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                                 UNITED STATES
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934
 
   FOR THE FISCAL YEAR ENDED MARCH 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: 0-26156
 
                                 NOVADIGM, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                           <C>
                   DELAWARE                                     22-3160347
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)
 185 BERRY STREET, SUITE 3515, SAN FRANCISCO,                     94107
                       CA
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                     (ZIP CODE)
</TABLE>
 
                                 (415) 541-8420
               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, $.001 PAR VALUE
                                (TITLE OF CLASS)
 
     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. [X] Yes [ ] No
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) 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 10K. [X]
 
     The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of the Common Stock on May 31,
1997, as reported on Nasdaq National Market was approximately $55,372,831.
Shares of Common Stock held by each executive officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliates status is not necessarily a conclusive determination for other
purposes.
 
     On May 31, 1997, there were 17,316,391 shares of the registrant's Common
Stock outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
The registrant has incorporated by reference into Part III of this Form 10-K
portions of its Proxy Statement for the Annual Meeting of Stockholders which is
scheduled to be held September 12, 1997.
 
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                               TABLE OF CONTENTS
 
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PART I
     Item 1.   Business................................................................    3
     Item 2.   Properties..............................................................   13
     Item 3.   Legal Proceedings.......................................................   14
     Item 4.   Submission of Matters to a Vote of Securities Holders...................   14
 
PART II
     Item 5.   Market for the Registrant's Common Stock and Related Stockholder
                 Matters...............................................................   14
     Item 6.   Selected Financial Data.................................................   15
     Item 7.   Management's Discussion and Analysis of Financial Condition and Results
                 of Operations.........................................................   16
     Item 8.   Financial Statements and Supplementary Data.............................   23
     Item 9.   Changes in and Disagreements with Accountants on Accounting and
                 Financial Disclosure..................................................   23
 
PART III
     Item 10.  Directors and Executive Officers of the Registrant......................   24
     Item 11.  Executive Compensation..................................................   24
     Item 12.  Security Ownership of Certain Beneficial Owners and Management..........   24
     Item 13.  Certain Relationships and Related Transactions..........................   24
 
PART IV
     Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K........   24
 
SIGNATURES.............................................................................   26
 
POWER OF ATTORNEY......................................................................   27
 
SIGNATURES.............................................................................   27
</TABLE>
 
     "Novadigm" and "Novadigm Enterprise Desktop Manager" are registered
trademarks of Novadigm, Inc., and "Enterprise Desktop Manager," "EDM: Manager,"
"EDM: Administrator," "EDM: Server," "EDM: Client" and "Cybervalet" are
trademarks of Novadigm, Inc. This filing also includes trademarks of companies
other than of Novadigm Inc.
 
     Novadigm, Inc. is not affiliated with Novadyne Computer Systems, Inc. of
Reston, Va.
 
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                                     PART I
 
     This report includes a number of forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates", "believes", "expects", "intends", "future" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
 
ITEM 1.  BUSINESS
 
     Novadigm, Inc. ("Novadigm" or the "Company") is a provider of automated
software management solutions for large-scale client/server and internet
computing environments. The Company's products, collectively known as the
Enterprise Desktop Manager(TM) ("EDM"), provide Information Technology ("IT")
driven organizations with a "desired-state" automation platform that reduces the
time-to-deploy software across client/server, intranet or extranet networks and
lowers the total-cost-of-ownership of managing rapidly changing desktop
configurations for thousands of users. Novadigm's customers include Fortune 2000
IT organizations in the financial services, transportation, telecommunications,
healthcare, and utilities industries; government agencies; large independent
software vendors; and IT service providers. These organizations use the
Company's patented "fractional differencing" technologies to ensure that the
right components of software are always available to the right users at the
right time without requiring administrative or user intervention. To construct
this environment, the Company's professional services organization and network
of certified service partners provides project management, systems
implementation and training services.
 
BACKGROUND
 
     Novadigm's software management solutions address well-defined emerging
segments of the client/server and internet management marketplaces. This
segment, commonly characterized as the Electronic Software Distribution ("ESD")
market, describes a class of software that automatically transports, configures,
tracks, maintains and updates application resources; including its data,
programs, files, content and objects; across local-area networks ("LANs"),
wide-area networks ("WANs"), and the World-wide Web ("WWW"). ESD software also
address the requirements for installing software or enabling links for
distributed users of these applications that rely on personal computers ("PCs")
or network computing devices ("NCs") as their primary interface to the
application software.
 
     Recently popularized as "Push ESD" tools, this class of software has
evolved over the last decade to become an integral component of strategic IT
management issues:
 
          Total-Cost-of-Ownership of PCs.  With industry analysts estimating
     that IT is investing as much as $10,000 per desktop per year in
     administering PC software configurations, including operating system
     migrations, shrink-wrap tools deployment, and business application support,
     ESD automation provides a significant impact on reducing overall support
     costs.
 
          Client/Server Application Management.  With these applications now
     representing key competitive advantages for business operations, the
     requirement for ESD solutions that improve the overall efficiency,
     reliability, availability and serviceability of these applications provide
     significant impacts on shortening the time-to-market.
 
          Internet Content Management.  For Web-enabled services that rely on
     up-to-the-minute updates of content for service subscribers, ESD solutions
     provide a central vehicle for managing the dynamic configuration changes
     required to keep the service current.
 
     Increasingly the software applications being managed in these environments
are designed to automate mission-critical operations of the business. As a
result, the data that fuels these organization's core Information Systems are
now widely distributed and require frequent update. ESD solutions reduce the
 
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complexity of deploying and administering these new distributed software
configurations, thereby increasing the reliability, serviceability and
availability of these strategic IT assets.
 
     Many vendors have responded by introducing an assortment of ESD products to
the marketplace. Typically provided as an operating environment plug-in utility
for PC operating systems, Web browsers, LAN administration suites, or
network/systems management frameworks, these products are generally based on
point-to-point file transfer technology together with an automated scheduling
program that directs file transfer "events" targeted to network nodes and a
procedural "scripting" language to perform installation procedures at the
identified destination. The implementation of these products is dependent upon
an administrator who must create or modify lists of specific users and
corresponding files to be sent to such users, and who must script programs to
control and customize the installation of the files once they reach their
identified destination.
 
     In small, relatively simple networks with low rates of change, this
"list/event" approach is an improvement over manual software installation.
However, the time, complexity and cost of implementing the list/event approach
increases dramatically in large-scale client/server and internet computing
environments. Rather than automating the complex processes necessary for
management of the distributed software on client desktops and servers, typical
ESD products simply automate the transportation events for individual
components, requiring an IT administrator to manually perform the configuration,
change and policy activities needed to prepare the list and event input required
for file transfer control and installation. These "semi-automated" activities
become impracticable to perform properly when applied to computing environments
that include thousands of users deployed across widely dispersed geographical
locations with platforms, network protocols, applications, systems software and
databases that may vary significantly within a particular location or user
group.
 
     As a result, the rapid evolution of client/server and internet computing
architectures is now obsoleting these first generation "list/event" approaches,
creating the need for a new class of software management solutions. With the
core computing assets of IT moving out of the back office onto employee desktops
and into homes and virtual offices, the focus of the ESD process has shifted
from a centralized management model, where management software focused only on
securing access to the data and related network equipment, to a distributed
model, where object-based environments are required to manage different copies
of the software residing across multiple servers and individual user desktops.
The "end-to-end" process of automating software deployment, configuration and
change management has now emerged as the new and critical ESD automation need.
 
     "Desired-state" software management addresses these new needs by providing
IT professionals with an automated process that compares the current
"actual-state" of each distributed software configuration with a "desired model"
of what an individual user, workgroup, department, or internet consumer's
software configuration should look like. The resulting differences determine
what updates are required, triggering an automated, granular change process for
installing applications on distributed servers and desktops based on current
user configuration requirements, available versions and access policy
entitlements.
 
     In view of these fundamental limitations of traditional ESD products and
with the widespread adoption of the client/server and internet models in medium
and large organizations for business applications, the Company believes that the
requirements for software management technologies that effectively address the
desired-state automation process across large-scale networks is the key enabling
technology for providing comprehensive ESD services. This technology must be
highly adaptable to the customer's existing base of installed computing
platforms and application portfolio, and easily extensible to facilitate the
orderly and timely adaptation of customer IT infrastructures and applications to
dynamic business needs and IT opportunities.
 
THE NOVADIGM SOLUTION
 
     Novadigm offers an automated solution for software management to medium and
large organizations with business-critical client/server or internet computing
environments. The Company's products are based on the "desired-state" model for
automation and include two main components -- an ESD Infrastructure that
 
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distributes software management intelligence across more than 16 platforms; and,
an integrated suite of configuration, change, version, distribution, security
and asset management applications that automatically deploy and synchronize
software components residing on thousands of distributed desktops and servers.
 
     The Company's products, EDM and currently under development internet
products, are highly scalable, interoperable and adaptable, and are designed to
allow IT professionals and IT service providers to effectively manage complex
software configurations across any large-scale public and private network
computing configuration using whatever service provider policies are to be
enacted for controlling the distribution of client/server software or internet
content. The following are key attributes of the EDM solution that distinguish
EDM from other software management products:
 
          Desired-State Automation.  EDM addresses the challenges of the
     client/server and internet models of computing through the use of
     object-oriented technology, a technique by which software "objects" --
     collections of data and procedures for processing that data -- are used as
     building blocks to model real-world objects and systems. The use of
     object-oriented technology throughout the EDM infrastructure and
     applications allows all EDM activities to be controlled on a fully
     automated basis from a single integrated "desired-state model" of an IT
     environment. This model organizes and contains all information concerning
     how activities are performed and how distributed objects are to be
     implemented. As a result, extremely large and complex configurations of
     software components can be automatically deployed and maintained across all
     EDM supported "client" platforms simply by comparing the desired-state
     model to a dynamic discovery of the "actual-state" of the individual
     computing device, application, or service.
 
          Dynamic configuration and change management.  Using the desired-state
     automation platform, EDM can automatically distribute software program
     versions specific to the individual client environment and install them as
     dictated by administrative policies. As program versions and client
     environments change, the affected clients "actual-state" is differenced and
     reconfigured to correspond to the desired-state of operation, thus
     automating administrative change processes while continuously verifying the
     accuracy of client configurations.
 
          Policy-based controls and auditability.  EDM's use of object
     technology for policy-based control allows customers to efficiently and
     concisely define and maintain policies controlling the deployment of
     software to authorized clients. For example, an IT administrator may
     implement a policy permitting access to certain financial databases only to
     a selected workgroup within an organization's finance department. Changes
     to policies implemented within EDM or derived by EDM from external sources
     cause components to be automatically installed or de-installed on all
     affected clients. Administrative control over any EDM object can be
     distributed as appropriate to designated users across a customers
     organization, thus ensuring that only authorized persons can change usage
     policies or application components.
 
          Scalability and performance.  EDM's patented "fractional differencing"
     technology automatically calculates the effects of policy, component and
     client environment changes upon each client platform, and in connection
     with each calculation, automatically transports only the changed software
     components for each client. By using an object-level differencing
     calculation, EDM eliminates the manual listing and scripting activities
     required by traditional ESD approaches, where administrators must either
     calculate and program the effect of changes on each desktop, or assume that
     all changes must be sent to every desktop, with resulting impact on network
     traffic (as well as on reliability and auditability, since that assumption
     is usually incorrect). Once the differencing process has calculated the
     precise changes needed by each desktop, EDM's distributed object transport
     allows transported components to be automatically "cached" at multiple
     locations and transported using a combination of network protocols
     simultaneously to further optimize network performance.
 
     The Company believes that its technology and products establish a new
standard for software management and provide its customers with an effective
means for managing large-scale client/server and internet computing
environments. The Company also believes that the technology embodied in the
Company's EDM products provides significant improvements over the list/event
approach used by competitive vendors of ESD products. These improvements include
the complete automation of the deployment and ongoing change
 
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management requirements of distributed software, enhanced scalability to support
the high number of servers and desktops found in large organizations and
significant reductions in cost through elimination of manual installation and
administration procedures, with resulting high levels of system reliability,
availability, serviceability and auditability.
 
THE NOVADIGM STRATEGY
 
     The Company's objective is to be the leading provider of automated software
management solutions to medium and large organizations that are deploying new
software into their client/server and internet computing environments. Key
components of the Company's strategy are to focus on:
 
          Maintaining Technology Leadership in Client/Server Computing and
     Expanding into Internet Computing.  The Company has developed and patented
     unique "desired-state" modeling and "fractional differencing" technologies
     for software management that the Company believes distinguish its products
     from those of other vendors. The Company's products are object-oriented
     throughout and incorporate patented technologies to enable a highly
     automated, scaleable infrastructure that are required for managing the
     initial deployment and ongoing maintenance of applications. The Company
     plans to continue investing significant resources in research and
     development, both to enhance the features and functionality of its existing
     EDM product base and to develop new products, particularly products that
     address the unique requirements of the internet environment.
 
          Penetrating the High-end of the ESD Marketplace.  The Company's
     comprehensive management infrastructure and patented technologies are key
     requirements for medium and large organizations with complex network
     computing environments and thousands or tens of thousands of users and
     consumers requiring ESD services. The Company's customer base is
     predominantly based in the Fortune 2000. The Company's strategy is to
     continue to concentrate on exploiting the product strengths of EDM in the
     high-end of the enterprise computing marketplace and to develop new
     enhancements and new products that are responsive to the software
     management needs of these organizations.
 
          Managing Business-critical Applications, particularly in Financial
     Services.  The Company's products provide a sophisticated change and
     configuration management environment that is a key requirement for
     organizations deploying software that must be updated frequently to align
     it to dynamic business requirements. These characteristics are inherent to
     the new class of business applications, particularly in the financial
     services industry, where content represents the competitive sales advantage
     and/or customer service interface. The Company's strategy is to identify
     and customize its product offerings to address the specific requirements of
     managers of these types of applications.
 
          Distributing through Integrated Service Provider Channels, Largely
     Indirect.  In order to penetrate the global market for software management,
     the Company has established service-oriented channels of distribution: a
     direct field sales organization that includes sales professionals, account
     managers and professional service consultants; and, selected indirect sales
     channels of OEMs, VARs, systems integrators, distributors and smaller
     resellers. The Company's strategy intends to expand these indirect channels
     of distribution, with particular emphasis on resellers that provide broader
     product and systems integration service offerings both domestically and
     internationally.
 
     To support the Company's market leadership objective, the Company intends
to utilize multiple products, services and distribution channels to create
compelling value propositions for those segments of the ESD market which
represent the best match of market opportunity to Novadigm's unique
capabilities.
 
PRODUCTS
 
     The Company's EDM solution provides IT professionals with a distributed,
object-oriented management platform and a comprehensive environment of automated
software management applications for deploying,
 
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configuring, securing, and changing complex client/server and internet software
across thousands of desktops and servers. The product includes four major
technologies:
 
          ESD Infrastructure.  A management platform that distributes and
     synchronizes intelligent managers across the network, including central
     servers, department servers, local-area networks, Web servers, PCs,
     browsers and remote computing devices. This platform provides the framework
     for automating the management of distributed software.
 
          Desired-State Automation Technology.  An engine that fuels the
     infrastructure by enabling very rapid, granular and precise comparisons of
     the differences between the actual configuration of distributed software
     and the required configuration based on a central, policy-based model for
     deployment.
 
          Integrated Software Management Suite.  An administrative environment
     for content providers, service providers, applications managers and systems
     administrators to define construct and distribute the "desired-state"
     model.
 
          Adapters for Third Party Products.  Plug-in components that extend the
     EDM environment to interface, integrate, or encapsulate third party
     products or processes to support the deployment or configuration cycle.
 
     EDM's ESD Infrastructure is a management platform comprised of four
integrated components: EDM:Manager, EDM:Administrator, EDM:Server and
EDM:Client.
 
          EDM:Manager is the central component of EDM. A multi-domain object
     repository and engine, EDM:Manager configures and synchronizes distributed
     objects -- application components, desktop configurations, policy
     relationships -- across the enterprise. Using EDM:Administrator,
     EDM:Manager's central database repository, stored on an enterprise server,
     is configured to automatically manage the transfer of objects to and from
     EDM:Server environments and EDM:Client desktops.
 
          EDM:Administrator is an object-oriented systems management facility
     that IT administrators use to configure EDM:Manager. EDM:Administrator's
     graphical user interface ("GUI") makes it easy to work with the objects
     stored on EDM:Manager's central repository. IT administrators drag and drop
     object icons to change desktop configurations, to distribute new versions
     of software applications or to establish or revise access policy
     relationships.
 
          EDM:Server is a multi-purpose, intermediate object server for
     coordinating the management of EDM:Client desktops. Residing on a
     local-area or department network, EDM:Server enables a multi-tiered
     distribution environment, accessing and staging distributed software
     configurations from the EDM:Manager on distributed platforms and using
     high-speed LAN communications to update EDM:Client desktops.
 
          EDM:Client provides an object-oriented environment for configuring and
     changing distributed software components at the desktop. Operating as an
     extension of the PC operating environment, EDM:Client automatically
     discovers current desktop contents and synchronizes application versions
     with new or updated configurations residing on EDM:Server or EDM:Manager.
 
     The EDM platform is distributed across 16 computing platforms:
 
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    COMPONENT                               PLATFORMS
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EDM:Manager         AIX, HP-UX, MVS, SUN, NCR, Windows NT, OS/2
EDM:Administrator   Windows, Windows95, Windows NT, OS/2, AIX, HP-UX, SUN,
                    NCR, and Macintosh
EDM:Server          Novell, AIX, HP-UX, SUN, NCR, Windows NT, OS/2
EDM:Client          Windows, Windows95, Windows NT, OS/2, DOS, AIX, HP-UX,
                    SUN, NCR, Macintosh, Navigator, Explorer, Java
</TABLE>
 
     Communication between components is supported through a variety of
protocols, including HTTP, TCP/IP, SNA, IPX, and NetBIOS.
 
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     EDM's Desired-State Automation Platform is comprised of a patented process
for integrating three separate disciplines dynamically at the time of a software
configuration update:
 
          Hardware/Software Discovery Process.  A facility that dynamically
     audits desktop contents on an on-demand basis, creating inventory summaries
     of the hardware and software contents of individual users, workgroups, or
     departments for use in updating configurations.
 
          Policy Management Authentication.  A facility that dynamically
     determines access policy entitlements to applications or services by job
     function, geographic differences and/or hardware configurations.
 
          Application Content Verification.  A facility that dynamically
     determines the current available versions of applications or services and
     updates to content that have occurred since the system was deployed.
 
     EDM's "desired-state" process compares the current "actual-state" of each
of these three dimensions with the "desired model" of what an individual user,
workgroup, department, or internet consumer's software configuration should look
like. The resulting differences dynamically determine what updates are required.
 
     The EDM Software Management Suite is comprised of the applications that
actually manage the process of defining the model and enabling the automation
process. It includes six integrated applications: Configuration Management,
Change Management, Version Management, Distribution Management, Security
Management and Asset Management:
 
          Configuration Management.  Enables systems administrators to assign
     software and services to individual users or workgroups by "connecting"
     them as related objects. EDM automatically decides "who gets what"
     according to defined provider management policies, job functions,
     geographic differences and hardware configurations. This process replaces
     the need for manual desktop setup procedures.
 
          Change Management.  Automates the process of identifying, packaging,
     delivering and controlling versions of configuration updates to the
     desktop. When an application component, management policy or client desktop
     environment changes, EDM uses "object differencing" technology to
     synchronize changes automatically at the object level, thereby ensuring
     that actual desktop contents conform to authorized configurations.
 
          Version Management.  Integrates configuration and change management
     together with application development activities that generate new versions
     of software programs, providing the automatic deployment of new versions of
     programs without manual intervention.
 
          Distribution Management.  Integrates the configuration and change
     management process by providing facilities to transport, install or
     de-install, activate, synchronize, present and execute new or changed
     applications on the desktop automatically according to authorized
     configurations. Object-oriented (as opposed to file-oriented) transport
     methods make the distribution process conceptually easier by permitting the
     encapsulation of files or application scripts into objects.
 
          Security Management.  Ensures that enterprise security policies are
     taken into account when controlling sessions on, or distributing software
     applications to, client desktops. Using direct interfaces to existing
     enterprise security packages, EDM eliminates the need for manual,
     list-based security processes or third-party PC security alternatives.
 
          Asset Management.  Provides facilities for auditors, license
     administrators or help-desk support personnel to audit desktop contents on
     a periodic or on-demand basis. Inventory reports can be generated by user,
     workgroup, department or enterprise-wide, eliminating the need for manual
     desktop inventory procedures.
 
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     Extensions for EDM, EDM Adapters allow customers, systems integrators and
independent software vendors ("ISVs") to incorporate development, systems
management and desktop tools into the EDM environment. EDM Adapters are now
available for:
 
          Network/Systems Management.  To integrate EDM's distribution
     management directly into the event console, adapters are available for
     IBM/Tivoli's TME10 and CA-Unicenter.
 
          Problem/Help Desk Management.  To integrate EDM's configuration
     management with problem management environments, adapters are available for
     Remedy's AR System.
 
          LAN/Desktop Management.  To integrate EDM's policy-based deployment
     with local area discovery and distribution, adapters are available for
     Microsoft's SMS, Intel's LANDesk, and IBM's CID.
 
          Application Management.  To integrate development environment
     configuration management directly to the distribution process, adapters are
     available for Atria's ClearCase Intersolv PVCS, Powersoft PowerBuilder,
     Oracle Developer/2000, and Informix New Era.
 
     The entire EDM Architecture allows these processes to be easily integrated
as objects in the EDM:Manager central repository, automatically integrated into
EDM's "desired-state" management process for deploying software, and managed
enterprise-wide from an EDM:Administrator workstation using simple Windows-like
"drag and drop" or "tree view" connections.
 
CUSTOMERS AND APPLICATIONS
 
     The Company's principal customers include medium to large business
organizations with widely deployed and complex client/server and internet
computing environments. As of March 31, 1997, the Company's EDM products had
been licensed directly by the Company or through distributors to 123 customers.
 
     During fiscal 1997, the Company had two customers, each of whom accounted
for over ten percent of the total revenues. International Business Machines
Corporation ("IBM") (see "Customer Service and Support"), accounted for
approximately 23% of the Company's revenues for fiscal 1997, and Amdahl
Corporation ("Amdahl"), an OEM and distributor of the Company's products (see
"Sales and Marketing"), accounted for approximately 16% of total revenues for
fiscal 1997.
 
SALES AND MARKETING
 
     The Company markets its software and services using a distribution model
that includes its direct sales force and indirect channels comprised of OEMs,
VARs, and systems integrators, in North America, Europe, the Pacific Rim, South
America and South Africa. The Company's North American direct sales and
worldwide indirect sales activities are managed from the Company's offices in
San Francisco, California; and its European direct sales activities are managed
from the Company's facilities in Paris, France. For fiscal 1997, revenues from
direct and indirect sales accounted for 58% and 42%, respectively, of total
revenues, and revenues from domestic and international sales accounted for 82%
and 18%, respectively, of total revenues. The Company expects indirect sales and
international sales to increase as a percentage of total revenues.
 
     The Company's direct sales activities have emphasized improvements in the
identification and generation of qualified prospective customer leads at the
beginning phase of the sales cycle through concentration on directed
telemarketing and teleprospecting activities. The leads generated from the
telemarketing process are given to the Company's sales organization, which is
divided into specialized teams of pre-sales specialists, account managers and
professional service consultants that work together to provide an integrated
"solution selling" approach to the customer. These teams utilize local VARs
retained by the Company and trained as "Novadigm Certified Partners" ("NCPs")
where necessary. The Company's indirect channel organization is based on
business arrangements with OEMs, VARs, systems integrators and distributors
which are selected and trained by the Company to provide marketing and post-sale
support, maintenance and service for the Company's products. These business
arrangements are also useful to the Company in identifying product enhancements
and developments that are responsive to customer and market requirements. The
Company
 
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believes that it has been successful in minimizing marketing conflicts between
its direct and indirect sales channels.
 
     In June 1995, the Company entered into a seven-year, non-exclusive OEM and
distribution agreement with Amdahl. Under the agreement, Amdahl can sublicense
EDM throughout the world as part of its bundled solution and sublicense EDM
stand-alone to a limited worldwide market. Novadigm agreed to provide limited
technical support and training. The agreement required Amdahl to pay the Company
$8 million in non-refundable, guaranteed sublicense fees and bundled support in
quarterly installments during the first year of the agreement, fiscal 1996; and
$4 million in the last quarter of both fiscal 1997 and fiscal 1998. The
agreement was revised in March 1997, instead requiring Amdahl to pay $2 million
in non-refundable, guaranteed sublicense fees and bundled support in the last
quarter of fiscal 1997; minimum additional sublicense fees of $2 million during
fiscal 1998; and minimum additional sublicense fees of $3 million in both fiscal
1999 and fiscal 2000. In the event of a change of control of the Company, the
revised agreement allows Amdahl the right to terminate the agreement and recover
unused guaranteed sublicense fees at the time of termination, to the extent they
were also outstanding on March 31, 1997. There can be no assurance that Amdahl
will extend this agreement in subsequent years. The Company recognized $1.8
million in guaranteed sublicense fees from Amdahl in fiscal 1997.
 
     The Company to date has concentrated on establishing a market for its
products in the North America, Europe, Japan, Brazil, South Africa and
Australia. As part of the Company's strategy to expand its direct and indirect
channels of distribution, the Company initiated expansion plans in the rest of
the Pacific Rim as well as in Latin America in fiscal 1997. The marketing
activities of the Company are designed to generate qualified leads and to supply
the Company's sales channels with positioning, presentation materials, and
product collateral to help generate and develop qualified customer prospects.
Lead generation activities include seminars, trade shows, direct mailings,
advertising and public relations activities.
 
CUSTOMER SERVICE AND SUPPORT
 
     To facilitate implementation and integration of its products, the Company
offers a range of support programs and services that complement the Company's
automated software management products.
 
     The Company provides all customers with telephone hotline, fax and E-mail
access to its technical support staff, with additional support provided by the
Company's NCPs, VARs, systems integrators and OEMs. The Company's technical
support staff not only provides assistance in diagnosing problems, but works
closely with customers to address systems implementation and integration issues
and assists in increasing the efficiency of their enterprise systems. The
Company also maintains a network bulletin board of custom EDM procedures,
enhancements and maintenance that can be browsed and downloaded.
 
     The Company offers regional and on-site training programs covering object
technologies and EDM implementation strategies to its customers, NCPs, VARs,
OEMs and systems integrators.
 
     The Company's professional services organization and a growing number of
independent certified EDM service providers are available to consult with
customers on project planning and systems implementation and integration.
Revenues from services accounted for 46% of fiscal 1997 total revenues.
 
     During fiscal 1996 the Company entered into an agreement with IBM which
provided for ongoing consulting and support for a research project through March
1997, as well as resolution of outstanding disputes between the Company and IBM.
The Company recognized $5.1 million in related consulting revenues during fiscal
1997. The agreement expired in March, 1997. (See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation).
 
PRODUCT DEVELOPMENT
 
     Since its inception, the Company has emphasized and made substantial
investments in product development. In fiscal 1997, the Company's total research
and development expenses were approximately $6.2 million. To date, the Company
has not capitalized any software development costs.
 
                                       10
<PAGE>   11
 
     The Company anticipates that in the future, it will continue to commit
substantial resources to research and development. The Company believes that its
future success will depend in large part on its ability to maintain and enhance
the functionality of its current line of products and to develop and introduce
new products that keep pace with technological developments, achieve market
acceptance and respond to an ever-expanding range of customer requirements. The
Company intends to enhance its existing product offerings and to introduce new
products for the enterprise systems management market. The Company's new product
development effort is focused on products which address the unique requirements
of the internet environment. In developing these new products and product
enhancements, the Company makes extensive use of its own development tools and
object-oriented technology. Although the Company expects to develop certain of
its new products and product enhancements internally, the Company may acquire
technology and/or products from third parties or consultants when considerations
of time or cost dictate.
 
     If the next release of EDM or any potential new products and enhancements
do not achieve market acceptance, or if for technological or other reasons, the
Company is unable to develop, introduce and sell its products in a timely
manner, the Company's business operating results will be materially and
adversely affected.
 
COMPETITION
 
Competition in the ESD market is rapidly evolving. Current and prospective
competitors of the Company generally fall into four categories:
 
          Network/Systems Management Framework Vendors.  Including IBM/Tivoli,
     Computer Associates, and Hewlett-Packard, who offer tactical ESD tools as
     part of the suites.
 
          Application Management Vendors.  Including IBM/Tivoli and Platinum
     Technologies, who offer ESD tools integrated with performance management
     environments.
 
          LAN/Desktop Management Suite Vendors.  Including vendors like
     Microsoft, Intel, and McAfee, who offer workgroup-based ESD tools as part
     of a LAN administration package.
 
          Internet Push ESD Vendors.  Including small start-ups like Marimba,
     BackWeb and DataChannel along with browser suppliers like Netscape and
     Microsoft who provide push distribution technologies as plug-in components
     for new internet infrastructures.
 
     Most of the Company's competitors have longer operating histories than does
the Company, and many have significantly greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and larger
customer installed bases.
 
     The Company believes that it competes effectively in the high-end of the
ESD market on the basis of its software management vision, desired-state
technological innovation, product functionality and features, product quality
and reliability, ease of product adoption and use, corporate and product
reputation, end-user support and price. However, there can be no assurance that
the Company will be able to continue to compete effectively in the software
management market or that its profitability or financial performance will not be
adversely affected by increased competition. Moreover, there can be no assurance
that either existing or new competitors will not develop products that are
superior to the Company's products or other technologies offering significant
advantages over the Company's technology, which could have a material adverse
effect on the Company's operating and financial results.
 
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
 
     In December of 1996, the Company was issued a patent from the U.S. Patent
Office for the "desired-state" management process and "fractional differencing"
technologies used in the Company's software management products. There can be no
assurance that the Company will develop additional proprietary technologies that
are patentable, that any issued patent will provide the Company with any
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on the Company's ability to do
business. Moreover, there can be no assurance that protective measures
 
                                       11
<PAGE>   12
 
taken by the Company will prevent misappropriation of its proprietary
technology, and such measures may not preclude competitors from developing
products with features similar to those of the Company's products. Furthermore,
effective copyright and trade secret protection may be limited or unavailable
under the laws of certain foreign jurisdictions. The Company also relies on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures, contractual provisions and technical measures to protect its
proprietary rights in its products.
 
     Although the Company believes that its products and trademarks do not
infringe upon the proprietary rights of third parties, there can be no assurance
that third parties will not assert infringement claims against
the Company with respect to current or future products. Any such claims, whether
with or without merit, could be time-consuming, result in costly litigation,
cause product shipment delays or require the Company to enter into royalty or
license agreements, provided such agreements were available on reasonable terms
or at all.
 
     Defense of any lawsuit or failure to obtain any required license could have
a material, adverse effect on the Company's business, operating results and
financial condition. The Company believes, however, that given the rapid pace of
technological change in the industry, factors such as the technical expertise,
knowledge and innovative skill of the Company's management and technical
personnel, the Company's name recognition, the timeliness and quality of the
support services it provides and its ability to offer frequent product
enhancements and to develop, introduce and market new products are more
significant in maintaining the Company's competitive technology leadership
position.
 
EMPLOYEES
 
     As of March 31, 1997, the Company had a total of 174 employees, including
53 in product development, 102 in sales and marketing, 19 in general and
administration. A total of 148 employees are based in the United States and 26
employees are based in Europe. None of the Company's employees is represented by
a labor union. The Company has not experienced work stoppages and considers its
relations with its employees to be good.
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The executive officers of the Company as of March 31, 1997, were as
follows:
 
<TABLE>
<CAPTION>
        NAME            AGE                       POSITION                     OFFICER SINCE
--------------------    ---     ---------------------------------------------  -------------
<S>                     <C>     <C>                                            <C>
Albion J. Fitzgerald    48      Chairman of the Board, Chief Executive              1992
                                  Officer, and President
Robert B. Anderson      41      Executive Vice President, Chief Operating           1992
                                  Officer, Secretary and Director
Michael P. Conti(1)     41      Vice President, North America Sales                 1994
Robert Ernens(2)        40      Managing Director, Europe                           1994
Joseph J. Fitzgerald    35      Vice President, Development                         1992
Thomas V. Harmon        50      Vice President, Operations                          1995
Stuart A. Jacobson      39      Executive Vice President, North America             1994
                                  Operations
Philip J. Myers         38      Vice President, Marketing                           1993
Wallace D. Ruiz         45      Vice President, Finance, Treasurer and Chief        1995
                                  Financial Officer
</TABLE>
 
---------------
(1) Mr. Conti resigned as of March 31, 1997.
 
(2) Mr. Ernens resigned as of May 20, 1997.
 
     Albion Fitzgerald co-founded the Company in February 1992, serving as
Chairman since that time, and currently as Chief Executive Officer and
President. Mr. Fitzgerald has previously served as Chief Technology
 
                                       12
<PAGE>   13
 
Officer. In May 1990, Mr. Fitzgerald founded Fitzgerald Associates, the
Company's predecessor, and served as the chief architect in the development of
EDM technology.
 
     Robert Anderson joined the Company in June 1992 and currently serves as
Executive Vice President, Chief Operating Officer, Secretary and as a director.
From 1990 to 1992, Mr. Anderson served as Senior Vice President at Stratagem, an
investment banking firm specializing in mergers, acquisitions and divestitures
in the software industry.
 
     Michael Conti joined the Company in July 1994 as Vice President of North
American Sales. For one year prior to joining the Company, he was Vice
President, Sales of Image Business Systems, a start-up imaging company. Prior to
that he spent four years as a regional vice president for Intersolv, Inc., a
publicly held software company. Mr. Conti resigned from the Company effective
March 31, 1997.
 
     Robert Ernens served as Managing Director of Novadigm Europe, SARL, a
wholly-owned subsidiary of Novadigm, Inc. in Europe, since January 1994. Prior
to joining the Company, Mr. Ernens served from August 1992 until December 1993
as an advisor to the board of Acme On Software SA, a French based system
software distribution company that he founded in 1990. From August 1990 until
July 1992, he served as Managing Director of Goal Systems International, the
subsidiary of Goal Systems Inc., a publicly held software company. Mr. Ernens
resigned from the Company effective May 20, 1997.
 
     Joseph Fitzgerald co-founded the Company in February 1992. Since that time
he has served as Director of Development, and as of June 1996, Vice President of
Development. Mr. Fitzgerald is the brother of Albion Fitzgerald.
 
     Thomas Harmon joined the Company as Vice President, Operations, in April
1995, after eighteen months directing Novadigm operations projects as a
management consultant. From October 1988 through May 1993, Mr. Harmon was an
independent management consultant at Montefiore Medical Center where he directed
a project to implement major new clinical and financial systems.
 
     Stuart Jacobson joined the Company in August 1994 and currently serves as
Vice President, Indirect Channels. Prior to joining the Company, Mr. Jacobson
served as Managing Director, International and General Manager Worldwide
Distribution for ViewStar Corporation, a private document management work flow
software vendor. Mr. Jacobson has also held various sales and management
positions at Oracle Corporation since 1986, including Group Manager of Asia
Pacific Operation.
 
     Philip Myers joined the Company in December, 1993 as Vice President,
Marketing after having supported the Company's initial product launch as a
marketing consultant since October 1992. From November 1991 through December
1993 Mr. Myers was President of Marketing Strategic Services, a marketing
consulting firm.
 
     Wallace Ruiz joined the Company in May 1995 as Vice President, Finance,
Treasurer and Chief Financial Officer. From September 1993 until joining the
Company, he was Vice President, Treasurer and Chief Financial Officer of Unisa
Holdings, Inc., a designer, marketer, and retailer of women's fashion footwear.
From June 1989 until August 1993, Mr. Ruiz was employed as Vice President and
Chief Financial Officer of L. Luria & Son, Inc., a publicly held retail chain.
Mr. Ruiz is a Certified Public Accountant. He is the brother-in-law of Albion
Fitzgerald.
 
ITEM 2.  PROPERTIES
 
     The Company conducts its operations in the North America principally out of
its facilities in Mahwah, New Jersey; Lisle, Illinois; San Francisco,
California; and in Western Europe out of its facilities in Paris, France. The
Company occupies approximately 26,911 square feet at its New Jersey facilities,
which are used principally for product development, and sales and support;
approximately 4,153 square feet in Illinois, which is used primarily for
marketing, and sales and support; and approximately 1,800 square feet at its San
Francisco, California facilities, which are used principally for financial and
administrative functions. The Company's facilities in France are comprised of
approximately 8,729 square feet and are used to support the Company's European
operations. The Company also has sales and support offices in Bethesda (MD),
Dallas
 
                                       13
<PAGE>   14
 
(TX), Larkspur (CA), Los Angeles (CA), Palo Alto (CA), Phoenix (AZ), and
Pleasanton (CA). The Company has decided to close the facilities in Lisle,
Bethesda, Larkspur (partial), Palo Alto, Phoenix, and Pleasanton and anticipates
their closing by June 30, 1997.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     On February 15, 1996, a complaint was filed by Novadyne Computer Systems,
Inc. in the U.S. District Court of Northern California against the Company for
trademark infringement and unfair competition. The complaint, among other
things, sought to restrain and enjoin the Company from using its registered
trademark, "Novadigm" as well as unspecified monetary damages. The parties have
agreed to settle the complaint. The proposed settlement requires the Company to
make a disclaimer of any relationship with the complainant for a period of one
year. The Company's insurance carrier has notified the Company that under its
policy it will indemnify the Company for damages and legal costs.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
 
     Not applicable.
 
                                    PART II
 
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
         MATTERS
 
     The Company's stock has been traded on the Nasdaq National Market since the
Company's initial public offering on July 13, 1995 under the Nasdaq symbol NVDM.
The following table sets forth, for the periods indicated, the high and low
closing sales prices for the Company's common stock as reported by Nasdaq:
 
<TABLE>
<CAPTION>
                                                                         HIGH     LOW
                                                                         ----     ---
        <S>                                                              <C>      <C>
        FISCAL YEAR ENDED MARCH 31, 1996
        Second Quarter.................................................  $24      $16 3/8
        Third Quarter..................................................  $28  1/2 $15 1/8
        Fourth Quarter.................................................  $30  1/4 $12
 
        FISCAL YEAR ENDED MARCH 31, 1997
        First Quarter..................................................  $21  3/4 $12
        Second Quarter.................................................  $15      $ 5 1/2
        Third Quarter..................................................  $12  1/8 $ 5
        Fourth Quarter.................................................  $ 9  1/8 $ 3 7/8
</TABLE>
 
     As of March 31, 1997, there were approximately 115 holders of record of the
Company's common stock.
 
     The Company has never paid cash dividends on its common stock. The Company
currently intends to retain earnings, if any, for use in its business and does
not anticipate paying any cash dividends in the foreseeable future. In addition,
the Company is prohibited from paying dividends under its revolving line of
credit agreement.
 
                                       14
<PAGE>   15
 
ITEM 6.  SELECTED FINANCIAL DATA
 
     The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Consolidated Financial Statements and Notes to Consolidated
Financial Statements and other financial information included elsewhere in this
report.
 
                                 NOVADIGM, INC.
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
                (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED MARCH 31,
                                         ---------------------------------------------------------
                                          1993        1994         1995        1996         1997
                                         -------     -------     --------     -------     --------
<S>                                      <C>         <C>         <C>          <C>         <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Revenues
  Licenses.............................  $    --     $ 1,044     $  8,488     $18,755     $ 12,117
  Services.............................       --          82          840       6,241       10,261
                                         -------     -------     --------     -------     --------
          Total revenues...............       --       1,126        9,328      25,016       22,378
                                         -------     -------     --------     -------     --------
Operating Expenses:
  Cost of Services.....................       --          34          344       2,630        6,275
  Sales and Marketing..................      530       2,347        5,706      10,961       17,123
  Research and development.............    1,088       3,222        3,338       4,426        6,212
  General and administrative...........      270         474        1,392       3,230        4,979
  Compensation charge related to escrow
     shares(1).........................       --          --       18,900          --           --
  Restructuring charge(2)..............       --          --           --          --        1,829
                                         -------     -------     --------     -------     --------
          Total operating expenses.....    1,888       6,077       29,680      21,247       36,418
                                         -------     -------     --------     -------     --------
Operating income (loss)................   (1,888)     (4,951)     (20,352)      3,769      (14,040)
Interest income and other, net.........       22          52          122       1,428        1,597
                                         -------     -------     --------     -------     --------
Income (loss) before provision for
  income taxes.........................   (1,866)     (4,899)     (20,230)      5,197      (12,443)
Provision for income taxes.............       --          --           --         160           59
                                         -------     -------     --------     -------     --------
Net income (loss)......................  $(1,866)    $(4,899)    $(20,230)    $ 5,037     $(12,502)
                                         =======     =======     ========     =======     ========
Net income (loss) per common share.....  $ (0.18)    $ (0.38)    $  (1.40)    $  0.28     $  (0.72)
                                         =======     =======     ========     =======     ========
Weighted average common and common
  share equivalents....................   10,351      13,060       14,424      17,916       17,409
</TABLE>
 
<TABLE>
<CAPTION>
                                                              AS OF MARCH 31,
                                         ---------------------------------------------------------
                                          1993        1994         1995        1996         1997
                                         -------     -------     --------     -------     --------
<S>                                      <C>         <C>         <C>          <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents............   $2,008      $2,249       $1,012     $13,361      $ 7,984
  Working capital......................    1,853       2,091        3,879      29,831       24,983
  Total assets.........................    2,245       3,148        6,560      50,132       36,342
  Deferred revenue.....................       --         248          871       4,509          946
  Stockholders' equity.................    2,015       2,220        4,066      42,522       29,800
</TABLE>
 
---------------
(1) Represents a non-recurring, non-cash compensation charge incurred upon the
    achievement of certain cash flow requirements under an escrow arrangement
    imposed on founders' shares in connection with the Company's public offering
    on the Vancouver Stock Exchange in September 1992. See Note 6 of Notes to
    Consolidated Financial Statements.
 
(2) See Note 10 of Notes to Consolidated Financial Statements.
 
                                       15
<PAGE>   16
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
     This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed under "Business Risks" below, that
could cause actual results to differ materially from historical or anticipated
results. In addition, reference should be made to other risk factors described
from time to time in the Company's periodic reports filed with the SEC under the
Securities Exchange Act of 1934, as amended.
 
OVERVIEW
 
     The Company designs, markets and supports an automated solution to software
management in medium and large organizations with complex distributed computing
environments. The Company was incorporated in February 1992. Through September
1993, the Company's primary efforts were devoted to product development. In
October 1993, Version 1.0 of EDM was released for general availability. Since
its first release, the Company has continued to develop EDM by adding new
features, applications and platforms. Versions 2.0 and 2.1 of EDM were released
in February and June 1994, respectively. In June 1995, the Company released
Version 3.0 and in December 1995 and January 1997 released Versions 3.1 and 3.2,
respectively.
 
     The Company generates license revenues from licensing the rights to use its
software products to end users and sublicense fees from resellers (including
certain guaranteed sublicense fees). The Company also generates service revenues
from consulting and training activities performed for license customers and
revenue from support and software update rights (maintenance).
 
     Revenues from perpetual software license agreements are recognized as
revenue upon shipment of the software if there are no significant post-delivery
obligations, payment is due within one year and collectibility is probable. If
an acceptance period is required, revenues are recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. The Company
enters into reseller arrangements that typically provide for sublicense fees
payable to the Company based on a percent of the Company's list price. Reseller
arrangements may include an initial non-refundable payment in the form of
guaranteed sublicense fees. Guaranteed sublicense fees from resellers are
recognized as revenue upon shipment of the master copy of all software to which
the guaranteed sublicense fees relate if there are no significant post-delivery
obligations, the reseller is creditworthy and if the terms of the agreement are
such that the payment obligation is not subject to price adjustment, is
non-cancelable and non-refundable and due within 90 days. These guaranteed
sublicense fees are applied against sublicense fees reported by the reseller in
relicensing the Company's products to end users. The Company recognized $1.9
million in guaranteed sublicense fees under all such agreements in 1995, $8.0
million in 1996, and $6.0 million in 1997.
 
     Revenues for maintenance are recognized ratably over the term of the
support period. If maintenance is included in a license agreement, such amounts
are unbundled from the license fee at its fair market value based on the value
established by independent sale of such maintenance to customers. Consulting
revenues are primarily related to implementation services performed under
separate service arrangements related to the installation of the Company's
software products. Such services generally do not include customization or
modification of the underlying software code. If included in a license
agreement, such services are unbundled at their fair market value based on the
value established by the independent sale of such services to customers.
Revenues from consulting and training services are recognized as services are
performed.
 
     The Company implemented a restructuring program during the fourth quarter
of fiscal 1997 to better align the Company's operating expenses with its revenue
model. The cost of restructuring was $1.8 million and was charged to fiscal
1997.
 
     All period references in the discussion below are to fiscal periods of the
Company based on its fiscal year ending March 31.
 
                                       16
<PAGE>   17
 
RESULTS OF OPERATIONS
 
     For the periods indicated, the following table sets forth the percentage of
total revenues represented by the respective line items in the Company's
statements of operations.
<TABLE>
<CAPTION>
    <S>                                                          <C>        <C>       <C>
 
<CAPTION>
                                                                   YEARS ENDED MARCH 31,
                                                                 --------------------------
                                                                  1995      1996      1997
                                                                 ------     -----     -----
    <S>                                                          <C>        <C>       <C>
    Revenues:
      Licenses.................................................    91.0%     75.0%     54.1%
      Services.................................................     9.0      25.0      45.9
                                                                 ------     -----     -----
         Total revenues........................................   100.0     100.0     100.0
                                                                 ------     -----     -----
    Operating expenses:
      Cost of services.........................................     3.7      10.5      28.0
      Sales and marketing......................................    61.2      43.8      76.5
      Research and development.................................    35.8      17.7      27.8
      General and administrative...............................    14.9      12.9      22.2
      Compensation charged related to escrow shares............   202.6        --        --
      Restructuring charge.....................................      --        --       8.2
                                                                 ------     -----     -----
         Total operating expenses..............................   318.2      84.9     162.7
                                                                 ------     -----     -----
      Operating income (loss)..................................  (218.2)     15.1     (62.7)
                                                                 ------     -----     -----
    Interest income and other, net.............................     1.3       5.7       7.1
                                                                 ------     -----     -----
    Income (loss) before provision for income taxes............  (216.9)     20.8     (55.6)
    Provision for income taxes.................................      --       0.6       0.3
                                                                 ------     -----     -----
    Net income (loss)..........................................  (216.9)%   20.2%     (55.9)%
                                                                 ======     =====     =====
</TABLE>
 
REVENUES
 
     The Company generates revenues principally from licensing the rights to use
its software products to end users and from sublicense fees reported to the
Company by resellers, including certain guaranteed sublicense fees. The Company
also generates service revenues from consulting and training activities
performed for license customers and maintenance revenues from support and
software update rights. Service revenues accounted for 9.0% of total revenues in
1995, 25.0% in 1996 and 45.9% in 1997. The Company expects service revenues as a
percentage of total revenues to decline in 1998 as a result of the expiration in
March, 1997 of the Company's agreement with IBM.
 
     The Company's total revenues increased by $15.7 million to $25.0 million in
1996, or an increase of 169% over 1995. In 1997, total revenues declined $2.6
million to $22.4 million, or a decline of 10.5% from 1996. License revenues
increased $10.3 million to $18.8 million in 1996, and declined $6.7 million to
$12.1 million in 1997. The higher license revenues in 1996 as compared to 1995
were due primarily to the growing acceptance of EDM, particularly with Release
3.0 having become generally available in June 1995 and the signing of a
non-exclusive OEM and distribution agreement with Amdahl which provided
guaranteed sublicense fees of which $7.4 million was included in license
revenues in 1996. The lower license revenue in 1997 as compared to 1996 is
primarily due to a decline in revenue from the reseller channel, particularly
Amdahl which provided guaranteed sublicense fees of which $1.8 million was
included in license revenues in 1997; higher levels of competition from systems
management framework vendors causing customers to be cautious, resulting in
smaller average contracts as more customers purchased initial pilot licenses
rather than larger enterprise-wide licenses; and slowness in the European
market. The progressively higher service revenues since 1995 are primarily due
to the Company's agreement with IBM which provided $2.9 million and $5.1 million
in service revenues in 1996 and 1997, respectively, representing 12% and 23% of
the Company's total revenues for the respective periods, higher maintenance fees
associated with a growing installed base and higher fees from services performed
by the Company's professional services staff. Although the Company expects
maintenance
 
                                       17
<PAGE>   18
 
revenues to grow moderately throughout the next fiscal year, overall service
revenues are expected to decline with the expiration of the Company's agreement
with IBM in March, 1997.
 
     International revenues were $2.5 million, $5.2 million and $4.1 million in
1995, 1996 and 1997, respectively. International revenues increased in 1996
compared to 1995 primarily due to 1996 being the first full year of operation of
the European subsidiary and the establishment of distributorships in Japan and
the UK. International revenues decreased in 1997 over 1996, due primarily to
slowness in the European market and the incomplete sell-through of the
guaranteed sublicense fees from the foreign distributors. The Company plans to
continue to develop international sales, primarily through its indirect sales
channels and believes that international sales will increase as a percentage of
total revenues. The Company has signed agreements with distributors in Japan,
Brazil, South Africa and Australia. The Company's European subsidiary offers
marketing and technical support to the Company's indirect channel partners and
sells directly to the European market.
 
     During 1995, two customers, Amdahl and Banca Commerciale Italiana accounted
for approximately 37% and 12% of total revenues, respectively. During 1996, two
customers, Amdahl and IBM accounted for approximately 40% and 12% of total
revenues, respectively. During 1997, two customers, IBM and Amdahl accounted for
approximately 23% and 16% of total revenues, respectively.
 
     The Company typically ships its products following acceptance of a purchase
order and a fully executed license agreement, and, as a result, has little or no
backlog.
 
OPERATING EXPENSES
 
     Cost of services.  Cost of services includes the direct and indirect costs
of providing training, technical support and consulting services to the
Company's customers. Cost of services consists primarily of payroll and benefits
for field engineers and support personnel, other related overhead and third
party consulting fees. Cost of services were $0.3 million in 1995, $2.6 million
in 1996 and $6.3 million in 1997, or 41.0%, 42.1% and 61.2% of the related
service revenues for these periods, respectively. The increases in the cost of
services in both 1996 and 1997 were due primarily to higher staffing levels of
the professional services and customer support organizations necessary to serve
the growing installed base of customers. Although the Company expects cost of
services to remain at approximately the same level in 1998 as 1997, cost of
services as a percentage of service revenues is expected to increase with the
expiration of the Company's agreement with IBM in March, 1997.
 
     Sales and marketing.  Sales and marketing expenses consist primarily of
salaries, related benefits, commissions, travel and other costs associated with
the Company's sales and marketing efforts. Sales and marketing expenses were
$5.7 million, $11.0 million and $17.1 million in 1995, 1996, and 1997,
respectively. As a percentage of total revenues in 1995, 1996 and 1997, sales
and marketing expenses represented 61.2%, 43.8% and 76.5%, respectively. The
dollar increase in 1996 was due to an increase in sales commissions associated
with higher levels of revenues; an increase in the number of employees in the
sales organization; and overhead and other costs related to the increase in
employees. The dollar increase in 1997 was due to an increase in the number of
employees in both the domestic and international sales organizations and the
marketing department; overhead and other costs related to the increase in
employees; launching of marketing programs including a nation-wide seminar
series and the development of a website; and an increase in the reserve for
doubtful accounts. The Company expects sales and marketing expenses to decrease
in 1998 compared to 1997 due to the restructuring program implemented in March
1997.
 
     Research and development.  Research and development expenses consist
primarily of salaries, related benefits, consultant fees and other costs
associated with the Company's research and development efforts. Research and
development expenses were $3.3 million, $4.4 million and $6.2 million in 1995,
1996 and 1997, respectively. As a percentage of total revenues in 1995, 1996 and
1997, research and development expenses represented 35.8%, 17.7% and 27.8%,
respectively. The dollar increases in research and development expenses in both
1996 and 1997 were due primarily to increases in the number of employees and
related expenses to support the continued enhancement, design and development of
the Company's software products, quality assurance and documentation. The
Company has invested resources into the development of the next release
 
                                       18
<PAGE>   19
 
of EDM and products for the internet, both of which are expected to be
commercially available in 1998. The Company believes that a significant
investment in research and development activities is essential to provide for
the Company's future growth, particularly research and development relating to
the Company's internet activities. Accordingly, the Company anticipates that it
will continue to invest resources to further enhance and develop its products.
The Company believes that research and development expenses will increase in
future periods.
 
     Under the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," software development costs are capitalized upon the establishment of
technological feasibility, which the Company defines as establishment of a
working model. Amounts which could have been capitalized under this statement
were immaterial in all periods presented. Therefore, the Company has expensed
all software development costs as incurred.
 
     General and administrative.  General and administrative expenses consist
primarily of salaries, related benefits, travel and fees for professional
services such as consulting, legal, accounting and recruiting fees. General and
administrative expenses were $1.4 million, $3.2 million and $5.0 million in
1995, 1996 and 1997, respectively. As a percentage of total revenues in 1995,
1996 and 1997, general and administrative expenses represented 14.9%, 12.9% and
22.2%, respectively. The increase in the dollar amount of expenses is due to an
increase in the number of employees and expansion of the Company's facilities to
support the Company's growth. The Company expects general and administrative
expenses to remain at approximately the same level in 1998 as 1997.
 
     Restructuring charge.  The Company implemented a restructuring program
during the fourth quarter of 1997 to better align the Company's operating
expenses with its revenue model, recording a charge of $1.8 million related to
restructuring costs during this period. The restructuring program emphasizes the
indirect sales channels. The program terminated or relocated 29 employees,
principally in the sales and marketing departments, causing the closing of five
regional sales offices and the Chicago-based marketing office, the restructuring
of European operations, and the integration of North American channels marketing
into the existing North American sales and services organization.
 
     Interest income and other, net.  Interest income and other, net is
comprised primarily of interest income earned on the Company's cash equivalents
and investments. Interest income was $0.1 million, $1.4 million and $1.6 million
in 1995, 1996 and 1997, respectively. Interest income increased from 1995 to
1996 due primarily to interest income earned on the investment of the proceeds
from the sale of common stock in the Company's initial public offering in July
1995. Higher average balances and interest rates are responsible for the higher
interest income and other, net in 1997 over 1996.
 
     Income taxes.  The Company did not record a provision for income taxes in
1995 due to net losses incurred for both book and tax purposes. The Company
recorded a provision for income taxes of approximately $0.2 million and $0.1
million in 1996 and 1997, respectively, associated with federal and state
alternative minimum taxes. As of March 31, 1997, the Company had net deferred
tax assets of approximately $4.8 million. The Company has provided a full
valuation allowance due to the uncertainty surrounding the timing of the
realization of the net deferred tax assets. As of March 31, 1997, the Company
had federal net operating loss carryforwards of $12.5 million, which expire in
various periods through 2011. The Company's ability to utilize the net operating
loss carryforwards in future years may be limited in some circumstances,
including significant changes in ownership interests, due to certain provisions
of the Internal Revenue Code of 1986.
 
NEW ACCOUNTING PRONOUNCEMENT
 
     In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings per Share", which will be adopted by the Company in
fiscal year 1998. SFAS No. 128 requires companies to compute earnings per share
under two different methods, basic and diluted, and to disclose the methodology
used for the calculation. The Company does not believe that this pronouncement
will have a significant effect on previously stated earnings per share.
 
                                       19
<PAGE>   20
 
INFLATION
 
     The effects of inflation on the Company's financial position has not been
significant to date.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Net cash used in operating activities was approximately $4.0 million in
1995 due primarily to a net loss before the non-cash "compensation charge
related to escrow shares" in 1995 and an increase in accounts receivable. In
1996, operating activities provided $6.6 million in net cash primarily as a
result of net income. In 1997, net cash used in operating activities was $9.1
million primarily due to a net loss. The accounts receivable balance decreased
from $7.9 million as of March 31, 1996 to $4.9 million as of March 31, 1997. The
decrease in accounts receivable was due to the lower revenues during the year
and lower deferred revenues of $3.6 million. As of March 31, 1997, the Company
did not have any material commitments for capital expenditures.
 
     In July 1995, the Company completed a public offering in the United States
of 2,875,000 shares of common stock (which included 500,000 shares sold by
stockholders) at $15 per share, resulting in net proceeds to the Company of
approximately $32.2 million, after offering costs. The Company received
approximately $1.2 million and $1.0 million in 1996 and 1997, respectively, from
employee optionees who exercised options under the Company's stock option plan.
 
     In May 1996, the Board of Directors approved the repurchase of up to
500,000 shares of the Company's common stock. As of March 31, 1997, the Company
had repurchased 230,500 shares, expending approximately $1.5 million. The
repurchased shares have been accounted for as treasury stock.
 
     In December 1994, the Company entered into an unsecured revolving line of
credit agreement with a bank. The agreement has been renewed annually and at
March 31, 1997 the available line of credit was $2,000,000, expiring in August
1997. Borrowings bear interest at the bank's reference rate (8.25% as of March
31, 1997). The agreement has a number of financial covenants, one of which was
waived. As of March 31, 1997, the Company was in compliance with the financial
covenants contained in the agreement and had no outstanding loans under the
agreement.
 
     Although it is difficult for the Company to predict future liquidity
requirements with certainty, the Company believes that its existing cash and
marketable securities balances, together with cash from operations and amounts
available under the Company's revolving line of credit, will be adequate to
finance its operations for at least the next twelve months.
 
BUSINESS RISKS
 
     History of Operating Losses.  The Company has reported an operating loss
for every quarter since its incorporation in February 1992 except for the four
consecutive quarters of fiscal 1996. The Company believes it will continue to
incur operating losses and net losses at least through the first half of 1998.
There can be no assurance that the Company will be able to achieve profitability
on a quarterly or annual basis in the future.
 
     Restructuring Program.  The restructuring program implemented by the
Company in the last quarter of 1997 may not be adequate to bring the Company to
profitability. The strategy of emphasizing indirect sales channels and the
reorganization of the marketing department and the European operations may not
be successful in better aligning the Company's operating expenses with its
revenue model. The termination of sales and marketing personnel in connection
with the reorganization of the marketing department and the European operations
may negatively affect the Company's licensing efforts which could result in
declining total revenues. If the restructuring program is inadequate, future
restructuring charges may be incurred.
 
     Retention of Executives and Key Employees.  The Company's future success
depends upon the contributions of its executives and key employees. The
inability to retain executives and certain key employees in research and
development and sales and marketing could have a significant adverse affect on
the Company's ability to implement its restructuring program, develop new
products and versions of its products and market and sell its products in the
marketplace. The loss of the services of one or more of the Company's executives
or
 
                                       20
<PAGE>   21
 
key employees could have a material adverse effect on the Company's operating
results. The Company also believes its future success will depend in large part
upon its ability to attract and retain additional highly skilled personnel. In
particular, the Company has announced a search for a president of the Company
and a vice president of international operations. Competition for such
executives is intense, and there can be no assurance that the Company will be
successful in retaining its existing executives and key employees and in
attracting and retaining the personnel it requires in the future.
 
     Fluctuations in Quarterly Results; Seasonality.  The Company's quarterly
operating results have fluctuated in the past and are expected to fluctuate
significantly in the future due to a number of factors, including, among others,
the size and timing of customer orders, the timing and market acceptance of new
products by the Company, the level and pricing of international sales, foreign
currency exchange rates, changes in the level of operating expenses,
technological advances and new product introductions by the Company's
competitors and competitive conditions in the industry. Revenues received from
individual customers of the Company vary significantly based on the size of the
product installation. Customer orders for the Company's products have ranged
from $25,000 to over $1 million, and have averaged several hundred thousand
dollars. As a result, the Company's quarterly operating results are likely to be
significantly affected by the number and size of customer orders the Company is
able to obtain in any particular quarter. In addition, the sales cycle for the
Company's products is lengthy and unpredictable, and may range from a few months
to over a year, depending upon the interest of the prospective customer in the
Company's products, the size of the order (which may involve a significant
commitment of capital by the customer), the decision-making and acceptance
procedures within the customer's organization, the complexity of implementation
and other factors. Over the past year, the Company's sales cycles have generally
lengthened and the average dollar amount of customer contracts have decreased as
customers initial purchases tended toward smaller pilot licenses rather than
larger enterprise-wide licenses.
 
     The Company generally ships orders as received and as a result typically
has little or no backlog. Quarterly revenues and operating results therefore
depend upon the volume and timing of orders received during the quarter, which
are difficult to forecast. Historically, the Company has recognized the
substantial majority of its quarterly license revenues in the last weeks or week
of each quarter. In addition, because the Company's expenditure levels for
product development and other operating expenses are based in large part on
anticipated revenues, a substantial portion of which are not typically generated
until the end of each quarter, the timing and amount of revenues associated with
orders have caused, and may continue to cause, significant variations in
operating results from quarter to quarter.
 
     The Company's operating results are also expected to vary significantly due
to seasonal trends. Historically, the Company has realized a greater percentage
of its annual revenues in its fourth quarter, and a lower percentage in the
first and second quarters. The Company believes that this seasonality is in part
a result of efforts of the Company's direct sales personnel to meet annual sales
quotas, and in part a result of lower international revenues in the summer
months when many businesses in Europe experience lower sales. In addition,
capital budgets of the Company's customers, which tend to concentrate spending
activity at calendar year-end, have had, and may continue to have, a seasonal
influence in the Company's quarterly operating results. The Company expects that
its operating results will continue to fluctuate in the future as a result of
these and other factors, and that seasonality may increase if the Company's
efforts to expand its international sales are successful. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Sales and Marketing."
 
     Rapid Technological Change and Introduction of New Products.  The market
for ESD products is characterized by rapid technological advances, changes in
customer requirements and frequent new product introductions and enhancements.
The Company's future success will depend in large part on the Company's ability
to enhance its current products and to develop and introduce new products that
keep pace with technological developments, achieve market acceptance and respond
to customer requirements that are constantly evolving. Responding to rapid
technological change and the need to develop and introduce new products to meet
customers' expanding needs will require the Company to make substantial
investments in research and product development. During 1997, among other R&D
expenditures, the Company allocated R&D funding to the development of its next
version of EDM, release 4.0 as well as the development of
 
                                       21
<PAGE>   22
 
products for the internet environment. The Company intends to continue to
allocate funding to these development projects throughout 1998. Any failure by
the Company to anticipate or respond adequately to technological developments
and customer requirements, and in particular advances in client/server
enterprise hardware platforms, internet applications and platforms, operating
systems and systems management applications, or any significant delays in
product development or introduction, could result in a loss of competitiveness
or could materially and adversely affect the Company's operating results. There
can be no assurance that any product enhancements or new products developed by
the Company will gain market acceptance.
 
     The failure to develop on a timely basis new products or product
enhancements could cause customers to delay or refrain from purchasing the
Company's existing products and thereby adversely affect the Company's operating
results. If future releases of new products and enhancements do not achieve
market acceptance, the Company's business and operating results will be
materially and adversely affected. See "Business -- Products."
 
     Software products as complex as those offered by the Company may contain
undetected errors or failures that, despite significant testing by the Company,
are discovered only after a product has been installed and used by customers.
Although the Company's business has not been materially and adversely affected
by any such errors to date, there can be no assurance that errors will not be
found in the Company's products in the future. Such errors could cause delays in
product introductions and shipments, require design modifications, result in
loss of or delay in market acceptance of the Company's products, or loss of
existing customers, any of which could adversely affect the Company's
competitive position, operating results and financial condition.
 
     Competition.  Competition in the ESD market is rapidly evolving. Current
and prospective competitors of the Company generally fall into four categories:
 
        Network/Systems Management Framework Vendors.  Including IBM/Tivoli,
     Computer Associates, and Hewlett-Packard, who offer tactical ESD tools as
     part of their product suites.
 
          Application Management Vendors.  Including IBM/Tivoli and Platinum
     Technologies, who offer ESD tools integrated with performance management
     environments.
 
          LAN/Desktop Management Suite Vendors.  Including vendors like
     Microsoft, Intel, and McAfee, who offer workgroup-based ESD tools as part
     of a LAN administration package.
 
          Internet Push ESD Vendors.  Including small start-ups like Marimba,
     BackWeb and DataChannel along with browser suppliers like Netscape and
     Microsoft who provide push distribution technologies as plug-in components
     for new internet infrastructures.
 
     Most of the Company's competitors have longer operating histories than the
Company, and may have significantly greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and larger
installed customer bases. The Company's current and future competitors could
introduce products with more features, greater functionality and lower prices
than the Company's products. These competitors could also bundle existing or new
products with other, more established products in order to compete with the
Company. The Company's focus on software management products may be a
disadvantage in competing with vendors that offer a broader range of products.
Moreover, as the software management market develops, a number of companies with
significantly greater resources than those of the Company could attempt to
increase their presence in this market by acquiring or forming strategic
alliances with competitors or business partners of the Company. There can be no
assurance that the Company will be able to compete successfully or that
competition will not have a material adverse effect on the Company's business,
operating results or financial condition. See "Business -- Competition."
 
     Volatility.  The market for the Company's common stock is highly volatile.
The trading price of the Company's common stock could be subject to wide
fluctuations in response to quarterly variations in operating and financial
results, announcements of technological innovations or new products by the
Company or its competitors, changes in prices of the Company's or its
competitors' products and services, changes in product mix, change in the
Company's revenue and revenue growth rates for the Company as a whole or for
individual
 
                                       22
<PAGE>   23
 
geographic areas, products or product categories, as well as other events or
factors. Statements or changes in opinions, ratings, or earnings estimates made
by brokerage firms or industry analysts relating to the market in which the
Company does business or relating to the Company specifically have results, and
could in the future results, in an immediate and adverse effect on the market
price of the Company's common stock. In addition, the stock market has from time
to time experienced extreme price and volume fluctuations which have
particularly affected the market price for the securities of many high
technology companies and which 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.
 
     Risks Related to International Revenues.  In 1996 and 1997, approximately
21% and 18% of the Company's net revenues were derived from its international
operations. While international revenues decreased in 1997 compared to 1996, the
Company plans to continue to develop international sales, primarily through its
indirect sales channels, and believes that international sales will increase as
a percentage of total revenues. The Company's operations and financial results
could be significantly affected by factors associated with international
operations, such as changes in foreign currency exchange rates, uncertainties
relative to regional economic circumstances, longer payment cycles, greater
difficulty in accounts receivable collection, changes in regulatory requirements
and product localization requirements, as well as by other factors associated
with international activities.
 
     Customer Concentration.  During 1997, two customers, IBM and Amdahl,
accounted for approximately 23% and 16% of total revenues, respectively. During
1996 the Company entered into an agreement with IBM which provided for ongoing
consulting and support for a research project through March 1997, as well as
resolution of outstanding disputes between the Company and IBM. The Company
recognized $5.1 million in related consulting revenues under this agreement
during 1997, which represented 23% and 50% of the Company's total revenues and
service revenues, respectively, for the period. This agreement with IBM expired
effective March 1997 and the Company does not anticipate receiving any further
revenue from IBM in 1998. The inability of the Company to replace the revenue
under its agreement with IBM with revenue from other customers could adversely
affect the Company's results of operations.
 
     In June 1995, the Company entered into a seven-year, non-exclusive OEM and
distribution agreement with Amdahl. Under the agreement Amdahl can sublicense
EDM throughout the world as part of their bundled solution and sublicense EDM
stand-alone to a limited worldwide market. Novadigm agreed to provide limited
technical support and training. The agreement required Amdahl to pay the Company
$8 million in non-refundable, guaranteed sublicense fees and bundled support in
quarterly installments during the first year of the agreement, 1996; and $4
million in the last quarter of both 1997 and 1998. The agreement was revised in
March 1997, instead requiring Amdahl to pay $2 million in non-refundable,
guaranteed sublicense fees in the last quarter of 1997; minimum additional
sublicense fees of $2 million during 1998; and minimum additional sublicense
fees of $3 million in both 1999 and 2000. There can be no assurance that Amdahl
will extend this agreement in subsequent years. The Company recognized $1.8
million in guaranteed sublicense fees from Amdahl in 1997. Although the Company
believes that its dependence on its relationship with Amdahl may become less
significant over time as the Company expands the number of companies
participating in its indirect marketing channels, the disruption of the
Company's relationship with Amdahl could materially and adversely affect the
Company's operating results and financial condition.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The Financial Statements and Supplementary Data of the Company required by
this item are set forth at the pages indicated at Item 14(a).
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                       23
<PAGE>   24
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information required by this item concerning the Company's directors is
incorporated by reference from the section captioned "Election of Directors"
contained in the Company's Proxy Statement related to the Annual Meeting of
Stockholders to be held September 12, 1997, to be filed by the Company with the
Securities and Exchange Commission within 120 days of the end of the Company's
fiscal year pursuant to General Instruction G(3) of Form 10-K (the "Proxy
Statement"). The information required by this item concerning executive officers
is set forth in Part I, Item 1 of this Report. The information required by this
item concerning compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the section captioned "Compliance with Section
16(a) of the Exchange Act" contained in the Proxy Statement.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The information required by this item is incorporated by reference from the
section captioned "Executive Compensation and Other Matters" contained in the
Proxy Statement.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this item is incorporated by reference from the
section captioned "Beneficial Security Ownership of Management and Certain
Beneficial Owners" contained in the Proxy Statement.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this item is incorporated by reference from the
section captioned "Certain Transactions With Management" contained in the Proxy
Statement.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
 
     (a) The following documents are filed as a part of this Form:
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                       NUMBER
                                                                                       ------
<S>     <C>                                                                            <C>
1.      Financial Statements:
        Report of Independent Public Accountants...................................      F-2
        Consolidated Balance Sheets -- As of March 31, 1997 and 1996...............      F-3
        Consolidated Statements of Operations -- For the Three Years Ended March         F-4
        31, 1997, 1996 and 1995....................................................
        Consolidated Statements of Stockholders' Equity -- For the Three Years           F-5
        Ended March 31, 1997, 1996 and 1995........................................
        Consolidated Statements of Cash Flows -- For the Three Years Ended March         F-6
        31, 1997, 1996 and 1995....................................................
        Notes to Consolidated Financial Statements.................................      F-7
2.      Financial Statement Schedule:
        For the Years Ended March 31, 1997, 1996 and 1995:
        II -- Valuation and Qualifying Accounts....................................      S-1
        Additional schedules are not required under the related schedule
        instructions or are inapplicable, and therefore have been omitted.
</TABLE>
 
                                       24
<PAGE>   25
 
3.     Exhibits
 
<TABLE>
    <C>            <S>
          3.1*     Certificate of Incorporation of Registrant, as amended.
          3.2*     Bylaws of Registrant, as amended.
         10.1*+    OEM Software Licensing and Distribution Agreement dated June 13, 1995
                   between the Registrant and Amdahl Corporation (originally filed as Exhibit
                   10.8).
         10.2 +    Amendment 1 to OEM Software Licensing and Distribution Agreement dated June
                   13, 1995 between the Registrant and Amdahl Corporation.
         10.3 +    Amendment 2 to OEM Software Licensing and Distribution Agreement dated June
                   13, 1995 between the Registrant and Amdahl Corporation.
         10.4      1992 Stock Option Plan, as amended, and form of Stock Option Agreement.
         10.5*     1995 Employee Stock Purchase Plan and form of Subscription Agreement.
         10.6*     Employment Agreement dated as of August 10, 1992 by and between H. Kent
                   Petzold and the Registrant.
         10.7*     Deferred Compensation Agreement dated as of August 10, 1992, as amended, by
                   and between H. Kent Petzold and the Registrant.
         10.8*     Stock Option Agreement and Notice of Stock Option Grant dated as of August
                   10, 1992 by and between H. Kent Petzold and the Registrant.
         10.9*     Amendment to Employment Agreement and Stock Option Agreements dated as of
                   May 18, 1995 by and among H. Kent Petzold and the Registrant, and Albion J.
                   Fitzgerald, Shannon Ruiz, Joseph J. Fitzgerald and Brian J. McAlister.
         10.10*    Form of Indemnification Agreement entered into between Registrant and its
                   officers and directors.
         10.11     Change of Control Agreement entered into between Registrant and Stuart
                   Jacobson.
         10.12     Loan Agreement dated July 1, 1996 between the Registrant and Coast
                   Commercial Bank.
         10.13     Facility lease dated as of March 14, 1997, by and between Crossroad
                   Developers Associates, LLC and the Registrant.
         21.1*     Subsidiary of Registrant.
         23.1      Consent of Arthur Andersen LLP
         24.1      Power of Attorney (see page 27)
         27.1      Financial Data Schedule.
    (b)   Reports on Form 8-K:
          None.
    (c)   Exhibits. See Item 14(a)(3) above.
    (d)   Financial Statement Schedule. See Item 14(a)(2) above.
</TABLE>
 
---------------
 * Incorporated by reference to exhibits filed with Registrant's Registration
   Statement on Form S-1 (Reg. No. 33-92746) as declared effective by the
   Commission on July 13, 1995.
 
** Incorporated by reference to exhibits filed with Registrant's Annual Report
   on Form 10-K (Reg. No. 0-26156) as of March 31, 1996.
 
 + Confidential treatment has been granted with respect to certain portions of
   this exhibit. Omitted portions have been filed separately with the Securities
   and Exchange Commission.
 
                                       25
<PAGE>   26
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
 
                                          NOVADIGM, INC.
                                          (Registrant)
 
                                          By /s/     WALLACE D. RUIZ
                                            ------------------------------------
                                                      Wallace D. Ruiz
                                            Vice President, Finance, Treasurer,
                                                             and
                                                  Chief Financial Officer
                                            (Principal Financial and Accounting
                                                          Officer)
 
Date: June 27, 1997
 
                                       26
<PAGE>   27
 
                               POWER OF ATTORNEY
 
     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Wallace D. Ruiz, as his
attorney-in-fact with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Report on Form 10-K and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below on June 27, 1997 by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
 
<TABLE>
<CAPTION>
                SIGNATURE                                  TITLE                      DATE
------------------------------------------  -----------------------------------  --------------
 
<C>                                         <S>                                  <C>
         /s/ ALBION J. FITZGERALD           Chairman of the Board, Chief         June 27, 1997
------------------------------------------    Executive Officer and President
           Albion J. Fitzgerald               (Principal Executive Officer)
 
           /s/ WALLACE D. RUIZ              Vice President Finance, Treasurer,   June 27, 1997
------------------------------------------    and Chief Financial Officer
             Wallace D. Ruiz                  (Principal Financial and
                                              Accounting Officer)
 
          /s/ ROBERT B. ANDERSON            Executive Vice President, Chief      June 27, 1997
------------------------------------------    Operating Officer, Secretary and
            Robert B. Anderson                Director
 
           /s/ MICHELE AXELSON              Director                             June 27, 1997
------------------------------------------
             Michele Axelson
 
            /s/ DENNIS DECOSTE              Director                             June 27, 1997
------------------------------------------
              Dennis DeCoste
 
           /s/ H. KENT PETZOLD              Director                             June 27, 1997
------------------------------------------
             H. Kent Petzold
</TABLE>
 
                                       27
<PAGE>   28
 
                      (THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>   29
 
                                 NOVADIGM, INC.
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        -----
<S>                                                                                     <C>
Report of Independent Public Accountants..............................................    F-2
Consolidated Balance Sheets...........................................................    F-3
Consolidated Statements of Operations.................................................    F-4
Consolidated Statements of Stockholders' Equity.......................................    F-5
Consolidated Statements of Cash Flows.................................................    F-6
Notes to Consolidated Financial Statements............................................    F-7
</TABLE>
 
                                       F-1
<PAGE>   30
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
TO NOVADIGM, INC.:
 
     We have audited the accompanying consolidated balance sheets of Novadigm,
Inc. (a Delaware corporation) and subsidiary as of March 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows of each of the three years in the period ended March 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Novadigm, Inc. and
subsidiary as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997 in conformity with generally accepted accounting principles.
 
     Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
 
                                          ARTHUR ANDERSEN LLP
 
San Jose, California
April 28, 1997
 
                                       F-2
<PAGE>   31
 
                                 NOVADIGM, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                        MARCH 31,     MARCH 31,
                                                                          1997          1996
                                                                        ---------     ---------
                                                                            (IN THOUSANDS,
                                                                        EXCEPT PER SHARE DATA)
<S>                                                                     <C>           <C>
ASSETS
Current Assets:
  Cash and cash equivalents...........................................  $   7,984     $  13,361
  Short-term marketable securities....................................     18,205        14,827
  Accounts receivable, net of allowance for doubtful accounts of
     $1,302 in 1997 and $0 in 1996....................................      4,932         7,883
  Prepaid expenses and other current assets...........................        404         1,057
                                                                         --------      --------
          Total current assets........................................     31,525        37,128
  Property and equipment, net.........................................      1,586         1,302
  Long-term marketable securities.....................................      2,529        11,428
  Other assets........................................................        702           274
                                                                         --------      --------
                                                                        $  36,342     $  50,132
                                                                         ========      ========
                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable....................................................  $   1,540     $   1,553
  Accrued liabilities.................................................        433           119
  Accrued payroll and other compensation..............................      2,229         1,429
  Accrued restructuring cost..........................................      1,394            --
  Deferred revenue....................................................        946         4,196
                                                                         --------      --------
          Total current liabilities...................................      6,542         7,297
                                                                         --------      --------
Long-term deferred revenue............................................         --           313
Commitments and contingencies (Note 4)
Stockholders' equity:
  Preferred stock, $0.001 par value
     Authorized -- 5,000 shares
     Outstanding -- none..............................................         --            --
  Common stock, $0.001 par value
     Authorized -- 30,000 shares
     Outstanding -- 17,316 shares in 1997 and 17,402 shares in 1996...         11            11
  Additional paid-in capital..........................................     65,000        64,877
  Notes receivable from stockholders..................................         --          (325)
  Cumulative translation adjustment...................................          4           (12)
  Accumulated deficit.................................................    (35,215)      (22,029)
                                                                         --------      --------
          Total stockholders' equity..................................     29,800        42,522
                                                                         --------      --------
                                                                        $  36,342     $  50,132
                                                                         ========      ========
</TABLE>
 
   The accompanying notes are an integral part of these consolidated balance
                                    sheets.
 
                                       F-3
<PAGE>   32
 
                                 NOVADIGM, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                FOR THE YEARS ENDED MARCH 31,
                                                              ---------------------------------
                                                                1997        1996         1995
                                                              --------     -------     --------
                                                                   (AMOUNTS IN THOUSANDS,
                                                                  EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>          <C>         <C>
REVENUES:
  Licenses..................................................  $ 12,117     $18,775     $  8,488
  Services..................................................    10,261       6,241          840
                                                              --------     -------     --------
          Total revenues....................................    22,378      25,016        9,328
                                                              --------     -------     --------
OPERATING EXPENSES:
  Cost of services..........................................     6,275       2,630          344
  Sales and marketing.......................................    17,123      10,961        5,706
  Research and development..................................     6,212       4,426        3,338
  General and administrative................................     4,979       3,230        1,392
  Restructuring charge......................................     1,829          --           --
  Compensation charge related to escrow shares..............        --          --       18,900
                                                              --------     -------     --------
          Total operating expenses..........................    36,418      21,247       29,680
                                                              --------     -------     --------
  Operating income (loss)...................................   (14,040)      3,769      (20,352)
                                                              --------     -------     --------
Interest income and other, net..............................     1,597       1,428          122
                                                              --------     -------     --------
Income (loss) before provision for income taxes.............   (12,443)      5,197      (20,230)
Provision for income taxes..................................        59         160           --
                                                              --------     -------     --------
Net income (loss)...........................................  $(12,502)    $ 5,037     $(20,230)
                                                              ========     =======     ========
Net income (loss) per share.................................  $  (0.72)    $  0.28     $  (1.40)
                                                              ========     =======     ========
Weighted average number of common shares....................    17,409      17,916       14,424
                                                              ========     =======     ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       F-4
<PAGE>   33
 
                                 NOVADIGM, INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                      NOTES
                                     COMMON STOCK     ADDITIONAL    RECEIVABLE    CUMULATIVE                     TOTAL
                                    ---------------    PAID-IN         FROM       TRANSLATION  ACCUMULATED   STOCKHOLDERS'
                                    SHARES   AMOUNT    CAPITAL     STOCKHOLDERS   ADJUSTMENT     DEFICIT        EQUITY
                                    ------   ------   ----------   ------------   ----------   -----------   -------------
                                                                        (IN THOUSANDS)
<S>                                 <C>      <C>      <C>          <C>            <C>          <C>           <C>
Balance at March 31, 1994.........  13,942    $  7     $  9,456       $ (407)        $ --       $  (6,836)     $   2,220
  Sale of common stock and
     exercise of warrants, net of
     issuance costs...............     870       1        3,018           --           --              --          3,019
  Exercise of stock options.......       2      --            9           --           --              --              9
  Payments on notes receivable....      --      --           --           82           --              --             82
  Purchase of software in exchange
     for stock....................      13      --           74           --           --              --             74
  Foreign currency translation
     adjustment...................      --      --           --           --           (8)             --             (8)
  Additional paid-in capital
     related to escrow shares.....      --      --       18,900           --           --              --         18,900
  Net loss........................      --      --           --           --           --         (20,230)       (20,230)
                                    -------    ---      -------        -----         ----        --------       --------
Balance at March 31, 1995.........  14,827       8       31,457         (325)          (8)        (27,066)         4,066
  Initial public offering of
     common stock, net of issuance
     costs of $3,424..............   2,375       2       32,199           --           --              --         32,201
  Exercise of stock options.......     200       1        1,221           --           --              --          1,221
  Foreign currency translation
     adjustment...................      --      --           --           --           (4)             --             (4)
  Net income......................      --      --           --           --           --           5,037          5,037
                                    -------    ---      -------        -----         ----        --------       --------
Balance at March 31, 1996.........  17,402      11       64,877         (325)         (12)        (22,029)        42,522
  Exercise of stock options.......     145      --          982           --           --              --            982
  Purchases of treasury stock.....    (231)     --         (859)          --           --            (684)        (1,543)
  Reduction of notes receivable...      --      --           --          325           --              --            325
  Foreign currency translation
     adjustment...................      --      --           --           --           16              --             16
  Net loss........................      --      --           --           --           --         (12,502)       (12,502)
                                    -------    ---      -------        -----         ----        --------       --------
Balance at March 31, 1997.........  17,316    $ 11     $ 65,000       $   --         $  4       $ (35,215)     $  29,800
                                    =======    ===      =======        =====         ====        ========       ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       F-5
<PAGE>   34
 
                                 NOVADIGM, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                         FOR THE YEARS ENDED MARCH 31,
                                                                       ----------------------------------
                                                                         1997         1996         1995
                                                                       --------     --------     --------
                                                                                 (IN THOUSANDS)
<S>                                                                    <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..................................................  $(12,502)    $  5,037     $(20,230)
  Adjustments to reconcile net income (loss) to net cash provided by
     (used in) operating activities--
     Depreciation and amortization...................................       946          510          177
     Increase in reserve for doubtful accounts.......................     1,302           --           --
     Compensation charge related to escrow shares....................        --           --       18,900
     Software acquired in exchange for common stock..................        --           --           74
     Decrease (increase) in restricted cash..........................        --          300         (300)
     Decrease (increase) in accounts receivable......................     1,649       (3,357)      (3,876)
     Decrease (increase) in prepaid expenses and other current.......       653         (765)        (232)
     Increase in other assets........................................      (428)        (213)         (61)
     Increase in accounts payable and accrued liabilities............       301          617          570
     Increase in accrued payroll and other compensation..............       800          861          373
     Increase in accrued restructuring costs.........................     1,394           --           --
     Increase (decrease) in deferred revenue.........................    (3,563)       3,638          623
     Decrease in notes receivable from stockholders..................       325           --           82
                                                                       --------     --------     --------
          Net cash provided by (used in) operating activities........    (9,123)       6,628       (3,900)
                                                                       --------     --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment................................    (1,230)      (1,443)        (357)
  Purchases of held-to-maturity securities...........................   (20,338)     (36,101)          --
  Proceeds from redemptions of held-to-maturity securities...........    25,859        9,846           --
                                                                       --------     --------     --------
          Net cash provided by (used in) investing activities........     4,291      (27,698)        (357)
                                                                       --------     --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from the sale of common stock and exercise of warrants
     and options.....................................................       982       33,423        3,028
  Purchase of treasury stock.........................................    (1,543)          --           --
                                                                       --------     --------     --------
          Net cash provided by (used in) financing activities........      (561)      33,423        3,028
                                                                       --------     --------     --------
Effect of exchange rate on changes in cash...........................        16           (4)          (8)
                                                                       --------     --------     --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................    (5,377)      12,349       (1,237)
Cash and cash equivalents at the beginning of the period.............    13,361        1,012        2,249
                                                                       --------     --------     --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD...................  $  7,984     $ 13,361     $  1,012
                                                                       ========     ========     ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY:
Cash paid for interest...............................................  $      2     $      2     $     --
Cash paid for income taxes...........................................  $     --     $    115     $      5
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       F-6
<PAGE>   35
 
                                 NOVADIGM, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                                 MARCH 31, 1997
 
1.  THE COMPANY
 
     Novadigm, Inc. (the Company) was incorporated in Delaware in February 1992.
The Company, operating in a single industry segment, providing automated
software management solutions for large-scale client/server and internet
computing environments.
 
     Prior to 1994, the Company's primary efforts related to completing the
development of its software products, designing and implementing a marketing
program and obtaining financing to support its operations. In September of 1992,
the Company completed a public offering of its common stock on the Vancouver
Stock Exchange (see Note 5). During the second quarter of 1994, the Company
commenced commercial sales of its products. In the first quarter of fiscal 1995,
the Company established a wholly owned subsidiary, Novadigm Europe SARL, in
France to act as a sales and service office to the European marketplace. In July
of 1995, the Company completed a public offering of its common stock on the
Nasdaq National Market. The Company is subject to a number of risks, including a
history of operating losses, dependence on key individuals, potential
competition from larger and more established companies, customer concentration
and the ability to penetrate the market with new products.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation
 
     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. Intercompany accounts and transactions have
been eliminated.
 
  Translation of Foreign Currencies
 
     The functional currency of the Company's subsidiary is the local currency.
Accordingly, all assets and liabilities are translated into U.S. dollars at
current exchange rates as of the respective balance sheet date. Revenue and
expense items are translated at the average rates prevailing during the period.
Cumulative translation gains and losses are reported as a separate component of
stockholders' equity.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  Revenues
 
     The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 91-1, "Software Revenue Recognition." The Company
generates license revenues from licensing the rights to use its software
products to end users and sublicense fees from resellers (including certain
guaranteed sublicense fees). The Company also generates service revenues from
consulting and training activities performed for license customers and revenue
from support and software update rights (maintenance).
 
     Revenues from perpetual software license agreements are recognized as
revenue upon shipment of the software if there are no significant post-delivery
obligations, payment is due within one year and collectibility is probable. If
an acceptance period is required, revenues are recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. The Company
enters into reseller arrangements that
 
                                       F-7
<PAGE>   36
 
                                 NOVADIGM, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
typically provide for sublicense fees payable to the Company based on a percent
of the Company's list price. Reseller arrangements may include an initial
non-refundable payment in the form of guaranteed sublicense fees. Guaranteed
sublicense fees from resellers are recognized as revenue upon shipment of the
master copy of all software to which the guaranteed sublicense fees relate if
there are no significant post-delivery obligations, the reseller is creditworthy
and if the terms of the agreement are such that the payment obligation is not
subject to price adjustment, is non-cancelable and non-refundable and due within
90 days. These guaranteed sublicense fees are applied against sublicense fees
reported by the reseller in relicensing the Company's products to end users. The
Company recognized $6.0 million in guaranteed sublicense fees under all such
agreements in 1997, $8.0 million in 1996, $1.9 million in 1995, respectively.
 
     Revenues for maintenance are recognized ratably over the term of the
support period. If maintenance is included in a license agreement, such amounts
are unbundled from the license fee at its fair market value based on the value
established by independent sale of such maintenance to customers. Consulting
revenues are primarily related to implementation services performed under
separate service arrangements related to the installation of the Company's
software products. Such services generally do not include customization or
modification of the underlying software code. If included in a license
agreement, such services are unbundled at their fair market value based on the
value established by the independent sale of such services to customers.
Revenues from consulting and training services are recognized as services are
performed.
 
     Cost of licenses consist of media and tapes on which product is delivered.
Such costs are not material and are included in research and development
expenses in the accompanying consolidated statements of operations.
 
     Cost of services includes the direct and indirect costs of providing
training, technical support and consulting services to the Company's customers.
Cost of services consists primarily of payroll and benefits for field engineers
and support personnel, other related overhead and third-party consulting fees.
 
     Deferred revenue primarily relates to maintenance, consulting, and other
professional services which have been paid by the customers prior to the
performance of those services.
 
  Cash Equivalents
 
     The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
 
  Concentrations of Credit Risk
 
     Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of temporary cash investments,
marketable securities and accounts receivable. The Company has investment
policies that restrict placement of these investments to financial institutions
evaluated as highly creditworthy. The Company generally does not require
collateral on trade accounts receivable as the Company's customer base consists
of large, well established companies and governmental entities. As of March 31,
1997, approximately 40% of accounts receivable is concentrated with 2 customers
who are large, well-established companies that the Company has determined are
creditworthy. The Company has established an allowance for doubtful accounts in
the amount of $1.3 million as of March 31, 1997. As of March 31, 1995 and March
31, 1996, the Company concluded that an allowance for doubtful accounts was not
required.
 
  Marketable Securities
 
     In April 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). In accordance with SFAS 115, the Company's
marketable securities which are composed of commercial paper, government
 
                                       F-8
<PAGE>   37
 
                                 NOVADIGM, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
and government-backed notes and corporate notes are classified as
held-to-maturity. Held-to-maturity securities represent those securities that
the Company has both a positive intent and ability to hold to maturity and are
carried at amortized cost.
 
     Held-to-maturity securities at March 31, 1997 (in thousands) are summarized
as follows:
 
<TABLE>
<CAPTION>
                                                                     MATURITIES OF:
                                                        -----------------------------------------
                                                                              OVER ONE YEAR, BUT
                                                        ONE YEAR OR LESS     LESS THAN FIVE YEARS
                                                        ----------------     --------------------
        <S>                                             <C>                  <C>
        U.S. government and government backed
          securities..................................      $  2,074                $1,497
        Commercial paper..............................         8,845                    --
        Corporate notes...............................         7,286                 1,032
                                                             -------                ------
                                                            $ 18,205                $2,529
                                                             =======                ======
</TABLE>
 
     Proceeds from redemption of held-to-maturity securities were approximately
$25.9 million in 1997. At March 31, 1997, approximately $3.5 million of
held-to-maturity securities with original maturities of three months or less
were included in cash and cash equivalents.
 
  Fair Value of Financial Instruments
 
     The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable and accounts payable approximate their
fair values.
 
  Property and Equipment
 
     Property and equipment is stated at historical cost and consists of the
following at March 31, (in thousands):
 
<TABLE>
<CAPTION>
                                                                        MARCH 31,
                                                                    ------------------
                                                                     1997        1996
                                                                    -------     ------
        <S>                                                         <C>         <C>
        Computer equipment and software...........................  $ 2,520     $1,746
        Furniture and fixtures....................................      697        334
        Leasehold improvements....................................      302        209
                                                                    -------     ------
                                                                      3,519      2,289
        Less: Accumulated depreciation and amortization...........   (1,933)      (987)
                                                                    -------     ------
                                                                    $ 1,586     $1,302
                                                                    =======     ======
</TABLE>
 
     Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets as follows:
 
<TABLE>
        <S>                                             <C>
        Computer equipment and software.............    3 years
        Furniture and fixtures......................    5 years
        Leasehold improvements......................    5 years (lesser of lease term or
                                                          estimated useful life)
</TABLE>
 
  Software Development Costs
 
     Under the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," software development costs are capitalized upon the establishment of
technological feasibility, which the Company defines as establishment of a
working model. Capitalized software development costs require a continuing
assessment of their recoverability. This assessment requires considerable
judgment by management with respect to various factors including, but not
 
                                       F-9
<PAGE>   38
 
                                 NOVADIGM, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
limited to, anticipated future gross product revenues, estimated economic lives
and changes in software and hardware technology. Amounts which could have been
capitalized under this statement, after consideration of the above factors, were
immaterial to the Company's results of operations and financial position.
Therefore, the Company has expensed all software development costs and included
those costs in research and development expenses in the accompanying
consolidated statements of operations.
 
  Net Income (Loss) per Share
 
     Net income (loss) per share has been computed using the weighted average
number of common shares outstanding during all periods presented. Common
equivalent shares for stock options and warrants have been included using the
treasury stock method, except in periods where their effect is anti-dilutive.
 
     In February 1997, The Financial Accounting Standards Board issued Statement
No. 128 ("SFAS No. 128"), "Earnings per Share", which will be adopted by the
Company in fiscal year 1998. SFAS No. 128 requires companies to compute earnings
per share under two different methods, basic and diluted, and to disclose the
methodology used for the calculations. The Company does not believe that this
pronouncement will have a significant effect on previously stated earnings per
share.
 
3.  REVOLVING LINE OF CREDIT AGREEMENT
 
     The Company entered into a $2,000,000, unsecured revolving line of credit
agreement with a bank which expires in August 1997. Borrowings bear interest at
the bank's reference rate (8.25% as of March 31, 1997). The agreement has a
number of financial covenants including a requirement for profitability for the
fiscal year. In addition, the agreement includes a provision that prohibits the
Company from paying dividends. The lender agreed to waive the requirement for
profitability for the fiscal year under the agreement as of March 31, 1997. As
of March 31, 1997, the Company was in compliance with the financial covenants
contained in the agreement and had no outstanding loans under the agreement.
 
4.  COMMITMENTS AND CONTINGENCIES
 
     The Company has various leases for its facilities under noncancelable
operating lease agreements. Rent expense incurred under these agreements in
1997, 1996 and 1995 was approximately $659,000, $534,000, and $329,000
respectively.
 
     During 1997, the Company entered into an amendment of the lease for its
headquarters. Under the amendment, the Company extended the lease term for its
original leased space and entered into a commitment for additional space. Future
minimum commitments under all facility leases are as follows (in thousands):
 
<TABLE>
<CAPTION>
                               YEAR ENDING MARCH 31,
                ----------------------------------------------------
                <S>                                                   <C>
                       1998.........................................  $   690
                       1999.........................................      649
                       2000.........................................      614
                       2001.........................................      617
                       2002 and thereafter..........................      452
                                                                       ------
                                                                      $ 3,022
                                                                       ======
</TABLE>
 
     The company is contingently liable with respect to lawsuits and other
matters which arise in the normal course of business. Management believes that
the outcome of such contingencies will not have a material adverse effect on the
Company's financial position or results of operations.
 
                                      F-10
<PAGE>   39
 
                                 NOVADIGM, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
5.  COMMON STOCK
 
     In July of 1995, the Company completed a public offering in the United
States of 2,875,000 shares of common stock (which included 500,000 shares sold
by stockholders) at $15 per share, resulting in net proceeds to the Company of
approximately $32.2 million after offering costs. The Company's shares trade on
the Nasdaq National Market.
 
     In May of 1996, the Board of Directors approved the repurchase of up to
500,000 shares of the Company's common stock. As of March 31, 1997, the Company
repurchased 230,500 shares, expending approximately $1.5 million.
 
6.  COMPENSATION CHARGE RELATED TO ESCROW SHARES
 
     As a condition of the public offering of shares of the Company's Common
Stock on the Vancouver Stock Exchange in September 1992, 1,500,000 shares of the
Company's outstanding Common Stock were required by the British Columbia
Securities Commission (BCSC) to be placed in escrow. To satisfy this
requirement, the founding stockholders of the Company agreed to place in escrow
a portion of the shares held by them. The escrowed shares included 850,000
shares held by two outside directors and 650,000 shares contributed on a pro
rata basis by three employees. These shares were eligible for release from
escrow upon the earlier of the achievement by the Company of certain levels of
positive cash flow, as defined by BCSC regulations, or the expiration of ten
years. The cash flow requirements for release of the escrowed shares were met at
March 31, 1995.
 
     In accordance with SEC positions on similar escrow share arrangements, the
arrangement required by the BCSC was deemed to be compensatory for all shares
contributed to the escrow. Accordingly, the Company has recorded a
non-recurring, non-cash charge to earnings of $18.9 million in the quarter ended
March 31, 1995, which represented the fair value of the shares at the time the
positive cash flow requirements were met in March 1995.
 
7.  STOCK OPTIONS AND STOCK PURCHASE PLAN
 
     Under the Company's 1992 Stock Option Plan as amended (the Plan), the Board
of Directors may grant incentive and nonqualified stock options to employees,
directors and consultants. Incentive options are granted at no less than fair
market value at the date of grant based upon the price per share of the
Company's stock on the Nasdaq National Market. Nonqualified options are granted
at no less than 85% of fair market value at the date of grant. Option terms may
not exceed five years and vesting is determined by the Board of Directors for
each individual grant (generally 4 years). The Plan will continue in effect
until June 9, 2002 unless terminated sooner. During fiscal 1997, the
shareholders approved an amendment to the Plan increasing the number of shares
of common stock reserved for issuance under the Plan to 4,700,000 shares.
 
     The following table summarizes the option activity (in thousands, except
per share amounts):
 
<TABLE>
<CAPTION>
                                                                                      WEIGHTED
                                                       AVAILABLE       OPTIONS         AVERAGE
                                                       FOR GRANT     OUTSTANDING     GRANT PRICE
                                                      -----------    -----------     -----------
    <S>                                               <C>            <C>             <C>
    BALANCE AT MARCH 31, 1994.......................          256          1,069      $    4.53
      Authorized....................................          805             --
      Granted.......................................        (627)            627      $    7.38
      Exercised.....................................           --             (2)     $    4.65
      Canceled......................................            8             (8)     $    4.90
                                                           ------         ------       --------
</TABLE>
 
                                      F-11
<PAGE>   40
 
                                 NOVADIGM, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                                      WEIGHTED
                                                       AVAILABLE       OPTIONS         AVERAGE
                                                       FOR GRANT     OUTSTANDING     GRANT PRICE
                                                      -----------    -----------     -----------
    <S>                                               <C>            <C>             <C>
    BALANCE AT MARCH 31, 1995.......................          442          1,686      $    6.52
      Authorized....................................        1,000             --
      Granted.......................................      (1,264)          1,264      $   15.76
      Exercised.....................................           --           (183)     $    7.00
      Canceled......................................          210           (210)     $    5.24
                                                      -----------    -----------     -----------
    BALANCE AT MARCH 31, 1996.......................          388          2,557      $   15.82
      Authorized....................................        1,500             --
      Granted.......................................      (3,109)          3,109      $    5.32
      Exercised.....................................           --           (108)     $    6.06
      Canceled......................................        2,485         (2,485)     $    6.21
                                                      -----------    -----------     -----------
    BALANCE AT MARCH 31, 1997.......................        1,264          3,073      $    5.23
</TABLE>
 
     At March 31, 1997, 1,254,000 options are vested and exercisable and
4,142,000 shares of common stock are reserved for future issuance under the
Plan. The weighted average exercise price of exercisable options at March 31,
1997 is $4.98 per share.
 
     During fiscal 1997, the Company canceled 1,945,000 options with prices
ranging from $6.88 to $28.38 that had been granted prior to October 1996 and
replaced them with 1,945,000 options at $5.25 each, which was the market price
at the date of repricing. The effect of this transaction is treated as a
cancellation of the old options and the grant of new options in accordance with
the provisions of the Plan. The new options had the vesting period extended by
three months.
 
     On May 17, 1995 the Board of Directors adopted the Company's Employee Stock
Purchase Plan (the "Purchase Plan"), which was approved by the stockholders at
the Company's annual meeting on November 17, 1995. A total of 1,000,000 shares
of Common Stock was reserved for issuance under the Purchase Plan. The Purchase
Plan covers substantially all employees in the United States. The participants'
purchase price is the lower of 85% of the closing price on the first trading day
of the six-month trade period or the last trade day of the period. Approximately
45,000 shares and 17,000 shares were purchased under the Purchase Plan in fiscal
1997 and 1996, respectively. At March 31, 1997, the Company has reserved
approximately 938,000 shares for future issuance.
 
     In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123),"Accounting for Stock-Based Compensation", which
establishes a fair value-based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies who elect not to
adopt the new method of accounting. The Company has adopted SFAS No. 123 in
fiscal 1997 and in accordance with the provisions of SFAS No. 123, the Company
applies APB Opinion 25 and related interpretations in accounting for its stock
option and stock purchase plans. Had compensation cost for these plans been
determined consistent with SFAS No. 123, the Company's net income (loss) and
earnings (loss) per share would have resulted in the following pro forma amounts
indicated in the table below:
 
<TABLE>
<CAPTION>
                                                                   FOR THE YEARS ENDED
                                                                        MARCH 31,
                                                                   -------------------
                                                                     1997        1996
                                                                   --------     ------
        <S>                                                        <C>          <C>
        Net income (loss) (in thousands):
          As reported............................................  $(12,502)    $5,037
          Pro forma..............................................  $(20,526)    $1,039
        Net income (loss) per share:
          As reported............................................  $   (.72)    $  .28
          Pro forma..............................................  $  (1.18)    $  .06
</TABLE>
 
                                      F-12
<PAGE>   41
 
                                 NOVADIGM, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
 
     The weighted average fair values of options granted during fiscal 1997 and
1996 were $5.32 and $15.76, respectively. The options outstanding at March 31,
1997, have exercise prices between $.97 and $10.63, with a weighted average
exercise price of $5.23 and a weighted average remaining contractual life of 3.0
years.
 
     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 fiscal 1997 and 1996: risk free interest rates
ranged from 6.1% to 6.4%; expected dividend yields of 0%; expected lives of 4.8
years for grants in fiscal 1996 and 5.0 years for grants in fiscal 1997; and
expected volatility of 94%.
 
8.  INCOME TAXES
 
     The Company accounts for income taxes pursuant to SFAS No. 109. This
Statement provides for a liability approach to accounting for income taxes under
which deferred income taxes are provided based upon enacted tax laws and rates
applicable to the periods in which taxes become payable.
 
     Income (loss) before provision for income taxes are (in thousands):
 
<TABLE>
<CAPTION>
                                                        1997        1996         1995
                                                      --------     -------     --------
        <S>                                           <C>          <C>         <C>
        United States...............................  $ (9,186)    $ 7,138     $(19,844)
        Foreign.....................................  $ (3,257)    $(1,941)    $   (386)
                                                          ----        ----         ----
                                                      $(12,443)    $ 5,197     $(20,230)
                                                          ----        ----         ----
</TABLE>
 
     The components of the provision for income taxes are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                         1997        1996         1995
                                                         ----        ----         ----
        <S>                                              <C>         <C>          <C>
        Current
          U.S. federal.................................  $(12)       $112          $--
          State and local..............................    71          48          --
                                                         ----        ----         ----
                  Total Current........................    59         160          --
                                                         ----        ----         ----
        Deferred
          U.S. federal.................................    --          --          --
          State and local..............................    --          --          --
                                                         ----        ----         ----
                  Total Deferred.......................    --          --          --
                                                         ----        ----         ----
          Foreign......................................    --          --          --
        Provision for income taxes.....................  $ 59        $160          $--
                                                         ====        ====         ====
</TABLE>
 
                                      F-13
<PAGE>   42
 
                                 NOVADIGM, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The components of the net deferred tax asset at March 31, 1997 and 1996 are
as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                   1997         1996
                                                                  -------      -------
        <S>                                                       <C>          <C>
        Deferred tax assets:
          Net operating loss carryforwards......................  $ 3,257      $   126
          Net capitalized start-up costs........................      160          279
          Accrued liabilities...................................      586          378
          R&D credit............................................      323          154
          Restructuring accrual.................................      340           --
          Depreciation..........................................      222           71
          Other.................................................      357           62
                                                                   ------       ------
                  Total deferred tax assets.....................    5,245        1,070
        Valuation allowance.....................................   (5,245)      (1,070)
                                                                   ------       ------
                  Net deferred tax asset........................  $    --      $    --
                                                                   ======       ======
</TABLE>
 
As of March 31, 1997 the Company has net operating loss carryforwards for
federal income tax reporting purposes of approximately $12.5 million. These
carryforwards expire in various periods from 2007 to 2011. The Company's ability
to utilize the net operating loss carryforwards in future years may be limited
in some circumstances, including significant changes in ownership interests, due
to certain provisions of the Internal Revenue Code of 1986.
 
     The provision for income taxes for the years ended March 31, differs from
the statutory U.S. federal income tax rate due to the following:
 
<TABLE>
<CAPTION>
                                                                        1997      1996
                                                                        -----     ----
        <S>                                                             <C>       <C>
        Provision at U.S. statutory rate..............................  (35.0%)   35.0%
        State income taxes, net of federal benefit....................    0.4      3.2
        Change in valuation allowance.................................   35.1     (37.3)
        Other.........................................................    0.0      2.2
                                                                        -----     ----
                                                                           .5%     3.1%
                                                                        =====     ====
</TABLE>
 
9. MAJOR CUSTOMERS AND INTERNATIONAL SALES
 
     During 1997, two customers, IBM and Amdahl accounted for approximately 23%
and 16% of total revenues, respectively. During 1996, two customers, Amdahl and
IBM accounted for approximately 40% and 12% of total revenues, respectively.
During 1995, two customers, Amdahl and Banca Commerciale Italiana accounted for
approximately 37% and 12% of total revenues, respectively. The Company's
agreement with IBM expired in March 1997.
 
     In June, 1995, the Company entered into a seven-year non-exclusive OEM and
distribution agreement with Amdahl. Under the agreement, Amdahl can sublicense
EDM throughout the world as part of its bundled solution and sublicense EDM
stand-alone to a limited worldwide market. Novadigm agreed to provide limited
technical support and training. The agreement required Amdahl to pay the company
$8 million in non-refundable, guaranteed sublicense fees and bundled support in
quarterly installments during the first year of the agreement, fiscal 1996; and
$4 million in the last quarter of both fiscal 1997 and fiscal 1998. The
agreement was revised in March 1997, instead requiring Amdahl to pay $2 million
in non-refundable, guaranteed sublicense fees and bundled support in the last
quarter of fiscal 1997; minimum additional sublicense fees of $2 million during
fiscal 1998; and minimum additional sublicense fees of $3 million in both fiscal
1999 and fiscal 2000. In the event of a change of control of the Company, the
revised agreement allows
 
                                      F-14
<PAGE>   43
 
                                 NOVADIGM, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Amdahl the right to terminate the agreement and recover unused guaranteed
sublicenses fees at the time of termination, to the extent they were also
outstanding on March 31, 1997. There can be no assurance that Amdahl will extend
this agreement in subsequent years. The Company recognized $1.8 million in
guaranteed sublicense fees from Amdahl in fiscal 1997.
 
     Export sales, consisting of sales to customers in foreign countries, were
18.4%, 20.7% and 27.1% of total revenues in 1997, 1996 and 1995, respectively.
 
     Geographic information for the fiscal years ended March 31, 1997, 1996 and
1995 are as follows.
 
<TABLE>
<CAPTION>
                                     REVENUES              OPERATING INCOME (LOSS)         IDENTIFICABLE ASSETS
                            --------------------------   ----------------------------   --------------------------
                             1997      1996      1995      1997      1996      1995      1997      1996      1995
                            -------   -------   ------   --------   -------   -------   -------   -------   ------
<S>                         <C>       <C>       <C>      <C>        <C>       <C>       <C>       <C>       <C>
United States.............  $21,885   $24,397   $9,328   $ (9,980)  $ 5,886   $(1,106)  $37,152   $53,048   $6,602
Europe....................    1,880     1,691    1,144     (4,060)   (2,117)     (346)    1,630     2,026      297
Eliminations..............   (1,387)   (1,072)  (1,144)        --        --        --    (2,440)   (4,942)    (339)
                            -------   -------   ------   --------    ------   -------   -------   -------   ------
Total Company.............  $22,378   $25,016   $9,328   $(14,040)  $ 3,769   $(1,452)  $36,342   $50,132   $6,560
                            =======   =======   ======   ========    ======   =======   =======   =======   ======
</TABLE>
 
     In fiscal 1995, the Company established a wholly-owned subsidiary in France
that acts as a sales representative for the Company's operations in Europe. All
license agreements are entered into between the parent company and its
customers, and all license and service fees are paid directly to the parent
company. United States operations include revenues and results of operations in
the United States as well as export revenues from all customers recognized on a
worldwide basis. The subsidiary's revenues consist primarily of commission
payments from the parent company for services performed for the benefit of the
parent company at a rate of 50% of European sales. Such payments are eliminated
in the consolidated financial statements. Identifiable assets are those assets
that can be directly associated with a particular geographic area and
subsidiary.
 
10. RESTRUCTURING CHARGE
 
     The Company recorded a $1.8 million restructuring charge in fiscal 1997 to
reflect reorganization of the North American and European sales and marketing
organizations.
 
     The significant provisions included in the restructuring charge (in
thousands) were:
 
<TABLE>
        <S>                                                                   <C>
        Reorganization of European sales channel and organization...........  $1,015
        Reorganization of U.S. sales and marketing, including severances and
          office closings...................................................     814
                                                                              ------
                                                                              $1,829
                                                                              ======
</TABLE>
 
     The restructuring charge includes severances for the termination of 29
employees, the cost to close and consolidate five regional sales offices and the
Chicago-based marketing office, and the cost to realign distribution channels in
Europe. As of March 31, 1997, no material payments had been made under the
restructuring program. If the restructuring program is inadequate, future
restructuring charges may be incurred.
 
                                      F-15
<PAGE>   44
 
                                                                     SCHEDULE II
 
                                 NOVADIGM, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                 BALANCE AT      ADDITIONS                       BALANCE
                                                BEGINNING OF     CHARGED TO     RECOVERIES/      AT END
CLASSIFICATION                                     PERIOD        OPERATIONS     (WRITEOFFS)     OF PERIOD
----------------------------------------------  ------------     ----------     -----------     ---------
<S>                                             <C>              <C>            <C>             <C>
Allowance for Doubtful Accounts
 
Year Ended:
  March 31, 1995..............................      $ --           $   --          $  --         $    --
  March 31, 1996..............................        --              344           (344)             --
  March 31, 1997..............................        --            1,278             25           1,302
</TABLE>
 
                                       S-1
<PAGE>   45
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
    EXHIBIT                                                                            NUMBERED
      NO.                                   DESCRIPTION                                  PAGE
    --------    -------------------------------------------------------------------  ------------
    <S>         <C>                                                                  <C>
    3.1*        Certificate of Incorporation of Registrant, as amended.
    3.2*        Bylaws of Registrant, as amended.
    10.1*+      OEM Software Licensing and Distribution Agreement dated June 13,
                1995 between the Registrant and Amdahl Corporation (originally
                filed as Exhibit 10.8).
    10.2 +      Amendment 1 to OEM Software Licensing and Distribution Agreement
                dated June 13, 1995 between the Registrant and Amdahl Corporation.
    10.3 +      Amendment 2 to OEM Software Licensing and Distribution Agreement
                dated June 13, 1995 between the Registrant and Amdahl Corporation.
    10.4        1992 Stock Option Plan, as amended, and form of Stock Option
                Agreement.
    10.5*       1995 Employee Stock Purchase Plan and form of Subscription
                Agreement.
    10.6*       Employment Agreement dated as of August 10, 1992 by and between H.
                Kent Petzold and the Registrant.
    10.7*       Deferred Compensation Agreement dated as of August 10, 1992, as
                amended, by and between H. Kent Petzold and the Registrant.
    10.8*       Stock Option Agreement and Notice of Stock Option Grant dated as of
                August 10, 1992 by and between H. Kent Petzold and the Registrant.
    10.9*       Amendment to Employment Agreement and Stock Option Agreements dated
                as of May 18, 1995 by and among H. Kent Petzold and the Registrant,
                and Albion J. Fitzgerald, Shannon Ruiz, Joseph J. Fitzgerald and
                Brian J. McAlister.
    10.10*      Form of Indemnification Agreement entered into between Registrant
                and its officers and directors.
    10.11       Change of Control Agreement entered into between Registrant and
                Stuart Jacobson.
    10.12       Loan Agreement dated July 1, 1996 between the Registrant and Coast
                Commercial Bank.
    10.13       Facility lease dated as of March 14, 1997, by and between Crossroad
                Developers Associates, LLC and the Registrant.
    21.1*       Subsidiary of Registrant.
    23.1        Consent of Arthur Andersen LLP
    24.1        Power of Attorney (see page 27)
    27.1        Financial Data Schedule.
</TABLE>
 
---------------
 * Incorporated by reference to exhibits filed with Registrant's Registration
   Statement on Form S-1 (Reg. No. 33-92746) as declared effective by the
   Commission on July 13, 1995.
 
** Incorporated by reference to exhibits filed with Registrant's Annual Report
   on Form 10-K (Reg. No. 0-26156) as of March 31, 1996.
 
 + Confidential treatment has been granted with respect to certain portions of
   this exhibit. Omitted portions have been filed separately with the Securities
   and Exchange Commission.