<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.   20549

                                   FORM 10-Q

            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 1998    Commission File Number 0-28904

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

         CALIFORNIA                                     94-2893462
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


             777 EAST MIDDLEFIELD ROAD
             MOUNTAIN VIEW, CALIFORNIA                 94043-4023
      (Address of principal executive offices)         (Zip Code)


                                  650.237.6800
              (registrant's telephone number, including area code)


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 [_]
                                        

Registrant had 7,130,487 shares of Common Stock, no par value, outstanding at
March 31, 1998.

                                       1
<PAGE>
 
                       AWARD SOFTWARE INTERNATIONAL, INC.

                                     INDEX

<TABLE>
<CAPTION>
                                                                     Page Number
<S>       <C>                                                          <C>
PART I.   FINANCIAL INFORMATION

Item 1.   Condensed Consolidated Financial Statements                      3
          
          a) Condensed Consolidated Balance Sheet as of March 31,
             1998 and December 31, 1997 (Unaudited)                        3
          
          b) Condensed Consolidated Statement of Income for the three
             months ended March 31, 1998 and 1997 (Unaudited)              4
 
          c) Condensed Consolidated Statement of Cash Flows for the
             three months ended March 31, 1998 and 1997 (Unaudited)        5
 
          d) Notes to Condensed Consolidated Financial Statements          6
 
Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                        8
 
PART II.  OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K                                19

SIGNATURES                                                                20
</TABLE>

                                       2
<PAGE>
 
PART I.     FINANCIAL INFORMATION
 
ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
                      AWARD SOFTWARE INTERNATIONAL, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEET
                       (in thousands, except share data)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                 March 31,                    December 31,
                                                                                   1998                           1997
                                                                           ---------------------          ---------------------
<S>                                                                        <C>                            <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                             $25,604                        $24,631
   Accounts receivable, net                                                                4,671                          4,256
   Receivables from related parties                                                          770                            747
   Deferred income taxes                                                                     483                            483
   Other current assets                                                                    1,718                          1,698
                                                                           ---------------------          ---------------------
             Total current assets                                                         33,246                         31,815
 
Property and equipment, net                                                                1,370                          1,367
Other assets                                                                               1,493                          1,199
                                                                           ---------------------          ---------------------
                                                                                         $36,109                        $34,381
                                                                           =====================          =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                      $   358                        $   449
   Accrued liabilities                                                                     4,381                          3,950
                                                                           ---------------------          ---------------------
            Total current liabilities                                                      4,739                          4,399
 
Minority interest                                                                            191                            170
                                                                           ---------------------          ---------------------
                                                                                           4,930                          4,569
                                                                           ---------------------          ---------------------
Commitments
 
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;
       7,130,487 and 6,941,846 shares issued and outstanding                              22,643                         22,571
   Deferred stock compensation                                                               (88)                          (106)
   Retained earnings                                                                       9,468                          8,320
   Cumulative translation adjustment                                                        (844)                          (973)
                                                                           ---------------------          ---------------------
            Total shareholders' equity                                                    31,179                         29,812
                                                                           ---------------------          ---------------------
                                                                                         $36,109                        $34,381
                                                                           =====================          =====================
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                      AWARD SOFTWARE INTERNATIONAL, INC.
                  CONDENSED CONSOLIDATED STATEMENT OF INCOME
                     (in thousands, except per share data)
                                  (Unaudited)
 <TABLE>
<CAPTION>
                                                                                      Three months ended
                                                                                            March 31,
                                                                                 1998                       1997
                                                                           -----------------          -----------------
<S>                                                                        <C>                        <C>
Revenues:
     Software license fees                                                            $5,261                     $4,036
     Engineering services                                                                679                        347
     Related parties                                                                     466                        645
                                                                           -----------------          -----------------
            Total revenues                                                             6,406                      5,028
                                                                           -----------------          -----------------
Cost of revenues:
     Software license fees                                                               371                        229
     Engineering services                                                                212                         85
     Related parties                                                                      17                         26
                                                                           -----------------          -----------------
            Total cost of revenues                                                       600                        340
                                                                           -----------------          -----------------
 
Gross profit                                                                           5,806                      4,688
                                                                           -----------------          -----------------
Operating expenses:
     Research and development                                                          1,635                      1,661
     Sales and marketing                                                               1,772                      1,041
     General and administrative                                                        1,072                        888
                                                                           -----------------          -----------------
            Total operating expenses                                                   4,479                      3,590
                                                                           -----------------          -----------------
Income from operations                                                                 1,327                      1,098
 
Interest income, net                                                                     339                        261
Minority interest                                                                        (26)                         -
                                                                           -----------------          -----------------
Income before income taxes                                                             1,640                      1,359
 
Provision for income taxes                                                               492                        467
                                                                           -----------------          -----------------
 
Net income                                                                            $1,148                     $  892
                                                                           -----------------          -----------------
 
Basic net income per share                                                             $0.16                      $0.13
                                                                           =================          =================
 
Weighted average common shares                                                         6,963                      6,792
                                                                           =================          =================

Diluted net income per share                                                           $0.15                      $0.12
                                                                           =================          =================
Weighted average common and
   common equivalent shares                                                            7,670                      7,701
                                                                           =================          =================
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                      AWARD SOFTWARE INTERNATIONAL, INC.
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                (in thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                       Three months ended
                                                                                            March 31,
                                                                                 1998                           1997
                                                                         --------------------          ---------------------
<S>                                                                      <C>                           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                         $ 1,148                        $   892
   Adjustments to reconcile net income to
      net cash provided by operating activities:
        Depreciation and amortization                                                     284                            129
        Deferred income taxes                                                               -                              -
        Deferred stock compensation                                                        18                             19
        Minority interest                                                                  21                              -
        Changes in assets and liabilities:
          Accounts receivable, net                                                       (441)                          (157)
          Receivables from related parties                                                (22)                           270
          Other current assets                                                            (21)                           (40)
          Other assets                                                                   (184)                           (76)
          Accounts payable                                                               (103)                           167
          Accrued liabilities                                                             482                         (1,087)
                                                                         --------------------          ---------------------
 
             Net cash provided by operating activities                                  1,182                            117
                                                                         --------------------          ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                                    (178)                          (192)
   Capitalized software development costs                                                (230)                          (141)
                                                                         --------------------          ---------------------
 
             Net cash used in investing activities                                       (408)                          (333)
                                                                         --------------------          ---------------------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from common stock issuances                                                72                             35
   Payments under bank loan                                                                 0                              -
                                                                         --------------------          ---------------------
 
              Net cash provided by financing activities                                    72                             35
                                                                         --------------------          ---------------------
 
Effect of exchange rate changes on cash                                                   127                            (53)
                                                                         --------------------          ---------------------
 
Net increase (decrease) in cash and cash equivalents                                      973                           (234)
 
Cash and cash equivalents at beginning of period                                       24,631                         23,706
                                                                         --------------------          ---------------------

Cash and cash equivalents at end of period                                            $25,604                        $23,472
                                                                         ====================          =====================
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                       AWARD SOFTWARE INTERNATIONAL, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                        

1.  BASIS OF PRESENTATION

  The accompanying condensed consolidated financial statements of Award Software
International, Inc. (the "Company") as of March 31, 1998 for the three months
ended March 31, 1998 and 1997 are unaudited.  The condensed consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, which in the opinion of management are necessary for a
fair presentation of the financial position, operating results and cash flows
for the periods presented.  The condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission.  Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.  These condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto for the year ended December 31, 1997 included in the Annual Report on
Form 10-K filed by the Company on March 31, 1998, as amended on April 30, 1998.

  The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year or for
any future period.

2.  REVENUE RECOGNITION

  In October 1997, the AICPA issued Statement of Position 97-2 ("SOP 97-2"),
"Software Revenue Recognition," which the Company has adopted for transactions
entered during the year beginning January 1, 1998.  SOP 97-2 provides guidance
for recognizing revenue on software transactions and supersedes SOP 91-1,
"Software Revenue Recognition."  In March 1998, the AICPA issued Statement of
Position No. 98-4 ("SOP 98-4"), "Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition."  SOP 98-4 defers, for one year, the
application of certain passages in SOP 97-2 which limit what is considered
vendor-specific objective evidence ("VSOE") necessary to recognize revenue for
software licenses in multiple-element arrangements when undelivered elements
exist.  Additional guidance is expected to be provided prior to adoption of the
deferred provision of SOP 97-2.  The Company will determine the impact, if any,
the additional guidance will have on current revenue recognition practices when
issued.  Adoption of the remaining provisions of SOP 97-2 did not have a
material impact on revenue recognition during the first quarter of 1998.

3.  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.

<TABLE>
<CAPTION>
                                                                                     Three months ended
                                                                                           March 31,
(in thousands, except per share data)                                            1998                     1997
                                                                           ----------------          ---------------
<S>                                                                        <C>                       <C>
BASIC NET INCOME PER SHARE
Net income available to Common Shareholders                                          $1,148                   $  892
                                                                           ================          ===============
 
Weighted average common shares                                                        6,963                    6,792
                                                                           ================          ===============

Basic net income per share                                                           $ 0.16                   $ 0.13
                                                                           ================          ===============
</TABLE> 

                                       6
<PAGE>
 
<TABLE> 
<S>                                                                        <C>                       <C>
DILUTED NET INCOME PER SHARE
Net income available to Common Shareholders                                          $1,148                   $  892
                                                                           ================          ===============
Weighted average common shares                                                        6,963                    6,792
Diluted common stock equivalents                                                        707                      909
                                                                           ----------------          ---------------
Weighted average common shares and equivalents                                        7,670                    7,701
                                                                           ================          ===============
Diluted net income per share                                                         $ 0.15                   $ 0.12
                                                                           ================          ===============
</TABLE>

4.    COMPREHENSIVE INCOME

  Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." Comprehensive
income is defined as the change in equity of a company from transactions, other
events and circumstances excluding transactions resulting from investments by
owners and distributions to owners. The primary difference between net income
and comprehensive income, for the Company, is from foreign currency translation
adjustments. Comprehensive income for the three months ended March 31, 1998 and
1997 is $1,277,000 and $832,000, respectively.

                                                                               
5.    NEW ACCOUNTING PRONOUNCEMENTS

  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About
Segments of an Enterprise and Related Information."  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.
 
6.  SUBSEQUENT EVENTS

  On April 16, 1998, the Company and Phoenix Technologies Ltd. ("Phoenix")
announced the completion of a definitive merger agreement.  Under the terms of
the proposed transaction, all of the Company's outstanding stock
will be acquired through the merger of a wholly owned subsidiary of Phoenix with
and into the Company (the "Merger") pursuant to an Agreement and Plan of
Reorganization (the "Reorganization Agreement") by and among Phoenix, its wholly
owned subsidiary and the Company.  Pursuant to the terms of the Reorganization
Agreement, shareholders of Award will receive 1.225 shares of Phoenix common
stock for each share of Award common stock.  The completion of the Merger is
subject to customary conditions to closing, including shareholder approval of
both companies and regulatory approval, including expiration or termination of
all waiting periods under the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended.  The transaction is intended to be treated as a tax-free
reorganization pursuant to the provisions of Section 368 of the Internal Revenue
Code of 1986 and a pooling of interests for financial reporting and accounting
purposes.  In connection with the execution of the Reorganization 

                                       7
<PAGE>
 
Agreement, the Company, Sun Corporation ("Sun"), a shareholder, and Axis
Corporation ("Axis") entered into an agreement on April 13, 1998, whereby the
Company purchased Sun's 19% interest and Axis's 19% interest in Award Software
Japan KK for an aggregate purchase price of approximately 20,000 shares of the
Company's Common Stock.

                                       8
<PAGE>
 
ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

  This quarterly report 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 below and those discussed in the Company's Annual
Report on Form 10-K, as amended, for the year ended December 31, 1997 on file
with the Securities and Exchange Commission.

  The Company designs, develops and markets system enabling and management
software for the global computing market. On April 16, 1998, the Company and
Phoenix Technologies Ltd. ("Phoenix") announced the completion of a definitive
merger agreement.  Under the terms of the proposed transaction, all of the
Company's outstanding stock will be acquired through the merger of a wholly
owned subsidiary of Phoenix with and into the Company (the "Merger") pursuant to
an Agreement and Plan of Reorganization (the "Reorganization Agreement") by and
among Phoenix, its wholly owned subsidiary and the Company.  Pursuant to the
terms of the Reorganization Agreement, shareholders of Award will receive 1.225
shares of Phoenix common stock for each share of Award common stock.  The
completion of the Merger is subject to customary conditions to closing,
including shareholder approval of both companies and regulatory approval,
including expiration or termination of all waiting periods under the Hart-Scott-
Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act").  The
transaction is intended to be treated as a tax-free reorganization pursuant to
the provisions of Section 368 of the Internal Revenue Code of 1986 and a pooling
of interests for financial reporting and accounting purposes.

  The success of the combined company will depend upon a number of factors,
including (i) the combined company's ability to integrate the various functional
groups, such as sales and engineering, effectively and achieve cost savings;
(ii) the risk that customers may defer purchasing decisions following the
announcement of the Merger; (iii) the ability of Phoenix, the Company and the
combined company to retain key employees following the announcement of the
Merger; (iv) the impact of transaction and restructuring charges to be incurred
by the combined company; and (v) the combined company's ability to successfully
introduce new products and upgrades to existing products.  See "Merger Risks"
contained herein for further information on factors that could affect the
successful consummation of the Merger.  Further information on factors that
could affect the Company's results are detailed in the Company's Annual Report
on Form 10-K, as amended, for the year ended December 31, 1997 as filed with the
Securities and Exchange Commission.  Further information on factors that could
affect Phoenix's results are detailed in Phoenix's Annual Report on Form 10-K
for the year ended September 30, 1997 and Form 10-Q for the quarter ended
December 31, 1997 as filed with the Securities and Exchange Commission.

  On May 30, 1997, the Company acquired all of the outstanding stock of Unicore
Software ("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").  Unicore is engaged in the business of providing basic
input/output software upgrades for personal computers and embedded systems.
Pursuant to the terms of the Merger Agreement, the Company issued to Narath, the
selling shareholder, 218,571 shares of the Company's common stock.  The Unicore
Merger is being treated as a tax-free reorganization under the Internal Revenue
Code of 1986, as amended, and is being accounted for as a pooling of interests.
The terms of the Merger Agreement were determined through arm's-length
negotiations between the Company and Unicore and Narath.  In addition, Narath
entered into an employment agreement with the Company pursuant to which Narath
shall serve as a Vice President of the Company and President of Unicore, the
Company's wholly owned subsidiary.

  On April 30, 1997, the Company entered into a memorandum of understanding with
Sun Corporation ("Sun"), a shareholder, 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 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. In connection with the execution of the
Reorganization Agreement, the Company, Sun and Axis entered into an agreement on
April 13, 1998, whereby the Company purchased Sun's 19% interest and Axis's 19%
interest in Award Japan for an aggregate purchase price of approximately 20,000
shares of the Company's Common Stock.

                                       9
<PAGE>
 
  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.

  In March 1997, in response to industry trends, the Company's Board of
Directors formed a special committee ("Award Acquisition Committee") authorized
to review and evaluate strategic acquisitions, business combinations and joint
venture opportunities as a way to enhance the Company's business and operations
and long-term shareholder value.  Enhancement of the Company's business and
operations and long-term shareholder value through strategic acquisitions,
business combinations and joint ventures has a number of risks and 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.

  The following is a discussion of the financial condition and results of
operations of the Company as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997, respectively, and should be read in conjunction with
the accompanying Quarterly Condensed Consolidated Financial Information and
Notes thereto and the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 1997, included in the Company's
Annual Report on Form 10-K, as amended, and is qualified in its entirety by
reference thereto.


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>
                                                                                   Three months ended
                                                                                        March 31,
                                                                            1998                           1997
                                                                      ---------------                ---------------
<S>                                                                   <C>                            <C>
Revenues:
     Software license fees                                                         82%                            80%
     Engineering services                                                          11                              7
     Related parties                                                                7                             13
                                                                      ---------------                ---------------
            Total revenues                                                        100                            100
                                                                      ---------------                ---------------
Cost of revenues:
     Software license fees                                                          6                              4
     Engineering services                                                           3                              2
     Related parties                                                                0                              1
                                                                      ---------------                ---------------
            Total cost of revenues                                                  9                              7
                                                                      ---------------                ---------------
Gross profit                                                                       91                             93
                                                                      ---------------                ---------------
Operating expenses:
     Research and development                                                      26                             33
     Sales and marketing                                                           27                             21
     General and administrative                                                    17                             17
                                                                      ---------------                ---------------
            Total operating expenses                                               70                             71
                                                                      ---------------                ---------------
</TABLE>

                                       10
<PAGE>
 
<TABLE>
<CAPTION>
<S>                                                                   <C>                            <C>
Income from operations                                                             21                             22
 
Interest income, net                                                                5                              5
Minority interest                                                                  (0)                             0
                                                                      ---------------                ---------------
Income before income taxes                                                         26                             27
 
Provision for income taxes                                                          8                              9
                                                                      ---------------                ---------------
 
Net income                                                                         18%                            18%
                                                                      ===============                ===============
</TABLE>

COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997

  REVENUES.  The Company's revenues consist of software license fees and
engineering services revenues.  Revenues increased by $1.4 million, or 27%, for
the three month period ended March 31, 1998, from the same period of the prior
year.  Software license fees increased by $1.2 million, or 30%, for the three
month period ended March 31, 1998, from the same period of the prior year
primarily due to higher unit shipments to new and existing motherboard customers
in Taiwan and the U.S. and embedded systems customers in the U.S.  Engineering
services revenues increased by $332,000, or 96%, for the three month period
ended March 31, 1998, from the same period of the prior year primarily due to
higher engineering services revenues from customers in the U.S.  Related parties
revenues decreased by $179,000, or 28%, for the three month period ended March
31, 1998, from the same period of the prior year primarily due to lower volume
of software license fees and engineering services.

  COST OF REVENUES.  Cost of revenues consists primarily of the cost of
materials and freight expenses associated with software license fees and the
direct costs associated with engineering services revenues. Cost of revenues as
a percentage of revenues increased to 9% of revenues for the three month period
ended March 31, 1998, as compared to 7% of revenues for the same period of the
prior year. This increase was primarily due to higher costs of royalty fees
associated with the Intel Corporation ("Intel") LANDesk Client Management
software, which the Company began shipping in the fourth quarter of fiscal year
1997, and higher cost of software license fees and cost of engineering services
revenues, mainly due to higher engineering salary and related costs, partially
offset by a decrease in cost of software license fees and cost of engineering
services revenues from a related party product development effort.

  RESEARCH AND DEVELOPMENT.  Research and development expenses consist primarily
of engineering personnel and related expenses and equipment costs.  Research and
development expenses decreased by $26,000, or (2%), for the three month period
ended March 31, 1998, from the same period of the prior year primarily due to a
one-time charge of $289,000 for in-process research and development as the
result of the Willows acquisition in 1997.  Without the one-time charge,
research and development expenses increased by $263,000, or 19%, primarily due
to the hiring of engineering personnel and related expenses to develop new
software products.  The Company anticipates that it will devote substantial
resources to product research and development and that such expenses will
increase in absolute dollars.

  SALES AND MARKETING.  Sales and marketing expenses consist primarily of
personnel and related expenses, sales commissions and travel costs.  Sales and
marketing expenses increased by $732,000, or 70%, for the three month period
ended March 31, 1998, from the same period of the prior year 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 consist
primarily of personnel and related expenses, professional services and
facilities costs.  General and administrative expenses increased by $184,000, or
21%, for the three month period ended March 31, 1998, from the same period of
the prior year 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.

  INTEREST INCOME, NET.  Interest income, net consists primarily of interest
expense associated with short-term borrowings and interest income on cash and
cash equivalents, net of expenses.  Interest income, net increased by 

                                       11
<PAGE>
 
$78,000 for the three month period ended March 31, 1998, from the same period of
the prior year primarily due to an increase in interest income earned on higher
cash balances and lower interest expense on a short-term borrowing.

  PROVISION FOR INCOME TAXES.  The Company's effective tax rate decreased to 30%
from 34% for the three month periods ended March 31, 1998 and March 31, 1997,
respectively, 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 March 31, 1998, the
Company had cash and cash equivalents of $25.6 million and working capital of
$28.5 million.  Net cash provided by operating activities was $1.2 million for
the three month period ended March 31, 1998 and was primarily due to higher
income and an increase in accrued liabilities partially offset by an increase in
accounts receivable.

  Net cash used in investing activities was $408,000 for the three month period
ended March 31, 1998 and was primarily due to an increase in capitalized
software development costs and the purchase of computer hardware and software
equipment.

  Net cash provided by financing activities was $72,000 for the three month
period ended March 31, 1998 and was primarily due to proceeds from Common Stock
issuances as a result of exercises of stock options under the 1995 Stock Option
Plan.

  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 personal computer ("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 Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About
Segments of an Enterprise and Related Information." 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 March 1998, the AICPA issued Statement of Position No. 98-4 ("SOP 98-4"),
"Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition."  SOP 98-4 defers, for one year, the application of certain
passages in SOP 97-2 which limit what is considered vendor-specific objective
evidence ("VSOE") necessary to recognize revenue for software licenses in
multiple-element arrangements when undelivered elements exist.  Additional
guidance is expected to be provided prior to adoption of the deferred provision
of SOP 97-2. The Company will determine the impact, if any, the additional
guidance will have on current revenue recognition practices when issued.

                                       12
<PAGE>
 
MERGER RISKS

DIFFICULTIES OF INTEGRATING TWO COMPANIES.  

  The successful combination of Phoenix and the Company will require substantial
attention from management. The anticipated benefits of this Merger will not be
achieved unless the operations of the Company are successfully combined with
those of Phoenix in a timely manner with resulting cost savings and other
operating efficiencies. The difficulties of assimilation may be increased by the
need to integrate personnel and to combine different corporate cultures. The
diversion of the attention of management and any difficulties encountered in the
transition process could have an adverse effect on the revenues and operating
results of the combined company. The successful combination of the two companies
will also require integration of the companies' product offerings and the
coordination of their research and development and sales and marketing efforts.
In addition, the process of combining the two organizations could cause the
interruption of, or a loss of momentum in, the activities of either or both of
the companies' businesses, which could have a material adverse effect on their
combined operations. There can be no assurance that the combined company will
realize the expected cost savings and other operating efficiencies or that it
will be able to retain and successfully integrate its key management, technical,
sales and customer support personnel, or that it will realize any of the
anticipated benefits of the Merger.

RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO.  

   As a result of the Merger, each outstanding share of common stock of the
Company will be converted into the right to receive 1.225 shares (the "Exchange
Ratio") of common stock of Phoenix. Because the Exchange Ratio is fixed, it will
not increase or decrease due to fluctuations in the market price of either
common stock of Phoenix or the Company. The specific value of the consideration
to be received by the Company's shareholders in the Merger will depend on the
market price of the common stock at the Effective Time. In the event that the
market price of common stock of Phoenix decreases or increases prior to the
Effective Time, the market value at the Effective Time of the common stock to be
received by the Company's shareholders in the Merger would correspondingly
decrease or increase. The common stock of Phoenix and the Company historically
have been subject to substantial price volatility. No assurance can be given as
to the market prices of the common stock of Phoenix or the Company at any time
before the Effective Time or as to the market price of the common stock of
Phoenix at any time thereafter.

SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER.  

  The negotiation and implementation of the Merger will result in substantial
pre-tax expenses to Phoenix and the Company primarily relating to costs
associated with combining the operations of the two companies and the fees of
financial advisors, attorneys and accountants. Such expenses may increase
substantially if the companies are required to respond to a request for further
information from the U.S. Federal Trade Commission and U.S. Department of
Justice Antitrust Division with respect to the companies' filings under the HSR
Act. In any event, costs associated with the Merger are expected to affect
negatively future results of operations of Phoenix and the Company.

DEPENDENCE ON RETENTION AND INTEGRATION OF KEY MANAGEMENT.  

  The success of the combined company is dependent on the retention and
integration of the management of Phoenix and the Company. While the combined
company intends to implement management retention arrangements for its senior
management, there can be no assurance that the senior management personnel will
remain with the combined company. The loss of services of any of the key members
of the combined company's management team could adversely affect the combined
company's business and financial results.


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

                                       13
<PAGE>
 
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 Computer Corporation
("Compaq"), develop some of their own Basic Input/Output System software
("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.

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

CONCENTRATION OF REVENUES FROM DESKTOP BIOS

  The Company depends on sales of desktop BIOS for a substantial majority of its
revenues.  The Company has not generated substantial revenues from the sale of
other products to date, including sales of mobile PC products. If sales of the
Company's desktop BIOS decline for any reason, or if the average price of
desktop BIOS declines as the trend toward sub-$1,000 PCs 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., Phoenix 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 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 and SystemSoft. In addition, SystemSoft has entered into agreements
with Microsoft, IBM and Compaq to license its PC Card software.

                                       14
<PAGE>
 
  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.

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.

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 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 

                                       15
<PAGE>
 
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.

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 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.

                                       16
<PAGE>
 
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 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.  For the three month
period ended March 31, 1998, approximately 43% and 4% of the Company's revenues
were denominated in New Taiwan Dollars and German Marks, respectively.  The
Company's revenues denominated in Japanese Yen were 

                                       17
<PAGE>
 
immaterial during the three month period ended March 31, 1998. 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 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 

                                       18
<PAGE>
 
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.

                                       19
<PAGE>
 
PART II.   OTHER INFORMATION



ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.

           (a)  Exhibits

                The following exhibits are filed herewith:

                Exhibit 27  Financial Data Schedule.

           (b)  Reports on Form 8-K

                No reports on Form 8-k were filed during the three month period
                for which this report is filed.

                                       20
<PAGE>
 
                                   SIGNATURES
                                        
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                AWARD SOFTWARE INTERNATIONAL, INC.


May 7, 1998                     By:  /s/ George C. Huang
                                     -------------------
                                George C. Huang
                                Chairman of the Board, President and Chief
                                Executive Officer

May 7, 1998                     By:  /s/ Kevin J. Berry
                                     ------------------
                                Kevin J. Berry
                                Vice President, Finance, Chief Financial
                                Officer, Treasurer and Secretary

                                       21
<PAGE>
 
                                 EXHIBIT INDEX
                                        

Exhibit No.             Description
 
27              Financial Data Schedule.

                                       22