AWARD SOFTWARE INTERNATIONAL INC, 10-K, 1997-03-28

AWARD SOFTWARE INTERNATIONAL INC
10-K, 1997-03-28
PREPACKAGED SOFTWARE

Previous: SIMULATION SCIENCES INC, DEF 14A, 1997-03-28

Next: SIMMONS CO /GA/, 10-K, 1997-03-28

<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
WASHINGTON, DC 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

[_] 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 0-28904

AWARD SOFTWARE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

CALIFORNIA 94-2893462
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

777 EAST MIDDLEFIELD ROAD, MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

(415) 968-4433
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
COMMON STOCK, NO PAR VALUE

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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Based on the closing sale price of $14.00 on March 5, 1997, the aggregate
market value of the voting stock held by non-affiliates of the Registrant was
$53,073,608.

On March 5, 1997, there were outstanding 6,568,951 shares of the
Registrant's Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Part III--Portions of the Registrant's definitive Proxy Statement for the
Registrant's Annual Meeting of Shareholders to be held June 4, 1997, which
will be filed with the Securities and Exchange Commission, are incorporated by
reference to the extent stated herein.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I.................................................................. 2
Item 1 Business.................................................... 2
Item 2 Properties.................................................. 16
Item 3 Legal Proceedings........................................... 16
Item 4 Submission of Matters to a Vote of Security Holders......... 16
PART II................................................................. 17
Item 5 Market for the Registrant's Common Stock and Related Stock
Matters..................................................... 17
Item 6 Selected Financial Data..................................... 18
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 18
Item 8 Financial Statements and Supplementary Data................. 24
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 40
PART III................................................................ 41
Item 10 Directors and Executive Officers of the Registrant.......... 41
Item 11 Executive Compensation...................................... 41
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 41
Item 13 Certain Relationships and Related Transactions.............. 41
PART IV................................................................. 42
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 42
</TABLE>
<PAGE>

PART I

ITEM 1. BUSINESS

The following Business section contains forward-looking statements which
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Business Risks" and elsewhere in
this Form 10-K.

GENERAL

Award Software International, Inc. ("Award," the "Company" or the
"Registrant") designs, develops and markets system management software for the
global computing market. System management software is one of the fundamental
layers in PC architecture and provides an essential interface between a PC's
operating system software and hardware. The Company's principal system
management software products include a suite of Basic Input/Output System
software ("BIOS"). Award's customers include designers and manufacturers of
motherboards, PC systems and other microprocessor-based (or "embedded")
devices. The Company believes that its products and engineering services
enable customers to rapidly develop new motherboard designs for state-of-the-
art computer systems. The Company markets and licenses its products and
services worldwide and has established itself as a leading provider of desktop
system management software in Asia, which accounts for approximately 40% of
worldwide desktop motherboard production.

The BIOS, which is the software initially executed after the system is
turned on, tests and initializes hardware components, initiates the operating
system and then provides advanced interface functions. Award's desktop BIOS
products enable a PC to support a number of key advanced technologies,
including Plug and Play, PCI, DMI, USB and APM. The Company is currently
developing further enhancements to its BIOS, including support for ACPI. The
Company's embedded device BIOS provides customized features to address the
specialized needs of its customers in this market. In addition to the
Company's proprietary suite of system management software products, Award
offers PC Card software that enables PCs and other electronic devices to
recognize, install, configure and operate peripheral devices, such as network
and modem cards.

The Company currently licenses its products to more than 200 customers
worldwide. In response to its customers' need to develop and integrate new
technologies rapidly, the Company has developed its business with a particular
emphasis on providing local engineering service and support in each of its
major target regions: Asia (especially Taiwan), North America and Europe.

INDUSTRY BACKGROUND

PC systems consist of four layers: the hardware, the BIOS, the operating
system and the application software. The computer's primary hardware
component, the motherboard, is connected to peripheral hardware devices, such
as a keyboard, hard disk drive and mouse. The BIOS is stored in a non-volatile
memory chip on the motherboard while the operating system and application
software are stored on the hard disk drive. The BIOS, which is the software
initially executed after the system is turned on, tests and initializes
hardware components and initiates the operating system. After the BIOS
completes the start up or "booting" of the system, it serves as the interface
between the computer hardware and the operating system. By acting as the
bridge between the operating system and the computer hardware, the BIOS makes
it possible to develop hardware and software independently. As a result, the
pace of innovation for hardware products in the PC industry, where the typical
life cycle of a hardware design is six to twelve months, has not been
constrained by the slower pace of operating system development, where
generational advances can take several years to develop.

Enhanced BIOS and other system management software have been developed to
support implementation of new industry standards and technologies, such as
Plug and Play, PC Card, DMI, "hot-docking" and APM. Improved versions of BIOS
are currently being developed to support ACPI and the latest PC industry
standards. Many of these new technologies will play an important part in the
development of PCs and embedded devices for the Internet and other network
computing environments.

2
<PAGE>

Several important trends are currently affecting the system management
software industry:

Outsourcing of System Management Software Development. The rapid pace of
technological innovation in recent years has required system makers to adapt
to short production cycles and operate in an environment of continuous
innovation. As PC and motherboard designers and manufacturers continuously
improve their hardware products, they must ensure the compatibility of these
new designs with existing operating systems through a customized BIOS. While
some PC and motherboard manufacturers develop system management software
internally, increasingly complex technology, demand for compatibility and
competitive market pressures are driving many manufacturers to rely on
dedicated system management software providers. These manufacturers demand
high levels of support at all stages of product development, making it
necessary for system management software vendors to provide effective
localized engineering support during the production process.

Outsourcing of Motherboard Production. Competitive pressures in the PC
market have also caused system manufacturers to outsource PC motherboard
production to reduce cost and stay current with advancing technologies.
Manufacturers in Taiwan have taken advantage of this trend to become
significant participants in the world desktop system and motherboard
production market. Further, their role has expanded to include design
decisions, such as the selection of the BIOS and other system management
software. To rapidly integrate new motherboard designs into the overall PC
system, these manufacturers require locally based system management software
engineering resources.

Proliferation of x86 Architecture in the Embedded Device Market. Traditional
PC architecture, which is based on the x86 design, is being adopted for use in
the embedded computer market. The implementation of x86 architecture permits
the development of open systems that can employ standard software, development
tools and peripheral hardware products. Embedded devices perform a single or
limited number of complex applications for a dedicated purpose. These embedded
devices require advanced capabilities for data analysis, communication,
control and ease-of-use and depend upon highly customized system management
software solutions to ensure performance, reliability and functionality.

Demands for Product Support Solutions. As PC use by less technically
sophisticated home and business users has grown, PC system manufacturers have
been searching for cost-effective solutions to provide technical customer
support services. The emerging network computing environment potentially
provides system manufacturers with the ability to access the hardware and
operating systems in order to ascertain the problems of the user and to make
repairs. Additionally, manufacturers of embedded systems are searching for
cost-effective ways to maintain and support their products, which are broadly
distributed and sometimes installed in remote locations that cannot be
directly accessed by support personnel. To address this opportunity, providers
of system management software are beginning to work closely with system
manufacturers to develop products with remote access, diagnostic and repair
capabilities.

AWARD STRATEGY

The Company's objective is to become the leading designer, developer and
marketer of system management software by providing innovative solutions to
the desktop PC, embedded device, mobile PC and network computing markets. The
Company's strategy includes the following key elements:

Build Upon Desktop Leadership in Asia. Award is currently a leading provider
of system management software to the Asian desktop motherboard market and will
attempt to increase market share in this important region. The Company
believes that PC manufacturers worldwide increasingly outsource PC design
decisions, including the selection of system management software, to the OEMs
and original design manufacturers in Taiwan that form the core of the
Company's client base. Award further believes its long-standing focus on Asia
positions it to take advantage of this market growth, and the Company plans to
maintain a high level of engineering and management resources in this region.

Leverage Existing Customer Relationships and Desktop Expertise to Pursue the
Mobile and Embedded Markets. The Company believes that it can leverage its
desktop system management software expertise to design and develop products
for the mobile PC and embedded device markets. To complement its mobile

3
<PAGE>

BIOS products, the Company also offers system management software to support
the PC Card standard, which is broadly implemented in the mobile PC market.
The Company believes that the leading Taiwanese desktop system and motherboard
manufacturers, many of which are Award customers, will enter the mobile PC
market and provide the Company with opportunities to license its mobile BIOS
products. In addition, the Company is establishing a full service operation in
Tokyo to market, customize and support system management software to the
mobile PC manufacturers in Japan, which are significant participants in the
mobile PC market. The Company is also pursuing opportunities with
manufacturers of embedded devices, a market characterized by relatively long
product life cycles, often from three to seven years.

Provide Innovative Products for the Emerging Network and Internet Computing
Marketplace. The Company is designing and developing a number of products for
the emerging network computing market. For example, as part of the SMSAccess
suite of applications, Award has developed its RPBAccess software, which will
allow an end-user to obtain diagnostic and support service through a modem or
the Internet without a functional operating system or operational hard disk.
In addition, Award's SMSAccess software suite will allow a network
administrator to access and retrieve system management information, either
locally or remotely. The Company's WWWAccess software, which will include web
browser technology licensed from third parties, will provide embedded devices,
such as point-of-sale systems, set-top boxes and personal digital assistants,
with Internet capabilities. There can be no assurance, however, that the
Company will successfully develop and market such software.

Provide Localized Customer Service in Key Markets. The Company provides
responsive and competitive system management software engineering and support
by maintaining engineering, marketing and sales staff in three key PC design
centers around the world: Taiwan, the U.S. and Germany. For many of its
customers, Award serves as an important source of research and development,
providing customized solutions within the tight timeframes required in the
competitive motherboard market. In addition, the Company's local service
centers allow it to act as an important conduit between the technology centers
in the U.S. and key PC design centers. Easy accessibility, frequent
communication and localized interaction are crucial to the selection and
implementation of Award system management software. The Company believes that
its emphasis on local service enables it to perform high quality, reliable and
timely engineering and support services and provides it with a competitive
advantage.

BUSINESS RISKS

Dependence Upon the Underlying PC Industry; Dependence on Current PC Industry
Standards

The demand for the Company's system management software depends principally
on (i) PC manufacturers and other customers licensing the Company's software
rather than developing their own system management software, (ii) the market
acceptance of the products incorporating the Company's software sold by the
Company's original equipment manufacturer ("OEM") customers, (iii) the
emergence of new PC technologies that require system management software
solutions to provide functionality, user value and performance, and (iv) the
technological competence of the Company's core products. Sales of PCs
fluctuate substantially from time to time based on numerous factors, including
general economic conditions in the markets for the Company's customers'
products, new hardware and software product introductions, demand for new
applications and shortages of key components. Further, the markets in the PC
industry are extremely competitive and characterized by rapid and frequent
price reductions.

The introduction of new hardware architectures, microprocessors, peripheral
equipment and operating systems within the PC industry has increased the
complexity, time to market and cost to develop PCs. A number of computer
manufacturers, including IBM Corporation ("IBM") and Compaq Computer
Corporation ("Compaq"), develop their own BIOS products to achieve
compatibility with and integrate new technologies into their products. While
the Company believes that price and time-to-market pressures will continue to
foster a trend among its customers and potential customers to outsource system
management software requirements to third parties, there can be no assurance
that this trend will continue or will not reverse itself, which would have

4
<PAGE>

a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Industry Background" and "--Award
Strategy."

The Company's software to date has been primarily based on central
processing units ("CPUs") designed by or compatible with those of Intel
Corporation ("Intel") and operating system software designed by Microsoft
Corp. ("Microsoft"). If the market for Intel and Intel-compatible CPUs with
x86 architecture is materially diminished or if another CPU, such as Motorola,
Inc.'s "PowerPC," achieves a high degree of success, demand for the Company's
current software would be reduced. In addition, most of the Company's software
has been installed on computers using Microsoft's MS/DOS or Windows operating
systems. If Microsoft's operating systems cease to be the dominant operating
systems for the PC industry, or if PC manufacturers use other operating
systems, which are not compatible with MS/DOS or Windows, the Company could
experience increased product development costs and/or diminished revenues.

Concentration of Revenues from Desktop BIOS

The Company depends on sales of desktop BIOS for a substantial majority of
its revenues. The Company has not generated substantial revenues from the sale
of other products to date, including sales of mobile PC products. If sales of
the Company's desktop BIOS decline for any reason, the Company's business,
financial condition and results of operations would be adversely affected,
unless the Company is able to replace those sales with increased sales of
other products. Sales of desktop BIOS could decline for a number of reasons,
including a shift in the market for PCs away from desktop PCs in favor of
mobile PCs.

Competition from System Management Software Companies and Other Participants,
including Microsoft and Intel, in the PC Industry

The markets for the Company's software are highly competitive. The Company
faces competition primarily from other system management software companies,
including American Megatrends, Inc., Phoenix Technologies Ltd. and SystemSoft
Corporation, as well as in-house software development staffs of current and
prospective customers. Certain of the companies with which the Company
competes or may in the future compete have substantially greater financial,
marketing, sales and support resources and greater brand name and technology
leadership recognition than the Company. There can be no assurance that the
Company will be able to develop software comparable or superior to software
offered by its competitors. In addition, the PC market experiences intense
price competition and the Company expects that, in order to remain
competitive, it may have to decrease unit prices on some or all of its
software products. Any such decrease would have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company believes that interdependencies may develop between system
management software companies and their customers, which would need to be
overcome in order to replace an entrenched competitor. While the Company
believes that such entrenchment may benefit the Company in its existing
relationships with key participants in the desktop PC market, customer
entrenchment may make it more difficult for the Company to displace entrenched
competitors or increase market presence, particularly in the mobile PC market,
where competitors may already have strong relationships with certain mobile PC
manufacturers. Intel has entered into formal agreements with, and has become a
significant shareholder in, Phoenix Technologies Ltd. and SystemSoft
Corporation. In addition, SystemSoft Corporation has entered into agreements
with Microsoft, IBM and Compaq to license its PC Card software.

Operating system software vendors may in the future enter the Company's
primary markets as direct competitors or incorporate enough features into
their products so as to reduce the need for the Company's products. Microsoft
includes basic PC Card software in its Windows 95 operating system and has
announced the inclusion of full PC Card software support in its next
generation Windows 9x and Windows NT operating systems. Microsoft's recently
released Windows CE operating system includes Hardware Abstraction Layer (HAL)
software that incorporates system management software features. As software
developers provide greater functionality and features, user value and
performance in their products that eliminate or reduce the need for the

5
<PAGE>

Company's system management software, the market for the Company's products
could be materially diminished. In addition, chipset manufacturers, including
Intel, may increase their presence in the motherboard manufacturing market,
which may have an adverse effect on the Company's OEM customers. There can be
no assurance that other participants in the PC industry will not develop
products and solutions that reduce the demand or obviate the need for the
Company's products. See "Business--Competition."

Ability to Respond to Rapid Technological Change

The market for system management software is characterized by rapidly
changing technology, evolving industry standards and frequent new product
introductions. The general trend in the PC industry is toward shorter product
life cycles, resulting in rapid product and technology obsolescence. The life
cycle of the Company's products is highly dependent on the life cycles of the
products sold by its customers, who are primarily in the desktop PC industry.
Although the Company's core products, specifically, the desktop and embedded
device BIOS and PC Card software, may have a life cycle as long as several
years, specific customized adaptations of the Company's core products are
generally expected to have a life cycle of six months to one year. The
Company's future success will depend upon its ability to enhance its core
software and to develop and introduce new software which keeps pace with
technological developments and evolving industry standards as well as to
respond to its customers' and end-users' demand for greater features and
functionality. The Company is currently developing certain technologies that
it will need to remain competitive. There can be no assurance that the Company
will be successful in developing such enhancements or new software, or, even
if successful, that it will not experience delays in achieving such
developments. Any failure or delay by the Company to develop such enhancements
or new software or the failure of its software to achieve market acceptance
would adversely affect the Company's business, financial condition and results
of operations. In addition, there can be no assurance that products or
technologies developed by others will not render the Company's software or
technologies non-competitive or obsolete. See "Business--Industry Background"
and "--Product Development."

Dependence on Key Customer Relationships; Concentration of Credit Risk

The Company believes that its success to date has been largely due to its
relationship with participants in the desktop PC industry, particularly OEMs
in the desktop PC market. The Company works closely with its customers to
provide quick response to their product design needs and assists them in
evaluating new technological developments as they affect future products and
enhancements to be sold by the Company's customers. The loss of any one of
these strategic relationships or any other significant customer in the PC
industry could adversely affect the Company's product development efforts,
business, financial condition and results of operations.

For the year ended December 31, 1996, Vobis Microcomputer AG ("Vobis")
accounted for approximately 11% of the Company's total revenues. The loss of
any key customer or the inability of the Company to replace revenues provided
by a key customer would have a material adverse effect on the Company's
business, financial condition and results of operations. In 1996, Toshiba
Europa (I.E.) GmbH ("Toshiba") discontinued licensing the Company's PC Card
software. For the year ended December 31, 1996, Toshiba accounted for 83% of
the Company's PC Card software revenues. Revenues from the distribution of the
Company's PC Card software accounted for 6% of the Company's total revenues in
the year ended December 31, 1996.

The Company's customer base consists primarily of motherboard manufacturers
and OEMs in the desktop PC market, and as a result the Company maintains
individually significant receivable balances from these customers. If these
customers fail to satisfy their payment obligations, the Company's business,
financial condition and results of operations would be adversely affected.

Uncertain Acceptance in New and Developing Markets

The Company's future success is dependent on customer acceptance of new
products and penetration of markets outside the desktop PC market. There can
be no assurance that the Company will be able to expand its

6
<PAGE>

products and technologies into the mobile PC, embedded device and network
computing and Internet markets or that the Company will be able to increase
its market presence in the desktop PC market. Expansion of the Company's
software and technology into the mobile PC market will depend primarily on the
Company's ability to replace entrenched competitors. Penetration of markets
outside the desktop PC market, such as the embedded device market, will depend
upon the development and availability of system management software providing
the necessary functionality and customer acceptance of such new technology.
There can be no assurance that the Company will be able to develop or obtain
from third parties the necessary software and technology to penetrate these
markets, or that, if such software and technology is developed by the Company
or obtained from third parties through licensing, which may include payments
of license fees or royalties in advance, the Company will be able to
successfully distribute such products. There can be no assurance that such
products will not be developed by others rendering the Company's products non-
competitive or obsolete. In addition, there can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of such new products, or
that such products will achieve market acceptance.

Any increase in the demand for the Company's embedded device products is
dependent upon the increasing use and complexity of embedded computer systems
in new and traditional products. No assurance can be given that this trend
will continue or, even if it does, that the Company will be able to design
system management software that will address the unique requirements of the
embedded device market. Further, since the Company's experience and expertise
are based on Intel x86 architecture, the Company's success in the embedded
device market is significantly dependent on Intel's continued commitment to,
and the increased presence of x86 architecture in, this market. There can be
no assurance that Intel will not de-emphasize or withdraw its support of the
embedded device market, or that the trend toward x86 architecture in the
embedded device market will continue, any of which could result in a material
adverse effect on the Company's growth strategies, financial condition and
results of operations.

Certain of the markets for the Company's existing and future products, such
as the Internet and private internet protocol networks ("Intranet"), have only
recently begun to develop and are rapidly evolving. Demand and market
acceptance for recently introduced or developing products are subject to a
high level of uncertainty and risk. Critical issues concerning the commercial
use of the Internet remain unresolved and could adversely affect the growth of
Internet use. There can be no assurance that commerce and communication over
the Internet or Intranet will become widespread, or that the Company's planned
products addressing the Internet and Intranet markets will become widely
accepted. Because these markets for the Company's existing and developing
products are new and rapidly emerging, it is difficult to predict the future
growth rate, if any, and size of these markets. There can be no assurance that
such markets for the Company's existing and developing products and technology
will develop or that such products will be accepted. If these markets fail to
develop, develop more slowly than anticipated or become saturated with
competitors, or if the Company's products do not obtain customer acceptance,
the Company's business, financial condition and results of operations could be
materially adversely affected. See "Business--Award Strategy."

Fluctuations In Quarterly Operating Results; Seasonality

The Company has experienced and expects to continue to experience
fluctuations in its quarterly results of operations. The Company's revenues
are affected by a number of factors, including the demand for PCs and embedded
devices, timing of new product introductions, product mix, volume and timing
of customer orders, activities of competitors and the ability of the Company
to penetrate new markets. The Company's business is seasonal with revenues
generally increasing in the fourth quarter as the result of increased PC
shipments during the holiday season. Consequently, during the three quarters
ending in March, June and September, the Company has historically not been as
profitable as in the quarter ending in December. In addition, the Company's
revenues and profits have historically decreased in the first quarter of each
year as compared with the fourth quarter of the previous year. The Company
generally ships orders as they are received and, as a result, has little or no
backlog. Quarterly revenues and results of operations therefore depend on the
volume and timing of orders received during

7
<PAGE>

the quarter, which are difficult to forecast. Because the Company's staffing
and other operating expenses are based on anticipated revenues, delays in the
receipt of orders can cause significant variations in results of operations
from quarter to quarter. The Company also may choose to reduce prices,
increase spending in response to competition or pursue new market
opportunities, each of which decisions may adversely affect the Company's
business, financial condition and results of operations. Therefore, the
Company believes that period-to-period comparisons of its revenues and
operating results are not necessarily meaningful and should not be relied upon
as indicators of future performance.

Due to all of the foregoing factors, it is likely that in some future
quarters the Company's operating results will be below the expectations of
public market analysts and investors. Regardless of the general outlook for
the Company's business, the announcement of quarterly results of operations
below analyst and investor expectations is likely to result in a decline in
the trading price of the Company's Common Stock.

Variations in Operating Results

The revenue growth rates experienced by the Company to date may not be
indicative of future growth rates and there can be no assurance that the
Company will remain profitable in the future. Future results of operations may
fluctuate significantly based upon numerous factors including the demand for
PCs and embedded devices, the timing of new product introductions, product
mix, volume and timing of customer orders, activities of competitors and the
ability of the Company to penetrate new markets. The volume and timing of new
contracts and delays in the achievement of milestones could have a significant
impact on operating results for a particular quarter.

Dependence on Key Personnel; Ability to Attract and Retain Key Technical
Employees

The Company's success to date has depended to a significant extent upon a
number of key management and technical employees. The loss of services of one
or more of these key employees, particularly George C. Huang, the Company's
Chairman of the Board, President and Chief Executive Officer; Lyon T. Lin,
General Manager, Taiwan and President, Award Software Hong Kong Limited,
Taiwan Branch; and Maurice W. Bizzarri, the Company's Vice President,
Engineering could have a material adverse effect on the Company's business,
financial condition and results of operations. Except for the Company's
employees in Germany, none of the Company's employees is party to an
employment agreement with the Company. The Company believes that its future
success will also depend in large part upon its ability to attract and retain
highly skilled technical, management and sales and marketing personnel.
Moreover, because the development of the Company's software requires knowledge
of computer hardware, operating system software, system management software
and application software, key technical personnel must be proficient in a
number of disciplines. Competition for such technical personnel is intense,
and the failure of the Company to hire and retain talented technical personnel
or the loss of one or more key employees could have an adverse effect on the
Company's business, financial condition and results of operations.

Future growth, if any, of the Company will require additional engineering,
sales and marketing, financial and administrative personnel, to expand
customer services and support and to expand operational and financial systems.
There can be no assurance that the Company will be able to attract and retain
the necessary personnel to accomplish its growth strategies or that it will
not experience constraints that will adversely affect its ability to satisfy
customer demand in a timely fashion. If the Company's management is unable to
manage growth effectively, the Company's business, financial condition and
results of operations could be adversely affected.

Management of Growth

The growth of the Company's business and, in particular, the Company's
customer base, has placed, and is expected to continue to place, a strain on
the Company's management systems and resources. The Company's ability to
compete effectively and manage future growth, if any, will require the Company
to continue to improve

8
<PAGE>

its financial and management controls, reporting systems and procedures on a
timely basis and expand, train and manage its work force. There can be no
assurance that the Company will be able to do so successfully, and the failure
to do so would have a material adverse effect upon the Company's business,
financial condition and results of operations. The Company's success will
depend to a significant degree on the ability of its executive officers and
other members of its senior management, none of whom has any prior experience
managing public companies in their current roles, to manage future growth, if
any.

International Operations; Currency Fluctuations; International Unrest

The Company operates on a multinational basis, and a significant portion of
its business is conducted in currencies other than the U.S. Dollar. As a
result, the Company is subject to various risks, including exposure to
currency fluctuations, greater difficulty in administering its global
business, multiple regulatory requirements and other risks associated with
international sales, such as import and export licenses, political and
economic instability, overlapping or differing tax structures, trade
restrictions, changes in tariff rates, different legal regimes, difficulty in
protecting intellectual property, enforcing agreements and collecting accounts
receivable. During the year ended December 31, 1996, approximately 47% and 8%
of the Company's revenues were denominated in New Taiwan Dollars and German
Marks, respectively. While the impact of foreign exchange rate movements have
not had a material impact on the Company's financial statements, there can be
no assurance that fluctuation in foreign currency exchange rates will not have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company does not currently engage in foreign
currency hedging transactions. There can be no assurance that exchange rate
fluctuations will not have a material adverse effect on the Company's
business, financial condition or results of operations. The Company's
business, financial condition or results of operations could be adversely
affected by factors associated with international operations such as changes
in foreign currency exchange rates, uncertainties relative to regional
economic circumstances, political instability in emerging markets, and
difficulties in staffing and managing foreign operations, as well as by other
risks associated with international activities.

Intellectual Property and Proprietary Rights

The Company's success depends in significant part on the development,
maintenance and protection of its intellectual property. The Company regards
all of its software as proprietary and attempts to protect it with a
combination of patents, copyrights, trademarks and trade secrets, employee and
third-party nondisclosure agreements and other methods of protection. Despite
these precautions and the protection of copyright laws, it may be possible for
unauthorized third parties to copy the Company's software or to reverse
engineer or obtain and use information that the Company regards as
proprietary. The Company has patent applications pending in the U.S. and/or
abroad on six inventions, three of which are owned jointly with a third party.
There are currently no issued patents covering the Company's products.
However, the Company does not generally rely on patents to protect its
products. The Company licenses its object and source code under written
license agreements. Certain provisions of such licenses, including provisions
protecting against unauthorized use, copying, transfer and disclosure of the
licensed programs, may be unenforceable under the laws of certain
jurisdictions. In addition, the laws of some foreign jurisdictions, including
Taiwan, do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. There can be no assurance that the
protections put in place by the Company will be adequate.

Significant and protracted litigation may be necessary to protect the
Company's intellectual property to determine the scope of the proprietary
rights of others or to defend against claims of infringement. Moreover,
although the Company is not currently involved in any litigation with respect
to intellectual property rights, in the past there have been allegations that
certain portions of the Company's core BIOS infringed on a third party's
copyrights. In response, the Company rewrote certain software routines in a
"clean room" procedure and upgraded its customers to the new version of such
software routines in order to avoid any further allegations of infringement.
The Company believes that its software does not infringe the copyrights of any
third parties. However, there can be no assurance that other parties will not
make allegations of infringement in the future. Such assertions could require
the Company to discontinue the use of certain software codes or processes, to
cease

9
<PAGE>

the manufacture, use and sale of infringing products, to incur significant
litigation costs and expenses and to develop non-infringing technology or to
obtain licenses to the alleged infringing technology. Although the Company has
been able to acquire licenses from third parties in the past, there can be no
assurance that the Company would be able to develop alternative technologies
or to obtain such licenses or, if a license were obtainable, that the terms
would be commercially acceptable to the Company in the event such assertions
are made in the future.

Volatile Market for Stock

The market for the Company's stock is highly volatile. The trading price of
the Company's Common Stock has been and will continue to be subject to
fluctuations in response to financial condition and results of operations,
announcements of technological innovations or new products by the Company and
its competitors, changes in the Company's or its competitors' product mix or
product direction, changes in the Company's revenue mix and revenue growth
rates, changes in expectations of growth for the PC industry, as well as other
events or factors which the Company may not be able to influence or control.
Statements or changes in opinions, ratings or earnings estimates made by
brokerage firms and industry analysts relating to the market in which the
Company does business, companies with which the Company competes or relating
to the Company specifically could have an immediate and adverse effect on the
market price of the Company's stock. In addition, the stock market has from
time to time experienced extreme price and volume fluctuations that have
particularly affected the market price for many high-technology companies and
that often have been unrelated to the operating performance of these
companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock.

Shares Eligible for Future Sale

Sales of a substantial number of shares of Common Stock in the public market
could adversely affect the market price for the Company's Common Stock.
Certain shares of Common Stock held by existing shareholders are "restricted
securities" as such term is defined in Rule 144 under the Securities Act of
1933, as amended (the "Act") (the "Restricted Shares"). Restricted Shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 or Regulation S
promulgated under the Act. Recently, the Securities and Exchange Commission
enacted a new rule effective April 29, 1997 shortening the holding periods
under Rule 144 to permit resales of limited amounts of Restricted Shares after
one year and unlimited amounts of Restricted Shares by non-affiliates of the
Company after two years. Further, the Company, all directors and executive
officers and certain shareholders of the Company had agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
October 24, 1996, which period expires April 23, 1997.

PRODUCTS--SYSTEM MANAGEMENT SOFTWARE

Award System BIOS

The Company's Award System BIOS consists of core software code that can be
combined with additional software modules to add specific functions and
features, including Plug and Play, PCI, APM, USB and DMI. The Company
integrates the core software code with some or all of these software modules
to create a product that meets the needs of its three principal markets:
desktop PCs, embedded devices and mobile PCs. To date, the majority of the
Company's software license fees have been derived from sales in the desktop PC
market.

Desktop BIOS integrates the core software code with modules that support the
following technological advancements:

. Plug and Play permits the BIOS and operating system software to
automatically recognize and configure PC hardware and peripherals, such
as printers, network cards and multimedia accessories. A variation of

10
<PAGE>

this technology, known as "hot" Plug and Play, allows for the
installation, recognition and removal of peripherals while power is on.

. PCI was developed by a consortium led by Intel and provides an
automatically configured interface between high-speed peripheral
components and PC systems.

. APM reduces power consumption by continuously monitoring system activity,
sensing idle time and powering down or powering off components.

. DMI is a new industry standard that allows the desktop configuration data
to be easily accessed locally or over a network. This software is capable
of detecting and storing configuration information from devices and
systems that comply with the industry standard Desktop Management Task
Force specification.

The Company has developed a module to support USB. USB is a new Plug and
Play interface under development by Microsoft and Intel, which is designed to
provide an easy connection for slow and medium speed peripherals to a PC by
supplying a uniform connector to make installing a peripheral as simple as
plugging in a telephone.

Embedded Device BIOS integrates the core software code with selected modules
and additional custom features. Award works closely with embedded device
customers to incorporate BIOS into design intensive embedded hardware. Unlike
PC products, which typically experience short product cycles, a typical
embedded device solution has a relatively long product life, with most designs
lasting through the life cycles of the products into which they are
integrated, often three to seven or more years.

Mobile PC BIOS is a new customized BIOS solution for use in notebook and
other portable PCs, which will integrate the core software code with modules
that support Plug and Play, PCI, APM and DMI. In addition, this new product
will support the hardware associated with mobile PCs, such as chipsets and
keyboard controllers, as well as other advanced technologies. For example,
"hot docking" allows users to connect to and disconnect from their mobile PCs
to desktop docking stations without turning off their machines. The Company is
also developing smart battery support which ensures compatibility and monitors
diagnostic information for the advanced batteries found in mobile PCs.

PC Card Software

The Personal Computer Memory Card International Association ("PCMCIA") was
formed to enact standards for credit card size computer memory and peripheral
add-on products called "PC Cards." Award supplies software to enable PCs and
other electronic devices to recognize, install, configure and operate
peripheral devices that comply with PCMCIA standards. Award's PC Card
software, CardWare and CardControl, provides a number of benefits over
traditional PC Card software, including the efficient use of system memory,
greater portability, ease of maintenance and a more modular design.

CardWare consists of several software components: CardWare Socket Services,
which works with the hardware to recognize PC Card socket status and report
that status to other PC Card software; CardWare Card Services, which provides
resource management as well as the industry standard programming interface and
allows the user to hot-swap multiple PC Cards in the system; and a suite of
software drivers, which handle recognition and configuration of CardWare
Socket Services and CardWare Card Services. The Company has developed CardWare
5.0 for Microsoft Windows NT 4.0. CardWare 5.0 for Windows NT has the same
functionality and accessible user interface of the previous CardWare releases
for the DOS/Windows 3.x environments, while supporting Windows NT user access
restrictions and working hand-in-hand with its resource management scheme.
Standard CardWare features such as hot-plug-and-play and configuration through
the Card Information Structure of each card have been ported to the Windows NT
version. CardWare 5.0 supports a wide range of PC Card host controllers and
conforms with the latest PC Card standards.

CardControl is a software program that operates under Windows and allows a
user to review or configure a PC Card. In addition, this software contains two
unique advisory modes that automatically configure a card for optimal
performance or suggest available configurations.

11
<PAGE>

SMSAccess

The Company is currently developing the SMSAccess suite of applications that
includes significant enhancements to traditional system management software
products:

DMIAccess is a Windows application that allows a user to view hardware
specific information without physically looking in the computer or reading the
system start-up messages. Such information includes RAM configuration, system
serial number, motherboard serial number and hard drive options. In
conjunction with third-party software, DMIAccess provides a complete solution
which network administrators can use to remotely access data provided by DMI-
compliant hardware.

BIOSAccess is a Windows application that will allow a user to view and
change system setup information, such as power management, display, security,
sound, keyboard and serial/parallel port options. The application also will
allow the user to view basic system parameters such as RAM size, hard disk
size, processor type and BIOS version. BIOSAccess is expected to replace
traditional, less user-friendly character-based utilities.

RPBAccess is a patent-pending product developed by the Company that allows
technical support personnel to remotely access a disabled PC via a modem,
network or Internet connection. The Company believes that this software is
unique because it operates without a functioning hard drive or operating
system and thus can solve a greater number of system problems. RPBAccess
allows an expert system or technical support person to run BIOS setup, see
error messages, upload and download files (if the hard disk functions), and
upload and download diagnostic software. Consequently, PC manufacturers will
be able to efficiently diagnose and potentially repair systems without the
usual user telephone relay or site visit. RPBAccess will benefit PC system
manufacturers because it can reduce both the time and expense to diagnose and
repair the system.

CUSTOMERS

The Company services over 200 customers worldwide, including designers and
manufacturers of desktop PC motherboards, PC systems and notebooks and
hardware component and embedded device manufacturers. From time to time, the
Company has worked with selected customers to co-develop certain products and
expects to pursue additional co-development opportunities in the future. For
example, the Company is currently working with Advanced Micro Devices, Inc.
("AMD") on the design and development of products related to its K6
microprocessor. For the year ended December 31, 1996, Vobis accounted for
approximately 11% of the Company's revenues.

SALES AND MARKETING

The Company markets its products directly and through independent sales
representatives. In North America, Award sales managers operate from the
Company's headquarters in Mountain View, California. The Company complements
its sales force in the U.S. with an independent sales representative in
Southern California. In Asia, the Company operates from its office in Taipei,
Taiwan, and through independent sales representatives in Korea and Japan. In
Europe, the Company markets through its office in Munich, Germany. The Company
supports its sales efforts with marketing programs that include exhibitions at
trade shows, participation in industry associations, attendance at technical
seminars and designation as hardware reference platform designs by chipset
manufacturers.

The Company believes that customer service and technical support are
important competitive factors in the system management software market.
Accordingly, the Company provides local service and support for its customers
in the U.S., Europe and Asia. In addition, the Company provides worldwide
technical support from the U.S. for end-users of its products through dial-in
telephone services, facsimile, e-mail and the Company's web site on the World
Wide Web. Information contained in the Company's home page shall not be deemed
to be a part of this Form 10-K. Award believes that close contact with its
customers not only improves its customers' level of satisfaction, but also
provides early access to its customers' new product plans and requirements.

12
<PAGE>

PRODUCT DEVELOPMENT

Award's research and development efforts consist of new product development,
product enhancements and product customization for individual customers. The
Company develops new products in response to emerging standards such as DMI
and ATAPI (the Advanced Technology Attachment Packet Interface standard for
high capacity, removable-media drives), and to address perceived opportunities
in related markets such as mobile computing and remote diagnostics. Award's
engineers actively participate in a number of relevant industry standard
groups, such as the I2O (Intelligent I/O) Special Interest Group, the Personal
Computer Memory Card International Association, the Desktop Management Task
Force and the Peripheral Component Interconnect Special Interest Group, which
help guide the Company's product planning. The Company's software is developed
in a modular fashion to facilitate changes and updates as needed to meet
customer requirements and rapid development of new products.

An important function of the Company's engineering group is to perform the
customization of the BIOS for each new motherboard. The Company works closely
with the customer's engineers to ensure that the final motherboard design and
the Award BIOS are developed efficiently. The turnaround time for customizing
a BIOS for a customer (from receipt of motherboard and engineering
specifications to quality assurance and product release) can be as short as
one week. Customization of a BIOS can be done either in the U.S., Taiwan or
Europe, depending on resource availability and customer needs.

Because the development of the Company's software products requires
knowledge of computer hardware, operating system software, system management
software and application software, key technical personnel must be proficient
in a number of disciplines. Competition to attract and retain such personnel
is intense, and the failure of the Company to hire and retain talented
technical personnel or the loss of one or more key technical employees could
have an adverse effect on the Company's business, financial condition and
results of operations. See "Business Risks--Dependence on Key Personnel;
Ability to Attract and Retain Key Technical Employees."

COMPETITION

The markets for the Company's products are highly competitive. The principal
competitive factors affecting the markets for the Company's software include
technological excellence, timeliness of product introduction, responsiveness
to customer requirements, customer relationships, industry relationships,
engineering services, ease of use, ease of integration and price. Due to its
technological competence, large customer base in the desktop PC market, and
strong relationships with industry participants, the Company believes it
competes favorably with respect to all of these factors. Further, part of the
Company's strategy is to develop innovative software product solutions to
address the emerging trends in the PC and embedded device markets. There can
be no assurance that such products or technologies will be successfully
developed by the Company or that such products will not be developed by
others, rendering the Company's software or technologies non-competitive or
obsolete. Failure to successfully implement this strategy could have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business--Industry Background" and "--Product
Development."

The Company faces competition primarily from other systems management
software companies, including American Megatrends, Inc., Phoenix Technologies
Ltd. and SystemSoft Corporation, and also from the in-house software
development staffs of current and prospective customers. Certain of the
companies with which the Company competes or may in the future compete have
substantially greater financial, marketing, sales and support resources and
greater brand name and technological leadership recognition than the Company.
There can be no assurance that the Company will be able to develop software
comparable or superior to software offered by its competitors. In addition,
the PC market experiences intense price competition and the Company expects
that, in order to remain competitive, it may have to decrease unit prices on
some or all of its software products. Any such decrease would have a material
adverse effect on the Company's business, financial condition and results of
operations.

13
<PAGE>

The Company believes that interdependencies may develop between system
management software companies and their customers, which would need to be
overcome in order to replace an entrenched competitor. While Award believes
such entrenchment may benefit the Company in its existing relationships with
key participants in the PC market, especially with its customers in Taiwan,
customer entrenchment may make it more difficult for the Company to displace
competitors or increase market presence, particularly in the mobile PC market,
where competitors may have strong relationships with certain mobile PC
manufacturers. Intel, for example, has entered into formal agreements with,
and become a significant shareholder in, Phoenix Technologies Ltd. and
SystemSoft Corporation. In addition, SystemSoft Corporation has entered into
agreements with Microsoft, IBM and Compaq to license its PC Card software.

The Company believes that competitive pressures in the system management
software market may increase as (i) microprocessor manufacturers continue to
enter the motherboard manufacturing market and (ii) operating software system
vendors incorporate more system management software into their products. The
entrance or expansion of microprocessor manufacturers who are not customers of
the Company into the motherboard manufacturing markets may have an adverse
effect on the Company's motherboard manufacturing customers. Further, as
software manufacturers provide greater functionality and features, user value
and performance to their products that eliminate or encroach upon the need for
the Company's software products, the market for such products could be
materially diminished. Microsoft's recently released Windows CE operating
system includes Hardware Abstraction Layer (HAL) software that incorporates
system management software features.

Microsoft includes basic PC Card software in its Windows 95 operating system
and has announced the inclusion of full PC Card software support in its next
generation Windows 9x and Windows NT operating systems. Currently, the Company
is developing PC Card software for Microsoft's Windows NT. If end-users of
Microsoft's version of the basic PC Card and Plug and Play software included
in its operating systems perceive such software as being adequate for their
computing needs, Award's revenues from PC Card software would be adversely
affected. While the Company believes that the trend in the PC industry toward
greater complexity will continue and that the Company's products offer a
technologically proven, timely and cost-effective solution to this need, there
can be no assurance that other participants in the PC industry will not
develop products and solutions that encroach upon the demand, or obviate the
need, for the Company's products. See "Business Risks--Dependence on Key
Customer Relationships; Concentration of Credit Risk."

INTELLECTUAL PROPERTY

Significant and protracted litigation may be necessary to protect the
Company's intellectual property rights to determine the scope of the
proprietary rights of others or to defend against claims of infringement.
Moreover, although the Company is not currently involved in any litigation
with respect to intellectual property rights, in the past there have been
allegations that certain portions of the Company's core BIOS infringed on a
third party's copyrights. In response, the Company rewrote certain software
routines in a "clean room" procedure and

14
<PAGE>

upgraded its customers to the new version of such software routines in order
to avoid any further allegations of infringement. The Company believes that
its software does not presently infringe the copyrights of any third parties.
However, there can be no assurance that other parties will not make
allegations of infringement in the future. Such assertions could require the
Company to discontinue the use of certain software routines, to cease the
manufacture, use and sale of infringing products, to incur significant
litigation costs and expenses and to develop non-infringing technology or to
obtain licenses to the alleged infringing technology. Although the Company has
been able to acquire licenses from third parties in the past, there can be no
assurance that the Company would be able to develop alternative technologies
or to obtain such licenses or, if a license is obtainable, that the terms
would be commercially acceptable to the Company in the event such assertions
are made in the future.

EMPLOYEES

As of December 31, 1996, the Company had 104 full-time employees, of whom 55
are engaged in engineering and technical positions, 28 in sales and marketing,
and 21 in finance, operations and administration. Except for its employees in
Germany, none of the Company's employees is subject to an employment agreement
with the Company. No employee of the Company is represented by a labor union
or is subject to a collective bargaining agreement. The Company has never
experienced a work stoppage due to labor difficulties and believes that its
employee relations are good.

EXECUTIVE OFFICERS

Management

The executive officers of the Company and their ages as of December 31, 1996
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George C. Huang........................ 55 Chairman of the Board, President,
Chief Executive Officer and Director
Reza Afghan............................ 36 Vice President, Operations
Kevin J. Berry......................... 47 Vice President, Finance, Chief
Financial Officer, Treasurer and
Secretary
Maurice W. Bizzarri.................... 41 Vice President, Engineering
Lyon T. Lin............................ 44 General Manager, Taiwan; President,
Award Software Hong Kong Limited
Ann P. Shen............................ 56 Vice President, Sales and Marketing
</TABLE>

GEORGE C. HUANG has served as Chairman of the Board of Directors, President,
Chief Executive Officer and Director since July 1993. From January 1984 to the
present, Dr. Huang has served as Chairman of the Board of Directors of GCH
Systems, Inc. ("GCH"), a company that develops and markets embedded
controllers, Application Specific Integrated Circuits and PC systems, and from
January 1984 until November 1994, he also served as Chief Executive Officer of
GCH. From February 1987 to the present Dr. Huang has served as a Director of
GCH-Sun Systems Company Ltd. ("GSS"), a subsidiary of GCH. From January 1990
to May 1996, Dr. Huang served as a Director of Fidelity Venture Capital
Corporation ("FVCC"), a shareholder of GCH and the Company. Dr. Huang received
a B.S. from the National Taiwan University, an M.S. from Washington State
University, and a Ph.D. in Electrical Engineering from University of
Washington.

REZA AFGHAN has served as Vice President, Operations since January 1994.
From November 1987 to January 1994, Mr. Afghan served as Vice President, Sales
and Operations of GCH. He received his B.S. in Electrical Engineering from
Oregon State University.

15
<PAGE>

KEVIN J. BERRY has served as Vice President, Finance, Chief Financial
Officer and Treasurer since June 1995 and Secretary since October 1995. From
December 1988 to May 1995, Mr. Berry served as Vice President, Finance for the
CMX and Aurora divisions of Chyron Corporation, a developer and manufacturer
of software and systems for the video marketplace. Mr. Berry received a B.S.
in Finance and an M.B.A. from New York University.

MAURICE W. BIZZARRI has served as Vice President, Engineering since July
1995. From June 1992 to July 1995, Mr. Bizzarri consulted in the systems
software industry. From November 1990 to June 1992, he served as Vice
President, Research and Development of Connective Strategies, Inc., a
hardware/software company.

LYON T. LIN has served as General Manager, Taiwan, and President, Award
Software Hong Kong Limited since July 1993. From January 1984 to June 1993,
Mr. Lin served as Vice President of GCH. Mr. Lin is also a director of GSS.
Mr. Lin received a B.S. in Electrical Engineering from National Chiao-Tung
University and an M.S. in Electrical Engineering from Santa Clara University.
Mr. Lin is the brother-in-law of George C. Huang.

ANN P. SHEN has served as Vice President, Sales and Marketing since December
1994. From June 1994 to December 1994, she served as Vice President,
Engineering and Marketing and from August 1993 to June 1994 she served as Vice
President, Engineering. Dr. Shen served as Vice President, Engineering at GCH
from October 1992 to June 1994. From March 1990 to August 1992, Dr. Shen
served as Vice President, Engineering and Manufacturing Director of OPTA, a
digital camera and high-end graphic/video card company. Dr. Shen received a
B.S. in Physics from National Taiwan University, an M.S. in Physics from the
University of California, Los Angeles and a Ph.D. in Solid State Physics from
New York Polytechnical University.

ITEM 2. PROPERTIES

The Company's headquarters are located in Mountain View, California. The
Company subleases approximately 20,000 square feet in this facility renewable
on a yearly basis after December 31, 1996. The Company also leases office
space in Taipei, Taiwan and Munich, Germany. These offices provide sales and
technical support to its customers in Asia and Europe, respectively. The
Company believes that its facilities are adequate to support operations for
the next twelve months. In the event that additional space is needed, the
Company believes that suitable additional or alternative space adequate to
serve its needs will be readily available on commercially reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently engaged in any material litigation or legal
proceedings.

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

No matters were submitted to a vote of the Company's security holders during
the quarter ended December 31, 1996.

16
<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK MATTERS

Price Range of Common Stock. The Company's Common Stock is traded on the
Nasdaq National Market under the symbol "AWRD." Public trading of the Common
Stock commenced on October 25, 1996. Prior to that, there was no public market
for the Common Stock. The following table sets forth for the period indicated
the high and low closing price per share of the common stock on the Nasdaq
National Market.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, 1996 HIGH LOW
----------------- ----- -----
<S> <C> <C>
Fourth Quarter ended December 31, 1996...................... $9.88 $6.50
</TABLE>

Dividend Policy. The Company has never paid cash dividends on its Common
Stock. The Company presently intends to retain earnings for use in the
operation and expansion of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.

Number of Holders. On March 5, 1997, there were 114 holders of record of the
Company's Common Stock.

Recent Sales of Unregistered Securities.

(1) In January 1996, the Registrant sold 570,033 shares of Common Stock at a
purchase price of $12.28 per share for an aggregate purchase price of
$7,000,005 and issued a warrant for $5,448 exercisable for 272,394 shares of
Common Stock at an exercise price of $12.28 per share to an accredited
investor.

(2) In July 1996, the Registrant sold 160,000 shares of Common Stock at a
purchase price of $12.50 per share for an aggregate purchase price of
$1,999,998 to an accredited investor.

(3) In July 1996, the Registrant sold 77,500 shares of Common Stock to an
accredited investor pursuant to the exercise of a warrant at an exercise price
of $1.00 per share for an aggregate exercise price of $77,500.

(4) In July 1996, the Registrant sold 41,169 shares of Common Stock to an
accredited investor at a purchase price of $10.00 per share for an aggregate
purchase price of $411,695.

(5) In December 1996, the Registrant sold 30,000 shares of Common Stock to
an accredited investor at a purchase price of $8.00 per share for an aggregate
purchase price of $240,000.

(6) From January 1, 1996 through December 31, 1996, the Registrant granted
incentive stock options and nonstatutory stock options to employees, directors
and consultants under its 1995 Stock Option Plan covering an aggregate of
329,000 shares of the Registrant's Common Stock, at an average exercise price
of $9.97 per share. Options to purchase 61,709 shares of Common Stock have
been canceled or have lapsed without being exercised. The Registrant has sold
43,988 shares of its Common Stock to employees, directors and consultants of
the Registrant pursuant to exercise of stock options granted under the 1995
Stock Option Plan.

The sales and issuances of securities in the transactions described in
paragraph (6) above were deemed to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") by virtue of Rule
701 promulgated thereunder in that they were offered and sold either pursuant
to written compensatory benefit plans or pursuant to a written contract
relating to compensation, as provided by Rule 701.

The sales and issuances of securities in the transactions described in
paragraphs (1) through (5) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D
promulgated under the Securities Act. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access,
through employment or other relationships, to such information.

17
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth, for the periods indicated, certain selected
consolidated financial data.This data should be read in conjunction with the
audited consolidated financial statements and notes related thereto included
elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
---------------------------------------- -----------------------
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JULY 1, DECEMBER 31,
(Dollars in thousands, 1996 1995 1994 1993 1993 1992
except per share data) ------- ------------ ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues
Software license
fees................. $11,721 $6,989 $5,585 $ 1,903 $ 1,763 $5,416
Engineering services.. 472 239 161 107 47 282
Related parties....... 1,878 1,902 972 50 -- --
------- ------ ------ ------- ------- ------
Total revenues...... $14,071 $9,130 $6,718 $ 2,060 $ 1,810 $5,698
======= ====== ====== ======= ======= ======
Income (loss) from
operations............. $ 3,961 $1,861 $2,057 $(1,125) $ (628) $ (199)
======= ====== ====== ======= ======= ======
Net income (loss)....... $ 2,885 $1,165 $1,258 $(1,178) $ (655) $ (296)
======= ====== ====== ======= ======= ======
Net income (loss) per
share(1)............... $ 0.46 $ 0.18 $ 0.20 $ (0.19)
======= ====== ====== =======
Weighted average common
and common equivalent
shares................. 6,280 6,538 6,345 6,345
<CAPTION>
THE COMPANY PREDECESSOR
---------------------------------------- -----------------------
DECEMBER 31,
---------------------------------------- JULY 1, DECEMBER 31,
1996 1995 1994 1993 1993 1992
(Dollars in thousands) ------- ------------ ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $23,248 $6,498 $1,374 $ 280 $ 156 $ 313
Working capital
(deficit).............. 23,792 6,642 1,173 (1,113) (1,189) (461)
Total assets............ 28,410 9,083 3,119 1,807 1,088 1,085
Shareholder's equity
(deficit).............. 25,091 7,169 1,695 (468) (1,099) (451)
</TABLE>
- --------
(1) For an explanation of the number of shares used to compute net income
(loss) per share, see Note 2 of Notes to Consolidated Financial
Statements.

18
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Business--Business Risks"
elsewhere in this Form 10-K.

OVERVIEW

The Company's predecessor, Award Software, Inc. (the "Predecessor"), was
founded in 1983 to design, develop and market a suite of Basic Input/Output
System software ("BIOS") for the system management software market. During the
mid- and late-1980s, the Company established a significant market presence by
providing BIOS for the 286/386 PC markets and achieved early market success as
a BIOS supplier to the Taiwanese motherboard market. The Company was acquired
in July 1993 by GCH Systems, Inc. ("GCH"), an independent developer of
microcomputers and application-specific integrated circuits, and operated as a
wholly owned subsidiary. On October 25, 1996, the Company consummated the
initial offering of its Common Stock to the public. The Company markets and
licenses its products and services worldwide and is a leading provider of
system management software to the PC motherboard market in Asia, which
accounts for approximately 40% of worldwide motherboard production.

The Company has historically generated the substantial majority of its
revenues from the licensing of desktop system management software, primarily
to motherboard manufacturers and PC OEMs. Sales from international operations,
particularly to customers in Taiwan, comprise a substantial portion of the
Company's total revenues. During the three year periods ended December 31,
1996, 1995 and 1994, revenues from international operations represented 71%,
68% and 75% of the Company's total revenues, respectively. Software license
fees are recognized upon delivery of the product, fulfillment of acceptance
terms, if any, and satisfaction of significant support obligations, if any.
Engineering services revenues generally consist of amounts charged for
customization of the software prior to delivery and are generally recognized
as the services are performed. Related parties revenues include software
license fees and non-recurring engineering services provided to a Common Stock
shareholder and a Common Stock warrant holder. The Company believes that its
business is subject to seasonal fluctuations, with shipments in the fourth
calendar quarter being somewhat higher due to higher levels of PC shipments in
that time period.

The Company has an established international presence and consequently
generates a significant portion of its revenues and expenses in currencies
other than the U.S. Dollar, primarily the New Taiwan Dollar and the German
Mark. As a result, any appreciation or depreciation in the U.S. Dollar against
these currencies could adversely affect the Company's business, financial
condition, results of operations and cashflows. In addition, foreign currency
transaction gains and losses arising from normal business operations are
credited to or charged against earnings in the period incurred. During the
years ended December 31, 1996, 1995 and 1994, fluctuations in the value of
currencies in which the Company conducts its business relative to the U.S.
Dollar were not significant on an annual basis.

19
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
consolidated statement of income information as a percentage of the Company's
total revenues represented by each item. The Company's historical results are
not necessarily indicative of results in any future period.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995 1994
---- ---- ----
(AS A PERCENTAGE
OF TOTAL
REVENUES)
<S> <C> <C> <C>
Revenues:
Software license fees.................................. 83% 77% 83%
Engineering services................................... 4 2 3
Related parties........................................ 13 21 14
--- --- ---
Total revenues....................................... 100 100 100
--- --- ---
Cost of revenues:
Software license fees.................................. 4 4 7
Engineering services................................... 1 1 1
Related parties........................................ 2 2 1
--- --- ---
Total cost of revenues............................... 7 7 9
--- --- ---
Gross profit............................................. 93 93 91
--- --- ---
Operating expenses:
Research and development............................... 30 30 24
Sales and marketing.................................... 20 25 23
General and administrative............................. 15 17 14
--- --- ---
Total operating expenses............................. 65 72 61
--- --- ---
Income from operations................................... 28 21 30
Interest expense......................................... -- -- --
Interest and other income, net........................... 4 1 --
--- --- ---
Income before income taxes............................... 32 22 30
Provision for income taxes............................... 12 9 12
--- --- ---
Net income............................................... 20% 13% 18%
=== === ===
</TABLE>

Comparison of Years Ended December 31, 1996 and December 31, 1995

Revenues. The Company's revenues increased 54% from $9.1 million in 1995 to
$14.1 million in 1996. Software license fees increased 68% from $7.0 million
in 1995 to $11.7 million in 1996. The increase was primarily due to higher
unit shipments to the Company's existing Taiwanese motherboard customers, and
to a lesser degree to existing U.S. customers, partially offset by a decrease
in software license fees from a European customer due to weak economic
conditions and a decrease in demand for PCs in the German economy. A
significant customer, which accounted for 5% of total revenues and
approximately 83% of revenues from distribution of the Company's PC Card
software for the year ended December 31, 1996, discontinued licensing the
Company's PC Card software in the second half of 1996. Accordingly, the
Company does not currently expect to receive any revenues from that customer
from the distribution of the Company's PC Card software in the foreseeable
future. Revenues from the distribution of the Company's PC Card software
accounted for 15% and 6% of the Company's total revenues in the years ended
December 31, 1995 and 1996, respectively. Engineering services revenues
increased from $239,000 in 1995 to $472,000 in 1996. This increase was
primarily due to higher engineering services revenues from customers in the
U.S. Related parties revenues were unchanged

20
<PAGE>

at $1.9 million in 1995 and 1996. Revenues derived from international
operations were 71% and 68% of the Company's revenues in 1996 and 1995,
respectively. During the year ended December 31, 1996, 47% and 8% of the
Company's revenues were denominated in New Taiwan Dollars and German Marks,
respectively. Fluctuations in foreign currency exchange rates did not have a
material impact on total revenues in 1995 or 1996. However, there can be no
assurance that future fluctuations in foreign currency exchange rates will not
have a material adverse effect on the Company's future revenues, business,
financial condition and results of operations.

Cost of Revenues. Cost of revenues increased 54% from $636,000, or 7% of
revenues, to $980,000, or 7% of revenues, in 1995 and 1996, respectively. Cost
of software license fees increased 35% from $387,000 in 1995 to $521,000 in
1996. This increase was primarily due to increased volume. Cost of engineering
services revenues increased 205% from $43,000 in 1995 to $131,000 in 1996.
This increase was primarily due to increased engineering services provided to
customers. Cost of related parties revenues increased 59% from $206,000 in
1995 to $328,000 in 1996. This increase was primarily due to direct costs
associated with engineering services partially offset by a decrease from cost
of engineering services revenues associated with a related party product
development effort.

Research and Development. Research and development expenses increased 53%
from $2.8 million, or 30% of revenues, to $4.2 million, or 30% of revenues, in
1995 and 1996, respectively. This increase was primarily due to the growth in
research and development personnel from 45 to 55 individuals during the year.
These additional personnel were hired as part of the effort to develop new
software products, such as mobile BIOS and the SMSAccess product suite. The
Company anticipates that it will continue to devote substantial resources to
product research and development and that such expenses will continue to
increase in absolute dollars.

Sales and Marketing. Sales and marketing expenses increased 25% from $2.3
million, or 25% of revenues, to $2.9 million, or 20% of revenues, in 1995 and
1996, respectively. This increase was primarily due to the hiring of sales and
marketing personnel and related expenses and higher sales commissions for
increased revenues.

General and Administrative. General and administrative expenses increased
30% from $1.6 million, or 17% of revenues, to $2.1 million, or 15% of
revenues, in 1995 and 1996, respectively. The increase was primarily due to
higher professional services fees and a one-time employee severance cost of
$90,000 in the Company's European operations and amortization of deferred
stock compensation expense. Amortization of deferred compensation expense of
$75,000 and $42,000 is included in general and administrative expense in 1996
and 1995, respectively.

Interest Expense. Interest expense decreased from $9,000 in 1995 to $6,000
in 1996, due to a decrease in short-term borrowings.

Interest and Other Income. Interest and other income increased from $105,000
in 1995 to $552,000 in 1996, primarily due to an increase in interest income
earned on higher cash balances.

Provision for Income Taxes. The Company's effective tax rate decreased from
40% in 1995 to 36% in 1996. The decrease in effective tax rate was primarily
due to an increase in income taxable in Taiwan at rates lower than the
applicable statutory rates in the U.S. and Germany.

Comparison of Years Ended December 31, 1995 and December 31, 1994

Revenues. The Company's revenues increased 36% from $6.7 million to $9.1
million in 1994 and 1995, respectively. Software license fees increased 25%
from $5.6 million to $7.0 million in 1994 and 1995, respectively. This
increase was primarily due to increased software license fees resulting from
the introduction of PCI and other enhanced features. In 1996, a significant
customer, which accounted for 14% of total revenues and approximately 86% of
revenues from distribution of the Company's PC Card software for the year
ended December 31, 1995, discontinued licensing the Company's PC Card
software. Revenues from the distribution of

21
<PAGE>

the Company's PC Card software accounted for 15% of the Company's total
revenues in the year ended December 31, 1995. Engineering services revenues
increased from $161,000 to $239,000 in 1994 and 1995, respectively. This
increase was primarily due to higher engineering services revenues from
customers in the U.S. and Taiwan. Related parties revenues increased 96% from
$1.0 million to $1.9 million in 1994 and 1995, respectively. This increase was
primarily due to the growth in software license fees. Revenues derived from
international operations were 75% and 68% of the Company's revenues in 1994
and 1995, respectively. During the year ended December 31, 1995, 33% and 24%
of the Company's revenues were denominated in New Taiwan Dollars and German
Marks, respectively. Fluctuations in foreign currency exchange rates did not
have a material impact on total revenues in 1994 or 1995. However, there can
be no assurance that future fluctuations in foreign currency exchange rates
will not have a material adverse effect on the Company's future revenues,
business, financial condition and results of operations.

Cost of Revenues. Cost of revenues increased 8% from $591,000, or 9% of
revenues, to $636,000, or 7% of revenues, in 1994 and 1995, respectively. Cost
of software license fees decreased 17% from $467,000 to $387,000 in 1994 and
1995, respectively. This decrease was primarily due to the phasing out of a
lower gross margin product during the course of the year, offset by a one-time
royalty payment of $200,000 to a third party. Cost of engineering services
revenues increased from $28,000 to $43,000 in 1994 and 1995, respectively.
Cost of related parties revenues increased from $96,000 to $206,000 in 1994
and 1995, respectively. This increase was primarily due to direct costs
associated with engineering services.

Research and Development. Research and development expenses increased 72%
from $1.6 million, or 24% of revenues, to $2.8 million, or 30% of revenues, in
1994 and 1995, respectively. This increase was primarily due to the growth in
research and development personnel from 33 to 45 individuals during the year.
These additional personnel were hired as part of the effort to assist
customers in certifying their products for Windows 95, as well as to develop
mobile BIOS and SMSAccess.

Sales and Marketing. Sales and marketing expenses increased 48% from $1.5
million, or 23% of revenues, to $2.3 million, or 25% of revenues, in 1994 and
1995, respectively. This increase was primarily due to non-recurring charges
of $283,000 related to the recognition of warrants issued to a related party
and $36,000 related to warrants issued to a shareholder in exchange for
marketing services. In addition, higher payroll and related expenses,
including sales commissions, increased travel related to the improvement of
customer relations, and increased participation in industry trade shows and
user conferences accounted for the remainder of the increase.

General and Administrative. General and administrative expenses increased
72% from $932,000, or 14% of revenues, to $1.6 million, or 17% of revenues, in
1994 and 1995, respectively. The increase was primarily due to increased
employee compensation and office facilities cost, as well as higher
professional service fees. In addition, during the second half of 1995, the
Company recorded $297,000 of deferred stock compensation for the difference
between the exercise price of certain Common Stock options and the deemed fair
market value of the Common Stock on the date of grant. The deferred
compensation expense is being recognized over the four-year vesting period of
the options. Amortization of deferred compensation expense of $42,000 is
included in general and administrative expense for the year ended December 31,
1995.

Interest Expense. Interest expense decreased from $19,000 to $9,000 in 1994
and 1995, respectively, due to a decrease in short-term borrowings.

Interest and Other Income. Interest and other income increased from $4,000
to $105,000 in 1994 and 1995, respectively, primarily due to higher interest
income earned on higher cash balances during the period.

Provision for Income Taxes. Provision for income taxes increased from
$784,000 to $792,000 in 1994 and 1995, respectively, representing effective
tax rates of 38% and 40%, respectively. This increased provision was primarily
due to an increase in pre-tax income. The higher effective income tax rate for
1995 was primarily due to one-time non-deductible sales and marketing charges
of $319,000 associated with warrants issued offset by the recognition of
$117,000 of deferred tax assets which were previously reserved.

22
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Since its acquisition by GCH, the Company has funded its operations
primarily through the private sale of equity securities and from cash
generated from operations. As of December 31, 1996, the Company had cash and
cash equivalents of $23.2 million and working capital of $23.8 million. Net
cash provided by operating activities was $1.9 million in 1994 and was
primarily due to net income. Net cash provided by operating activities was
$2.1 million in 1995 and was primarily due to net income and increases in
accrued liabilities. Net cash provided by operating activities was $2.2
million in 1996 and was primarily due to higher net income and accrued
liabilities partially offset by growth in accounts receivable and other
assets.

Net cash used in investing activities was $75,000 in 1994 and was primarily
due to the purchase of equipment. Net cash used in investing activities was
$147,000 in 1995 and was primarily due to the purchase and upgrade of the
Company's computer hardware. Net cash used in investing activities was
$579,000 in 1996 and was primarily due to the purchase and upgrade of the
Company's computer hardware.

Net cash used by financing activities was $781,000 in 1994 and was primarily
due to advances and repayments to GCH and principal payments under
unaffiliated third-party note obligations. Net cash provided by financing
activities was $3.1 million in 1995 and was primarily due to proceeds from
private equity sales. On October 25, 1996, the Company consummated the initial
offering of its Common Stock to the public ("IPO"). Pursuant to the IPO, the
Company sold an aggregate of 1,250,000 shares of common stock at $8.00 per
share, resulting in net proceeds to the Company of approximately $7.8 million.
Net cash provided by financing activities was $15.2 million in 1996 and was
primarily due to proceeds from private equity sales and the Company's IPO.

The Company believes that the net proceeds from the sale of Common Stock,
together with anticipated cash flow from operations and existing cash
balances, will satisfy the Company's projected expenditures through 1997 for
working capital and general corporate purposes, including an increase in the
Company's internal product development, staffing in connection with new
product introductions and other related product development expenditures. From
time to time, in the ordinary course of business, the Company enters into
strategic relationships with its customers or other participants in the PC
industry. Such strategic relationships may include equity investments in the
Company. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the shareholders of the Company will
be reduced, shareholders may experience additional dilution, or such equity
securities may have rights, preferences or privileges senior to those of the
holders of the Company's Common Stock. Other than its relationships with Vobis
and AMD, the Company has no current commitments or agreements with respect to
any strategic relationships, including any equity investments.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per
Share," and No. 129 ("SFAS No. 129"), "Disclosure of Information about Capital
Structure." SFAS No. 128 establishes financial accounting and reporting
standards for calculation of basic earnings per share and diluted earnings per
share. SFAS No. 128 supersedes APB No. 15 and is effective for the periods
ending after December 15, 1997, including interim periods. SFAS No. 129
establishes standards for disclosing information about an entity's capital
structure. It eliminates the exemption of nonpublic entities from certain
disclosure requirements of accounting standards previously issued. SFAS No.
129 is effective for financial statements for periods ending after December
15, 1997. The Company will adopt the standards in the year ending December 31,
1997 and has not yet determined the effect of the adoption.

23
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Award Software International, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Award Software
International, Inc. and its subsidiary at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

San Jose, California
February 21, 1997

24
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 23,248 $ 6,498
Accounts receivable, net............................ 2,068 992
Accounts receivable from related parties............ 1,015 568
Receivable from GCH Systems, Inc.................... 182 282
Other current assets................................ 598 216
----------- ----------
Total current assets.............................. 27,111 8,556
Property and equipment, net........................... 683 276
Other assets.......................................... 616 251
----------- ----------
$ 28,410 $ 9,083
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 215 $ 191
Accrued liabilities................................. 3,104 1,723
----------- ----------
Total current liabilities......................... 3,319 1,914
----------- ----------
Commitments (Note 9)

Shareholders' equity:
Preferred stock, 5,000,000 shares authorized; no par
value; no shares issued or outstanding............. -- --
Common stock, 40,000,000 shares authorized; no par
value; 6,538,951 and 4,586,283 shares issued and
outstanding........................................ 21,269 6,215
Deferred stock compensation........................... (180) (255)
Retained earnings..................................... 4,130 1,245
Cumulative translation adjustment..................... (128) (36)
----------- ----------
Total shareholders' equity........................ 25,091 7,169
----------- ----------
$ 28,410 $ 9,083
=========== ==========
</TABLE>

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

25
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- ------- -------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Software license fees........................... $ 11,721 $ 6,989 $ 5,585
Engineering services............................ 472 239 161
Related parties................................. 1,878 1,902 972
-------- ------- -------
Total revenues................................ 14,071 9,130 6,718
-------- ------- -------
Cost of revenues:
Software license fees........................... 521 387 467
Engineering services............................ 131 43 28
Related parties................................. 328 206 96
-------- ------- -------
Total cost of revenues........................ 980 636 591
-------- ------- -------
Gross profit...................................... 13,091 8,494 6,127
-------- ------- -------
Operating expenses:
Research and development........................ 4,198 2,751 1,601
Sales and marketing............................. 2,855 2,282 1,537
General and administrative...................... 2,077 1,600 932
-------- ------- -------
Total operating expenses...................... 9,130 6,633 4,070
-------- ------- -------
Income from operations............................ 3,961 1,861 2,057
Interest expense.................................. (6) (9) (19)
Interest and other income......................... 552 105 4
-------- ------- -------
Income before income taxes........................ 4,507 1,957 2,042
Provision for income taxes........................ 1,622 792 784
-------- ------- -------
Net income........................................ $ 2,885 $ 1,165 $ 1,258
======== ======= =======
Net income per share.............................. $ 0.46 $ 0.18 $ 0.20
======== ======= =======
Weighted average common and common equivalent
shares........................................... 6,280 6,538 6,345
======== ======= =======
</TABLE>

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

26
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
RETAINED
COMMON STOCK DEFERRED EARNINGS CUMULATIVE TOTAL
------------------ STOCK (ACCUMULATED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT COMPENSATION DEFICIT) ADJUSTMENT EQUITY
--------- ------- ------------ ------------ ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 3,841,801 $ 725 $ -- $(1,178) $ (15) $ (468)
Capital contribution.... -- 902 -- -- -- 902
Cumulative translation
adjustment............. -- -- -- -- 3 3
Net income.............. -- -- -- 1,258 -- 1,258
--------- ------- ----- ------- ----- -------
Balance at December 31,
1994................... 3,841,801 1,627 -- 80 (12) 1,695
Issuance of Common Stock
and warrants, net of
issuance costs of
$165................... 1,166,669 6,837 -- -- -- 6,837
Repurchase of Common
Stock.................. (499,687) (2,998) -- -- -- (2,998)
Exercise of Common Stock
warrants............... 70,000 70 -- -- -- 70
Exercise of Common Stock
options................ 7,500 8 -- -- -- 8
Warrants issued for
services............... -- 374 -- -- -- 374
Deferred stock
compensation........... -- 297 (297) -- -- --
Amortization of deferred
stock compensation..... -- -- 42 -- -- 42
Cumulative translation
adjustment............. -- -- -- -- (24) (24)
Net income.............. -- -- -- 1,165 -- 1,165
--------- ------- ----- ------- ----- -------
Balance at December 31,
1995................... 4,586,283 6,215 (255) 1,245 (36) 7,169
Issuance of Common Stock
and warrants, net of
issuance costs of $79.. 801,180 9,573 -- -- -- 9,573
Repurchase of Common
Stock.................. (250,000) (2,500) -- -- -- (2,500)
Exercise of Common Stock
warrants............... 107,500 108 -- -- -- 108
Initial public offering,
net of issuance costs
of $2,172.............. 1,250,000 7,828 -- -- -- 7,828
Exercise of Common Stock
options................ 43,988 45 -- -- -- 45
Amortization of deferred
stock compensation..... -- -- 75 -- -- 75
Cumulative translation
adjustment............. -- -- -- -- (92) (92)
Net income.............. -- -- -- 2,885 -- 2,885
--------- ------- ----- ------- ----- -------
Balance at December 31,
1996................... 6,538,951 $21,269 $(180) $ 4,130 $(128) $25,091
========= ======= ===== ======= ===== =======
</TABLE>

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

27
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 2,885 $ 1,165 $ 1,258
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Noncash charge for income taxes................. -- -- 902
Depreciation and amortization................... 223 132 269
Warrants issued for services.................... -- 374 --
Deferred stock compensation..................... 75 42 --
Changes in assets and liabilities, net of
acquisition:
Accounts receivable, net...................... (1,057) (40) (240)
Accounts receivable from related parties...... (447) (510) (75)
Other current assets.......................... (409) (5) (11)
Other assets.................................. (420) 24 (7)
Accounts payable.............................. 24 49 (131)
Accrued liabilities........................... 1,372 899 (44)
-------- -------- -------
Net cash provided by operating activities... 2,246 2,130 1,921
-------- -------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES FOR
THE PURCHASE OF PROPERTY AND EQUIPMENT........... (579) (147) (75)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from Common Stock issuances.......... 17,401 6,837 --
Proceeds from exercise of options and warrants.... 153 78 --
Repurchases of Common Stock....................... (2,500) (2,998) --
Payments from GCH................................. 100 651 --
Payments to GCH................................... -- (1,346) (476)
Payments under capital leases..................... -- -- (24)
Payments under note obligations................... -- (73) (281)
-------- -------- -------
Net cash provided by (used in) financing
activities................................. 15,154 3,149 (781)
-------- -------- -------
Effect of exchange rate changes on cash........... (71) (8) 29
-------- -------- -------
Net increase in cash and cash equivalents......... 16,750 5,124 1,094
Cash and cash equivalents at beginning of period.. 6,498 1,374 280
-------- -------- -------
Cash and cash equivalents at end of period........ $ 23,248 $ 6,498 $ 1,374
======== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................ $ 6 $ 10 $ 3
Cash paid for income taxes........................ $ 996 $ 282 $ 41
</TABLE>

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

28
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. ORGANIZATION AND BUSINESS

The Company

Award Software International, Inc. ("Award" or the "Company") designs,
develops and markets system management software for the global computing
market. System management software is one of the fundamental layers in
personal computer ("PC") architecture and provides an essential interface
between a PC's operating system software and its hardware. The Company's
principal system management software products include a suite of Basic
Input/Output System software ("BIOS"). Award's customers include designers and
manufacturers of motherboards, PC systems and other microprocessor-based (or
"embedded") devices.

The Company was incorporated in California, in 1983, and operates in one
business segment through its headquarters facility in Mountain View,
California, a branch office in Munich, Germany, and a wholly owned subsidiary
in Hong Kong with a branch office in Taipei, Taiwan. On October 25, 1996, the
Company completed its initial public offering of Common Stock.

GCH Acquisition

On July 2, 1993, GCH Systems, Inc. ("GCH"), an independent developer of
microcomputers and application specific integrated circuits, acquired 100
percent of Award's outstanding Common Stock for $1,905 consisting of $725 in
cash and the assumption of $1,180 in liabilities. From the acquisition date
through December 30, 1994, Award operated as a wholly owned subsidiary of GCH.
On December 31, 1994, Award and GCH became separate companies through a
spinoff of 100 percent of Award's Common Stock on a pro rata basis to GCH
shareholders. Award and GCH have certain common members on their Boards of
Directors. Award and GCH, from time to time have made non-interest bearing
cash advances to each other for working capital purposes.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements of the Company include the accounts of
Award Software International, Inc. and its wholly-owned subsidiary. All
intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

Revenue recognition

The Company's revenues are derived primarily from software license fees and
non-recurring engineering services. Software license fees are recognized upon
delivery of the product, fulfillment of acceptance terms, if any, and
satisfaction of any significant support obligations. The Company's normal
sales terms are net 30 days and return privileges are not offered or provided
to any customers. Payments received in advance of revenue recognition are
recorded as deferred revenue. Engineering services revenue primarily consist
of amounts charged for customization of the software and are generally
recognized as the services are performed. Amounts received

29
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

under engineering contracts that require software delivery are deferred until
delivery and customer acceptance occur. Related parties revenues include
software licenses and non-recurring engineering services to holders of the
Company's Common Stock and Common Stock warrants.

The Company does not offer separate post contract customer support
contracts, and due to the nature of the Company's product offerings, has not
incurred any significant post-sale warranty or support obligations. The costs
of insignificant support obligations are accrued at the time of revenue
recognition. Allowances for uncollectible amounts and warranties are recorded
in the same period as the related revenues based upon the Company's historical
experience.

Cash and cash equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist principally of time deposits and money-market deposit accounts that
are stated at cost, which approximates fair value.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets, which range from three to five years.

Software development costs

Costs incurred in the research and development of new products and
enhancements to existing products are charged to expense as incurred until the
technological feasibility of the product or enhancement has been established.
After establishing technological feasibility through the development of a
working model, any additional costs incurred through the date the product is
available for general release, if any, are capitalized and amortized over the
estimated life, generally three years, using the greater of the amounts
determined using the straight-line method or the ratio of current period
products revenue over total estimated product revenues. Capitalized software
development costs are included in other assets in the accompanying financial
statements. Amortization of capitalized software development costs totaled
$22, $18 and $18 for the three years ended December 31, 1996, 1995 and 1994,
respectively.

Goodwill

Goodwill resulting from the acquisition of Award Common Stock by GCH is
included in other assets at December 31, 1996 and 1995, and is being amortized
using the straight line method over five years.

Income taxes

Income taxes are accounted for using an asset and liability approach in
accordance with SFAS No. 109, "Accounting for Income Taxes." The asset and
liability approach requires the recognition of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax law; the
effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.

For the period from July 2, 1993 through December 31, 1994, Award was
included in GCH's consolidated federal and California state income tax
returns. Under a tax sharing agreement with GCH, Award was allocated

30
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

a proportionate share of GCH's consolidated income tax liability. The
provision for income taxes for this period has been calculated using the
separate return methodology in accordance with SFAS No. 109. The difference
between the allocable amount and the separate return provision totaled $902
and has been reflected as a capital contribution.

Foreign currency translation

The Company has a subsidiary in Hong Kong and branch operations in Taiwan
and Germany. The functional currencies of these entities are the local
currencies. Accordingly, all assets and liabilities of these entities are
translated at the current exchange rate in effect at the balance sheet date
and revenues and expenses are translated at the average exchange rates in
effect during the reporting period. Gains and losses resulting from foreign
currency translation are recorded directly into a separate component of
shareholders' equity. Foreign currency transaction gains and losses were
immaterial for all periods presented.

Net income per share

Net income per share is computed using the weighted average number of common
and common equivalent shares, when dilutive, from stock options and warrants
(using the treasury stock method). Prior to the Company's initial public
offering and pursuant to a Securities and Exchange Commission Staff Accounting
Bulletin, common and common equivalent shares (using the treasury stock method
and the public offering price) issued within twelve months prior to the
Company's initial public offering by the Company have been included in the
calculation as if they were outstanding for all periods presented.

Stock-based compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized based on the difference, if any, between the quoted market price
of the Company's stock on the date of grant and the amount an employee must
pay to acquire the stock.

New Accounting Pronouncements

3. CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of bank deposits and
accounts receivable. The Company places its cash and cash equivalents in
checking and market rate accounts with two major financial institutions and
has not incurred any losses related to these investments.

The Company markets its products to OEMs in the personal computer market,
designers of motherboards and other microprocessor-embedded systems
manufacturers and, as a result, maintains individually significant receivable
balances from major customers located throughout the world. The Company
performs ongoing credit

31
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

evaluations of its customers' financial condition and maintains an allowance
for uncollectible accounts receivable based upon the expected collectability
of all accounts receivable.

The following table summarizes the net accounts receivable from customers
located in the following geographic areas:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
------- ------
<S> <C> <C>
United States................................................ $ 327 $ 20
Asia Pacific................................................. 1,669 663
Europe....................................................... 72 309
------- -----
$ 2,068 $ 992
======= =====
</TABLE>

All related party receivables are from United States customers. One customer
accounted for 26.1% of accounts receivable at December 31, 1996. One customer
accounted for 28.8% of accounts receivable at December 31, 1995.

4. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
------ ------
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Accounts receivable........................................ $2,183 $1,071
Less: allowance for doubtful accounts...................... (115) (79)
------ ------
$2,068 $ 992
====== ======
PROPERTY AND EQUIPMENT:
Computer equipment......................................... $ 796 $ 310
Office equipment........................................... 124 82
Furniture and fixtures..................................... 102 62
------ ------
1,022 454
Less accumulated depreciation.............................. (339) (178)
------ ------
$ 683 $ 276
====== ======
OTHER ASSETS:
Goodwill................................................... $ 265 $ 265
Capitalized software....................................... 344 139
Other...................................................... 263 28
------ ------
872 432
Less accumulated amortization:
Goodwill................................................. (186) (133)
Capitalized software..................................... (70) (48)
------ ------
$ 616 $ 251
====== ======
ACCRUED LIABILITIES:
Salaries and benefits...................................... $ 584 $ 401
Royalties.................................................. 90 476
Income taxes payable....................................... 1,160 542
Deferred revenue........................................... 615 54
Other...................................................... 655 250
------ ------
$3,104 $1,723
====== ======
</TABLE>

32
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. SHAREHOLDERS' EQUITY

On October 25, 1996, the Company completed an initial public offering (the
"Offering") of 1,250,000 shares of its Common Stock at $8.00 per share.
Proceeds to the Company totaled $7,828, net of underwriting discounts and
issuance costs of $2,172. Prior to the Offering, in May 1996, the Board of
Directors approved an increase in the number of common shares authorized to
40,000,000, authorized 5,000,000 shares of Preferred Stock and approved a 1-
for-2 reverse stock split of the Company's Common Stock. The reverse stock
split was effected on August 21, 1996. All references to the number of common
shares and per share amounts have been retroactively restated in the
accompanying consolidated financial statements to reflect the reverse stock
split.

During January and February 1996, the Company repurchased 250,000 shares of
Common Stock from existing shareholders at a price of $10.00 per share.

In connection with the issuance and sale of 570,033 shares of Common Stock
in January 1996, the Company issued 272,394 Common Stock warrants with an
exercise price of $12.28 per share for $0.02 per warrant. The warrants are
exercisable at any time up to September 30, 2000. No proceeds were separately
allocated to the warrants.

In June 1996, the Company entered into a joint technology development and
support agreement with Advanced Micro Devices, Inc. ("AMD") to support the
design and development of products related to AMD's K6 microprocessor. As part
of this relationship, in July 1996, the Company sold to AMD 160,000 shares of
Common Stock at a price of $12.50 per share for approximately $2,000 in cash.

In June 1995, the Company granted 20,000 Common Stock warrants with an
exercise price of $1.00 per share to a holder of approximately 0.4% of the
Company's Common Stock at the time of grant in exchange for marketing
services. The warrants are exercisable at any time up to the later of (i) June
15, 1998 or (ii) the six month anniversary of the closing of an initial public
offering. The Company recorded the difference between the estimated fair
market value and the exercise price of the warrants of approximately $36 as
sales and marketing expense. The warrants were exercised in December 1995.

In connection with the issuance of shares of Common Stock in 1995, the
Company issued 123,333 Common Stock warrants with an exercise price of $1.00
per share for $0.02 per warrant. The warrants are exercisable at any time up
to September 30, 2000. No proceeds were separately allocated to the warrants.

In October 1994, the Company granted 200,000 Common Stock warrants to a
customer under a software licensing agreement. The warrants were deemed to
have a nominal value on the date of grant. The warrants have an exercise price
of $1.00 per share and are exercisable at any time through March 31, 1998.
During the period from October 1994 through June 1995, the customer earned
45,500 of the Common Stock warrants based on purchasing volumes. In July 1995,
to solidify the Company's long-term relationship with the customer, the
Company issued the remaining 154,500 warrants to the customer and recorded the
difference between the estimated fair market value and the exercise price of
the warrants of approximately $283 as sales and marketing expense. In July
1996, 77,500 of these warrants were exercised, resulting in proceeds totaling
$78.

In December 1994, in exchange for marketing services, the Company granted
80,000 Common Stock warrants with an exercise price of $1.00 per share to
holders of approximately 16.1% of the Company's Common Stock at December 31,
1995. The warrants had a nominal value when granted and were exercised in
November 1995.

6. EMPLOYEE BENEFIT PLANS

Stock Option Plan

During 1994, the Company adopted the 1995 Stock Option Plan, under which
1,250,000 shares of common stock are reserved for issuance to eligible
employees, directors and consultants upon exercise of the stock

33
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

options. Stock options are granted at prices determined by Board of Directors
and generally may not be less than 100% and 85%, for incentive and
nonstatutory options, respectively, of the estimated fair value of the related
shares on the date of grant. Options granted under the Plan are for periods
not to exceed ten years, are exercisable generally one year after date of
grant and vest ratably over a maximum period of five years following the date
of grant. For options expired or canceled, the stock not purchased under such
options shall revert to and again become available for re-issuance under the
plan. The Plan provides for an unvested share repurchase option on behalf of
the Company. In the event an optionee ceases to be eligible under the Plan for
any reason, shares acquired on the exercise of an option which have not yet
vested may be repurchased by the Company at the optionee's original cost per
share. At December 31, 1996, no shares were subject to repurchase.

During 1995, the Company recorded $297 of deferred stock compensation for
the excess of the deemed fair market value over the exercise price at the date
of grant related to certain options granted in 1995. The compensation expense
is being recognized over the option vesting period of four years. Compensation
expense recognized in 1996 and 1995 aggregated $75 and $42, respectively.

Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method prescribed by SFAS No. 123, the Company's net
income and earnings per share would have been further reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Net income
As reported...................................... $ 2,885 $ 1,165
=========== ===========
Pro forma........................................ $ 2,717 $ 1,155
=========== ===========
Net income per share
As reported...................................... $ 0.46 $ 0.18
=========== ===========
Pro forma........................................ $ 0.43 $ 0.18
=========== ===========
</TABLE>

Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995, respectively:
dividend yield of 0 percent for both years; expected volatility of 55 percent
for the options granted after the effective date of the Company's initial
public offering; risk-free interest rates of 6.05 and 5.50 percent; and
expected lives of five years.

34
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A summary of the status of the Company's stock option plan as of December
31, 1996, 1995 and 1994, and changes during the years ended on those dates is
presented below:

<TABLE>
<CAPTION>
SHARES SUBJECT TO OUTSTANDING OPTIONS
------------------------------------------
WEIGHTED-
OPTIONS AVERAGE
AVAILABLE FOR NUMBER OF PRICE PER EXERCISE
GRANT SHARES SHARE PRICE
------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Options authorized...... 1,250,000 -- $ -- $ --
Granted............... (564,050) 564,050 1.00 1.00
--------- ----------- --------------- ---------
Balance at December 31,
1994................... 685,950 564,050 1.00 1.00
Granted............... (191,105) 191,105 1.00-6.00 2.01
Exercised............. -- (7,500) 1.00 1.00
Canceled.............. 1,500 (1,500) 1.00 1.00
--------- ----------- --------------- ---------
Balance at December 31,
1995................... 496,345 746,155 1.00-6.00 1.26
Granted............... (329,000) 329,000 6.75-11.00 9.97
Exercised............. -- (43,988) 1.00 1.00
Canceled.............. 61,709 (61,709) 1.00-10.00 2.24
--------- ----------- --------------- ---------
Balance at December 31,
1996................... 229,054 969,458 $ 1.00-11.00 $ 4.16
========= =========== =============== =========
</TABLE>

Options on 345,685 and 106,500 shares of Common Stock were exercisable at
December 31, 1996 and 1995, respectively. Weighted average fair value of
options granted during the year were $2.59 and $2.13 for 1996 and 1995,
respectively.

The following table summarizes information about stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.00 609,602 8.10 years $ 1.00 335,428 $1.00
5.00 -- 7.00 51,106 9.10 5.61 10,257 5.15
10.00 -- 11.00 308,750 9.29 10.15 -- --
------- ------ ------- -----
1.00 -- 11.00 969,458 8.53 $ 4.16 345,685 $1.12
======= ====== ======= =====
</TABLE>

Employee Stock Purchase Plan

In May 1996, the Board of Directors adopted the Employee Stock Purchase Plan
(the "Purchase Plan"), which provides for the issuance of a maximum of 150,000
shares of Common Stock. Eligible employees may have up to 15% of their
earnings withheld, to be used to purchase shares of the Common Stock on
specified dates determined by the Board of Directors. The price of Common
Stock purchased under the Purchase Plan will be equal to 85% of the lower of
the fair market value of the Common Stock on the commencement date of each
offering period or the specified purchase date. There were no plan activities
in 1996.

401 (k) Plan

In January 1995, the Board of Directors adopted an employee savings and
retirement plan (the "401(k) Plan") covering substantially all of the
Company's employees. Under the 401 (k) Plan, eligible employees may elect to
reduce their current compensation by up to the statutory prescribed limit and
have the amount of such

35
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

reduction contributed to the 401 (k) Plan. The Company may make contributions
to the 401 (k) Plan on behalf of eligible employees. The Company made no
contributions to the 401 (k) Plan in 1996, 1995 or 1994.

7. INCOME TAXES

Income (loss) before income taxes was subject to tax in the following
jurisdictions:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
United States...................................... $ 2,108 $ 464 $ 1,638
Foreign............................................ 2,399 1,493 404
------- ------- -------
$ 4,507 $ 1,957 $ 2,042
======= ======= =======
</TABLE>

The provision (benefit) for income taxes is comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal....................................... $ 709 $ 484 $ 674
State......................................... 59 46 185
Foreign....................................... 724 405 43
-------- ------- -------
Total current............................... 1,492 935 902
-------- ------- -------
Deferred:
Federal....................................... 95 (133) (98)
State......................................... 35 (10) (20)
Foreign....................................... -- -- --
-------- ------- -------
Total deferred.............................. 130 (143) (118)
-------- ------- -------
$ 1,622 $ 792 $ 784
======== ======= =======
</TABLE>

Significant components of the Company's deferred tax assets (liabilities)
were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
------ ------
<S> <C> <C>
Deferred tax liabilities:
Capitalized software.................................... $ (90) $ (17)
------ ------
Deferred tax assets:
Accrued liabilities..................................... 79 191
Depreciation............................................ 18 19
Allowance for doubtful accounts......................... 34 31
State tax deduction..................................... 6 7
Other................................................... 84 30
------ ------
221 278
------ ------
Net deferred tax assets................................... 131 261
Deferred tax assets valuation allowance................... -- --
------ ------
$ 131 $ 261
====== ======
</TABLE>

36
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company provides a valuation allowance for deferred tax assets when it
is more likely than not, based on available evidence, that some portion or all
of the deferred tax assets will not be realized. Based on an evaluation of the
realizability of future tax benefits based on income earned in 1995, the
Company reversed all previously established valuation allowances during 1995.

The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
to income (loss) before income taxes as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Tax provision (benefit) at the U.S. federal statutory rate of 34%...... $ 1,532 $ 666 $ 694
Foreign income taxed at different rates................................ (80) (77) (27)
State and local taxes, net of federal benefit.......................... 221 117 123
Release of valuation allowance......................................... -- (117) (62)
Nondeductible charges and accruals..................................... -- 166 --
Other.................................................................. (51) 37 56
-------- ------- ------
Provision for income taxes............................................. $ 1,622 $ 792 $ 784
======== ======= ======
Effective tax rates.................................................... 36% 40% 38%
======== ======= ======
</TABLE>

8. REVENUES, GEOGRAPHIC INFORMATION AND EXPORT SALES

Revenues from customers representing 10% or more of consolidated revenues
were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Customer A.............. -- 13.9% 11.6%
Customer B--Related
party.................. 11% 13.4% --
Customer C.............. -- -- 16.5%
</TABLE>

The components of related parties revenues and costs of revenues are:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Software license fees.......................... $ 1,148 $ 1,084 $ 752
Engineering services........................... 730 818 220
-------- -------- ------
Total related party revenues................. $1,878 $ 1,902 $ 972
======== ======== ======
Cost of revenues:
Software license fees.......................... $ 57 $ 60 $ 63
Engineering services........................... 270 146 33
-------- -------- ------
Total related party cost of revenues......... $ 328 $ 206 $ 96
======== ======== ======
</TABLE>

37
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following is a summary of the Company's geographic operations:

<TABLE>
<CAPTION>
UNITED ASIA
STATES EUROPE PACIFIC ELIMINATIONS CONSOLIDATED
------- ------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Revenues from unaffiliated
customers................. $ 700 $2,273 $2,773 $ -- $ 5,746
Revenue from related
parties................... $ 972 $ -- $ -- $ -- $ 972
Income from operations..... $ 1,664 $ 214 $ 179 $ -- $ 2,057
Identifiable assets........ $ 2,166 $1,100 $1,891 $(2,038) $ 3,119
Year ended December 31, 1995:
Revenues from unaffiliated
customers................. $ 1,017 $2,216 $3,995 $ -- $ 7,228
Revenue from related
parties................... $ 1,902 $ -- $ -- $ -- $ 1,902
Income from operations..... $ 393 $ 59 $1,409 $ -- $ 1,861
Identifiable assets........ $ 6,907 $ 976 $2,764 $(1,564) $ 9,083
Year ended December 31, 1996:
Revenues from unaffiliated
customers................. $ 2,176 $1,195 $8,822 $ -- $12,193
Revenue from related
parties................... $ 1,878 $ -- $ -- $ -- $ 1,878
Income (loss) from
operations................ $ 1,651 $ (482) $2,792 $ -- $ 3,961
Identifiable assets........ $23,642 $ 728 $6,498 $(2,458) $28,410
</TABLE>

Substantially all of the financial information for the Europe and Asia
Pacific geographic areas results from the Company's operations in Germany and
Taiwan, respectively.

Export sales from the United States to international customers were as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Europe, principally Germany...................... $ 2,003 $ 1,315 $ 622
Asia Pacific, principally Japan.................. 164 95 86
-------- -------- ------
$ 2,167 $ 1,410 $ 708
======== ======== ======
</TABLE>

9. COMMITMENTS

Operating leases

The Company leases its office facilities in California, Taiwan and Germany.
Future minimum payments under noncancelable operating leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997................................... $219
1998................................... 45
----
$264
====
</TABLE>

Under an agreement that extends through 1997, the Company shares office
facilities in Mountain View, California with GCH and is charged a pro rata
portion of actual rent and utilities incurred by GCH based on square footage
occupied by the Company. Management believes the allocation between the
Company and GCH of such expenses is reasonable.

Total rent expense, including amounts allocated from GCH was $470, $273 and
$223 for the years ended December 31, 1996, 1995 and 1994, respectively.

38
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. SUBSEQUENT EVENT

Asset acquisition

On February 21, 1997, the Company acquired certain assets of Willows
Software, Inc. for $400 cash, direct acquisition costs of $40 and the
assumption of liabilities totaling $44. The purchase price was allocated based
upon the estimated fair value of identifiable tangible and intangible assets
and liabilities assumed, including $289 to in-process research and
development. The amount allocated to in-process research and development
relates to acquired development projects that had not reached technological
feasibility at the acquisition date and had no alternative future use.

39
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

SUPPLEMENTARY DATA (UNAUDITED)

<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... $4,522 $3,395 $3,342 $2,812 $2,835 $2,258 $1,981 $2,056
Gross profit............ 4,231 3,137 3,199 2,524 2,520 2,159 1,844 1,971
Income from operations.. 1,573 835 1,034 519 852 357 114 538
Net income.............. 1,174 608 717 386 564 220 65 316
Net income per share.... $ 0.17 $ 0.10 $ 0.12 $ 0.06 $ 0.09 $ 0.03 $ 0.01 $ 0.05
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

40
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this item will be contained in the Company's
definitive Proxy Statement with respect to the Company's Annual Meeting of
Shareholders, to be held on June 4, 1997, under the captions "Election of
Directors--Nominees" and is hereby incorporated by reference herein. The
information relating to executive officers of the Company is contained in Part
I, Item 1 of this report.

To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during, and with respect to, its most recent
fiscal year and written representations that no other reports were required,
if any, the filing requirements of Section 16(a) applicable to its officers,
directors and 10% shareholder were satisfied during the fiscal year ended
December 31, 1996, except as follows. Form 3s for such officers, directors and
10% shareholders were filed on October 24, 1996, the date on which the
Company's Registration Statement on Form S-1, File No. 333-05107 was declared
effective. The Form 3s were required to be filed on August 4, 1996, the date
upon which the Company's Registration Statement on Form 8-A automatically
became effective under the Securities Exchange Act of 1934, as amended. Public
trading of the Company's Common Stock commenced on October 25, 1996. Prior to
that, there was no public market for the Company's Common Stock.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item will be contained in the Company's
definitive Proxy Statement with respect to the Company's Annual Meeting of
Shareholders, to be held June 4, 1997, under the caption "Executive
Compensation," and is hereby incorporated by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this item will be contained in the Company's
definitive Proxy Statement with respect to the Company's Annual Meeting of
Shareholders, to be held June 4, 1997, under the caption "Security Ownership
of Certain Beneficial Owners and Management," and is hereby incorporated by
reference herein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item will be contained in the Company's
definitive Proxy Statement with respect to the Company's Annual Meeting of
Shareholders, to be held June 4, 1997, under the caption "Certain
Transactions," and is hereby incorporated by reference herein.

41
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) (1) Index to Financial Statements

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................... 24
Consolidated Balance Sheet at December 31, 1996 and 1995.............. 25
Consolidated Statement of Income for the three years ended December
31, 1996............................................................. 26
Consolidated Statement of Shareholders' Equity for the three years
ended December 31, 1996.............................................. 27
Consolidated Statement of Cash Flows for the three years ended
December 31, 1996.................................................... 28
Notes to Consolidated Financial Statements............................ 29
Supplementary Data (Unaudited)........................................ 40
</TABLE>

(2) Index to Consolidated Financial Statements Schedules

All schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or in the notes thereto.

(3) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1(1) Amended and Restated Articles of Incorporation of the
Registrant.
3.1.1(1) Form of Amended and Restated Articles of Incorporation of the
Registrant effecting the 1-for-2 reverse stock split.
3.1.2(1) Form of Amended and Restated Articles of Incorporation of the
Registrant, effective upon the completion of the IPO.
3.2(1) Amended and Restated Bylaws of the Registrant.
3.2.1(1) Form of Amended and Restated Bylaws of the Registrant, effective
upon the completion of the IPO.
4.1(1) Reference is made to Exhibits 3.1 through 3.2
4.5(1) Specimen stock certificate.
10.1(1) Form of Indemnity Agreement to be entered into between the
Registrant and its directors and officers, with related
schedule.
10.2(1) Registrant's 1995 Stock Option Plan, as amended (the "Option
Plan").
10.3(1) Form of Incentive Stock Option under the Option Plan.
10.4(1) Form of Nonstatutory Stock Option under the Option Plan.
10.5(1) Registrant's Amended and Restated Executive Compensation Plan.
10.6(1) Registrant's amended and Restated Executive Compensation Plan.
10.7(1) Lease, dated January 1, 1996, between GCH Systems, Inc. and the
Registrant.
10.8(1) Summary of Leases, dated March 1, 1996, between Sun Corporation,
GSS Corporation and the Registrant.
10.9(1) Voting Agreement, dated January 12, 1996, between the Registrant
and certain persons named therein.
10.10(1) Investors' Rights Agreement among the Registrant and certain
other persons named therein, dated as of January 12, 1996.
</TABLE>

42
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.11(1) Warrant issued to Synnex Information Technologies, Inc.
10.12(1) Warrant issued to Vobis Microcomputer AG.
10.13(1) Warrant issued to Venrock Associates.
10.14(1) Warrant issued to Venrock Associates II, L.P.
10.15(1) Warrant issued to Walden Capital Partners II, L.P.
10.16(1) Warrant issued to Walden Technology Ventures II, L.P.
10.17+(1) Technology Development and Support Agreement, dated June 28,
1996, between Registrant and Advanced Micro Devices, Inc.
11.1(2) Statement regarding calculation of net income per share.
21(2) Subsidiaries of the Registrant.
23.1(2) Consent of Independent Accountants.
24.2(2) Power of Attorney. See signature page.
27(2) Financial Data Schedule.
</TABLE>
- --------
+ The Securities and Exchange Commission has granted confidential treatment
for portions of this document.
(1) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Registration Statement on Form S-1, File No. 333-05107, filed on
June 3, 1996, as amended.
(2) Filed herewith.

(b) REPORTS ON FORM 8-K

The Company has filed no reports on Form 8-K during the quarter ended
December 31, 1996.

43
<PAGE>

SIGNATURES

IN ACCORDANCE WITH THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT ON
FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
ORGANIZED, ON THE 27TH DAY OF MARCH 1997.

Award Software International, Inc.

/s/ George C. Huang
By: _________________________________
GEORGE C. HUANG
CHAIRMAN OF THE BOARD, PRESIDENT
AND
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George C. Huang and Kevin J. Berry or either of
them, his or her attorney-in-fact, each with the power of substitution, for
him or her in any and all capacities, to sign any amendments to this Report,
and to file the same, with exhibits thereto and other documents in connections
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute
or substitutes, may do or cause to be done by virtue hereof.

IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES STATED.

SIGNATURE TITLE DATE

/s/ George C. Huang Chairman of the March 27, 1997
_____________________________________ Board, President,
GEORGE C. HUANG Chief Executive
Officer and
Director (Principal
Executive Officer)

/s/ Kevin J. Berry Chief Financial March 27, 1997
_____________________________________ Officer and Vice
KEVIN J. BERRY President
(Principal
Financial and
Accounting Officer)

/s/ Cheng Ming Lee Director March 27, 1997
_____________________________________
CHENG MING LEE

/s/ David S. Lee Director March 27, 1997
_____________________________________
DAVID S. LEE

/s/ Masami Maeda Director March 27, 1997
_____________________________________
MASAMI MAEDA

/s/ Anthony Sun Director March 27, 1997
_____________________________________
ANTHONY SUN

/s/ William P. Tai Director March 27, 1997
_____________________________________
WILLIAM P. TAI

44
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
NO. OF
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
3.1(1) Amended and Restated Articles of Incorporation of the Registrant.
3.1.1(1) Form of Amended and Restated Articles of Incorporation of the
Registrant effecting the 1-for-2 reverse stock split.
3.1.2(1) Form of Amended and Restated Articles of Incorporation of the
Registrant, effective upon the completion of the IPO.
3.2(1) Amended and Restated Bylaws of the Registrant.
3.2.1(1) Form of Amended and Restated Bylaws of the Registrant, effective
upon the completion of the IPO.
4.1(1) Reference is made to Exhibits 3.1 through 3.2
4.5(1) Specimen stock certificate.
10.1(1) Form of Indemnity Agreement to be entered into between the
Registrant and its directors and officers, with related schedule.
10.2(1) Registrant's 1995 Stock Option Plan, as amended (the "Option Plan").
10.3(1) Form of Incentive Stock Option under the Option Plan.
10.4(1) Form of Nonstatutory Stock Option under the Option Plan.
10.5(1) Registrant's Amended and Restated Executive Compensation Plan.
10.6(1) Registrant's Amended and Restated Executive Compensation Plan.
10.7(1) Lease, dated January 1, 1996, between GCH Systems, Inc. and the
Registrant.
10.8(1) Summary of Leases, dated March 1, 1996, between Sun Corporation, GSS
Corporation and the Registrant.
10.9(1) Voting Agreement, dated January 12, 1996, between the Registrant and
certain persons named therein.
10.10(1) Investors' Rights Agreement among the Registrant and certain other
persons named therein, dated as of January 12, 1996.
10.11(1) Warrant issued to Synnex Information Technologies, Inc.
10.12(1) Warrant issued to Vobis Microcomputer AG.
10.13(1) Warrant issued to Venrock Associates.
10.14(1) Warrant issued to Venrock Associates II, L.P.
10.15(1) Warrant issued to Walden Capital Partners II, L.P.
10.16(1) Warrant issued to Walden Technology Ventures II, L.P.
10.17+(1) Technology Development and Support Agreement, dated June 28, 1996,
between Registrant and Advanced Micro Devices, Inc.
11.1(2) Statement regarding calculation of net income per share.
21(2) Subsidiaries of the Registrant.
23.1(2) Consent of Independent Accountants
24.2(2) Power of Attorney. See signature page.
27(2) Financial Data Schedule.
</TABLE>
- --------
+ The Securities and Exchange Commission has granted confidential treatment
for portions of this document.
(1) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Registration Statement on Form S-1, File No. 333-05107, filed on
June 3, 1996, as amended.
(2) Filed herewith.

<PAGE>

EXHIBIT 11.1

AWARD SOFTWARE INTERNATIONAL, INC.

COMPUTATION OF NET INCOME PER SHARE
(in thousands except per share amount)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Weighted average common shares........................ 5,482 5,768 5,998
Weighted average common equivalent shares............. 798 770 347
------- ------- -------
Total weighted average common and common equivalent
shares............................................... 6,280 6,538 6,345
======= ======= =======
Net income............................................ $ 2,885 $ 1,165 $ 1,258
======= ======= =======
Net income per share.................................. $ 0.46 $ 0.18 $ 0.20
======= ======= =======
</TABLE>

NET INCOME PER SHARE

Net Income per Share is computed using the weighted average number of common
and common equivalent shares, when dilutive, from stock options and warrants
(using the treasury stock method). Pursuant to a Securities and Exchange
Commission Staff Accounting Bulletin, common and common equivalent shares
(using the treasury stock method and the public offering price) issued by the
Company within 12 months prior to the Company's initial public offering filing
have been included in the calculation as if they were outstanding for all
periods through the effective date of the Company's initial public offering.

<PAGE>

EXHIBIT 21

AWARD SOFTWARE INTERNATIONAL, INC.

SUBSIDIARIES

<TABLE>
<CAPTION>
JURISDICTION NAME UNDER WHICH
COMPLETE NAME OF SUBSIDIARY OF INCORPORATION SUBSIDIARY DOES BUSINESS
- --------------------------------- ------------------------ --------------------------------
<S> <C> <C>
Award Software Hong Kong Limited Hong Kong Award Software Hong Kong Limited
</TABLE>

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement of Award Software International, Inc. on Form S-8 (File No. 333-
17607) of our report dated February 21, 1997 appearing on page 24 of this
Annual Report on Form 10-K of Award Software International, Inc. for the year
ended December 31, 1996.

PRICE WATERHOUSE LLP

San Jose, California
March 27, 1997

<PAGE>
<ARTICLE> 5

<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED
STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 23,248,000
<SECURITIES> 0
<RECEIVABLES> 2,183,000
<ALLOWANCES> (115,000)
<INVENTORY> 0
<CURRENT-ASSETS> 27,111,000
<PP&E> 1,022,000
<DEPRECIATION> (339,000)
<TOTAL-ASSETS> 28,410,000
<CURRENT-LIABILITIES> 3,319,000
<BONDS> 0
0
0
<COMMON> 21,269,000
<OTHER-SE> 3,822,000
<TOTAL-LIABILITY-AND-EQUITY> 28,410,000
<SALES> 14,071,000
<TOTAL-REVENUES> 14,071,000
<CGS> 980,000
<TOTAL-COSTS> 980,000
<OTHER-EXPENSES> 9,130,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,000)
<INCOME-PRETAX> 4,507,000
<INCOME-TAX> 1,622,000
<INCOME-CONTINUING> 2,885,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,885,000
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0

</TABLE>