<PAGE>
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549
 
                               ----------------
                                   FORM 10-Q
                               ----------------
 
(Mark One)
 
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934
 
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996 OR
 
[_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934
 
FOR THE TRANSITION PERIOD FROM         TO
 
COMMISSION FILE NO. 0-13836
 
                         SILICON VALLEY RESEARCH, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
              CALIFORNIA                             94-2743735
    (State or other jurisdiction of                 (IRS Employer
    incorporation or organization)               Identification No.)
 
        6360 SAN IGNACIO AVENUE                       95119-1231
             SAN JOSE, CA                            (Zip Code)
    (Address of principal executive
               offices)
 
                                (408) 361-0333
              Registrant's telephone number, including area code
 
  (Former name, former address and former fiscal year, if changed since last
                                   report.)
 
  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 Shares Outstanding at December 31, 1996: 11,584,019
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
                 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                            PAGES
                                                                            -----
 <C>         <S>                                                            <C>
 Part I.     FINANCIAL INFORMATION
             Item 1. Financial Statements................................     3-7
             Consolidated Balance Sheets--March 31, 1996 and December 31,
              1996 (unaudited)...........................................       3
             Consolidated Statements of Operations--Three and Nine Months
              Ended
              December 31, 1995 and 1996 (unaudited).....................       4
             Consolidated Condensed Statements of Cash Flows--Three and
              Nine Months Ended December 31, 1995 and 1996 (unaudited)...       5
             Notes to Consolidated Financial Statements..................     6-7
             Item 2. Management's Discussion and Analysis of Financial
                    Condition and Results
                    of Operations........................................    8-11
 Part II.    OTHER INFORMATION...........................................   11-13
             Item 1 Legal Proceedings....................................      11
             Item 2 Changes in Securities................................      12
             Item 3 Defaults Upon Senior Securities......................      12
             Item 4 Submission of Matters to a Vote of Securities
              Holders....................................................      12
             Item 5 Other Information....................................      12
             Item 6 Exhibits and Reports on Form 8-K.....................      12
             Signature...................................................      14
 Exhibit 27. Financial Data Schedule.....................................      15
</TABLE>
 
                                       2
<PAGE>
 
                         PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                         MARCH 31,  DECEMBER 31,
                         ASSETS                            1996         1996
                         ------                          ---------  ------------
                                                                    (UNAUDITED)
<S>                                                      <C>        <C>
Current Assets:
Cash and cash equivalents............................... $ 10,238     $  3,379
Accounts receivable, net of allowances of $25 and $571,
 respectively...........................................    4,650        1,682
Prepaid expenses and other current assets...............      286          526
                                                         --------     --------
                                                           15,174        5,587
Fixed assets, net.......................................      537          939
Other assets, net.......................................    1,381        3,831
                                                         --------     --------
                                                         $ 17,092     $ 10,357
                                                         ========     ========
<CAPTION>
          LIABILITIES AND SHAREHOLDERS' EQUITY
          ------------------------------------
<S>                                                      <C>        <C>
Current Liabilities:
Accounts payable........................................ $    321     $    222
Accrued expenses........................................    1,329        2,794
Deferred revenue........................................    1,537          922
Current portion of long-term debt.......................      139          179
                                                         --------     --------
                                                            3,326        4,117
Long-term debt..........................................       38           71
                                                         --------     --------
                                                            3,364        4,188
                                                         --------     --------
Shareholders' Equity:
Preferred stock, no par value:
  Authorized: 1,000 shares
  Issued and outstanding: none..........................       --           --
Common stock, no par value:
  Authorized: 25,000 shares
  Issued and outstanding: 11,308 shares at March 31,
  1996 and 11,584 shares at  December 31, 1996..........   31,171       31,540
Accumulated deficit.....................................  (17,423)     (25,330)
Cumulative translation adjustment.......................      (20)         (41)
                                                         --------     --------
                                                           13,728        6,169
                                                         --------     --------
                                                         $ 17,092     $ 10,357
                                                         ========     ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       3
<PAGE>
 
                 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                                  (UNAUDITED)
 
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                               THREE MONTHS     NINE MONTHS
                                                  ENDED            ENDED
                                               DECEMBER 31,     DECEMBER 31,
                                              ---------------  ---------------
                                               1995    1996     1995    1996
                                              ------  -------  ------  -------
<S>                                           <C>     <C>      <C>     <C>
Revenue:
License fees and other....................... $2,029  $   616  $5,537  $ 2,380
Maintenance fees.............................    773      649   2,404    2,050
                                              ------  -------  ------  -------
    Total revenue............................  2,802    1,265   7,941    4,430
                                              ------  -------  ------  -------
Cost of revenue:
Cost of license fees and other...............    107      522     261      819
Cost of maintenance fees.....................     70      144     292      380
                                              ------  -------  ------  -------
    Total cost of revenue....................    177      666     553    1,199
                                              ------  -------  ------  -------
Gross margin.................................  2,625      599   7,388    3,231
                                              ------  -------  ------  -------
Operating expenses:
Engineering, research and development........    827    1,193   2,461    2,705
Selling and marketing........................  1,200    1,498   3,784    4,714
General and administrative...................    429    2,845     813    3,948
                                              ------  -------  ------  -------
    Total operating expenses.................  2,456    5,536   7,058   11,367
                                              ------  -------  ------  -------
Operating income (loss)......................    169   (4,937)    330   (8,136)
                                              ------  -------  ------  -------
Other income (expense):
  Interest income............................     14       52      35      251
  Interest expense...........................    (32)      (8)    (78)     (24)
  Other, net.................................     --       --      (3)       2
                                              ------  -------  ------  -------
    Total other income (expense).............    (18)      44     (46)     229
                                              ------  -------  ------  -------
Income (Loss) before provision for income
 taxes.......................................    151   (4,893)    284   (7,907)
Provision for income taxes...................     --       --      --       --
                                              ------  -------  ------  -------
Net income (loss)............................ $  151  $(4,893) $  284  $(7,907)
                                              ======  =======  ======  =======
Net income (loss) per share.................. $ 0.01  $ (0.42) $ 0.03  $ (0.69)
                                              ======  =======  ======  =======
Shares used in per share calculation......... 10,504   11,520  10,108   11,473
                                              ======  =======  ======  =======
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       4
<PAGE>
 
                 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
 
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
                                  (UNAUDITED)
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                               NINE MONTHS
                                                                  ENDED
                                                              DECEMBER 31,
                                                             ----------------
                                                              1995     1996
                                                             -------  -------
<S>                                                          <C>      <C>
Cash Flows from Operating Activities:
Net income (loss)........................................... $   284  $(7,907)
Adjustments to reconcile net income to net cash provided by
 (used in) operating activities:
  Depreciation and amortization.............................     602    1,069
  Provision for doubtful accounts...........................              546
Changes in assets and liabilities:
  Accounts receivable.......................................  (1,814)   2,357
  Prepaid expenses and other current assets.................    (294)    (252)
  Accounts payable..........................................     210      (95)
  Accrued expenses..........................................    (390)   1,477
  Deferred revenue..........................................    (271)    (583)
  Other, net................................................      --   (1,463)
                                                             -------  -------
Net cash used in operating activities.......................  (1,673)  (4,851)
                                                             -------  -------
Cash Flows from Investing Activities:
Acquisition of fixed assets.................................    (310)    (577)
Software production costs and software licenses.............    (601)  (1,787)
Proceeds from sale of fixed assets..........................     843       --
                                                             -------  -------
Net cash used in investing activities.......................     (68)  (2,364)
                                                             -------  -------
Cash Flows from Financing Activities:
Principal payments of long-term debt and other liabilities..    (390)     (35)
Proceeds from issuance of common stock......................   3,464      369
                                                             -------  -------
Net cash provided by financing activities...................   3,074      334
                                                             -------  -------
Effect of exchange rate changes on cash.....................      27       22
                                                             -------  -------
Net increase (decrease) in cash and cash equivalents........   1,360   (6,859)
Cash and cash equivalents at beginning of period............   1,248   10,238
                                                             -------  -------
Cash and cash equivalents at end of period.................. $ 2,608  $ 3,379
                                                             =======  =======
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       5
<PAGE>
 
                SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                         DECEMBER 31, 1996--UNAUDITED
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
 
NOTE 1: BASIS OF PRESENTATION AND FINANCIAL STATEMENT INFORMATION
 
  The accompanying consolidated financial statements have been prepared by the
Company, pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial statements. Therefore, they do not include
all the disclosures which were presented in the Company's annual report on
Form 10-K. These financial statements do not include all disclosures required
by generally accepted accounting principles and, accordingly, should be read
in conjunction with the consolidated financial statements and notes included
as part of the Company's latest annual report on Form 10-K.
 
  In February 1997, the Company restated its unaudited consolidated financial
statements for the quarters ended June 30, 1996 and September 30, 1996 to
reverse certain transactions and related expenses which were recognized other
than in accordance with the Company's accounting policies. The Company has
filed Forms 10Q/A for the quarters ended June 30, 1996 and September 30, 1996.
The results of operations for the nine months ended December 31, 1996 include
the effect of the restatements referred to above.
 
  In the opinion of management, the consolidated financial statements include
all adjustments necessary to present fairly the consolidated financial
position, results of operations and cash flows for the interim period. The
results of operations presented are not necessarily indicative of the results
to be expected for the full year or for any other period.
 
NOTE 2: STATEMENT OF CASH FLOWS INFORMATION
 
<TABLE>
<CAPTION>
                                                                   NINE MONTHS
                                                                      ENDED
                                                                  DECEMBER 31,
                                                                  -------------
                                                                   1995   1996
                                                                  ------ ------
      <S>                                                         <C>    <C>
      Supplemental Cash Flow Information:
      Cash paid during the period for:
        Interest................................................. $   78 $   24
        Income taxes............................................. $   -- $   13
</TABLE>
 
NOTE 3: BALANCE SHEET COMPONENTS
 
<TABLE>
<CAPTION>
                                                          MARCH 31, DECEMBER 31,
                                                            1996        1996
                                                          --------- ------------
      <S>                                                 <C>       <C>
      Other Assets:
      Software development costs.........................  $ 1,133    $ 1,697
      Software licenses..................................    1,211      2,735
                                                           -------    -------
                                                             2,344      4,432
      Less accumulated amortization......................   (1,330)    (2,185)
                                                           -------    -------
                                                             1,014      2,247
      Prepaid royalties, net.............................       --      1,359
      Other..............................................      367        225
                                                           -------    -------
                                                           $ 1,381    $ 3,831
                                                           =======    =======
</TABLE>
 
 
                                       6
<PAGE>
 
                SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                         DECEMBER 31, 1996--UNAUDITED
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
 
  Accrued Expenses:
 
<TABLE>
<CAPTION>
                                                          MARCH 31, DECEMBER 31,
                                                            1996        1996
                                                          --------- ------------
<S>                                                       <C>       <C>
Payroll and related costs................................  $  650      $  362
Taxes payable............................................     324         170
Litigation settlement and legal expenses.................      34       1,465
Severance costs..........................................      --         302
Other....................................................     321         495
                                                           ------      ------
                                                           $1,329      $2,794
                                                           ======      ======
</TABLE>
 
  In June 1996, the Company entered into an agreement whereby Silicon Valley
Research was granted the exclusive marketing rights to Bell Labs' CLOVER line
of deep submicron verification products worldwide, with the exception of Japan
and Taiwan, where the Company will co-market with Bell Labs' existing
distributors. Pursuant to the four year agreement, the Company has made
prepaid royalty payments of $1,500 and has the following quaranteed future
royalty payments due to Bell Labs as follows: $250 on January 1, 1997, $1,250
in fiscal 1998, and $1,000 in fiscal 1999.
 
NOTE 4: REPRICING OF STOCK OPTIONS
 
  On November 21, 1996, the Compensation Committee of the Board of Directors
approved a proposal under which all employees could elect to amend certain
options with exercise prices in excess of $2.50 to change the exercise price
to the fair market value of the Company's common stock on that date, which was
$2.50, with continuation of the existing vesting schedule. Options for the
purchase of a total of 1,182 shares were amended.
 
NOTE 5: LITIGATION
 
  The Company is subject to litigation in its normal course of business. In
December 1994, the Company was named as defendant in an action brought by a
competitor in the Santa Clara County Superior Court alleging unfair
competition and breach of contract. The third amended complaint, the operative
pleading, alleges unfair competition, breach of contract, breach of implied
covenant of good faith and fair dealing, unjust enrichment and fraud. The
plaintiff is seeking attorneys' fees and damages, and enforcement of the
contract. The Company has entered into settlement discussions with the
plaintiffs and based on the information currently available to management, the
Company has established an accrual for the estimated cost of settling the
litigation. There can be no assurance that the Company will be able to resolve
the litigation on terms acceptable to the Company.
 
  On January 10, 1997, a competitor filed a complaint in Santa Clara County
Superior Court, alleging misappropriation of trade secrets, breach of
contract, inducing breach of contract, breach of fiduciary duty, unfair
competition and unjust enrichment against the Company and Anton Krouglyanskiy,
a former employee of the competitor and a current employee of the Company. The
plaintiff seeks injunction relief, compensation and punitive damages,
restitution and attorneys' fees and costs. The parties are engaged in
discovery. The Company believes the lawsuit is without merit and intends to
defend itself vigorously.
 
                                       7
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS (IN THOUSANDS)
 
  This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes a number of forward-looking statements which reflect
the Company's current view with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in the Other Factors section of this
Item 2, elsewhere in this Form 10-Q and as set forth in the Company's form 10-
K on file with the SEC that could cause actual results to differ materially
from historical results or those anticipated. In this report, the words
"anticipates," "believes," "expects," "intends," "future," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date hereof.
 
RESULTS OF OPERATIONS
 
REVENUE
 
  Revenue for the third quarter of fiscal year 1997, which ended December 31,
1996, was $1,265, a decrease from $2,802 in the third quarter a year ago. The
55% decrease in revenues was due to lower license revenue during the quarter
ended December 31, 1996, resulting primarily from a reduction in capital
investment, particularly by customers in Asia, and increased competition.
Revenue for the nine month period endedDecember 31, 1996, was $4,430, a
decrease from $7,941 over the nine month period ended December 31, 1995. This
44% decrease is the result of the lower than anticipated revenues in the
quarter ended December 31, 1996, also primarily as a result of the reduction
in capital expenditures by semiconductor manufacturers, particularly in Asia,
and increased competition in the EDA marketplace. International sales,
primarily Japan and the Far East accounted for 30% of total revenue in the
third quarter of fiscal 1997 compared to 42% in the third quarter a year ago.
 
  The Company's expense levels are based, in part, on its expectations as to
future revenue levels, which are difficult to predict. A substantial portion
of the Company's revenues in each quarter results from shipments during the
last month of that quarter, and for that reason among others, the Company's
revenues are subject to significant quarterly fluctuations. If revenue levels
are below expectations, as in the quarter ended December 31, 1996, operating
results may be materially and adversely affected. In addition, the Company's
quarterly and annual results may fluctuate as a result of many factors,
including the size and timing of software license fees, timing of co-
development projects with customers, timing of operating expenditures,
increased competition, new product announcements and releases by the Company
and its competitors, gain or loss of significant customers or distributors,
expense levels, renewal of maintenance contracts, pricing changes by the
Company or its competitors, personnel changes, foreign currency exchange
rates, and economic conditions generally and in the electronics industry
specifically.
 
COST OF REVENUE
 
  Cost of license fees and other revenue for the third quarter of fiscal year
1997 was $522, compared to $107 in the third quarter of fiscal 1996. Cost of
sales of license fees for the nine months ended December 31, 1996 was $819,
compared to $261 in the nine months ended December 31, 1995. Cost of sales of
license fees is primarily the amortization of software development costs and
amortization of prepaid royalty payments due to third parties and both
increased for the quarter and nine months ended December 31, 1996.
 
  Cost of maintenance fees for the third quarter of fiscal year 1997 was $144
compared to $70 in the third quarter of fiscal 1996. Cost of maintenance fees
for the nine months ended December 31, 1996 was $380 compared to $292 for the
nine months ended December 31, 1995. Cost of maintenance fees is primarily the
cost of providing technical support and technical documentation which
increased in fiscal 1997.
 
                                       8
<PAGE>
 
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES
 
  Engineering, research and development expenses for the third quarter of
fiscal year 1997 were $1,193 compared to $827 in the third quarter a year ago.
Comparing the third quarter of fiscal 1997 and the third quarter of fiscal
1996, engineering, research and development expenses were 94% and 30% of total
revenue, respectively. The dollar and percentage increase in engineering,
research and development expenses during this period is due to depreciation of
improved capital equipment and software acquisitions and lower capitalized
software development costs. Engineering, research and development expenses for
the nine months ended December 31, 1996, were $2,705 compared to $2,461 for
the nine months ended December 31, 1995. Comparing these periods, engineering,
research and development expenses were 61% and 31% of total revenue,
respectively. The percentage increases were primarily due to lower revenues.
The Company continues to strengthen its engineering capabilities with
increased staffing and increased emphasis on development of new technology.
 
SELLING & MARKETING EXPENSES
 
  Selling and marketing expenses for the third quarter of fiscal year 1997
increased to $1,498 from $1,200 in the third quarter a year ago. In the third
quarter of fiscal 1997 and the third quarter of fiscal 1996, selling and
marketing expenses were 118% and 43% of total revenue, respectively. Selling
and marketing expenses for the nine months ended December 31, 1996, increased
to $4,714 from $3,784 in the nine months ended December 31, 1995. Comparing
the nine month periods, selling and marketing expenses were 106% and 48% of
total revenue, respectively. The dollar and percentage increases are due to
the addition of sales and marketing personnel. The percentage increase is also
due to lower revenues.
 
GENERAL AND ADMINISTRATIVE EXPENSES
 
  General and administrative expenses increased to $2,845 for the third
quarter of fiscal year 1997, from $429 in the third quarter a year ago. In the
third quarter of fiscal 1997 and the third quarter of fiscal 1996, general and
administrative expenses were 225% and 15% of total revenue, respectively.
General and administrative expenses for the nine months ended December 31,
1996, increased to $3,948 from $813 in the nine months ended December 31,
1995. Comparing the nine month periods, general and administrative expenses
were 89% and 10% of total revenue, respectively. The dollar and percentage
increases are attributed to approximately $2,400 of significant nonrecurring
charges associated with severance arrangements, litigation accruals, costs
associated with the Company's restatement of its first and second quarter of
fiscal 1997 unaudited consolidated financial statements and additional
provisions to the allowance for doubtful accounts receivable recorded during
the quarter ended December 31, 1996. The percentage increase is also due to
reduced revenues. The Company expects general and administrative expenses to
decline in future quarters.
 
OTHER INCOME (EXPENSE)
 
  Other income (expense) increased to $44 from $(18) comparing the third
quarter of fiscal year 1997 to the third quarter of fiscal 1996. Other income
(expense) increased to $229 from $(46) comparing the nine months ended
December 31, 1996 with the nine months ended December 31, 1995. Other expenses
are primarily interest income and expense and the increases are due to
investing the proceeds received in the secondary offering.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  During the nine months ended December 31, 1996, cash and cash equivalents
decreased $6,859 from $10,238 to $3,379. This decrease resulted primarily from
cash used by operating activities of $4,851 and $2,364 of cash used for
investing activities. The Company's primary unused sources of funds at
December 31, 1996, consisted of cash and cash equivalents of $3,379. The
Company is obligated to make royalty payments of $2,500 over the next two
years. The Company is actively pursuing financing alternatives including debt
and equity financings. Should the Company be unable to secure additional
financing or the timing of the financing is significantly delayed, the Company
will reduce discretionary spending as appropriate. There can be no assurance
that such financing can be obtained at favorable terms, if at all.
 
                                       9
<PAGE>
 
  The Company is currently engaged in litigation with two competitors.
Regardless of the outcome of this pending litigation, the litigation may
result in substantial cost and expenses to the Company and significant
diversion of efforts by the Company's technical and management personnel. In
addition, adverse rulings in the litigation could have a material adverse
effect on the Company's business, operating results or financial condition.
See Note 5 to the Consolidated Financial Statements and Part II, Item 1
"Litigation".
 
OTHER FACTORS AFFECTING FUTURE RESULTS OF OPERATIONS
 
  Revenues from license of the SVR GARDS family of products have historically
represented a substantial majority of the Company's license revenues. Although
the Company has recently introduced its SVR FloorPlacer and SVR SonIC
products, the Company expects that revenues from the license of SVR GARDS
products will continue to account for a significant portion of the Company's
license revenues for the foreseeable future. The life cycles of the Company's
products are difficult to predict due to the effect of new product
introductions or product enhancements by the Company or its competitors,
market acceptance of new and enhanced versions of the Company's products and
competition in the Company's marketplace. Declines in the demand for the SVR
GARDS family of products, whether as a result of competition, technological
change, price reductions or otherwise, could have a material adverse effect on
the Company's business, operating results and financial condition.
 
  The EDA industry is characterized by extremely rapid technological change,
frequent new product introductions and enhancements, evolving industry
standards and rapidly changing customer requirements. The development of more
complex ICs embodying new technologies will require increasingly sophisticated
design tools. The Company's future results of operations will depend, in part,
upon its ability to enhance its current products and to develop and introduce
new products on a timely and cost-effective basis that will keep pace with
technological developments and evolving industry standards and methodologies,
as well as address the increasingly sophisticated needs of the Company's
customers. The Company has in the past and may in the future experience delays
in new product development and product enhancements. There can be no assurance
that new products will gain market acceptance or that the Company will be
successful in developing and marketing product enhancements or other new
products that respond to technological change, evolving industry standards and
changing customer requirements, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products or product enhancements, or that
its new products and product enhancements will adequately meet the
requirements of the marketplace and achieve any significant degree of market
acceptance. In addition, all of the Company's current products operate in, and
planned future products will operate in, the Unix operating system. In the
event that another operating system, such as Windows NT, were to achieve broad
acceptance in the EDA industry, the Company would be required to port its
products to such an operating system, which would be costly and time consuming
and could have a material adverse effect on the Company's business, operating
results or financial condition. Failure of the Company, for technological or
other reasons, to develop and introduce new products and product enhancements
in a timely and cost-effective manner would have a material and adverse effect
on the Company's business, operating results and financial condition. In
addition, the introduction or even announcement of products by the Company or
one or more of its competitors embodying new technologies or changes in
industry standards or customer requirements could render the Company's
existing products obsolete or unmarketable. Such deferment of purchases could
have a material adverse effect on the Company's business, operating results or
financial condition.
 
  Software products as complex as those offered by the Company may contain
defects or failures when introduced or when new versions are released. The
Company has, in the past, discovered software defects in certain of its
products and may experience delays or lost revenue to correct such defects in
the future. Although the Company has not experienced material adverse effects
resulting from any such defects to date, there can be no assurance that,
despite testing by the Company, errors will not be found in new products or
releases after commencement of commercial shipments, resulting in loss of
market share or failure to achieve market acceptance. Any such occurrence
could have a material effect upon the Company's business, operating results or
financial condition.
 
                                      10
<PAGE>
 
  A small number of customers account for a significant percentage of the
Company's total revenue. There can be no assurance that sales to these
entities, individually or as a group, will reach or exceed historical levels
in any future period. Any substantial decrease in sales to one or more of
these customers could have a material adverse effect on the Company's
business, operating results or financial condition. The Company currently
sells and markets its products internationally, other than in Japan, through a
limited number of distributors. The Company hired new distributors in Europe
and Singapore within the last year and is in the process of replacing a
distributor in Korea. The Company has little history of performance by its new
distributors. In addition, there can be no assurance that the distributors
will be able to successfully distribute and support the Company's products on
a timely basis or that such distributors will not reduce their efforts devoted
to selling the Company's products or terminate their relationship with the
Company as a result of competition with other suppliers' products. The loss of
or changes in the relationship with or performance by one or more of the
Company's international distributors could have a material adverse effect on
the Company's business, results of operations and financial condition. There
can also be no assurance that the Company's distributor strategy will be
successful or that the Company will be able to retain current distributors or
to identify new distributors in the future that are acceptable to the Company.
 
  The licensing and sales of the Company's software products generally
involves a significant commitment of capital by prospective customers, with
the attendant delays frequently associated with large capital expenditures and
lengthy acceptance procedures. For these and other reasons, the sales cycle
associated with the licensing of the Company's products is typically lengthy
and subject to a number of significant risks over which the Company has little
or no control. Because the timing of customer orders is hard to predict, the
Company believes that its quarterly operating results are likely to vary
significantly in the future. Actual results of the Company could vary
materially as a result of factors, including, without limitation, the high
average selling price and long sales cycle for the Company's products, the
relatively small number of orders per quarter, dependence on sales to a
limited number of large customers, timing of receipt of orders, successful
product introduction and acceptance of the Company's products and increased
competition.
 
  The Company is dependent upon the semiconductor and more generally, the
electronics industries. Each of these industries is characterized by rapid
technological change, short product life cycles, fluctuations in manufacturing
capacity and pricing and gross margin pressures. Each of these industries is
highly cyclical and has periodically experienced significant downturns, often
in connection with, or in anticipation of declines in general economic
conditions during which the number of new IC design projects often decreases.
Purchases of new licenses from the Company are largely dependent upon the
commencement of new design projects, and factors negatively affecting any of
these industries could have a material adverse effect on the Company's
business, operating results or financial condition. The Company has
experienced some order delays as the semiconductor industry is experiencing a
slowdown. The Company's business, operating results and financial condition
may, in the future, reflect substantial fluctuations from period to period as
a consequence of patterns and general economic conditions in either the
semiconductor or electronics industry.
 
                          PART II. OTHER INFORMATION
 
  ITEM 1. LEGAL PROCEEDINGS: In December 1994, Mentor Graphics, Inc., a
competitor of the Company, filed an action against the Company in Santa Clara
County Superior Court. The third amended complaint, the operative pleading,
alleges unfair competition, breach of contract, breach of implied covenant of
good faith and fair dealing, unjust enrichment and fraud. The plaintiff is
seeking enforcement of the contract, attorney's fees and damages. Mentor
Graphics filed a motion for summary adjudication with the court on August 21,
1996. A hearing was held on the motion on November 7, 1996, and the motion was
denied. The Company is engaged in settlements negotiations with plaintiff;
however, there can be no assurance that there will be any resolution of the
litigation on terms acceptable to the Company.
 
  On January 10, 1997, Gambit Automated Design, Inc., a competitor, filed a
complaint in Santa Clara County Superior County (Cv 773345), alleging
misappropriation of trade secrets, breach of contract, inducing breach of
contract, breach of fiduciary duty, unfair competition and unjust enrichment
against the Company and Anton
 
                                      11
<PAGE>
 
Krouglyanskiy, a former employee of Gambit and a current employee of the
Company. Plaintiff seeks injunction relief, compensation and punitive damages,
restitution and attorneys fees and costs. The parties are engaged in
discovery. The Company believes the lawsuit is without merit and intends to
defend itself vigorously.
 
  ITEM 2. CHANGES IN SECURITIES: Not Applicable
 
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES: Not Applicable
 
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS: Not
Applicable
 
  ITEM 5. OTHER INFORMATION: Not Applicable
 
  ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
 
  (A) Exhibits:
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER  DESCRIPTION OF EXHIBIT
 ------- ----------------------
 <C>     <S>
 (a)(1)  The financial statements filed as part of this Report at Item 1 are
         listed in the Index to Financial Statements and Financial Statement
         Schedules on page 2 of this Report.
 (a)(2)  The following exhibits are filed with this Quarterly Report on Form
         10-Q:
  3.01   Registrant's Articles of Incorporation as amended to date
         (incorporated by reference to Exhibit 3.01 of Registrant's
         Registration Statement on Form S-1 ( File No. 2-89943) filed March 14,
         1984, as amended (the "1984 Registration Statement")).
  3.02   Registrant's Certificate of Amendment to Articles of Incorporation
         Incorporated by reference to Exhibit 3.02 of Registrant's Registration
         Statement on Form S-2 filed December 6, 1995.
  3.03   Registrant's bylaws, as amended to date (incorporated by reference to
         Exhibit 4.01 of the 1984 Registration Statement).
  3.04   Amendment to Bylaws dated November 12, 1996.
 10.01*  Registrant's 1990 Directors Stock Option Plan (incorporated by
         reference to Exhibit A of Registrant's Proxy Statement dated July 10,
         1990).
 10.03*  Registrant's 1988 Stock Option Plan, as amended to date, including the
         stock option grant form and the stock option exercise notice and
         agreement (incorporated by reference to Exhibit 10.15 of Registrant's
         Annual Report on Form 10-KSB for the fiscal year ended March 31,
         1993).
 10.05*  Registrant's 1993 Employee Stock Purchase Plan, as amended to date
         (incorporated by reference to Exhibit 10.20 of Registrant's Annual
         Report on Form 10-KSB for the fiscal year ended March 31, 1993).
 10.06   Stock Purchase Agreement dated February 12, 1993 between the
         Registrant and several investors (incorporated by reference to Exhibit
         4.01 of Registrant's current report on Form 8-K filed on April 15,
         1993).
 10.07   Stock Purchase Agreement dated January 19, 1994 between the Registrant
         and several investors (incorporated by reference to Exhibit 4.01 of
         Registrant's current report on Form 8-K filed on February 4, 1994).
 10.08   Warrant Agreement dated March 22, 1994 between the Registrant and
         Prutech Research and Development Partnership II (incorporated by
         reference to Exhibit 10.22 of Registrant's Annual Report on Form 10-
         KSB for the fiscal year ended March 31, 1994).
 10.09   Subordination debt agreement dated September 15, 1994 between the
         registrant and several investors (incorporated by reference to Exhibit
         4.01 of Registrant's current report on Form 8-K filed on November 4,
         1994).
 10.10*  Employment Agreement dated October 31, 1995 between the Registrant and
         Glenn E. Abood (incorporated by reference to Exhibit 10.10 of
         Registrant's Registration Statement on Form S-2 filed December 6,
         1995).
</TABLE>
 
 
                                      12
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER  DESCRIPTION OF EXHIBIT
 ------- ----------------------
 <C>     <S>
  10.11  Stock Purchase Agreement dated June 6, 1995 between the Registrant and
         several investors (incorporated by reference to Exhibit 10.10 of the
         Registrant's Annual Report on Form 10-KSB for the fiscal year ended
         March 31, 1995).
  10.12  Security and Loan Agreement dated September 15, 1995 by and among
         Imperial Bank and the Registrant (incorporated by reference to Exhibit
         10.12 of the Registrant's Registration Statement on Form SB-2 filed
         December 6, 1995).
  10.13  Master Equipment Lease Agreement dated November 9, 1995 by and between
         Financing for Science International, Inc. and the Registrant
         (incorporated by reference to Exhibit 10.13 of the Registrant's
         Registration Statement on Form SB-2 filed December 6, 1995).
  27.00  Financial Data Schedule
</TABLE>
--------
* Management Contract or Compensatory Plan or Arrangement
 
  (B) Reports on Form 8-K: None filed during period
 
                                       13
<PAGE>
 
                                   SIGNATURE
 
  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.
 
                                          SILICON VALLEY RESEARCH
 
Date: February 18, 1997                   /s/ Robert R. Anderson
                                          -------------------------------------
                                            Robert R. Anderson
                                            Chairman and Chief Executive
                                            Officer
 
 
                                       14