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

             [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1997

                                       OR

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

                 FOR THE TRANSITION PERIOD FROM _____ TO _____


                         Commission File Number 0-28904

                       AWARD SOFTWARE INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

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<S>                                                                <C>
          California                                                              94-2893462
(State or other jurisdiction of incorporation or organization)      (I.R.S. Employer Identification No.)
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        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.

                      DOCUMENTS INCORPORATED BY REFERENCE

  Part III--Portions of the Registrant's definitive Proxy Statement for the
Registrant's Annual Meeting of Shareholders to be held June 4, 1998, which will
be filed with the Securities and Exchange Commission, are incorporated by
reference to the extent stated herein.

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                               TABLE OF CONTENTS



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                                                                                                  Page
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Part I...........................................................................................     3

  Item 1          Business.......................................................................     3
  Item 2          Properties.....................................................................    18
  Item 3          Legal Proceedings..............................................................    19
  Item 4          Submission of Matters to a Vote of Security Holders............................    19

PART II..........................................................................................    20

  Item 5          Market for the Registrant's Common Stock and Related Stock Matters.............    20
  Item 6          Selected Financial Data........................................................    21
  Item 7          Management's Discussion and Analysis of Financial Condition and Results of.....    22
                  Operations
  Item 8          Financial Statements and Supplementary Data....................................    29
  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.........................................................    46
  Item 12         Security Ownership of Certain Beneficial Owners and Management.................    46
  Item 13         Certain Relationships and Related Transactions.................................    46

PART IV..........................................................................................    47

  Item 14         Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............    47
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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

                                       4
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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.

                                       5
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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

                                       9
<PAGE>

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 Taiwan, do not protect the Company's
proprietary rights to the same extent as do the
                                       10
<PAGE>

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.

                                       11
<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.

                                       12
<PAGE>

PC Diagnostics Software

  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

                                       13
<PAGE>

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.

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,

                                       14
<PAGE>

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

  The Company faces competition primarily from other 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

  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.

                                       15
<PAGE>

However, the Company does not generally rely on patents to protect its products.
The Company licenses its object and source code under written license
agreements. Certain provisions of such licenses, including provisions protecting
against unauthorized use, copying, transfer and disclosure of the licensed
programs, may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign jurisdictions, including Taiwan, do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that the protections put in place
by the Company will be adequate.

  Significant and protracted litigation may be necessary to protect the
Company's intellectual property 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:

                                       16
<PAGE>

<TABLE>
<CAPTION>
                      NAME                           AGE                     Position
-------------------------------------------------  -------  -------------------------------------------
<S>                                                <C>      <C>
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 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


David J. Wippich.................................    33     Vice President and General Manager,
                                                            Internet and Embedded Products

</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.

  REZA AFGHAN has served as Vice President and General Manager of System
Software since January 1998, and President of Award 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 software used to migrate Windows
applications to alternative platforms.  In April 1995, he founded and served as

                                       17
<PAGE>

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.

  The Company currently leases office space (the "Taiwan Office") in Taipei,
Taiwan, from GCH and Sun Corporation ("Sun"), a shareholder.  In the fourth
quarter of 1997, the Company indicated its intent to purchase the Taiwan Office
from GCH and Sun for a price to be determined by a third party appraisal.
Consummation of this transaction is awaiting approval by the appropriate
Taiwanese governmental authorities.  The purchase of the Taiwan Office was
approved by a majority of the independent and disinterested members of the Board
of Directors on terms that the Company believes are no less favorable than could
be obtained from unaffiliated third parties.  The Company believes that the
purchase of the Taiwan Office helps the Company maintain certain of its
competitive advantages in the region -- including proximity to current and
potential customers in the region; ability to retain and attract local key
employees; and sufficient space for future expansion.  In addition, in light of
market factors affecting the price of property in Taiwan, the Company believes
that securing affordable office space for the long-term is important to the
Company's continued operations in Taiwan.

                                       18
<PAGE>

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.

                                       19
<PAGE>

                                    PART II

Item 5.   Market for the Registrant's Common Stock and Related Stock Matters

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

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

                        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
</TABLE>


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

  Number of Holders.   On March 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.

                                       20
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA.

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

<TABLE>
<CAPTION>
                                                                        THE COMPANY                                PREDECESSOR
                                                                        -----------                                -----------
                                                                        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)
                                             =======       =======        ======        ======       =======
Weighted average common shares............     6,867         5,335         4,136         3,842         3,842
Diluted net income (loss) per share(1)....     $0.61         $0.47         $0.25         $0.33        $(0.31)
                                             =======       =======        ======        ======       =======
Weighted average number of common
 and common equivalent shares.............     7,705         6,095         4,650         3,842         3,842
</TABLE>

<TABLE>
<CAPTION>
                                                            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.

                                       21
<PAGE>

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

  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.

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
upgrades for

                                       22
<PAGE>

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 arms'-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.

                                       23
<PAGE>

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED
                                                                                 -------------------------------
                                                                                          DECEMBER 31,
                                                                                 -------------------------------
                                                                                   1997       1996       1995
                                                                                 ---------  ---------  ---------
                                                                                      (AS A PERCENTAGE OF
                                                                                        TOTAL REVENUES)
<S>                                                                              <C>        <C>        <C>
     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%
                                                                                     ====       ====       ====
</TABLE>


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

                                       24
<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

                                       25
<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.

                                       26
<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

                                       27
<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.

                                       28
<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

                                       29
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

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

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                       -------------------------
                                                                                           1997         1996
                                                                                       ------------  -----------
<S>                                                                                    <C>           <C>
                                        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 par value;
         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
                                                                                           =======      =======
</TABLE>


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

                                       30
<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.

                                       31
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>


                                                               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
  $79................................   801,180      9,573             --             --            --           9,573
Repurchase of Common Stock...........  (250,000)    (2,500)            --             --            --          (2,500)
Exercise of Common Stock warrants....   107,500        108             --             --            --             108
Initial public offering, net of
 issuance costs of $2,172............ 1,250,000      7,828             --             --            --           7,828
Exercise of Common Stock
 Options.............................    43,988         45             --             --            --              45
Amortization of deferred stock
 compensation........................        --         --             75             --            --              75

Cumulative translation adjustment....        --         --             --             --           (92)            (92)
Net income...........................        --         --             --          2,885            --           2,885
                                      ---------    -------          -----         ------         -----         -------
Balance at December 31, 1996......... 6,538,951     21,269           (180)         4,130          (128)         25,091
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.

                                       32
<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.

                                       33
<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.

                                       34
<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.

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

                                       35
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

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


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.


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

                                       36
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

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

  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.

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:

<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

                                       37
<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>
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:

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                                ------------
(in thousands, except per share data)                                 1997          1996         1995
                                                                  ------------  ------------  -----------
BASIC NET INCOME PER SHARE
<S>                                                               <C>           <C>           <C>
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>

                                       38
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

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


  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.

  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.

                                       39
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

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


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 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 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>

                                       40
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

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

  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:

<TABLE>
<CAPTION>
                                                                                SHARES SUBJECT TO OUTSTANDING OPTIONS
                                                                           -----------------------------------------------
                                                           --------------                                      WEIGHTED-
                                                              OPTIONS                                           AVERAGE
                                                           AVAILABLE FOR      NUMBER OF         PRICE PER       EXERCISE
                                                               GRANT            SHARES            SHARE          PRICE
                                                           --------------  ----------------  ---------------  ------------
<S>                                                        <C>             <C>               <C>              <C>
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  .............................................         41,539           (41,551)       1.00-10.63          9.79
                                                                --------         ---------       -----------        ------
Balance at December 31, 1997  ...........................        334,639         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.

                                       41
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

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

  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.

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>

                                       42
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
  Significant components of the Company's deferred tax assets (liabilities) were
as follows:

<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>

                                       43
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

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



  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>


  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.

                                       44
<PAGE>

                       AWARD SOFTWARE INTERNATIONAL, INC.

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

  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 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.


                       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.

  The information required by this item will be contained in the Company's
definitive Proxy Statement with respect to the Company's Annual Meeting of
Shareholders, to be held on June 4, 1998, under the captions "Election of
Directors--Nominees" and is hereby incorporated by reference herein. The
information relating to executive officers of the Company is contained in Part
I, Item 1 of this report.

ITEM 11.  EXECUTIVE COMPENSATION.

  The information required by this item will be contained in the Company's
definitive Proxy Statement with respect to the Company's Annual Meeting of
Shareholders, to be held June 4, 1998, under the caption "Executive
Compensation," and is hereby incorporated by reference herein.

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

  The information required by this item will be contained in the Company's
definitive Proxy Statement with respect to the Company's Annual Meeting of
Shareholders, to be held June 4, 1998, under the caption "Security Ownership of
Certain Beneficial Owners and Management," and is hereby incorporated by
reference herein.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

  The information required by this item will be contained in the Company's
definitive Proxy Statement with respect to the Company's Annual Meeting of
Shareholders, to be held June 4, 1998, under the caption "Certain
Transactions," and is hereby incorporated by reference herein.

                                       46
<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  ................................................................       29
Consolidated Balance Sheet at December 31, 1997 and 1996  .........................................       30
Consolidated Statement of Income for the three years ended December 31, 1997  .....................       31
Consolidated Statement of Shareholders' Equity for the three years ended December 31, 1997  .......       32
Consolidated Statement of Cash Flows for the three years ended December 31, 1997  .................       33
Notes to Consolidated Financial Statements  .......................................................       34
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

<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.
</TABLE>

                                       47
<PAGE>


<TABLE>
<CAPTION>

                <C>       <S>
                 EXHIBIT
                 NUMBER                 DESCRIPTION
                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>

                                       48
<PAGE>

<TABLE>
<CAPTION>

               <C>        <S>
                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 Laurant 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.

                21(2)     Subsidiaries of the Registrant.

                21(5)     Subsidiaries of the Registrant.

                23.1(6)   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)  Filed herewith.


(B)  REPORTS ON FORM 8-K

  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.

                                       49
<PAGE>

                                   SIGNATURES

  IN ACCORDANCE WITH THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT ON FORM
10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY ORGANIZED, ON
                          THE 30TH DAY OF MARCH 1998.

                                    Award Software International, Inc.

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

                               POWER OF ATTORNEY

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

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

<TABLE>
<CAPTION>
Signature                    TITLE                                DATE
---------------------------  -----------------------------------  --------------
<S>                          <C>                                  <C>
                              Chairman of the Board, President,   March 30, 1998
/s/   George C. Huang         Chief Executive Officer and
---------------------------   Director (Principal Executive
GEORGE C. HUANG               Officer )




/s/   Kevin J. Berry         Vice President, Finance, Chief       March 30, 1998
---------------------------  Financial Officer, Treasurer and
KEVIN J. BERRY               Secretary (Principal Financial and
                             Accounting Officer )


/s/   Cheng Ming Lee         Director                             March 30, 1998
---------------------------
CHENG MING LEE

/s/   David S. Lee           Director                             March 30, 1998
---------------------------
DAVID S. LEE

/s/   Masami Maeda           Director                             March 30, 1998
---------------------------
MASAMI MAEDA

/s/   Anthony Sun            Director                             March 30, 1998
---------------------------
ANTHONY SUN

/s/   William P. Tai         Director                             March 30, 1998
---------------------------
WILLIAM P. TAI


/s/   Willy Weck             Director                             March 30, 1998
---------------------------
WILLY WECK
</TABLE>

                                       50
<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.
     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.
</TABLE>

                                       51





<PAGE>

<TABLE>
<CAPTION>

<C>            <S>
     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 Laurant 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.
     21(2)     Subsidiaries of the Registrant.
     21(5)     Subsidiaries of the Registrant.
     23.1(6)   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)  Filed herewith.

                                       52