<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
 
                                 ANNUAL REPORT
 
                        PURSUANT TO SECTION 13 OR 15(d)
                                     OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
<TABLE>
<S>                                           <C>
          FOR THE FISCAL YEAR ENDED                       COMMISSION FILE NUMBER
                MARCH 31, 1997                                   0-21336
</TABLE>
 
                                THE 3DO COMPANY
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                           <C>
                   DELAWARE                                     94-3177293
       (STATE OR OTHER JURISDICTION OF           (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
        INCORPORATION OR ORGANIZATION)
</TABLE>
 
              600 GALVESTON DRIVE, REDWOOD CITY, CALIFORNIA 94063
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
 
                                 (415) 261-3000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
              SECURITIES REGISTERED PURSUANT TO 12(b) OF THE ACT:
                                      None
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:
                          Common Stock, $.01 Par Value
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]
 
     As of May 31, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $79,407,449 (based upon the closing sales
price of such stock as reported by the Nasdaq National Market on such date).
Shares of Common Stock held by each officer, director, and holder of 5% or more
of the outstanding Common Stock on that date have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
 
     As of May 31, 1997, the number of outstanding shares of the Registrants'
Common Stock was 28,507,837.
 
================================================================================
<PAGE>   2
 
                                     PART 1
 
ITEM 1. BUSINESS
 
     Except for the historical information contained herein, this discussion and
analysis includes certain forward-looking statements that involve risks and
uncertainties. Such statements represent the Company's reasonable judgment on
the future and are subject to risks and uncertainties that could cause the
Company's actual results and financial position to differ materially from those
projected in the forward-looking statements as a result of the factors described
herein. Such forward-looking statements include, without limitation: the extent
to which the Company will receive and/or recognize revenue from the M2
Technology Licensing Agreement (the "M2 Agreement") with Matsushita Electric
Industrial Co., Ltd. ("Matsushita") and from the related Addendum; the extent to
which the Company will receive and/or recognize revenue from its Joint
Development and License Agreement with Cirrus Logic, Inc. ("Cirrus Logic"); the
extent to which the Company will save operating expenses such as personnel,
non-recurring engineering, facility and other overhead expenses, in fiscal year
1998 as a result of the completion of the sale of the Company's hardware systems
business to Samsung Electronics Co., Ltd. ("Samsung"); the length of time for
which the Company's existing cash resources, working capital financing and other
sources of funds, including the $20.0 million payment from Samsung received on
June 23, 1997, will fund the Company's activities; the extent to which CagEnt
Technologies, Inc., a subsidiary of Samsung, will assist the Company, as a
subcontractor, in completing the remaining deliverables associated with the M2
Agreement and Addendum; the extent to which the Company will receive the minimum
guaranteed payments and potential royalties from its international distribution
agreements; the Company's ability to successfully leverage its core technologies
into other markets; the Company's ability to develop software products for new
platforms and the timeliness, cost, and market demand for such products created
as part of its software development activities; and the effect of competitive
factors in the marketplace, including the market acceptance of certain formats
and the timing and release of competitors' products. The Company undertakes no
obligation to publicly release the result of any revisions to the
forward-looking statements contained herein to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
 
OVERVIEW
 
     The 3DO Company ("3DO" or "the Company") develops, publishes and markets
interactive entertainment products for multiple platforms including the
IBM-compatible personal computer (the "PC"), Sony Playstation, M2 and Internet
platforms. During fiscal year 1997, the Company also designed and licensed
hardware technologies for the 64-bit consumer and PC markets. In September 1996,
the Company announced its intention to exit the hardware business and focus on
developing and publishing interactive entertainment software. In April 1997, the
Company announced an agreement to sell certain assets of its hardware systems
group to Samsung for $20.0 million. In June 1997, the required government
approvals of the sale agreement were obtained and the sale transactions closed.
(see hardware systems group Sale below).
 
     The Company was incorporated as SMSG, Inc., under the laws of California,
in September 1991, commenced operations in October 1991, and changed its name to
The 3DO Company in September 1992. The Company is a successor to a California
general partnership named Medio, which was formed in October 1990 and dissolved
in September 1991. In April 1993, the Company reorganized as a Delaware holding
company. In April 1993, the Company acquired a California partnership named NTG,
L.P., and one of its partners, NTG, Inc., in exchange for 3DO common stock and
cash. The Company's common stock became publicly traded on the NASDAQ National
Market in May 1993 under the symbol THDO. The Company acquired the business of
Cyclone Studios in November 1995 and of Archetype Interactive Corporation in May
1996. In June 1996, the Company acquired certain assets of New World Computing,
Inc. References to "3DO" or the "Company" mean The 3DO Company, a Delaware
corporation, and its subsidiaries and predecessor entities.
 
     The Company's initial business model was as a licensor of technology to
hardware manufacturers and software developers to enable the establishment of a
new interactive video entertainment platform, the 3DO Interactive Multiplayer
system (the "3DO Multiplayer"). The 3DO Multiplayer was launched in
 
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<PAGE>   3
 
October 1993, and was the first 32-bit, CDROM-based, video game console product
to market. Ultimately, the 3DO Multiplayer failed to achieve significant market
acceptance. All of the Company's hardware licensees have ceased manufacturing
and distribution of the 3DO Multiplayer. In addition, third-party software
development for the platform has stopped for nearly all of the Company's
licensees.
 
     In December 1995, the Company licensed its next generation 64-bit
technology (the "M2 Technology") to Matsushita for an upfront license fee of
$100 million plus certain ongoing royalties (the "M2 Agreement). During fiscal
year 1997, the Company continued development of the M2 Technology.
 
     On April 25, 1997, the Company signed a definitive agreement with Samsung
Electronics Company, Ltd. ("Samsung") to sell most of the assets of the
Company's hardware systems group to Samsung for $20.0 million. As part of the
sale agreement, CagEnt Technologies, Inc. ("CagEnt"), a subsidiary of Samsung,
agreed to assist the Company, as a subcontractor, with respect to the Company's
efforts to complete the remaining deliverables under the M2 Agreement with
Matsushita. CagEnt will also acquire the Company's video encoder business as
part of the transaction. In June 1997, the required government approvals of the
sale agreement were obtained and the sale transaction closed.
 
     In September 1996, the Company announced its intention to transition to a
developer and publisher of interactive entertainment for the PC, video game and
Internet software markets. As a result of the sale of the hardware systems
group, the Company has completed this transition. The Company will focus on
developing high-quality software products with a special emphasis on creating
lasting franchise value in each of the titles developed and published. Because
the entertainment software business is a "hit driven" business, the Company
seeks to increase its potential for developing hit products by focusing on
products that take advantage of the Company's in-house development expertise,
are targeted at the fastest growing segments of the market, have "sequel"
potential and leverage technologies across multiple products and platforms.
 
     The Company creates software titles for the PC, Sony PlayStation, M2 and
Internet platforms. The Company released several titles for the PC in fiscal
year 1997, including the hit game "Heroes of Might & Magic II" ("Heroes II")
from the Company's New World Computing division. Heroes II has received numerous
industry awards and has continued to sell well while sales have remained
consistent since its November 1996 release. In October 1996, the Company
launched "Meridian 59," the first Internet-based, 3D role-playing game. Meridian
59 has established the Company as one of the early leaders in the emerging
market for Internet-based entertainment.
 
     The Company is currently organized into four development groups: Studio
3DO, Cyclone Studios, New World Computing and the Internet Group. Studio 3DO and
the Internet Group are located in Redwood City, California, Cyclone Studios in
San Mateo, California, and New World Computing in Agoura Hills, California. Each
development group includes programmers, artists, designers, directors,
audio/video specialists and production management.
 
MARKET
 
     The market for interactive entertainment software is characterized by
multiple platforms with no single platform achieving market dominance.
Compressed technology lifecycles have resulted in different personal computer
platforms (including Windows 95, Windows, DOS, and Macintosh platforms),
multiple generations of video game hardware systems (including 16-bit, 32-bit
and 64-bit platforms), and new remote and electronic delivery systems being
available simultaneously. For developers and publishers of interactive
entertainment software products, this availability of numerous platforms for
which consumers may purchase entertainment software has resulted in additional
expenses such as substantial investments in research and development of products
for operation on these advanced platforms, new and increased marketing efforts
for the various platforms and license fees to develop products for certain
proprietary platforms, as well as risks such as the potential for failure of the
platforms in which research and development investments have been made to
achieve sufficient market penetration to allow software developers and
publishers to recoup their increased expenses, the ineffectiveness of efforts to
market products for these platforms and unfavorable terms in the license
agreements governing the development of products for certain proprietary
platforms.
 
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<PAGE>   4
 
     The Company is currently developing products for the PC, Sony PlayStation,
M2 and Internet platforms. The Company expects that it will make substantial
investments in research and development and marketing of products for operation
on these advanced platforms and in licensing fees for the development of
products for the Sony PlayStation, a proprietary platform. Development costs for
PC, video game and Internet titles are high due to increased emphasis on video
and graphics performance, license fees associated with proprietary platforms and
research and development costs for new and rapidly developing platforms. It is
not unusual to have a video game cost over $1 million to develop. If the
platforms for which the Company has chosen to develop interactive entertainment
software do not sustain or achieve significant market penetration, the Company's
planned revenues from products for such platforms will not be achieved and the
Company may not recover its research, development and marketing investment.
Conversely, if platforms for which the Company has chosen not to, or could not
obtain licenses to, develop software products achieve significant market
success, the Company's revenue growth may also be adversely affected. Today, the
Company does not have a license to develop products for some of the most popular
platforms including the proprietary platforms of Sega Enterprises, Ltd. and
Nintendo Co., Ltd. Although the Company does have the ability to license its
titles to publishers who do have such licenses, the revenue from such licensing
activity is significantly less than the revenue which could be generated from
direct publishing. See "Risk Factors -- Changing Product Platforms and Formats"
on page 9, "-- Dependence on the PC Market" and "-- Dependence on the Sony
PlayStation Market" on page 10, "-- Dependence on the M2 Platform" and
"-- Dependence on the Internet Market" on page 11, "-- Product Development" on
page 12 and "-- Technological Change" on page 13.
 
     The availability of multiple advanced platforms and the corresponding
increase in the volume of interactive entertainment software available has also
raised the competitiveness of the market. This higher competitiveness has
resulted in an increase in the importance of mass merchant software sales as a
distribution channel, with corresponding increases in price pressure and
competition for limited shelf space to accommodate the abundance of new titles.
A number of factors, including historic performance, discounts to retailers,
inventory and return policies, customer service, product support, brand
recognition, perceived quality and entertainment value of specific titles and
marketing activities all affect the access to distributors and retailers of
interactive entertainment software developers and publishers. The Internet
platform has additionally provided new distribution opportunities which have
come with such corresponding expenses as fees related to Internet payment
services, costs of hardware and software to allow Internet distribution of
interactive entertainment software and costs for maintaining, and advertising
on, various Internet sites.
 
     There will be intense competition in procuring adequate distribution of the
Company's software products for the PC, Sony PlayStation, M2 and Internet
markets. Fewer products in such markets are successful and publishers of these
games, including the Company, must incur substantial marketing and sales
expenses to promote retailers' sales of such products. In addition to the
challenges faced by the field of interactive entertainment software developers
and publishers in such markets, the Company faces additional challenges because
certain of the markets it is entering with its software products, specifically
the Sony PlayStation, M2 and Internet markets, are new to the Company. To enter
these new markets the Company has had or will need to negotiate with
distributors and retailers who have, in the past, not carried the Company's
products, as a result of which, the Company has had or will need to spend
significant amounts beyond the already substantial marketing and sales expenses
to increase new retailers' sales of the Company's products. The Company has also
invested in Internet payment services, Internet-capable hardware and software
and Internet distribution marketing and sales efforts to increase its chances of
success in the market for interactive entertainment software on the Internet.
See "Risk Factors -- Competition" and "-- Variability of Operating Results" on
page 13 and "-- Dependence on Distributors" on page 14.
 
     The increased importance of mass merchant software sales and the Internet
as distribution channels has been coupled with increased competition for
consumer spending, with consumers considering such factors as pricing, brand
history, advanced product features, quality and reliability, hardware
compatibility, ease of understanding, and operation and availability and quality
of support services, and has been affected by such factors as dealer
merchandising and advertising pricing. Sales of interactive entertainment
software have become increasingly "hits" driven and even such hit software
products have only had lifespans of 3 to 12 months. Accordingly, software
developers and publishers have had to attempt to constantly develop and bring
 
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<PAGE>   5
 
to market new products that achieve market acceptance quickly, keep pace with
competitive offerings, adapt to new hardware platforms and emerging industry
standards and provide additional functionality.
 
     The Company has published and will continue to publish titles in a number
of different categories or "genres" with the highest consumer interest,
including sports, action, strategy, adventure, simulations and role playing.
Furthermore, the Company has focussed and will continue to also focus on markets
with relatively small installed bases and limited historical sales, specifically
the Internet market, because of its belief that early investment in new
platforms is strategically important in order to position the Company as a
leader in these emerging markets. In the short term, this strategy may
negatively affect the Company's financial performance by delaying revenues until
use of the Internet gains market acceptance for interactive entertainment
applications. See "Risk Factors -- Product Development" and "-- Short Product
Lifespans" on page 12 and "-- Variability of Operating Results" on page 13.
 
COMPETITION
 
     See "Risk Factors -- Competition."
 
RESEARCH AND DEVELOPMENT
 
     During fiscal year 1997, the Company significantly expanded its
entertainment software development efforts and continued developing advanced
products for the PC, M2 and Internet markets. In addition, the Company began
development of its first products for the Sony Playstation. The Company
contracts with a number of external developers to accommodate its development
requirements. Currently less than one-fourth of the Company's development is
contracted through external developers and this percentage is expected to remain
low. The Company's agreements with its external developers usually call for
significant advances or prepaid royalties to be paid to the developer during the
development process as well as certain ongoing royalties.
 
     The Company invests in the creation of software tools and utilities that
are used in the development of software products. These tools are being designed
to allow for more cost-effective product development and the ability to more
efficiently convert products from one hardware platform to another.
 
     The Company makes substantial investments in research and development of
software products for new platforms, such as the M2 and the Internet. Such
investment occurs one to two years in advance of availability of such platforms.
If the Company invests in the development of products for a platform that does
not achieve significant market penetration, the Company's planned revenues from
those products will not be achieved and the Company may not recover its
development investment. Conversely, if the Company does not choose to develop
for a platform that achieves significant market success or is unable to obtain
the rights to develop products for such platforms, its revenue growth may also
be adversely affected. There can be no assurance that the Company will correctly
make such platform choices or will be able to obtain adequate rights to develop
products for such platforms.
 
SEASONALITY AND VARIABILITY OF OPERATING RESULTS
 
     The market for interactive entertainment software is highly seasonal. The
Company's revenues are expected to be affected by the seasonal nature of the
market, which is characterized by increased sales in the fourth calendar quarter
coinciding with the holiday selling season and typically a seasonal low in
revenues in the quarter ending in June. Seasonal trends may also be affected by
general economic or industry factors. The Company's revenues may also reflect
substantial variations as a result of the timing of the introductions of and
demand for particular software titles which the Company has published and/or
distributed. Such demand may increase or decrease as a result of a number of
factors, such as consumer preferences, product announcements by competitors and
the popularity of particular hardware platforms, that cannot be predicted. The
software industry is characterized by frequent product delays which can
materially adversely affect the sales of a product if a product is not released
in time for the holiday season.
 
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<PAGE>   6
 
     In addition, the Company expects that its operating results will experience
significant fluctuation as a result of changes in the composition of the
Company's revenues, the timing of new video game hardware and software product
introductions by the Company's competitors, the timeliness with which the
Company releases its products to the market, the Company's investments in
research and development, and expenditures on marketing and promotional
programs.
 
     Product development schedules, particularly for new platforms such as the
M2 and the Internet, are difficult to predict because they involve creative
processes, use of new development tools for new platforms, and the learning
process associated with development for new technologies, as well as other
factors. In addition, today's leading-edge entertainment software products
frequently include substantial amounts of content and are complex,
time-consuming and costly to develop, which can cause additional development and
scheduling risks. These development risks can cause particular difficulties in
predicting quarterly results. Failure to meet product development schedules may
cause a shortfall in shipments in any quarter and may cause the operating
results for such quarter to fall significantly below anticipated levels.
 
     The Company has stock-balancing programs for its software products that,
under certain circumstances and up to a specified amount, allow for the exchange
of software products by resellers. The Company also typically provides for price
protection for its software products that, under certain conditions, allows the
reseller a price reduction from the Company for unsold products. The Company
maintains a policy of exchanging products or giving credits, but does not
typically give cash refunds. The risk of price protection requirements is
increasing as a result of the maturing and the increasingly hit-based nature of
the video game market. Moreover, the risk of product returns may increase as new
hardware platforms become more popular or market factors force the Company to
make changes in its distribution system. Although the Company monitors and
manages the volume of its sales to retailers and distributors and their
inventories in an effort to prevent overstocking in the distribution channel,
which can result in high returns or the requirement for substantial price
protection in subsequent periods, there can be no assurance that the Company can
adequately anticipate the demand for its products. The Company reserves for
returns and price protection based on estimated future returns of products,
taking into account promotional activities, the timing of new product
introductions, distributor and retailer inventories of the Company's products
and other factors. There can be no assurance that actual returns or price
protection will not exceed the Company's reserves.
 
     The distribution channels through which consumer software products are sold
have been characterized by change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. The bankruptcy or other business
difficulties of a distributor or retailer could render the Company's accounts
receivable from such entity uncollectible, which could have an adverse effect on
the operating results and financial condition of the Company. In addition, an
increasing number of companies are competing for access to these channels. The
Company's arrangements with its distributors and retailers may be terminated by
either party at any time without cause. Distributors and retailers often carry
products that compete with those of the Company. Retailers of the Company's
products typically have a limited amount of shelf space and promotional
resources for which there is intense competition. There can be no assurance that
distributors and retailers will purchase the Company's products or provide the
Company's products with adequate levels of shelf space and promotional support.
 
     The Company also licenses its products to third parties for international
distribution and marketing. Under these agreements the Company provides
third-party licensees with final software code from which to manufacture, market
and distribute the Company's products outside North America. Such agreements
also provide that the Company receives a minimum guaranteed payment as well as
potential royalties on product sales in the designated territories. The market
for licensing products internationally is highly competitive. There can be no
assurance that the Company will be able to maintain its current international
licensing arrangements or enter into new ones. In the event that the Company
does sign a license for a third party to market and distribute the Company's
titles overseas, there can be no assurance that the product will achieve market
success and generate royalties for the Company. Failure to sign licenses or
achieve market acceptance of licensed products overseas would have a material
adverse affect on the Company's revenues and resulting financial performance.
 
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     The percentage breakdown by principal source of the Company's revenues for
the three fiscal years in which the Company earned revenue is as follows:
 
<TABLE>
<CAPTION>
                                                                 1997     1996     1995
                                                                 ----     ----     ----
        <S>                                                      <C>      <C>      <C>
        Royalties and license fees.............................   86%      64%      61%
        Software publishing....................................   10%      19%      11%
        Development systems and other sales....................    4%      17%      28%
</TABLE>
 
     Matsushita and its affiliates represent, in fiscal year 1997, a major
customer of the Company, providing more than 80% of the Company's revenues. With
the remaining revenue from the M2 Agreement with Matsushita to be recognized in
the first half of fiscal year 1998, this percentage is expected to be
significantly lower in the future.
 
     The Company continues to be dependent on the technological, manufacturing,
marketing, financial and other resources of third parties such as Matsushita and
CagEnt, with which it has established or is attempting to establish commercial
or strategic relationships. The Company relies on third parties to develop,
manufacture, market and distribute products that incorporate technology licensed
from 3DO, such as Matsushita with respect to the M2 Technology. Although certain
companies have made financial investments in 3DO and established strategic,
technical or marketing relationships with 3DO, such companies may choose not to
utilize the Company's technology and could develop products or technologies that
compete directly with products based upon the Company's technology. In addition,
there can be no assurance that these third parties will commit any resources to
the commercialization of the Company's technology.
 
ACQUISITIONS
 
     During November 1995, the Company acquired the business of Cyclone Studios,
a software developer located in the greater San Francisco area. The purchase
price consisted of cash, stock and potential future consideration based upon the
financial performance of the new division. On May 31, 1996, the Company acquired
all of the outstanding capital stock of Archetype Interactive Corporation
("Archetype"), a software developer, also based in the greater San Francisco
area. Archetype's only product, "Meridian 59," a multi-user role-playing game
designed to be played over the Internet is now published and distributed by the
Company.
 
     In June 1996, the Company purchased certain assets and assumed certain
liabilities of New World Computing, Inc. ("NWC"), an entertainment software
company located in Agoura Hills, California. As consideration for the purchase,
the Company issued approximately 1 million shares of its common stock to NWC's
parent, NTN Communications, Inc. ("NTN"). In addition, pursuant to the terms of
the purchase agreement, the Company made a cash payment to NTN because the value
of the Company's stock issued in the transaction fell below $10.00 per share
during a period following the closing date. As of December 1996, the Company
paid approximately $5.0 million in cash to NTN with no further obligations under
the Purchase Price Guarantee. The Company accounted for the acquisition using
the purchase method of accounting.
 
     These acquisitions place a strain on the Company's management, operational,
financial and administrative resources. There can be no assurance that the
Company will be able to successfully integrate these entities into the Company,
or that such acquisitions will be profitable for the Company.
 
INTERNATIONAL OPERATIONS
 
     The Company maintains a subsidiary in the United Kingdom, 3DO Europe, Ltd.,
which is responsible for the marketing and distribution of the Company's
entertainment software products outside of North America. During fiscal year
1997, 3DO Europe focused on licensing the company's software products for
international distribution. In the future, the Company expects that such
activities will be transferred to and managed by employees at the Company's
headquarters in Redwood City, California.
 
     In December 1995, the Company sold its Japanese developer support business
for the 3DO Multiplayer platform to Matsushita. The Company continues to
maintain a subsidiary in Japan, Studio 3DO K.K. However, as of March 31, 1997,
this entity had no employees and was not conducting any business activities.
 
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PROPRIETARY RIGHTS AND LICENSES
 
     The Company's success will depend in part on its ability to obtain and
enforce intellectual property protection for its technology in the U.S. and
other countries. The Company has several United States patent applications which
are presently pending in the United States Patent and Trademark Office and has
filed for protection of certain patents in various countries under the
protection of the Patent Cooperation Treaty. In the U.S., 11 patents have been
issued. The Company has not been notified that any of its other patent
applications will issue. The Company may file additional applications as it
deems appropriate for patents covering its technology. The Company's existing
patents will expire between the years 2011 and 2014.
 
     The Company also relies on its trade secrets and proprietary know-how,
which it seeks to protect in part by confidentiality agreements with its
employees, consultants, vendors and current and prospective licensees. The
Company's license agreements typically prohibit unauthorized disclosure and
unauthorized reverse engineering of the Company's technologies.
 
     The Company relies in part on copyright laws to prevent unauthorized
duplication or distribution of its software, written materials and audiovisual
works. Existing copyright laws and enforcement procedures afford only limited
protection, particularly in certain jurisdictions outside the United States.
 
     The Company has applied for trademark protection in the United States and
approximately 36 other countries, including Japan and the United Kingdom, for
the Company's name and logo and, in a limited number of countries, for the names
of certain hardware and software products. The Company has obtained 30 federal
registrations of its trademarks in the United States. To date, the Company has
received approximately eight Notices of Allowance from the U.S. Patent and
Trademark Office for its Intent to Use Trademark application of its marks in a
variety of international classes. The Company has other pending applications for
its "3DO" word mark, logo and names of various hardware and software products.
The Company has experienced difficulty in registering some of its marks in
various jurisdictions, including Japan. Once obtained, the term of a United
States trademark registration is ten years from the date of issuance of the
registration, and may be renewed. The Company licenses its name and logo for use
in connection with authorized product offerings marketed and distributed by its
licensees.
 
     From time to time, the Company receives communications from third parties
asserting that features or content of certain of the Company's or its licensees'
products infringe upon intellectual property rights held by such third parties.
The Company has been notified by a third party that such third party believes
that the Company's initial hardware design, the 3DO Multiplayer system,
infringes upon one or more of such third party's patents. The Company has
evaluated this claim in the event litigation is initiated. As the number of
patents and products in the Company's industry increases and as the
functionality of these products further overlap, the Company believes that
products based on its technology will increasingly become the subject of
infringement claims by third parties. If such claims occur, the Company could
incur substantial costs in defending itself.
 
EMPLOYEES
 
     On March 31, 1997, the Company's personnel included 237 full-time employees
and 34 independent contractors in the United States. These persons provided
services in the following functional areas: 74 in engineering and operations, 8
in sales and marketing, 143 in studio, and 46 in finance, administration,
distribution and legal services. On March 31, 1997, the Company's Japanese
subsidiary had no employees. On March 31, 1997, the Company's European
subsidiary employed a total of 1 person involved in sales and marketing.
 
     Many of the Company's employees are highly skilled. The Company's business
depends, to a great extent, on its ability to attract and retain skilled
employees. The interactive multimedia industry is characterized by a high level
of employee mobility and aggressive recruiting of skilled personnel, and, as
such, the Company competes for its employees with interactive multimedia
companies as well as other high technology companies in the hardware and
software industries, many of which have substantially greater resources than the
Company. There can be no assurance that the Company will be able to attract and
retain skilled employees,
 
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<PAGE>   9
 
and the loss of skilled employees could have a material, adverse effect on the
Company's business. The employees and the Company are not parties to any
collective bargaining agreements. The Company believes that its relations with
its employees are good.
 
RISK FACTORS
 
     HARDWARE SYSTEMS GROUP SALE
 
     The Company is in the process of selling certain assets of its hardware
systems group to Samsung pursuant to an Asset Purchase Agreement (the "Samsung
Agreement"). As part of the Samsung Agreement, CagEnt, a subsidiary of Samsung,
will assist the Company, as a subcontractor, in its efforts to complete the
remaining deliverables associated with the M2 Agreement. Neither the Samsung
Agreement, nor any addendum to the M2 Agreement, relieves the Company of its
obligation to complete the deliverables called for in the M2 Agreement. There
can be no assurance that the Company, with CagEnt's subcontractor assistance,
will successfully complete the deliverables pursuant to the M2 Agreement. In the
event that CagEnt's subcontracted engineering services are unsatisfactory, the
Company will incur substantial expenses to complete its obligations under the M2
Agreement. This would have a material adverse impact on the Company, including,
but not limited to, diverting funds from the Company's software publishing
business.
 
     CHANGE IN STRATEGY
 
     Upon completion of the sale of its hardware systems business to Samsung,
the Company will have completed the restructuring of its business to focus on
being a multi-platform interactive entertainment software developer and
publisher. Since December 1995, this change in business focus has had the effect
of shifting the source of a majority of the Company's revenues from royalties
received from third party software licensees for the 3DO Multiplayer platform to
technology licensing fees and the publishing and distribution of internally and
externally developed titles. The Company expects that its future revenues will
mostly be generated by its software publishing and licensing business. Revenues
to the Company under the M2 Agreement will be fully recognized in the first half
of fiscal year 1998. However, there can be no assurance that the Company will
fulfill its obligations under the M2 Agreement, and any such failure of the
Company to fulfill its obligations, or any failure of CagEnt to successfully
provide subcontracted engineering services sufficient for the Company to timely
complete the deliverables due under the M2 Agreement, would have a material
adverse effect upon the Company's business, operating results and financial
condition. Although the Company commenced operations in 1991, the Company has a
very limited operating history upon which an evaluation of the Company and its
current strategy can be based. The Company is at an early stage of development
in its new business strategy and is subject to all of the risks inherent in the
establishment of a new business enterprise. To address these risks, the Company
must, among other things, ensure the completion of the deliverables detailed in
the M2 Agreement, respond to competitive developments, continue to attract,
retain and motivate qualified personnel, and support the development and
marketing of products based on the Company's technology. The Company's decision
to focus its efforts on software title publishing and distribution for the PC,
M2, Sony PlayStation and Internet platforms is predicated on the assumption that
in the future the installed hardware base of PCs, M2s and Sony PlayStations, as
well as active users of interactive entertainment on the Internet, will be large
enough to permit this portion of the Company's business to operate profitably.
There can be no assurance that the Company's assumption will be correct. In
addition, there can be no assurance that the Company will be able to
successfully compete as an entertainment software developer and publisher. Any
failure to achieve these goals could have a material adverse effect upon the
Company's business, operating results and financial condition.
 
     CHANGING PRODUCT PLATFORMS AND FORMATS
 
     The Company is entering new markets with its software products,
specifically the PC, Sony PlayStation and Internet markets. The markets for
entertainment software and entertainment software platforms are undergoing rapid
technological change. As a result, the Company must continually anticipate and
adapt its products to emerging platforms and evolving consumer preferences. The
introduction of new platforms and technologies can render existing products
obsolete and unmarketable. Development of entertainment software
 
                                        9
<PAGE>   10
 
products for new hardware platforms requires substantial investments in research
and development for technologies such as motion capture, digitized speech and
sound effects, music and full motion video and requires the Company to
anticipate and develop products for those platforms that will ultimately be
successful. Generally, software development efforts must occur well in advance
of the release of new platforms in order to introduce new products on a timely
basis following the release of such platforms. Although the Company intends to
develop and market entertainment software for certain advanced and emerging
platforms, the development and marketing efforts in connection therewith may
require greater financial and technical resources than currently possessed by
the Company. In addition, there can be no assurance that the platforms for which
the Company develops products will achieve market acceptance and, as a result,
there can be no assurance that the Company's development efforts with respect to
such new platforms will lead to marketable products or products that generate
sufficient revenues to offset research and development costs incurred in
connection with the creation of such products. There can be no assurance that
the Company will be successful in developing and marketing products for new
platforms. Failure to develop products for new platforms that achieve
significant market acceptance would have a material adverse effect on the
Company's business, operating results and financial condition. Furthermore, the
Company does not have a license to develop products for certain of the most
popular platforms, including the proprietary platforms of Sega and Nintendo.
Finally, the Company's products must maintain compatibility with certain
hardware, software and hardware accessories. Any changes in any of such
third-party product designs that result in incompatibility of the Company's
products could result in significant product returns and obsolescence.
 
     DEPENDENCE ON THE PC MARKET
 
     The Company's future success is in part dependent on the PC market, which
is extremely dynamic and has historically been characterized by wide
fluctuations in product supply and demand. From time to time, the PC industry
has also experienced significant downturns, often in connection with, or in
anticipation of, declines in general economic conditions. Furthermore, rapid
technological change in PC hardware may render the currently installed base of
PCs and the Company's technology obsolete. There can be no assurance that unit
sales of PCs or the number of entertainment software users in the PC market will
continue at their present levels or increase in the future. The Company's
revenues from its entertainment software products will be dependent on marketing
and distribution of titles to an installed base of PC users. Any decrease in
demand for PCs or in the number of entertainment software users in the PC market
would have a material adverse effect on the Company's operating results.
 
     DEPENDENCE ON THE SONY PLAYSTATION MARKET
 
     The market for software products for the Sony PlayStation is currently
experiencing rapid growth. The Company's future success is partly dependent on
its ability to successfully take advantage of this growing market and on the
continued growth of the Sony PlayStation market. There can be no assurance that
the Company will be able to develop products for the Sony PlayStation in a
timely manner to take advantage of this growing market, that the Company's Sony
PlayStation software products will achieve market acceptance or that the Sony
PlayStation market will continue to grow. In the event that the Company fails to
develop products while the Sony PlayStation market is expanding or fails to
deliver products that are commercially successful, or if the Sony PlayStation
market does not continue to grow, the Company's operating results would be
adversely affected.
 
     SONY PLAYSTATION LICENSE AGREEMENT
 
     The Company entered into a licensing agreement with Sony Computer
Entertainment of America in March 1997 (the "Sony Agreement"). Pursuant to the
terms of the Sony Agreement, the Company may develop CD-ROM software products
for the Sony PlayStation platform and distribute them in the United States and
Canada, and Sony has the exclusive right to manufacture such software products
for the Company. Sony's exclusive right to manufacture the Company's software
products compatible with the Sony PlayStation leaves the Company with little
control of its supply or timing of delivery of Sony PlayStation software
products. There can be no assurance that the Company's supply and/or delivery of
its Sony PlayStation
 
                                       10
<PAGE>   11
 
software products will meet the product volumes and schedules set forth in
distribution agreements between the Company and distributors and/or retailers
carrying the Company's products. Supply shortages and/or late or no delivery of
the Company's Sony PlayStation software products would result in adverse effects
on the Company's operating results.
 
     DEPENDENCE ON THE M2 PLATFORM
 
     The Company has undertaken the development of interactive entertainment
software products for the 64-bit interactive entertainment market. Specifically,
the Company has been developing several of its titles for the next generation
64-bit M2 video games system (the "M2 System") which is being developed by
Matsushita under license from 3DO. The M2 System has not yet been fully
developed. The Company is dependent on Matsushita, as the exclusive licensee, to
complete the development and manufacture production units of the M2 System.
Matsushita will control the timing of any M2 product launch, the pricing and
marketing of any such product, and any third-party licensing activities
pertaining to any such product. The video game hardware platform market is
extremely competitive and the Company's previous experience with the 3DO
Multiplayer platform, the first 32-bit, CDROM-based, video game console in the
market, demonstrates the perils involved with the development of new video game
hardware technology. Nintendo introduced a 64-bit video game hardware platform
in a cartridge format (the "Nintendo 64") in Japan in June 1996 and began
shipping the Nintendo 64 in North America in September of 1996, setting the pace
for competition in the 64-bit video game system market. A large installed base
of M2 Systems will be necessary for the Company to successfully develop and
market interactive entertainment software for the competitive 64-bit video game
system market. There can be no assurance that Matsushita will be able to
manufacture a video game console in large enough quantities or at low enough
costs to enable this product to be priced competitively or that it will do so at
all. In addition, there can be no assurance that any M2 System will offer
advantages over alternative 64-bit technologies such as the Nintendo 64
sufficient to generate market acceptance. The introduction of the M2 System by
Matsushita or of products compatible with the M2 System by the Company after the
64-bit video game system market has slowed, or the failure of the M2 System or
the Company's products for the M2 System to gain market acceptance or to be
brought to the market at all, will have material adverse effects on the
Company's operating results.
 
     DEPENDENCE ON THE INTERNET MARKET
 
     The Company's future success is in part dependent upon continued growth in
the use of the Internet. Rapid growth in the use of and interest in the Internet
is a recent phenomenon. The Internet may not prove to be a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary infrastructure, such as a reliable network
infrastructure, or timely development of performance improvements including high
speed modems. In addition, to the extent that the Internet continues to
experience significant growth in the number of users and level of use, there can
be no assurance that the Internet infrastructure will continue to be able to
support the demands placed upon it by any such growth. In addition, the Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased government regulation. Changes in or insufficient
availability of telecommunications services to support the Internet also could
result in slower response times and adversely affect usage of entertainment
software developed for the Internet. If the use of the Internet does not grow,
or if the Internet infrastructure does not effectively support the growth that
may occur, the Company's business, results of operations and financial
conditions would be materially adversely affected.
 
     INTERACTIVE MULTIPLE PLAYER GAMES ON THE INTERNET
 
     The availability of multiple player games on the Internet is a recent
phenomenon. The limited history of multiple player games on the Internet has
been characterized by numerous companies entering the market in a short span of
time and competing for a limited number of players of multiple player games by
providing incentives to get player interest and by entering into agreements with
the few companies providing Internet game sites that have developed some player
following. However, there has been little evidence of success in
 
                                       11
<PAGE>   12
 
this area and a profitable business model to capitalize on the Internet multiple
player game market has not yet been established. In addition, multiple player
games on the Internet require the implementation of newly developed software to
accept and process payments from players which may contain errors in the program
which have not yet been discovered or corrected. The Company provides free play
time and other incentives such as discounts and contests to interest the limited
number of players in the market into trying the Company's games, has entered
into agreements to have its games distributed through Internet game sites, is
testing various pricing models to determine the most profitable models and has
tested and has implemented different software applications for the acceptance
and processing of payment from players of its games. There can be no assurance
that any of the incentives provided by the Company or the availability of the
Company's games on Internet game sites will result in increased player interest
in the Company's games, that the costs of providing such incentives or entering
into agreements with Internet game site providers will be compensated for by
increased payments from use of the Company's games, that the Company will be
able to continue to offer the incentives it does in accordance with laws of the
jurisdictions into which the Company's games are distributed or that the Company
will be able to continue to offer its games through various Internet game sites.
In addition, so far, none of the pricing models implemented for Internet
multiple player games by the Company have yielded profit for the Company, and
there can be no assurance that any such model will do so in the future.
Furthermore, the Company has experienced problems with certain of the Internet
hardware and software it has put into operation and there can be no assurance
that such problems or other problems will not reoccur in the future.
 
     PRODUCT DEVELOPMENT
 
     The Company's future success is based in substantial part upon its ability
to create software titles for the PC, the Sony PlayStation and the Internet
platforms. Software product development schedules, particularly for new hardware
platforms such as the Sony PlayStation and Internet platforms, are difficult to
predict because they involve creative processes, use of new development tools
for new platforms, and the learning processes associated with development for
new technologies, as well as other factors. As a result of their complexity,
software products frequently contain undetected errors or failures, especially
when first introduced or when new versions or enhancements are released. Despite
extensive product testing prior to the release of new products, the Company may
discover errors in its products after their initial release. There can be no
assurance that, despite testing by the Company, errors will not be found in new
products and product revisions released by the Company in the future. The
occurrence of such errors could result in significant losses to the Company. Any
such occurrence also could result in reduced market acceptance of the Company's
products, which could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, CD-ROM and Internet
multiple player products frequently include more content and are more complex,
time-consuming and costly to develop than simpler PC or video game console
products and accordingly, cause additional development and scheduling risk. As a
result, there can be no assurance that the Company will achieve any planned
product release schedules. These development risks can cause particular
difficulties in predicting quarterly results. Failure to meet product
development schedules may cause a shortfall in shipments in any quarter and may
cause the operating results for such quarter to fall significantly below
anticipated levels.
 
     SHORT PRODUCT LIFESPANS
 
     Interactive entertainment software products typically have life spans of
only 3 to 12 months. Accordingly, the Company will need to constantly develop
and bring to market new products that achieve market acceptance quickly. The
Company's future success will depend in large part on its ability to develop and
introduce new products on a timely basis. New products must keep pace with
competitive offerings, be compatible with new hardware platforms and emerging
industry standards, and provide additional functionality. If the Company is
unable, due to resource constraints or technological or other reasons, to
develop and introduce such products in a timely manner, this inability would
have a material adverse effect on its operating results and financial condition.
There can be no assurance that the Company will be able to complete the timely
development of, and commercially release, new software products that achieve
market acceptance.
 
                                       12
<PAGE>   13
 
     TECHNOLOGICAL CHANGE
 
     The market for interactive multimedia products is characterized by rapidly
changing technology and user preferences, evolving formats for compression of
audio and video data and frequent new product introductions. Even if the
Company's technology and related software titles gain broad market acceptance,
the Company's success will depend upon, among other things, the ability of the
Company and its licensees to achieve and maintain technological leadership and
to remain competitive in terms of price and product performance.
 
     The Company's pursuit of these technical improvements and other
technological goals will require substantial expenditures, and there can be no
assurance that any of these technical improvements will be developed or that the
Company or its licensees will achieve or maintain technological leadership. Any
material failure of the Company or its licensees to develop or incorporate any
planned improvement would adversely affect the widespread adoption of the
Company's technology and the introduction and sale of future products based on
the Company's technology, and would increase the likelihood that competitive
technologies will become broadly accepted. There can be no assurance that
products or technologies developed by others will not render obsolete the
Company's technology and the products based on the Company's technology.
 
     COMPETITION
 
     The Company is entering new markets with its software products,
specifically the Sony PlayStation and Internet markets. This will, to some
degree, require distribution through distributors and retailers who have not, in
the past, carried the Company's products. There will be intense competition in
procuring adequate distribution of the Company's software products. There can be
no assurance that the Company will succeed in obtaining sufficient distribution
to enable its products to achieve market success.
 
     The markets in which the Company's software products compete are expected
to undergo significant changes, due in part to the introduction, or planned
introduction, of new hardware platforms and electronic delivery systems, and the
entry and participation of new industries and companies. Severe competition
exists for retail shelf space in the consumer software industry. A number of
factors, including the Company's historic performance, discounts to retailers,
inventory and return policies, customer service, product support, brand
recognition, perceived quality and entertainment value of specific titles, and
marketing activities, affect access to distributors and retailers. In addition,
sales of interactive entertainment products are becoming increasingly "hits"
driven. Fewer products in that market are successful and publishers of these
games, including the Company, must incur substantial marketing and sales
expenses to promote retailers' sales of such products.
 
     A variety of companies offer products that compete directly with one or
more of the Company's products. These direct competitors vary in size from very
small companies with limited resources to companies with financial, managerial
and technical resources substantially greater than those of the Company. The
Company's competitors include manufacturers of hardware platform systems such as
Nintendo, Sega and Sony (together with third-party licensees); diversified media
and entertainment companies such as Walt Disney Company, Viacom International,
Inc. and Time Warner Enterprises, Inc.; large independent multi-platform
software developers such as Electronic Arts, Acclaim Entertainment, Inc., Lucas
Arts Entertainment Co., and Spectrum HoloByte, Inc.; and publishers of personal
computer software such as Microsoft Corporation. In addition, companies in
industries such as cable television and telecommunications, many of which have
significant financial resources, have begun to diversify or have announced plans
to enter the interactive software market. These new entrants have the potential
to become significant competitors.
 
     VARIABILITY OF OPERATING RESULTS
 
     The Company expects that its operating results will experience significant
fluctuation as a result of changes in the composition of the Company's revenues,
the timing of new video game hardware and software product introductions by the
Company's competitors, the timeliness with which the Company releases its
products to the market, fluctuations in the PC and Internet market, the
financial impact of acquisitions of other companies by the Company, and the
Company's investments in research and development, and expenditures on marketing
and promotional programs.
 
                                       13
<PAGE>   14
 
     The market for entertainment software is highly seasonal. The Company's
revenues are expected to be affected by the seasonal nature of the market, which
is characterized by increased sales in the fourth calendar quarter coinciding
with the holiday selling season and typically a seasonal low in revenues in the
quarter ending in June. Seasonal trends may also be affected by general economic
or industry factors. The Company's revenues may also reflect substantial
variations as a result of the timing of the introduction of and demand for a
particular software title it has published and/or distributed. Such demand may
increase or decrease as a result of a number of factors, such as consumer
preferences, product announcement by competitors and the popularity of
particular hardware platforms, that cannot be predicted. The software industry
is characterized by frequent product delays which can materially adversely
affect the sales of a product if the product is not released in time for the
holiday season.
 
     The Company's revenues are also affected by the timing of payments under
agreements with companies that license the Company's technologies. These
licenses can represent significant revenues to the Company which can cause
fluctuation in quarterly results. Also, where there are contractual obligations
of the Company to complete certain technology, the Company will recognize
revenues on the "percentage of completion" method, and the progress made in
completing the engineering of such technology will affect the revenue recognized
in any particular quarter.
 
     The Company has stock-balancing programs for its software products that,
under certain circumstances and up to a specified amount, allow for the exchange
of software products by resellers. The Company also typically provides for price
protection for its software products that, under certain conditions, allows the
reseller a price reduction from the Company for unsold products. The Company
maintains a policy of exchanging products or giving credits, but does not
typically give cash refunds. The risk of price protection requirements is
increasing as a result of the maturing and the increasingly hit-based nature of
the video game market. Moreover, the risk of product returns may increase as new
hardware platforms become more popular or market factors force the Company to
make changes in its distribution system. Overstocking in the distribution
channel can result in high returns or the requirement for substantial price
protection in subsequent periods. The Company provides for reserves for returns
and price protection based on estimated future returns of products, taking into
account promotional activities, the timing of new product introductions,
distributor and retailer inventories of the Company's products and other
factors. There can be no assurance that actual returns or price protection will
not exceed the Company's reserves.
 
     DEPENDENCE ON DISTRIBUTORS
 
     The distribution channels through which consumer software products are sold
have been characterized by change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. The bankruptcy or other business
difficulties of a distributor or retailer could render the Company's accounts
receivable from such entity uncollectible, which could have an adverse effect on
the operating results and financial condition of the Company. In addition, an
increasing number of companies are competing for access to these channels. The
Company's arrangements with its distributors and retailers may be terminated by
either party at any time without cause. Distributors and retailers often carry
products that compete with those of the Company. Retailers of the Company's
products typically have a limited amount of shelf space and promotional
resources for which there is intense competition. There can be no assurance that
distributors and retailers will purchase the Company's products or provide the
Company's products with adequate levels of shelf space.
 
     DEPENDENCE ON THIRD PARTIES
 
     The Company continues to be dependent on the technological, manufacturing,
marketing, financial and other resources of third parties with which it has
established or is attempting to establish commercial relationships. The Company
relies on third parties to develop, manufacture, market and distribute products
that incorporate technology licensed from 3DO, such as Matsushita with respect
to the M2 Technology. The Company's licensees may choose not to utilize the
Company's technology and could develop products or technologies that compete
directly with products based upon the Company's technology. In addition, there
can be no assurance that these third parties will commit any resources to the
commercialization of the Company's
 
                                       14
<PAGE>   15
 
technology. Further, a licensee's financial or other resource limitations may
prevent such licensee from commercializing products based on the Company's
technology. Any failure of a third-party developer to complete its contractual
obligations to the Company would adversely affect the Company's ability to
complete and release titles which would adversely affect the Company's operating
results.
 
     DEPENDENCE ON KEY PERSONNEL
 
     The Company's future success depends in large part on the continued service
of its key technical, marketing, sales and management personnel. Given the
Company's early stage of development, the Company is dependent on its ability to
recruit, retain and motivate high quality personnel, especially highly skilled
engineers, programmers and artists involved in the ongoing hardware and software
development required to define future interactive hardware systems, refine
existing interactive technologies, introduce enhancements for future
applications, and develop novel software titles. The Company is particularly
dependent on the skills and contributions of several key individuals, any one of
whom may voluntarily terminate employment with the Company at any time and whose
departure would have a material adverse effect on the Company's business. The
Company is particularly dependent upon its Chief Executive Officer, Trip
Hawkins. The Company does not have "key person" life insurance policies on any
of its employees. The interactive multimedia industry is characterized by a high
level of employee mobility and aggressive recruiting of skilled personnel. The
Company competes with computer hardware, software and entertainment companies
for the recruitment of skilled personnel. There can be no assurance that the
Company's current employees will continue to work for the Company or that the
Company will be able to obtain the services of additional personnel necessary
for the Company's growth.
 
     RECENT ACQUISITIONS
 
     The Company acquired the business of Cyclone Studios ("Cyclone"), a
software developer, during November of 1995. In May of 1996, the Company
acquired all the outstanding capital stock of Archetype Interactive Corporation
("Archetype"), a developer of a multi-user role-playing game to be played over
the Internet. In June 1996, the Company purchased certain assets and assumed
certain liabilities of New World Computing, Inc. ("NWC"), an entertainment
software company. Each of these acquisitions represented the addition of new
products and personnel to the Company, which has caused changes in the
allocation of management and other resources, marketing strategies and
production systems. The Company's ability to manage its acquired businesses
effectively will depend on its ability to hire additional management and
technical personnel and to continue to improve the operating, financial and
management systems and controls in each of its operating units. There can be no
assurance that the Company will be able to successfully integrate these acquired
businesses or other companies which the Company may acquire in the future with
the current operations of the Company.
 
     FUTURE ACQUISITIONS
 
     The Company is in the process of establishing operations as a
multi-platform entertainment software developer and publisher and its strategy
may involve, in part, acquisitions of products, technologies or businesses from
third parties. Identifying and negotiating these acquisitions may divert
substantial management time away from the Company's operations. An acquisition
could absorb substantial cash resources, could require the Company to incur or
assume debt obligations, or could involve the issuance of additional equity
securities of the Company. The issuance of additional equity securities could
dilute and could represent an interest senior to the rights of then outstanding
common stock. An acquisition which is accounted for as a purchase, like the
acquisitions of Cyclone and NWC, could involve significant one-time non-cash
write-offs, and could involve the amortization of goodwill over a number of
years, which would adversely affect earnings in those years. Acquisitions
outside the entertainment software area may be viewed by outside market analysts
as a diversion of the Company's focus on entertainment software. For these
reasons, the market for the Company's stock may react positively or negatively
to the announcement of any acquisition. Any acquisition will require attention
from the Company's management to integrate the acquired entity into the
Company's operations, may require the Company to develop expertise outside its
existing businesses and may result in
 
                                       15
<PAGE>   16
 
departures of management of the acquired entity. An acquired entity may have
unknown liabilities, and its business may not achieve the results anticipated at
the time of the acquisition. Any acquisitions that adversely affect the
operations of the Company may have an adverse impact on the Company's stock
price.
 
     PROPRIETARY RIGHTS AND LICENSES
 
     The Company's success will depend in part on its ability to obtain and
enforce intellectual property protection for its technology in both the United
States and other countries. The Company has filed a number of patent
applications with the U.S. Patent and Trademark Office ("U.S. Patent Office")
and international counterparts of certain of these applications with the United
States Receiving Office pursuant to the Patent Cooperation Treaty. The Company
intends to file additional applications as it deems appropriate for patents
covering its technology. The process of obtaining patent protection is expensive
and absorbs substantial management and engineering time. No assurance can be
given that any patents will issue from these applications or that, if any patent
does issue, the claims allowed will be sufficiently broad to protect the key
aspects of the Company's technology or that the patent laws will provide
effective legal or injunctive remedies to stop any infringement of the Company's
patents. In addition, no assurance can be given that any patent issued to the
Company will not be challenged, invalidated or circumvented, that the rights
granted under patents will provide competitive advantages to the Company, or
that the Company's competitors will not independently develop or patent
technologies that are substantially equivalent or superior to the Company's
technology.
 
     The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its employees,
consultants, developers, vendors, and current and prospective licensees. The
Company's license agreements typically prohibit unauthorized disclosure or
unauthorized reverse engineering of the Company's licensed technology. However,
the Company expects that third parties may attempt to reverse engineer its
technology without authorization and there can be no assurance that the
Company's confidentiality and license agreements will not be breached or that
the Company would have adequate remedies for any breach. As a result, the
Company may not have an adequate remedy if a competitor disassembles or reverse
engineers products based on the Company's proprietary technology, even if the
technology is protected by trade secret or copyright law. There can be no
assurance that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors.
 
     The Company relies in part on copyright laws to prevent unauthorized
duplication or distribution of its software, written materials and audiovisual
works. Existing copyright laws afford only limited protection, particularly in
certain jurisdictions outside the United States where the Company may seek to
license its technology. There can be no assurance that the copyright laws will
adequately protect the Company's technology.
 
     The Company licenses its name and logo for use in connection with
authorized products. The Company has experienced difficulty in registering some
of its marks in various jurisdictions, including Japan. There can be no
assurance that the Company will obtain sufficient trademark protection for these
marks, that these marks will not be duplicated without authorization, or that
the Company will have adequate remedies for trademark infringement in any
country.
 
     From time to time, the Company receives communications from third parties
asserting that features or content of certain of the Company's or its licensees'
products infringe upon intellectual property rights held by such third parties.
The Company has been notified by a third party that such third party believes
that the Company's initial hardware design, the 3DO Multiplayer system,
infringes upon one or more of such third party's patents. The Company has
evaluated this claim in the event litigation is initiated. As the number of
patents and products in the Company's industry increases and as the
functionality of these products further overlaps, the Company believes that
products based on its technology will increasingly become the subject of
infringement claims. The Company could incur substantial costs in defending
itself or its licensees in litigation brought by others, or in prosecuting
infringement claims against third parties. The Company could also incur
substantial costs in interference proceedings declared by the U.S. Patent Office
in connection with one or more of the Company's or a third party's patents or
patent applications. Those proceedings could result in an adverse
 
                                       16
<PAGE>   17
 
decision as to the priority of the Company's inventions. A third party claiming
infringement may be able to obtain an injunction or other equitable relief,
which could effectively block the ability of the Company's licensees to import
into the United States or to distribute and sell hardware or software products
licensed by the Company. This would materially adversely affect the Company.
Such a third party could also assert claims for substantial damages against the
Company, its licensees or distributors of such licensees' products, which could
inhibit the manufacture or sale of licensed products. In the event of a claim of
infringement, the Company or its licensees may be required to obtain one or more
licenses from third parties. There can be no assurance that the Company or its
hardware and software licensees will be able to obtain from third parties any
required license to technology at a reasonable cost or at all. Failure by the
Company or its hardware and software licensees to obtain any such license would
have a material adverse impact on the Company.
 
     VOLATILITY OF STOCK PRICE
 
     Market prices of securities of companies engaged in the entertainment
software industry have been highly volatile. Factors such as announcements of
the introduction of new products by the Company or its competitors,
announcements of joint development efforts or corporate partnerships in the
entertainment software field, market conditions in the technology,
entertainment, cable, telecommunications and other emerging growth company
sectors, and analyst reports and rumors relating to the Company or its
competitors, have had and may in the future have a significant impact on the
market price of the Company's common stock. Further, the stock market has
experienced volatility that has particularly affected the market prices of
equity securities of many high technology and development stage companies such
as those in the entertainment software and semiconductor industries that has
often been unrelated to the operating performance of such companies. These
market fluctuations may adversely affect the price of the Company's common
stock.
 
ITEM 2. PROPERTIES
 
     As of March 31, 1997, the Company leased approximately 92,000 square feet
of facilities in Redwood City, California, and 7,600 square feet in San Mateo,
California, and 10,922 square feet in Agoura Hills, California, for an aggregate
monthly rent expense of approximately $189,000. These facilities house the
Company's administrative, research, development and sales operations. The lease
with respect to the existing Redwood City facilities expires in August 1997 with
an option to extend for one year. The lease for the San Mateo site expires
during May 1999 while the lease for the Agoura Hills facility expires in
January, 2001. The Company also leases office space in the United Kingdom for
the sales and marketing activities of the Company's subsidiary, 3DO Europe, Ltd.
The Company believes that these facilities are adequate for its current needs.
 
ITEM 3. LEGAL PROCEEDINGS
 
     On October 3, 1996, Cirrus Logic, Inc.("Cirrus"), filed a complaint in the
Superior Court of the State of California for the Southern Division of the
County of Alameda to rescind a Joint Development and License Agreement (the
"Cirrus Agreement") entered into between Cirrus and the Company on February 29,
1996, on the grounds of frustration of purpose, mistake, failure of
consideration, concealment, and non-disclosure; and to obtain a repayment of
$2.5 million in nonrefundable payments made to the Company. The Company has
responded to Cirrus' complaint and filed a cross-complaint for Cirrus' breach of
the Agreement to enforce its rights under the Cirrus Agreement, including
procurement of the payment by Cirrus of $4.5 million in nonrefundable license
fees, prepaid royalties, and termination fees; and to recover damages, collect
interest, and obtain attorneys' fees and costs. There can be no assurance that
the Company will prevail in the litigation, will not be required to refund the
$2.5 million payment received from Cirrus, or will receive the additional $4.5
million that it believes Cirrus owes under the Cirrus Agreement.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     There were no matters submitted to a vote of security holders during the
quarter ended March 31, 1997.
 
                                       17
<PAGE>   18
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Common Stock trades publicly on the Nasdaq National Market
under the symbol "THDO." The following table sets forth for the periods
indicated the quarterly high and low closing sales prices of the Common Stock on
the Nasdaq National Market.
 
<TABLE>
<CAPTION>
                                                                       CLOSING SALES
                                                                          PRICES
                                                                     -----------------
                                                                      HIGH       LOW
                                                                     ------     ------
        <S>                                                          <C>        <C>
        Fiscal Year Ended March 31, 1996:
          First Quarter............................................  $17.31     $11.25
          Second Quarter...........................................   15.63      11.00
          Third Quarter............................................   12.88       9.00
          Fourth Quarter...........................................   11.25       9.00
        Fiscal Year Ended March 31, 1997:
          First Quarter............................................  $12.38     $ 8.25
          Second Quarter...........................................   11.25       5.63
          Third Quarter............................................    6.63       4.63
          Fourth Quarter...........................................    5.50       2.63
</TABLE>
 
     As of May 31, 1997, there were approximately 853 holders of record of
28,507,837 shares of outstanding common stock.
 
     DIVIDEND POLICY
 
     The Company has not paid any dividends since its inception and does not
intend to pay any dividends on its common stock in the foreseeable future.
 
                                       18
<PAGE>   19
 
ITEM 6. SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                                          FISCAL YEARS ENDED MARCH 31,
                                               ---------------------------------------------------
                                                1997       1996       1995       1994       1993
                                               -------   --------   --------   --------   --------
                                                  (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S>                                            <C>       <C>        <C>        <C>        <C>
OPERATING DATA:
Total revenues...............................  $92,350   $ 37,918   $ 30,380   $ 10,295   $     --
Total cost of revenues.......................    7,989      7,914      7,177      3,464         --
                                               -------   --------   --------   --------   --------
Gross profit.................................   84,361     30,004     23,203      6,831         --
                                               -------   --------   --------   --------   --------
Operating expenses:
Research and development.....................   42,077     41,184     36,483     23,412     11,434
Sales and marketing..........................    8,043      6,837     11,777      8,248      1,993
General and administrative...................   11,310      9,535      7,504      6,175      2,008
Market development advertising...............       --        924      4,926         --         --
Stock incentive..............................       --         --      8,359         --         --
Acquisition of NTG royalty rights............       --         --         --     21,353         --
In-process research and development..........    7,700         --         --         --         --
                                               -------   --------   --------   --------   --------
Total operating expenses.....................   69,130     58,480     69,049     59,188     15,435
                                               -------   --------   --------   --------   --------
Operating income (loss)......................   15,231    (28,476)   (45,846)   (52,357)   (15,435)
Net interest and other income................    2,115        684        437        976         50
                                               -------   --------   --------   --------   --------
Income (loss) before income and foreign
  withholding taxes..........................   17,346    (27,792)   (45,409)   (51,381)   (15,385)
Income and foreign withholding taxes.........    4,075      6,876        853         50          1
                                               -------   --------   --------   --------   --------
Net income (loss)............................  $13,271   $(34,668)  $(46,262)  $(51,431)  $(15,386)
                                               =======   ========   ========   ========   ========
Net income (loss) per share..................  $  0.46   $  (1.36)  $  (2.04)  $  (2.60)  $  (1.02)
                                               =======   ========   ========   ========   ========
Shares used in per share calculations........   29,103     25,456     22,697     19,747     15,018
                                               =======   ========   ========   ========   ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                    MARCH 31,
                                               ---------------------------------------------------
                                                1997       1996       1995       1994       1993
                                               -------   --------   --------   --------   --------
                                                                 (IN THOUSANDS)
<S>                                            <C>       <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and available-for-sale securities.......  $33,617   $ 50,145   $ 14,346   $ 14,301   $  2,827
Working capital..............................  $14,067   $ (6,951)  $ 10,826   $ 10,494   $ (1,175)
Total assets.................................  $44,954   $ 63,330   $ 34,161   $ 25,870   $  6,437
Total long-term liabilities..................  $ 1,715   $  1,831   $  6,529   $  2,152   $  2,920
Total stockholders' equity (deficit).........  $21,399   $    131   $ 15,685   $ 15,879   $   (959)
</TABLE>
 
                                       19
<PAGE>   20
 
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS
 
GENERAL
 
     The following discussion is intended to assist in the understanding and
assessment of significant changes and trends relating to the results of
operations and financial condition of The 3DO Company, together with its
consolidated subsidiaries (the "Company"). This discussion and analysis should
be read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto.
 
  Private Securities Litigation Reform Act Safe Harbor Statement
 
     Except for the historical information contained herein, this discussion and
analysis includes certain forward-looking statements that involve risks and
uncertainties. Such statements represent the Company's reasonable judgment on
the future and are subject to risks and uncertainties that could cause the
Company's actual results and financial position to differ materially from those
projected in the forward-looking statements as a result of the factors described
herein. Such forward-looking statements include, without limitation: the extent
to which the Company will receive and/or recognize revenue from the M2
Technology Licensing Agreement (the "M2 Agreement") with Matsushita Electric
Industrial Co., Ltd. ("Matsushita") and from the related Addendum; the extent to
which the Company will receive and/or recognize revenue from its Joint
Development and License Agreement with Cirrus Logic, Inc. ("Cirrus Logic"); the
extent to which the Company will save operating expenses such as personnel,
non-recurring engineering, facility and other overhead expenses, in fiscal year
1998 as a result of the completion of the sale of the Company's hardware systems
business to Samsung Electronics Co., Ltd. ("Samsung"); the length of time for
which the Company's existing cash resources, working capital financing and other
sources of funds, including the $20.0 million payment from Samsung received on
June 23, 1997, will fund the Company's activities; the extent to which CagEnt
Technologies, Inc. a subsidiary of Samsung, will assist the Company, as a
subcontractor, in completing the remaining deliverables associated with the M2
Agreement and Addendum; the extent to which the Company will receive the minimum
guaranteed payments and potential royalties from its international distribution
agreements; the Company's ability to successfully leverage its core technologies
into other markets; the Company's ability to develop software products for new
platforms and the timeliness, cost, and market demand for such products created
as part of its software development activities; and the effect of competitive
factors in the marketplace, including the market acceptance of certain formats
and the timing and release of competitors' products. The Company undertakes no
obligation to publicly release the result of any revisions to the
forward-looking statements contained herein to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
 
  Overview
 
     Since commencement of its operations in October 1991, the Company has been
developing interactive technologies and software applications. To date, it has
devoted a majority of its resources to research and development activities,
marketing and licensing its technology, recruiting and supporting third-party
licensees. More recently, the Company has devoted greater resources to its
software publishing and distribution businesses. In the future, the Company will
focus on creating technologies and entertainment products for the advanced
64-bit market and will continue to develop software titles for multiple
platforms including the IBM-compatible PC CD-ROM platform (the "PC"), the 32-bit
PlayStation platform developed by Sony, the 64-bit M2 platform being developed
by Matsushita, and the Internet.
 
     Prior to fiscal year 1997, the Company generated a majority of its revenue
from software royalties and pressing fees on titles published by its software
licensees for the 3DO Multiplayer platform. The Company has also derived revenue
from the sale of development systems to licensees, software title development
activities whereby the Company developed titles under contract for publishing by
third parties, engineering activities under contract to third parties,
technology licensing fees, and the licensing and distribution of software titles
published by the Company and others. Revenue has also been generated from
royalties paid by semiconductor foundries upon their sale of licensed chipsets
to hardware system manufacturers (see "Results of Operations" below).
 
                                       20
<PAGE>   21
 
     In fiscal year 1997, the Company derived the majority of its revenue from
technology licensing fees and the publishing and distribution of internally and
externally developed software titles. For most of fiscal year 1995 and fiscal
year 1996, the focus of the Company's business was on maximizing royalty
revenues from the pressing and publishing of third-party software CDs that
played on the 3DO Multiplayer systems marketed and distributed by Panasonic and
Goldstar, which failed to achieve market acceptance. As a result, this third-
party CD pressing and publishing royalty stream decreased significantly, to less
than 1% of revenue in fiscal year 1997. The Company has recently reorganized its
organization to focus on entertainment software products for the PC, Sony
PlayStation, M2 and Internet platforms.
 
     The Company generally recognizes revenue from the sale of software titles,
development systems, or digital video systems at the time of shipment. Revenue
from the M2 Agreement with Matsushita, and the Joint Development and License
Agreement with Cirrus Logic, and other engineering contracts, is recognized
using the percentage-of-completion method.
 
     The Company developed a next generation 64-bit technology (the "M2
Technology") and in December 1995, the Company and Matsushita entered into a
definitive license agreement pursuant to which the Company granted Matsushita an
exclusive, worldwide, perpetual license, with the right to grant sublicenses,
with respect to the M2 Technology, for use in both hardware and software for
games and all other applications (the "M2 Agreement"). The license was granted
in exchange for an upfront license payment of $100 million, and for certain
royalties which shall be paid to the Company for certain software products
manufactured after January 1, 1998 which are compatible with the M2 Technology.
Under the terms of the M2 Agreement, Matsushita granted the Company a
non-exclusive license to use the M2 Technology for the development, manufacture
and distribution of (i) hardware products designed for use in the computer
field, (ii) software and peripherals compatible with hardware products developed
by Matsushita or its sublicensees that incorporate the M2 Technology, and (iii)
development systems to be used by third parties outside of Japan that are
authorized by Matsushita to develop and publish software products compatible
with hardware products that incorporate the M2 Technology. Revenue pertaining to
the license fees under the M2 Agreement is being recognized by the Company using
the percentage-of-completion method based on the costs incurred to fulfill its
commitments to deliver technology as specified in the agreement. The Company
estimates that it will continue to recognize revenue in connection with the M2
Agreement through June 30, 1997.
 
     On April 24, 1996, the Company agreed to make certain modifications to the
M2 system design, pursuant to the terms of an addendum (the "Addendum") to the
M2 Agreement. As consideration for providing engineering and certain support
services, the Company will receive an aggregate fee of approximately $4.5
million to be received in installments in fiscal 1997 and 1998. The payments by
Matsushita are contingent upon the Company timely meeting certain milestones, as
stipulated in the Addendum. The Company intends to recognize this revenue as
these milestones are achieved.
 
     Concurrent with the execution of the M2 Agreement, Matsushita and the
Company entered into a separate stock purchase and license agreement whereby
Matsushita acquired all of the outstanding capital stock of 3DO Japan Co., Ltd.
for $668,000, the approximate book value of the entity at the date of closing.
This entity of approximately 14 people was responsible for the third-party
support activities of the 32-bit 3DO Multiplayer platform. In February 1996, the
Company licensed the 3-D graphics portion of the M2 Technology to Cirrus Logic
for the potential development of high-end 3-D graphics chips for the PC market.
Under the terms of the Joint Development and License Agreement (the "Cirrus
Agreement") the Company was to develop certain modifications to its "3-D
Engine," which is a component of the proprietary semiconductor technology that
is part of the M2 Technology. As partial consideration under such agreement, the
Company has received the non-refundable sum of $2.5 million as of March 31,
1997. This payment has been recognized into revenue under the percentage of
completion method.
 
     On October 3, 1996, Cirrus filed a complaint to rescind the Cirrus
Agreement on the grounds of frustration of purpose, mistake, failure of
consideration, concealment, and non-disclosure, and to obtain a repayment of
$2.5 million in nonrefundable payments made to the Company. The Company has
responded to Cirrus' complaint and filed a cross-complaint regarding Cirrus'
breach of the Cirrus Agreement and seeking to
 
                                       21
<PAGE>   22
 
enforce its rights under said agreement, including procurement of Cirrus'
payment of $4.5 million in nonrefundable license fees, prepaid royalties and
termination fees, plus damages, interest, and attorneys' fees and costs.
Although the Company believes Cirrus has specific obligations under the contract
to pay an additional $4.5 million in nonrefundable license fees, prepaid
royalties, and termination fees, there can be no assurance that the Company will
prevail in the litigation, will not be required to refund the $2.5 million
payment received from Cirrus, or will receive the additional $4.5 million that
it believes Cirrus owes under the Cirrus Agreement.
 
     In November 1995, the Company acquired the business, including all of the
assets and certain of the liabilities, of Cyclone Studios, a software developer.
Consideration for the purchase consisted of upfront cash and stock, and
potential future consideration based upon the financial performance of the
resulting new software development division. The upfront portion of the purchase
price, approximately $880,000, was expensed as acquired in-process research and
development in the third quarter of fiscal year 1996.
 
     On May 31, 1996, the Company acquired all the outstanding capital stock of
Archetype Interactive Corporation ("Archetype"), a software developer of a
multi-user role playing game designed to be played over the Internet. In
exchange for the outstanding capital stock of Archetype, the Company issued
592,000 shares of its common stock to the Archetype shareholders. The Company
accounted for this acquisition using the "pooling of interests" method.
 
     In June 1996, the Company purchased certain assets and assumed certain
liabilities of New World Computing, Inc. ("NWC"), a PC platform game developer.
Subsequent to the asset purchase, the Company created a production unit using
the NWC brand name. NWC continues to be a wholly-owned subsidiary of NTN
Communications, Inc. ("NTN"). As consideration for the purchase, the Company
issued 1.02 million shares of its common stock to NTN. In addition, under the
terms of the agreement, the Company was obligated to make a cash payment to NTN
because the value of the Company stock issued in the transaction fell below an
amount equal to approximately $10.00 per share during a period following the
closing date (the "Purchase Price Guarantee"); as of December 31, 1996, the
Company paid approximately $5.0 million to NTN. This payment represents the
total amount due to NTN under the terms of the asset purchase agreement and, as
such, the Company has no further obligations to NTN under the Purchase Price
Guarantee. The Company recorded the purchase in June 1996 using the purchase
method of accounting. A one-time charge was recorded in the first quarter of
fiscal year 1997 for $7.7 million representing the amount of the purchase price
assigned to in-process research and development. At the time, the entire
purchase was booked at the guaranteed purchase price. As a result, the one-time
payment of approximately $5.0 million has no impact on the Company's income
statement for fiscal year ended March 31, 1997. Also included as part of the
purchase price were intangibles valued at $3.1 million, to be amortized on a
straight-line basis over a period of one to five years.
 
     The Company expects that its operating results will fluctuate as a result
of a wide variety of factors, including changes in the composition of the
Company's revenues, the timing of new software product introductions by the
Company and by its competitors, new introductions of platforms for interactive
entertainment software, the Company's expenditures on research and development,
marketing and promotional programs, the result of legal proceedings in which the
Company is or may become involved, the state of the interactive entertainment
industry and the general state of the national and global economies. In
addition, the Company's revenue will be affected by the seasonal nature of the
market for consumer electronics products and variations as a result of the
demand for particular software titles.
 
     On June 23, 1997, the Company sold most of the assets of the Company's
hardware systems group, including certain intellectual properties and
approximately $1.5 million in equipment, to Samsung Electronics Co., Ltd.
("Samsung") for $20.0 million. The sale will result in a one time increase in
other income during the first quarter of fiscal year 1998. Additionally, the
sale is expected to result in a decrease in operating expenses during the fiscal
year 1998 due to decrease in personnel, facility and other overhead expenses
associated with the hardware systems group.
 
     On April 1, 1996 the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to be
 
                                       22
<PAGE>   23
 
Disposed Of," which requires long-lived assets to be evaluated for impairment
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. The adoption of SFAS No. 121 did not have a material effect
on the Company's consolidated results of operations.
 
     The Financial Accounting Standards Board recently issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 requires the presentation of basic earnings
per share (EPS) and, for companies with complex capital structures (or
potentially dilutive securities, such as convertible debt, options and
warrants), dilutive EPS. SFAS No. 128 is effective for annual and interim
periods ending after December 15, 1997. The Company will adopt the new standards
in the fiscal year ending March 31, 1998. The Company anticipates basic net
income (loss) per share to be slightly higher (lower) than net income (loss) per
share disclosed in the accompanying consolidated statements of operations and
anticipates dilutive net income (loss) per share to approximate such net income
(loss) per share as has been historically disclosed.
 
RESULTS OF OPERATIONS
 
     The following discussions compare the results of operations for the fiscal
year ended March 31, 1997, to the fiscal year ended March 31, 1996, and the
fiscal year ended March 31, 1996, to the fiscal year ended March 31, 1995. The
operating results for each of the years ended March 31, 1997, 1996 and 1995 are
not necessarily indicative of operating results in future periods. The following
comparative information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto for each period discussed, as well as the
information presented in other sections of Management's Discussion and Analysis.
 
     FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
 
<TABLE>
<CAPTION>
                                               YEARS ENDED MARCH 31                     CHANGE
                                     ----------------------------------------     ------------------
                                      1997        %(A)       1996       %(A)      AMOUNT        %
                                     -------     ------    --------     -----     -------     ------
<S>                                  <C>         <C>       <C>          <C>       <C>         <C>
Revenues:
  Royalties and license fees........ $79,167       85.7    $ 24,074      63.5     $55,093      228.9
  Software publishing...............   9,540       10.3       7,330      19.3       2,210       30.2
  Development systems and other.....   3,643        4.0       6,514      17.2      (2,871)     (44.1)
                                     -------      -----    --------     -----     -------      -----
Total revenues......................  92,350      100.0      37,918     100.0      54,432      143.6
                                     -------      -----    --------     -----     -------      -----
Cost of revenues:
  Royalties and license fees........     456        0.6         694       2.9        (238)     (34.3)
  Software publishing...............   5,397       56.6       3,989      54.4       1,408       35.3
  Development systems and other.....   2,136       58.6       3,231      49.6      (1,095)     (33.9)
                                     -------      -----    --------     -----     -------      -----
Total cost of revenues..............   7,989        8.6       7,914      20.9          75        1.0
                                     -------      -----    --------     -----     -------      -----
Gross profit........................  84,361       91.4      30,004      79.1      54,357      181.2
                                     -------      -----    --------     -----     -------      -----
Operating expenses:
  Research and development..........  42,077       45.6      41,184     108.6         893        2.2
  Sales and marketing...............   8,043        8.7       6,837      18.0       1,206       17.6
  General and administrative........  11,310       12.3       9,535      25.2       1,775       18.6
  Market development advertising....      --         --         924       2.4        (924)    (100.0)
  In-process research and
     development....................   7,700        8.3          --        --       7,700         --
                                     -------      -----    --------     -----     -------      -----
Total operating expenses............  69,130       74.9      58,480     154.2      10,650       18.2
                                     -------      -----    --------     -----     -------      -----
Operating income (loss).............  15,231       16.5     (28,476)    (75.1)     43,707         --
Net interest and other income.......   2,115        2.3         684       1.8       1,431      209.2
                                     -------      -----    --------     -----     -------      -----
Income (loss) before income and
  foreign withholding taxes.........  17,346       18.8     (27,792)    (73.3)     45,138         --
Income and foreign withholding
  taxes.............................   4,075        4.4       6,876      18.1      (2,801)     (40.7)
                                     -------      -----    --------     -----     -------      -----
Net income (loss)................... $13,271       14.4    $(34,668)    (91.4)    $47,939         --
                                     =======      =====    ========     =====     =======      =====
</TABLE>
 
---------------
 
(a) Percentage of total revenues except cost of revenue components, which are a
    percentage of their respective revenue amounts.
 
                                       23
<PAGE>   24
 
     Revenue for the year ended March 31, 1997, increased by approximately $54.4
million (144%) from $37.9 million in fiscal year 1996 to $92.3 million in fiscal
year 1997. Royalties and license fees were the largest component of revenue and
accounted for approximately 86% and 64% for the years ended March 31, 1997 and
1996, respectively, and represented an approximate $55.1 million (229%) increase
compared to the prior year. Royalties and license fees consisted of technology
license fees, software royalties, pressing fees, semiconductor royalties and MDF
revenue (see Note A of the Notes to the Consolidated Financial Statements).
Included in technology license fees is $75.1 million and $14.5 million for
fiscal year 1997 and 1996, respectively, revenue recognized under the M2
Agreement with Matsushita (see "Overview," above). The revenue recognition
methodology for the M2 Agreement is based upon the percentage-of-completion
method, as the Company fulfills its commitments to deliver technology as
specified in the agreement. Software royalties decreased from $6.7 million in
fiscal 1996 to $0.1 million in fiscal year 1997 due to decreases in sales of
software products compatible with 3DO multiplayer systems being manufactured by
third-party publishers. In light of the fact that the 3DO Multiplayer did not
achieve market acceptance, the Company does not expect to earn additional
revenues from software royalties and pressing fees related to the 3DO
Multiplayer platform in the future. The Company recognized $2.5 million in
revenue in fiscal year 1997 related to the Cirrus Agreement. No revenue was
recognized in fiscal year 1996 as the Cirrus Agreement commenced on February 29,
1996. Due to litigation between 3DO and Cirrus Logic, the Company does not
expect to derive additional revenue from the Cirrus Agreement in the future.
 
     Software publishing revenue of approximately $9.5 million for the year
ended March 31, 1997, increased by approximately $2.2 million (30.2%) compared
to the prior fiscal year, which resulted from the Company's increased publishing
and distribution activities. Software publishing revenue is generated by the
Company's publishing, distribution, and licensing, of externally and internally
developed software titles. The increase in software publishing revenue is
primarily due to revenues generated from New World Computing, a division of 3DO,
which was acquired in June 1996. During fiscal year 1996, the Company recognized
approximately $1.4 million in software publishing revenues under the agreement
in which the Company granted Matsushita the right to license, manufacture and
distribute certain software titles developed by or for 3DO. Software revenue is
recorded net of reserves for price protection and returns.
 
     Development systems and other revenue of $3.6 million for fiscal year 1997
decreased approximately $2.9 million (44%) compared to the prior fiscal year.
This decrease is comprised of a $0.6 million decrease in development systems
revenue and a decrease of approximately $2.1 million in other revenue compared
to the prior year. For the fiscal year ended March 31, 1997 development system
sales of $2.6 million was a decrease compared to the prior fiscal year, which
was a result of a decline in new orders for M2 development systems. Other
revenue for fiscal year 1997 totaled approximately $1.1 million and is primarily
comprised of engineering and development services and encryption and duplication
revenues. The decrease is primarily due to the decision to eliminate software
development activities for other publishers.
 
     Cost of revenues of approximately $8.0 million increased by approximately
$0.1 million (1%), compared to the prior year. Cost of revenues consists of
direct costs associated with software titles and development systems products
sold, amortization of prepaid royalties (described in Note A of the Notes to the
Consolidated Financial Statements), and hardware systems incentives accrued on
all chipsets shipped into distribution. Internal development costs of software
title development for titles published by the Company or by third-party
publishers is recognized as incurred and included in research and development
expenses. Costs of revenues, as a percentage of revenue, were approximately 9%
for the fiscal year ended March 31, 1997 compared to approximately 21% for
fiscal year 1996. The decrease is primarily due to the increased proportion of
royalties and license fee revenue recognized for the year ended March 31, 1997,
which have significantly lower associated costs of revenues, compared to all
other types of revenues.
 
     Research and development expenses, including in-process research and
development of approximately $49.8 million increased by approximately $8.6
million (21%) for the year ended March 31, 1997 compared to fiscal year 1996.
The increase was primarily due to a one-time $7.7 million charge for in-process
research and development related to the Company's acquisition of the assets of
New World Computing in June 1996, and on-going development expenses associated
with Cyclone Studios, Archetype Interactive and New World Computing, which were
acquired by the Company in November 1995, May 1996 and June 1996, respectively.
The increase was partially offset by the decrease in research and development
spending in the hardware
 
                                       24
<PAGE>   25
 
systems division as the M2 development project approaches completion. The
Company anticipates that research and development expenses will significantly
decrease after the sale of its hardware systems unit to Samsung has been
completed.
 
     Sales and marketing expenses, including market development advertising, of
approximately $8.0 million increased by approximately $0.3 million (3.6%) for
fiscal year 1997, compared to the prior fiscal year, primarily due to marketing
and promotional expenses associated with the Company's Internet game, Meridian
59.
 
     General and administrative expenses of approximately $11.3 million
increased by approximately $1.8 million (19%) for fiscal year 1997, compared to
the prior fiscal year, primarily due to goodwill amortization expense related to
the New World Computing acquisition, and additional reserves recorded for bad
debt and other expenses.
 
     Net interest and other income increased from $0.7 million to approximately
$2.1 million for the years ended March 31, 1996 and 1997, respectively. The net
increase was primarily due to an increase in interest income, due to increased
cash balances associated with payments received under the M2 Agreement and a
reduction of other expenses, which was partially offset by an increase in
interest expense on capital leases.
 
     The provision for income and foreign withholding taxes decreased from $6.9
million for fiscal year 1996 to $4.1 million for fiscal year 1997. The decrease
is primarily attributable to $4.0 million in foreign withholding taxes
associated with a payment received under the M2 Agreement with Matsushita for
the current year compared to $6.0 million for the prior fiscal year (see
"Overview," above).
 
     FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
 
<TABLE>
<CAPTION>
                                                    YEARS ENDED MARCH 31                CHANGE
                                            ------------------------------------   -----------------
                                              1996     %(A)      1995      %(A)     AMOUNT      %
                                            --------   -----   --------   ------   --------   ------
<S>                                         <C>        <C>     <C>        <C>      <C>        <C>
Revenues:
  Royalties and license fees..............  $ 24,074    63.5   $ 18,593     61.2   $  5,481     29.5
  Software publishing.....................     7,330    19.3      3,287     10.8      4,043    123.0
  Development systems and other...........     6,514    17.2      8,500     28.0     (1,986)   (23.4)
                                            --------   -----   --------   ------   --------   ------
Total revenues............................    37,918   100.0     30,380    100.0      7,538     24.8
                                            --------   -----   --------   ------   --------   ------
Cost of revenues:
  Royalties and license fees..............       694     2.9      2,200     11.8     (1,506)   (68.5)
  Software publishing.....................     3,989    54.4      1,526     46.4      2,463    161.4
  Development systems and other...........     3,231    49.6      3,451     40.6       (220)    (6.4)
                                            --------   -----   --------   ------   --------   ------
Total cost of revenues....................     7,914    20.9      7,177     23.6        737     10.3
                                            --------   -----   --------   ------   --------   ------
Gross profit..............................    30,004    79.1     23,203     76.4      6,801     29.3
                                            --------   -----   --------   ------   --------   ------
Operating expenses:
  Research and development................    41,184   108.6     36,483    120.1      4,701     12.9
  Sales and marketing.....................     6,837    18.0     11,777     38.8     (4,940)   (42.0)
  General and administrative..............     9,535    25.2      7,504     24.7      2,031     27.1
  Market development advertising..........       924     2.4      4,926     16.2     (4,002)   (81.2)
  Stock incentive.........................        --      --      8,359     27.5     (8,359)  (100.0)
                                            --------   -----   --------   ------   --------   ------
Total operating expenses..................    58,480   154.2     69,049    227.3    (10,569)   (15.3)
                                            --------   -----   --------   ------   --------   ------
Operating loss............................   (28,476)  (75.1)   (45,846)  (150.9)    17,370     37.9
Net interest and other income.............       684     1.8        437      1.4        247     56.5
                                            --------   -----   --------   ------   --------   ------
Loss before income and foreign withholding
  taxes...................................   (27,792)  (73.3)   (45,409)  (149.5)    17,617     38.8
Income and foreign withholding taxes......     6,876    18.1        853      2.8      6,023    706.1
                                            --------   -----   --------   ------   --------   ------
Net loss..................................  $(34,668)  (91.4)  $(46,262)  (152.3)  $ 11,594     25.1
                                            ========   =====   ========   ======   ========   ======
</TABLE>
 
---------------
 
(a) Percentage of total revenues except cost of revenue components, which are a
    percentage of their respective revenue amounts.
 
                                       25
<PAGE>   26
 
     Revenue for the year ended March 31, 1996 increased by approximately $7.5
million (25%) from $30.4 million in fiscal 1995 to $37.9 million in fiscal year
1996. Royalties and license fees were the largest component of revenue and
accounted for approximately 64% and 61% for the years ended March 31, 1996 and
1995, respectively, and represented approximately a $5.5 million (30%) increase
compared to the prior year. Royalties and license fees consisted of technology
license fees, software royalties, pressing fees, semiconductor royalties and MDF
revenue (see Note A of the Notes to the Consolidated Financial Statements).
Included in technology license fees for the fiscal year ended March 31, 1996 is
$14.5 million of the $100.0 million license fee under the M2 Agreement with
Matsushita (see "Overview," above). There were no technology license fees in the
prior fiscal year. The revenue recognition methodology for the M2 Agreement is
based upon the percentage-of-completion method, as the Company fulfills its
commitments to deliver technology as specified in the agreement. Software
royalties and pressing fees decreased from $14.9 million in fiscal year 1995 to
$6.7 million in fiscal year 1996 due to the upfront license fee from Matsushita
for the right to manufacture 3DO-formatted CDs in Japan earned in fiscal year
1995, which was absent in fiscal year 1996, and decreases in sales of software
products being manufactured by third-party publishers. In light of the fact that
the 3DO Multiplayer did not achieve market acceptance, the Company does not
expect to derive software royalties and pressing fees related to the 3DO
Multiplayer platform in the future.
 
     Software publishing revenue of approximately $7.3 million for the year
ended March 31, 1996 increased by approximately $4.0 million (123%) compared to
the prior fiscal year, which resulted from the Company's increased publishing
and distribution activities. Software publishing revenue is generated by the
Company's publishing, distribution, and licensing of externally and internally
developed software titles. In June 1995 the Company entered into an agreement
under which the Company granted Matsushita the right to license, manufacture and
distribute certain software titles developed by or for 3DO. During fiscal year
1996, the Company recognized approximately $1.4 million in software publishing
revenues under this agreement. The increase in software publishing revenue is
also attributed to sales from the release of ten published and three distributed
titles during fiscal year 1996. Software revenue is recorded net of reserves for
price protection and returns.
 
     Development systems and other revenue of $6.5 million for fiscal year 1996
decreased approximately $2.0 million (23%), compared to the prior fiscal year.
This decrease is comprised of a $1.1 million decrease in development systems
revenue and a decrease of approximately $0.9 million in other revenue compared
to the prior year. For the fiscal year ended March 31, 1996 development system
sales of $3.3 million have decreased as new software development on the
Company's 3DO Multiplayer platform declined. This decrease was partially offset
by shipments of M2 development systems, which commenced in July 1995. Other
revenue for fiscal year 1996 totaled approximately $3.2 million of revenue and
was primarily comprised of engineering and development services and encryption
and duplication revenues. The decrease was primarily due to the decision to
eliminate software development activities for other publishers.
 
     Cost of revenues of approximately $7.9 million for fiscal year 1996
increased by approximately $0.7 million (10%) compared to the prior year. Cost
of revenues consists of direct costs associated with software titles and
development systems products sold, amortization of prepaid royalties (described
in Note A of the Notes to the Consolidated Financial Statements), and hardware
systems incentives accrued on all chipsets shipped into distribution. Internal
development costs of software title development for titles published by the
Company or for third-party publishers is recognized as incurred and included in
research and development expenses. Cost of revenues, as a percentage of revenue,
was approximately 21% for the fiscal year ended March 31, 1996 compared to
approximately 24% for the same period in fiscal year 1995. The decrease was
primarily due to the increased proportion of royalties and license fee revenue
recognized for the year ended March 31, 1996 which have significantly lower
associated costs of revenues, compared to all other types of revenues.
 
     Research and development expenses, including in-process research and
development, of approximately $41.2 million increased by approximately $4.7
million (13%) for the year ended March 31, 1996 compared to fiscal year 1995.
The increases were attributable to (i) the additional reserves for prepaid
royalties in the fiscal year, which resulted from disappointing sales during the
holiday season; (ii) increases in software title development for the 3DO
Multiplayer system, as well as 64-bit development for the M2 and the PC
platforms;
 
                                       26
<PAGE>   27
 
and (iii) a research and development in-process charge associated with the
acquisition of Cyclone Studios, a software developer, in November 1995. The
Company anticipates that research and development expenses will increase in
future periods due to the Company's increasing levels of software development
activities.
 
     Sales and marketing expenses of approximately $6.8 million decreased by
approximately $4.9 million (42%) for fiscal year 1996, compared to the prior
fiscal year, primarily due to reduced television advertising expenditures in
fiscal year 1996.
 
     General and administrative expenses of approximately $9.5 million increased
by approximately $2.0 million (27%) for fiscal year 1996, compared to the prior
fiscal year, primarily due to the additional reserves recorded for bad debt,
legal and other expenses.
 
     Stock incentive expenses of approximately $8.4 million for the fiscal year
ended March 31, 1995, represents the market value of the stock issued or to be
issued under the stock incentive program described in Note I of the Notes to the
Consolidated Financial Statements. The stock incentive program concluded on
December 31, 1994, and there was no comparable expense for the fiscal year ended
March 31, 1996.
 
     In October 1994, the Company established a Market Development Fund ("MDF")
program under which a pressing fee was charged to authorized CD pressing
facilities for each copy of a licensed software title that was manufactured
outside of Japan. Marketing expenses under the MDF program decreased by
approximately $4.0 million (81%) in the fiscal year ended March 31, 1996
compared to the prior fiscal year. The MDF program started in October 1994, and
until December 31, 1994 all funds collected under this program were used for
advertising and promoting the 3DO format and product family. Starting in January
1995, a portion of the MDF funds was used for advertising and promotions and the
remaining funds have or will be paid to certain hardware system licensees, based
on the quantity of hardware systems shipped into certain markets.
 
     Net interest and other income increased from $0.4 million to approximately
$0.7 million for the years ended March 31, 1995 and 1996, respectively. The net
increase was primarily due to an increase in interest income, due to increased
cash balances associated with payments received under the M2 Agreement, and a
reduction of other expense, which was partially offset by an increase in
interest expense on capital leases.
 
     The provision for income and foreign withholding taxes increased to
approximately $6.9 million for the fiscal year 1997 compared to the prior fiscal
year. The increase in fiscal year 1997 was primarily attributable to $6.0
million in foreign withholding taxes associated with a payment received under
the M2 Agreement with Matsushita (see "Overview," above).
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's principal sources of liquidity are its cash and cash
equivalent balances and short-term investments, which totaled approximately
$33.6 million and $50.1 million as of March 31, 1997 and 1996, respectively. The
decrease in fiscal year 1997 was attributable to cash used in operating
activities, offset by cash received in connection with the M2 Agreement with
Matsushita. (See Note G of the Notes to the Consolidated Financial Statements.
The current ratio (current assets to current liabilities) was 1.64 to 1 as of
March 31, 1997, compared to .89 to 1 as of March 31, 1996. This improvement is
primarily due to decreases in deferred revenue, accounts payable and current
hardware incentive obligations balances as of March 31, 1997, which were
partially offset by decreased cash and short-term investments balances. Net cash
used in operating activities was $8.0 million for the fiscal year ended March
31, 1997, which compares with net cash provided by operating activities of $22.5
million for fiscal year 1996. The deterioration in cash position was primarily
due to the reduction in deferred revenue balance, which was a result of the
recognition of the M2 revenue. This was offset by the $36.0 million cash
payment, net of foreign withholding tax, received from Matsushita during fiscal
year 1997. For the fiscal year ended March 31, 1997, the Company invested
approximately $4.3 million ($3.3 million in the prior year) in fixed assets,
excluding assets acquired under capital lease obligations, which were primarily
purchases of computer equipment, software applications and office furnishings.
In relation to the acquisition of New World Computing, the Company paid
approximately $5 million in cash and issued approximately 1.02 million shares of
common stock to NTN (see "Overview," above).
 
                                       27
<PAGE>   28
 
     The Company anticipates that existing cash resources, working capital
financing and all other sources of funds (including the $20.0 million proceeds
from the sale of the Company's hardware division to Samsung) should be
sufficient to fund the Company's activities through the end of fiscal year 1998.
There can be no assurance that additional capital will not be required in fiscal
year 1999 since cash flows will be affected by the rate at which the Company
develops, publishes and distributes software titles and the resulting sale of
these products, the market acceptance of such products and the levels of
advertising and promotions required to promote market acceptance. The Company
anticipates that it may require additional capital beyond fiscal year 1998. The
level of financing required beyond fiscal year 1998 will depend on these and
other factors. If the Company needs to raise additional funds through public or
private financing, no assurance can be given that additional financing will be
available or that, if available, it will be available on terms acceptable to the
Company or its stockholders. Additional financings may result in substantial and
immediate dilution to existing stockholders. If adequate funds are not available
to satisfy either short- or long-term capital requirements, the Company may be
required to curtail its operations significantly or to obtain funds through
arrangements with strategic partners or others that may require the Company to
relinquish material rights to certain of its technologies and/or potential
markets.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
 
     The Independent Auditors' Report, Consolidated Financial Statements and
Notes to Consolidated Financial Statements follow on Pages 29 through 46.
 
                                       28
<PAGE>   29
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
The 3DO Company:
 
     We have audited the accompanying consolidated balance sheets of The 3DO
Company and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The 3DO
Company and subsidiaries as of March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1997, in conformity with generally accepted accounting
principles.
 
                                          KPMG Peat Marwick LLP
 
San Jose, California
May 14, 1997, except as to Note Q,
which is as of June 23, 1997
 
                                       29
<PAGE>   30
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                              MARCH 31,
                                                                       -----------------------
                                                                         1997          1996
                                                                       ---------     ---------
<S>                                                                    <C>           <C>
Current assets:
  Cash and cash equivalents..........................................  $  14,395     $   9,459
  Short-term investments.............................................     19,222        40,686
  Accounts receivable, net...........................................        429         2,060
  Prepaid and other current assets...................................      1,861         2,212
                                                                       ----------    ----------
          Total current assets.......................................     35,907        54,417
Property and equipment, net..........................................      6,681         8,642
Deposits and other assets............................................      2,366           271
                                                                       ----------    ----------
          Total assets...............................................  $  44,954     $  63,330
                                                                       ==========    ==========
 
                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable...................................................  $     569     $   1,905
  Accrued expenses...................................................      3,251         3,814
  Deferred revenue...................................................     11,992        47,818
  Current portion of capital lease obligations.......................        807         1,424
  Hardware incentive obligations.....................................      2,944         4,620
  Other current liabilities..........................................      2,277         1,787
                                                                       ----------    ----------
          Total current liabilities..................................     21,840        61,368
Capital lease obligations, net of current portion....................        611         1,287
Other liabilities....................................................      1,104           544
                                                                       ----------    ----------
          Total liabilities..........................................     23,555        63,199
                                                                       ----------    ----------
Stockholders' equity:
  Preferred stock, $0.01 par value; 5,000 shares authorized; no
     shares issued...................................................         --            --
  Common stock, $0.01 par value; 50,000 shares authorized; 28,369 and
     26,003 shares issued and outstanding, respectively..............        284           260
  Additional paid-in capital.........................................    158,489       150,541
  Cumulative translation adjustment..................................       (164)         (189)
  Accumulated deficit................................................   (137,210)     (150,481)
                                                                       ----------    ----------
          Total stockholders' equity.................................     21,399           131
                                                                       ----------    ----------
          Total liabilities and stockholders' equity.................  $  44,954     $  63,330
                                                                       ==========    ==========
</TABLE>
 
          See accompanying Notes to Consolidated Financial Statements.
 
                                       30
<PAGE>   31
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                    YEARS ENDED MARCH 31,
                                                              ---------------------------------
                                                               1997         1996         1995
                                                              -------     --------     --------
<S>                                                           <C>         <C>          <C>
Revenues:
  Royalties and license fees................................  $79,167     $ 24,074     $ 18,593
  Software publishing.......................................    9,540        7,330        3,287
  Development systems and other.............................    3,643        6,514        8,500
                                                              --------    ---------    ---------
Total revenues..............................................   92,350       37,918       30,380
                                                              --------    ---------    ---------
Cost of revenues:
  Royalties and license fees................................      456          694        2,200
  Software publishing.......................................    5,397        3,989        1,526
  Development systems and other.............................    2,136        3,231        3,451
                                                              --------    ---------    ---------
Total cost of revenues......................................    7,989        7,914        7,177
                                                              --------    ---------    ---------
Gross profit................................................   84,361       30,004       23,203
                                                              --------    ---------    ---------
Operating expenses:
  Research and development..................................   42,077       40,356       36,483
  Sales and marketing.......................................    8,043        6,837       11,777
  General and administrative................................   11,310        9,535        7,504
  Market development advertising............................       --          924        4,926
  Stock incentive...........................................       --           --        8,359
  In-process research and development.......................    7,700          828           --
                                                              --------    ---------    ---------
Total operating expenses....................................   69,130       58,480       69,049
                                                              --------    ---------    ---------
Operating income (loss).....................................   15,231      (28,476)     (45,846)
Net interest and other income...............................    2,115          684          437
                                                              --------    ---------    ---------
Income (loss) before income and foreign withholding taxes...   17,346      (27,792)     (45,409)
Income and foreign withholding taxes........................    4,075        6,876          853
                                                              --------    ---------    ---------
Net income (loss)...........................................  $13,271     $(34,668)    $(46,262)
                                                              ========    =========    =========
Net income (loss) per common and common equivalent share....  $  0.46     $  (1.36)    $  (2.04)
                                                              ========    =========    =========
Common and common equivalent shares used in
  computing per share amounts...............................   29,103       25,456       22,697
                                                              ========    =========    =========
</TABLE>
 
          See accompanying Notes to Consolidated Financial Statements.
 
                                       31
<PAGE>   32
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                   YEARS ENDED MARCH 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                      COMMON STOCK     ADDITIONAL   CUMULATIVE
                                     ---------------    PAID-IN     TRANSLATION  ACCUMULATED   STOCKHOLDERS'
                                     SHARES   AMOUNT    CAPITAL     ADJUSTMENT     DEFICIT        EQUITY
                                     ------   ------   ----------   ----------   -----------   -------------
<S>                                  <C>      <C>      <C>          <C>          <C>           <C>
Balances as of March 31, 1994......  20,023    $200     $  85,209     $   21      $ (69,551)     $  15,879
 
Sale of common stock, net of
  issuance costs of $654...........   2,984      30        36,248                                   36,278
Sale of common stock through
  employee stock plans and other
  plans............................     475       5         1,149                                    1,154
Common stock to be issued under
  stock incentive program..........                         8,359                                    8,359
Foreign currency translation.......                                      277                           277
Net loss...........................                                                 (46,262)       (46,262)
                                     ------    ----      --------      -----      ---------       --------
Balances as of March 31, 1995......  23,482     235       130,965        298       (115,813)        15,685
 
Sale of common stock, net of
  issuance costs of $5.............   1,580      16        16,537                                   16,553
Issuance of common stock for
  acquisition......................      50                   506                                      506
Sale of common stock through
  employee stock plans and other
  plans............................     491       5         2,537                                    2,542
Common stock issued under stock
  incentive program................     400       4            (4)                                      --
Foreign currency translation.......                                     (487)                         (487)
Net loss...........................                                                 (34,668)       (34,668)
                                     ------    ----      --------      -----      ---------       --------
Balances as of March 31, 1996......  26,003     260       150,541       (189)      (150,481)           131
 
Issuance of common stock for
  acquisition......................   1,610      16         5,664                                    5,680
Sale of common stock through
  employee stock plans and other
  plans............................     709       7         1,844                                    1,851
Common stock issued under stock
  incentive program................      47       1           440                                      441
Foreign currency translation.......                                       25                            25
Net income.........................                                                  13,271         13,271
                                     ------    ----      --------      -----      ---------       --------
Balances as of March 31, 1997......  28,369    $284     $ 158,489     $ (164)     $(137,210)     $  21,399
                                     ======    ====      ========      =====      =========       ========
</TABLE>
 
          See accompanying Notes to Consolidated Financial Statements.
 
                                       32
<PAGE>   33
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                   YEARS ENDED MARCH 31,
                                                             ----------------------------------
                                                               1997         1996         1995
                                                             --------     --------     --------
<S>                                                          <C>          <C>          <C>
Cash flows from operating activities:
  Net income (loss)........................................  $ 13,271     $(34,668)    $(46,262)
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Depreciation and amortization.........................     7,446        5,630        5,080
     Stock incentive.......................................        --           --        8,359
     Deferred revenue......................................   (35,870)      46,713       (1,623)
     In-process research and development...................     7,700          828           --
     Changes in operating assets and liabilities:
       Accounts receivable, net............................     2,571        3,751       (3,895)
       Prepaid and other assets............................       733          902         (833)
       Accounts payable....................................    (2,249)      (1,531)         908
       Accrued expenses....................................    (1,540)        (618)       1,913
       Hardware incentives.................................    (1,236)         975        2,618
       Other liabilities...................................     1,095          547          441
                                                             --------     --------     --------
Net cash provided by (used in) operating activities........    (8,079)      22,529      (33,294)
                                                             --------     --------     --------
Cash flows from investing activities:
  Short-term investments, net..............................    21,500      (31,155)       2,273
  Capital expenditures.....................................    (4,304)      (3,265)      (3,410)
  Acquisition of businesses................................    (4,575)        (442)          --
                                                             --------     --------     --------
Net cash provided by (used in) investing activities........    12,621      (34,862)      (1,137)
                                                             --------     --------     --------
Cash flows from financing activities:
  Proceeds from issuance of common stock, net..............     1,851       19,095       37,432
  Payments on capital lease obligations....................    (1,446)      (1,631)        (960)
                                                             --------     --------     --------
Net cash provided by financing activities..................       405       17,464       36,472
                                                             --------     --------     --------
Effect of foreign currency translation.....................       (11)        (518)         302
                                                             --------     --------     --------
Net increase in cash and cash equivalents..................     4,936        4,613        2,343
Cash and cash equivalents at beginning of year.............     9,459        4,846        2,503
                                                             --------     --------     --------
Cash and cash equivalents at end of year...................    14,395     $  9,459     $  4,846
                                                             ========     ========     ========
Supplemental disclosures of cash flow information:
Cash paid during the year:
  Interest.................................................  $    628     $    757     $    442
  Income and foreign withholding taxes.....................  $  4,075     $  6,776     $    760
Noncash investing and financing transactions:
  Assets acquired under capital lease obligations..........  $    152     $    245     $  5,059
  Common stock issued in connection with business
     acquisitions..........................................  $  5,680     $    506     $     --
</TABLE>
 
          See accompanying Notes to Consolidated Financial Statements.
 
                                       33
<PAGE>   34
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                         MARCH 31, 1997, 1996, AND 1995
 
A. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
 
     In April 1993, The 3DO Company was incorporated as a Delaware holding
company. The accompanying Consolidated Financial Statements include the accounts
of The 3DO Company and its wholly owned subsidiaries (the "Company"). The 3DO
Company develops, publishes and markets interactive entertainment products for
multiple platforms. All significant intercompany balances and transactions have
been eliminated in consolidation. Certain prior-year amounts have been
reclassified to conform to the current year's presentation.
 
  Use of Estimates
 
     The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported results of operations
during the reporting period. Actual results could differ from those estimates.
 
  Cash Equivalents and Short-term Investments
 
     Cash equivalents include highly liquid investments with original maturities
of 90 days or less.
 
     The Company has classified its investments in certain debt securities as
"available-for-sale." Such investments are recorded at fair value, with material
unrealized gains and losses reported as a separate component of stockholders'
equity. Fair value is based on quoted market prices for these or similar
investments. Realized gains and losses are recorded in the accompanying
Consolidated Statements of Operations and were immaterial during the periods
presented. The cost of securities sold is based upon the specific identification
method (see Note B, "Available-for-sale Securities").
 
  Property and Equipment
 
     Property and equipment are recorded at cost. Depreciation and amortization
are calculated using the straight-line method over the shorter of the estimated
useful lives or lease terms, if applicable, of the assets, which range from one
to five years.
 
  Stock-Based Compensation
 
     Effective April 1, 1996, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which requires pro forma disclosure of net income and
earnings per share as if SFAS No. 123's fair value method had been applied. The
Company continues to apply the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," for the preparation
of its basic consolidated financial statements. (See Note F, "Stock Plans").
 
  Revenue Recognition
 
     Revenue pertaining to the license fees, including that from the M2
Technology Agreement (the "M2 Agreement"), is being recognized using the
percentage-of-completion method based on the costs incurred to fulfill the
Company's commitments to deliver technology as specified in the agreement.
Revenue from the sales of software titles published and distributed by the
Company, and revenue from the sales of development systems is recognized at the
time of shipment, provided the Company has no significant outstanding
obligations. Subject to certain limitations, the Company permits customers to
obtain exchanges of software
 
                                       34
<PAGE>   35
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
titles published and distributed by the Company, within certain specified
periods, and provides price protection to retailers on certain unsold
merchandise. Software publishing revenue is reflected net of an allowance for
returns and price protection. Revenue from software title development agreements
with third-party publishers and third-party engineering agreements is recognized
upon the attainment of contractual milestones (approximating the
percentage-of-completion method) and is included in "Development systems and
other revenues" in the accompanying Consolidated Statements of Operations. The
Company recognizes revenue from royalty and pressing fee agreements upon receipt
of documentation indicating that the compact disc ("CD") manufacturer shipped
CDs to the software title developers or publishers, or the licensed chipset
foundry shipped chipsets to the hardware manufacturers. Revenue from software
maintenance, including maintenance bundled with the development systems, is
recognized on a straight-line basis over the term of the agreement, generally
one year, and is included in other revenue.
 
     Deferred revenue consists primarily of payments received in advance of
revenue being earned under the M2 Agreement (see Note G, "Matsushita Electric
Industrial Co., Ltd. Agreements," for further information), engineering and
development agreements, certification fees, and deposits.
 
  Prepaid Royalties
 
     Prepaid royalties represent prepayments made to independent software
developers under development agreements and are included in "Prepaid and other
current assets" in the accompanying Consolidated Balance Sheets. Prepaid
royalties are expensed at the contractual royalty rate as cost of revenues based
on actual net product sales. Management evaluates the future realization of
prepaid royalties quarterly, and charges to expense any amounts that management
deems unlikely to be amortized at the contractual royalty rate through product
sales.
 
     Since technological feasibility for internally developed software occurs
nearly simultaneously with product release, internal development costs on
software title development for titles published by the Company are recognized as
incurred and shown in "Operating expenses" in the accompanying Consolidated
Statements of Operations.
 
  Other Assets
 
     Intangible assets, primarily goodwill from the acquisition of New World
Computing, are stated at cost less accumulated amortization and are included in
other assets. The Company periodically reviews the net realizable value of its
intangible costs and adjusts the carrying amount accordingly.
 
  Income Taxes
 
     The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. A valuation allowance is recorded to
reduce deferred tax assets to an amount whose realization is more likely than
not.
 
  Foreign Currency Translation
 
     The functional currencies of the Company's foreign subsidiaries are the
local currencies. The Company translates assets and liabilities to U.S. dollars
at the current exchange rate as of the applicable balance sheet date. Revenue
and expenses are translated at the average exchange rates prevailing during the
period. Adjustments resulting from the translation of the foreign subsidiaries'
financial statements are reported as a separate component of stockholders'
equity. Gains and losses from foreign currency transactions are a result of
 
                                       35
<PAGE>   36
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
the effect of exchange rate changes on transactions denominated in currencies
other than the functional currencies. Net gains and losses resulting from
foreign exchange transactions were immaterial during the periods presented.
 
  Net Income (Loss) Per Share
 
     Net income (loss) per share is computed based on the weighted average
number of common shares outstanding, and common equivalent shares from stock
options, when dilutive, using the treasury stock method. The computation for the
net income (loss) per share for the years ended March 31, 1997, 1996 and 1995,
includes common stock to be issued under the Stock Incentive Program, described
in Note I, "Incentive and Promotional Programs."
 
  Recent Accounting Pronouncements
 
     On April 1, 1996 the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of,"
which requires long-lived assets to be evaluated for impairment whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable. The adoption of SFAS No. 121 did not have a material effect on the
Company's consolidated results of operations.
 
     The Financial Accounting Standards Board recently issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 requires the presentation of basic earnings
per share (EPS) and, for companies with complex capital structures (or
potentially dilutive securities, such as convertible debt, options and
warrants), dilutive EPS. SFAS No. 128 is effective for annual and interim
periods ending after December 15, 1997. The Company will adopt the new standards
in the fiscal year ending March 31, 1998. The Company anticipates basic net
income (loss) per share to be slightly higher (lower) than net income (loss) per
share disclosed in the accompanying Consolidated Statements of Operations and
anticipates dilutive net income (loss) per share to approximate such net income
(loss) per share as has been historically disclosed.
 
B. AVAILABLE-FOR-SALE SECURITIES
 
     Available-for-sale securities classified as current assets as of March 31,
1997 and 1996 included the following:
 
<TABLE>
<CAPTION>
                                                                          MARCH 31,
                                                                 ---------------------------
                                                                    1997            1996
                                                                 -----------     -----------
                                                                  AGGREGATE       AGGREGATE
                                                                 FAIR VALUE      FAIR VALUE
                                                                 -----------     -----------
                                                                       (IN THOUSANDS)
        <S>                                                      <C>             <C>
        Short-term investments:
          U. S. Treasury and other government agency
             obligations.....................................      $15,710         $35,662
          Commercial debt securities.........................        3,512           5,024
                                                                   -------         -------
        Total short-term investments.........................      $19,222         $40,686
        Cash equivalents:
          Money market funds.................................        7,963           9,459
          Asset backed repurchase agreement..................        4,946              --
                                                                   -------         -------
        Total cash equivalents...............................       12,909           9,459
                                                                   -------         -------
        Total available-for-sale securities..................      $32,131         $50,145
                                                                   =======         =======
</TABLE>
 
                                       36
<PAGE>   37
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
     The aggregate fair value of the Company's investment in available-for-sale
securities as of March 31, 1997, by contractual maturity, consisted of the
following:
 
<TABLE>
<CAPTION>
                                                                           AGGREGATE
                                                                           FAIR VALUE
                                                                         --------------
                                                                         (IN THOUSANDS)
        <S>                                                              <C>
        Due in one year or less........................................     $ 32,611
        Due in one to three years......................................        1,006
                                                                             -------
                                                                            $ 33,617
                                                                             =======
</TABLE>
 
     The aggregate fair value approximates amortized cost.
 
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS, RETURNS AND PRICE PROTECTION
 
     The following summarizes the activity for the allowance for doubtful
accounts, returns and price protection for the years ended March 31, 1997, 1996
and 1995:
 
<TABLE>
<CAPTION>
                                                           1997        1996       1995
                                                          -------     -------     -----
                                                                 (IN THOUSANDS)
        <S>                                               <C>         <C>         <C>
        Balance at beginning of year....................  $ 2,329     $   249     $ 175
        Additions.......................................    4,873       4,540       129
        Deductions......................................   (4,094)     (2,460)      (55)
                                                           ------      ------     -----
        Balance at end of year..........................  $ 3,108     $ 2,329     $ 249
                                                           ======      ======     =====
</TABLE>
 
D. PROPERTY AND EQUIPMENT
 
     Property and equipment as of March 31, 1997 and 1996 consisted of:
 
<TABLE>
<CAPTION>
                                                                       MARCH 31,
                                                                 ---------------------
                                                                   1997         1996
                                                                 --------     --------
                                                                    (IN THOUSANDS)
        <S>                                                      <C>          <C>
        Computer and manufacturing equipment...................  $ 18,616     $ 15,345
                                                                   ------       ------
        Furniture, fixtures and leasehold improvements.........     3,828        3,425
        Computer software......................................     4,824        3,859
                                                                   ------       ------
        Property and equipment, at cost........................    27,268       22,629
        Less accumulated depreciation and amortization.........   (20,587)     (13,987)
                                                                   ------       ------
        Property and equipment, net............................  $  6,681     $  8,642
                                                                   ======       ======
</TABLE>
 
     As of March 31, 1997 and 1996, property and equipment includes
approximately $5.5 and $5.3 million of assets acquired under capital lease
obligations, respectively. Accumulated amortization related to these lease
obligations was approximately $5.2 million and $3.4 million as of March 31, 1997
and 1996, respectively.
 
     Depreciation and amortization expense associated with property and
equipment amounted to approximately $6.6 million, $5.6 million and $5.1 million
for the fiscal years ended March 31, 1997, 1996 and 1995, respectively.
 
                                       37
<PAGE>   38
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
E. ACCRUED EXPENSES
 
     Accrued expenses as of March 31, 1997 and 1996, consisted of the following:
 
<TABLE>
<CAPTION>
                                                                         MARCH 31,
                                                                     -----------------
                                                                      1997       1996
                                                                     ------     ------
                                                                      (IN THOUSANDS)
        <S>                                                          <C>        <C>
        Accrued compensation.......................................  $  909     $1,435
        Other......................................................   2,342      2,379
                                                                     -------    -------
                                                                     $3,251     $3,814
                                                                     =======    =======
</TABLE>
 
F. STOCK PLANS
 
  Employee Stock Purchase Plan
 
     The Company has an Employee Stock Purchase Plan whereby eligible employees
may authorize payroll deductions of up to 15% of their compensation to purchase
shares at 85% of the lower of the fair market value of the common stock on the
date of commencement of the two-year offering period, or on the last day of each
six-month purchase period. The Employee Stock Purchase Plan commenced in
September 1994. In fiscal years 1997 and 1996, 204,254 and 179,059 shares,
respectively, were issued by the Company to employees, at a price ranging from
$3.98 to $6.80, and $8.02 to $8.50 per share, respectively. The weighted-average
fair value of the rights issued to employees to purchase a share of stock under
the Stock Purchase Plan was $2.93 and $4.65 at March 31, 1997 and 1996,
respectively. As of March 31, 1997 and 1996, the Company had 550,555 and 754,809
shares, respectively, of common stock reserved for future issuance under the
Employee Stock Purchase Plan.
 
  Stock Option Plans
 
     The Company's 1993 Incentive Stock Plan (the "Plan") authorizes the
granting of incentive and non-qualified stock options and stock purchase rights
to employees. Incentive stock options must be granted with exercise prices at
least equal to the fair market value of the common stock on the date of grant,
as determined by the Company's Board of Directors. Non-qualified stock options
and stock purchase rights must be granted with exercise prices at least equal to
85% of the fair market value of the common stock on the grant date, as
determined by the Board of Directors. Stock options generally vest over a
sixty-month period. Unexercised options generally expire 10 years from date of
grant. A small number of options have been granted to executives and key
employees which vest over 3 years, subject to meeting certain performance goals,
and are included in the stock plan information presented below.
 
     As of March 31, 1997 and 1996, 13,211,136 and 9,618,275 shares,
respectively, of common stock have been authorized for issuance under the Plan.
 
                                       38
<PAGE>   39
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
     Transactions for the years ended March 31, 1997, 1996 and 1995, were as
follows:
 
<TABLE>
<CAPTION>
                                                                 OPTIONS OUTSTANDING
                                               OPTIONS       ----------------------------
                                              AVAILABLE                        AVERAGE
                                              FOR GRANT        SHARES        OPTION PRICE
                                             -----------     -----------     ------------
        <S>                                  <C>             <C>             <C>
        Outstanding as of March 31, 1994...      422,138       3,580,185        $11.75
        Authorized.........................    1,641,571
        Granted............................   (3,848,563)      3,848,563         11.72
        Terminated.........................    2,949,570      (2,949,570)        18.94
        Exercised..........................           --        (430,730)         1.42
                                             -----------     -----------
        Outstanding as of March 31, 1995...    1,164,716       4,048,448          7.57
                                             -----------
 
        Authorized.........................    3,848,705
 
        Granted............................   (2,627,704)      2,627,704         11.60
        Terminated.........................    1,057,208      (1,035,031)        10.22
        Exercised..........................           --        (312,592)         3.53
                                             -----------     -----------
        Outstanding as of March 31, 1996...    3,442,925       5,328,529          9.28
                                             -----------
 
        Authorized.........................    3,000,000
 
        Granted............................  (16,005,702)     16,005,702          6.79
        Terminated.........................   13,306,657     (13,306,657)         8.82
        Exercised..........................           --        (438,085)         1.64
                                             -----------     -----------
        Outstanding as of March 31, 1997...    3,743,880       7,589,489        $ 5.27
                                             ===========     ===========
</TABLE>
 
     The weighted-average fair values of options granted during 1997 and 1996,
were $2.41 and $6.13, respectively.
 
     As of March 31, 1997, 1996 and 1995, 1,618,167, 1,486,055 and 854,011
options, respectively, were exercisable under the Plan. The weighted-average
exercise prices for the shares exercisable at March 31, 1997, 1996 and 1995 were
$4.84, $6.54, and $4.00, respectively.
 
     The following table summarizes information about fixed stock options
outstanding at March 31, 1997:
 
<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING
                    ---------------------------------------       OPTIONS EXERCISABLE
                                   WEIGHTED-                    -----------------------
                                    AVERAGE       WEIGHTED-                   WEIGHTED-
                                   REMAINING       AVERAGE                     AVERAGE
                     NUMBER       CONTRACTUAL     EXERCISE       NUMBER       EXERCISE
 EXERCISE PRICE     OUTSTANDING      LIFE           PRICE       OUTSTANDING     PRICE
----------------    ---------     -----------     ---------     ---------     ---------
<S>                 <C>           <C>             <C>           <C>           <C>
 $0.05 to $0.40       221,241         5.23         $  0.12        190,323      $  0.11
     $2.00            104,956         5.83         $  2.00         87,230      $  2.00
 $5.00 to $6.25     7,111,436         9.59         $  5.37      1,291,612      $  5.51
$8.15 to $11.13        83,356         9.15         $  8.37         20,502      $  8.27
     $12.25            68,500         8.31         $ 12.25         28,500      $ 12.25
                    ---------                                   ---------
$0.05 to $12.25     7,589,489         9.40         $  5.27      1,618,167      $  4.84
                    =========                                   =========
</TABLE>
 
     In November 1993, December 1993, May 1994, December 1994, April 1996,
October 1996 and April 1997, the Board of Directors approved the repricing of
options granted at prices in excess of $34.00, $23.50, $9.875, $10.75, $8.25,
$5.50 and $3.25 per share, respectively, for all employees, including executive
officers.
 
                                       39
<PAGE>   40
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
  Pro Forma Net Income (Loss)
 
     Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company is required to disclose the pro forma effects on net income (loss) and
net income (loss) per share data as if the Company had elected to use the fair
value approach to account for all its employee stock-based compensation plans.
Had compensation cost for the Company's plans been determined consistent with
the fair value approach enumerated in SFAS No. 123, the Company's pro forma net
income and pro forma net income per share for the year ended March 31, 1997, and
the pro forma net loss and pro forma net loss per share for the year ended March
31, 1996, would have been as indicated below:
 
<TABLE>
<CAPTION>
                                                                   YEARS ENDED MARCH
                                                                          31,
                                                                  --------------------
                                                                   1997         1996
                                                                  -------     --------
        <S>                                                       <C>         <C>
        Net income (loss) as reported...........................  $13,271     $(34,668)
        Pro forma...............................................    7,230      (36,064)
        Earnings (loss) per share as reported...................  $  0.46     $  (1.36)
        Pro forma...............................................  $  0.26     $  (1.42)
</TABLE>
 
     The effects of applying SFAS No. 123 may not be representative of the
effects on reported operating results for future years as the pro forma
calculations are based on grants made in fiscal years 1996 and 1997 only. The
fair value of employee stock options and employee stock purchase plan rights are
estimated on the date of grant using the Black Scholes option-pricing model with
the following weighted-average assumptions used for fiscal years 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                        OPTION PLANS          ESPP
                                                        -------------     -------------
                                                        1997     1996     1997     1996
                                                        ----     ----     ----     ----
        <S>                                             <C>      <C>      <C>      <C>
        Weighted-average risk free rate...............  6.01%    5.93%    6.04%    5.59%
                                                                           2 years with
                                                                                6 month
        Expected life of options/rights (in years)....   3.5      3.5        increments
        Expected stock price volatility...............    68%      68%      68%      68%
        Dividend yield................................    --       --       --       --
        Forfeiture rate...............................    60%      60%      60%      60%
</TABLE>
 
G. MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. AGREEMENTS
 
     On December 7, 1995 the Company and Matsushita entered into a definitive
license agreement pursuant to which the Company granted Matsushita a perpetual,
exclusive, worldwide license, with the right to grant sublicenses, with respect
to the M2 Technology, for use in both hardware and software for games and all
other applications. The license was granted in exchange for an upfront license
payment of $100 million, and for certain royalties which shall be paid to the
Company for certain software products manufactured after January 1, 1998, which
are compatible with the M2 Technology. Under the terms of the M2 Agreement,
Matsushita granted the Company a non-exclusive license to use the M2 Technology
for the development, manufacture and distribution of (i) hardware products
designed for use in the computer field, (ii) software and peripherals compatible
with hardware products developed by Matsushita or its sublicensees that
incorporate the M2 Technology, and (iii) development systems to be used by third
parties outside of Japan that are authorized by Matsushita to develop and
publish software products compatible with hardware products that incorporate the
M2 Technology. Revenue pertaining to the license fees under the M2 Agreement is
being recognized by the Company using the percentage-of-completion method based
on the costs incurred to fulfill its commitments to deliver technology as
specified in the agreement. The Company estimates that it will recognize
substantially all of the revenue in connection with the M2 Agreement through
 
                                       40
<PAGE>   41
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
June 30, 1997. For the years ending March 31, 1997 and 1996, the Company
incurred costs of approximately $6.3 million and $4.3 million, respectively, in
connection with fulfilling its commitments under the M2 Agreement. This amount
is included in research and development expenses.
 
     On April 24, 1996, the Company agreed to make certain modifications to the
M2 system design, pursuant to the terms of an addendum (the "Addendum") to the
M2 Agreement. As consideration for providing engineering and certain support
services, the Company will receive an aggregate fee of approximately $4.5
million to be received in installments in fiscal 1997 and 1998. The payments by
Matsushita are contingent upon the Company timely meeting certain milestones, as
stipulated in the Addendum.
 
     In conjunction with the above transaction, Matsushita and the Company
entered into a separate stock purchase and license agreement whereby Matsushita
acquired all of the outstanding capital stock of 3DO Japan Co., Ltd.
 
H. CIRRUS LOGIC, INC.
 
     On February 29, 1996, the Company and Cirrus Logic, Inc. ("Cirrus Logic")
entered into a Joint Development and License Agreement (the "Cirrus Agreement")
regarding the Company's development and license to Cirrus Logic of certain
modifications to the "3-D Engine," which is a component of the Company's
proprietary semiconductor technology. As consideration under the Cirrus
Agreement, the Company is to receive a nonrefundable amount not to exceed $7.8
million, of which $2.5 million was received as of March 31, 1997. This payment
has been recognized as revenue using the percentage of completion method.
 
     On October 3, 1996, Cirrus filed a complaint to rescind the Cirrus
Agreement on the grounds of frustration of purpose, mistake, failure of
consideration, concealment, and non-disclosure, and to obtain a repayment of
$2.5 million in nonrefundable payments made to the Company. The Company has
responded to Cirrus' complaint and filed a cross-complaint regarding Cirrus'
breach of the Cirrus Agreement and seeking to enforce its rights under said
agreement, including procurement of Cirrus' payment of $4.5 million in
nonrefundable license fees, prepaid royalties and termination fees, plus
damages, interest, and attorneys' fees and costs. Although the Company believes
Cirrus has specific obligations under the contract to pay an additional $4.5
million in nonrefundable license fees, prepaid royalties, and termination fees,
there can be no assurance that the Company will prevail in the litigation, will
not be required to refund the $2.5 million payment received from Cirrus, or will
receive the additional $4.5 million that it believes Cirrus owes under the
Cirrus Agreement.
 
I. INCENTIVE AND PROMOTIONAL PROGRAMS
 
  Incentive Programs
 
     The Company provided a manufacturing incentive of $5.00, $4.00 and $3.00
for each 3DO Multiplayer system distributed in calendar years 1993, 1994 and
1995 (or 1994, 1995 and 1996 for units distributed within the Japanese market),
respectively. Amounts under the Manufacturing Incentive Program and certain
other incentive programs were accrued as the obligation arose and as of March
31, 1997, the Company had accrued approximately $2.9 million. In May 1996, one
of the Company's hardware licensees elected to receive 47,090 shares of the
Company's stock in lieu of a cash payment of $0.4 million. In addition, a total
cash payment of $1.2 million was paid on April 1, 1996. The March 31, 1997
balance is due to be paid in fiscal 1998.
 
     The Company entered into an agreement with its hardware system licensees to
provide two shares of 3DO Common Stock for each 3DO hardware system they shipped
from February 1, 1994 through September 30, 1994 at or below certain suggested
retail prices (the Stock Incentive Program). The Stock Incentive Program was
extended through December 31, 1994 for one of the licensees. The market value of
the stock to be issued under the Stock Incentive Program was recognized as an
expense at the time the Company
 
                                       41
<PAGE>   42
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
incurred the obligation to issue the stock, and is separately reflected in the
Consolidated Statements of Operations. As of March 31, 1997, the Company had
issued 466,826 shares under this program and anticipates issuing the remaining
23,264 shares during the next fiscal year.
 
  Promotional Program
 
     In October 1994, the Company established a Market Development Fund ("MDF")
program under which a pressing fee was charged to authorized CD pressing
facilities for the manufacture of compact discs compatible with the 3DO
Multiplayer format. Under the MDF program, a pressing fee was charged for each
copy of any such software title that was manufactured outside of Japan. In the
quarter ended December 31, 1994, all funds collected under this program were
used for advertising and promoting the 3DO Multiplayer format and related
product family. Beginning January 1, 1995, a portion of the MDF funds was used
by the Company for advertising and promotions based on hardware systems shipped
in certain markets, to encourage Licensees' production and the reduction of the
pricing of such systems. All such pressing fees are recognized as revenue, and
the amount due to hardware systems licensees is accrued and recorded as an
offset to revenue, as the applicable CDs are pressed. The related advertising
and promotions expenditures under the program are recorded as incurred and are
separately reflected as an operating expense in the accompanying Consolidated
Statements of Operations.
 
J. NET INTEREST AND OTHER INCOME
 
     Net interest and other income for the fiscal years ended March 31, 1997,
1996 and 1995, consisted of the following:
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED MARCH 31,
                                                          -----------------------------
                                                           1997        1996       1995
                                                          -------     ------     ------
                                                                 (IN THOUSANDS)
        <S>                                               <C>         <C>        <C>
        Interest income.................................  $ 2,720     $1,422     $1,123
        Interest expense................................     (628)      (757)      (442)
        Other income (expense), net.....................       23         19       (244)
                                                          -------     ------     ------
                                                          $ 2,115     $  684     $  437
                                                          =======     ======     ======
</TABLE>
 
K. INCOME TAXES
 
     The provision for income taxes consisted of the following:
 
<TABLE>
<CAPTION>
                                                               YEARS ENDED MARCH 31,
                                                            ---------------------------
                                                             1997        1996      1995
                                                            -------     ------     ----
                                                                  (IN THOUSANDS)
        <S>                                                 <C>         <C>        <C>
        Current:
          Federal.........................................  $    75     $  502     $ --
          State and local.................................        1          1        1
          Foreign.........................................    3,999      6,373      852
                                                             ------      -----     ----
        Total current.....................................    4,075      6,876      853
                                                             ------      -----     ----
        Total deferred....................................       --         --      --
                                                             ------      -----     ----
        Total income taxes................................  $ 4,075     $6,876     $853
                                                             ======      =====     ====
</TABLE>
 
                                       42
<PAGE>   43
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
     The differences between the statutory income tax rate and the Company's
effective tax rate, expressed as a percentage of income before provision for
income taxes, for the years ended March 31, 1997, 1996 and 1995 were as follows:
 
<TABLE>
<CAPTION>
                                                                      1997      1996      1995
                                                                      -----     -----     -----
<S>                                                                   <C>       <C>       <C>
Statutory federal tax rate..........................................   34.0%    (34.0%)   (34.0%)
Valuation allowance.................................................  (33.6)     32.2      34.0
Foreign tax withholding.............................................   23.1     (22.9)     (1.9)
                                                                      -----     -----     -----
                                                                       23.5%    (24.7%)    (1.9%)
</TABLE>
 
     The tax effect of temporary differences that give rise to significant
portions of deferred tax assets as of March 31, 1997 and 1996, are presented as
follows:
 
<TABLE>
<CAPTION>
                                                                       MARCH 31,
                                                                 ---------------------
                                                                   1997         1996
                                                                 --------     --------
                                                                    (IN THOUSANDS)
        <S>                                                      <C>          <C>
        Deferred tax asset:
          Depreciation and amortization........................  $  2,452     $  2,232
          Accrued expenses and reserves........................     2,880        1,058
          Deferred revenue.....................................     4,813       18,848
          Deferred research and development costs..............     5,260        5,089
          Net operating loss carryforwards.....................    30,581       26,194
          Tax credit carryforwards.............................    21,340       12,815
                                                                 --------     --------
        Total gross deferred tax assets........................    67,326       66,236
        Less valuation allowance...............................   (67,326)     (66,236)
                                                                 --------     --------
        Net deferred tax assets................................  $     --     $     --
                                                                 ========     ========
</TABLE>
 
     The valuation allowance increased $1.1 million in the year ended March 31,
1997. Approximately $0.6 million of the valuation allowance is related to
benefits associated with employee stock options which will be allocated to
equity when realized.
 
     As of March 31, 1997, the Company had cumulative federal net operating loss
carryforwards of approximately $90.3 million for federal income tax purposes,
which if not offset against future taxable income, will expire in fiscal years
2008 through 2011. There is no California net operating loss, primarily due to
capitalization of research and development costs for California purposes.
 
     As of March 31, 1997, the Company had unused research and development tax
credits of approximately $4.9 million and $4.6 million available to reduce
future federal and California income taxes, respectively, expiring through
fiscal year 2012. The Company also had foreign tax credits of approximately
$11.0 million available to reduce future federal income taxes, expiring through
fiscal year 2002. There are also minimum tax credits of approximately $0.5
million available to reduce future federal income taxes, which will carryforward
indefinitely.
 
L. LEASE COMMITMENTS
 
     The Company leases its facilities under several operating lease agreements.
The Company also leases certain office equipment under non-cancelable operating
leases. Lease payments for the periods ended March 31, 1997, 1996 and 1995 were
$2.0 million, $1.7 million and $1.9 million, respectively.
 
                                       43
<PAGE>   44
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
     The Company has entered into various capital lease agreements for computer
equipment and furniture. The typical lease period is 24 to 36 months. Lease
payments for the fiscal years ended March 31, 1997, 1996 and 1995 were $1.9
million, $2.3 million, and $1.3 million, respectively.
 
     Future minimum lease payments are as follows:
 
<TABLE>
<CAPTION>
                                                                   CAPITAL     OPERATING
                                MARCH 31,                          LEASES       LEASES
        ---------------------------------------------------------  -------     ---------
                                                                      (IN THOUSANDS)
        <S>                                                        <C>         <C>
        1998.....................................................  $ 1,179      $ 1,729
        1999.....................................................      395          784
        2000.....................................................       --          237
        2001.....................................................       --          179
                                                                    ------       ------
        Total minimum lease payments.............................    1,574      $ 2,929
                                                                                 ======
        Less amount representing interest........................      156
                                                                    ------
        Present value of minimum lease payments..................    1,418
        Less current portion.....................................      807
                                                                    ------
        Total long-term obligations..............................  $   611
                                                                    ======
</TABLE>
 
M. RELATED PARTY TRANSACTIONS
 
     During the years ended March 31, 1997, 1996 and 1995 the Company recognized
$78.2 million, $26.2 million and $12.1 million of revenue, respectively, from
certain stockholders, primarily Matsushita. At March 31, 1997 and 1996, $0.8
million and $1.7 million, respectively, were due from these stockholders.
 
     As of March 31, 1997 and 1996, the Company had deferred revenue of $12.0
million and $46.1 million, respectively, from certain stockholders.
 
     During the years ended March 31, 1997, 1996 and 1995 the Company acquired
$0.5 million, $1.1 million and $0.6 million, respectively, of inventory,
prototype materials and engineering services from certain stockholders. At March
31, 1996, $0.5 million was due to these stockholders; no outstanding balance was
due to these stockholders as of March 31, 1997. Additionally, at March 31, 1997
and 1996, $2.9 million and $5.1 million, respectively, were due to certain
stockholders under incentive programs, described in Note I, "Incentive and
Promotional Programs."
 
N. CONCENTRATION OF CREDIT RISK
 
     Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash, cash equivalents, short-term
investments, and accounts receivable. The Company's investment portfolio
consists of diversified investment-grade securities. The Company's policy limits
the amount of credit exposure to investments in any one issue, and the Company
believes no significant concentration of credit risks exists with respect to
these investments.
 
     Credit risk in receivables is limited to distributors, software developers,
software licensees and affiliated labels. The Company performs ongoing credit
evaluations of its customers' financial condition and requires prepayments when
deemed necessary.
 
                                       44
<PAGE>   45
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
O. ACQUISITIONS
 
  New World Computing, Inc.
 
     In June 1996, the Company purchased certain assets and assumed certain
liabilities of New World Computing, Inc. ("NWC"), a PC platform game developer
located in Agoura Hills, California. Subsequent to the asset purchase, the
Company created a production unit using the New World Computing brand name. As
consideration for the purchase, the Company issued approximately 1 million
shares of its common stock to the parent of NWC, NTN Communications, Inc.
("NTN"). In addition, under the terms of the agreement, the Company was
obligated to make a cash payment to NTN because the value of the Company's stock
issued in the transaction fell below an amount equal to approximately $10 per
share during a period following the closing date (the "Purchase Price
Guarantee"); as of March 31, 1997 the Company paid approximately $5.0 million to
NTN. This payment represents the total amount due to NTN under the terms of the
asset purchase agreement and, as such, the Company has no further obligations to
NTN under the Purchase Price Guarantee. The Company recorded the purchase in
June 1996 using the purchase method of accounting. A one-time charge was
recorded in the first quarter of fiscal year 1997 for $7.7 million representing
the amount of the purchase price assigned to in-process research and
development. At the time, the entire purchase was booked at the guaranteed
purchase price. As a result, the one time payment of approximately $5.0 million
has no impact on the Company's income statement for fiscal year ended March 31,
1997. Also included as part of the purchase price were intangibles valued at
$3.1 million, to be amortized on a straight line basis over a period of one to
five years. As of March 31, 1997, intangible assets, net of amortization, were
$2.2 million.
 
     The results of operations of NWC have been included in the Company's
results of operations since the date of acquisition. The following unaudited pro
forma information presents the results of operations of the Company and New
World Computing for the years ended March 31, 1997, and 1996, with pro forma
adjustments as if the acquisition had been consummated as of the beginning of
the periods presented.
 
<TABLE>
<CAPTION>
                                                                    FOR YEARS ENDED
                                                                       MARCH 31,
                                                                  --------------------
                                                                   1997         1996
                                                                  -------     --------
        <S>                                                       <C>         <C>
        Pro forma financial information:
          Revenue..............................................   $93,191     $ 43,836
          Net income (loss)....................................   $11,678     $(35,208)
          Net Income (loss) per share..........................   $  0.40     $  (1.33)
</TABLE>
 
  Archetype Interactive Corporation
 
     In May 1996, the Company acquired all the outstanding stock of Archetype
Interactive Corporation, a software developer of a multi user role playing game
designed to be played over the internet, from its shareholders in a tax-free
reorganization which has been accounted for using the "pooling-of-interests"
method of accounting. The Company issued 592,000 shares of its common stock in
connection with this transaction.
 
     The results of operations of Archetype Interactive Corporation prior to the
acquisition date are not considered material to the consolidated results of
operations of the Company and, accordingly, pro forma financial statement
information has not been presented.
 
  Cyclone Studios
 
     In December 1995, the Company acquired all the assets and assumed certain
liabilities of Cyclone Studios, a software developer. Consideration for the
purchase consisted of cash, stock, other consideration, and potential future
consideration based upon the financial performance of the resulting new
division. A portion of
 
                                       45
<PAGE>   46
 
                        THE 3DO COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
 
                         MARCH 31, 1997, 1996, AND 1995
 
the purchase price was expensed as acquired in-process research and development.
This transaction has been accounted for using the purchase method of accounting.
In addition, the Board of Directors granted options to purchase 200,000 shares
of the Company's common stock to former employees and officers of Cyclone
Studios. These options were granted under the 1993 Incentive Stock Plan and
become vested upon the earlier of (a) the achievement of certain financial
performance milestones or (b) December 31, 2005. These options have an exercise
price of $10.125 per share (see Note F, "Stock Plans," for subsequent repricing
information), equal to the fair market value of the Company's common stock on
the date of grant.
 
     The results of operations of Cyclone Studios prior to the acquisition date
are not considered material to the consolidated results of operations of the
Company and, accordingly, pro forma financial statement information has not been
disclosed.
 
P. EXPORT SALES
 
     The Company had export sales, primarily to Japan and the United Kingdom, of
approximately $0.6 million, $7.0 million, and $17.1 million for the fiscal years
ended March 31, 1997, 1996, and 1995, respectively.
 
Q. SUBSEQUENT EVENTS
 
     On June 23, 1997, the Company sold most of the assets of the Company's
hardware systems group, including intellectual properties and approximately $1.5
million in equipment, to Samsung Electronics Company, Ltd. ("Samsung") for $20.0
million. As part of the sale agreement, CagEnt Technologies, Inc. ("CagEnt"), a
subsidiary of Samsung, agreed to assist the Company, as a subcontractor, with
respect to the Company's efforts to complete the remaining deliverables under
the M2 Agreement with Matsushita. CagEnt will also acquire the Company's video
encoder business as part of the transaction.
 
     Neither the Samsung Agreement, nor any addendum to the M2 Agreement,
relieves the Company of its obligation to complete the deliverables called for
in the M2 Agreement. There can be no assurance that the Company, with CagEnt's
subcontracted assistance, will successfully complete the deliverables pursuant
to the M2 Agreement. In the event that CagEnt's subcontracted engineering
services are unsatisfactory or are not timely completed, the Company will incur
substantial expenses to complete its obligations under the M2 Agreement. This
would have a material adverse impact on the Company, including, but not limited
to, diverting funds from the Company's software publishing business.
 
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
       DISCLOSURE
 
     Not Applicable.
 
                                       46
<PAGE>   47
 
                                    PART III
 
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
 
     The executive officers and directors of the Company and their ages as of
March 31, 1997, are as follows:
 
<TABLE>
<CAPTION>
       NAME              AGE                             POSITION
-------------------      ---       -----------------------------------------------------
<S>                      <C>       <C>
Trip Hawkins             43        Chairman of the Board and Chief Executive Officer
Hugh C. Martin           43        President and Director
James Alan Cook          47        Executive Vice President, General Counsel and
                                   Secretary
Robert B. Faber          36        Managing Director, 3DO Europe Ltd.
Tobin E. Farrand         36        Senior Vice President, Engineering
Robert A. Lindsey        45        Senior Vice President, Marketing and General Manager,
                                   Studio 3DO
John A. Orcutt           44        Senior Vice President, Business Operations
Vinod Khosla(1)          42        Director
Charles S. Paul(1)       47        Director
</TABLE>
 
---------------
 
(1) Member of Audit Committee and Compensation Committee.
 
     Mr. Hawkins, the founder of the Company, has been Chairman of the Board and
Chief Executive Officer of the Company since September 1991. He also served as
President of the Company from September 1991 until October 1995, and he served
as Secretary from September 1991 through February 1993. From August 1982 to
December 1990, Mr. Hawkins served as president of Electronic Arts. He served as
the chief executive officer of Electronic Arts from August 1982 until May 1991,
and was chairman of its board of directors from August 1982 until July 1994.
Prior to founding Electronic Arts, Mr. Hawkins was a director of marketing at
Apple. Mr. Hawkins' term as a director expires at the 1998 Annual Meeting of
Stockholders.
 
     Mr. Martin became President of the Company in October 1995 and was
appointed to the Board of Directors in April 1996. He previously served as the
Company's Chief Operating Officer from January 1993 until October 1995 and had
been the Company's Senior Vice President, Engineering and Operations from May
1992 until January 1993. From March 1988 to April 1992, he served as a director
and then a senior director of Apple. Previously, Mr. Martin co-founded and
served as the vice president and chief development officer of Ridge Computers,
where he co-designed one of the industry's first commercial RISC processors. Mr.
Martin's term as a director expires at the 1998 Annual Meeting of Stockholders.
 
     Mr. Cook became Executive Vice President, General Counsel and Secretary of
the Company in April 1996. From July 1994 until April 1996 he was Senior Vice
President, General Counsel and Secretary, and had been the Company's Vice
President, General Counsel and Secretary since January 1993. From January 1990
to January 1993, he was a partner in the law firm of Cook and Lefevre. From June
1985 to December 1989, he was a sole practitioner operating as the Law Offices
of James Alan Cook.
 
     Mr. Faber became Managing Director of 3DO Europe Ltd. in August 1994 and
had been Senior Vice President, Sales and Marketing since January 1993. He
served as Vice President, Sales and Marketing from June 1992 to January 1993.
From October 1991 to June 1992, he served as vice president of strategic
planning and new business development for the Simon & Schuster Technology Group,
a publishing division of Paramount Communications, Inc. From January 1991 to
September 1991, he was a vice president of marketing of Worlds of Wonder. From
November 1985 to January 1991, Mr. Faber was employed by NEC Technologies, a
subsidiary of NEC Corporation of Japan, most recently as an assistant vice
president of software marketing.
 
     Mr. Farrand became the Company's Senior Vice President, Engineering in
March 1996. He previously served as Senior Vice President Hardware Engineering
and Operations from February 1994; became Vice President, Hardware Engineering
and Operations in November 1993; and served as Vice President, Hardware
Engineering from July 1992 until November 1993. From June 1982 to June 1992, he
was employed by Apple, most recently as manager of the RISC Products Group.
 
                                       47
<PAGE>   48
 
     Mr. Lindsey became Senior Vice President, Marketing and General Manager,
Studio 3DO in December 1994. From April 1993 to December 1994 he was group
director of marketing at Sega of America. Prior to Sega, he served as vice
president of sales and marketing at Strategic Simulations, Inc. from September
1989 to March 1993. From 1985 to 1988 he was director of software development,
and from 1988 to 1989 he was director of business development at Epyx. Mr.
Lindsey was appointed to the board of directors of the Interactive Digital
Software Association in March 1996.
 
     Mr. Orcutt became Senior Vice President, Business Operations in December
1994. Previously, he was president and CEO at Nomadic Systems (subsequently
named SmartDelta, Inc.) from August 1993 to December 1994 and vice president,
sales and marketing from November 1991 to August 1993. SmartDelta, Inc. filed
for Chapter 7 bankruptcy on February 1, 1996, in U.S. bankruptcy Court, Northern
District of California. From January 1988 to November 1991, Mr. Orcutt served as
vice president and general manager of the Distributed Systems Division at
Unisys/Convergent Technologies and president of its Open Systems subsidiary.
 
     Mr. Khosla has been a director of the Company since September 1991. He has
been a general partner of Kleiner Perkins Caufield & Byers since November 1987.
Mr. Khosla is also a director of PictureTel Corporation, a manufacturer of video
teleconferencing equipment, Spectrum HoloByte, Inc., a publisher of interactive
games, and Excite, Inc., an Internet search engine provider. Mr. Khosla's term
as a director expires at the 1997 Annual Meeting of Stockholders.
 
     Mr. Paul has been a director of the Company since April 1992. Since March
1996, he has been chairman and chief executive officer of Sega GameWorks LLC, a
joint venture between Sega Enterprises, MCA Inc, and DreamWorks LLC. From 1989
to 1996, he served as a director and executive vice president of MCA Inc., an
entertainment company. From 1985 to 1989, he served as a vice president of MCA
Inc. Mr. Paul is also a director of National Golf Properties, a real estate
investment trust, and Interplay Productions, a software development company. Mr.
Khosla's term as a director expires at the 1999 Annual Meeting of Stockholders.
 
     Mr. Hawkins and Mr. Orcutt each had one transaction during the fiscal year
that was not reported in a timely manner to the Securities and Exchange
Commission. All other executive officers, directors and holders of more than 10%
of the Company's Common Stock ("Section 16 Persons") reported all transactions
in the Company's Common Stock in filings with the Securities Exchange Commission
("SEC") as required under Section 16(a) of the Securities Exchange Act of 1934 .
 
     Officers are appointed by the Board of Directors and serve at the
discretion of the Board. There are no family relationships among the directors
and executive officers of the Company.
 
                                       48
<PAGE>   49
 
ITEM 11. EXECUTIVE COMPENSATION
 
COMPENSATION TABLES
 
     Summary Compensation Table. The following table sets forth the compensation
paid by the Company to the Chief Executive Officer and the four other most
highly compensated executive officers of the Company other than the Chief
Executive Officer (collectively the "Named Officers") during the last fiscal
year.
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                         LONG-TERM
                                              ANNUAL COMPENSATION       COMPENSATION
            NAME AND              FISCAL     ----------------------     OPTIONS/SAR         ALL OTHER
       PRINCIPAL POSITION          YEAR       SALARY         BONUS           #             COMPENSATION(1)
--------------------------------  ------     --------       -------     ------------       ------------
<S>                               <C>        <C>            <C>         <C>                <C>
Trip Hawkins                      1997       $295,000       $35,128       2,620,000(3)       $    720
  Chairman and Chief              1996       $290,042            --          50,000          $    720
  Executive Officer(2)            1995       $270,923            --         510,000(4)       $    750
Hugh C. Martin                    1997       $288,750       $27,611       1,096,000(5)       $421,033(6)
  President and Director          1996       $270,800            --          80,000          $197,206(7)
                                  1995       $230,308            --         101,000(8)       $    720
James Alan Cook                   1997       $243,552       $20,408         738,000(9)       $    701
  Executive Vice President,       1996       $226,237            --          68,000          $    630
  General Counsel, and            1995       $200,577            --          38,000(10)      $    642
  Secretary
Robert B. Faber                   1997       $239,792(11)   $16,709         152,000(12)      $ 54,284(13)
  Managing Director,              1996       $286,070(11)        --          18,000          $247,530(14)
  3DO Europe Ltd.                 1995       $267,527(11)        --          28,000(15)      $    510
Tobin E. Farrand                  1997       $236,448       $14,425         368,000(16)      $139,672(17)
  Senior Vice President,          1996       $185,866            --          68,000          $    530
  Engineering                     1995       $167,077            --          44,000(18)      $    504
</TABLE>
 
---------------
 
 (1) The amounts represent premiums paid by the Company for group term life
     insurance.
 
 (2) See "Employment Contract" below.
 
 (3) Includes 500,000 options (see footnote 4) that were originally granted in
     fiscal year 1994, 10,000 options that were originally granted in fiscal
     year 1995 at $11.00 per share, and 50,000 options that were originally
     granted in fiscal year 1996 at $11.875 per share that in fiscal year 1997
     were twice exchanged for new options, first at $8.25 per share and later at
     $5.50 per share, after Mr. Hawkins agreed to certain adjustments to the
     option vesting schedules.
 
 (4) Includes 500,000 options originally granted in fiscal year 1994 at $25.75
     per share that in fiscal year 1995 were exchanged for new options at $9.875
     per share, after Mr. Hawkins agreed to certain adjustments to the option
     vesting schedule.
 
 (5) Includes 75,000 options granted in fiscal year 1995 at $9.875 per share
     (see footnote 8), 8,000 options granted in fiscal year 1995 at $10.75 per
     share (see footnote 8), 10,000 options granted in fiscal year 1995 at
     $11.00 per share, 20,000 options granted in fiscal year 1996 at $11.875 per
     share, and 60,000 options granted in fiscal year 1996 at $11.50 per share
     that in fiscal year 1997 were twice exchanged for new options, first at
     $8.25 per share and later at $5.50 per share, after Mr. Martin agreed to
     certain adjustments to the option vesting schedules. Also includes 250,000
     options granted in fiscal year 1997 at $8.25 per share that were exchanged
     for new options at $5.50 per share, after Mr. Martin agreed to certain
     adjustments to the option vesting schedule.
 
 (6) Includes a gain of $420,313 realized upon the sale of shares acquired
     through the exercise of incentive stock options.
 
 (7) Includes a gain of $196,500 realized upon the sale of shares acquired
     through the exercise of incentive stock options.
 
 (8) Includes 75,000 options originally granted in fiscal year 1994 at $25.75
     per share that in 1995 were exchanged for new options at $9.875 per share,
     after Mr. Martin agreed to certain adjustments to the
 
                                       49
<PAGE>   50
 
     option vesting schedule; and includes 8,000 options originally granted in
     fiscal year 1995 at $14.50 per share that in fiscal year 1995 were
     exchanged for new options at $10.75 per share, after Mr. Martin agreed to
     certain adjustments to the option vesting schedule.
 
 (9) Includes 4,000 options granted in fiscal 1995 at $9.875 per share (see
     footnote 10), 12,000 options granted in fiscal year 1995 at $10.75 per
     share (see footnote 10), 10,000 options granted in fiscal year 1995 at
     $11.00 per share, 28,000 options granted in fiscal year 1996 at $11.875 per
     share, and 40,000 options granted in fiscal year 1996 at $11.50 per share
     that in fiscal year 1997 were twice exchanged for new options, first at
     $8.25 per share and later at $5.50 per share, after Mr. Cook agreed to
     certain adjustments to the option vesting schedules. Also includes 150,000
     options granted in fiscal year 1997 at $8.25 per share that were exchanged
     for new options at $5.50 per share, after Mr. Cook agreed to certain
     adjustments to the option vesting schedule.
 
(10) Includes 4,000 options originally granted in fiscal year 1994 at $25.75 per
     share that in fiscal year 1995 were exchanged for new options at $9.875 per
     share, after Mr. Cook agreed to certain adjustments to the option vesting
     schedule; and includes 12,000 options originally granted in fiscal year
     1995 at $14.50 per share that in fiscal year 1995 were exchanged for new
     options at $10.75 per share, after Mr. Cook agreed to certain adjustments
     to the option vesting schedule.
 
(11) This amount includes compensation and expenses related to Mr. Faber's
     overseas assignment.
 
(12) Includes 4,000 options granted in fiscal year 1995 at $9.875 per share (see
     footnote 15), 10,000 options granted in fiscal year 1995 at $10.75 per
     share (see footnote 15), 4,000 options granted in fiscal year 1995 at
     $11.00 per share, 8,000 options granted in fiscal year 1996 at $11.875 per
     share, and 10,000 options granted in fiscal year 1996 at $11.875 per share
     that in fiscal year 1997 were twice exchanged for new options, first at
     $8.25 per share and later at $5.50 per share, after Mr. Faber agreed to
     certain adjustments to the option vesting schedules. Also includes 40,000
     options granted in fiscal year 1997 at $8.25 per share that were exchanged
     for new options at $5.50 per share, after Mr. Faber agreed to certain
     adjustments to the option vesting schedule.
 
(13) Includes a gain of $53,715 realized upon the sale of shares acquired
     through the exercise of incentive stock options and shares purchased
     through the Employee Stock Purchase Plan.
 
(14) Includes a gain of $246,992 realized upon the sale of shares acquired
     through the exercise of incentive stock options and shares purchased
     through the Employee Stock Purchase Plan.
 
(15) Includes 4,000 options originally granted in fiscal year 1994 at $25.75 per
     share that in fiscal year 1995 were exchanged for new options at $9.875 per
     share, after Mr. Faber agreed to certain adjustments to the option vesting
     schedule; and includes 10,000 options originally granted in fiscal year
     1995 at $14.50 per share that in fiscal year 1995 were exchanged for new
     options at $10.75 per share, after Mr. Faber agreed to certain adjustments
     to the option vesting schedule.
 
(16) Includes 20,000 options granted in fiscal year 1995 at $9.875 per share
     (see footnote 18), 8,000 options granted in fiscal year 1995 at $10.75 per
     share (see footnote 18), 4,000 options granted in fiscal year 1995 at
     $11.00 per share, 28,000 options granted in fiscal year 1996 at $11.875 per
     share, and 40,000 options granted in fiscal year 1996 at $11.50 per share
     that in fiscal year 1997 were twice exchanged for new options, first at
     $8.25 per share and later at $5.50 per share, after Mr. Farrand agreed to
     certain adjustments to the option vesting schedules. Also includes 80,000
     options granted in fiscal year 1997 at $8.25 per share that were exchanged
     for new options at $5.50 per share, after Mr. Farrand agreed to certain
     adjustments to the option vesting schedule.
 
(17) Includes a gain of $138,991 realized upon the sale of shares acquired
     through the exercise of incentive stock options.
 
(18) Includes 20,000 options originally granted in fiscal year 1994 at $25.75
     per share that in fiscal year 1995 were exchanged for new options at $9.875
     per share, after Mr. Farrand agreed to certain adjustments to the option
     vesting schedule; and includes 8,000 options originally granted in fiscal
     year 1995 at $14.50 per share that in fiscal year 1995 were exchanged for
     new options at $10.75 per share, after Mr. Farrand agreed to certain
     adjustments to the option vesting schedule.
 
                                       50
<PAGE>   51
 
     Employment Contract. On September 30, 1991, Mr. Hawkins entered into a
five-year employment agreement with the Company that currently provides for an
annual base salary of $295,000, a bonus payable in the discretion of the Board
of Directors, and salary and bonus reviews at least annually. The agreement, as
amended to date, provides that Mr. Hawkins' optioned shares shall continue to
vest in accordance with their applicable vesting schedules, provided that Mr.
Hawkins devotes at least fifty percent (50%) of his business efforts and time to
the Company, and provided further that he is not employed by any third party
during that time period. In the event Mr. Hawkins' employment is terminated
without cause after a change in control of the Company, Mr. Hawkins will become
fully vested in his shares.
 
     Option Grants in Last Fiscal Year. The following table sets forth certain
information concerning grants of stock options to each of the Named Officers
during the fiscal year ended March 31, 1997. The table also sets forth
hypothetical gains or "opinion spreads" for the options at the end of their
respective ten-year terms. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. Actual gains, if any, on option exercises are
dependent on the future performance of the Company's Common Stock and overall
market conditions.
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 
<TABLE>
<CAPTION>
                                                                                             POTENTIAL REALIZABLE
                                                                                            VALUE AT ASSUMED ANNUAL
                                                                                              RATE OF STOCK PRICE
                                             % OF TOTAL                                     APPRECIATION FOR OPTION
                                          OPTIONS GRANTED   EXERCISE PRICE                         TERM (4)
                        OPTIONS GRANTED   TO EMPLOYEES IN     PER SHARE      EXPIRATION     -----------------------
         NAME               (1)(2)          FISCAL YEAR          (2)            DATE            5%          10%
----------------------- ---------------   ----------------  --------------   ----------     ----------   ----------
<S>                     <C>               <C>               <C>              <C>            <C>          <C>
Trip Hawkins
  New Options..........     500,000            3.14%            $ 8.25        04/09/06      $2,594,190   $6,574,188
                            500,000            3.14%            $ 5.00        02/04/07      $1,572,237   $3,984,356
  Repriced
    Options(3).........     500,000            3.14%            $ 8.25        04/09/06      $2,594,190   $6,574,188
                             10,000            0.06%            $ 8.25        04/09/06      $   51,884   $  131,484
                             10,000            0.06%            $ 8.25        04/09/06      $   51,884   $  131,484
                             40,000            0.25%            $ 8.25        04/09/06      $  207,535   $  525,935
                            500,000            3.14%            $ 5.50        10/10/06      $1,729,460   $4,382,792
                            500,000            3.14%            $ 5.50        10/10/06      $1,729,460   $4,382,792
                             10,000            0.06%            $ 5.50        10/10/06      $   34,589   $   87,656
                             10,000            0.15%            $ 5.50        10/10/06      $   34,589   $   87,656
                             40,000            0.25%            $ 5.50        10/10/06      $  138,357   $  350,623
Hugh C. Martin
  New Options..........     250,000            1.57%            $ 8.25        04/09/06      $1,297,095   $3,287,094
                            250,000            1.57%            $ 5.50        02/04/07      $  786,118   $1,992,178
  Repriced
    Options(3).........      75,000            0.47%            $ 8.25        04/09/06      $  389,129   $  986,128
                              8,000            0.05%            $ 8.25        04/09/06      $   41,507   $  105,187
                             10,000            0.06%            $ 8.25        04/09/06      $   51,884   $  131,484
                             20,000            0.13%            $ 8.25        04/09/06      $  103,768   $  262,968
                             60,000            0.38%            $ 8.25        04/09/06      $  311,303   $  788,903
                            250,000            1.57%            $ 5.50        10/10/06      $  864,730   $2,191,396
                             75,000            0.47%            $ 5.50        10/10/06      $  259,419   $  657,419
                              8,000            0.05%            $ 5.50        10/10/06      $   27,671   $   70,125
                             10,000            0.06%            $ 5.50        10/10/06      $   34,589   $   87,656
                             20,000            0.13%            $ 5.50        10/10/06      $   69,179   $  175,312
                             60,000            0.38%            $ 5.50        10/10/06      $  207,536   $  525,936
James Alan Cook New
  Options..............     150,000            0.94%            $ 8.25        04/09/06      $  778,257   $1,972,256
                            250,000            1.57%            $ 5.00        02/04/07      $  786,118   $1,992,178
</TABLE>
 
                                       51
<PAGE>   52
 
<TABLE>
<CAPTION>
                                                                                             POTENTIAL REALIZABLE
                                                                                            VALUE AT ASSUMED ANNUAL
                                                                                              RATE OF STOCK PRICE
                                             % OF TOTAL                                     APPRECIATION FOR OPTION
                                          OPTIONS GRANTED   EXERCISE PRICE                         TERM (4)
                        OPTIONS GRANTED   TO EMPLOYEES IN     PER SHARE      EXPIRATION     -----------------------
         NAME               (1)(2)          FISCAL YEAR          (2)            DATE            5%          10%
----------------------- ---------------   ----------------  --------------   ----------     ----------   ----------
<S>                     <C>               <C>               <C>              <C>            <C>          <C>
  Repriced
    Options(3).........       4,000            0.03%            $ 8.25        04/09/06      $   20,754   $   52,594
                             10,000            0.06%            $ 8.25        04/09/06      $   51,884   $  131,484
                             12,000            0.08%            $ 8.25        04/09/06      $   62,261   $  157,781
                             40,000            0.25%            $ 8.25        04/09/06      $  207,535   $  525,935
                             28,000            0.18%            $ 8.25        04/09/06      $  145,275   $  368,155
                            150,000            0.94%            $ 5.50        10/10/06      $  518,838   $1,314,838
                              4,000            0.03%            $ 5.50        10/10/06      $   13,836   $   35,062
                             10,000            0.06%            $ 5.50        10/10/06      $   34,589   $   87,656
                             12,000            0.08%            $ 5.50        10/10/06      $   41,507   $  105,187
                             40,000            0.25%            $ 5.50        10/10/06      $  138,357   $  350,624
                             28,000            0.18%            $ 5.50        10/10/06      $   96,849   $  245,437
Robert B. Faber
  New Options..........      40,000            0.25%            $ 8.25        04/09/06      $  207,535   $  525,935
  Repriced
    Options(3).........       4,000            0.03%            $ 8.25        04/09/06      $   20,754   $   52,594
                             10,000            0.06%            $ 8.25        04/09/06      $   51,884   $  131,484
                              4,000            0.03%            $ 8.25        04/09/06      $   20,754   $   52,594
                              8,000            0.05%            $ 8.25        04/09/06      $   41,507   $  105,187
                             10,000            0.06%            $ 8.25        04/09/06      $   51,884   $  131,484
                             40,000            0.25%            $ 5.50        10/10/06      $  138,357   $  350,623
                              4,000            0.03%            $ 5.50        10/10/06      $   13,836   $   35,062
                             10,000            0.06%            $ 5.50        10/10/06      $   34,589   $   87,656
                              4,000            0.03%            $ 5.50        10/10/06      $   13,836   $   35,062
                              8,000            0.05%            $ 5.50        10/10/06      $   27,671   $   70,125
                             10,000            0.06%            $ 5.50        10/10/06      $   34,589   $   87,656
Tobin E. Farrand
  New Options..........      80,000            0.50%            $ 8.25        04/09/06      $  415,070   $1,051,870
  Repriced
    Options(3).........      20,000            0.13%            $ 8.25        04/09/06      $  103,768   $  262,968
                              8,000            0.05%            $ 8.25        04/09/06      $   41,507   $  105,187
                             40,000            0.25%            $ 8.25        04/09/06      $  207,536   $  525,935
                              8,000            0.05%            $ 8.25        04/09/06      $   41,507   $  105,187
                             28,000            0.18%            $ 8.25        04/09/06      $  145,275   $  368,155
                             80,000            0.50%            $ 5.50        10/10/06      $  276,714   $  701,247
                             20,000            0.13%            $ 5.50        10/10/06      $   69,178   $  175,312
                              8,000            0.05%            $ 5.50        10/10/06      $   27,671   $   70,125
                             40,000            0.25%            $ 5.50        10/10/06      $  138,357   $  350,623
                              8,000            0.05%            $ 5.50        10/10/06      $   27,671   $   70,125
                             28,000            0.18%            $ 5.50        10/10/06      $   96,849      245,437
</TABLE>
 
---------------
 
(1) The options referenced in the foregoing table are intended to be incentive
    stock options to the extent permitted by applicable law. The Company's 1993
    Incentive Stock Plan (the "Incentive Plan") also provides for the grant of
    non-qualified stock options. Incentive stock options may be granted under
    the Incentive Plan at an exercise price no less than market value on the
    date of grant. For so long as the Company's Common Stock is listed on the
    Nasdaq National Market, the fair market value is the closing sale price for
    the Common Stock. Non-qualified options may be granted at an exercise price
    of no less than 85% of market value on the date of grant. Options generally
    become exercisable as to 20% of the shares subject to the option one year
    after commencement of employment, and as to the remainder in equal monthly
    installments (accrued on a monthly basis) over the succeeding 48 months. In
    addition, options accelerate in full and become immediately exercisable upon
    a merger, unless such options are assumed or replaced by equivalent options
    by the successor corporation. Options generally terminate on the earlier of
    three months after termination of the optionee's employment by or services
    to the Company, or ten years after grant.
 
(2) On April 11, 1997, the Board of Directors authorized the exchange of all
    options (including those held by the individuals listed in the above table)
    with an exercise price exceeding $3.25 per share for options with an
    exercise price of $3.25 per share, provided the optionee agreed to certain
    adjustments to the option vesting schedule.
 
                                       52
<PAGE>   53
 
(3) On April 9, 1996, the Board of Directors authorized the exchange of all
    options (including those held by the individuals listed in the above table)
    with an exercise price exceeding $8.25 per share for options with an
    exercise price of $8.25 per share, provided the optionee agreed to certain
    adjustments to the option vesting schedule. On October 10, 1996, the Board
    of Directors authorized the exchange of all options (including those held by
    the individuals listed in the above table) with an exercise price exceeding
    $5.50 per share for options with an exercise price of $5.50 per share,
    provided the optionee agreed to certain adjustments to the option vesting
    schedule.
 
(4) The 5% and 10% assumed annualized rates of compound stock price appreciation
    are based on the exercise prices shown in the table, are mandated by the
    rules of the Securities and Exchange Commission and do not represent the
    Company's estimate or a projection by the Company of future Common Stock
    prices.
 
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                                  NUMBER OF                   VALUE OF UNEXERCISED
                                                             UNEXERCISED OPTIONS              IN-THE MONEY OPTIONS
                                                              AT MARCH 31, 1997                 AT MARCH 31, 1997
                            ACQUIRED        VALUE       -----------------------------     -----------------------------
          NAME             ON EXERCISE     REALIZED     EXERCISABLE     UNEXERCISABLE     EXERCISABLE     UNEXERCISABLE
-------------------------  -----------     --------     -----------     -------------     -----------     -------------
<S>                        <C>             <C>          <C>             <C>               <C>             <C>
Trip Hawkins.............         --             --       324,167         1,235,833               --              --
Hugh C. Martin...........    100,000       $420,313       143,019           609,981        $ 190,208         $15,792
James Alan Cook..........         --             --       109,988           484,012        $  52,096         $10,404
Robert B. Faber..........     35,000       $148,088        12,449            73,551        $  13,426         $12,324
Tobin E. Farrand.........     33,000       $138,991        37,387           153,613        $   4,333         $12,642
</TABLE>
 
OPTION REPRICING
 
     The following report is provided to stockholders by the members of the
Compensation Committee of the Board of Directors.
 
     The Compensation Committee (the "Committee") grants stock options in order
to directly link a significant portion of each executive's total compensation to
the long-term interests of shareholders. The Committee believes that stock
options encourage superior performance over time. In order to attract and retain
qualified employees, the Committee felt it necessary to adjust the exercise
price on previously granted options so that the new exercise price would more
closely approximate the market price, and therefore provide greater incentive to
the Company's employees. Consequently, on April 9, 1996, the Committee exchanged
all outstanding options with an exercise price greater than $8.25 (the then
prevailing market price) for options with an exercise price of $8.25, provided
the optionee agreed to adjustments in the vesting schedule. On October 10, 1996,
the Committee exchanged all outstanding options with an exercise price greater
than $5.50 (the then prevailing market price) for options with an exercise price
of $5.50, again provided the optionee agreed to adjustments in the vesting
schedule. Subsequently, on April 11, 1997, the Committee exchanged all
outstanding options with an exercise price greater than $3.25 (the then
prevailing market price) for options with an exercise price of $3.25, again
provided the optionee to adjustments in the vesting schedule. The following
table sets forth certain information concerning option repricing activity.
 
                                       53
<PAGE>   54
 
                           TEN YEAR OPTION REPRICINGS
 
<TABLE>
<CAPTION>
                                                       MARKET                                      LENGTH OF
                                          NUMBER      PRICE OF      EXERCISE                       ORIGINAL
                                            OF        STOCK AT      PRICE AT        NEW           OPTION TERM
                             DATE OF      OPTIONS      TIME OF       TIME OF      EXERCISE          AT TIME
           NAME             REPRICING     REPRICED    REPRICING     REPRICING      PRICE         OF REPRICING
--------------------------  ---------     -------     ---------     ---------     --------     -----------------
<S>                         <C>           <C>         <C>           <C>           <C>          <C>
Trip Hawkins..............  05/20/94      500,000      $ 9.875       $25.750      $ 9.875       9 Years 232 Days
                            04/09/96      500,000      $ 8.250       $ 9.875      $ 8.250       7 Years 273 Days
                            04/09/96      10,000       $ 8.250       $11.000      $ 8.250       8 Years 251 Days
                            04/09/96      40,000       $ 8.250       $11.875      $ 8.250        9 Years 47 Days
                            04/09/96      10,000       $ 8.250       $11.875      $ 8.250       9 Years 173 Days
                            10/10/96      500,000      $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96      500,000      $ 5.500       $ 8.250      $ 5.500        7 Years 89 Days
                            10/10/96      10,000       $ 5.500       $ 8.250      $ 5.500        8 Years 67 Days
                            10/10/96      40,000       $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96      10,000       $ 5.500       $ 8.250      $ 5.500       8 Years 354 Days
Hugh C. Martin............  05/20/94      75,000       $ 9.875       $25.750      $ 9.875       9 Years 279 Days
                            04/09/96      75,000       $ 8.250       $ 9.875      $ 8.250        8 Years 41 Days
                            12/14/94       8,000       $10.750       $14.500      $10.750       9 Years 231 Days
                            04/09/96       8,000       $ 8.250       $10.750      $ 8.250       8 Years 249 Days
                            04/09/96      10,000       $ 8.250       $11.000      $ 8.250       8 Years 251 Days
                            04/09/96      20,000       $ 8.250       $11.875      $ 8.250        9 Years 47 Days
                            04/09/96      60,000       $ 8.250       $11.500      $ 8.250       9 Years 124 Days
                            10/10/96      250,000      $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96      75,000       $ 5.500       $ 8.250      $ 5.500       7 Years 136 Days
                            10/10/96       8,000       $ 5.500       $ 8.250      $ 5.500       7 Years 296 Days
                            10/10/96      10,000       $ 5.500       $ 8.250      $ 5.500        8 Years 67 Days
                            10/10/96      20,000       $ 5.500       $ 8.250      $ 5.500       8 Years 228 Days
                            10/10/96      60,000       $ 5.500       $ 8.250      $ 5.500       8 Years 305 Days
James Alan Cook...........  05/20/94       4,000       $ 9.875       $25.750      $ 9.875       9 Years 279 Days
                            04/09/96       4,000       $ 8.250       $ 9.875      $ 8.250       7 Years 320 Days
                            12/14/94      12,000       $10.750       $14.500      $10.750       9 Years 231 Days
                            04/09/96      12,000       $ 8.250       $10.750      $ 8.250       8 Years 249 Days
                            04/09/96      10,000       $ 8.250       $11.000      $ 8.250       8 Years 251 Days
                            04/09/96       8,000       $ 8.250       $11.875      $ 8.250        9 Years 47 Days
                            04/09/96      20,000       $ 8.250       $11.875      $ 8.250        9 Years 47 Days
                            04/09/96      40,000       $ 8.250       $11.500      $ 8.250       9 Years 124 Days
                            10/10/96      150,000      $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96       4,000       $ 5.500       $ 8.250      $ 5.500       7 Years 136 Days
                            10/10/96      10,000       $ 5.500       $ 8.250      $ 5.500        9 Years 67 Days
                            10/10/96      12,000       $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96      40,000       $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96       8,000       $ 5.500       $ 8.250      $ 5.500       8 Years 228 Days
                            10/10/96      20,000       $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
</TABLE>
 
                                       54
<PAGE>   55
 
<TABLE>
<CAPTION>
                                                       MARKET                                      LENGTH OF
                                          NUMBER      PRICE OF      EXERCISE                       ORIGINAL
                                            OF        STOCK AT      PRICE AT        NEW           OPTION TERM
                             DATE OF      OPTIONS      TIME OF       TIME OF      EXERCISE          AT TIME
           NAME             REPRICING     REPRICED    REPRICING     REPRICING      PRICE         OF REPRICING
--------------------------  ---------     -------     ---------     ---------     --------     -----------------
<S>                         <C>           <C>         <C>           <C>           <C>          <C>
Robert B. Faber...........  05/20/94       4,000       $ 9.875       $25.750      $ 9.875       9 Years 279 Days
                            04/09/96       4,000       $ 8.250       $ 9.875      $ 8.250       7 Years 320 Days
                            12/14/94      10,000       $10.750       $14.500      $10.750       9 Years 231 Days
                            04/09/96      10,000       $ 8.250       $10.750      $ 8.250       8 Years 249 Days
                            04/09/96       4,000       $ 8.250       $11.000      $ 8.250       8 Years 251 Days
                            04/09/96       8,000       $ 8.250       $11.875      $ 8.250        9 Years 47 Days
                            04/09/96      10,000       $ 8.250       $11.875      $ 8.250       9 Years 173 Days
                            10/10/96      40,000       $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96       4,000       $ 5.500       $ 8.250      $ 5.500       7 Years 136 Days
                            10/10/96      10,000       $ 5.500       $ 8.250      $ 5.500       7 Years 296 Days
                            10/10/96       4,000       $ 5.500       $ 8.250      $ 5.500        8 Years 67 Days
                            10/10/96       8,000       $ 5.500       $ 8.250      $ 5.500       8 Years 228 Days
                            10/10/96      10,000       $ 5.500       $ 8.250      $ 5.500       8 Years 354 Days
Tobin E. Farrand..........  05/20/94      20,000       $ 9.875       $25.750      $ 9.875       9 Years 279 Days
                            04/09/96      20,000       $ 8.250       $ 9.875      $ 8.250       7 Years 320 Days
                            12/14/94       8,000       $10.750       $14.500      $10.750       9 Years 231 Days
                            04/09/96       8,000       $ 8.250       $10.750      $ 8.250       8 Years 249 Days
                            04/09/96       8,000       $ 8.250       $11.000      $ 8.250       8 Years 251 Days
                            04/09/96      20,000       $ 8.250       $11.875      $ 8.250        9 Years 47 Days
                            04/09/96       8,000       $ 8.250       $11.875      $ 8.250        9 Years 47 Days
                            04/09/96      40,000       $ 8.250       $11.500      $ 8.250       9 Years 124 Days
                            10/10/96      80,000       $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96      20,000       $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96       8,000       $ 5.500       $ 8.250      $ 5.500        8 Years 67 Days
                            10/10/96      40,000       $ 5.500       $ 8.250      $ 5.500       8 Years 305 Days
                            10/10/96       8,000       $ 5.500       $ 8.250      $ 5.500       7 Years 296 Days
                            10/10/96      20,000       $ 5.500       $ 8.250      $ 5.500       8 Years 228 Days
                            10/10/96       8,000       $ 5.500       $ 8.250      $ 5.500       8 Years 228 Days
Robert A. Lindsey.........  04/09/96      50,000       $ 8.250       $ 9.750      $ 8.250       8 Years 270 Days
                            04/09/96       6,000       $ 8.250       $11.875      $ 8.250        9 Years 47 Days
                            04/09/96      44,000       $ 8.250       $11.500      $ 8.250       9 Years 124 Days
                            10/10/96      60,000       $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96       6,000       $ 5.500       $ 8.250      $ 5.500       8 Years 228 Days
                            10/10/96      50,000       $ 5.500       $ 8.250      $ 5.500        8 Years 86 Days
                            10/10/96      44,000       $ 5.500       $ 8.250      $ 5.500       8 Years 305 Days
John A. Orcutt............  04/09/96      75,000       $ 8.250       $ 9.750      $ 8.250       8 Years 270 Days
                            04/09/96       5,000       $ 8.250       $11.875      $ 8.250        9 Years 47 Days
                            04/09/96      20,000       $ 8.250       $11.500      $ 8.250       9 Years 124 Days
                            10/10/96      30,000       $ 5.500       $ 8.250      $ 5.500       9 Years 181 Days
                            10/10/96       5,000       $ 5.500       $ 8.250      $ 5.500       8 Years 228 Days
                            10/10/96      75,000       $ 5.500       $ 8.250      $ 5.500        8 Years 67 Days
                            10/10/96      20,000       $ 5.500       $ 8.250      $ 5.500       8 Years 305 Days
</TABLE>
 
                                          Respectfully submitted,
 
                                          Vinod Khosla
                                          Charles S. Paul
 
                                       55
<PAGE>   56
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of March
31, 1997, by (i) each stockholder known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, (ii) each director, (iii)
the Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers serving in that capacity as of March 31, 1997
(together, the "named Officers") and (iv) all executive officers and directors
as a group.
 
<TABLE>
<CAPTION>
                                                                          SHARES BENEFICIALLY
                                                                               OWNED(1)
                      FIVE PERCENT STOCKHOLDERS,                         ---------------------
                   DIRECTORS AND EXECUTIVE OFFICERS                       NUMBER       PERCENT
-----------------------------------------------------------------------  ---------     -------
<S>                                                                      <C>           <C>
Matsushita Electric Industrial Co., Ltd................................  3,214,285       11.1
  1066 Kadoma
  Osaka 571, Japan
J & W Seligman & Co., Incorporated.....................................  2,962,600       10.4
  100 Park Avenue
  New York, New York 10017
Trip Hawkins...........................................................  2,585,402(2)     9.1
  600 Galveston Drive
  Redwood City, California 94063
Electronic Arts, Inc...................................................  2,013,668        7.1
  1450 Fashion Island Boulevard
  San Mateo, California 94404
Vinod Khosla...........................................................     75,863(3)       *
Charles S. Paul........................................................     11,000(4)       *
Hugh C. Martin.........................................................    153,931(5)       *
James Alan Cook........................................................    123,203(6)       *
Robert B. Faber........................................................     90,223(7)       *
Tobin E. Farrand.......................................................     42,949(8)       *
All executive officers and directors as a group (9 persons)............  3,172,392(9)    11.2
</TABLE>
 
---------------
 
 *  Less than 1%
 
(1) Except as indicated in the footnotes to this table and pursuant to
    applicable community property laws, the persons and entities named in the
    table have sole voting and sole investment power with respect to all shares
    of Common Stock beneficially owned.
 
(2) Includes 341,499 shares subject to an option exercisable within 60 days of
    March 31, 1997.
 
(3) Includes 16,000 shares held by Mr. Khosla's wife, Neeru Khosla. Also
    includes 11,000 shares subject to an option exercisable within 60 days of
    March 31, 1997.
 
(4) Includes 11,000 shares subject to an option exercisable within 60 days of
    March 31, 1997.
 
(5) Includes 153,931 shares subject to an option exercisable within 60 days of
    March 31, 1997.
 
(6) Includes 115,739 shares subject to an option exercisable within 60 days of
    March 31, 1997.
 
(7) Includes 16,823 shares subject to an option exercisable within 60 days of
    March 31, 1997.
 
(8) Includes 42,949 shares subject to an option exercisable within 60 days of
    March 31, 1997.
 
(9) Includes shares held beneficially by executive officers and directors as
    shown in the foregoing table.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Information required by this Item is incorporated herein by reference to
the Company's Proxy Statement for the 1997 annual meeting of stockholders.
 
                                       56
<PAGE>   57
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) DOCUMENTS FILED AS PART OF THIS REPORT:
 
<TABLE>
<CAPTION>
                                                                        PAGE(S)
                                                                          IN
                                                                       FORM 10-K
                                                                       ---------
<C>   <S>                                                              <C>
  1.  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
      Independent Auditors' Report...................................   29
      Consolidated Balance Sheets at March 31, 1997 and 1996.........   30
      Consolidated Statements of Operations for the years ended March
        31, 1997, 1996 and 1995......................................   31
      Consolidated Statements of Stockholders' Equity (Deficit) for
        the years ended March 31, 1997, 1996 and 1995................   32
      Consolidated Statements of Cash Flows for the years ended March
        31, 1997, 1996 and 1995......................................   33
      Notes to Consolidated Financial Statements.....................   34-46
  2.  FINANCIAL STATEMENT SCHEDULES
      Information required by this Item is included in the Notes to
        Consolidated Financial Statements.
  3.  EXHIBITS
</TABLE>
 
     The following exhibits are filed as part of, or incorporated by reference
into, this report:
 
<TABLE>
<CAPTION>
NUMBER                                      EXHIBIT TITLE
------         ------------------------------------------------------------------------
<S>      <C>   <C>
2.01      --   Contribution Agreement dated as of March 4, 1993 by and among the
               Registrant, the 3DO Company, a California corporation, 3DO Merger Sub,
               Technology West Partners, L.P., the shareholders of NTG, Inc. and NTG
               Engineering, Inc.(2)
3.03      --   Registrant's Restated Certificate of Incorporation.(10)
3.04      --   Registrant's Delaware Bylaws, as amended.(10)
4.01      --   Form of Specimen Certificate for Registrant's Common Stock.(2)
4.02      --   Fourth Stockholders' Rights Agreement, dated as of February 1, 1995,
               between the Registrant and various investors.
10.01     --   Series A Preferred Stock Exchange Agreement between the Registrant and
               Electronic Arts Inc. dated as of September 30, 1991.(2)
10.02     --   Series A Preferred Stock Purchase Agreement by and among the Registrant
               and Kleiner Perkins Caufield & Byers V, KPCB Zaibatsu Fund I, Technology
               Partners West, Fund IV, and Time Warner Enterprises, Inc. dated as of
               September 30, 1991.(2)
10.03     --   Series A Preferred Stock Purchase Agreement between the Registrant and
               Matsushita Electric Industrial Co., Ltd. dated as of March 24, 1992.(2)
10.04     --   Series B Preferred Stock Purchase Agreement between the Registrant and a
               group of investors including American Telephone & Telegraph Company,
               Electronic Arts Inc., Toby Farrand, Trip Hawkins, David Horowitz,
               Kleiner Perkins Caufield & Byers V, Matsushita Electric Industrial Co.,
               Ltd., and Time Warner Entertainment Company, L.P., dated as of January
               5, 1993.(1)(2)
10.05     --   Medio Development System License Agreement between the Registrant and
               Electronic Arts Inc. dated as of September 30, 1991, as amended.(1)(2)
10.06     --   Publishing Option Agreement between the Registrant and Electronic Arts
               Inc. dated as of September 30, 1991.(1)(2)
10.07     --   Equipment Transfer and Security Agreement between Electronic Arts Inc.
               and the Registrant dated as of September 30, 1991.(2)
</TABLE>
 
                                       57
<PAGE>   58
 
<TABLE>
<CAPTION>
NUMBER                                      EXHIBIT TITLE
------         ------------------------------------------------------------------------
<S>      <C>   <C>
10.08     --   Secured Promissory Note between the Registrant and Electronic Arts Inc.
               dated as of September 30, 1991.(2)
10.09     --   Strategic Contribution and Medio Cable Agreement between the Registrant
               and Time Warner Enterprises, Inc. as amended through March 31,
               1992.(1)(2)
10.10     --   Strategic Contribution Agreement between the Registrant and Matsushita
               Electric Industrial Co., Ltd. dated April 9, 1992.(1)(2)
10.11     --   Technology Purchase Agreement between the Registrant and Kleiner Perkins
               Caufield & Byers V, NTG Engineering, Inc., David Needle and RJ Mical
               dated as of September 30, 1991.(2)
10.12     --   KPCB Option Agreement among the Registrant and Electronic Arts Inc.,
               Kleiner Perkins Caufield & Byers V and KPCB Zaibatsu Fund I dated as of
               September 30, 1991, as amended.(2)
10.13     --   1991 Incentive Stock Plan of the Registrant.(2)
10.14     --   1993 Incentive Stock Plan of the Registrant.(2)
10.15     --   Form of Restricted Stock Purchase Agreement of the Registrant.(2)
10.16     --   Form of Incentive Stock Option Agreement of the Registrant.(2)
10.17     --   Form of Nonstatutory Stock Option Agreement of the Registrant.(2)
10.18     --   401(k) Plan of the Registrant.(2)
10.19     --   Sublease between NCR Comten, Inc. and the Registrant, for office space
               at 1820 Gateway Drive, Suite 109, San Mateo, California.(2)
10.20     --   Form of Lease between Golden Century Investment Company, Inc. and the
               Registrant for office space at 1820 Gateway Drive, San Mateo,
               California.(2)
10.21     --   Employment Agreement between the Registrant and William M. Hawkins III
               dated as of February 1993.(2)
10.21A    --   Amendment to Employment Agreement between the Registrant and William M.
               Hawkins III, dated as of March 22, 1994.(5)
10.22     --   Form of Indemnity Agreement.(2)
10.23     --   Consumer Interactive Multiplayer License Agreement between the
               Registrant and Matsushita Electric Industrial Co., Ltd. dated March 5,
               1993.(1)(2)
10.24     --   Covenant Not to Compete and Non-Solicitation Agreement between the
               Registrant and Dave Needle dated as of March 4, 1993.(2)
10.25     --   Covenant Not to Compete and Non-Solicitation Agreement between the
               Registrant and Dave Morse dated as of March 4, 1993.(2)
10.26     --   Covenant Not to Compete and Non-Solicitation Agreement between the
               Registrant and RJ Mical dated as of March 4, 1993.(2)
10.27     --   Stock Restriction Agreement between the Registrant and Dave Needle dated
               as of March 4, 1993.(2)
10.28     --   Stock Restriction Agreement between the Registrant and Dave Morse dated
               as of March 4, 1993.(2)
10.29     --   Stock Restriction Agreement between the Registrant and RJ Mical dated as
               of March 4, 1993.(2)
10.30     --   Form of Software License Agreement.(2)
10.31     --   Form of Stock Purchase Agreement between the Registrant and William M.
               Hawkins III.(2)
</TABLE>
 
                                       58
<PAGE>   59
 
<TABLE>
<CAPTION>
NUMBER                                      EXHIBIT TITLE
------         ------------------------------------------------------------------------
<S>      <C>   <C>
10.32     --   Form of Stock Purchase Agreement between the Registrant and Namco
               Limited.(2)
10.33     --   Letter of Intent dated January 5, 1993 between the Registrant and
               American Telephone & Telegraph Company.(1)(2)
10.34     --   Lease between Seaport Centre Venture Phase I and the Registrant for
               office space at 600 Galveston Drive, Building 5, Redwood City,
               California.(6)
10.34A    --   First Amendment to Lease between Seaport Centre Venture Phase I and the
               Registrant for office space at 600 Galveston Drive, Building 5, Redwood
               City, California.(5)
10.34B    --   Second Amendment to Lease between Seaport Centre Venture Phase I and the
               Registrant for office space at 600 Galveston Drive, Building 5, Redwood
               City, California.(8)
10.35     --   Letter of Intent dated June 1, 1993 between the Registrant and American
               Telephone & Telegraph Company.(3)
10.36     --   Letter between the Registrant and MCA Entertainment, Inc. dated
               September 29, 1993.(1)(5)
10.37     --   Memorandum of Understanding between the Registrant and Creative
               Technology, Ltd. dated March 8, 1994.(1)(5)
10.38     --   Memorandum of Understanding between the Registrant and
               Scientific-Atlanta, Inc. dated December 9, 1993.(1)(5)
10.39     --   Letter of Intent between the Registrant and Matsushita Electric
               Industrial Co., Ltd. dated effective March 3, 1994.(1)(5)
10.40     --   Letter of Agreement between the Registrant and Creative Technology Ltd.,
               dated May 10, 1994.(1)(6)
10.41     --   Supplemental Letter of Agreement between the Registrant and Creative
               Technology Ltd., dated May 27, 1994.(1)(6)
10.42     --   Compact Disc Pressing License Agreement between the 3DO Company and
               Matsushita Electric Industrial Co., Ltd.(1)(7)
10.43     --   Technology Licensing Agreement between the Registrant and Matsushita
               Electric Industrial Co., Ltd., dated December 7, 1995.(1)(9)
10.44     --   Joint Development and License Agreement between Registrant and Cirrus
               Logic, Inc., dated February 29, 1996.(1)(10)
10.45     --   Addendum dated April 24, 1996, to Technology Licensing Agreement between
               the Registrant and Matsushita Electric Industrial Co., Ltd., dated
               December 7, 1995.(1)(10)
10.46     --   1994 Employee Stock Purchase Plan and the Registrant.
10.47     --   1995 Director Option Plan of the Registrant.
10.48     --   Asset Purchase Agreement between the Registrant and Samsung Electronics
               Co., Ltd.(11)
11.01     --   Computation of Net Income (Loss) Per Share.
21.01     --   List of Subsidiaries of the Registrant.
23.01     --   Consent of Independent Auditors.
24.01     --   Power of Attorney.
27.01     --   Financial Data Schedule.
</TABLE>
 
---------------
 
(1) Confidential treatment has been granted with respect to certain portions of
    this document.
 
                                       59
<PAGE>   60
 
 (2) Incorporated by reference to the same-numbered exhibit filed with the
     Registrant's Registration Statement on Form S-1 No. 33-59166.
 
 (3) Incorporated by reference to the same-numbered exhibit filed with the
     Registrant's Annual Report on Form 10-K for the year ended March 31, 1993.
 
 (4) Incorporated by reference to the same-numbered exhibit filed with the
     Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
     1993.
 
 (5) Incorporated by reference to the same-numbered exhibit filed with the
     Registrant's Registration Statement on Form S-1 No. 33-71364.
 
 (6) Incorporated by reference to the same-numbered exhibit filed with the
     Registrant's Annual Report on Form 10-K for the year ended March 31, 1994.
 
 (7) Incorporated by reference to the same-numbered exhibit filed with the
     Registrant's Quarterly Report on Form 10-Q/A for the period ended December
     31, 1994.
 
 (8) Incorporated by reference to the same-numbered exhibit filed with the
     Registrant's Annual Report on Form 10-K for the year ended March 31, 1995.
 
 (9) Incorporated by reference to the same-numbered exhibit filed with the
     Registrant's Quarterly Report on Form 10-Q/A2 for the period ended December
     31, 1995.
 
(10) Incorporated by reference to the same-numbered exhibit filed with the
     Registrant's Annual Report on Form 10-K for the year ended March 31, 1996.
 
(11) Confidential Treatment has been requested with respect to certain portions
     of this document.
 
     (b) REPORTS ON FORM 8-K:
 
        Current Report on Form 8-K filed May 16, 1997.
 
     (c) EXHIBITS:
 
        The registrant hereby incorporates as part of this Form 10-K the exhibit
        listed in Item 14(a)3, as set forth above.
 
     (d) FINANCIAL STATEMENT SCHEDULES:
 
        Information required by this Item is included in Notes to Consolidated
        Financial Statements.
 
                                       60
<PAGE>   61
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
 
                                          THE 3DO COMPANY
                                          a Delaware Corporation
 
                                          By: /s/ TERRENCE J. SCHMID
                                            ------------------------------------
                                            Terrence J. Schmid
                                            Chief Financial Officer
                                            (Principal Financial Officer and
                                            Principal Accounting Officer)
                                            (Duly Authorized Officer)
 
                                            Date: June 26, 1997
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
 
<TABLE>
<CAPTION>
              SIGNATURE                                 TITLE                         DATE
-------------------------------------    ------------------------------------    --------------
 
<S>                                      <C>                                     <C>
/s/ WILLIAM M. HAWKINS, III              Chairman of the Board of Directors      June 26, 1997
-------------------------------------    and Chief Executive Officer
William M. Hawkins, III                  (Principal Executive Officer)
 
/s/ TERRENCE J. SCHMID                   Chief Financial Officer (Principal      June 26, 1997
-------------------------------------    Financial Officer and Principal
Terrence J. Schmid                       Accounting Officer)
 
/s/ VINOD KHOSLA                         Director                                June 26, 1997
-------------------------------------
Vinod Khosla
 
/s/ HUGH C. MARTIN                       President and Director                  June 26, 1997
-------------------------------------
Hugh C. Martin, Jr.
 
/s/ CHARLES S. PAUL                      Director                                June 26, 1997
-------------------------------------
Charles S. Paul
</TABLE>
 
                                       61
<PAGE>   62
 
                                THE 3DO COMPANY
 
                            REPORT ON FORM 10-K FOR
                         THE YEAR ENDED MARCH 31, 1997
 
                               INDEX TO EXHIBITS*
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                        EXHIBIT NAME
-------    ----------------------------------------------------------------------------------
<S>        <C>
 4.02      Fourth Stockholders' Rights Agreement dated as of February 1, 1995, between the
           Registrant and various investors.
10.46      1994 Employee Stock Purchase Plan of the Registrant.
10.47      1995 Director Option Plan of the Registrant.
10.48      Asset Purchase Agreement between the Registrant and Samsung Electronics Co.,
           Ltd.(1)
11.01      Computation of Net Income (Loss) Per Share.
21.01      List of Subsidiaries of the Registrant.
23.01      Consent of Independent Auditors.
24.01      Power of Attorney (See Page 61).
27.01      Financial Data Schedule.
</TABLE>
 
---------------
 
 *  Only exhibits actually filed are listed. Exhibits incorporated by reference
    are set forth in the exhibit listing included in Item 14 of the Report on
    Form 10-K.
 
(1) Confidential treatment is being requested with respect to certain portions
    of this Exhibit.
 
                                       62