AWARD SOFTWARE INTERNATIONAL INC, 10-K/A, 1998-04-30

AWARD SOFTWARE INTERNATIONAL INC
10-K/A, 1998-04-30
PREPACKAGED SOFTWARE

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K/A
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, 1997

[ ] 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 94043-4023
(Address of principal executive offices, including zip code)

(650) 237-6800
(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 $10.50 on March 17, 1998, the aggregate
market value of the voting stock held by non-affiliates of the Registrant was
$42,880,551.

On March 17, 1998, there were outstanding 6,963,862 shares of the Registrant's
Common Stock.

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TABLE OF CONTENTS

PAGE
-----
Part I............................................................. 3

Item 1 Business............................................... 3
Item 2 Properties............................................. 18
Item 3 Legal Proceedings...................................... 18
Item 4 Submission of Matters to a Vote of Security Holders.... 18

PART II............................................................ 19

Item 5 Market for the Registrant's Common Stock and Related
Stock Matters.......................................... 19
Item 6 Selected Financial Data................................ 19
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 21
Item 8 Financial Statements and Supplementary Data............ 28
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 45

PART III........................................................... 46

Item 10 Directors and Executive Officers of the Registrant..... 46
Item 11 Executive Compensation................................. 48
Item 12 Security Ownership of Certain Beneficial Owners and
Management............................................. 54
Item 13 Certain Relationships and Related Transactions......... 57

PART IV............................................................ 59

Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................ 59

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PART I

ITEM 1. BUSINESS

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21A of the Securities Exchange Act of 1934, as amended, 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" and elsewhere in
this Form 10-K and in other documents on file with the Securities and Exchange
Commission.

GENERAL

Award Software International, Inc. ("Award," the "Company" or the
"Registrant"), designs, develops and markets system enabling and management
software for the global computing market. System enabling and management
software is one of the fundamental layers in any microprocessor-based system
(including personal computers) architecture and provides an essential interface
between the system's operating system software and hardware. The Company's
principal system enabling and management software products include a suite of
Basic Input/Output System software ("BIOS"). Award's customers include
designers and manufacturers of motherboards, personal computer ("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 over 60% 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, Peripheral Component Interconnect ("PCI"), Desktop Management Interface
("DMI"), Universal Serial Bus ("USB") and Advanced Configuration and Power
Interface ("ACPI"). The Company is currently developing further enhancements to
its BIOS, including support for emerging standards such as IEEE-1394 and
Intelligent I/O ("I2O"). IEEE-1394 is a high-speed data interface for PCs,
peripherals and consumer electronic products. I2O is an intelligent input and
output subsystem used primarily with data storage devices. The Company also
provides BIOS upgrades to end-users of desktop PCs who wish to extend the life
of their systems without replacing them entirely. In addition to the Company's
proprietary suite of system enabling and 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 has recently embarked on a program to provide the leading PC
technologies to manufacturers of embedded devices. Supporting systems using
real time operating systems ("RTOS"), for example, the Company's products
provide PC bus connectivity, PC software compatibility and PC hardware enabling.
Certain vertical markets within the embedded systems arena, such as Internet
appliance manufacturers, are also targeted with industry specific solutions.

The Company currently licenses its products to more than 200 customers
worldwide, including Compaq Computer Corporation ("Compaq"), LG Electronics Inc.
("LG Electronics"), Micron Electronics, Inc. ("Micron"), Motorola, Inc.
("Motorola"), NEC Corporation ("NEC") and Packard Bell. 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
(primarily Taiwan), North America and Europe.

Award Software International(R), Award Software(TM), Award(TM), APIAccess(TM),
AwardBIOS(TM), CardWare(R), MR BIOS(R), PC DIAG(R), POSTcard(R), SMSAccess(R),
Unicore(R), USBAccess(TM) and WWWAccess(TM) are either pending trademark
approval or are trademarks of the Company.

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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 ACPI. Improved versions of BIOS are
currently being developed to support IEEE-1394 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.

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 with industry
standards 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, including sub-$1,000 PCs ("Segment Zero"), 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.

Rapid Growth of the Embedded Device Market. Embedded devices perform a single
or limited number of tasks for a dedicated purpose. These 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. Two distinct trends are emerging in
the embedded systems market. First, 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. Second, new generations of high-performance, low-cost Reduced
Instruction Set Computing ("RISC")-based processors are fostering the invention
of new types of devices and the miniaturization of existing products such as
Internet telephones and personal communicators. To minimize time to market,
these classes of designs are relying more and more on technologies and standards
emanating from the PC industry.

Need to Reduce Total Cost of Ownership ("TCO"). As PC use by less
technically sophisticated home and business users has grown, PC system
manufacturers have been searching for cost-effective solutions to reduce TCO.
Today's computing environment potentially provides system manufacturers with
the ability to access the hardware and operating systems 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

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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.
Management Information System ("MIS") organizations and individuals are seeking
ways to prolong the useful life of PCs that have enough computing power for
daily usage, but are no longer compatible with hardware technologies introduced
after the PCs were manufactured.

AWARD STRATEGY

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

Build on 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 and solutions used to
reduce TCO, 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. See "Business --Business Risks, International Operations;
Currency Fluctuations; International Unrest."

Leverage Existing Customer Relationships and Desktop PC Expertise to Pursue
the Mobile Market. The Company believes that it can leverage its desktop
system management software expertise to design and develop products for the
mobile PC. To complement its mobile 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 has
established a full-service joint venture subsidiary operation in Yokohama, Japan
to market, customize and support system management software to the mobile PC
manufacturers in Japan, which are significant participants in the mobile PC
market.

Provide the Embedded Systems Marketplace with Innovative Products based on the
Company's PC Industry Core Competencies. With the increasing uniformity of the
PC industry, where products generally must be Intel- and Microsoft- compatible,
software developers and peripherals manufacturers can design products with very
large and instantaneous markets. Designers of embedded systems cannot benefit
from this broad product availability, given the traditional embedded system's
incompatibility with Microsoft Corp. ("Microsoft") Windows and Intel Corporation
("Intel") products. Award's strategy is to bridge the two environments by
leveraging its PC expertise and making PC technologies available on embedded and
real-time systems. In 1997, the Company released several products based on PC
technology and geared toward the embedded systems market. The Company's
USBAccess provides embedded system connectivity to USB devices. WWWAccess, which
includes web browser technology licensed from third parties, provides embedded
devices -- including intelligent terminals, set-top boxes and telephones -- with
Internet capabilities. APIAccess enables developers of embedded systems to
develop application software using PC development tools and paradigms, including
the Win32(R) application program interface standard.

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 the four key PC design
centers around the world: Taiwan, the U.S., Germany and Japan. 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 enabling and 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.

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BUSINESS RISKS

Dependence on 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) 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, shortages of key components and
seasonality. 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 total cost of ownership. A number of computer
manufacturers, including IBM Corporation ("IBM") and Compaq, develop some of
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 out-source 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 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 and operating
system software designed by Microsoft. If the market for Intel and Intel-
compatible CPUs with x86 architecture is materially diminished or if another
CPU, such as Motorola'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, or if the average price of
desktop BIOS declines as the trend toward "Segment Zero" continues, 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 and a delay in expected new hardware and software
technologies from Intel and Microsoft.

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. ("AMI"), Phoenix Technologies Ltd. ("Phoenix
Technologies") and SystemSoft Corporation ("SystemSoft"), 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, to

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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 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 and SystemSoft. In addition, SystemSoft 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 may incorporate enough features into
their products to reduce the need for the Company's products. Microsoft includes
basic PC Card software in its Windows 95 operating system and announced the
inclusion of full PC Card software support in its next generation Windows 98 and
Windows NT 5.0 operating systems. Microsoft's recently released Windows CE 2.0
operating system includes embedded toolkit software that incorporates system
management software features and some PC Card capabilities. As software
developers provide greater functionality and features, user value and
performance in their products that eliminate or reduce the need for the
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, PC
Card software and embedded system enabling products, 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 on its ability to enhance its core
software and to develop and introduce new software that keeps pace with
technological developments and evolving industry standards, as well as its
ability 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.

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

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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 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 are 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. 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. In addition, there can be no assurance that the
introduction of Microsoft Windows CE into the embedded device and Internet
appliance market will not have a material impact on the Company's new products
for these markets.

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 profits have historically
decreased in the first quarter of each year as compared with the fourth quarter
of the previous year. The

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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 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 on 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. In addition, the delay of Windows
98 by Microsoft could slow the growth of the PC market until such time as that
product is released.

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; and Lyon T. Lin,
General Manager, Taiwan and President, Award Software Hong Kong Limited, Taiwan
Branch, could have a material adverse effect on the Company's business,
financial condition and results of operations. Except for two employees in the
U.S. and all 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, and 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 its financial and management controls, reporting systems and
procedures on a timely basis, and to 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

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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, 1997, approximately 41% and 3% of the Company's revenues were
denominated in New Taiwan Dollars and German Marks, respectively. The Company's
revenues denominated in Japanese Yen were immaterial during the year ended
December 31, 1997. 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 operates in Taiwan, Hong Kong, Japan, and Germany. Its 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. In particular, the recent currency devaluations
in South East Asia and the general downturn of the economies in Asia, including
Japan, could materially adversely affect the Company's business, financial
condition or results of operations. As a result of such economic instability,
Dataquest, Inc., has revised downward its forecasts of demand for PCs in the
region. Any such reduction in demand for PCs would adversely affect the
Company's business, financial condition or results of operation. See
"Dependence on the Underlying PC Industry; Dependence on Current PC Industry
Standards."

Award Software Hong Kong Limited, the company's wholly owned subsidiary, is
incorporated under the laws of Hong Kong ("Award Hong Kong"). Substantially all
of the Company's Asian desktop motherboard and OEM development and design
facilities are operated through Award Hong Kong's branch office located in
Taipei, Taiwan. These operations could be severely affected by national or
regional political instability in China, including instability which may occur
in connection with a change in leadership in China, change of control of Hong
Kong from the United Kingdom to China, by evolving interpretation and
enforcement of legal standards, by conflicts, embargoes, increased tensions or
escalation of hostilities between China and Taiwan and by other trade customs
and practices that are dissimilar to those in the United States. Interpretation
and enforcement of China's laws and regulations continue to evolve and the
Company expects that differences in interpretation and enforcement will continue
in the foreseeable future.

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 currently holds a patent in the U.S. for one invention and a patent
abroad for one invention which is jointly owned with a third party. The Company
has patent applications pending in the U.S. and/or abroad on seven inventions,
two of which are owned jointly with a third party. 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

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<PAGE>

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 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 codes or processes, 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 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.

PRODUCTS--SYSTEM MANAGEMENT AND ENABLING SOFTWARE

Personal Computer Software Products

Award System BIOS

The Company's Award System BIOS, or AwardBIOS, 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 this
technology, known as "Hot" Plug and Play, allows for the installation,
recognition and removal of peripherals while power is on.

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<PAGE>

. 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 an 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.

. USB is a new Plug and Play interface designed to provide an easy connection
of 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.

Mobile PC BIOS is a customized BIOS solution for use in notebook and other
portable PCs. It integrates the core software code with modules that support
Plug and Play, PCI, APM, DMI and USB. In addition, this new product supports
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 has
also developed smart battery support that ensures compatibility and monitors
diagnostic information for the advanced batteries found in mobile PCs.

Remote Management Software

Award Preboot Manager, and its companion product, Award Preboot Agent, is a
patent-pending solution developed by the Company that allows technical support
personnel to remotely access a disabled PC via a modem or network 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 number of
system problems. Award Preboot Manager allows an expert system or technical
support person to run BIOS setup, see error messages, download files 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. The Award Preboot Manager and Award Preboot Agent
solution benefits PC system manufacturers as well as third-party service
providers because it can reduce both the time and cost expended to diagnose and
repair the system.

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,
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.

BIOS Upgrade Solutions

Computers manufactured a few years ago often have enough computing power to
meet the users' needs, but may lack support for certain technologies, such as
large, removable media, which did not exist when the PC was built. Award
provides BIOS upgrades for PCs based on the Company's and its competitors' BIOS,
allowing the end-users to extend the useful life of their PC systems.

PC Diagnostics Software

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With the mounting complexity of today's PCs, the ability to distinguish
between user mistakes ("operator errors") and actual system failures becomes
more important. The Company's PC DIAG and POSTcard offer standalone software
and hardware diagnostic solutions, respectively, allowing MIS personnel and PC
end-users alike to quickly determine the causes of their system failures.

Embedded Systems Software Products

Embedded System BIOS

AwardBIOS for Embedded Systems 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.

Win32-Compatible Software for Embedded Devices

The Win32 application program interface ("API") standard has become the
computer industry's most popular programming environment. As such, large
numbers of application programs and software development tools are available for
Microsoft Windows software end-users and developers. The Company's APIAccess
product enables developers of embedded systems to use many of the same software
development tools that they currently use for developing PC applications, and
then to compile, link and run these applications on non-Windows-based, RISC or
x86 systems, reducing time to market and development costs.

Internet-Enabling Software for Embedded Devices

To reduce time to market, manufacturers of Internet-enabled embedded devices,
such as Internet telephones, set-top boxes and intelligent terminals, require
off-the-shelf, integrated solutions combining the operating system, an Internet
browser and other connectivity or productivity applications. The traditional
approach is to license a RTOS and a RTOS-specific version of a browser,
requiring the manufacturer to develop other supporting applications using the
RTOS vendor's development tools. The Company's WWWAccess product brings the
Win32 paradigm to these classes of embedded devices, providing a complete
Internet Appliance solution while also enabling the manufacturer to develop or
select Windows-based commercial applications, such as email tools or
connectivity solutions for inclusion on their devices.

USB-Enabling Software

USB is the emerging standard for PC connectivity of slow- and medium-speed
peripherals such as keyboards, mice, printers and scanners. Windows 98,
currently scheduled to be released in mid-1998, will be the first operating
system to support USB, although PC systems have had USB hardware connectivity
built-in since 1997. The Company's USBAccess product enables non-Windows
operating systems, including RTOS, to support the same USB standard and the same
PC peripherals available on the market.

CUSTOMERS

The Company services over 200 customers worldwide, including designers and
manufacturers of desktop PC motherboards, PC systems and notebooks, hardware
components and embedded devices. Current customers include Compaq, LG
Electronics, Micron, Motorola, NEC and Packard Bell. 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
the years ended December 31, 1997, 1996 and 1995, Vobis Microcomputer AG
("Vobis") accounted for approximately 5%, 11% and 13% of the Company's revenues,
respectively.

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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 and North Andover,
Massachusetts. In Asia, the Company operates from its office in Taipei, Taiwan,
Hong Kong, China; Yokohama, Japan, and through an independent sales
representative in Korea. 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
and events, attendance at technical seminars and designation as hardware
reference platform designs by processor and 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., Asia
and Europe. 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.

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 PC standards such as IEEE-
1394 and I2O, and to address perceived opportunities in related markets such as
mobile computing, remote diagnostics and embedded systems. Award's engineers
actively participate in a number of relevant industry standard groups, such as
the I2O Special Interest Group, the Personal Computer Memory Card International
Association, the Desktop Management Task Force, the Peripheral Component
Interconnect Special Interest Group and the IEEE-1394 Trade Association, 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 and the customization of
other enabling software for new embedded designs. The Company works closely with
the customer's engineers to ensure that the final motherboard design and the
Award BIOS, or the customers' embedded systems and the Company's other enabling
software, are developed efficiently. The turnaround time for customizing a BIOS
for a customer can be as short as one week. Customization of embedded products
can take longer, depending on the Company's product in question. Customization
of BIOS or other enabling software can be done in the U.S., Taiwan, Japan or
Germany, 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

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<PAGE>

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 PC and embedded systems
management software companies, including AMI, Phoenix Technologies and
SystemSoft, 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, 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 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 and SystemSoft. In addition,
SystemSoft 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 operating software system software vendors
incorporate more system management software into their products. 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
embedded toolkit 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 98 and Windows NT 5.0 operating systems. The Company has
developed 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

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<PAGE>

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 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 upgraded its customers to the new version of such
software routines 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, 1997, the Company had 163 full-time employees, of whom 82
are engaged in engineering and technical positions, 49 in sales and marketing,
and 32 in finance, operations and administration. Except for two employees in
the U.S. and all employees in Germany, none of the Company's employees is party
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, 1997
are as follows:

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NAME AGE Position
---- --- --------

George C. Huang........... 56 Chairman of the Board, President, Chief
Executive Officer and Director

Reza Afghan............... 37 Vice President and General Manager, System
Software; President, Award Software Japan KK

Kevin J. Berry............ 48 Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary

Maurice W. Bizzarri....... 42 Vice President, Research and Development

Laurent K. Gharda........ 39 Vice President, Marketing

Lyon T. Lin.............. 45 General Manager, Taiwan; President, Award
Software Hong Kong Limited

Pierre A. Narath......... 34 Vice President and President, Unicore
Software, Inc.

Ann P. Shen.............. 57 Senior Vice President, Strategic Business
Vice President and General Manager,

David J. Wippich......... 33 Internet and Embedded Products

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
National Taiwan University, an M.S. from Washington State University, and a
Ph.D. in Electrical Engineering from the University of Washington.

REZA AFGHAN has served as Vice President and General Manager of System
Software since January 1998, and President of Award Software Japan KK since
March 1997. From January 1997 to January 1998, Mr. Afghan served as Vice
President, Mobile Products. From January 1994 to December 1997, he served as
Vice President, Operations. 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 and Mathematics from Oregon State University.

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, Research and Development
since January 1998. From July 1995 to January 1998, Mr. Bizzarri served as Vice
President, Engineering. From June 1992 to July 1995, he 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.

LAURENT K. GHARDA has served as Vice President, Marketing since February 1997.
From July 1996 to February 1997, Mr. Gharda served as Vice President, Marketing
and Sales of Willows Software, a developer of

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software used to migrate Windows applications to alternative platforms. In April
1995, he founded and served as President of QualSoft Corp., a provider of UNIX
and Windows software development and migration tools, until it was merged with
Willows Software. From 1993 to April 1995, Mr. Gharda served as Vice President,
Sales of Veritas Software, a developer of storage management technology. Mr.
Gharda received a B.A. in Computer Science from the University of California at
Berkeley.

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.

PIERRE A. NARATH has served as Vice President, and President, Unicore
Software, Inc., since May 1997. From February 1990 to May 1997, Mr. Narath
founded and served as President of Unicore Software, Inc.

ANN P. SHEN has served as Senior Vice President, Strategic Business since
January 1997. From December 1994 to January 1997, Dr. Shen served as Vice
President, Sales and Marketing. 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 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.

DAVID J. WIPPICH has served as Vice President and General Manager, Internet
and Embedded Products since January 1997. From November 1995 to January 1997,
Mr. Wippich served as Director of Sales, North America. From December 1994 to
November 1995, he served as Chief Operating Officer and Executive Vice President
of TEI Contract Manufacturing Services, a contract manufacturing company. From
September 1992 to December 1994, Mr. Wippich served as Director of Marketing and
Sales. Mr. Wippich received a B.S. in Business from the University of Phoenix.

ITEM 2. PROPERTIES

The Company's headquarters are located in Mountain View, California. The
Company subleases approximately 36,800 square feet in this facility renewable on
a yearly basis after December 31, 1996. The Company also leases office space in
Irvine, California; North Andover, Massachusetts; Taipei, Taiwan; Hong Kong,
China; Yokohama, Japan; and Munich, Germany. These offices provide sales and
technical support to its customers in Southern California, Canada and the
Eastern U.S., Asia, Japan 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, 1997.

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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.

FISCAL YEAR ENDED
DECEMBER 31, 1996 HIGH LOW

Fourth Quarter ended December 31, 1996 $ 9.88 $ 6.50

FISCAL YEAR ENDED HIGH LOW
DECEMBER 31, 1997

First Quarter ended March 31, 1997 $18.13 $ 9.38
Second Quarter ended June 30, 1997 $14.75 $10.25
Third Quarter ended September 30, 1997 $13.00 $ 9.13
Fourth Quarter ended December 31, 1997 $13.50 $ 6.88

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 17, 1998, there were 88 holders of record of the
Company's Common Stock.

Recent Sales of Unregistered Securities.

In May 1997, the Company acquired all of the outstanding stock of Unicore
Software, Inc. ("Unicore") through the merger of Unicore with and into a wholly
owned subsidiary of the Company (the "Unicore Merger") pursuant to an Agreement
and Plan of Merger and Reorganization (the "Merger Agreement"), dated as of May
29, 1997, by and among the Company, its wholly owned subsidiary, Unicore and
Pierre A. Narath ("Narath"). Pursuant to the terms of the Merger Agreement, the
Company issued to Narath, the selling shareholder, 218,571 shares of the
Company's Common Stock.

The sale and issuance of securities in the transaction described 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
purchaser represented his 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 transaction. The purchaser
either received adequate information about the Company or had access, through
employment or other relationships, to such information.

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.

19
<PAGE>

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
---------- -----------
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER ENDED ENDED
31, DECEMBER 31, JULY 1,
(In thousands, except per share data) 1997 1996 1995 1994 1993 1993
------- ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>

CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues
Software license fees..................... $19,502 $11,721 $6,989 $5,585 $ 1,903 $ 1,763
Engineering services...................... 2,366 472 239 161 107 47
Related parties........................... 1,499 1,878 1,902 972 50 --
------- ------- ------ ------ ------- -------
Total revenues............................. $23,367 $14,071 $9,130 $6,718 $ 2,060 $ 1,810
======= ======= ====== ====== ======= =======
Income (loss) from operations.............. $ 5,641 $ 3,961 $1,861 $2,057 $(1,125) $ (628)
======= ======= ====== ====== ======= =======
Net income (loss).......................... $ 4,680 $ 2,885 $1,165 $1,258 $(1,178) $ (655)
======= ======= ====== ====== ======= =======
Basic net income (loss) per share(1)....... $0.68 $0.54 $0.28 $0.33 $(0.31)
======= ======= ====== ====== =======
6,867 5,335 4,136 3,842 3,842
Weighted average common shares............. $0.61 $0.47 $0.25 $0.33 $(0.31)
======= ======= ====== ====== =======
Diluted net income (loss) per share(1)
Weighted average number of common
and common equivalent shares............... 7,705 6,095 4,650 3,842 3,842
</TABLE>

THE COMPANY PREDECESSOR
DECEMBER 31, JULY 1,
------------- -------
(Dollars in thousands) 1997 1996 1995 1994 1993 1993
------- ------- ------ ------ ------- -------
<S>........................................ <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $24,631 $23,248 $6,498 $1,374 $ 280 $ 156
Working capital (deficit).................. 27,416 23,792 6,642 1,173 (1,113) (1,189)
Total assets............................... 34,381 28,410 9,083 3,119 1,807 1,088
Shareholder's equity (deficit)............. 29,812 25,091 7,169 1,695 (468) (1,099)
</TABLE>
_______

(1) For an explanation of the number of shares used to compute basic net income
(loss) per share and diluted net income (loss) per share, see Note 2 of
Notes to Consolidated Financial Statements.

20
<PAGE>

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

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
over 60% 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, 1997,
1996 and 1995, revenues from international operations represented 55%, 71% and
68% 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, 1997, 1996 and 1995, 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. See "Business Risks--International Operations; Currency
Fluctuations; International Unrest."

On September 10, 1997, the Company entered into a Master Original Equipment
Manufacturer (OEM) Software License Agreement ("the License Agreement") with
Intel to market and distribute Intel's LANDesk Client Manager software to its
Taiwan customers. Products incorporating this software, coupled with or without
Company products, would then be distributed throughout the world. The License
Agreement is non-exclusive, royalty-bearing, and automatically renews for
additional one-year terms subject to certain termination rights. Intel's
software, because it is designed as a PC and network-based solution to ease both
client and system administration to reduce the total cost of PC ownership,
compliments the existing system management software offerings of the Company to
existing and potential customers around the world.

On May 30, 1997, the Company acquired all of the outstanding stock of Unicore
through the Unicore Merger pursuant to the Merger Agreement, dated as of May 29,
1997, by and among the Company, its wholly owned subsidiary, Unicore and Narath.
Unicore is engaged in the business of providing basic input/output software

21
<PAGE>

upgrades for personal computers and embedded systems. Pursuant to the terms of
the Merger Agreement, the Company issued to Narath, the selling shareholder,
218,571 shares of the Company's common stock. The Merger is being treated as a
tax-free reorganization under the Internal Revenue Code of 1986, as amended, and
is being accounted for as a pooling of interests. The terms of the Merger
Agreement were determined through arm's-length negotiations between the Company
and Unicore and Narath. In addition, Narath entered into an employment
agreement with the Company pursuant to which Narath shall serve as a Vice
President of the Company and President of Unicore, the Company's wholly owned
subsidiary.

On April 30, 1997, the Company entered into a memorandum of understanding with
Sun and Axis Corporation ("Axis") to establish a majority-owned subsidiary,
Award Software Japan KK ("Award Japan"), a joint venture corporation
incorporated under the laws of Japan and based in Yokohama, Japan (the "Japan
Joint Venture"). The objective of Award Japan is to market and distribute the
Company's products in Japan. The Company, Sun and Axis contributed
approximately $310,000, $95,000 and $95,000 for 62%, 19% and 19% ownership of
Award Japan, respectively.

On February 21, 1997, the Company acquired certain assets of Willows software
("Willows acquisition") for $400,000 cash, direct acquisition costs of $40,000
and the assumption of liabilities totaling $44,000. The purchase price was
allocated based upon the estimated fair market value of identifiable tangible
and intangible assets and liabilities assumed, including $289,000 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.

The Unicore Merger, Japan Joint Venture and Willows acquisition were
motivated by many factors, including the desire to obtain new technologies, the
desire to expand and enhance the Company's product lines and the desire to
attract key personnel. The integration of such operations is typically
difficult, time consuming and subject to a number of inherent risks. In the case
of software development enterprises, the success of acquisitions is dependent
upon the integration and retention of existing employees. There can be no
assurance that key employees of an acquired enterprise will remain with the
Company after an acquisition. The success of acquisitions and joint ventures
will also be dependent upon the Company's ability to fully integrate the
management information and accounting systems and procedures of such entities
with those of the Company. The Company's management will be required to devote
substantial time and attention to the integration of these businesses and to any
material operational or financial problems that may occur as a result of such
transactions. There can be no assurance that operational or financial problems
will not occur as a result of any acquisition, business combination or joint
venture. Failure to effectively integrate such businesses could have a material
adverse effect on the Company's business, results of operations and financial
condition.

From time to time, the Company reviews, evaluates and holds discussions
regarding strategic acquisition, business combination and joint venture
opportunities as a way of enhancing its business and shareholder value. In
connection therewith the Company's Board of Directors formed a committee
authorized to evaluate such opportunities. Enhancement of the Company's
business and shareholder value through strategic acquisitions, business
combinations and joint ventures has a number of risks including the failure to
realize anticipated benefits (such as cost savings and synergies) and issues
related to product transition (such as distribution, engineering and customer
support). There can be no assurance that the Company will consummate any
strategic acquisition, business combination or joint venture in the future, or
if consummated, that any such strategic acquisition, business combination or
joint venture will ultimately be beneficial to the Company and its shareholders.
As a general rule, the Company only discloses publicly such transactions upon
execution of a definitive agreement.

22
<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.

YEAR ENDED
-----------------------------
DECEMBER 31,
-----------------------------
1997 1996 1995
------- --------- ---------
(AS A PERCENTAGE OF
TOTAL REVENUES)

Revenues:
Software license fees.......... 84% 83% 77%
Engineering services........... 10 4 2
Related parties................ 6 13 21
---- ---- ----
Total revenues............... 100 100 100
---- ---- ----
Cost of revenues:
Software license fees.......... 8 4 4
Engineering services........... 3 1 1
Related parties................ 0 2 2
---- ---- ----
Total cost of revenues....... 11 7 7
---- ---- ----
Gross profit..................... 89 93 93
---- ---- ----
Operating expenses:
Research and development....... 28 30 30
Sales and marketing............ 21 20 25
General and administrative..... 16 15 17
---- ---- ----
Total operating expenses..... 65 65 72
---- ---- ----
Income from operations........... 24 28 21
Interest expense................. -- -- --
Interest and other income, net... 5 4 1
---- ---- ----
Income before income taxes....... 29 32 22
Provision for income taxes....... 9 12 9
---- ---- ----
Net income....................... 20% 20% 13%
==== ==== ====

Comparison of Years Ended December 31, 1997 and December 31, 1996

Revenues. The Company's revenues increased 66% from $14.1 million in 1996 to
$23.4 million in 1997. Software license fees increased 66% from $11.7 million in
1996 to $19.5 million in 1997. The increase was primarily due to higher unit
shipments to new and existing motherboard customers in Taiwan and the U.S. and
to embedded systems customers in the U.S. Revenues from the distribution of the
Company's PC Card software accounted for 3% and 6% of the Company's total
revenues in the years ended December 31, 1997 and 1996, respectively.
Engineering services revenues increased from $472,000 in 1996 to $2.4 million in
1997, primarily due to higher engineering services revenues from customers in
the U.S. and Japan. Related parties revenues decreased 20% from $1.9 million in
1996 to $1.5 million in 1997 primarily due to lower volume of software license
fees and engineering services. Revenues from international operations were 55%
and 71% of the Company's revenues in 1997 and 1996, respectively. During the
year ended December 31, 1997, 41% and 3% 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 either 1997 or 1996. However, there can be no

23
<PAGE>

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 from $980,000, or 7% of
revenues, in 1996 to $2.6 million, or 11% of revenues, in 1997. Cost of
software license fees increased from $521,000 in 1996 to $1.8 million in 1997.
This increase was primarily due to increased volume and higher costs of royalty
fees associated with the Intel LANDesk Client Management software, which the
Company began shipping in the fourth quarter. Cost of engineering services
revenues increased from $131,000 in 1996 to $686,000 in 1997. This increase was
primarily due to higher engineering salary and related costs. Cost of related
parties revenues decreased 77% from $328,000 in 1996 to $76,000 in 1997. This
decrease was primarily due to a decrease in cost of software license fees and
cost of engineering services revenues from a related party product development
effort. The Company anticipates that if sales of the Intel Software increase,
there will be additional increases in cost of revenues.

Research and Development. Research and development expenses increased 57%
from $4.2 million, or 30% of revenues in 1996, to $6.6 million, or 28% of
revenues, in 1997. This increase was primarily due to the growth in research
and development personnel from 55 to 82 individuals during the year hired as
part of the effort to develop new software products and to service new and
existing customers, and a one-time charge of $289,000 for in-process research
and development as a result of the Willows acquisition. 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 74% from $2.9
million, or 20% of revenues, in 1996 to $5.0 million, or 21% of revenues, in
1997. This increase was primarily due to the hiring of sales and marketing
personnel and related expenses, higher sales commissions for increased revenues,
increased participation in trade shows and higher professional services fees.

General and Administrative. General and administrative expenses increased
73% from $2.1 million, or 15% of revenues, in 1996 to $3.6 million, or 16% of
revenues, in 1997. This increase was primarily due to higher public company
expenses, the hiring of general and administrative personnel and related
expenses, higher professional services fees and higher facilities costs.
Amortization of deferred compensation expense of $74,000 and $75,000 is included
in general and administrative expense in 1997 and 1996, respectively.

Interest expense. Interest expense increased from $6,000 in 1996 to $33,000
in 1997 due to a short-term borrowing under an existing loan agreement of one of
the Company's subsidiaries, which credit line was terminated in the third
quarter.

Interest and Other Income. Interest and other income increased from $552,000
in 1996 to $1.2 million in 1997 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
36% in 1996 to 31% in 1997. 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, 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 6% and 15% of the Company's total
revenues in the

24
<PAGE>

years ended December 31, 1996 and 1995, 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 at $1.9 million in 1996 and 1995.
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, in 1995 to $980,000, or 7% of revenues, in 1996. 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, in 1995 to $4.2 million, or 30% of
revenues, in 1996. 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, in 1995 to $2.9 million, or 20% of revenues, in
1996. 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, in 1995 to $2.1 million, or 15% of
revenues, in 1996. 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.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations primarily through the sale of equity
securities and from cash generated from operations. As of December 31, 1997,
the Company had cash and cash equivalents of $24.6 million and working capital
of $27.4 million. Net cash provided by operating activities was $3.0 million in
1997 and was primarily due to higher net income partially offset by reductions
in accrued liabilities and increases in accounts receivable and other current
assets.

25
<PAGE>

Net cash used in investing activities was $1.8 million in 1997 and was
primarily due to the Company's purchase of computer hardware and software
equipment, the purchase of equipment resulting from the Willows acquisition and
an increase in capitalized software development costs.

Net cash provided by financing activities was $255,000 in 1997 and was
primarily due to proceeds from Common Stock issuances as a result of purchases
of stock under the Employee Stock Purchase Plan partially offset by payments
under note obligations.

On October 25, 1996, the Company completed 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. The Company believes
that the net proceeds from the sale of Common Stock, together with anticipated
cash flows from operations and existing cash balances, will satisfy the
Company's projected expenditures through 1998 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.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income," and No. 131 ("SFAS No. 131"), "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements and is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 supersedes SFAS No. 14 and
requires segment information to be reported on the basis that is used entirely
for evaluating segment performance and deciding how to allocate resources to
segments in quarterly and annual reports. SFAS No. 131 is effective for annual
reports for fiscal years beginning after December 15, 1997, and is applicable to
interim financial statements beginning with the second year of application. The
Company believes that the effect of adopting the new standards will not be
material to its consolidated financial statements.

In October 1997, the Accounting Standards Executive Committee issued Statement
of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition," which is
effective for transactions entered into in fiscal years beginning after December
15, 1997. Retroactive application of the provision of this SOP is prohibited.
The Company has reviewed the SOP and believes that, based on its current
policies, the application of this SOP will not have a material impact on the
recording of future revenue.

THE YEAR 2000

The Year 2000 Issue is the result of computer programs using two digits rather
than four to define the applicable year. The Company's internal programs that
have time-sensitive software may recognize a date using "00" as the calendar
year 1900 rather than the calendar year 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. Because the Company licenses and provides services relating to PC
software and firmware, the Company may become involved in investigations or
allegations regarding the Year 2000 Issue.

The Company is in the process of conducting a comprehensive review of its
internal computer systems to identify the systems that could be affected by the
Year 2000 Issue and is developing an enterprise-wide implementation plan to
resolve any identified issues. The Company also believes, with modifications to
existing operational software, the Year 2000 Issue will not pose significant
operational problems for the Company's computer systems as so modified and
converted. The Company expects to incur internal staff costs as well as
consulting and other expenses related to the enhancements necessary to prepare
the systems for the year 2000. The

26
<PAGE>

Company has no reasonable estimate of the amount associated with the transitions
of the Company's remaining systems. If modifications and conversions are not
completed in a timely manner, the Year 2000 Issue may have a material impact on
the Company's operations. Furthermore, there can be no assurance that the
systems of other companies with which the Company deals and on which the
Company's systems rely will also be timely converted or that any such failure to
convert by another company would not have a material impact on the Company's
operations.

The Company believes its current products do not require modification for the
Year 2000 Issue, and does not anticipate any material exposures related to the
Year 2000 Issue for its products and services. The Company cannot anticipate
the degree to which it may be the subject of claims or complaints regarding the
Year 2000 Issue.

27
<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 subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, 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
January 29, 1998

28
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)

DECEMBER 31,
-----------------------
1997 1996
---------- -----------
ASSETS

Current assets:
Cash and cash equivalents.................. $24,631 $23,248
Accounts receivable, net................... 4,256 2,068
Accounts receivable from related parties... 747 1,197
Deferred income taxes...................... 483 131
Other current assets....................... 1,698 467
------- -------
Total current assets.................... 31,815 27,111
Property and equipment, net.................. 1,367 683
Other assets................................. 1,199 616
------- -------
$34,381 $28,410
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable........................... $ 449 $ 215
Accrued liabilities........................ 3,950 3,104
------- -------
Total current liabilities............... 4,399 3,319
Minority interest............................ 170 --
------- -------
4,569 3,319
------- -------
Commitments (Note 10)

Shareholders' equity:
Preferred stock, 5,000,000 shares
authorized; no shares issued
or outstanding...................... -- --
Common stock, 40,000,000 shares authorized;
no par value; 6,941,846 and
6,538,951 shares issued and
outstanding......................... 22,571 21,269

Deferred stock compensation.................. (106) (180)
Retained earnings............................ 8,320 4,130
Cumulative translation adjustment............ (973) (128)
------- -------
Total shareholders' equity.............. 29,812 25,091
------- -------
$34,381 $28,410
======= =======

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

29
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Software license fees...................................... $19,502 $11,721 $6,989
Engineering services....................................... 2,366 472 239
Related parties............................................ 1,499 1,878 1,902
------- ------- ------
Total revenues.......................................... 23,367 14,071 9,130
------- ------- ------
Cost of revenues:
Software license fees...................................... 1,828 521 387
Engineering services....................................... 686 131 43
Related parties............................................ 76 328 206
------- ------- ------
Total cost of revenues.................................. 2,590 980 636
------- ------- ------
Gross profit................................................. 20,777 13,091 8,494
------- ------- ------
Operating expenses:
Research and development.................................... 6,571 4,198 2,751
Sales and marketing......................................... 4,963 2,855 2,282
General and administrative.................................. 3,602 2,077 1,600
------- ------- ------
Total operating expenses................................. 15,136 9,130 6,633
------- ------- ------
Income from operations........................................ 5,641 3,961 1,861
Interest expense.............................................. (33) (6) (9)
Interest and other income..................................... 1,167 552 105
Minority interest............................................. 7 -- --
------- ------- ------
Income before income taxes.................................... 6,782 4,507 1,957
Provision for income taxes.................................... 2,102 1,622 792
------- ------- ------
Net income.................................................... $ 4,680 $ 2,885 $1,165
======= ======= ======
Basic net income per share.................................... $ 0.68 $ 0.54 $ 0.28
======= ======= ======
Weighted average common shares................................ 6,867 5,335 4,136
======= ======= ======
Diluted net income per share.................................. $ 0.61 $ 0.47 $ 0.25
======= ======= ======
Weighted average common and common equivalent shares.......... 7,705 6,095 4,650
======= ======= ======
</TABLE>

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

30
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)

DEFERRED CUMULATIVE TOTAL
STOCK RETAINED TRANSLATION SHAREHOLDERS'
COMMON STOCK COMPENSATION EARNINGS ADJUSTMENT EQUITY
--------------------- ------------- -------- ---------- ------
SHARES AMOUNT
---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994....... 3,841,801 $ 1,627 -- $ 80 $ (12) $ 1,695
Issuance of Common Stock and war-
rants, 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 war-
rants, net of issuance costs of 801,180 9,573 -- -- -- 9,573
$79................................
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
Issuance of Common Stock, net........ 72,391 482 -- -- -- 482
Tax benefits related to
disqualifying dispositions of
stock options....................... -- 622 -- -- -- 622
Pooling of interests with Unicore.... 218,571 35 -- (490) -- (455)
Exercises of Common Stock options.... 111,933 163 -- -- -- 163
Amortization of deferred stock
compensation........................ -- -- 74 -- -- 74
Cumulative translation adjustment.... -- -- -- -- (845) (845)
Net income........................... -- -- -- 4,680 -- 4,680
--------- ------- ----- ------ ----- -------
Balance at December 31, 1997......... 6,941,846 $22,571 $(106) $8,320 $(973) $29,812
========= ======= ===== ====== ===== =======
</TABLE>

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

31
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ------------ ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 4,680 $ 2,885 $ 1,165
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization............................... 706 223 132
Deferred income taxes....................................... (352) 130 (143)
Warrants issued for services................................ -- -- 374
Deferred stock compensation................................. 74 75 42
Minority interest........................................... 170 -- --
Changes in assets and liabilities, net of acquisition:
Accounts receivable, net.................................. (2,396) (1,057) (40)
Accounts receivable from related parties.................. 449 (347) (1,205)
Other current assets...................................... (1,221) (539) 138
Other assets.............................................. (53) (211) 24
Accounts payable.......................................... 160 24 49
Accrued liabilities....................................... 821 1,372 899
------- ------- -------
Net cash provided by operating activities............... 3,038 2,555 1,435
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............................. (1,170) (579) (147)
Capitalized software development costs.......................... (613) (209) --
------- ------- -------
Net cash used in investing activities.................... (1,783) (788) (147)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from Common Stock issuances........................ 482 17,401 6,837
Proceeds from exercise of options and warrants.................. 163 153 78
Repurchases of Common Stock..................................... -- (2,500) (2,998)
Repayments under note obligations............................... (390) -- (73)
------- ------- -------
Net cash provided by financing activities................ 255 15,054 3,844
------- ------- -------
Effect of exchange rate changes on cash......................... (585) (71) (8)
------- ------- -------
Net increase in cash and cash equivalents....................... 925 16,750 5,124
Cash and cash equivalents at beginning of period................ 23,706 6,498 1,374
------- ------- -------
Cash and cash equivalents at end of period...................... $24,631 $23,248 $ 6,498
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.......................................... $ 33 $ 6 $ 10
Cash paid for income taxes...................................... $ 2,300 $ 996 $ 282
</TABLE>

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

32
<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 Irvine, California, a wholly owned subsidiary in North
Andover, Massachusetts, a branch office in Munich, Germany, a joint venture in
Yokohama, Japan 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.

Merger and Acquisition

In May 1997, the Company merged with Unicore Software, Inc. ("Unicore"), a
privately held company providing basic input/output software upgrades for
personal computers and embedded systems. Under the terms of the Agreement and
Plan of Merger and Reorganization, the Company issued 218,571 shares of Common
Stock for all of the outstanding stock of Unicore in a transaction accounted for
as a pooling of interests. The historical operations of Unicore were not
material and, as a result, the business combination has been reported by
restating the Company's consolidated financial statements to include the
consolidated financial statements of Unicore effective January 1, 1997.

On February 21, 1997, the Company acquired certain assets of Willows software
("Willows acquisition") 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 market 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.

Formation of Joint Venture

In April 1997, the Company entered into an agreement with Sun Corporation
("Sun"), a shareholder, and Axis Corporation ("Axis") to establish a majority-
owned subsidiary, Award Software Japan KK ("Award Japan"). The objective of
Award Japan is to market and distribute the Company's products in Japan. The
Company, Sun and Axis contributed approximately $310, $95 and $95 for 62%, 19%
and 19% ownership of Award Japan, respectively.

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.

33
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements of the Company include the accounts of
Award Software International, Inc., its wholly owned subsidiaries and the
Company's 62% ownership of Award Japan. All inter-company 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 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.

34
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

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 product
revenues 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 $207, $22 and $18
for the three years ended December 31, 1997, 1996 and 1995, respectively.

Goodwill

Goodwill resulting from the acquisition of Award Common Stock by GCH is
included in other assets at December 31, 1997 and 1996, 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.

Foreign currency translation

The Company's operations in Taiwan, Hong Kong, Japan and Germany use the local
currencies as their functional 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

Basic net income per share is computed by dividing net income available to
Common Shareholders by the weighted average number of common shares outstanding
during the period. Diluted net income per share is calculated using the
weighted average number of outstanding shares of Common Stock plus dilutive
Common Stock equivalents. Common Stock equivalents consist of common stock
options and warrants, using the treasury stock method based on the average stock
price for the period.

35
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

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 system manufacturers
and, as a result, maintains individually significant receivable balances from
major customers located throughout the world. The Company performs ongoing
credit evaluations of its customers' financial condition and maintains an
allowance for uncollectible accounts receivable based on the expected
collectability of all accounts receivable.

The following table summarizes the net accounts receivable from customers
located in the following geographic areas:

36
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
--------- -------
<S> <C> <C>
United States.............................. $2,074 $ 327
Asia Pacific............................... 2,100 1,669
Europe..................................... 82 72
------ ------
$4,256 $2,068
====== ======
</TABLE>

All related party receivables are from United States customers. No customer
accounted for over 10.0% of accounts receivable at December 31, 1997. One
customer accounted for 26.1% of accounts receivable at December 31, 1996.

4. BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Accounts receivable................................. $4,345 $2,183
Less: allowance for doubtful accounts............... (89) (115)
------ ------
$4,256 $2,068
====== ======
PROPERTY AND EQUIPMENT:
Computer equipment.................................. $1,453 $ 796
Office equipment.................................... 334 124
Furniture and fixtures.............................. 381 102
------ ------
2,168 1,022
Less accumulated depreciation....................... (801) (339)
------ ------
$1,367 $ 683
====== ======
OTHER ASSETS:
Goodwill............................................ $ 265 $ 265
Capitalized software................................ 1,346 344
Other............................................... 104 263
------ ------
1,715 872
Less accumulated amortization:
Goodwill....................................... (239) (186)
Capitalized software........................... (277) (70)
------ ------
$1,199 $ 616
====== ======
ACCRUED LIABILITIES:
Salaries and benefits............................... $1,195 $ 584
Royalties........................................... 543 90
Income taxes payable................................ 1,686 1,160
Deferred revenue.................................... 195 615
Other............................................... 331 655
------ ------
$3,950 $3,104
====== ======
</TABLE>

5. NET INCOME PER SHARE

The following is a reconciliation of the numerators and denominators of the
basic and diluted net income per share calculations for 1997, 1996 and 1995:

37
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
December 31,
------------
(in thousands, except per share data) 1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
BASIC NET INCOME PER SHARE
Net income available to Common Shareholders....................... $4,680 $2,885 $1,165
====== ====== ======
Weighted average common shares.................................... 6,867 5,335 4,136
====== ====== ======
Basic net income per share........................................ $ 0.68 $ 0.54 $ 0.28
====== ====== ======
DILUTED NET INCOME PER SHARE
Net income available to Common Shareholders....................... $4,680 $2,885 $1,165
====== ====== ======
Weighted average common shares.................................... 6,867 5,335 4,136
Dilutive common stock equivalents................................. 838 760 514
------ ------ ------
Weighted average common shares and equivalents.................... 7,705 6,095 4,650
====== ====== ======
Diluted net income per share...................................... $ 0.61 $ 0.47 $ 0.25
====== ====== ======
</TABLE>

During 1997, 1996 and 1995, options to purchase 32,699, 180,062 and 0 shares
of Common Stock, respectively, were antidilutive and excluded from the dilutive
net income per share calculations because the options' exercise price was
greater than the average market price of the common shares.

6. 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.

38
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

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.

7. EMPLOYEE BENEFIT PLANS

Equity Incentive and Stock Option Plan

During 1997, the Company adopted the 1997 Equity Incentive Plan, under which
700,000 shares of common stock are reserved for issuance to eligible employees,
directors and consultants upon exercise of the stock options. Stock options are
granted at prices determined by the Board of Directors and generally may not be
less than 110% 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, 1997, no
shares were subject to repurchase.

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 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, 1997, no
shares were subject to repurchase.

On June 30, 1997, the Company registered an additional 268,446 shares of
Common Stock under the 1995 Stock Option Plan for issuance to new hires and
existing employees of the Company, excluding directors and executive officers of
the Company.

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

39
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

expense is being recognized over the option vesting period of four years.
Compensation expense recognized in 1997 1996 and 1995 aggregated $74, $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,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net income
As reported ......................................................... $4,680 $2,885 $1,165
====== ====== ======
Pro forma ........................................................... $3,475 $2,717 $1,155
====== ====== ======
Net income per share
As reported:
Basic .......................................................... $ 0.68 $ 0.54 $ 0.28
====== ====== ======
Diluted ........................................................ $ 0.61 $ 0.47 $ 0.25
====== ====== ======
Pro forma:
Basic .......................................................... $ 0.51 $ 0.51 $ 0.28
====== ====== ======
Diluted ........................................................ $ 0.48 $ 0.45 $ 0.25
====== ====== ======
</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 1997, 1996 and 1995,
respectively.

<TABLE>
<CAPTION>
STOCK OPTION ASSUMPTIONS: YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Stock Option Plan
Expected dividend yield ............................................. 0.00% 0.00% 0.00%
Expected stock price volatility ..................................... 60.75% 55.00% 55.00%
Risk-free interest rate ............................................. 6.19% 6.05% 5.50%
Expected life (years) ............................................... 5 5 5
Stock Purchase Plan
Expected dividend yield ............................................. 0.00% -- --
Expected stock price volatility ..................................... 60.75% -- --
Risk-free interest rate ............................................. 5.37% -- --
Expected life (years) ............................................... 0.5 -- --
</TABLE>

A summary of the status of the Company's stock option plan as of December 31,
1997, 1996 and 1995, and changes during the years ended on those dates is
presented below:

40
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

SHARES SUBJECT TO OUTSTANDING OPTIONS
-----------------------------------------------
WEIGHTED-
OPTIONS AVERAGE
AVAILABLE FOR NUMBER OF PRICE PER EXERCISE
GRANT SHARES SHARE PRICE
-------------- ---------------- --------------- ------------

<S> <C> <C> <C> <C>
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
Authorized.............................................. 968,446 -- -- --
Granted ............................................... (904,400) 904,400 9.25-11.25 10.37
Exercised ............................................. -- (111,933) 1.00-10.00 1.46
Canceled .............................................. 41,551 (41,551) 1.00-10.63 9.79
-------- --------- ----------- ------
Balance at December 31, 1997 ............................ 334,651 1,720,374 $1.00-11.25 $ 7.46
======== ========= =========== ======
</TABLE>

Options for 577,516, 345,685 and 106,500 shares of Common Stock were
exercisable at December 31, 1997, 1996 and 1995, respectively. Weighted average
fair value of options granted during the year were $5.98, $2.59 and $2.13 for
1997, 1996 and 1995, respectively.

The following table summarizes information about stock options outstanding at
December 31, 1997:

<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 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- --------------------- --------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$1.000 -- 5.000 535,411 7.11 years $ 1.24 372,310 $ 1.18
6.000 -- 10.250 581,213 9.09 years 9.60 99,317 9.45
10.625 -- 13.125 603,750 9.21 years 10.91 105,889 10.69
--------- ------ ------- ------
1,720,374 8.52 years $ 7.46 577,516 $ 4.35
========= ====== ======= ======
</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. During 1997, the Company issued 72,391 shares of its
Common Stock under the Purchase Plan.

41
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

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 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 1997, 1996 or 1995.

8. INCOME TAXES

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
United States .................. $1,438 $2,108 $ 464
Foreign ........................ 5,344 2,399 1,493
------ ------ ------
$6,782 $4,507 $1,957
====== ====== ======
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ---------- ------------
<S> <C> <C> <C>
Current:
Federal .......................................... $1,000 $ 709 $ 484
State ............................................ 98 59 46
Foreign .......................................... 1,356 724 405
------ ------ -----
Total current .................................. 2,454 1,492 935
------ ------ -----
Deferred:
Federal............................................ (382) 95 (133)
State.............................................. 30 35 (10)
Foreign .......................................... -- -- --
------ ------ -----
Total deferred ................................. (352) 130 (143)
------ ------ -----
$2,102 $1,622 $ 792
====== ====== =====
</TABLE>

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

42
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- ------------
<S> <C> <C>
Deferred tax liabilities:
Capitalized software........................... $(320) $ (90)
----- -----
Deferred tax assets:
Accrued liabilities............................ 67 79
Depreciation................................... 77 18
Allowance for doubtful accounts................ 34 34
State tax deduction............................ 2 6
Tax credits.................................... 478 0
Other.......................................... 145 84
----- -----
803 221
----- -----
Net deferred tax assets.......................... $ 483 $ 131
===== =====
</TABLE>

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 before income taxes as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Tax provision at the U.S. federal statutory rate.... $2,306 $1,532 $ 666
of 34%............................................
Foreign income taxed at different rates............. (486) (80) (77)
State and local taxes, net of federal benefit....... 69 221 117
Release of valuation allowance...................... -- -- (117)
Nondeductible charges and accruals.................. 207 -- 166
Other............................................... 6 (51) 37
------ ------ -----
Provision for income taxes.......................... $2,102 $1,622 $ 792
====== ====== =====
Effective tax rates................................. 31% 36% 40%
====== ====== =====
</TABLE>

9. 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,
--------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Customer A..................... -- -- 13.9%
Customer B--Related party...... 5.4% 11.0% 13.4%
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Software license fees........................... $1,479 $1,148 $1,084
Engineering services............................ 20 730 818
------ ------ ------
Total related party revenues.................. $1,499 $1,878 $1,902
====== ====== ======
Cost of revenues:
Software license fees........................... $ 74 $ 58 $ 60
Engineering services............................ 2 270 146
------ ------ ------
Total related party cost of revenues.......... $ 76 $ 328 $ 206
====== ====== ======
</TABLE>

43
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

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, 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
Year ended December 31, 1997:
Revenues from unaffiliated customers .... $ 9,016 $ 640 $12,212 $ -- $21,868
Revenue from related parties ............ 1,499 -- -- -- 1,499
Income (loss) from operations ........... 1,161 (604) 5,084 -- 5,641
Identifiable assets ..................... 27,088 465 11,082 (4,254) 34,381
</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,
-----------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Europe, principally Germany.......... $2,164 $2,003 $1,315
Asia Pacific, principally Japan...... 850 164 95
------ ------ ------
$3,014 $2,167 $1,410
====== ====== ======
</TABLE>

10. COMMITMENTS

Operating leases

The Company leases its office facilities in the U.S., Taiwan, Hong Kong, Japan
and Germany. Future minimum payments under non-cancelable operating leases, as
of December 31, 1997, were $651 and $148 for 1998 and 1999, respectively.

Under an agreement that extends through 1998, the Company subleases office
facilities in Mountain View, California with GCH and was charged rent totaling
$362, $161 and $84 for 1997, 1996 and 1995, respectively. The Company also
leases office facilities in Taipei, Taiwan from GCH-Sun Systems Company Ltd., a
subsidiary of GCH, and a shareholder on a month-to-month basis and was charged
rent totaling $269, $225 and $101 for 1997, 1996 and 1995, respectively. In
addition, the Company leases office facilities in North Andover, Massachusetts
from a realty company owned by an executive officer of the Company and was
charged rent totaling $69 in 1997. Management believes the terms of these
transactions are no less favorable than could be obtained from unaffiliated
third parties.

Total rent expense, including amounts to related parties above, was $799, $470
and $273 for the years ended December 31, 1997, 1996 and 1995, respectively.

44
<PAGE>

AWARD SOFTWARE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)

AWARD SOFTWARE INTERNATIONAL, INC.

SUPPLEMENTARY DATA (UNAUDITED)

<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------
1997 1996
-------------------------------------- ---------------------------------------
Dec. 31 SEPT. 30 JUNE 30 MAR. 31 DEC. 31 SEPT. 30 JUNE 30 MAR. 31
-------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenues.................. $7,535 $5,603 $5,202 $5,028 $4,522 $3,395 $3,342 $ 2,812
Gross profit.................... 6,237 5,080 4,773 4,688 4,231 3,137 3,199 2,524
Income from operations.......... 1,941 1,408 1,195 1,098 1,573 835 1,034 519
Net income...................... 1,660 1,128 1,000 892 1,174 608 717 386
Basic net income per share...... $ 0.24 $ 0.16 $ 0.15 $ 0.13 $ 0.19 $ 0.12 $ 0.14 $ 0.08
Diluted net income per share.... $ 0.22 $ 0.15 $ 0.13 $ 0.12 $ 0.17 $ 0.10 $ 0.13 $ 0.07

</TABLE>

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

None.

45
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS

<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION HELD WITH THE COMPANY
---- --- ---------------------------------------------------
<S> <C> <C>
George C. Huang.......................... 56 Chairman of the Board of Directors, President, Chief
Executive Officer and Director of the Company
Cheng Ming Lee........................... 55 President and Chief Executive Officer, Taiwan Venture
Capital Corporation and Fidelity Venture Capital Corporation
and Director of the Company
David S. Lee............................. 60 Chairman, CMC Industries, Inc. and Director of the Company
Masami Maeda............................. 64 President and Chief Executive Officer, Sun Corporation and
Director of the Company
Anthony Sun.............................. 45 General Partner, Venrock Associates and Director of the
Company
William P. Tai........................... 35 General Partner, Institutional Venture Partners and Director
of the Company
Willy Weck............................... 46 Finance Manager and Chief Financial Officer, Vobis
Microcomputer AG and Director of the Company
</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
National Taiwan University, an M.S. from Washington State University and a Ph.D.
in Electrical Engineering from the University of Washington. Dr. Huang and Lyon
T. Lin, an executive officer of the Company, are brothers-in-law.

CHENG MING LEE has served as a director since July 1993. From April 1987 to
the present, Dr. Lee has served as the President and Chief Executive Officer of
Taiwan Venture Capital Corporation ("TVCC") and FVCC, both of which are
shareholders of the Company. Dr. Lee serves on the Board of Directors of Taiwan
Opportunities Fund Limited and CNET Technology Corp. Dr. Lee received a B.S.
from National Taiwan University, an M.S. from Stanford University and a Ph.D. in
Chemical Engineering from the University of Houston.

DAVID S. LEE has served as a director since December 1994. From May 1995 to
the present, Mr. Lee has served as the Chairman of CMC Industries, Inc., a
contract manufacturing company. From November 1985 to August 1994, Mr. Lee
served as the President and Chief Executive Officer of DTC Data Technology
Corporation (formerly Qume Corporation), a manufacturer of disk controller and
communication peripherals. Mr. Lee serves on the Board of Directors of Linear
Technology Corporation, Photonics Corporation and Centigram Communications
Corporation. In addition, Mr. Lee is a member of the Board of Regents of the
University of California. Mr. Lee holds an Honorary Doctorate of Engineering
and a B.S. in Mechanical Engineering from Montana State University and an M.S.
in Mechanical Engineering from North Dakota State University.

MASAMI MAEDA has served as a director since January 1995. From April 1971 to
the present, Mr. Maeda has served as President and Chief Executive Officer of
Sun Corporation, a manufacturer of electronic devices. He is also a member of
the Board of Directors of GCH and GSS.

ANTHONY SUN has served as a director since October 1995. From 1979 to the
present, Mr. Sun has been a general partner at Venrock Associates, a venture
capital firm. Previously, Mr. Sun was employed by

46
<PAGE>

HewlettPackard, TRW and Caere Corporation. Mr. Sun is a director of Cognex
Corporation, a computer systems company, 3dFx Interactive, Inc., a 3-d
semiconductor company, Inference Corporation, a client/server internet help desk
software company, Komag, Inc., a computer storage component company, and
Worldtalk Communications Corporation, a software application router company. Mr.
Sun holds S.B.E.E., S.M.E.E. and Advanced Engineer degrees from the
Massachusetts Institute of Technology and an M.B.A from Harvard University.

WILLIAM P. TAI has served as a director since June 1995. From July 1997 to
the present, Mr. Tai has been a general partner of funds managed by
Institutional Venture Partners. From September 1991 to July 1997, Mr. Tai was
affiliated with the Walden Group of Venture Capital Funds. From August 1987 to
September 1991, Mr. Tai established Alex. Brown & Sons Inc.'s research effort in
the semiconductor industry. Mr. Tai also serves on the Board of Directors of
8x8, Inc., Network Peripherals, Inc., and is Chairman of AUNET Corporation. Mr.
Tai holds a B.S. with Honors in Electrical Engineering from the University of
Illinois and an M.B.A. from Harvard University.

WILLY WECK has served as a director since April 1997. From December 1993 to
the present, Mr. Weck has served as Finance Manager and Chief Financial Officer
of Vobis Microcomputer AG, a computer and peripherals retailing and production
company. From January 1992 to December 1993, Mr. Weck served as head of the
Controlling Department of Vobis Microcomputer AG. For a description of the
voting agreement relating to Mr. Weck and Vobis Microcomputer AG, see "Certain
Relationships and Related Transactions."

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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, 1997, except as follows. Mr. Weck did not file Form 3.

47
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

COMPENSATION OF DIRECTORS

During the fiscal year ended December 31, 1997, Drs. Huang and Lee, and
Messrs. Lee, Maeda, Sun, Tai and Weck received $3,000, $4,000, $4,089, $6,000,
$3,000, $3,000, and $2,000, respectively, cash compensation for service on the
Board of Directors, and reimbursement of expenses in connection with attendance
at Board meetings. As of December 31, 1997, cash compensation for service on
any committee thereof, and reimbursement of expenses in connection with
committee meetings were unpaid.

In March 1997, in response to industry trends and customer demands, the
Company's Board of Directors formed a special committee (the "Acquisition
Committee") authorized to review, evaluate and make recommendations regarding
strategic acquisitions, business combinations and joint venture opportunities as
a way to enhance the Company's business and operations and long-term shareholder
value. During the fiscal year ended December 31, 1997, Messrs. Lee, Sun and
Tai, members of the Acquisition Committee, were granted options to purchase
25,000, 25,000 and 35,000 shares of the Company's common stock, respectively, at
an exercise price of $10.625 per share. In addition, Mr. Weck, as a new
director, was granted options to purchase 30,000 shares of the Company's common
stock at an exercise price of $10.625 per share.

COMPENSATION OF EXECUTIVE OFFICERS

SUMMARY OF COMPENSATION

The following table shows for the fiscal year ended December 31, 1997,
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer and its other four most highly compensated executive officers at
December 31, 1997 (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ---------------------------- ---- ---------- ------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
George C. Huang 1997 $160,000 $ 72,000 -- 30,000 --
Chairman of the Board, 1996 $133,503 $ 52,650 -- 35,000 --
President and Chief 1995 $ 92,986 -- -- -- --
Executive Officer

Kevin J. Berry(l) 1997 $110,000 $ 49,500 -- 27,500 --
Vice President, Finance, 1996 $ 87,885 $ 32,063 -- 17,500 --
Chief Financial Officer,
Treasurer and Secretary

Lyon T. Lin 1997 $101,513 $222,877(2) -- -- --
General Manager, Taiwan; 1996 $ 94,500 $150,285(3) -- 20,000 --
President, Award Software 1995 $110,618 $ 62,703(4) -- -- --
Hong Kong Limited

Ann P. Shen 1997 $ 95,000 $ 98,549(4) -- -- --
Senior Vice President, 1996 $ 91,461 $ 65,967(4) -- 7,500 --
Strategic Business 1995 $ 85,000 $ 32,090(4) -- -- --
</TABLE>

48
<PAGE>

<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ---------------------------- ---- ---------- ------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Pierre A. Narath (5) 1997 $229,633 $ 51,871 -- 55,000 --
Vice President and
President, Unicore
</TABLE>
____________

(1) Total annual compensation for 1995 did not exceed $100,000.

(2) Represents sales commissions earned of $193,040 and cash bonus of $29,837.

(3) Represents sales commissions earned of $141,458 and cash bonus of $8,827.

(4) Represents sales commissions earned.

(5) This Named Executive Officer was not an Officer of the Company prior to
January 1, 1997.

STOCK OPTION GRANTS AND EXERCISES

The Company grants options to its executive officers under its 1995 Stock
Option Plan (the "1995 Plan") and 1997 Equity Incentive Plan (the "1997
Plan"). In March 1997, the Company increased the number of shares of Common
Stock issuable under the 1995 Plan by 268,446 shares for option grants made to
existing and newly hired employees of the Company, none of whom were directors
or executive officers. In June 1997, the Company adopted the 1997 Plan, under
which 700,000 shares of Common Stock are reserved for issuance to eligible
employees, directors and consultants upon exercise of the stock options. As of
March 31, 1998, options to purchase a total of 1,288,884 shares were
outstanding and 0 options to purchase shares remained available for grant
thereunder under the 1995 Plan, and options to purchase a total of 700,000
shares were outstanding and 0 options to purchase shares remained available
for grant thereunder under the 1997 Plan.

The following tables show, for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL
REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATE OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($)
- --------------------- ------------ ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
George C. Huang 30,000 3.32% $10.63 03/25/07 $200,494 $508,088

Kevin J. Berry 27,500 3.04% $10.63 03/25/07 $183,786 $465,747

Lyon T. Lin -- -- -- -- -- --

Ann P. Shen -- -- -- -- -- --

Pierre A. Narath 55,000 6.08% $10.25 07/30/07 $354,599 $898,618
</TABLE>
____________

(1) Options granted generally become exercisable at the rate of 25% on the first
anniversary date of grant and 1/48th monthly thereafter, except for Dr.
Huang and Mr. Berry, whose options granted became exercisable at the rate of
25% on March 26, 1997 and 1/28th monthly thereafter. The term of the option
is ten years.

49
<PAGE>

(2) Based on an aggregate of 904,400 options granted to employees of,
consultants to and directors of the Company during fiscal year ended
December 31, 1997, including the Named Executive Officers.

(3) The exercise price per share of each option is equal to the fair market
value of the Common Stock on the date of grant.

(4) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. No gain to the optionee is possible unless the stock price increases
over the option term, which will benefit the shareholder.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SECURITIES SECURITIES VALUE OF VALUE OF
UNDERLYING UNDERLYING UNEXERCISED UNEXERCISED
SHARES UNEXERCISED UNEXERCISED IN-THE-MONEY IN-THE-MONEY
ACQUIRED OPTIONS AT OPTIONS AT OPTIONS AT OPTIONS AT
ON VALUE 12/31/97 (#) 12/31/97 (#) 12/31/97 ($) 12/31/97 ($)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
- --------------------- ----------- ----------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
George C. Huang -- -- 75,475 49,525 $ 179,766 --

Kevin J. Berry -- -- 39,671 30,329 $ 40,995 --

Lyon T. Lin -- -- 44,791 25,209 $ 216,145 $ 58,856

Ann P. Shen -- -- 22,119 11,431 $ 115,649 $ 34,927

Pierre A. Narath -- -- -- 55,000 -- --
</TABLE>
____________

(1) Based on the fair market value of the Common Stock of the Company as of
December 31, 1997 ($7.50), minus the exercise price, multiplied by the
number of shares underlying the option.

EMPLOYMENT AGREEMENTS

Except for two employees in the United States and all employees in Germany,
none of the Company's employees is party to an employment agreement with the
Company. Eight executive officers of the Company are parties to severance
benefits agreements. See "Certain Relationships and Related Transactions" for a
discussion of the severance benefits agreements, as amended.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors ("Committee") is composed
of Messrs. David S. Lee, Anthony Sun and William P. Tai, none of whom are
currently officers or employees of the Company. The Committee is responsible
for establishing the Company's compensation programs for all employees,
including executives. For executive officers, the Committee evaluates
performance and determines compensation policies and levels.

50
<PAGE>

COMPENSATION PHILOSOPHY

The goals of the compensation program are to align compensation with business
objectives and performance and to enable the Company to attract, retain and
reward executive officers and other key employees who contribute to the long-
term success of the Company and to motivate them to enhance long-term
shareholder value. Key elements of this philosophy are:

. Total compensation should be sufficiently competitive with other high-
growth companies in the software industry so that the Company can attract
and retain qualified executives.

. The Company maintains annual incentive opportunities sufficient to provide
motivation to achieve specific operating goals and to generate rewards
that bring total compensation to competitive levels.

. The Company provides significant equity-based incentives for executives
and other key employees to ensure that they are motivated over the long-
term to respond to the Company's business challenges and opportunities as
owners and not just as employees.

BASE SALARY. The Committee annually reviews each executive officer's base
salary. When reviewing base salaries, the Committee considers individual and
corporate performance, levels of responsibility, prior experience, breadth of
knowledge and competitive pay practices.

ANNUAL INCENTIVE. The bonus targets for executive officers are individually
based. The Committee determines the amount targeted for the chief executive
officer and the chief executive officer recommends to the Committee the bonus
targets for the remainder of the executive officers. The amount of the bonus
earned has historically been tied to the Company's sales and operating income.
Specific financial and business objectives established under the bonus program
are confidential commercial and business information and, as such, need not be
disclosed pursuant to instruction 2 to Item 402(k) of Regulation S-K.

As a percent of total cash compensation (percentage determined by dividing the
target bonus by the sum of base salary and target bonus), 1997 target bonuses
for the Named Executive Officers ranged from 18 % to 69 % with an average of
40%.

The annual bonus is a variable pay program for officers and other senior
managers of the Company to earn additional annual compensation (the "Bonus
Plan"). The actual bonus award earned depends on the extent to which Company
and individual performance objectives are achieved. At the start of each year,
the Committee reviews and approves the annual performance objectives for the
Company and individual officers. The Company objectives consist of operating,
strategic and financial goals that are considered to be critical to the
Company's fundamental long-term goal-building shareholder value. With respect
to officers and senior management other than the chief executive officer, the
Committee places considerable weight on the recommendations of the chief
executive officer.

LONG-TERM INCENTIVES. The Company's long-term incentive program consists of
the 1995 Stock Option Plan and 1997 Equity Incentive Plan. The option program
utilizes vesting periods (generally four years) to encourage key employees to
continue in the employ of the Company. Through option grants, executives
receive significant equity incentives to build long-term shareholder value.
Grants are made at 100% of fair market value on the date of grant. Executives
receive value from these grants only if the Company's Common Stock appreciates
over the long-term. The size of option grants is determined based on
competitive practices at leading companies in the software development industry
and the Company's philosophy of significantly linking executive compensation
with shareholder interests. In 1997, the Committee granted executive stock
options that will vest over a four-year period.

EMPLOYMENT AGREEMENTS. In recognition of their past and anticipated future
contributions to the long-term success of the Company and shareholder value, and
in light of the competitive market for qualified and experienced executives in
the software industry, the Company entered into a Severance Benefits Agreement
(each a "Severance Agreement") with all of its executive officers, except for
one executive officer who is a party to an employment agreement with the
Company. The Committee believes that each such Severance Agreement is consistent
with the arrangements of other similarly qualified executive officers in the
software industry. See "Certain Relationships and Related Transactions" for a
discussion of the Severance Agreements, as amended.

51
<PAGE>

CORPORATE PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION

Dr. Huang's base salary at the beginning of 1997 as President and Chief
Executive Officer was $160,000. In setting this amount, the Committee took into
account (i) the scope of Dr. Huang's responsibility and (ii) the Board's
confidence in Dr. Huang to lead the Company's continued development.
Considering these factors, Dr. Huang was granted an option to purchase 30,000
shares of Common Stock (representing less than 1% of the Company's fully diluted
equity) as an incentive for future performance, an amount the Committee
determined was consistent with competitive practices.

During 1997, the Company achieved all of its corporate objectives. The
Committee rated Dr. Huang's individual performance as successful primarily
reflecting the Company's achievement of its financial and other strategic goals
including the Unicore Merger, Japan Joint Venture and Willows acquisition. This
performance level resulted in a cash bonus of $72,000 for 1997 or 31% of his
total cash compensation.

ACQUISITION COMMITTEE

In response to industry trends and customer demands to provide greater service
at low costs and competitive pricing, the Company's Board of Directors formed
the Acquisition Committee to review, evaluate and make recommendations regarding
strategic acquisitions, business combinations and joint venture opportunities as
a way to enhance the Company's business and operations and long-term shareholder
value. In connection with their duties and responsibilities to the Acquisition
Committee, Dr. Huang and Mr. Berry were granted options to purchase 30,000 and
27,500 shares of the Company's common stock, respectively, at an exercise price
of $10.625 per share.

CONCLUSION

Through the plans described above, a significant portion of the Company's
compensation program and Dr. Huang's compensation are contingent on Company
performance, and realization of benefits is closely linked to increases in long-
term shareholder value. The Company remains committed to this philosophy of pay
for performance, recognizing that the competitive market for talented executives
and the volatility of the Company's business may result in highly variable
compensation for a particular time period.

COMPENSATION COMMITTEE

David S. Lee, Anthony Sun and William P. Tai

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee consists of Messrs. David S. Lee, Anthony Sun and
William P. Tai. No member of the Compensation Committee of the Company serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee. For a description of transactions
and relationships involving the Company and members of the Compensation
Committee, see "Certain Relationships and Related Transactions."

PERFORMANCE MEASUREMENT COMPARISON(l)

The following performance graph assumes an investment of $100 on October 25,
1996, the date of the Company's initial public offering, and compares the change
to December 31, 1997 in the market price of the Common Stock with a broad market
index (S&P 500) and an industry index (S&P Computers (Software & Services)).
The Company paid no dividends during the periods shown and the performance of
the indices is shown on a total return (dividend reinvestment) basis. The graph
lines merely connect the prices on the dates indicated and do not reflect
fluctuations between those dates.

52
<PAGE>

COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET

- ---------------------------- FISCAL YEAR ENDING -------------------------------
COMPANY 1996 1996 1997

AWARD SOFTWARE INTERNAT 100.00 121.88 93.75
INDUSTRY INDEX 100.00 109.81 152.97
BROAD MARKET 100.00 105.43 140.60

(1) This section is not "soliciting material," is not being filed with the
Securities and Exchange Commission, and is not to be incorporated by
reference into any filing of the Company under the Securities Act or the
Exchange Act whether made before or after the date hereof and irrespective
of any general incorporation language in such filing.

53
<PAGE>

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

The following table sets forth certain information regarding the ownership of
the Company's Common Stock as of March 1, 1998 by: (i) each director; (ii) each
of the Named Executive Officers in the Summary Compensation Table employed by
the Company in that capacity on March 1, 1998; (iii) all executive officers and
directors of the Company as a group; and (iv) all those known by the Company to
be beneficial owners of more than five percent of its Common Stock.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
---------------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- --------------- ----------------
<S> <C> <C>
Vobis Microcomputer AG (2)................................................. 993,742 12.09%
Carlo-Schmid-StraBe
D-5102 Wurselen Germany

George C. Huang (3)........................................................ 626,409 7.62%
Award Software International, Inc
777 East Middlefield Road
Mountain View, CA 94043

Wellington Management Company, LLP......................................... 442,400 5.38%
75 State Street
Boston, MA 02109

Sun Corporation............................................................ 424,797 5.17%
250 Asahi, Kochino-Cho
Konan City, Aichi Prefecture 483 Japan

Venrock Associates (4)..................................................... 416,666 5.07%
30 Rockfeller Plaza, Room 5508
New York, NY 10112

Willy Weck (5)............................................................. 1,001,867 12.19%

Cheng Ming Lee (6)......................................................... 572,929 6.97%

Masami Maeda (7)........................................................... 455,265 5.54%

Anthony Sun (8)............................................................ 453,919 5.52%
</TABLE>

54
<PAGE>

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
---------------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- --------------- ----------------
<S> <C> <C>
Lyon T. Lin (9)............................................................ 171,597 2.09%

William P. Tai (10)........................................................ 54,708 *

David S. Lee (11).......................................................... 47,857 *

Ann P. Shen (12)........................................................... 38,870 *

Kevin J. Berry (13)........................................................ 48,298 *

Pierre A. Narath........................................................... 196,714 2.83%

All directors and executive officers as a group (16 persons) (14).......... 3,757,744 45.71%
</TABLE>
____________

* Less than one percent.

(1) This table is based upon information supplied by officers, directors and
principal shareholders and Schedule 13D and 13G filed with the Securities
and Exchange Commission ("SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the shareholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
6,961,154 shares outstanding on March 1, 1998, adjusted as required by
rules promulgated by the SEC.

(2) Includes (i) 272,394 shares issuable pursuant to a warrant exercisable
within 60 days of March 1, 1998 and (ii) 80,146 shares issuable pursuant to
exercise of Vobis' Catch-up Right. See "Certain Relationships and Related
Transactions." Mr. Weck, a director of the Company, is Finance Manager and
Chief Financial Officer of Vobis Microcomputer AG. Mr. Weck disclaims
beneficial ownership of such shares held by Vobis.

(3) Includes (i) 14,582 shares held by Margaret Huang, (ii) 17,727 shares held
by Dwight Huang, (iii) 17,190 shares held by Edina Huang, Dr. Huang's wife,
son and daughter, respectively. Also includes 87,678 and 20,000 shares
issuable pursuant to options exercisable within 60 days of March 1, 1998 by
Dr. Huang and his wife, respectively. Dr. Huang disclaims beneficial
ownership of shares held by his wife, son and daughter.

(4) Includes (i) 229,302 shares held by Venrock Associates, (ii) 104,031 shares
held by Venrock Associates II, L.P. and (iii) 57,325 and 26,008 shares
issuable pursuant to warrants exercisable within 60 days of March 1, 1998
by Venrock Associates and Venrock Associates II, L.P., respectively. Mr.
Sun, a director of the Company, is a general partner of Venrock Associates.
Mr. Sun disclaims beneficial ownership of shares held by such entities,
except to the extent of his pecuniary interest therein.

(5) Includes 913,596 shares held by Vobis Microcomputer AG of which Mr. Weck
disclaims beneficial ownership. Also includes 8,125 shares issuable
pursuant to options exercisable within 60 days of March 1, 1998.

(6) Includes (i) 348,285 shares held by Taiwan Venture Capital Corporation,
(ii) 186,945 shares held by Fidelity Venture Capital Corporation and (iii)
14,211 shares held by Hwaxing Capital Corporation. Dr. Lee, a director of
the Company, is President and Chief Executive Officer of Taiwan Venture
Capital Corporation, Fidelity

55
<PAGE>

Venture Capital Corporation and Hwaxing Capital Corporation. Dr. Lee is
deemed to have voting power over the shares held by such entities. He
disclaims beneficial ownership of the shares held by such entities.

(7) Includes (i) 424,797 shares held by Sun Corporation and (ii) 10,156 shares
issuable pursuant to options exercisable within 60 days of March 1, 1998.
Mr. Maeda, a director of the Company, is President, Chief Executive Officer
and majority shareholder of Sun Corporation.

(8) Includes (i) 229,302 shares held by Venrock Associates, (ii) 104,031 shares
held by Venrock Associates II, L.P. and (iii) 57,325 and 26,008 shares
issuable pursuant to warrants exercisable within 60 days of March 1, 1998
by Venrock Associates and Venrock Associates II, L.P., respectively. Mr.
Sun, a director of the Company, is a general partner of Venrock Associates.
Mr. Sun disclaims beneficial ownership of shares held by such entities,
except to the extent of his pecuniary interest therein. Also includes
37,253 shares issuable pursuant to options exercisable within 60 days of
March 1, 1998.

(9) Includes (i) 6,862 shares held by Anne Lin, Mr. Lin's wife, (ii) 5,000
shares held by each of Christine Lin and Eric Lin, Mr. Lin's children, and
(iii) 50,625 and 6,093 shares issuable pursuant to options exercisable
within 60 days of March 1, 1998 by Mr. Lin and his wife, respectively. Mr.
Lin disclaims beneficial ownership of shares held by his wife and children.

(10) Includes 42,708 shares issuable pursuant to options exercisable within 60
days of March 1, 1998.

(11) Includes 17,857 shares issuable pursuant to options exercisable within 60
days of March 1, 1998.

(12) Includes 24,915 shares issuable pursuant to options exercisable within 60
days of March 1, 1998.

(13) Includes 46,725 shares issuable pursuant to options exercisable within 60
days of March 1, 1998.

(14) Includes 407,601, 355,727, and 80,146 shares issuable pursuant to options,
warrants and other rights, respectively, to purchase shares exercisable
within 60 days of March 1, 1998 by executive officers and directors as a
group.

56
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

FINANCINGS

In January 1996, Vobis Microcomputer AG ("Vobis") purchased 570,033 shares of
Common Stock at $12.28 per share and a warrant (the "Vobis Warrant") at $0.02
per warrant share to purchase 272,394 shares of Common Stock with an exercise
price of $12.28 per share. Pursuant to that certain Investors' Rights
Agreement, dated as of January 12, 1996, among the Company, Vobis and the other
parties thereto (the "Investors Rights Agreement"), Vobis may elect in respect
of future issuances of the Company's equity securities to purchase that number
of shares as is necessary to maintain its ownership interest (in no event to
exceed 17.5% assuming the exercise of the Vobis, Walden and Venrock Warrants) in
the Company existing immediately prior to such future issuances, subject to
certain restrictions (the "Catch-up Right"). Pursuant to the Catch-up Right,
Vobis has the right until May 10, 1998 to purchase (a) up to 32,026 shares at a
per share price of $14.00 and (b) up to 48,120 shares at a per share price of
$7.625. The Catch-up Right expires and terminates in accordance with its terms
upon the earlier of (i) the date upon which Vobis owns less than 8% of the
Company's Common Stock assuming the exercise of the Vobis, Walden and Venrock
Warrants or (ii) completion of an offering of shares of the Company's Common
Stock under the Securities Act with an aggregate offering price to the public of
at least $10,000,000 and a per share price of at least $13.60 (a "Qualified
Public Offering"). In July 1996 and December 1996, Vobis acquired 41,169 and
30,000 shares at a per share price of $10.00 and $8.00, respectively, pursuant
to its Catch-up Right.

In connection with Vobis' investment, the Company entered into a voting
agreement with Vobis, Walden Capital Partners II, L.P. and Walden Technology
Ventures II, L.P. (collectively, "Walden"), Venrock Associates and Venrock
Associates II, L.P. (collectively, "Venrock") and the Company's Chief Executive
Officer pursuant to which such shareholders agreed not to reduce the number of
directors of the Board of Directors below five and to elect a person designated
by Vobis to the Company's Board of Directors. Presently, Mr. Willy Weck is
Vobis' designee to the Company's Board of Directors. This agreement will
terminate upon the earlier of (i) January 12, 1999, (ii) a change of control of
the Company, (iii) the date upon which Vobis owns less than 8% of the Company's
outstanding shares of Common Stock assuming the exercise of the Vobis, Walden
and Venrock Warrants, or (iv) completion of a Qualified Public Offering.

The Vobis, Walden and Venrock Warrants contain a net exercise provision and
expire upon the earlier of (i) September 30, 2000 or (ii) completion of a
Qualified Public Offering. The holders of these warrants are entitled to
certain rights with respect to the registration of the shares of Common Stock
issuable upon exercise thereof under the Securities Act. Under the Investors'
Rights Agreement, Vobis, Walden and Venrock have the right to purchase equity
securities of the Company in respect of certain future issuances thereof, which
right terminates upon a Qualified Public Offering.

MISCELLANEOUS

The Company currently leases the Taiwan Office in Taipei, Taiwan, from Sun, a
shareholder, and GSS. In 1997, the Company made lease payments to Sun of
$69,188. The Company also made lease payments to GSS of $147,294 during 1997.

The Company has entered into an agreement with Sun pursuant to which Sun
provides the Company with marketing services in Japan and access to office space
in Tokyo, Japan. The Company made payments to Sun of $31,200 during 1997.

The Company believes that the foregoing transactions were in its best
interests. As a matter of policy, all future transactions between the Company
and any of its officers, directors or principal shareholders will be approved by
a majority of the independent and disinterested members of the Board of
Directors, will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and will be in connection with bona
fide business purposes of the Company.

As of December 1, 1997, the Company entered into Severance Agreements
with each of the following executive officers of the Company that provide for
payment of certain severance amounts in the event of an involuntary termination
of employment without cause or constructive termination of employment without
cause from the Company. Each of the Severance Agreements was amended on April
15, 1998.

57
<PAGE>

<TABLE>
<CAPTION>
Name % of Salary/Bonus/Commission
<S> <C>

Reza Afghan 50%
Kevin J. Berry 100%
Maurice W. Bizzarri 50%
Lyon T. Lin 100%
Laurent K. Gharda 50%
Ann P. Shen 50%
David J. Wippich 50%
</TABLE>

As of December 1, 1997, the Company entered into the Severance Agreement with
Dr. Huang providing for a severance payment of 200% of his then existing base
salary plus bonus in the event of an involuntary termination of employment
without cause or constructive termination of employment without cause from the
Company. This agreement also provides that in the event any excise taxes or
penalties are levied on Dr. Huang in respect of such severance payment,
including pursuant to Section 4999 of the Internal Revenue Code, Dr. Huang shall
be entitled to receive additional amounts equal to such taxes and penalties.

On March 1, 1998, the Company made a loan to Pierre A. Narath, Vice President
of the Company and President of Unicore, in the principal amount of $200,000.
This loan earns interest at 8.25% per annum payable quarterly in arrears. All
principal and unpaid interest becomes due and payable upon the sooner of March
1, 2000 or the date of termination of Mr. Narath's employment or voluntary
resignation. In consideration of this loan, Mr. Narath agreed to terminate his
right to register shares of the Company's common stock held by him under the
Securities Act of 1933, as amended, pursuant to that certain Registration Rights
Agreement, dated as of May 30, 1997, between the Company and Mr. Narath.

58
<PAGE>

PART IV

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

(a) (1) INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants....................................................................... 28
Consolidated Balance Sheet at December 31, 1997 and 1996................................................ 29
Consolidated Statement of Income for the three years ended December 31, 1997............................ 30
Consolidated Statement of Shareholders' Equity for the three years ended December 31, 1997.............. 31
Consolidated Statement of Cash Flows for the three years ended December 31, 1997........................ 32
Notes to Consolidated Financial Statements.............................................................. 33
Supplementary Data (Unaudited).......................................................................... 45
</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

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.
</TABLE>

59
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
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.

10.18(3) 1997 Compensation Plan.

10.19(2) Registration Rights Agreement, dated as of May 30, 1997, between the Company and Pierre A.
Narath.

10.20(2) Escrow Agreement, dated as of May 30, 1997, by and among the Company, Pierre A. Narath and
First Trust of California, N.A.

10.21(2) Employment Agreement, dated as of May 30, 1997, between Pierre A. Narath and the Company.

10.22(2) Employee Proprietary and Inventions Agreement, dated as of May 30, 1997, between the Company
and Pierre A. Narath.

10.23(2) Noncompetition Agreement, dated as of May 30, 1997, between Pierre A. Narath and the Company.

10.24(2) General Release, dated as of May 30, 1997, between Pierre A. Narath and the Company.

10.25+(4) Memorandum of Understanding by and among Sun Corporation, Axis Corporation and the Company.

10.26(6) Commercial Lease, dated as of January 5, 1996 by and between Unicore Software, Inc. and 114
Realty Trust, as amended on May 30, 1997 and September 1, 1997.

10.27(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and George C. Huang.

10.28(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Lyon T. Lin.

10.29(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Kevin J. Berry.

10.30(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Ann P. Shen.

10.31(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Maurice W.
Bizzarri.
</TABLE>

60
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
<C> <S>
10.33(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Reza Afghan.
10.34(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Laurent K.
Gharda.
10.35(6) Promissory Note, dated March 1, 1998, issued by Pierre A. Narath to the Company.
10.36(6) Letter Agreement, dated March 1, 1998, between Pierre A. Narath and the Company.
10.37++(6) Master Original Equipment Manufacturer (OEM) Software License Agreement, dated September 10, 1997, between

the Company and Intel Corporation.
10.38(7) Registrant's 1997 Equity Incentive Plan (the "Equity Incentive Plan").
10.39(7) Form of Incentive Stock Option under the Equity Incentive Plan.
10.40(7) Form of Nonstatutory Stock Option under the Equity Incentive Plan.
10.41(8) Amendment and Recission of Provision of Executive Severance Benefits Agreement, dated April 15, 1998,
between the Company and George C. Huang.
10.42(8) Form of Rescission of Provision of Executive Severance Benefits Agreement, dated April 15, 1998, between
the Company and each of the following: Lyon T. Lin, Kevin J. Berry, Ann P. Shen, Maurice W. Bizzarri,
David J. Wippich, Reza Afghan and Laurent K. Gharda.
21(5) Subsidiaries of the Registrant.
23.1(8) Consent of Independent Accountants.
24.2(6) Power of Attorney. See signature page.
27(6) Financial Data Schedule.
</TABLE>
_____________
+ The Securities and Exchange Commission has granted confidential treatment
for portions of this document.
++ The Company has requested 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) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Current Report on Form 8-K filed on June 16, 1997, as amended on
October 14, 1997.

(3) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Quarterly Report on Form
10-Q filed on May 6, 1997.

(4) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Quarterly Report on Form 10-Q filed on August 13, 1997.

(5) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Quarterly Report on Form 10-Q filed on November 13, 1997.

(6) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual report on Form 10-K filed on March 31, 1998.

(7) Incorporated by reference to Appendices A, B and C to the Company's
Definitive Proxy Statement filed on April 30, 1997.

(8) Filed herewith.

(b) REPORTS ON FORM 8-K

61
<PAGE>

A Form 8-K/A was filed on October 14, 1997 solely for the purpose of amending
Exhibit 2.1 to the Form 8-K Current Report dated May 30, 1997 and filed on June
16, 1997.

62
<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 AMENDMENT TO ANNUAL
REPORT ON FORM 10-K/A TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, ON THE 29TH DAY OF APRIL 1998.

AWARD SOFTWARE INTERNATIONAL, INC.

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

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.

<TABLE>
<CAPTION>
Signature TITLE DATE
- --------- ----- ----
<S> <C> <C>
Chairman of the Board, President, April 29, 1998
/s/ George C. Huang Chief Executive Officer and
- --------------------------- Director (Principal Executive
GEORGE C. HUANG Officer )

/s/ Kevin J. Berry Vice President, Finance, Chief April 29, 1998
- --------------------------- Financial Officer, Treasurer and
KEVIN J. BERRY Secretary (Principal Financial and
Accounting Officer )

/s/ * Director April 29, 1998
- ---------------------------
CHENG MING LEE

/s/ * Director April 29, 1998
- ---------------------------
DAVID S. LEE

/s/ * Director April 29, 1998
- ---------------------------
MASAMI MAEDA

/s/ * Director April 29, 1998
- ---------------------------
ANTHONY SUN

/s/ * Director April 29, 1998
- ---------------------------
WILLIAM P. TAI

/s/ * Director April 29, 1998
- ---------------------------
WILLY WECK

</TABLE>

* By: /s/ George C. Huang
-------------------------
GEORGE C. HUANG
ATTORNEY-IN-FACT

63
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
2.1+(2) Agreement and Plan of Merger and Reorganization, dated as of May 29, 1997, by and among the Company,
Award Merger Sub Corp., Unicore Software, Inc. and Pierre A. Narath.
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.
10.18(3) 1997 Compensation Plan.
10.19(2) Registration Rights Agreement, dated as of May 30, 1997, between the Company and Pierre A. Narath.
10.20(2) Escrow Agreement, dated as of May 30, 1997, by and among the Company, Pierre A. Narath and First
Trust of California, N.A.
10.21(2) Employment Agreement, dated as of May 30, 1997, between Pierre A. Narath and the Company.
10.22(2) Employee Proprietary and Inventions Agreement, dated as of May 30, 1997, between the Company and
Pierre A. Narath.
10.23(2) Noncompetition Agreement, dated as of May 30, 1997, between Pierre A. Narath and the Company.
10.24(2) General Release, dated as of May 30, 1997, between Pierre A. Narath and the Company.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.25+(4) Memorandum of Understanding by and among Sun Corporation, Axis Corporation and the Company.
10.26(6) Commercial Lease, dated as of January 5, 1996 by and between Unicore Software, Inc. and 114 Realty
Trust, as amended on May 30, 1997 and September 1, 1997.
10.27(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and George C. Huang.
10.28(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Lyon T. Lin.
10.29(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Kevin J. Berry.
10.30(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Ann P. Shen.
10.31(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Maurice W. Bizzarri.
10.32(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and David J. Wippich.
10.33(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Reza Afghan.
10.34(6) Severance Benefits Agreement, dated December 1, 1997, between the Company and Laurent K. Gharda.
10.35(6) Promissory Note, dated March 1, 1998, issued by Pierre A. Narath to the Company.
10.36(6) Letter Agreement, dated March 1, 1998, between Pierre A. Narath and the Company.
10.37++(6)Master Original Equipment Manufacturer (OEM) Software License Agreement, dated September 10, 1997,
between the Company and Intel Corporation.
10.38(7) Registrant's 1997 Equity Incentive Plan (the "Equity Incentive Plan").
10.39(7) Form of Incentive Stock Option under the Equity Incentive Plan.
10.40(7) Form of Nonstatutory Stock Option under the Equity Incentive Plan.
10.41(8) Amendment and Recission of Provision of Executive Severance Benefits Agreement, dated April 15,
1998, between the Company and George C. Huang.
10.42(8) Form of Rescission of Provision of Executive Severance Benefits Agreement, dated April 15, 1998,
between the Company and each of the following: Lyon T. Lin, Kevin J. Berry, Ann P. Shen, Maurice W.
Bizzarri, David J. Wippich, Reza Afghan and Laurent K. Gharda.
21(5) Subsidiaries of the Registrant.
23.1(8) Consent of Independent Accountants.
24.2(6) Power of Attorney. See signature page.
27(6) Financial Data Schedule.
</TABLE>
_______________

+ The Securities and Exchange Commission has granted confidential treatment
for portions of this document.
++ The Company has requested 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) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Current Report on Form 8-K filed on June 16, 1997, as amended on
October 14, 1997.

(3) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Quarterly Report on Form 10-Q filed on May 6, 1997.

(4) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Quarterly Report on Form 10-Q filed on August 13, 1997.
<PAGE>

(5) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Quarterly Report on Form 10-Q filed on November 13, 1997.

(6) Incorporated by reference to the corresondingly numbered exhibit to the
Company's Annual Report on Form 10-K filed on March 31, 1998.

(7) Incorporated by reference to Appendices A, B and C to the Company's
definitive Proxy Statement filed on April 30, 1997.

(8) Filed herewith.

<PAGE>

EXHIBIT 10.41

AMENDMENT AND RESCISSION OF PROVISION OF EXECUTIVE
SEVERANCE BENEFITS AGREEMENT

WHEREAS, pursuant to Section 2.3 of that certain Executive Severance
Benefits Agreement (the "Agreement"), dated as of December 1, 1997, by and
between Award Software International, Inc. (the "Company") and the undersigned,
the undersigned has certain rights to accelerate the vesting of stock options
such that all of those option shares held by the undersigned which would not
otherwise be vested and exercisable on the date of the Executive's Covered
Termination (as that term is defined therein) shall become immediately vested
and exercisable as of such date.

WHEREAS, pursuant to Section 2.2 of the Agreement, undersigned has the
right to receive, within thirty (30) days following the date of the
undersigned's Covered Termination, a lump sum cash payment equal to three
hundred percent (300%) of the sum of Base Pay plus Deemed Bonus (as those terms
are defined in the Agreement), subject to applicable tax withholding.

WHEREAS, neither the undersigned nor the Company intended to prohibit,
restrict or otherwise limit the Company's ability to structure transactions that
the Company may otherwise engage in.

WHEREAS, the undersigned and the Company desire to rescind any rights
pursuant to Section 2.3 of the Agreement.

WHEREAS, the undersigned and the Company desire to amend Section 2.2 of the
Agreement to reduce the lump sum cash payment from three hundred percent (300%)
to two hundred percent (200%) of the sum of Base Pay plus Deemed Bonus, subject
to applicable tax withholding.

NOW, THEREFORE, the undersigned and the Company hereby irrevocably and
unconditionally agree to rescind the rights under Section 2.3 of the Agreement,
which shall be deemed null and void ab initio. The Optionee agrees to return
any documentation received in connection with the rights under Section 2.3 of
the Agreement to the Company. Each of the undersigned and the Company
represents that he or it is not relying on any representation or promise of any
other person in executing this Rescission, or in making the rescission provided
for herein, and has assumed the risk of any misrepresentation, concealment or
mistake. If either party should subsequently discover that a fact relied upon
by he or it in entering into this Rescission was untrue, or that a fact was
concealed from it, or that is understanding of the facts or of the law was
incorrect, such party shall not be entitled to any relief in connection
therewith, including, without limitation, any alleged right or claim to set
aside or rescind this Rescission. This Rescission is intended to be and is
final and binding, regardless of any claims of misrepresentation, promise made
without the intention to perform, concealment of fact, mistake of fact or law,
or of any other circumstance. This Rescission may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
constitute one instrument.
<PAGE>

NOW, THEREFORE, the undersigned and the Company hereby irrevocably and
unconditionally agree to amend Section 2.2 of the Agreement in its entirety to
read:

"Within thirty (30) days following the date of Executive's Covered
Termination, Executive shall receive a lump sum cash payment equal to
only two hundred percent (200%) of the sum of Base Pay plus Deemed
Bonus, subject to applicable tax withholding."

IN WITNESS WHEREOF, the undersigned has executed this Rescission as of
April ___, 1998.

OPTIONEE: AWARD SOFTWARE INTERNATIONAL, INC.

By:
- --------------------------------- --------------------------------------
Name: George C. Huang Name:
Title:

<PAGE>

EXHIBIT 10.42

RESCISSION OF PROVISION OF EXECUTIVE
SEVERANCE BENEFITS AGREEMENT

WHEREAS, neither the undersigned nor the Company intended to prohibit,
restrict or otherwise limit the Company's ability to structure transactions that
the Company may otherwise engage in.

WHEREAS, the undersigned and the Company desire to rescind any rights
pursuant to Section 2.3 of the Agreement.

NOW, THEREFORE, the undersigned and the Company hereby irrevocably and
unconditionally agree to rescind the rights under Section 2.3 of the Agreement,
which shall be deemed null and void ab initio. The Optionee agrees to return
any documentation received in connection with the rights under Section 2.3 of
the Agreement to the Company. Each of the undersigned and the Company
represents that he or it is not relying on any representation or promise of any
other person in executing this Rescission, or in making the rescission provided
for herein, and has assumed the risk of any misrepresentation, concealment or
mistake. If either party should subsequently discover that a fact relied upon
by he or it in entering into this Rescission was untrue, or that a fact was
concealed from it, or that its understanding of the facts or of the law was
incorrect, such party shall not be entitled to any relief in connection
therewith, including, without limitation, any alleged right or claim to set
aside or rescind this Rescission. This Rescission is intended to be and is
final and binding, regardless of any claims of misrepresentation, promise made
without the intention to perform, concealment of fact, mistake of fact or law,
or of any other circumstance. This Rescission may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
constitute one instrument.

IN WITNESS WHEREOF, the undersigned has executed this Rescission as of
April ___, 1998.

OPTIONEE: AWARD SOFTWARE INTERNATIONAL, INC.

By:
- ------------------------------- -------------------------------------
Name: Name:
Title:

<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 January 29, 1998 appearing on page 28 of this Annual Report
on Form 10-K/A of Award Software International, Inc. for the year ended December
31, 1997.

/s/ Price Waterhouse LLP

San Jose, California
April 29, 1998