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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File Number: 0-26156

Novadigm, Inc.

One International Blvd., Mahwah, NJ 07495

(201) 512-1000

     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 þ          No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

     On November 11, 2003 there were 19,103,430 shares of the Registrant’s Common Stock outstanding.

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NOVADIGM, INC.

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PART I. FINANCIAL INFORMATION

Item 1.     Consolidated Financial Statements (unaudited)

NOVADIGM, INC.

See accompanying Notes to Consolidated Financial Statements.

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NOVADIGM, INC.

See accompanying Notes to Consolidated Financial Statements.

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NOVADIGM, INC.

See accompanying Notes to Consolidated Financial Statements.

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NOVADIGM, INC.

      The accompanying unaudited Consolidated Financial Statements of Novadigm, Inc. and Subsidiaries (“Novadigm” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Except as set forth in Note 4 hereof, the Company has continued to follow the accounting policies set forth in the consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2003, as filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, the interim financial information provided herein reflects all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of the Company’s consolidated financial position as of September 30, 2003, its results of operations for the three and six month periods ended September 30, 2003 and 2002 and its cash flows for the six months ended September 30, 2003 and 2002. The Company’s results of operations for the three and six months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full year or future periods. Certain prior year amounts have been reclassified to conform to the current period presentation.

      In December 2002, Statement of Financial Accounting Standards (“SFAS”) No. 148, Accounting for Stock Based Compensation — Transition and Disclosure, an amendment to FASB Statement No. 123, was issued. SFAS No. 148 amended SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amended the disclosure requirements of SFAS No. 123 related to disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of SFAS No. 148 are applicable to both interim and annual financial statements ending after December 15, 2002.

      SFAS No. 123, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations (“APB No. 25”), and provide pro forma net income and earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company continues to apply the provisions of APB No. 25 and provide the pro forma disclosures in accordance with the provisions of SFAS Nos. 123 and 148 with respect to option grants. Under APB No. 25, the Company has not recorded any stock-based employee and director compensation cost associated with its stock option plans, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table illustrates the effect on net income (loss) and income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock option plan (in thousands, except per share data):

      The weighted average fair values of options granted during the quarters ended September 30, 2003 and 2002 was $1.81 and $2.72, respectively. The weighted average fair values of options granted during the six-month periods ended September 30, 2003 and 2002 was $1.82 and $4.12, respectively.

      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 during the three-months ended September 30, 2003 and 2002: average risk-free interest rate of 1.0% and 1.7%, respectively; expected dividend yields of 0%, expected lives of options of 5.0 years, and expected volatility of 84% and 103%, respectively. The following weighted-average assumptions were used for grants during the six-months ended September 30, 2003 and 2002: average risk-free interest rate of 1.0% and 1.8%, respectively; expected dividend yields of 0%, expected lives of options of 5.0 years, and expected volatility of 95% and 103%, respectively.

      Basic earnings (loss) per share (“EPS”) is calculated by dividing income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is calculated by dividing income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding for the period, adjusted to reflect the dilutive impact of potential shares of common stock outstanding during the period (common stock equivalents). Common equivalent shares were excluded from the calculations of the Company’s diluted loss per share for the three and six-month periods ended September 30, 2003 and the six-month period ended September 30, 2002 because the effect of including such shares in the computation would be anti-dilutive. At September 30, 2003 and 2002, the Company had outstanding stock options to purchase approximately 2.9 million shares and 5.6 million shares, respectively, of the Company’s Common Stock, which could potentially dilute basic EPS in the future (see “Note 7. Stock Option Exchange Program” for additional information regarding these stock options).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)