................................      1,218     7,132
                                                                                   
Investing activities:                                                              
 Purchases of equipment and leasehold improvements.................................       (905)   (1,212)
 Investment in Virtual Machine Works, Inc.                                                  --    (1,250)
 Purchase of short-term investments................................................    (13,551)  (10,755)
 Maturities of short-term investments..............................................     16,105     1,589
                                                                                   -----------   ---------
                                                                                   
      Net cash provided (used in) investment activities............................      1,649   (11,628)
                                                                                   
Financing activities:                                                              
  Principal payments on long-term borrowings.......................................       (450)     (738)
  Sale of common stock.............................................................      1,311    11,095
                                                                                   -----------   ---------
                                                                                   
      Net cash provided by financing activities....................................        861    10,357
                                                                                   -----------   ---------
                                                                                   
Increase in cash and cash equivalents..............................................      3,728     5,861
Cash and cash equivalents at beginning of period...................................     10,590     7,305
                                                                                   -----------   ---------
                                                                                   
Cash and cash equivalents at end of period.........................................     14,318   $13,166
                                                                                   ===========   =========

</TABLE>

See notes to consolidated financial statements.


                                       5
<PAGE>
 
                               IKOS SYSTEMS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.  Basis of Presentation

          The accompanying consolidated financial statements at March 29, 1997
     and for the three and six month periods ended March 29, 1997 and March 30,
     1996, have been prepared in conformity with generally accepted accounting
     principles, consistent with those applied in, and should be read in
     conjunction with, the audited consolidated financial statements for the
     year ended September 28, 1996 included in the Form 10-K as filed with the
     Securities and Exchange Commission on December 20, 1996.  The unaudited
     interim financial information reflects all normal recurring adjustments
     which are, in the opinion of management, necessary for a fair statement of
     results for the interim periods presented.  The results for the three and
     six month periods ended March 29, 1997 are not necessarily indicative of
     results expected for the full year.

2.   Inventories

          Inventories are stated at the lower of cost (first-in, first-out) or
     market and consisted of (in thousands):

                                   March 29,   September  28, 
                                     1997           1996     
                                   ---------   --------------
                                                                         
            Purchase parts            $1,160           $  631
            Work-in-process            1,853            2,245
            Finished goods               921              638
                                      ------           ------
                                                             
            Total inventories         $3,934           $3,514
                                      ======           ====== 

3.   Net Income Per Share

          Net income per share is based on the weighted average number of common
     shares outstanding during the period.  Common equivalent shares from
     options have been included in the computation when dilutive.

          In February 1997, the Financial Accounting Standards Board (FASB)
     issued Statement of Financial Accounting Standards No. 128, "Earnings Per
     Share." The overall objective of the Statement No. 128 is to simplify the
     calculation of earnings per share by excluding the dilutive effect of
     stock options and warrants from the "Basic" earning per share
     calculation. The statement is effective for interim and annual financial
     statements for periods ending after December 31, 1997 and earlier
     application is not permitted. The Company will not be required to adopt
     such statement until after its first quarter of fiscal 1998 and such
     adoption, when effective, will not result in a materially different
     disclosure of "diluted" earnings per share than currently disclosed.

                                       6
<PAGE>
 
4.   Subsequent Event

          In April 1997, the Company completed the purchase of certain software
     and hardware simulation technology from Zycad Corporation for $5,000,000 in
     cash.  Under the terms of the agreement, the companies are jointly
     implementing a product transition program for all of Zycad's current logic
     simulation customers.  IKOS has paid $2,500,000 upon the execution of the
     agreement and the remaining $2,500,000 will be paid to Zycad upon the
     completion of certain milestones under the customer transition program.  As
     a result of the transaction, the Company expects to recognize a charge in
     its third fiscal quarter as a result of a write-off of in process research
     and development related to the acquisition.


                                       7
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS


Forward-looking statements in this Quarterly Report on Form 10-Q are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995.  Investors are cautioned that all forward-looking statements
involve risks and uncertainties, including, without limitation, those contained
under the section entitled "Factors That May Affect Future Results of
Operations" and other risks detailed from time to time in the Company's periodic
reports and other information filed with the Securities and Exchange Commission.

NET REVENUES

Net revenues for the second quarter of fiscal 1997 totaled $14,475,000, an
increase of approximately 30% over the same quarter in fiscal 1996. Net revenues
for the six months ended March 29, 1997 were 28,664,000, representing an
increase of 40% over the same six month period of fiscal 1996.  The increases
are primarily the result of the continued growth in sales of the Voyager product
line, increased maintenance revenues, initial commercial shipments of the
Company's new emulator product and increases in consulting revenues. For the
three and six months ended March 29, 1997, the Voyager product line contributed
over 66% of net revenues and represented increases over the same periods of
fiscal 1996 of over 10% and 25%, respectively.  Maintenance revenues which were
over 16% of net revenues for both the three month and six month periods ending
March 29, 1997, increased 35% and 38% respectively over the same three and six
month periods of fiscal 1996.  The Company's new emulation product contributed
over 6% and 9% of net revenues, respectively, and the new consulting group
contributed approximately 6% and 4% of net revenues during the quarter and six
month period, respectively.  There were no emulation revenues and minimal
consulting revenues recognized during the first six months of fiscal 1996.

These increases were the result of a larger customer base, continued acceptance
of the Company's simulation and acceleration solutions, the successful
introduction of the new emulation product and the increased focus on the
Company's consulting organization.

International sales for the second quarter of fiscal 1997 increased
approximately 16% over the same quarter in fiscal 1996 and accounted for over
35% of net revenues for the quarter.  For the six month period ended March 29,
1997, international revenue increased 72% when compared to the same period in
fiscal 1996. The significant increase in revenues for the six month period is
primarily the result of a strong first quarter of international revenues for
fiscal 1997 and a weak first quarter in fiscal 1996.

GROSS PROFIT MARGINS

Gross profit margins for the three and six month periods were approximately 78%
of net revenues and are comparable with the same periods of fiscal 1996.  Gross
profit margins are expected to be comparable in subsequent quarters provided
revenues of newer products continue to increase.

                                       8
<PAGE>
 
RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses in the second quarter of fiscal 1997 totaled
$2,509,000, representing an increase of approximately 45% over $1,727,000 of
expenses incurred in the same quarter of fiscal 1996.  Research and development
expenses increased 49% from $3,268,000 for the first six months of fiscal 1996
to $4,860,000 for the same period of fiscal 1997. The increase in research and
development expenses is primarily the result of increased headcount and
associated expenses.  The Company expects research and development expenses to
increase in absolute dollars over the remainder of the year as the Company
continues its development of its future generation of products.

SALES AND MARKETING EXPENSES

Sales and marketing expenses increased to $3,758,000 for the second quarter of
fiscal 1997 or 10% when compared to $3,494,000 for the same period in fiscal
1996.   Sales and marketing expenses increased 15% from $6,911,000 for the first
six months of 1996 to $7,958,000 for the first six months of fiscal 1997. The
increase is primarily the result of additional headcount and increased
commissions as a result of higher revenue levels, as well as increased expenses
for international operations.  Sales and marketing expenses are expected to
continue to increase in absolute dollars over the next two fiscal quarters
reflecting increased headcount, commission expense and marketing expenses.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $1,075,000 and $2,103,000 for the three
and six month periods ended March 29, 1997.  These amounts represent increases
of 4% and 22%, respectively over the comparable period in fiscal 1996.  The
slight increase in the current quarter is a result of increased headcount.  The
increases for the six month period were a result of the increased headcount,
increased investor relations expenses, professional services and profit sharing
expenses.  General and administrative expenses are expected to remain relatively
flat over the next two fiscal quarters of fiscal 1997.

INCOME TAXES

The Company's second quarter provision for income taxes for fiscal 1997 differs
from the federal statutory rate primarily due to benefits associated with its
foreign sales corporation, research credits, and costs associated with non
deductible goodwill amortization and state income taxes. The Company's 1996
provision for income taxes for the second quarter consisted primarily of federal
alternative minimum tax, state and foreign taxes and Japanese withholding taxes.
The tax rate during this period was substantially below the federal statutory
rate due to the utilization of net operating loss carryovers for which no
benefit had previously been taken.


                                      9
<PAGE>
 
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

Potential Fluctuations in Quarterly Results - The Company's quarterly operating
-------------------------------------------
results have in the past and may in the future vary significantly depending on
factors including the timing of customer development projects and purchase
orders, new product announcements and releases by the Company and other
companies, gain or loss of significant customers, price discounting of the
Company's products, the timing of expenditures, customer product delivery
requirements, availability and cost of components or labor and economic
conditions generally and in the electronics industry specifically. Any
unfavorable change in these or other factors could have a material adverse
effect on the Company's operating results for a particular quarter. Operating
results in any period should not be considered indicative of the results to be
expected for any future period, and there can be no assurance that the Company's
net revenues will increase, that its recent rate of quarterly revenue and
earnings growth will be sustained, or that the Company will remain profitable in
any future period.

Continued Acceptance and Development of the Company's Products - Substantially
--------------------------------------------------------------
all of the Company's product revenues since fiscal 1993 have been derived from
the sale of its Voyager and Gemini simulation systems. There can be no assurance
that increased sales of these products will continue. Because the market for
hardware-assisted simulation products is evolving, it is difficult to predict
with any assurance whether the market for hardware-assisted simulation products
will continue to expand. There can be no assurances that such market will expand
or, even if such market expands that the Company's current products and future
products will achieve the market acceptance required to maintain revenue growth
and continued profitability in the future.

During the first fiscal quarter of 1997, the Company recorded its first
commercial shipment of its new emulation product. The success of the Company in
selling and supporting emulation products will depend on a variety of factors,
including timely and efficient implementation of manufacturing processes,
effective sales, marketing and customer service, and the absence of performance
problems or other difficulties that may require design modifications and related
expenses and may hinder or damage market acceptance of the products. While the
Company's emulation systems have been designed to provide cost and ease of use
advantages intended to broaden the market for logic emulation, there can be no
assurance that its products, if successfully developed, will be able to achieve
such goals. Moreover as the market for emulation products is new and evolving,
it is difficult to predict with any assurance whether the market for emulation
products will continue to expand.

Competition - The EDA industry is highly competitive and rapidly changing. The
-----------
Company's products are specifically targeted at the emerging portion of the
industry relating to complex designs that the Company believes benefit from
simulation and emulation products. The Company experiences significant
competition in both the simulation and emulation product environments. The
Company expects competition in the market for verification tools to increase as
other companies attempt to introduce new products, such as cycle-based software
simulation products formal proof products and product enhancements. Increased
competition could result in price reductions, reduced margins and loss of market
share, all of which could materially adversely affect the Company. In addition,
current competitors or other entities may develop other products that have
significant advantages over the Company's products. 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 operating results.


                                      10
<PAGE>
 
New Products and Technological Change - The EDA industry is characterized by
-------------------------------------
extremely rapid technological change in both hardware and software development,
frequent new product introductions, evolving industry standards and changing
customer requirements. The introduction of products embodying new technologies
and the emergence of new industry standards can render existing products
obsolete and unmarketable. The Company's future success will depend upon its
ability to enhance its current series of simulation systems and to design,
develop and support its future simulation and emulation products on a timely
basis. 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 or evolving industry standards or changing customer
requirements. If the Company is unable, for technological or other reasons, to
develop and introduce products in a timely manner, in response to changing
market conditions or customer requirements, the Company's business, operating
results and financial condition will be materially and adversely affected.
Moreover, from time to time, the Company may announce new products or
technologies that have the potential to replace the Company's existing product
offerings. There can be no assurance that the announcement of new product
offerings will not cause customers to defer purchases of existing Company
products, which could adversely affect the Company's results of operations.

Dependence on Electronics Industry - The Company is dependent upon the
----------------------------------
electronics industry and, in particular, new system and IC design projects. The
electronics industry is characterized by rapid technological change, short
product life cycles, fluctuations in manufacturing capacity and pricing and
margin pressures, all of which cause it to be volatile. As a result, the
electronics industry has historically experienced sudden and unexpected
downturns, at which time the number of new system and IC design projects
decrease. Because most of the Company's sales occur upon the commencement of new
projects for system and IC products, the Company is dependent upon the rate of
commencement of new system and IC design projects. Accordingly, negative factors
affecting the electronics industry could have a material adverse effect on the
Company's results of operations.

Dependence Upon Certain Suppliers - Certain key components, including certain
---------------------------------
proprietary application-specific integrated circuits and subassemblies used in
the Company's products are presently available from sole or limited sources. The
inability to develop alternative sources for these sole or limited source
components or to obtain sufficient quantities of these components could result
in delays or reductions in product shipments which could adversely affect the
Company's operating results. The Company generally purchases these components,
including semiconductor memories used in the Company's hardware simulators,
pursuant to purchase orders placed from time to time in the ordinary course of
business and has no supply arrangements with any of these source suppliers that
require the suppliers to provide components in guaranteed quantities or at set
prices. Any prolonged inability to obtain components or subassemblies in
sufficient quantities or quality or on favorable pricing or delivery terms, or
any other circumstances that would require the Company to seek alternative
sources of supply, could have a material adverse effect on the Company's
operating results and could damage the Company's relationships with its
customers.

                                      11
<PAGE>
 
Customer Concentration - A relatively limited number of customers have
----------------------
historically accounted for a substantial portion of the Company's net revenues.
The Company expects that sales of its products to a limited number of customers
will continue to account for a high percentage of net revenues for the
foreseeable future. The loss of a major customer or any reduction in orders by
such customers, including reductions due to market or competitive conditions in
the electronics or EDA industries, would have an adverse effect on the Company's
results of operations. Moreover, the Company's ability to increase its sales
will depend in part upon its ability to obtain orders from new customers, as
well as the financial condition and success of its existing customers and the
general economy; there can be no assurance that such increases will occur.


LIQUIDITY AND CAPITAL RESOURCES

As of March 29, 1997, the Company had $26,402,000 in cash, cash equivalents and
short term investments which compares to $25,228,000 as of September 28, 1996.

Net cash provided by operating activities was $1,218,000 for the six months
ended March 29, 1997.  The cash provided by operations was primarily due to net
income plus depreciation and amortization and an increase in income taxes
payable partially offset by an increase in accounts receivable from higher net
revenues, an increase in inventories, the pay down of accounts payable and the
payroll and related obligations.

Net cash provided by investing activities was approximately $1,649,000 due
primarily to maturities of approximately $16,105,000 of short-term investments
offset by the purchase of approximately $905,000 of equipment and purchases of
approximately $13,551,000 of short-term investments.  The Company expects
capital expenditures to increase throughout the remainder of the year as
expected headcount additions will require additional workstations.

Net cash provided by financing activities for the three months ended March 29,
1997 was approximately $861,000 which was a result of exercise of stock options
by Company employees offset by the payment of $450,000 on long-term debt.

The Company's primary unused sources of funds at March 29, 1997, consisted of
$26,402,000 of cash, cash equivalents and short-term investments.  The Company
believes that its present cash position and cash generated from operations will
be sufficient to meet its capital needs for at least the next twelve months.

Subsequent to the end of the quarter, the Company completed the purchase of
certain software and hardware simulation technology from Zycad Corporation for
$5,000,000 in cash.  Under the terms of the agreement, the companies are jointly
implementing a product transition program for all of Zycad's current logic
simulation customers.  IKOS has paid $2,500,000 upon the execution of the
agreement and the remaining $2,500,000 will be paid to Zycad upon completion of
certain milestones under the customer transition program.  As a result of the
transaction, the Company expects to recognize a charge in its third fiscal
quarter as a result of a write-off of in process research and development
related to the acquisition.


                                      12
<PAGE>
 
ITEMS 1-3.   NOT APPLICABLE.

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

             The annual meeting of stockholders was held on January 27, 1997 

             The stockholders approved a proposal to elect the Board of
             Directors of the Company to serve for the ensuing fiscal year. The
             proposal received the following votes:
             
                                           FOR         WITHHELD  

             Gerald S. Casilli          6,314,092       149,895
             Lutz P. Henckels           6,314,662       149,325
             Ramon Nunez                6,314,614       149,373
             James R. Oyler             6,314,662       149,325
             Glenn E. Penisten          6,314,462       149,525

             The stockholders approved a proposal to amend the Company's
             Certificate of Incorporation to increase the authorized common
             stock of the Company from 25,000,000 to 50,000,000. The proposal
             received the following votes:

                                                          BROKER/
                       FOR      AGAINST     ABSTENTIONS  NON-VOTES
                    5,405,683   982,757       38,457       37,090     

             The stockholders approved a proposal to increase the number of
             shares of the Company's common stock reserved for issuance under
             its 1995 Stock Option Plan by 450,000 shares. The proposal received
             the following votes:

                       FOR      AGAINST     ABSTENTIONS  
                    3,397,162  1,390,691      37,655  
                     
             In addition, the stockholders ratified the appointment of Ernst &
             Young, LLP as independent public accounts of the Company for fiscal
             1997. The proposal received the following votes:
             
                       FOR      AGAINST     ABSTENTIONS  
                    6,451,196    6,027         6,764 

ITEM 5.      NOT APPLICABLE.

                                      13
<PAGE>
 
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.


(a) INDEX TO EXHIBITS

<TABLE> 
<CAPTION> 

Exh. No.                            Documentation Description                                    Page
--------                            -------------------------                                    ----
<S>           <C>                                                                               <C>                          
 2.1          Agreement and Plan of Reorganization among the Company, VMW Acquisition    
              Corporation and VMW dated May 14, 1996 (Incorporated by reference to       
              Exhibit 2.1 of the Company's registration statement on Form S-3 effective  
              June 26, 1996).                                                            
                                                                                         
 3.1          Certificate of Incorporation (Incorporation by reference to Exhibit 3.1 of 
              the Company's registration statement on Form S-1 effective July 25,    
              1990).                                                                 
                                                                                         
 3.2          Certificate of Amendment of Certificate of Incorporation filed May 5, 1994 
              (Incorporated by reference to Exhibit 4.1 of the Company's             
              registration statement on Form S-2 effective October 12, 1995).        
                                                                                         
 3.3          Certificate of Amendment of Certificate of Incorporation filed April 24,   
              1995 (Incorporated by reference to Exhibit 4.2 of the Company's        
              registration statement on Form S-2 effective October 12, 1995).        
                                                                                         
 3.4          Certificate of Amendment of Certificate of Incorporation filed February 3, 
              1997                                                                   
                                                                                         
 3.5          By-laws (Incorporated by reference to Exhibit 3.2 of the Company's         
              registration statement on Form S-1 effective July 25, 1990).           
                                                                                         
 4.1          Rights agreement dated as of January 27, 1992 between the Company and      
              Manufacturers Hanover Trust Company of California, Rights Agent.       
              (Incorporated by reference to Exhibit (C)1, in the Company's report on 
              Form 8-K filed February 10, 1992).                                     
                                                                                         
4.2           Registration rights agreement by and among the Company and certain former   
              stockholders of VMW (Incorporated by reference to Exhibit 4.1 of the   
              Company's registration statement on Form S-3 effective July 26, 1996). 
                                                                                         
10.1          Lease Agreement for the Company's principal facility dated March 20, 1992, 
              between Ames Avenue Associates and the Company, as amended.            
              (Incorporated by reference to Exhibit 10.1 of the Company's annual     
              report on 10-K for the year ending September 26, 1992).                 

</TABLE> 

                                      14
<PAGE>
 
<TABLE> 
<CAPTION> 

Exh. No.                            Documentation Description                                    Page
--------                            -------------------------                                    ----
<S>           <C>                                                                               <C>                          
10.2          Form of Director and Officer Indemnity Agreement.  (Incorporated by
              reference to Exhibit 10.6 of the Company's registration statement on
              Form S-1 effective July 25, 1990).

10.3          1988 Stock Option Plan.  (Incorporated by reference to Exhibit 10.14 of 
              the Company's registration statement on Form S-1 effective July 25,  
              1990).                                                               
                                                                                      
10.4          Patent Cross License Agreement dated May 17, 1989 with Zycad Corporation
              (Incorporated by reference to Exhibit 10.20 of the Company's         
              registration statement on Form S-1 effective July 25, 1990).         
                                                                                      
10.5          International Distributorship Agreement dated April 11, 1988, with C.   
              Itoh & Co., Ltd. (Incorporated by reference to Exhibit 10.24 of the  
              Company's registration statement on Form S-1 effective July 25, 1990).
              Confidential Treatment has been granted as to certain portions of this
              Exhibit.                                                             
                                                                                      
10.6          OEM Software License Agreement between CAD Language Systems, Inc. and   
              IKOS Systems, Inc. dated June 22, 1989 and amendment dated September 
              1991  (Incorporated by reference to Exhibit 10.18 of the Company's   
              Annual Report for the year ended September 28, 1991).                
                                                                                      
10.7          Technology Transfer and Joint Development Agreement with Racal-Redac,   
              Inc. dated July 1, 1993   (Incorporated by reference to Exhibit 10.19
              of the Company's quarterly report on Form 10-Q for the quarter ended 
              July 3, 1993).  Confidential Treatment has been granted as to certain
              portions of this Exhibit.                                            
                                                                                      
10.8          Settlement Agreement and Release dated March 31, 1994 between Racal     
              Redac, Inc. and the Company (Incorporated by reference to Exhibit    
              10.13 of the Company's registration statement on Form S-2 effective  
              October 12, 1995).                                                   
                                                                                      
10.9          Software License Agreement with Compass Design Automation dated December
              31, 1993  (Incorporated by reference to Exhibit 10.17 of the Company's
              quarterly report on Form 10-Q for the quarter ended January 1, 1994).
                                                                                      
10.10         Agreement dated June 2, 1994, by and between the Company and Gerald S. 
              Casilli (Incorporated by reference to Exhibit 10.18 of the Company's 
              quarterly report on Form 10-Q for the quarter ended July 2, 1994).   
                                                                                      
10.11         Agreement dated June 2, 1994, by and between the Company and Daniel R. 
              Hafeman (Incorporated by reference to Exhibit 10.18 of the Company's 
              quarterly report on Form 10-Q for the quarter ended July 2, 1994).    

</TABLE> 
                                      15
<PAGE>
 
<TABLE> 
<CAPTION> 

Exh. No.                            Documentation Description                                    Page
--------                            -------------------------                                    ----
<S>           <C>                                                                               <C>                          

10.12         Agreement dated June 2, 1994, by and between the Company and Stephen     
              McLaughlin. (Incorporated by reference to Exhibit 10.18 of the         
              Company's quarterly report on Form 10-Q for the quarter ended July 2,  
              1994).                                                                 
                                                                                       
10.13         Agreement dated June 2, 1994, by and between the Company and Larry A.    
              Melling (Incorporated by reference to Exhibit 10.18 of the Company's   
              quarterly report on Form 10-Q for the quarter ended July 2, 1994).     
                                                                                       
10.14         Agreement dated June 2, 1994, by and between the Company and Ramon A.    
              Nunez (Incorporated by reference to Exhibit 10.18 of the Company's     
              quarterly report on Form 10-Q for the quarter ended July 2, 1994).     
                                                                                       
10.15         Agreement dated June 2, 1994, by and between the Company and Joseph W.   
              Rockom (Incorporated by reference to Exhibit 10.18 of the Company's    
              quarterly report on Form 10-Q for the quarter ended July 2, 1994).     
                                                                                       
10.16         The Company's 1995 Outside Directors Stock Option Plan (Incorporated by  
              reference to Exhibit 10.22 of the Company's registration statement on  
              Form S-2 effective October 12, 1995).                                  
                                                                                       
10.17         Development and OEM Agreement for Verilog/IKOS Co-simulation Interface   
              dated August 26, 1994 by and between the Company and Precedence        
              Incorporated (Incorporated by reference to Exhibit 10.24 of the        
              Company's registration statement on Form S-2 effective October 12,     
              1995).                                                                 
                                                                                       
10.18         Amendment to OEM Agreement for the acquisition of certain software        
              technology, by and between Compass Design Automation, Inc. and the     
              Company dated December 27, 1995  (Incorporated by reference to Exhibit 
              10.20 of the Company's quarterly report on Form 10-Q for the quarter   
              ended  December 30, 1995).                                             
                                                                                       
10.19         Amended and Restated Employment Agreement dated August 1, 1995 by and    
              between the Company and Ramon Nunez  (Incorporated by reference to     
              Exhibit 10.21 of the Company's quarterly report on Form 10-Q for the   
              quarter ended December 30, 1995).                                      
                                                                                       
10.20         Patent License Agreement dated December 22, 1993 between Massachusetts    
              Institute of Technology and the Company (Incorporated by reference to  
              Exhibit 10.20 of the Company's quarterly report on Form 10-Q for the   
              quarter ended June 29, 1996). Confidential treatment has be granted as 
              to certain portions of this Exhibit.                                    

</TABLE> 
                                      16
<PAGE>
 
<TABLE> 
<CAPTION> 

Exh. No.                            Documentation Description                                    Page
--------                            -------------------------                                    ----
<S>           <C>                                                                               <C>                          

10.21         The Company's 1995 Stock Option Plan (Incorporated by reference to             
              Exhibit 10.21 of the Company's Annual Report on Form 10-K for the year      
              ended September 28, 1996).                                                  
                                                                                             
10.22         The Company's 1996 Employee Stock Purchase Plan (Incorporated by               
              reference to Exhibit 10.22 of the Company's Annual Report on Form 10-K      
              for the year ended September 28, 1996).                                     
                                                                                             
11.1          Statement of Computation of Earnings per Share.                                 
                                                                                             
27.1          Financial Data Schedule                                                          
</TABLE> 

(b) REPORTS ON FORM 8-K  - Not applicable


                                   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.

                                    IKOS SYSTEMS, INC.
                                    ------------------
                                    Registrant



Date:  May 12, 1997                 /s/ Joseph W. Rockom
       ------------                 ----------------------------------
                                    (JOSEPH W. ROCKOM, CFO)
                                    Principal Financial Officer,
                                    Duly Authorized Officer


                                      17