<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES
                       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

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2000

                         COMMISSION FILE NUMBER 0-21336

                            ------------------------

                                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
    incorporation or organization)                    identification number)
</TABLE>

              600 GALVESTON DRIVE, REDWOOD CITY, CALIFORNIA 94063
             (Address of principal executive offices and zip code)

                                 (650) 261-3000
              (Registrant's telephone number, including area code)

<TABLE>
<S>                                                           <C>
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
</TABLE>

                            ------------------------

    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, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $150,401,008 (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, 2000, the number of outstanding shares of the Registrants'
Common Stock was 36,691,519.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                     PART 1

ITEM 1. BUSINESS

OVERVIEW

    We are a leading developer and publisher of branded interactive
entertainment software. Our software products operate on several multimedia
platforms including personal computers, the Sony PlayStation, Sony
PlayStation 2 and Nintendo N64 video game consoles, and the Internet. We are
also developing software for the Nintendo Game Boy Color hand-held game and are
preparing to develop software for next-generation video game consoles. We plan
to continue to extend our popular brands across multiple categories, or
"genres," and platforms. These brands include Army Men, BattleTanx, Family Game
Pack, Heroes of Might and Magic, High Heat Baseball, and Might and Magic. Our
software products cover a variety of genres, including action, strategy,
adventure/role playing, sports and family entertainment.

    We distribute our products through a broad variety of retail outlets,
including mass merchants, warehouse club stores, computer and software retail
chains and other specialty retailers. We have significantly increased the number
of retail outlets that sell our products to over 20,000 in fiscal 2000. Our
largest retail customers in fiscal 2000 were Wal-Mart, Best Buy, Electronics
Boutique, Babbage's, Toys "R" Us, Blockbuster Video, Target, Sears, Hollywood
Video, and Kmart.

    Our software publishing revenues increased 154% to $122.2 million in fiscal
2000 from $48.0 million in fiscal 1999. In fiscal 2000, we released 31 new
products compared to 14 new releases in fiscal 1999. We are currently developing
over 50 new products that we expect to release in fiscal 2001.

INDUSTRY BACKGROUND

    According to the Interactive Digital Software Association, an industry trade
association, the video game and personal computer game software market was the
fastest growing entertainment industry in the United States in 1998, surpassing
books, recorded music and movie box office receipts in percentage growth. The
NPD Group estimates that retail sales of interactive entertainment software in
the United States grew more than 12% to $5.5 billion in 1999 from $4.9 billion
in 1998.

    Declining prices of video game consoles and personal computers and
lower-cost, higher-quality graphics processors and improved audio capabilities
have led to a growing installed base of platforms and greater demand for video
games. NPD estimates that a total of 41.3 million Sony PlayStation and Nintendo
N64 video game console systems have been sold as of May 2000. Growth in the
installed base of personal computers is also driving demand for interactive
entertainment software. International Data Corporation estimates that
46 million U.S. households owned a personal computer in 1998, of which over 71%
have played video games on their personal computers.

    The Internet provides a means by which consumers may play games and obtain
information regarding interactive entertainment software titles. Individuals may
play multiplayer server-based games that reside on Web sites and servers
maintained by software companies. Additionally, players may compete against each
other over the Internet using CD-ROM-based games having multi-player
capabilities that reside on their own personal computers. The Internet also
allows consumers to participate in chat rooms to discuss features and exchange
ideas regarding the games, download video clips and demos of some games and
purchase games online.

    The interactive entertainment software market has experienced fluctuations
as a result of new product platform announcements or introductions. The
anticipation of next-generation video game platforms has historically resulted
in decreased sales of interactive entertainment software titles developed to
operate on currently available platforms. We believe that software developers
have historically been reluctant to develop software for next-generation
platforms until they believe the new platforms will be commercially

                                       2
<PAGE>
successful. Once a next-generation platform has achieved market acceptance,
sales of interactive entertainment software have historically increased.
Nintendo has stated that it is in the process of developing a next-generation
video game console system. Sony recently announced the creation of the
next-generation PlayStation game console, which it released in Japan in 1999 and
expects to introduce in the U.S. in late 2000. Currently, the PlayStation2 game
console is designed to be backwards-compatible with existing PlayStation
software, allowing consumers to play their old PlayStation games on the new
console system. Furthermore, the typical retail prices for the current versions
of Sony and Nintendo video game consoles have declined over the past few years,
most recently from $129 to $99 in August 1999. We believe that the
backwards-compatibility feature and decreasing prices of existing consoles may
mitigate decreases in sales of older software products due to anticipation of
the introduction of next-generation video game consoles.

    The interactive entertainment software market can generally be divided into
several game categories or genres. The most popular genres include action,
strategy, adventure/role playing, sports and family entertainment. According to
a May 1999 Game Week magazine reader survey, consumers consider factors such as
brand history, genre, interest of story, high quality graphics, high quality
sound, reliability, pricing, hardware compatibility and ease of learning when
purchasing interactive entertainment software. A limited number of titles have
typically captured a large share of the sales in the interactive entertainment
software market. This hit-driven nature of the market has often led to higher
production budgets for titles as well are more complex development and
production processes and longer development cycles. Publishers with a history of
producing hit titles have generally enjoyed a significant marketing advantage
because of their heightened brand recognition and customer loyalty. To
capitalize on this heightened brand recognition and customer loyalty, some
publishers have introduced sequels or line extensions of their hit titles.
Sequels are typically new releases of games based upon the original game concept
that also include new characters, settings and gameplay attributes. Line
extensions are typically new releases of games based upon the same successful
brands and offering the brand in a different genre and/or on additional
platforms.

    We believe that the importance of the timely release of hit titles, as well
as the increased scope, complexity and expense of the product development and
production process, have increased the need for disciplined product development
processes that limit cost and schedule overruns and reduce development time. We
believe that this need has increased the importance of leveraging the
technologies, characters and story lines of past or existing hit titles into
additional interactive entertainment software products in order to spread
development costs among multiple products.

    Competition for shelf space at mass merchants and software electronic stores
has intensified because these high volume retailers often stock only a limited
number of titles that are expected to sell large numbers of units. We believe
retailers consider the historical performance of games and may be more willing
to stock sequels to successful brands rather than unproven titles. Retailers are
also seeking to distribute their advertising budget across a small number of
titles. We believe that these trends have increased the importance of internally
creating and building upon well-known brands by releasing sequels and line
extensions.

    Sega launched its Dreamcast platform in Japan in the fall of 1998 and in the
U.S. in the fall of 1999. Sony has launched the successor to the PlayStation,
the PlayStation 2, in Japan in March 2000, and scheduled to launch it in the
U.S. in late 2000. Further, several new systems, including the X-box from
Microsoft, Game Boy Advance and Dolphin from Nintendo, are planned to be
introduced in time for Christmas of 2001. While we have not formally committed
to produce games for the X-box and the Dolphin platforms, it is likely that we
will publish for them with the exception of the Dreamcast Platform. Software for
new platforms requires different standards of design and technology to fully
exploit their capabilities. The introduction of new platforms also requires that
game developers devote substantial additional resources to product design and
development.

                                       3
<PAGE>
INTERACTIVE ENTERTAINMENT SOFTWARE DEVELOPMENT

    With 404 studio employees as of March 31, 2000, we believe that we have one
of the largest internal development groups in the interactive entertainment
software industry. Our internal development studios are 3DO Redwood City
(Redwood City, California), 3DO Austin (Austin, Texas) and New World Computing
(Agoura Hills, California).

    We believe our internal studios allow us to maintain better control over
product quality, development costs and development schedules in comparison to
companies that outsource product development to external development studios. By
developing our interactive entertainment software internally, we retain
ownership of the technology we develop and spread our investment in research and
development across brands, platforms and genres.

    Our internal studios consist of several development teams, all of which
report to our Senior Vice President of Research and Development. Each team is
dedicated to the development of a particular product for the duration of a
specific project. A team generally consists of producers, engineers, designers,
programmers and artists. We allocate personnel to brands and platforms to
maintain brand continuity and creativity in development while seeking to
maximize productivity from experts in the technology for each hardware platform.

    Interactive entertainment software game concepts are generated by employees
from our internal studios, as well as from our sales, marketing and executive
teams. Concept or theme proposals are reviewed and approved by our executive
team. We also conduct product and marketing focus groups to determine the
potential market for a new product or brand. Once a game is approved, we assign
an executive producer and a product marketing manager to oversee its development
and marketing. This team develops a design document and script for the game, as
well as a timeline. During development, our executives review each product's
development progress against predetermined milestones, as well as market
conditions and the title's potential financial performance. If market conditions
or development milestones indicate that the product will not achieve the
approved strategic or financial plan, we either take corrective actions or
terminate the product and reallocate current resources to other projects.
Products we complete are tested by our executive team and our internal testing
group prior to release for shipment to the retail channel.

    We have contracted with outside development firms to port several of our
current software titles to the Nintendo Game Boy Color hand-held video game
platform until we establish the internal capabilities to develop software for
this platform.

SALES, MARKETING AND DISTRIBUTION

    We target the retail channel and consumers through a variety of sales,
advertising and marketing campaigns including television, print media, public
relations and Internet marketing. The selling and marketing strategies
associated with a particular product may vary depending upon the product
platform. Advertising and marketing campaigns for interactive entertainment
software for the personal computer usually require expenditures in print media
such as trade magazines, newspapers and consumer magazines. Products for the
video game console platform generally require a more significant investment in
the production of a television campaign.

    In addition to our 37-person internal sales and marketing organization,
which focuses on sales to major North American and United Kingdom retailers and
distributors, we also utilize 10 independent sales representative firms that
specialize in the sales and marketing of products for video game console
platforms. We also have several licensees that sell our products in various
territories including Canada, Europe, Latin America, Asia, and Australia. Our
distributors purchase fully packaged products from us for resale to retailers,
while licensees receive master copies of software code and packaging, which they
can manufacture, market and sell to distributors or retailers in exchange for
royalty payments.

                                       4
<PAGE>
    NORTH AMERICA.  We distribute and sell our interactive entertainment
software in North America through direct relationships with major retail
customers, as well as through third party distributors. Our distributors
primarily sell products for the personal computer platform. We have recently
decreased our reliance on distributors and expect to continue to increase direct
sales to retailers, particularly for video game console products. The number of
retail outlets that sold our products increased to over 20,000 in fiscal 2000.
Our largest retailers in fiscal 2000 were:

<TABLE>
<S>                            <C>
Wal-Mart                       Kmart
Toys "R" Us                    Babbage's
Best Buy                       KayBee Toys
Target                         Sears
Blockbuster Video              Hollywood Video
Electronics Boutique
</TABLE>

    In fiscal 2000, sales to Wal-Mart represented more than 10% of our total
software publishing revenues. Sales to our five largest customers accounted for
approximately 51% of our software publishing revenues in fiscal 1999 and 40% of
our software publishing revenues in fiscal 2000.

    INTERNATIONAL.  During fiscal year 2000, 3DO Europe Ltd. commenced direct
distribution of its products into the United Kingdom utilizing its own sales and
marketing staff. We also entered into numerous distribution agreements
throughout Europe, New Zealand and Australia. Our distributors purchased fully
packaged products from us for resale to retailers and 3DO works closely with
them to generate targeted marketing programs for each territory. We also have
licensing agreements in Asia and Latin America in which licenses receive master
copies of the software code and packaging, which they can manufacture, market
and sell to distributors or retailers in exchange for royalty payments. Sales
from our European entity accounted for approximately 10% of total 3DO sales.

    INTERNET.  We currently maintain an extensive Web site which contains the
following major sections:

    - PRODUCTS. For each of our brands, the site contains a detailed description
      of each product and its gameplay. Iin some instances users can also
      download to their computers a demo containing a few levels of each game, a
      video clip showing actual gameplay, an animated description of the game,
      or actual screenshots from each game. Users have the ability to download
      artwork including box art, character renderings, and wallpaper for display
      on a computer desktop. Our Web site also provides support for each
      product, allowing users to download updates and modifications to our
      software, view responses to frequently asked questions, and communicate
      with our customer service department.

    - THE 3DO COMMUNITY. This section of the site allows customers to register
      individually with their own profiles and screen names, to converse on-line
      with each other about our products, and to post messages and receive mail
      regarding our products. A free, Web-based e-mail capability is also
      offered, allowing users to send and receive mail from a 3DO-branded domain
      address such as "armymen.com."

    - THE 3DO STORE. This section of the site offers consumers the ability to
      purchase packaged versions of our products online, directly from us, for
      conventional delivery to their homes. The "3DO Pipeline" section allows
      consumers to purchase downloadable versions of some games for electronic
      delivery to their computers over the Internet.

MANUFACTURING

    We believe that our principal strengths are designing and developing strong,
high quality interactive entertainment software brands. In order to concentrate
our efforts on brand and title development, we have established relationships
with JVC, Sony and Nintendo to outsource manufacturing and physical

                                       5
<PAGE>
distribution of our titles. We also outsource these functions to take advantage
of the manufacturing economies of scale which these major companies can offer
and to avoid the capital investment and overhead costs inherent in establishing
and maintaining internal manufacturing operations.

    Sony has granted us a non-exclusive license to develop and distribute game
software on CD-ROMs for use on the Sony PlayStation game console in the United
States, Canada and Europe, under which we pay Sony a per unit royalty for each
unit manufactured. Sony is the exclusive manufacturer of products licensed under
these agreements. The agreements grant us licenses to use proprietary Sony
software and hardware to develop titles for the PlayStation and to use Sony
trademarks to market, distribute and sell titles for the PlayStation. We have
also entered into a similar license for the PlayStation2 game console in the
U.S. We retain all right, title, and interest in and to our software.
Development of new games under this agreement is subject to approval by Sony and
testing and approval of the completed game by Sony is required prior to market
introduction.

    Nintendo has granted us a non-exclusive license to utilize proprietary
programming specifications, development tools, trademarks, and other
intellectual property rights solely in order to develop video game software and
sell such software for the BattleTanx brand for play on the Nintendo 64 system
throughout the Western Hemisphere. Development of new games for use under this
agreement is subject to approval by Nintendo and testing and approval of the
completed game by Nintendo is required prior to market introduction.
Additionally, Nintendo has exclusive responsibilities for establishing and
fulfilling all aspects of the manufacturing process. We have also entered into a
similar license for the Game Boy Color in the U.S. and Europe. Under the
agreement, after licensing a product, we buy discrete quantities of licensed
game software units from Nintendo for sale. We pay Nintendo a per unit royalty
for each unit manufactured.

    JVC manufactures our personal computer CD-ROMs. We have granted JVC a
non-exclusive license to replicate compact discs of our executable game software
code and assemble and package materials to create a finished product. Prices for
replication are pursuant to prices submitted by written quotation or contract
and are subject to change annually by JVC based on changes in material and labor
costs and market conditions. Additionally JVC provides warehousing services and
takes orders from us for finished products and packages and prepares them for
shipping. At no time does JVC acquire any ownership rights to items we supply to
it. The contract may be terminated by either party with 60 days' prior written
notice.

    Before we start shipping a product, we provide our manufacturers with a
title's software code and related artwork, user instructions, warranty
information, brochures and packaging designs. JVC, Nintendo and Sony manufacture
based on purchase orders we submit in the ordinary course of business. JVC and
Sony generally ship our titles within two weeks after receiving our order.
Nintendo generally ships titles within four to six weeks after receiving our
order primarily due to the additional time required to manufacture game
cartridges overseas. Although we depend on a limited number of manufacturers, we
have not experienced any material difficulties or delays in the manufacture of
our titles, nor have we experienced any material delays due to title defects or
due to the unavailability of components or raw materials. Our software titles
carry a 90-day limited warranty.

COMPETITION

    The interactive entertainment software industry is intensely competitive and
is characterized by the frequent introduction of new hardware systems and
software products. Our competitors vary in size from small companies to very
large corporations with significantly greater financial, marketing and product
development resources than us. Due to these greater resources, some of our
competitors are better able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies, and pay higher fees to licensors of
desirable properties and to third party software developers. We believe that the
principal competitive factors in the interactive entertainment software industry
include brand name

                                       6
<PAGE>
recognition, entertainment value of specific titles, product features, quality,
ease of use, price and product support.

    We compete primarily with other publishers of interactive entertainment
software for personal computers and video game consoles. Significant competitors
include Acclaim Entertainment, Activision, Eidos, Electronic Arts, GT
Interactive Software, Interplay, LucasArts and THQ. In addition, integrated
video game console hardware/software companies such as Sony and Nintendo compete
directly by developing their own software titles for their respective platforms.
Large diversified entertainment or software companies, such as The Walt Disney
Company or Microsoft, many of which own substantial libraries of available
content and have substantially greater financial resources than us, may decide
to compete directly with us or to enter into exclusive relationships with our
competitors.

    Retailers of our products typically have a limited amount of shelf space and
promotional resources, and there is intense competition among consumer software
publishers, and in particular interactive entertainment software publishers, for
high quality retail shelf space and promotional support from retailers. To the
extent that the number of consumer software products and computer platforms
increases, competition for shelf space may intensify and may require us to
increase our marketing expenditures. Due to increased competition for limited
shelf space, retailers and distributors are in an increasingly better position
to negotiate favorable terms of sale, including price discounts, price
protection, marketing and display fees and product return privileges and other
concessions. Retailers and distributors also consider, as important competitive
factors, marketing support, quality of customer service and historical
performance. Our products constitute a relatively small percentage of any
retailer's sales volume.

INTELLECTUAL PROPERTY

    We hold copyrights on our products, product literature and advertising and
other materials, and hold trademark rights in our name, our logo, and some of
our product names and publishing labels. We have licensed certain products to
third parties for manufacture and distribution in particular geographic markets
outside North America, and receive royalties on such licenses. We currently
outsource product development for the Nintendo Game Boy Color hand-held video
game platform to third party developers. We contractually retain all
intellectual property rights related to such projects.

    We regard our software as proprietary and rely primarily on a combination of
copyright, trademark and trade secret laws, employee and third party
nondisclosure agreements and other methods to protect our proprietary rights. We
own or license various copyrights and trademarks. While we provide "shrinkwrap"
license agreements or limitations on use with our software, the enforceability
of such agreements or limitations is uncertain. While we copy-protect our
products, we are aware that unauthorized copying occurs within the computer
software industry, and if a significantly greater amount of unauthorized copying
of our interactive entertainment software products were to occur, our operating
results could be materially adversely affected.

    We rely on existing copyright laws to prevent unauthorized distribution of
our software. Existing copyright laws afford only limited protection. Policing
unauthorized use of our products is difficult, and software piracy can be
expected to be a persistent problem, especially in certain international
markets. Further, the laws of certain countries in which our products are or may
be distributed either do not protect our products and intellectual property
rights to the same extent as the laws of the U.S. or are weakly enforced. Legal
protection of our rights may be ineffective in such countries, and if we seek to
leverage our software products using emerging technologies, such as the Internet
and on-line services, it may become more difficult to protect our intellectual
property rights, and to avoid infringing the intellectual property rights of
others. In addition, the intellectual property laws are less clear with respect
to such emerging technologies. We cannot be certain that existing intellectual
property laws will provide adequate protection for our products in connection
with such emerging technologies.

                                       7
<PAGE>
    As the number of interactive entertainment software products in the industry
increases and the features and content of these products further overlap,
software developers may increasingly become subject to infringement claims.
Although we believe that we make reasonable efforts to ensure that our products
do not violate the intellectual property rights of others, we cannot be certain
that claims of infringement will not be made. Any such claims, with or without
merit, can be time consuming and expensive to defend. From time to time, we have
received communication from third parties asserting that features or content of
certain of our products may infringe upon the intellectual property rights of
such parties. We cannot be certain that existing or future infringement claims
against us will not result in costly litigation or require us to seek to license
the intellectual property rights of third parties, which licenses may not be
available on acceptable terms, if at all.

    We license certain copyrights and trademarks for use in our High Heat
Baseball brand and pay applicable royalties. If we were unable to maintain or
renew those licenses for use in High Heat Baseball, we would be unable to
release additional sequels and line extensions for that brand and our business
may be seriously harmed.

GOVERNMENT REGULATION

    The home video game industry requires interactive entertainment software
publishers to provide consumers with information about graphic violence and
sexually explicit material contained in their interactive entertainment software
products. This system requires publishers to identify particular products within
defined rating categories and communicate such ratings to consumers through
appropriate package labeling and through advertising and marketing presentations
consistent with each product's rating.

    Mandatory government-imposed interactive entertainment software products
rating systems eventually may be adopted in many countries, including the United
States. Due to the uncertainties inherent in the implementation of rating
systems, confusion in the marketplace may occur, and publishers may be required
to modify or remove products from the market. However, we are unable to predict
what effect, if any, such rating systems would have on our business.

    Many foreign countries have laws which permit governmental entities to
censor the content of certain works, including interactive entertainment
software. As a result, we may be required to modify our products to comply with
these requirements, or withdraw them from the market which could result in
additional expense and loss of revenues.

    Certain retailers have in the past declined to stock some software products
because they believed that the content of the packaging artwork or the products
would be offensive to their customer base. Although such actions have not yet
affected us, we cannot be certain that our distributors or retailers will not
take such actions in the future.

EMPLOYEES

    As of March 31, 2000, we employed 495 full-time employees and 42 independent
contractors. These persons provided services in the following areas: 404 in
product development, 37 in sales and marketing, and 96 in finance,
administration, distribution and legal services.

RISK FACTORS

OUR QUARTERLY OPERATING RESULTS FREQUENTLY VARY SIGNIFICANTLY DUE TO FACTORS
  OUTSIDE OUR CONTROL.

    We have experienced and expect to continue to experience wide fluctuations
in quarterly operating results as a result of a number of factors. We cannot
control many of these factors, which include the following:

    - the timing and number of new title introductions;

                                       8
<PAGE>
    - the mix of sales of higher and lower margin products in a quarter;

    - market acceptance of our titles;

    - development and promotional expenses relating to the introduction of new
      titles, sequels or enhancements of existing titles;

    - announcements and introductions of new hardware platforms;

    - product returns;

    - changes in pricing policies by us and our competitors;

    - the timing of orders from major customers and distributors; and

    - delays in shipment.

    For these reasons, you should not rely on period-to-period comparisons of
our financial results as indications of future results. Our future operating
results could fall below the expectations of securities industry analysts or
investors. Any such shortfall could result in a significant decline in the
market price of our common stock. Fluctuations in our operating results will
likely increase the volatility of our stock price.

OUR SALES ARE SEASONAL, AND WE DEPEND ON STRONG SALES DURING THE HOLIDAY SEASON.

    Sales of our titles are seasonal. Our peak shipments typically occur in the
third and fourth calendar quarters (our second and third fiscal quarters) as a
result of increased demand during the year-end holiday season. If we do not
achieve strong sales in the second half of each calendar year, our fiscal year
results would be adversely affected.

A SIGNIFICANT PORTION OF OUR REVENUES ARE DERIVED FROM A LIMITED NUMBER OF
  BRANDS, SO A DECLINE IN A BRAND'S POPULARITY MAY HARM OUR RESULTS.

    Because we depend on a limited number of brands for the development of
sequels and line extensions, if one or more of our brands were to lose their
current popularity, our revenues and profits may be seriously harmed.
Furthermore, we cannot be certain that a sequel or line extension of a popular
brand will be as popular as prior titles in that brand.

OUR BUSINESS DEPENDS ON "HIT" PRODUCTS, SO IF WE FAIL TO ANTICIPATE CHANGING
  CONSUMER PREFERENCES WE COULD SUFFER DECLINING REVENUES.

    Few interactive entertainment software products have achieved sustained
market acceptance, with those "hits" accounting for a substantial portion of
revenues in the industry. Our ability to develop a hit title depends on numerous
factors beyond our control, including:

    - critical reviews;

    - public tastes and preferences that change rapidly and are hard to predict;

    - the price and timing of new interactive entertainment titles released and
      distributed by us and our competitors;

    - the availability, price and appeal of other forms of entertainment; and

    - rapidly changing consumer preferences and demographics.

    If we fail to accurately anticipate and promptly respond to these factors,
our sales could decline. If we do not achieve adequate market acceptance of a
title, we could be forced to accept substantial product returns or grant
significant markdown allowances to maintain our relationship with retailers and
our access to distribution channels.

                                       9
<PAGE>
IF WE DO NOT CREATE TITLES FOR NEW HARDWARE PLATFORMS, OUR REVENUES WILL
  DECLINE.

    The interactive entertainment software market and the personal computer and
video game console industries in general have been affected by rapidly changing
technology, which leads to software and platform obsolescence. Our titles have
been developed primarily for multimedia personal computers and video game
consoles, including the Nintendo N64, Game Boy Color and Sony PlayStation. Our
software designed for personal computers must maintain compatibility with new
personal computers, their operating software and their hardware accessories. If
we are unable to successfully adapt our software and develop new titles to
function on various hardware platforms and operating systems, our business could
be seriously harmed.

TITLES WE DEVELOP FOR NEW PLATFORMS MAY NOT BE SUCCESSFUL.

    If we design new titles or develop sequels to operate on a new platform, we
will be required to make substantial development investments well in advance of
the platform introduction. If the new platform does not achieve initial or
continued market acceptance, then our titles may not sell many copies and we may
not recover our investment in product development.

IF OUR NEW PRODUCT INTRODUCTIONS ARE DELAYED, WE COULD LOSE SIGNIFICANT
  POTENTIAL REVENUES.

    Most of our products have a relatively short life cycle and sell for a
limited period of time after their initial release, usually less than one year.
We depend on the timely introduction of successful new products, including
enhancements of or sequels to existing products and conversions of previously
released products to additional platforms, to replace declining net revenues
from older products.

    The complexity of product development, uncertainties associated with new
technologies and the porting of our products to new platforms makes it difficult
to introduce new products on a timely basis. We have experienced delays in the
introduction of some new products. We anticipate that we will experience delays
in the introduction of new products, including some products currently under
development. We may also experience delays in receiving approval of our games
from Sony and Nintendo. Delays in the introduction of products could
significantly harm our operating results.

IF OUR NEW PRODUCTS HAVE DEFECTS, WE COULD LOSE POTENTIAL REVENUES AND INCREASE
  OUR COSTS.

    Software products such as those we offer frequently contain errors or
defects. Despite extensive product testing, in the past we have released
products with software errors. This is likely to occur in the future as well. We
offer warranties on our products, and may be required to repair or replace our
defective products. Although we periodically offer software patches for our
personal computer products, such errors may result in a loss of or delay in
market acceptance and cause us to incur additional expenses and delays to fix
these errors.

OUR GROSS MARGINS CAN BE SIGNIFICANTLY AFFECTED BY THE MIX OF PRODUCTS WE SELL.

    We typically earn a higher gross margin on sales of games for the personal
computer platform. Gross margins on sales of products for game console platforms
are generally lower because of:

    - license fees payable to Sony and Nintendo; and

    - higher manufacturing costs for game cartridges for the Nintendo N64
      console platform.

    Therefore, our gross margins in any period can be significantly affected by
the mix of products we sell for the personal computer, Sony PlayStation,
Nintendo N64 and Game Boy Color platforms.

                                       10
<PAGE>
IF WE DO NOT REDUCE COSTS OR PROPERLY ANTICIPATE FUTURE COSTS, OUR GROSS MARGIN
  MAY DECLINE.

    We anticipate that the average selling prices of our products may decrease
in the future in response to a number of factors, particularly competitive
pricing pressures and sales discounts. Therefore, to control our gross margin,
we must also seek to reduce our costs of production. The costs of developing new
interactive entertainment software have increased in recent years due to such
factors as:

    - the increasing complexity and robust content of interactive entertainment
      software;

    - increasing sophistication of hardware technology and consumer tastes; and

    - increasing costs of licenses for intellectual properties.

    If our average selling prices decline, we must also increase the rate of new
product introductions and our unit sales volume to maintain or increase our
revenue. Furthermore, our budgeted research and development and sales and
marketing expenses are partially based on predictions regarding sales of our
products. To the extent that these predictions are inaccurate, our operating
results may suffer.

IF NEW PLATFORMS ARE ANNOUNCED OR INTRODUCED, SALES OF OUR EXISTING TITLES COULD
  DECLINE SUDDENLY.

    Historically, the anticipation or introduction of next-generation video game
platforms has resulted in decreased sales of interactive entertainment software
for existing platforms. Sega has recently introduced its Dreamcast system
worldwide, which has received very positive responses from both retailers and
consumers. We recently entered into agreements with UBI Soft Entertainment and
Midway under which UBI Soft and Midway will adapt Heroes of Might and Magic III
and Army Men Sarge's Heroes for the Dreamcast System. Sony recently released the
next generation of the PlayStation in Japan, and plans to release it in Europe
and the United States in October 2000. Nintendo has stated that it is in the
process of developing a new video game platform currently referred to as the
Nintendo "Dolphin" system. If sales of current models of multimedia personal
computers or video game consoles level off or decline as a result of the
anticipated release of new platforms or other technological changes, sales of
our software titles developed for current platforms can be expected to decrease.
We expect that as more advanced platforms are introduced, consumer demand for
software for older platforms may decline. As a result, our titles developed for
such platforms may not generate sufficient sales to make such titles profitable.
Obsolescence of software or platforms could leave us with increased inventories
of unsold titles and limited amounts of new titles to sell to consumers.

OUR MARKETS ARE HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE
  EFFECTIVELY.

    The interactive entertainment software industry is intensely competitive and
is characterized by the frequent introduction of new hardware systems and
software products. Our competitors vary in size from small companies to very
large corporations which have significantly greater financial, marketing and
product development resources than us. Due to these greater resources, some of
our competitors are better able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies, pay higher fees to third party software
developers and licensors of desirable properties.

    Our competitors include the following:

    - Other publishers of interactive entertainment software for personal
      computer and video game consoles, including Acclaim Entertainment Inc.,
      Activision, Inc., Eidos plc, Electronic Arts, GT Interactive Software
      Corp., Interplay Entertainment Corp., LucasArts Entertainment Company and
      THQ Inc.

    - Integrated video game console hardware/software companies such as Sony and
      Nintendo compete directly with us in the development of software titles
      for their respective platforms.

                                       11
<PAGE>
    - Large diversified entertainment or software companies, such as The Walt
      Disney Company or Microsoft, many of which own substantial libraries of
      available content and have substantially greater financial resources than
      us, may decide to compete directly with us or to enter into exclusive
      relationships with our competitors.

IF WE DO NOT COMPETE SUCCESSFULLY FOR RETAIL SHELF SPACE, OUR SALES WILL
  DECLINE.

    Retailers of our products typically have a limited amount of shelf space and
promotional resources. Publishers of interactive entertainment software products
compete intensely for high quality retail shelf space and promotional support
from retailers. To the extent that the number of consumer software products
increases, competition for shelf space may intensify and may require us to
increase our marketing expenditures. Due to increased competition for limited
shelf space, retailers and distributors are in an increasingly better position
to negotiate favorable terms of sale, including price discounts, price
protection, marketing and display fees and product return privileges. Retailers
and distributors also consider marketing support, quality of customer service
and historical performance in selecting products to sell. Our products
constitute a relatively small percentage of any retailer's sales volume, and we
cannot be certain that retailers will continue to purchase our products or to
provide our products with adequate levels of shelf space and promotional
support.

IF MORE MASS MERCHANTS ESTABLISH EXCLUSIVE BUYING ARRANGEMENTS, OUR SALES AND
  GROSS MARGIN WOULD BE ADVERSELY IMPACTED.

    Mass merchants have become the most important distribution channels for
retail sales of interactive entertainment software. A number of these mass
merchants, including Wal-Mart, have entered into exclusive buying arrangements
with other software developers or distributors, which prevent us from selling
some of our products directly to that mass merchant. If the number of mass
merchants entering into exclusive buying arrangements with software distributors
were to increase, our ability to sell to those merchants would be restricted to
selling through the exclusive distributor. Because we typically earn a lower
gross margin on sales to distributors than on direct sales to retailers, this
would have the effect of lowering our gross margin.

OUR SALES AND ACCOUNTS RECEIVABLE ARE CONCENTRATED IN A LIMITED NUMBER OF
  CUSTOMERS.

    For the fiscal year ended March 31, 2000, one customer accounted for 10% or
higher of the Company's total revenues compared to two customers for the fiscal
year ended March 31, 1999. Our sales are made primarily on a purchase order
basis, without long-term agreements. The loss of our relationships with
principal customers or a decline in sales to any principal customer could harm
our business.

    Our sales are typically made on credit, with terms that vary depending upon
the customer and the demand for the particular title being sold. We do not hold
any collateral to secure payment by our customers. As a result, we are subject
to credit risks, which are increased when our receivables represent sales to a
limited number of retailers or distributors or are concentrated in foreign
markets. Distributors and retailers in the computer industry have from time to
time experienced significant fluctuations in their businesses, and there have
been a number of business failures among these entities. The insolvency or
business failure of any significant distributor or retailer of our products
could result in reduced revenues and write-offs of accounts receivable. If we
are unable to collect on accounts receivable as they become due and such
accounts are not covered by insurance, it could adversely affect our business,
operating results and financial condition.

RETURNS OR EXCHANGES OF OUR TITLES MAY HARM OUR BUSINESS.

    Our arrangements with retailers for published titles require us to accept
returns for unsold titles or defects, or provide adjustments for markdowns. We
establish a reserve for future returns of published titles

                                       12
<PAGE>
at the time of sales, based primarily on these return policies and historical
return rates, and we recognize revenues net of returns. Our provision for sales
returns and allowances was $10.9 million for the twelve months ended March 31,
2000. If return rates or markdowns significantly exceed our estimates, our
business could be seriously harmed.

SONY AND NINTENDO CAN INFLUENCE THE NUMBER OF GAMES THAT WE CAN PUBLISH AND
  TIMING OF OUR PRODUCT RELEASES.

    We depend heavily on non-exclusive licenses with Sony and Nintendo both for
the right to publish titles for their platforms and for the manufacture of our
software designed for use on their platforms. Our licenses with Sony and
Nintendo require that we obtain their approval for title proposals as well as
completed games and all associated artwork and marketing materials. This
approval process could cause a delay in our ability to release a new title and
cause us to incur additional expenses to modify the product and obtain approval.
As a result, the number of titles we are able to publish for these platforms may
be limited.

    The license with Sony covering the United States terminates in
September 2001 and the license with Nintendo for the N64 system terminates in
May 2001. Our license with Sony covering many countries in Europe and the Middle
East as well as Australia and New Zealand expires in December 2005. Our license
with Nintendo for the Game Boy Color for the western hemisphere terminates on
October 1, 2002, and for the European Community and select other countries in
the former Soviet Union and South Africa terminates on January 28, 2003. Our
license for the N64 system for the European Community and select countries in
the former Soviet Union and South Africa terminates on November 25, 2002. If any
of these licenses were terminated or not renewed on acceptable terms, we would
be unable to develop and publish software developed for these platforms and our
business would be seriously harmed.

SONY AND NINTENDO CAN INFLUENCE OUR GROSS MARGIN AND PRODUCT INTRODUCTION
  SCHEDULES IN WAYS WE CANNOT CONTROL.

    Each of Sony and Nintendo is the sole manufacturer of the titles we publish
under license from them. Each platform license provides that the manufacturer
may raise our costs for the titles at any time and grants the manufacturer
substantial control over whether and when we can release new titles. The
relatively long manufacturing and delivery cycle for cartridge-based titles for
the Nintendo platform (from four to six weeks) requires us to accurately
forecast retailer and consumer demand for our titles far in advance of expected
sales. Nintendo cartridges are also more expensive to manufacture than CD-ROMs,
resulting in greater inventory risks for those titles. Each of Sony and Nintendo
also publishes software for its own platform and also manufactures titles for
all of its other licensees and may choose to give priority to its own titles or
those of other publishers if it has insufficient manufacturing capacity or if
there is increased demand.

IF OUR CONTRACT MANUFACTURERS DO NOT HAVE SUFFICIENT CAPACITY OR DELAY
  DELIVERIES, OUR REVENUES WOULD BE HARMED.

    Our contract manufacturers, Sony, Nintendo and JVC, may not have sufficient
production capacity to satisfy our scheduling requirements during any period of
sustained demand. If manufacturers do not supply us with finished titles on
favorable terms without delays, our operations could be materially interrupted,
and our business could be seriously harmed.

IF OUR INTERNATIONAL OPERATIONS EXPAND, WE WILL ENCOUNTER RISKS WHICH COULD
  ADVERSELY AFFECT OUR BUSINESS.

    Our products are sold in international markets both directly and through
licensees, primarily in Canada, the United Kingdom and other European countries,
and to a lesser extent in Asia and Latin America. As a result of our current
international sales and our international expansion, we will become

                                       13
<PAGE>
increasingly subject to risks inherent in foreign trade, which can have a
significant impact on our operating results. These risks include the following:

    - increased costs to develop foreign language versions of our products;

    - increased credit risks and collection difficulties;

    - tariffs and duties;

    - increased risk of piracy;

    - shipping delays;

    - fluctuations in foreign currency exchange rates; and

    - international political, regulatory and economic developments.

IF INTERNET-BASED GAMEPLAY BECOMES POPULAR, WE WOULD NEED TO QUICKLY DEVELOP
  PRODUCTS AND ESTABLISH A VIABLE INTERNET BUSINESS MODEL.

    We offer a role playing fantasy game called "Meridian 59," which is a
server-based Internet game. This type of game's software resides on a remote
server, and can be played only by accessing that server via the Internet.
Meridian 59 has not achieved significant market penetration. We provide free
play time and other incentives, such as discounts and contests, to interest the
limited number of consumers currently in the Internet game market to try
Meridian 59. We have not yet established that any of these incentives, the
availability of server-based games on the Internet or whether the expenses we
incur in offering these incentives will result in significant growth in the use
of our server-based Internet games or generate revenues for us in the future. A
number of software publishers who compete with us have developed or are
currently developing server-based Internet games for use by consumers over the
Internet. If the Internet becomes a more popular venue for interactive software
games, then we will need to both rapidly develop and release games for the
Internet, and also establish a profitable business model for Internet-based
games.

    In December 1999, we were issued a patent which could allow us to create a
new business model in Internet games and entertainment. However, in order to
fully develop the patent's potential, significant investments will be required
in research and development or to obtain rights to Internet-related
technologies. While we have identified potential strategic partners, we have not
entered into any agreements with any of them and we cannot be certain that we
will be able to do so. Without the required investment in research and
development or without obtaining rights regarding technologies that would allow
us to exploit our Internet-related patent, we cannot be certain that we will be
able to fully utilize the patent in a commercially successful manner. In
addition, even if we are able to use the patent in connection with the
development of new Internet games or other forms of interactive entertainment
that are intended to be experienced through the Internet, the development of
such products will require significant additional investment by us. We cannot be
certain that such products will be commercially successful, nor can we even be
certain that our investment in developing and marketing such products will be
recouped by our sales or licenses of such products.

WE DEPEND ON OUR KEY PERSONNEL AND OUR ABILITY TO HIRE ADDITIONAL QUALIFIED
  PERSONNEL.

    Our success is largely dependent on the personal efforts of certain
personnel, especially Trip Hawkins. Our success is also dependent upon our
ability to hire and retain additional qualified operating, marketing, technical
and financial personnel. We rely heavily on our own internal development studios
to develop our products. The loss of any key developers or groups of developers
may delay the release of our products. Competition for personnel is intense,
especially in the San Francisco Bay area where we maintain our headquarters, and
we cannot be certain that we will successfully attract and retain additional
qualified personnel.

                                       14
<PAGE>
OUR INTERNAL DESIGN STUDIOS AND OUR MANUFACTURING SOURCES ARE VULNERABLE TO
  DAMAGE FROM NATURAL DISASTERS.

    All of our internal design studios and most of our manufacturing sources are
vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures and similar events. Our California internal design
studios are located on or near known earthquake fault zones. If a natural
disaster occurs, our ability to develop and distribute our products would be
seriously, if not completely, impaired. The insurance we maintain against fires,
floods, earthquakes and general business interruptions may not be adequate to
cover our losses in any particular case.

ILLEGAL COPYING OF OUR SOFTWARE ADVERSELY AFFECTS OUR SALES.

    Although we use copy-protection devices, an unauthorized person may be able
to copy our software or otherwise obtain and use our proprietary information. If
a significant amount of illegal copying of software published or distributed by
us occurs, our product sales could be adversely impacted. Policing illegal use
of software is extremely difficult, and software piracy is expected to persist.
In addition, the laws of some foreign countries in which our software is
distributed do not protect us and our intellectual property rights to the same
extent as the laws of the U.S.

WE MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

    As the number of interactive entertainment software products in the industry
increases and the features and content of these products further overlap,
software developers may increasingly become subject to infringement claims.
Although we make reasonable efforts to ensure that our products do not violate
the intellectual property rights of others, we cannot be certain that claims of
infringement will not be made. Any such claims, with or without merit, can be
time consuming and expensive to defend. From time to time, we have received
communications from third parties asserting that features or content of certain
of our products may infringe upon their intellectual property rights. We cannot
be certain that existing or future infringement claims against us will not
result in costly litigation or require us to seek to license the intellectual
property rights of third parties, which licenses may not be available on
acceptable terms, if at all.

WE DEPEND ON LICENSES FROM THIRD PARTIES FOR THE DEVELOPMENT OF ONE OF OUR
  BRANDS.

    We license various rights for use in our High Heat Baseball brand. If we
were unable to maintain or renew those licenses, we would be unable to release
additional sequels and line extensions for that brand.

RATING SYSTEMS FOR INTERACTIVE ENTERTAINMENT SOFTWARE, GOVERNMENT CENSORSHIP OR
  RETAILER RESISTANCE TO VIOLENT GAMES COULD INHIBIT OUR SALES OR INCREASE OUR
  COSTS.

    The home video game industry requires interactive entertainment software
publishers to identify products within defined rating categories and
communicating the ratings to consumers through appropriate package labeling and
through advertising and marketing presentations consistent with each product's
rating. If we do not comply with these requirements, it could delay our product
introductions and require us to remove products from the market.

    Legislation is currently pending at both the federal and state level in the
United States to establish mandatory video game rating systems. Mandatory
government imposed interactive entertainment software products rating systems
eventually may be adopted in many countries, including the United States. Due to
the uncertainties inherent in the implementation of such rating systems,
confusion in the marketplace may occur and publishers may be required to modify
or remove products from the market. However, we are unable to predict what
effect, if any, such rating systems would have on our business.

                                       15
<PAGE>
    Many foreign countries have laws which permit governmental entities to
censor the content of certain works, including interactive entertainment
software. As a result, we may be required to modify some of our products or
remove them from the market which could result in additional expense and loss of
revenues.

    Certain retailers have in the past declined to stock some software products
because they believed that the content of the packaging artwork or the products
would be offensive to the retailer's customer base. Although such actions have
not yet affected us, we cannot be certain that our distributors or retailers
will not take such actions in the future.

THE YEAR 2000 RISK MAY ADVERSELY AFFECT US.

    As of June 28, 2000, we had not experienced any Year 2000-related disruption
in the operation of our systems. Although most Year 2000 problems should have
become evident on January 1, 2000, additional Year 2000-related problems may
become evident only after that date.

    If our computers fail to recognize and properly process data related to the
Year 2000, they may cause many computer software applications to fail or reach
erroneous results. Any failure by us, our third-party suppliers or customers to
correct a material Year 2000 problem could result in an interruption in, or a
failure of, certain of our business operations

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.

    Disclosures of our operating results (particularly if below the estimates of
securities industry analysts), announcements of various events by us or our
competitors and the development and marketing of new titles affecting the
interactive entertainment software industry, as well as other factors, may cause
the market price of our common stock to change significantly over short periods
of time.

OUR FUTURE CAPITAL NEEDS ARE UNCERTAIN AND WE MAY NOT BE ABLE TO SATISFY THEM.

    In August 1999, we completed a secondary public offering our common stock,
raising approximately $46.4 million in net proceeds after deducting underwriting
discounts and commissions and estimated offering expenses. We anticipate that
the net proceeds of the public offering of our common stock, cash from
operations, the proceeds of a private placement of common stock, and available
borrowings under our credit facilities should be sufficient to meet our working
capital and capital expenditure needs for at least the 12 months following the
offering. After that, we may need to raise additional funds, which may not be
available on acceptable terms, if at all. We may also require additional capital
to acquire or invest in complementary businesses or products or obtain the right
to use complementary technologies. If we issue additional equity securities to
raise funds, the ownership percentage of our existing stockholders, including
the investors in the secondary offering, would be reduced. New investors may
demand rights, preferences or privileges senior to those of existing holders of
our common stock. Debt incurred by us would be senior to equity in the ability
of debtholders to make claims on our assets. The terms of any debt issued could
impose restrictions on our operations. If we cannot raise needed funds on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements.

FUTURE ACQUISITIONS MAY STRAIN OUR OPERATIONS.

    We have acquired various properties and businesses, and we intend to
continue to pursue opportunities by making selective acquisitions consistent
with our business strategy, although we may not make any more acquisitions. The
failure to adequately address the financial and operational risks raised by
acquisitions of technology and businesses could harm our business.

    Financial risks related to acquisitions include the following:

    - potentially dilutive issuances of equity securities;

                                       16
<PAGE>
    - use of cash resources;

    - the incurrence of additional debt and contingent liabilities;

    - large write-offs; and

    - amortization expenses related to goodwill and other intangible assets.

    Acquisitions also involve operational risks, including:

    - difficulties in assimilating the operations, products, technology,
      information systems and personnel of the acquired company; diversion of
      management's attention from other business concerns;

    - impairment of relationships with our retailers, distributors, licensors
      and suppliers;

    - inability to maintain uniform standards, controls, procedures and
      policies;

    - entrance into markets in which we have no direct prior experience; and

    - loss of key employees of the acquired company.

WE HAVE NO INTENTION OF PAYING DIVIDENDS.

    We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and;
therefore, do not expect to pay any dividends for the foreseeable future. In
addition, our line of credit with Coast Business Credit prohibits the payment of
dividends.

ANTI-TAKEOVER PROVISIONS MAY PREVENT AN ACQUISITION.

    Provisions of our Amended and Restated Certificate of Incorporation, Bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders.

ITEM 2.  FACILITIES

    As of March 31, 2000, we leased 77,080 square feet in Redwood City,
California, 7,900 square feet in Austin, Texas, and 16,638 square feet in Agoura
Hills, California, for an aggregate monthly rent expense of approximately
$280,000. These facilities house our administrative, research, development and
sales operations. The lease for the Redwood City facility expires in July 2001.
The lease for the Austin facility expires in September 2000, and the lease for
the Agoura Hills facility expires in January 2001. In August 1999, we entered
into a lease agreement with Wilson Cornerstone to lease two new buildings
totaling approximately 159,000 square feet. These two new buildings are expected
to be completed in November 2000 and we anticipate to move in by December 2000.
We believe that these facilities are adequate for our current needs.

ITEM 3.  LEGAL PROCEEDINGS

    We are engaged in certain legal actions arising in the ordinary course of
business. We believe that we have adequate legal defenses and that the ultimate
outcome of these actions will not have a material effect on our financial
position or results of operations, although we cannot be certain as to the
outcome of such litigation.

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, 2000.

                                       17
<PAGE>
PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Our common stock is quoted on the Nasdaq National Market under the symbol
"THDO." The following table sets forth the high and low closing sales prices per
share of our common stock, as reported on the Nasdaq National Market for the
periods indicated.

<TABLE>
<CAPTION>
                                                                 CLOSING SALES
                                                                    PRICES
                                                              -------------------
                                                                HIGH       LOW
                                                              --------   --------
<S>                                                           <C>        <C>
Fiscal Year Ended March 31, 1999:
  First Quarter.............................................   $ 4.03     $2.63
  Second Quarter............................................     3.91      2.75
  Third Quarter.............................................     4.81      2.00
  Fourth Quarter............................................     6.50      3.69

Fiscal Year Ended March 31, 2000:
  First Quarter.............................................   $ 6.99     $4.44
  Second Quarter............................................    10.06      5.13
  Third Quarter.............................................    11.00      7.50
  Fourth Quarter............................................    15.81      7.19
</TABLE>

    As of May 31, 2000, there were approximately 737 holders of record of
36,691,519 shares of outstanding common stock.

DIVIDEND POLICY

    We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. In addition, our line of credit with Foothill Capital
Corporation prohibits the payment of dividends.

                                       18
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31,
                                                      ----------------------------------------------------
                                                        1996       1997       1998       1999       2000
                                                      --------   --------   --------   --------   --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S>                                                   <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
SOFTWARE PUBLISHING
Revenues............................................  $  7,330   $  9,540   $  9,429   $ 48,019   $122,234
Cost of revenues....................................  $  3,989      5,397      3,916     13,778     44,823
                                                      --------   --------   --------   --------   --------
Gross profit........................................  $  3,341      4,143      5,513     34,241     77,411
Operating expenses:
Research and development............................    13,002     23,717     16,483     25,939     34,275
Sales and marketing.................................     2,015      5,309      5,612     13,497     31,652
General and administrative..........................     3,035      6,917      6,399      8,900     11,307
In-process research and development.................        --      7,700         --         --         --
                                                      --------   --------   --------   --------   --------
  Total operating expenses..........................    18,052     43,643     28,494     48,336     77,234
Operating income (loss).............................   (14,710)   (39,500)   (22,981)   (14,095)       177
Net interest and other income (expense)(1)..........       684      2,115      1,874      1,119        325
                                                      --------   --------   --------   --------   --------
Income (loss) before taxes..........................  $(14,026)  $(37,385)  $(21,107)  $(12,976)  $    502
                                                      --------   --------   --------   --------   --------
HARDWARE SYSTEMS
Revenues:
Royalties and license fees..........................  $ 24,074   $ 79,167   $ 29,371         --         --
Development systems and other.......................     6,514      3,643         90         --         --
  Total revenues....................................    30,588     82,810     29,461         --         --
                                                      --------   --------   --------   --------   --------
Cost of revenues:
Royalties and license fees..........................       694        456         --         --         --
Development systems and other.......................     3,231      2,136         43         --         --
                                                      --------   --------   --------   --------   --------
  Total cost of revenues............................     3,925      2,592         43         --         --
                                                      --------   --------   --------   --------   --------
Gross profit........................................    26,663     80,218     29,418         --         --
Operating expenses:
Research and development............................    28,182     18,360      2,664         --         --
Sales and marketing.................................     5,746      2,734         --         --         --
General and administrative..........................     6,501      4,393        923         --         --
Stock incentive.....................................        --         --         --         --         --
                                                      --------   --------   --------   --------   --------
  Total operating expenses..........................    40,429     25,487      3,587         --         --
                                                      --------   --------   --------   --------   --------
Operating income....................................   (13,766)    54,731     25,831         --         --
Gain on sale of hardware systems assets.............        --         --     18,032         --         --
Net interest and other income (expense).............        --         --         --         --         --
                                                      --------   --------   --------   --------   --------
Income before taxes.................................  $(13,766)  $ 54,731   $ 43,863         --         --
                                                      --------   --------   --------   --------   --------
CONSOLIDATED SOFTWARE PUBLISHING AND HARDWARE
  SYSTEMS
Income (loss) before taxes..........................  $(27,792)  $ 17,346   $ 22,756   $(12,976)  $    502
Income and foreign withholding taxes................     6,876      4,075        219        191        297
Net income (loss)...................................  $(34,668)  $ 13,271   $ 22,537   $(13,167)  $    205
Basic net income (loss) per share...................  $  (1.36)  $   0.48   $   0.85   $  (0.51)  $   0.01
Diluted net income (loss) per share.................  $  (1.36)  $   0.46   $   0.83   $  (0.51)  $   0.01

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...  $ 50,145   $ 33,617   $ 34,584   $ 13,851   $ 21,772
Working capital.....................................    (6,951)    14,067     28,769     15,675     58,140
Total assets........................................    63,330     44,954     40,447     40,488     97,801
Short-term debt.....................................        --         --         --      9,505      8,579
Total long-term liabilities.........................     1,831      1,715         --         --         --
Total stockholders' equity..........................       131     21,399     33,578     20,115     72,816
</TABLE>

--------------------------

(1) For presentation purposes, net interest and other income (expense) has been
    allocated to software publishing.

                                       19
<PAGE>
                           FORWARD-LOOKING STATEMENTS

    This Form-10K contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends," "may," "will," "should," "estimates,"
"predicts," "potential," "continue" and similar expressions to identify such
forward-looking statements. Similar forward-looking statements were contained in
the press releases dated June 8 and 9, 2000 (the "Press Releases") describing,
among other things, our business plans and expected future revenues. These
forward-looking statements include, but are not limited to, statements contained
in the Press Releases and statements under "Management's Discussion and Analysis
of Financial Resources and Results of Operations" and "Business."
Forward-looking statements are subject to known and unknown risks, uncertainties
and other factors that may cause our actual results, levels of activity,
performance, achievements and prospects to be materially different from those
expressed or implied by such forward-looking statements. These risks,
uncertainties and other factors include, among others, those identified under
"Risk Factors" and elsewhere in this Form-10K.

    These forward-looking statements apply only as of the date of this
Form 10-K. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties, and assumptions,
the forward-looking events discussed in this prospectus might not occur. Our
actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described above and elsewhere in this prospectus. Such forward-looking
statements include statements as to, among others:

    - the timing of the introduction of some new products;

    - the expectations regarding the decrease in average selling prices;

    - our ability to reduce manufacturing costs;

    - our expectations that as more advanced platforms are introduced, consumer
      demand for software for older platforms may decline;

    - our expectations as to the change in the distribution channels for
      interactive software;

    - our cash flow from operations and our available credit facilities;

    - our expectations as to our future cash requirements;

    - our expectations as to our international expansion and hiring personnel
      for the European expansion;

    - our expectations as to the retention of future earnings;

    - our expectations regarding the future development of our business;

    - our expectations regarding negative cash flows;

    - our expectations regarding operating expenses;

    - our expectations regarding the success and cost of the Year 2000 working
      group;

    - our expectations regarding the development of Year 2000 contingency plans;

    - our expectations regarding the effect of recent accounting pronouncements;

    - our expectations regarding product releases;

    - our expectations regarding the localization of our products for European
      countries;

                                       20
<PAGE>
    - our expectations regarding the planned increase of sales directly to
      retailers in North America:

    - our expectations regarding our expected receipt of increased revenues in
      fiscal year 2001;

    - our expectations regarding expected increases in gross margin dollars in
      fiscal year 2001;

    - our expectations regarding our ability to release a large number of new
      SKUs or products for existing and new platforms; and

    - our ability to fully apply and utilize our Internet patent to develop a
      new Internet business model and earn significant profits in fiscal 2002
      and beyond.

    - our expectations regarding our maintaining a position of leadership in
      revenue growth in the video game industry.

    - our ability to increase research and development and marketing
      efficiencies related to our core business.

    - our expectations regarding profits to be earned from our core business.

    - our ability to release a slate of PlayStation 2 titles concurrently with
      the debut of the platform in the U.S.

    - our ability to release several new brands, new game genres and to expand
      into new market segments.

    - our expectations regarding Sony's plan to supply 10 million PlayStation 2
      systems by March 2001, and its plan to release 5 million PlayStation game
      consoles by March 2001.

    - our expectations regarding the volatility of our revenues in the first two
      quarters in fiscal year 2001.

    - our ability to identify several acquisition targets as well as additional
      strategic partners.

    - our expectations regarding the private placement investment to be
      conducted with Trip Hawkins.

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

GENERAL

    You should read the following discussion of our financial condition and
results of operations together with our consolidated financial statements and
the notes to those statements included elsewhere in this Form-10K. This Form-10K
contains, in addition to historical information, forward-looking statements that
involved risks and uncertainties. Our actual results could differ materially
from the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Form-10K. See "Risk Factors."

OVERVIEW

    We are a leading developer and publisher of branded interactive
entertainment software. Our software products operate on several multimedia
platforms including personal computers, the Sony PlayStation, Nintendo N64 and
Game Boy Color hand held video game consoles, and the Internet. We are also
developing software for next-generation video game consoles. We plan to continue
to extend our popular brands across multiple categories, or "genres," and
platforms. These brands include Army Men, BattleTanx, Family Game Pack, Heroes
of Might and Magic, High Heat Baseball, and Might and Magic, many of which have
won industry awards. Our software products cover a variety of genres, including
action, strategy, adventure/role playing, sports and family entertainment. We
develop our software internally in our company-owned studios and have created an
extensive portfolio of versatile technologies that allow us to develop new
software titles more quickly and cost-effectively.

                                       21
<PAGE>
    We were incorporated in California in September 1991 and commenced
operations in October 1991. In April 1993, we reorganized as a Delaware holding
company and acquired an entity that had developed our hardware technology. We
acquired Cyclone Studios in November 1995, Archetype Interactive Corporation in
May 1996 and certain assets of New World Computing, Inc. in June 1996. We
currently have an active subsidiary in the United Kingdom, 3DO Europe, Ltd.

    Software publishing revenues consist primarily of revenues from the sale of
software titles published and distributed by us and license fees for software
developed by us and manufactured, marketed and distributed by third party
licensees in Europe, Latin America, Asia and Australia. Software publishing
revenues are net of allowances for returns, price protection and discounts.
Software publishing revenues are recognized at the time of shipment, provided
that we have no related outstanding obligations. Software licensing revenues are
typically recognized when we fulfill our obligations, such as delivery of the
product master under a distribution agreement. Per-copy royalties that exceed
guaranteed minimum royalty levels are recognized as earned. We recognize revenue
from our Meridian 59 online service monthly upon customers' usage.

    Cost of software publishing revenues consists primarily of direct costs
associated with software titles, including manufacturing costs and royalties
payable to platform developers such as Sony and Nintendo and, to a lesser
extent, royalties payable to third-party developers. Cost of revenues for
interactive entertainment software varies significantly by platform. Cost of
revenues for video game console titles is typically higher than cost of revenues
for personal computer titles due to relatively higher manufacturing and royalty
costs associated with these products. Cost of revenues for personal computer
titles primarily consists of the cost of the CD-ROM and packaging.

    Research and development expenses consist primarily of personnel and support
costs. Internal development costs of software titles are expensed as incurred
and included in research and development expenses.

    Sales and marketing expenses primarily consist of advertising and retail
marketing support, sales commissions, sales and marketing personnel costs and
other costs.

    We expect to continue to incur substantial expenditures to develop our
business in the future. We expect that our operating results will fluctuate as a
result of a wide variety of factors, including the factors described in "Risk
Factors".

    As of March 31, 2000, we had cumulative federal net operating loss
carryforwards of $98.4 million for federal income tax purposes, which if not
offset against future taxable income, will expire in fiscal 2009 through 2020.
As of March 31, 2000, we had no cumulative California net operating loss
carryforwards.

    As of March 31, 2000, the Company has used research and development tax
credits of approximately $8.9 million and $6.8 million available to reduce
future federal and California income taxes, respectively. The federal research
and development tax credits expire in fiscal years 2007 through 2020. The
California research and development tax credits can be carried forward
indefinitely. The Company also has foreign tax credits of approximately
$11.0 million available to reduce future federal income taxes, expiring through
fiscal year 2005. There are also minimum tax credits of approximately
$0.5 million available to reduce future federal income taxes, which will
carryforward indefinitely.

RESULTS OF SOFTWARE PUBLISHING OPERATIONS

    The following table sets forth certain consolidated statements of operations
data related to our software publishing operations for fiscal 1998, 1999 and
2000 expressed as a percentage of revenues. We

                                       22
<PAGE>
have not included similar information for our hardware systems operations
because we believe that such information is not helpful in understanding our
current operations.

<TABLE>
<CAPTION>
                                                               YEAR ENDED MARCH 31,
                                                       ------------------------------------
                                                         1998          1999          2000
                                                       --------      --------      --------
<S>                                                    <C>           <C>           <C>
Revenues.............................................    100.0%       100.0%        100.0%
Cost of revenues.....................................     41.5         28.7          36.7
                                                        ------        -----         -----
Gross profit.........................................     58.5         71.3          63.3
Operating expenses:
  Research and development...........................    174.8         54.0          28.0
  Sales and marketing................................     59.5         28.1          25.9
  General and administrative.........................     67.9         18.5           9.3
                                                        ------        -----         -----
    Total operating expenses.........................    302.2        100.6          63.2
                                                        ------        -----         -----
Operating loss.......................................   (243.7)       (29.3)          0.1
Net interest and other income........................     19.9          2.3           0.3
                                                        ------        -----         -----
Loss before taxes....................................   (223.8)%      (27.0)%         0.4%
                                                        ------        -----         -----
</TABLE>

FISCAL 2000 COMPARED TO FISCAL 1999

    REVENUES.  Revenues increased by $74.2 million, or 155%, to $122.2 million
in fiscal 2000 from $48.0 million in fiscal 1999. This increase was due
primarily to an increase in the number of new titles released to 31 new titles
in fiscal 2000 from 14 new titles in fiscal 1999. Our revenues consisted
primarily of sales of interactive entertainment software for the Sony
PlayStation, the Nintendo N64 and the personal computer.

    COST OF REVENUES.  Cost of revenues increased by $31.0 million, or 225%, to
$44.8 million in fiscal 2000 from $13.8 million in fiscal 1999. This increase
was primarily due to the increased number of software titles published in fiscal
2000 compared with fiscal 1999. Gross margin decreased to 63.3% in fiscal 2000
from 71.3% in fiscal 1999. The decrease was due to higher console product mix in
fiscal 2000, which had higher per unit cost of goods sold.

    RESEARCH AND DEVELOPMENT.  Research and development expenses increased by
approximately $8.3 million, or 32%, to $34.3 million in fiscal 2000 from
$25.9 million in fiscal 1999. This increase was primarily due to higher on-going
development expenses as we continued to expand our product development efforts
and began to develop products for the next generation video game console systems
in addition to the current video game platforms. Research and development
expenses as a percentage of revenues decreased to 28.0% in fiscal 2000 from
54.0% in fiscal 1999 as revenues grew at a faster rate than research and
development expenses due in part to the increase in efficiency in our product
development process and cost savings from the use of our proprietary tools and
technology in developing new products.

    SALES AND MARKETING.  Sales and marketing expenses increased $18.2 million,
or 135%, to $31.7 million in fiscal 2000 from $13.5 million in fiscal 1999. This
increase was primarily due to marketing expenses related to the release of
sixteen personal computer titles, ten Sony PlayStation titles, three Nintendo
Color Game Boy titles and two Nintendo N64 titles in fiscal 2000, compared to
the release of ten personal computer titles, three Sony PlayStation titles and
one Nintendo N64 title in fiscal 1999. We also continued to incur substantial
marketing expenses for our television ad campaigns for our major brands
including BattleTanx, Army Men and High Heat Baseball in fiscal 2000. Sales and
marketing expenses as a percentage of revenues decreased to 25.9% in fiscal 2000
from 28.1% in fiscal 1999 as revenues grew at a faster rate than sales and
marketing expenses due in part to sales of new products in brands for which we
were able to take advantage of brand name recognition generated by our previous
advertising campaigns.

                                       23
<PAGE>
We anticipate that sales and marketing expenses will increase in the future as
additional software titles are released.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
by $2.4 million, or 27%, to $11.3 million in fiscal 2000, from $8.9 million in
fiscal 1999. The increase was primarily due to the increase in administrative
and overhead expenses as we continued to build the infrastructure to support the
release of new titles for the personal computer, Sony PlayStation, Nintento
Color Game Boy, Nintendo N64 and the next generation console platforms. We
expect that general and administrative expenses will continue to increase in the
future.

    NET INTEREST AND OTHER INCOME.  Net interest and other income decreased by
$0.8 million to $0.3 million in fiscal 2000 from $1.1 million in fiscal 1999.
The decrease in net interest and other income is primarily due to the decrease
in cash and short-term investment balances.

FISCAL 1999 COMPARED TO FISCAL 1998

SOFTWARE PUBLISHING

    REVENUES.  Revenues increased by $38.6 million, or 409%, to $48.0 million in
fiscal 1999 from $9.4 million in fiscal 1998. This increase was due primarily to
an increase in the number of new titles released to 14 new titles in fiscal 1999
from three new titles in fiscal 1998. Revenues in fiscal 1999 consisted
primarily of sales of interactive entertainment software for the personal
computer, and to a lesser extent, the Sony PlayStation and the Nintendo N64.
Revenues in fiscal 1998 consisted primarily of sales of personal computer
software.

    COST OF REVENUES.  Cost of revenues increased by $9.9 million, or 252%, to
$13.8 million in fiscal 1999 from $3.9 million in fiscal 1998. This increase was
primarily due to the increased number of software titles published in fiscal
1999 compared with fiscal 1998. Gross margin increased to 71.3% in fiscal 1999
from 58.5% in fiscal 1998. This increase was due primarily to the release of
titles in fiscal 1999 which had higher per unit wholesale prices and lower
allowances for returns and price protection.

    RESEARCH AND DEVELOPMENT.  Research and development expenses increased by
approximately $9.5 million, or 57%, to $25.9 million in fiscal 1999 from
$16.5 million in fiscal 1998. This increase was primarily due to higher on-going
development expenses as we continued to expand our product development efforts
and began to develop products for video game console systems in addition to the
personal computer. Research and development expenses as a percentage of revenues
decreased to 54.0% in fiscal 1999 from 174.8% in fiscal 1998 as revenues grew at
a faster rate than research and development expenses due in part to cost savings
from the use of our proprietary tools and technology in developing new products.

    SALES AND MARKETING.  Sales and marketing expenses increased $7.9 million,
or 141%, to $13.5 million in fiscal 1999 from $5.6 million in fiscal 1998. This
increase was primarily due to marketing expenses related to the release of ten
personal computer titles, three Sony PlayStation titles and one Nintendo N64
title in fiscal 1999, compared to the release of three new personal computer
titles in fiscal 1998. We also incurred substantial marketing expenses for our
television ad campaigns for BattleTanx for the N64 and Army Men 3D for the
PlayStation in fiscal 1999. Sales and marketing expenses as a percentage of
revenues decreased to 28.1% in fiscal 1999 from 59.5% in fiscal 1998 as revenues
grew at a faster rate than sales and marketing expenses due in part to sales of
new products in brands for which we were able to take advantage of brand name
recognition generated by our previous advertising campaigns. We anticipate that
sales and marketing expenses will increase in the future as additional software
titles are released.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
by $2.5 million, or 39%, to $8.9 million in fiscal 1999, from $6.4 million in
fiscal 1998. The increase was primarily due to the increase in administrative
and overhead expenses as we continued to build the infrastructure to support the

                                       24
<PAGE>
release of new titles for the personal computer, Sony PlayStation and Nintendo
N64 platforms. We expect that general and administrative expenses will continue
to increase in the future.

    NET INTEREST AND OTHER INCOME.  Software publishing has incurred negative
cash flows during fiscal 1998 and 1999, and we primarily have relied upon cash
generated from the sale or license of hardware systems technology to fund
software publishing operations. (See notes G and H of the notes to the
consolidated financial statements.) For presentation purposes all net interest
and other income (expense) has been allocated to software publishing. Net
interest and other income decreased by $0.8 million to $1.1 million in fiscal
1999 from $1.9 million in fiscal 1998. The decrease in net interest and other
income is primarily due to the decrease in cash and short-term investment
balances.

HARDWARE SYSTEMS

    In fiscal 1998, we licensed and sold substantially all of the assets of our
former hardware systems group.

LIQUIDITY AND CAPITAL RESOURCES

    Our working capital was $58.4 million as of March 31, 2000 compared to
$15.7 million as of March 31, 1999. Our principal sources of liquidity are cash
and cash equivalent balances and short-term investment balances, which were
$21.8 million at March 31, 2000 and $13.9 million at March 31, 1999. The
increase was primarily due to the $46.4 million net cash receipt from the
secondary offering, offset by $30.9 million cash used in operating activities
and $4.5 million in capital expenditure.

    In fiscal 1999, we entered into two line of credit agreements. Our agreement
with Coast Business Credit allows us to borrow up to $20.0 million or 60% of
qualified accounts receivable. Borrowings under this line of credit bear
interest at a rate of prime plus 2.0% (11.0% as of March 31, 2000). This line of
credit expires in March 2002. Our agreement with Coast Business Credit contains
financial covenants. See note N of the notes to condensed consolidated financial
statements. As of March 31, 2000, our outstanding loan balance under this
facility was $8.6 million. Our agreement with Merrill Lynch & Co. allows us to
borrow up to $20.0 million or 90% of the cash balance in the pledged collateral
account. Borrowings under this line of credit bear interest at a rate of the
30-day commercial paper rate plus 2.10% (8.74% as of March 31, 2000). The
Merrill Lynch line of credit was terminated in April 2000.

    In August 1999, we completed a public offering of our common stock, raising
approximately $46.4 million in net proceeds after deducting underwriting
discounts and commissions and estimated offering expenses. We anticipate that
the net proceeds of the public offering of our common stock, cash receipts from
sales of products, and available borrowings under our credit facilities should
be sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months. We expect to incur negative cash flows for the fiscal
2001, primarily due to our continued investment in the internal development of
entertainment software titles for the next generation console platforms that are
scheduled to be released in the third and fourth quarters of fiscal 2001, which
include additional capital expenditures primarily for computer equipment. In
addition, we anticipate that a substantial portion of our operating expenses in
fiscal 2001 will be related to marketing and advertising, as we continue to
raise the brand awareness of our products. Due to our aggressive expansion plan,
additional capital may be required in fiscal 2001. If we need to raise
additional funds through public or private financing, we cannot be certain that
additional financing will be available or that, if available, it will be
available on terms acceptable to us. Additional financing 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, we
may be required to curtail our operations significantly or to seek funds through
arrangements with strategic partners or other parties that may require us to
relinquish material rights to certain of our products, technologies or potential
markets.

                                       25
<PAGE>
YEAR 2000 COMPLIANCE

    As of June 28, 2000, we had not experienced any Year 2000-related disruption
in the operation of our systems. Although most Year 2000 problems should have
become evident on January 1, 2000, additional Year 2000-related problems may
become evident only after that date.

    If our computers fail to recognize and properly process data related to the
Year 2000, they may cause many computer software applications to fail or reach
erroneous results. Any failure by us, our third-party suppliers or customers to
correct a material Year 2000 problem could result in an interruption in, or a
failure of, certain of our business operations

ITEM 7(A).  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

    Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio. We place our investments with high
quality issuers and, by policy, limit the amount of credit exposure to any one
issuer. We are averse to principal loss and ensure the safety and preservation
of our invested funds by limiting default, market and reinvestment risk. We
classify our cash equivalents and short-term investments as fixed-rate if the
rate of return on such instruments remains fixed over their term. These
fixed-rate investments include fixed-rate U.S. government securities, municipal
bonds, time deposits and certificates of deposit. We classify our cash
equivalents and short-term investments as variable-rate if the rate of return on
such investments varies based on the change in a predetermined index or set of
indices during their term. These variable-rate investments primarily include
money market accounts held at various securities brokers and banks. Short-term
investments are included in the restricted cash line item on the balance sheet.
The table below presents the amounts and related weighted interest rates of our
investment portfolio at March 31, 2000:

<TABLE>
<CAPTION>
                                                    AVERAGE
SHORT-TERM INVESTMENTS(1)                        INTEREST RATE     COST     FAIR VALUE
-------------------------                        -------------   --------   ----------
<S>                                              <C>             <C>        <C>
Fixed rate.....................................      5.87%        $8,049      $8,042
</TABLE>

------------------------

(1) See definition in Note A to our Consolidated Financial Statements.

    The aggregate fair value of the our investment in short-term investments as
of March 31, 2000, by contractual maturity date, consisted of the following:

<TABLE>
<CAPTION>
                                                              AGGREGATE FAIR
                                                                  VALUE
                                                              --------------
                                                              (IN THOUSANDS)
<S>                                                           <C>
Due in one year or less.....................................      $6,077
Due in one to three years...................................       1,965
                                                                  ------
                                                                  $8,042
                                                                  ======
</TABLE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

    The Independent Auditors' Report, Consolidated Financial Statements and
Notes to Consolidated Financial Statements follow on Pages 27 through 46.

                                       26
<PAGE>
                          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, 1999 and 2000, 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, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 1999 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.

                                          /s/ KPMG LLP

Mountain View, California
May 3, 2000

                                       27
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                    MARCH 31,
                                                              ---------------------
                                                                1999        2000
                                                              ---------   ---------
<S>                                                           <C>         <C>
                                      ASSETS

Current assets:
  Cash and cash equivalents.................................  $   2,256   $  21,772
  Short-term investments....................................     11,595          --
  Accounts receivable, net of allowance of $4,017 and
    $10,907, respectively...................................     20,777      51,760
  Inventory.................................................        874       7,607
  Prepaid and other current assets..........................        546       1,986
                                                              ---------   ---------
Total current assets........................................     36,048      83,125
Property and equipment, net.................................      3,320       5,689
Restricted cash.............................................         --       8,240
Deposits and other assets...................................      1,120         747
                                                              ---------   ---------
Total assets................................................  $  40,488   $  97,801
                                                              =========   =========

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable..........................................  $   1,859   $   1,954
  Accrued expenses..........................................      6,526      12,222
  Deferred revenue..........................................        485         205
  Short term debt...........................................      9,505       8,579
  Other current liabilities.................................      1,998       2,025
                                                              ---------   ---------
Total current liabilities...................................     20,373      24,985
Stockholders' equity:
  Preferred stock, $0.01 par value; 5,000 shares authorized;
    no shares issued........................................         --          --
Common stock, $0.01 par value; 125,000 shares authorized;
  29,760 and 40,909 shares issued; 25,540 and 36,689 shares
  issued and outstanding, respectively......................        297         409
  Additional paid-in capital................................    161,975     214,446
  Accumulated other comprehensive loss......................       (255)       (342)
  Accumulated deficit.......................................   (127,840)   (127,635)
  Treasury stock, at cost, 4,220 shares.....................    (14,062)    (14,062)
                                                              ---------   ---------
Total stockholders' equity..................................     20,115      72,816
                                                              ---------   ---------
Total liabilities and stockholders' equity..................  $  40,488   $  97,801
                                                              =========   =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       28
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
SOFTWARE PUBLISHING
Revenues....................................................  $  9,429   $ 48,019   $122,234
Cost of Revenues............................................     3,916     13,778     44,823
                                                              --------   --------   --------
Gross profit................................................     5,513     34,241     77,411
Operating expenses:
  Research and development..................................    16,483     25,939     34,275
  Sales and marketing.......................................     5,612     13,497     31,652
  General and administrative................................     6,399      8,900     11,307
                                                              --------   --------   --------
    Total operating expenses................................    28,494     48,336     77,234
Operating income (loss).....................................   (22,981)   (14,095)       177
Net interest and other income...............................     1,874      1,119        325
                                                              --------   --------   --------
Income (loss) before taxes..................................   (21,107)   (12,976)       502
                                                              --------   --------   --------
HARDWARE SYSTEMS
Revenues:
  Royalties and license fees................................  $ 29,371   $     --   $     --
  Development systems and other.............................        90         --         --
                                                              --------   --------   --------
Total revenues..............................................    29,461         --         --
Cost of revenues:
  Royalties and license fees................................        --         --         --
  Development systems and other.............................        43         --         --
                                                              --------   --------   --------
Total of cost of revenues...................................        43         --         --
                                                              --------   --------   --------
Gross profit................................................    29,418         --         --
Operating expenses:
  Research and development..................................     2,664         --         --
  Sales and marketing.......................................        --         --         --
  General and administrative................................       923         --         --
                                                              --------   --------   --------
    Total operating expenses................................     3,587         --         --
                                                              --------   --------   --------
Operating income............................................    25,831         --         --
Gain on sale of hardware systems assets.....................    18,032         --         --
                                                              --------   --------   --------
Income before taxes.........................................    43,863         --         --
                                                              --------   --------   --------
CONSOLIDATED SOFTWARE PUBLISHING AND HARDWARE SYSTEMS
Income (loss) before taxes..................................  $ 22,756   $(12,976)  $    502
Income and foreign withholding taxes........................       219        191        297
                                                              --------   --------   --------
Net income (loss)...........................................  $ 22,537   $(13,167)  $    205
                                                              ========   ========   ========
Basic net income (loss) per share...........................  $   0.85   $  (0.51)  $   0.01
                                                              ========   ========   ========
Diluted net income (loss) per share.........................  $   0.83   $  (0.51)  $   0.01
                                                              ========   ========   ========
Shares used to compute basic net income (loss) per share....    26,387     25,602     32,458
                                                              ========   ========   ========
Shares used to compute diluted net income (loss) per
  share.....................................................    27,114     25,602     38,872
                                                              ========   ========   ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       29
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                   YEARS ENDED MARCH 31, 1998, 1999 AND 2000

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                ACCUMULATED
                               COMMON STOCK       ADDITIONAL       OTHER                       TREASURY
                            -------------------    PAID-IN     COMPREHENSIVE    ACCUMULATED     STOCK     STOCKHOLDERS'
                             SHARES     AMOUNT     CAPITAL         INCOME         DEFICIT      AT COST       EQUITY
                            --------   --------   ----------   --------------   ------------   --------   -------------
<S>                         <C>        <C>        <C>          <C>              <C>            <C>        <C>
Balances as of March 31,
  1997....................    28,369     $284      $158,489       $  (164)       $(137,210)         --       $21,399
Comprehensive Income:
  Net income..............        --       --            --                         22,537          --        22,537
  Other comprehensive loss
    Unrealized loss from
      investments.........        --       --            --          (112)              --          --          (112)
    Foreign currency
      translation.........        --       --            --           (14)              --          --           (14)
  Comprehensive income....
Sale of common stock
  through employee stock
  plans and other plans...       649        6         1,449            --               --          --         1,455
Repurchase of 3DO shares..                               --            --               --     (11,687)      (11,687)
                            --------     ----      --------       -------        ---------     --------      -------
Balances as of March 31,
  1998....................    29,018     $290      $159,938       $  (290)       $(114,673)    $(11,687)     $33,578
Comprehensive Income:
  Net loss................        --       --            --            --          (13,167)         --       (13,167)
  Other comprehensive
    income
    Unrealized gain from
      investments.........        --       --            --            35               --          --            35
  Comprehensive loss......
Sale of common stock
  through employee stock
  plans and other plans...       742        7         2,037            --               --          --         2,044
Repurchase of 3DO shares..                                             --               --      (2,375)       (2,375)
                            --------     ----      --------       -------        ---------     --------      -------
Balances as of March 31,
  1999....................    29,760     $297      $161,975       $  (255)       $(127,840)    $(14,062)     $20,115
Comprehensive Income:
Net Income................        --       --            --            --              205          --           205
Other comprehensive loss
  Unrealized loss from
    investments...........        --       --            --           (41)              --          --           (41)
  Foreign currency
    translation...........                                            (46)                                       (46)
Comprehensive income......
  Sale of common stock
    through employee
  stock plans and other
    plans.................     2,064       21         6,126            --               --          --         6,147
  Sale of common stock
    through secondary
    offering, net of
    issuing costs of
    $2,964................     9,085       91        46,345            --               --          --        46,436
                            --------     ----      --------       -------        ---------     --------      -------
  Balances as of March 31,
    2000..................    40,909     $409      $214,446       $  (342)       $(127,635)    $(14,062)     $72,816
                            ========     ====      ========       =======        =========     ========      =======

<CAPTION>

                            COMPREHENSIVE
                            INCOME (LOSS)
                            --------------
<S>                         <C>
Balances as of March 31,
  1997....................
Comprehensive Income:
  Net income..............     $ 22,537
  Other comprehensive loss
    Unrealized loss from
      investments.........         (112)
    Foreign currency
      translation.........          (14)
                               --------
  Comprehensive income....     $ 22,411
                               ========
Sale of common stock
  through employee stock
  plans and other plans...
Repurchase of 3DO shares..
Balances as of March 31,
  1998....................
Comprehensive Income:
  Net loss................     $(13,167)
  Other comprehensive
    income
    Unrealized gain from
      investments.........           35
                               --------
  Comprehensive loss......     $(13,132)
                               ========
Sale of common stock
  through employee stock
  plans and other plans...
Repurchase of 3DO shares..
Balances as of March 31,
  1999....................
Comprehensive Income:
Net Income................     $    205
Other comprehensive loss
  Unrealized loss from
    investments...........          (41)
  Foreign currency
    translation...........          (46)
                               --------
Comprehensive income......     $    118
                               ========
  Sale of common stock
    through employee
  stock plans and other
    plans.................
  Sale of common stock
    through secondary
    offering, net of
    issuing costs of
    $2,964................
  Balances as of March 31,
    2000..................
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       30
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss).........................................  $ 22,537   $(13,167)  $    205
    Adjustments to reconcile net income (loss) to net cash
     used in operating activities:
      Depreciation and amortization.........................     3,744      2,973      2,596
      Deferred revenue......................................   (11,640)       133       (280)
      Gain on sale of hardware assets.......................   (18,032)        --         --
      Revenue recognized in exchange for 3DO shares.........   (10,965)        --         --
      Changes in operating assets and liabilities:
        Accounts receivable, net............................       213    (20,561)   (30,983)
        Prepaid and other assets............................       315       (232)    (1,515)
        Inventory...........................................       488       (446)    (6,733)
        Accounts payable....................................       (74)     1,364         95
        Accrued expenses....................................      (783)     4,058      5,696
        Hardware incentives.................................    (2,944)        --         --
        Other liabilities...................................      (162)    (1,255)        27
                                                              --------   --------   --------
Net cash used in operating activities.......................   (17,303)   (27,133)   (30,892)
                                                              --------   --------   --------
Cash flows from investing activities:
  Proceeds from sale of hardware assets.....................    20,000         --         --
  Sale of short-term investments, net.......................       735      6,814     11,554
  Capital expenditures......................................    (1,254)    (2,507)    (4,517)
                                                              --------   --------   --------
Net cash provided by investing activities...................    19,481      4,307      7,037
                                                              --------   --------   --------
Cash flows from financing activities:
  Restricted Cash...........................................        --         --     (8,240)
  Proceeds from short-term debt.............................        --      9,505         --
  Repayment of debt.........................................                            (926)
  Proceeds from secondary offering, net.....................        --         --     46,436
  Repurchase of 3DO shares..................................      (722)    (2,375)        --
  Proceeds from issuance of common stock, net...............     1,455      2,044      6,147
  Payments on capital lease obligations.....................    (1,083)      (301)        --
                                                              --------   --------   --------
Net cash provided by (used in) financing activities.........      (350)     8,873     43,417
                                                              --------   --------   --------
Effect of foreign currency translation......................       (14)        --        (46)
                                                              --------   --------   --------
Net increase (decrease) in cash and cash equivalents........     1,814    (13,953)    19,516
Cash and cash equivalents at beginning of year..............    14,395     16,209      2,256
                                                              --------   --------   --------
Cash and cash equivalents at end of year....................  $ 16,209   $  2,256   $ 21,772
                                                              ========   ========   ========
Supplemental disclosures of cash flow information:
  Cash paid during the year
    Interest................................................  $    135   $     20   $  1,031
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                       31
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         MARCH 31, 1998, 1999, AND 2000

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 (Company), 3DO
Europe, Ltd. and Studio 3DO K.K. The 3DO Company develops and publishes branded
interactive entertainment software for multiple platforms.

BASIS OF PRESENTATION

    The software publishing statements of operations were primarily derived from
the sales of interactive entertainment software and software publishing related
expenses. The hardware systems statements of operations were primarily derived
from revenue recognized under the M2 Agreement with Matsushita (see note G) and
expenses associated with the hardware operations. Software publishing has
incurred negative cash flows for all periods presented and the Company primarily
has relied upon cash generated from the sale or license of hardware systems
technology to fund software publishing operations (see notes G and H.) For
presentation purposes all net interest and other income has been allocated to
software publishing.

    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 remaining maturities
of 90 days or less at the date of purchase.

    The Company has classified its investments in certain debt and equity
securities as "available-for-sale." Such investments are recorded at fair value,
with unrealized gains and losses recorded as accumulated other comprehensive
income (loss) in stockholders' equity, until realized. 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.

RESTRICTED CASH

    Restricted cash is comprised of $6.0 million letter of credit for the
Company's new facility lease commitment and $2.0 Coast Business Credit line of
credit deposit.

                                       32
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

A.  SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

    The Company reviews its long-lived assets including goodwill for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets including goodwill
held and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets
including goodwill are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of their carrying amount or fair value less cost to sell.

STOCK-BASED COMPENSATION

    The Company uses the intrinsic value-based method of accounting for all of
its employee stock-based compensation plans.

REVENUE RECOGNITION

    Revenue from the sale of software titles published and distributed by the
Company is recognized at the time of shipment. Subject to certain limitations,
the Company permits its customers to exchange software titles published and
distributed by the Company, within certain specified periods, and provides price
protection on certain unsold merchandise. Software publishing revenue is
reflected net of allowances for returns, price protection and discounts.
Software licensing revenue is recognized upon persuasive evidence of an
arrangement, 3DO's fulfillment of its obligations (e.g., delivery of the product
golden master) under any such licensing agreement, and determination that
collection of a fixed or determinable license fee is considered probable.
Per-copy royalties on sales that exceed the minimum guarantee are recognized as
earned. Revenue from the Company's on-line service is recognized monthly based
on usage.

    In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 SOFTWARE REVENUE RECOGNITION, which
supersedes SOP 91-1. SOP 97-2 is effective for the Company for transactions
entered into after March 31, 1998. SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements to be allocated to each
element based on the relative fair values of the elements. The fair value of an
element must be based on evidence that is specific to the vendor. If a vendor
does not have evidence of the fair value for all elements in a multiple-element
arrangement, all revenue from the arrangement is deferred until such evidence
exists or until all elements are delivered. The Company has adopted SOP 97-2 in
the prior fiscal year. However, the effect of adopting SOP 97-2 did not have a
material impact on the Company's consolidated results of operations or financial
position.

    In December 1998, AcSEC issued SOP 98-9, modification of SOP 97-2 SOFTWARE
REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS, which requires
recognition of revenue using the "residual method" in a multiple element
arrangement when fair value does not exist for one or more of the delivered
elements

                                       33
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

A.  SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in the arrangement. Under the "residual method", the total fair value of the
undelivered elements is deferred and subsequently recognized in accordance with
SOP 97-2. SOP 98-9 is effective for the Company for transactions entered into
after March 31, 1999. The effect of adopting SOP-98-9 did not have a material
impact on the Company.

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. Amortization of goodwill is computed on a straight-line basis over
the estimated useful life of approximately five years.

ADVERTISING EXPENSES

    Advertising costs are expensed as incurred. Cooperative advertising with
distributors and retailers is expensed when spending is committed. For fiscal
1998, 1999, and 2000, advertising expenses totaled approximately $3,511,000,
$10,330,000, and $17,300,000, respectively.

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 their
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 recorded as accumulated other comprehensive income
(loss) in stockholders' equity. Gains and losses from foreign currency
transactions are a result of the effect of exchange rate changes on transactions
denominated in currencies other than the functional currencies. Net gains and
losses resulting from foreign currency exchange transactions were immaterial
during the periods presented.

NET INCOME (LOSS) PER SHARE

    Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding. Diluted earnings per share is computed using
the weighted average number of shares of common stock outstanding and, when
dilutive, common equivalent shares from options to purchase common stock using
the treasury stock method.

                                       34
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

A.  SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the periods presented:

<TABLE>
<CAPTION>
                                                              FOR THE YEARS ENDED MARCH 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net income (loss)...........................................  $22,537    $(13,167)  $   205
Shares used to compute basic net income (loss) per share--
  Weighted-average number of common shares outstanding......   26,387      25,602    32,458
Effect of common equivalent shares--stock options
  outstanding using the treasury stock method...............      727          --     6,414
                                                              -------    --------   -------
Shares used to compute diluted net income (loss) per
  share.....................................................   27,114      25,602    38,872
                                                              =======    ========   =======
Basic net income (loss) per share...........................  $  0.85    $  (0.51)  $  0.01
                                                              =======    ========   =======
Diluted net income (loss) per share.........................  $  0.83    $  (0.51)  $  0.01
                                                              =======    ========   =======
</TABLE>

    Options to purchase 932,823, 11,421,526 and 4,552,300 shares of common stock
were excluded from the Company's dilutive net income (loss) per share
calculations in fiscal 1998, 1999 and 2000, respectively because their effect
was anti-dilutive. These anti-dilutive shares had weighted average exercise
prices of $4.13, $3.24 and $10.29 in fiscal 1998, 1999 and 2000, respectively.

COMPREHENSIVE INCOME

    Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME. This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings may include foreign currency translation adjustments,
minimum pension liability adjustments and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods were reclassified, as required. The Company's total
comprehensive losses were as follows:

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                1999       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Net loss....................................................  $(13,167)    $205
Change in cumulative translation adjustment.................        --      (46)
Change in unrealized loss on marketable securities..........        35      (41)
                                                              --------     ----
Total comprehensive gain (loss).............................  $(13,132)    $118
                                                              ========     ====
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments

                                       35
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

A.  SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and hedging activities and requires the Company to recognize all derivatives as
either assets or liabilities on the balance sheet and measure them at fair
value. Gains and losses resulting from changes in fair value would be accounted
for depending on the use of the derivative and whether it is designated and
qualifies for hedge accounting. SFAS No. 133, as amended by SFAS No.137, will be
adopted by the Company in the first quarter of fiscal 2002 and is not expected
to have a material impact on its financial statements.

    In March 1998, the American Institute of Certified Public Accountants issued
SOP No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR
OBTAINED FOR INTERNAL USE. SOP No. 98-1 requires that certain costs related to
the development or purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software. SOP No. 98-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 1998. The adoption of SOP No. 98-1 did not have a material impact
on the results of operations or financial condition.

    In March 2000, the EITF published their consensus on EITF Issue No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. The Issue states that a software element covered by SOP 97-2
is only present in a hosting arrangement if the customer has the contractual
right to take possession of the software at any time during the hosting period
without significant penalty and it is feasible for the customer to either run
the software on its own hardware or contract with another party unrelated to the
vendor to host the software. The Company will adopt EITF No. 00-03 in the second
quarter of fiscal 2000 and does not expect its adoption to have a significant
impact on the Company.

    In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion
No. 25. This Interpretation clarifies the application of Opinion 25 for certain
issues including: (a) the definition of employee for purposes of applying
Opinion 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. In
general, this Interpretation is effective July 1, 2000. We do not expect the
adoption of Interpretation No. 44 to have a material effect on our consolidated
financial position or results of operations.

    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 as required in the fourth quarter of fiscal 2001 and does not
expect it to have a significant impact on the Company.

                                       36
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

B.  AVAILABLE-FOR-SALE SECURITIES

    Available-for-sale securities classified as current assets as of March 31,
1999 and 2000 included the following:

<TABLE>
<CAPTION>
                                                               AGGREGATE FAIR
                                                                    VALUE
                                                                  MARCH 31,
                                                             -------------------
                                                               1999       2000
                                                             --------   --------
                                                               (IN THOUSANDS)
<S>                                                          <C>        <C>
Short-term investments:
  U. S. Treasury and other government agency obligations...  $11,595     $1,965
  Commercial debt securities...............................       --         --
                                                             -------     ------
Total short-term investments...............................   11,595      1,965
Cash equivalents:
  Money market funds.......................................       --      6,077
  Asset backed repurchase agreements.......................       --         --
                                                             -------     ------
Total cash equivalents.....................................       --      6,077
                                                             -------     ------
Total available-for-sale securities........................  $11,595     $8,042
                                                             =======     ======
</TABLE>

    The aggregate fair value of the Company's investment in available-for-sale
securities as of March 31, 2000, by contractual maturity, consisted of the
following:

<TABLE>
<CAPTION>
                                                                AGGREGATE
                                                                FAIR VALUE
                                                              --------------
                                                              (IN THOUSANDS)
<S>                                                           <C>
Due in one year or less.....................................      $6,077
Due in one to three years...................................       1,965
                                                                  ------
                                                                  $8,042
                                                                  ======
</TABLE>

    Total available-for-sale securities are included in the restricted cash line
item on the balance sheet.

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, 1998, 1999
and 2000:

<TABLE>
<CAPTION>
                                                        YEAR ENDED MARCH 31,
                                                   ------------------------------
                                                     1998       1999       2000
                                                   --------   --------   --------
                                                           (IN THOUSANDS)
<S>                                                <C>        <C>        <C>
Balance at beginning of year.....................  $ 3,108    $ 1,888    $  4,017
Additions........................................    2,113      6,931      20,642
Deductions.......................................   (3,333)    (4,802)    (13,752)
                                                   -------    -------    --------
Balance at end of year...........................  $ 1,888    $ 4,017    $ 10,907
                                                   =======    =======    ========
</TABLE>

                                       37
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

D.  PROPERTY AND EQUIPMENT

    Property and equipment as of March 31, 1999 and 2000, consisted of:

<TABLE>
<CAPTION>
                                                               MARCH 31,
                                                          -------------------
                                                            1999       2000
                                                          --------   --------
                                                            (IN THOUSANDS)
<S>                                                       <C>        <C>
Computer and manufacturing equipment....................  $  8,691   $ 11,749
Furniture, fixtures and leasehold improvements..........     2,644      3,637
Computer software.......................................     2,880      3,347
                                                          --------   --------
Property and equipment, at cost.........................    14,215     18,733
Less accumulated depreciation and amortization..........   (10,895)   (13,044)
                                                          --------   --------
Property and equipment, net.............................  $  3,320   $  5,689
                                                          ========   ========
</TABLE>

E.  ACCRUED EXPENSES

    Accrued expenses as of March 31, 1999 and 2000, consisted of the following:

<TABLE>
<CAPTION>
                                                                MARCH 31,
                                                           -------------------
                                                             1999       2000
                                                           --------   --------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Accrued compensation.....................................   $2,112    $ 3,525
Accrued market development fund..........................    1,146      1,612
Accrued royalties........................................      214        124
Accrued marketing expenses...............................      570      2,207
Other....................................................    2,484      4,754
                                                            ------    -------
Total....................................................   $6,526    $12,222
                                                            ======    =======
</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 20% 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 1998, 1999 and 2000, 127,596, 358,297 and 818,110
shares, respectively, were issued by the Company to employees at a price ranging
from $2.18 to $2.98, $2.18 to $2.40 and $2.60 to $2.96 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 $1.44, $1.71 and $5.57 at
March 31, 1998, 1999 and 2000, respectively. As of March 31, 1998, 1999 and
2000, the Company had 422,959, 1,564,664 and 746,552 shares, respectively, of
common stock reserved for future issuance under the Employee Stock Purchase
Plan.

                                       38
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

F.  STOCK PLANS (CONTINUED)
STOCK OPTION PLAN

    The Company's 1993 Incentive Stock Plan (Plan) authorizes the granting of
incentive and non-qualified stock options and stock purchase rights to
employees. Non-qualified 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. Incentive 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 60-month period.
Unexercised options generally expire 10 years from date of grant.

    As of March 31, 1998, 1999 and 2000, 18,229,625, 20,783,869 and 26,302,138
shares, respectively, of common stock have been authorized for issuance under
the Plan.

DIRECTOR OPTION PLAN

    The Company's 1995 Director Option Plan (Director Plan) authorizes the
granting of non-qualified stock options to each Outside Director on the date
such person first becomes an Outside Director. The exercise price of the options
is the fair market value per share of the common stock on the grant date. The
stock options vest over a 60-month period. Unexercised options expire ten years
from the date of grant.

    As of March 31, 1999, 700,000 shares of common stock have been authorized
for issuance under the Director Plan

    Transactions for the years ended March 31, 1998, 1999 and 2000, were as
follows:

<TABLE>
<CAPTION>
                                                                            OPTIONS OUTSTANDING
                                                          OPTIONS      ------------------------------
                                                       AVAILABLE FOR                 WEIGHTED AVERAGE
                                                           GRANT         SHARES      EXERCISE PRICES
                                                       -------------   -----------   ----------------
<S>                                                    <C>             <C>           <C>
Outstanding as of March 31, 1997.....................     3,743,880      7,589,489         5.27
Authorized...........................................     3,992,861             --           --
Granted..............................................   (12,063,610)    12,063,610         3.14
Terminated...........................................    10,656,742    (10,656,742)        4.75
Exercised............................................            --       (521,287)        2.20
                                                        -----------    -----------
Outstanding as of March 31, 1998.....................     6,329,873      8,475,070        $3.07
Authorized...........................................     2,547,489             --           --
Granted..............................................    (4,926,250)     4,926,250         3.49
Terminated...........................................     1,595,558     (1,595,558)        3.17
Exercised............................................            --       (384,236)        3.16
                                                        -----------    -----------
Outstanding as of March 31, 1999.....................     5,546,670     11,421,526        $3.24
Authorized...........................................     6,071,516             --           --
Granted..............................................    (8,194,900)     8,194,900         8.70
Terminated...........................................     1,689,510     (1,689,510)        2.99
Exercised............................................            --     (1,246,055)        3.85
                                                        -----------    -----------
Outstanding as of March 31, 2000.....................     5,112,796     16,680,861        $5.88
                                                        ===========    ===========
</TABLE>

                                       39
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

F.  STOCK PLANS (CONTINUED)
    The weighted-average fair values of options granted during 1998, 1999 and
2000 with exercise prices equal to market value were $1.07, $2.13 and $5.57,
respectively.

    As of March 31, 1998, 1999 and 2000, 1,564,301, 2,998,633 and 3,930,338
options, respectively, were exercisable under the Plan. The weighted-average
exercise price for the shares exercisable at March 31, 1998, 1999 and 2000 were
$3.12, $3.10, and $3.23, respectively. Fiscal 1998 shares granted and shares
terminated as shown in the table above included options which were repriced.

    The following table summarizes information about fixed stock options
outstanding at March 31, 2000:

<TABLE>
<CAPTION>
                                                OPTIONS OUTSTANDING
                                       -------------------------------------
                                                      WEIGHTED-                    OPTIONS EXERCISABLE
                                                       AVERAGE     WEIGHTED-   ----------------------------
                                                      REMAINING     AVERAGE                    WEIGHTED-
                                         NUMBER      CONTRACTUAL   EXERCISE      NUMBER         AVERAGE
EXERCISE PRICE                         OUTSTANDING      LIFE         PRICE     OUTSTANDING   EXERCISE PRICE
--------------                         -----------   -----------   ---------   -----------   --------------
<S>                                    <C>           <C>           <C>         <C>           <C>
$ 2.00 to $ 2.97.....................   1,287,991        7.78       $ 2.24        473,342         $2.24
$ 3.03 to $ 3.94.....................   7,149,866        7.71       $ 3.38      3,381,683         $3.33
$ 4.44 to $ 5.50.....................     555,454        9.08       $ 4.88         51,370         $4.49
$ 6.31 to $ 8.13.....................   2,954,750        9.29       $ 6.77         16,651         $6.60
$ 8.22 to $ 9.88.....................   1,497,800        9.71       $ 9.39          7,292         $8.22
$10.31 to $13.97.....................   3,235,000        9.69       $10.58             --            --
                                       ----------                               ---------
$ 2.00 to $13.97.....................  16,680,861        6.73       $ 5.88      3,930,338         $3.10
                                       ==========                               =========
</TABLE>

    In April 1996, October 1996 and April 1997, the Board of Directors approved
the repricing of options granted at prices in excess of $8.25, $5.50 and $3.25
per share, respectively, for all employees, including executive officers.

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 fiscal 1998, 1999 and 2000 would
have been as indicated below:

<TABLE>
<CAPTION>
                                                     YEARS ENDED MARCH 31,
                                                 ------------------------------
                                                   1998       1999       2000
                                                 --------   --------   --------
<S>                                              <C>        <C>        <C>
Net income (loss) as reported..................  $22,537    $(13,167)  $    205
Pro forma......................................  $16,483    $(20,130)  $(10,006)

Net income (loss) per basic share as
  reported.....................................  $  0.85    $  (0.51)  $   0.01
Pro forma......................................  $  0.62    $  (0.79)  $  (0.31)

Net income (loss) per diluted share as
  reported.....................................  $  0.83    $  (0.51)  $   0.01
Pro forma......................................  $  0.61    $  (0.79)  $  (0.26)
</TABLE>

                                       40
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

F.  STOCK PLANS (CONTINUED)
    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 for fiscal 1998, 1999 and
2000:

<TABLE>
<CAPTION>
                                                                   OPTION PLAN                          ESPP
                                                          ------------------------------   ------------------------------
                                                            1998       1999       2000       1998       1999       2000
                                                          --------   --------   --------   --------   --------   --------
<S>                                                       <C>        <C>        <C>        <C>        <C>        <C>
Weighted-average risk free rate.........................    6.31%      5.51%      6.28%      5.63%      5.82%      5.62%
                                                                                               2 years with 6 month
Expected life of options/rights (in years)..............     3.5        3.5        3.5               increments
Annualized stock price volatility.......................      78%        84%        85%        78%        84%        78%
Dividend yield..........................................      --         --         --         --         --         --
Forfeiture rate.........................................      60%        20%        20%        60%        20%        20%
</TABLE>

G.  MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. AGREEMENTS

    On December 7, 1995, the Company and Matsushita Electronic Industrial
Co., Ltd. (MEI) entered into a licensing agreement pursuant to which the Company
granted MEI 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 (M2 Agreement). The license was
originally granted in exchange for an upfront license payment of
$100.0 million, and for certain royalties that were agreed to be paid to 3DO
with respect to certain software products manufactured after January 1, 1998,
which are compatible with the M2 Technology.

    Under the terms of the M2 Agreement, MEI granted 3DO 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 MEI 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 MEI to
develop and publish software products compatible with hardware products that
incorporate the M2 Technology. All revenue related to the M2 Agreement has been
recognized as of the end of fiscal year 1998 under the percentage-of-completion
method of accounting.

    On April 24, 1996, the Company agreed to make certain modifications to the
M2 system design pursuant to the terms of an addendum (Addendum) to the M2
Agreement with MEI. As consideration for 3DO providing certain engineering and
support services, MEI agreed to pay an additional aggregate fee of approximately
$4.5 million to be received in installments in fiscal 1997 and 1998. On
July 23, 1997, the Company and MEI signed a second addendum (Second Addendum) to
the M2 Agreement. Under the Second Addendum, the Company relinquished its rights
to develop and distribute software and peripherals that are compatible with
hardware products developed by MEI or its sublicensees that incorporate the M2
Technology, and gave up its right to develop and distribute M2-compatible
authoring systems. In addition, the Company relinquished its right to receive
royalties with respect to MEI's potential use of the M2 Technology, as well as
certain other rights. In exchange, MEI returned to the Company all of the
approximately 3.2 million shares of the Company's common stock that it
previously owned. The Company recognized approximately $11.0 million of non-cash
revenue in connection with this transaction.

                                       41
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

H.  SALE OF SYSTEMS GROUP

    On June 23, 1997, the Company sold most of the assets of the Company's
former hardware systems group, including certain technologies and related
intellectual property rights and approximately $1.5 million in equipment, to
Samsung Electronics Company, Ltd. (Samsung) for $20.0 million, realizing a gain
of approximately $18.0 million. As part of the sales 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 MEI.

I.  NET INTEREST AND OTHER INCOME

    Net interest and other income for the fiscal years ended March 31, 1998,
1999 and 2000, consisted of the following:

<TABLE>
<CAPTION>
                                                         YEARS ENDED MARCH 31,
                                                     ------------------------------
                                                       1998       1999       2000
                                                     --------   --------   --------
                                                             (IN THOUSANDS)
<S>                                                  <C>        <C>        <C>
Interest income....................................   $2,108     $1,134    $ 1,349
Interest expense...................................     (135)       (20)    (1,033)
Other income (expense), net........................      (99)         5          8
                                                      ------     ------    -------
                                                      $1,874     $1,119    $   324
                                                      ======     ======    =======
</TABLE>

J.  INCOME TAXES

    The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
                                                              YEARS ENDED MARCH 31,
                                                          ------------------------------
                                                            1998       1999       2000
                                                          --------   --------   --------
                                                                  (IN THOUSANDS)
<S>                                                       <C>        <C>        <C>
Current:
  Federal...............................................    $120       $ --       $ 52
  State and local.......................................       1          1        (17)
  Foreign...............................................      98        193        262
                                                            ----       ----       ----
Total current...........................................     219        194        297
Total deferred..........................................      --         --         --
                                                            ----       ----       ----
Total income taxes......................................    $219       $194       $297
                                                            ====       ====       ====
</TABLE>

                                       42
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

J.  INCOME TAXES (CONTINUED)
    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, 1998, 1999 and 2000 were as follows:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED MARCH 31,
                                                           ------------------------------------
                                                             1998          1999          2000
                                                           --------      --------      --------
<S>                                                        <C>           <C>           <C>
Statutory federal tax rate...........................        34.0 %        34.0 %        34.0 %
Valuation allowance..................................       (36.1)        (35.8)        (40.8)
Alternative minimum tax..............................          --            --          50.0
Foreign tax withholding and other....................         3.1           0.3          39.1
Other................................................          --            --             2
                                                            -----         -----         -----
                                                              1.0 %        (1.5)%        84.3 %
                                                            =====         =====         =====
</TABLE>

    The tax effect of temporary differences that give rise to significant
portions of deferred tax assets as of March 31, 1999 and 2000, are presented as
follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED MARCH 31,
                                                          ---------------------
                                                            1999        2000
                                                          ---------   ---------
                                                             (IN THOUSANDS)
<S>                                                       <C>         <C>
Deferred tax asset:
  Depreciation and amortization.........................  $  3,251    $  2,370
  Deferred revenue......................................       208          94
  Deferred research and development costs...............     7,861      12,563
  Net operating loss carryforwards......................    34,813      33,466
  Tax credit carryforwards..............................    24,807      27,246
  Other.................................................    (2,009)     (1,323)
                                                          --------    --------
Total gross deferred tax assets.........................    68,931      74,416
Less valuation allowance................................   (68,931)    (74,416)
                                                          --------    --------
Net deferred tax assets.................................  $     --    $     --
                                                          ========    ========
</TABLE>

                                       43
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

J.  INCOME TAXES (CONTINUED)

    The valuation allowance increased $5.5 million in fiscal 2000. Approximately
$4.0 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, 2000, the Company had cumulative federal net operating loss
carryforwards of approximately $98.4 million for federal income tax purposes,
which if not offset against future taxable income, will expire in fiscal 2009
through 2020. As of March 31, 2000, the Company had no cumulative California net
operating loss carryforwards.

    As of March 31, 2000, the Company had unused research and development tax
credits of approximately $8.9 million and $6.8 million available to reduce
future federal and California income taxes, respectively. The federal research
and development tax credit expires in fiscal years 2007 through 2020. The
California research and development tax credit can be carried forward
indefinitely. The Company also had foreign tax credits of approximately
$11.0 million available to reduce future federal income taxes, expiring through
fiscal 2005. There are also minimum tax credits of approximately $0.5 million
available to reduce future federal income taxes, which will carry forward
indefinitely.

K.  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, 1998, 1999, and 2000,
were $1.2 million, $1.5 million and $2.9 million, respectively.

    Future minimum lease payments are as follows:

<TABLE>
<CAPTION>
                                                                OPERATING
MARCH 31,                                                         LEASES
---------                                                     --------------
                                                              (IN THOUSANDS)
<S>                                                           <C>
2001........................................................     $ 5,184
2002........................................................       6,999
2003........................................................       6,979
2004........................................................       7,132
2005........................................................       7,294
                                                                 -------
Total minimum lease payments................................     $33,588
                                                                 =======
</TABLE>

L.  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 risk exists with respect to these
investments.

    Credit risk in receivables is limited to distributors, retailers, 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>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

M.  GEOGRAPHIC, SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION

    The Company adopted the provisions of SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information, during fiscal 1999. SFAS
No. 131 establishes standards for the reporting by public business enterprises
of information about operating segments, products and services, geographic
areas, and major customers. The method for determining what information to
report is based on the way that management organizes the operating segments
within the Company for making operational decisions and assessments of financial
performance. The Company's chief operating decision maker is considered to be
the Company's Chief Executive Officer (CEO). The CEO reviews financial
information presented on a consolidated basis accompanied by disaggregated
information about revenues by products for purposes of making operating
decisions and assessing financial performance. Therefore, the Company operates
in a single operating segment: interactive entertainment software products.

    The disaggregated financial information on a product basis reviewed by the
CEO is as follows (in thousands):

<TABLE>
<CAPTION>
                                                       YEAR ENDED MARCH 31,
                                                  ------------------------------
                                                    1998       1999       2000
                                                  --------   --------   --------
<S>                                               <C>        <C>        <C>
Software publishing revenues:
  PC............................................  $ 8,346    $26,799    $ 30,113
  Console.......................................       --     20,029      91,681
  Other.........................................    1,083      1,191         440
                                                  -------    -------    --------
Total Software publishing revenues..............    9,429     48,019     122,234
Royalty and other revenues......................   29,461         --          --
                                                  -------    -------    --------
Total revenues..................................  $38,890    $48,019    $122,234
                                                  =======    =======    ========
</TABLE>

    In fiscal 2000, the Company's top customer accounted for approximately 14%
of the Company's total revenues. All revenues in fiscal 1999 and 2000 were
derived from the Company's software publishing operations. In fiscal 1998, one
customer from the Company's former hardware systems business accounted for 67%
of the Company's total revenue.

    The Company's software publishing export sales are principally to Europe and
Asia/Pacific. In each of fiscal 1998, 1999 and 2000, less than 10% of the
Company's total net revenues were derived from international software publishing
sales. The Company had software publishing export sales, primarily to Japan and
the United Kingdom, of approximately $2.1 million, $4.2 million, and
$7.3 million for the fiscal 1998, 1999, and 2000, respectively. In fiscal 1998,
the Company's export sales to Japan from its hardware systems operations were
derived primarily from the M2 agreement with MEI. The Company's assets are
primarily located in its corporate office in the United States.

N.  SHORT-TERM DEBT

    In fiscal 1999, the Company entered into two revolving credit agreements
with Coast Business Credit and Merrill Lynch & Co.

    The Merrill Lynch credit facility allows the Company to borrow up to
$20.0 million or 90% of the cash balances in the pledged collateral bank account
at Merrill Lynch. The amount outstanding under this credit facility bears a
variable per annum rate of interest equal to the sum of the 30-day commercial
paper

                                       45
<PAGE>
                        THE 3DO COMPANY AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         MARCH 31, 1998, 1999, AND 2000

N.  SHORT-TERM DEBT (CONTINUED)
rate plus 2.10% (8.74% as of March 31, 2000). Interest expense is due monthly
and the loan balance is due at the expiration date of the credit agreement. This
credit agreement was terminated in April 2000.

    The Coast Business Credit revolving credit agreement permits the Company to
obtain a loan amount of up to $20.0 million, or 60% of qualified accounts
receivables, bearing an interest rate equal to Prime Rate plus 2.0% per annum
(11.0% as of March 31, 2000) and will expire on March 31, 2002. Interest expense
is due monthly and the loan balance is due at the expiration date of the credit
agreement. This agreement contains certain financial covenants, including the
requirement that the Company:

    - must achieve 80% of the projected quarterly tangible net worth upon
      projections acceptable to Coast;

    - must maintain $2,000,000 on deposit at all times in restricted accounts
      which shall be assigned to and accessible only to Coast; and

    - must not pay dividends.

    As of March 31, 2000, our outstanding loan balance under this facility was
approximately $8.6 million.

O.  SUBSEQUENT EVENTS

    In April 2000, we terminated the Coast Business Credit revolving line of
credit agreement. Concurrently, we entered into a revolving line of credit with
Foothill Capital.

    The Foothill Capital credit facility allows the Company to borrow up to
$50.0 million, or 85% of qualified accounts receivables, bearing an interest
rate of Prime Rate plus 0.25% to 1.25% per annum (9.75% as of March 31, 2000)
depending on the company's tangible net worth and will expire on March 31, 2002.
Interest expense is due monthly and the loan balance is due at the expiration
date of the credit agreement. This agreement contains certain financial
covenants, including the requirement that the Company maintains tangible net
worth of not less than $40.0 million.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

    Not Applicable.

                                       46
<PAGE>
                                    PART III

ITEM 10.  EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

    The following table sets forth certain information for our executive
officers and directors as of March 31, 2000.

<TABLE>
<CAPTION>
NAME                                       AGE                            POSITION
----                                     --------   -----------------------------------------------------
<S>                                      <C>        <C>
W. M. (Trip) Hawkins III...............     46      Chairman of the Board and Chief Executive Officer

James Alan Cook........................     51      Executive Vice President, General Counsel and
                                                    Secretary

Stephen E. Fowler......................     41      Senior Vice President, 3DO & President,
                                                    3DO Europe Ltd.

Richard J. Hicks, III..................     39      Senior Vice President, Product Development

John W. Adams..........................     38      Chief Financial Officer

Robert Gayman..........................     39      Vice President, Sales

Jeffrey A. Cleary......................     42      Vice President, Marketing

Dominic Wheatley.......................     40      Chairman of 3DO Europe Ltd.

Paul D. Patterson......................     47      Managing Director, 3DO Europe Ltd.

William A. Hall........................     68      Director

H. William Jesse, Jr...................     48      Director

Hugh C. Martin.........................     46      Director
</TABLE>

    TRIP HAWKINS, the founder of 3DO, has been Chairman of the Board and Chief
Executive Officer since September 1991. He also served as President of 3DO 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
Computer, Inc.

    JAMES ALAN COOK became Executive Vice President, General Counsel and
Secretary of 3DO in April 1996. He had been Senior Vice President, General
Counsel and Secretary since July 1994, and from January 1993 until July 1994, he
served as Vice President, General Counsel and Secretary. From January 1990 until
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.

    STEPHEN E. FOWLER was appointed as Senior Vice President, 3DO and President
of 3DO Europe, Ltd. in June 1999. Previously, he served as 3DO's Senior Vice
President, Sales & Operations from April 1998; Senior Vice President, Operations
from May 1997; Vice President, Operations from October 1995; Vice President,
Developer & Customer Services from June 1994; and Senior Director, Developer
Services from January 1993. From September 1990 to January 1993 he served as
Vice President, Technical Services at Gupta Corporation (now called Centura
Software Corporation), a software tools company. From April 1984 to
August 1990, he served in various senior management positions including
Director, Worldwide Services at Application Development Systems.

    RICHARD J. HICKS, III joined 3DO as Vice President, Product Development in
October 1997 and was promoted to Senior Vice President, Product Development in
November 1998. He was co-founder of New Wave Entertainment, Inc., an interactive
entertainment software company, and served as its Vice President, Software
Development from July 1995 to August 1997. He was Vice President, Software of

                                       47
<PAGE>
ShaBLAMM Computer, Inc., a computer hardware company, from February 1994 to
July 1995. From May 1988 to January 1994, he held several software development
positions at Electronic Arts.

    JOHN W. ADAMS became 3DO's Chief Financial Officer in March 1998. He served
as Vice President, Planning and Analysis and Director of Operations at
International Thomson Publishing, from April 1996 to March 1998. Mr. Adams
served as Senior Manager, Financial Planning from February 1993 to April 1996 at
The Walt Disney Company and was a Manager, Business Planning at The Gap
Incorporated from March 1992 to February 1993. Mr. Adams has also held various
planning positions at the Pepsi-Cola Company from February 1986 to March 1992.

    ROBERT GAYMAN joined 3DO as Vice President, Sales in March 1999. From
October 1996 to March 1999, he was Western Regional Sales Manager for Sony
Computer Entertainment America, and from January 1993 to October 1996, he was
National Sales Manager for Sun Gro Consumer Products. He has also held sales
positions at Mediagenic, Spalding Sports Worldwide, and RJR Nabisco Brands.

    JEFFREY A. CLEARY joined 3DO as Vice President, Marketing in May 1999. From
June 1998 to May 1999, he was Vice President, Marketing and Sales at Stagecast
Software. From August 1993 to September 1995, he was Director, Marketing and
Product Development for the Boys Toys division at Galoob Toys and from
September 1995 to June 1998, he was Vice President, Marketing and Product
Development for Boys Toys at Galoob Toys. From June 1987 to August 1993, he held
several marketing positions at RJRNabisco/Del Monte. Mr. Cleary has also worked
in advertising and retail sales.

    DOMINIC WHEATLEY was appointed Chairman of 3DO Europe Ltd. in May 1999. He
is also a partner in Church Rose Ltd., a property development company; director
of Telecom Plus [Plc], a telecommunications company; and a director of Statpro
[Group Plc], a company specializing in investment analysis software.
Mr. Wheatley founded Domark Software (later renamed Eidos) in 1984 and served as
Chief Operating Officer of Eidos Plc and Chief Executive Officer of Eidos
Interactive through 1996.

    PAUL D. PATTERSON joined as Managing Director of 3DO Europe Ltd. in
August 1999. From 1996 to July 1999, he was Managing Director of Infogrames
UK Ltd. From 1986 to 1993 he held various sales positions at Ocean Software
Limited, and from 1993 to 1996 he was their Deputy Managing Director. From 1983
to 1986, he was Sales Director at Software Projects.

    WILLIAM A. HALL has been a director since June 1997. He founded Sight &
Sound Distributing Company in December 1984 and was been its President and Chief
Executive Officer. Since 1991, he has also been owner of W.A.H.
Management/Consulting, and since 1993, the Vice Chairman and majority
stockholder of U.S. Animation, Inc. He has been a partner in Lincolnshire
Management, Inc. since June 1994. Mr. Hall is also a director of Chromium
Graphics, Inc.; Northsound Music Inc.; Orlimar Golf; and Lincolnshire
Management, Inc. Mr. Hall is a member of the Audit Committee and the
Compensation Committee.

    H. WILLIAM JESSE, JR. has been a director of 3DO since September 1997. He is
Chairman of Jesse.Hansen&C(o), strategic and financial advisors to high-growth
consumer companies. He founded the firm in 1986 and served as its President and
CEO through March of 1998. He also serves as Chairman and CEO of Vineyard
Properties Corporation (since 1988). Mr. Jesse has previously served as Chief
Executive Officer of American Hawaii Cruises; Vice President of The Getz
Corporation; Chief Executive Officer of the Delta Queen Steamboat Co. and Vice
President of its parent, The Coca Cola Bottling Company of New York; and Vice
President of Prudential Lines, Inc. and General Manager of its Mediterranean/
Mideast Division. Mr. Jesse serves on the board of directors of The Wine
Group, Inc.; Stanislaus Food Products Company; Food.com; ExTerra Credit
Recovery; and Peet's Coffee & Tea, Inc. Mr. Jesse is a member of the Audit
Committee

    HUGH C. MARTIN has been a director since April 1996. Since January 1998, he
has been Chief Executive Officer of Optical Networks, Incorporated, a
telecommunications network equipment company. Until his

                                       48
<PAGE>
resignation from 3DO in June 1997, he served as our President from
October 1995; Chief Operating Officer from January 1993 until October 1995; and
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 Computer, Inc. Previously, Mr. Martin co-founded and
served as Vice President and Chief Development Officer of Ridge Computers, where
he co-designed one of the industry's first commercial RISC processors.
Mr. Martin is a member of the Compensation Committee.

    Our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws provide that the Board is divided into three classes, with each
class serving staggered three-year terms. Mr. Jesse will stand for re-election
at the 2000 annual meeting of stockholders. Mr. Hawkins and Mr. Martin will
stand for re-election at the 2001 annual meeting of stockholders. Mr. Hall will
stand for re-election at the 2002 annual meeting of stockholders. Each officer
serves at the discretion of the Board of Directors.

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 most highly
compensated executive officers of the Company other than the Chief Executive
Officer (collectively the "Named Officers") during the last fiscal year.

<TABLE>
<CAPTION>
                                                                           LONG-TERM
                                                    ANNUAL COMPENSATION   COMPENSATION
                                          FISCAL    -------------------   OPTIONS/SARS      ALL OTHER
NAME AND PRINCIPAL POSITION                YEAR      SALARY     BONUS          #         COMPENSATION(1)
---------------------------              --------   --------   --------   ------------   ---------------
<S>                                      <C>        <C>        <C>        <C>            <C>
Trip Hawkins...........................    2000     $295,000        -0-     3,425,000        $    660
  Chairman and Chief                       1999     $295,792        -0-       440,000        $    660
  Executive Officer                        1998     $295,792        -0-     1,760,000(2)     $    660

James Alan Cook........................    2000     $297,308   $ 15,000        25,000        $509,098(3)
  Executive Vice President,                1999     $289,954        -0-        40,000        $    660
  General Counsel, and Secretary           1998     $275,504   $100,000       704,000(4)     $    660

Stephen E. Fowler......................    2000     $222,577   $35,4000        75,000        $654,812(5)
  Senior Vice President, 3DO &             1999     $212,023        -0-        60,000        $  9,085(6)
  President, 3DO Europe, Ltd.              1998     $199,473        -0-       307,000(7)     $  3,265(8)

Richard J. Hicks III...................    2000     $214,615   $ 30,000        50,000        $    565
  Senior Vice President,                   1999     $180,262        -0-       120,000        $ 10,498(9)
  Product Development                      1998     $ 75,810        -0-       185,000             -0-

John Adams.............................    2000     $173,077   $ 20,000        75,000        $ 98,326(10)
  Chief Financial Officer                  1999     $154,929        -0-        30,000        $    558
                                           1998     $  8,654        -0-       150,000             -0-
</TABLE>

------------------------

 (1) The amounts include premiums paid by 3DO for group term life insurance.

 (2) Includes 1,560,000 options granted in previous fiscal years that in fiscal
     1998 were exchanged for new options at $3.25 per share after Mr. Hawkins
     agreed to certain adjustments to the option vesting schedules.

 (3) Includes a gain of $508,438 realized upon the sale of shares acquired
     through the exercise of vested stock options.

 (4) Includes 594,000 options granted in previous fiscal years that in fiscal
     1998 were exchanged for new options at $3.25 per share after Mr. Cook
     agreed to certain adjustments to the option vesting schedules.

                                       49
<PAGE>
 (5) Includes a gain of $57,936 realized upon the sale of shares acquired
     through the Employee Stock Purchase Plan and a gain of $596,876 realized
     upon the sale of shares acquired through the exercise of vested stock
     options.

 (6) Includes a gain of $8,245 realized upon the sale of shares acquired through
     the Employee Stock Purchase Plan.

 (7) Includes 150,000 options granted in previous fiscal years that in fiscal
     1998 were exchanged for new options at $3.25 per share after Mr. Fowler
     agreed to certain adjustments to the option vesting schedules.

 (8) Includes a gain of $2,739 realized upon the sale of shares acquired through
     the Employee Stock Purchase Plan.

 (9) Includes a gain of $9,893 realized upon the sale of shares acquired through
     the Employee Stock Purchase Plan.

 (10) Includes a gain of $97,872 realized upon the sale of shares acquired
      through the exercise of vested stock options.

    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, 2000. 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 3DO's Common Stock and overall market
conditions.

                                       50
<PAGE>
                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                             POTENTIAL REALIZABLE VALUE
                                                                                              AT ASSUMED ANNUAL RATES
                                                   % OF TOTAL                               OF STOCK PRICE APPRECIATION
                                                 OPTIONS GRANTED                                  FOR OPTION TERM
                            DATE      OPTIONS     TO EMPLOYEES      OPTION    EXPIRATION   ------------------------------
NAME                      GRANTED     GRANTED    IN FISCAL YEAR     PRICE        DATE           5%              10%
----                      --------   ---------   ---------------   --------   ----------   -------------   --------------
<S>                       <C>        <C>         <C>               <C>        <C>          <C>             <C>
Adams, John.............    8/4/99      25,000         0.31        $ 6.6875      8/4/09    $  105,143.32   $   266,453.82
                            9/1/99      20,442         0.25        $ 7.7813      9/1/09    $  100,035.33   $   253,509.18
                            9/1/99       4,558         0.06        $ 7.7813      9/1/09    $   22,305.11   $    56,525.53
                          12/10/99       7,067         0.09        $ 9.3750    12/10/09    $   41,666.23   $   105,590.42
                          12/10/99      17,933         0.22        $ 9.3750    12/10/09    $  105,730.94   $   267,942.97
                                     ---------        -----                                -------------   --------------
    Total...............                75,000         0.93                                $  374,880.93   $   950,021.92

Cook, James Alan........    8/4/99       7,566         0.09        $ 6.6875      8/4/09    $   31,820.57   $    80,639.58
                            8/4/99       7,434         0.09        $ 6.6875      8/4/09    $   31,265.42   $    79,232.71
                          12/10/99       4,000         0.05        $ 9.3750    12/10/09    $   23,583.55   $    59,765.34
                          12/10/99       6,000         0.07        $ 9.3750    12/10/09    $   35,375.32   $    89,648.01
                                     ---------        -----                                -------------   --------------
    Total...............                25,000         0.31                                $  122,044.86   $   309,285.64

Fowler, Stephen E.......    8/4/99      10,608         0.13        $ 6.6875      8/4/09    $   44,614.41   $   113,061.68
                            8/4/99      14,392         0.18        $ 6.6875      8/4/09    $   60,528.91   $   153,392.13
                          12/10/99      21,756         0.27        $ 9.3750    12/10/09    $  128,270.92   $   325,063.70
                          12/10/99       7,954         0.10        $ 9.3750    12/10/09    $   46,895.89   $   118,843.38
                          12/10/99      17,046         0.21        $ 9.3750    12/10/09    $  100,501.29   $   254,690.01
                          12/10/99       3,244         0.04        $ 9.3750    12/10/09    $   19,126.26   $    48,469.69
                                     ---------        -----                                -------------   --------------
    Total...............                75,000         0.93                                $  399,937.68   $ 1,013,520.59

Hawkins, Trip...........    8/4/99      13,038         0.16        $ 7.3563      8/4/09    $   46,114.53   $   130,241.18
                            8/4/99     411,962         5.09        $ 7.3563      8/4/09    $1,457,081.92   $ 4,115,233.72
                           12/1/99   3,000,000        37.06        $10.3125     12/1/03    $3,248,613.28   $10,240,312.50
                                     ---------        -----                                -------------   --------------
    Total...............             3,425,000        42.31                                $4,751,809.73   $14,485,787.40

Hicks III, Richard J....    8/4/99      25,000         0.31        $ 6.6875      8/4/09    $  105,143.32   $   266,453.82
                          12/10/99       9,739         0.12        $ 9.3750    12/10/09    $   57,420.04   $   145,513.67
                          12/10/99      15,261         0.19        $ 9.3750    12/10/09    $   89,977.13   $   228,019.72
                                     ---------        -----                                -------------   --------------
    Total...............                50,000         0.62                                $  252,540.49   $   639,987.21
</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) 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.

                                       51
<PAGE>
                 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                                         VALUE OF UNEXERCISED
                                                          UNEXERCISED SHARES              IN-THE-MONEY SHARES
                          SHARES                           AT MARCH 31, 2000               AT MARCH 31, 2000
                         ACQUIRED         VALUE       ---------------------------   -------------------------------
NAME                    ON EXERCISE     REALIZED      EXERCISABLE   UNEXERCISABLE    EXERCISABLE     UNEXERCISABLE
----                    -----------   -------------   -----------   -------------   --------------   --------------
<S>                     <C>           <C>             <C>           <C>             <C>              <C>
Adams, John...........     14,000     $   97,872.46       54,000        187,000     $   396,187.57   $   942,780.92
Cook, James Alan......     50,000     $  508,438.00      527,002        291,998     $ 3,475,846.57   $ 1,788,029.43
Fowler, Stephen E.....     80,000     $  596,476.00      139,332        237,668     $   891,106.06   $ 1,139,708.94
Hawkins, Trip.........          0     $        0.00    1,432,333      4,192,667     $ 9,280,436.73   $ 5,949,083.26
Hicks III, Richard
  J...................          0     $        0.00      121,501        233,499     $   772,771.48   $ 1,265,991.51
                          -------     -------------    ---------      ---------     --------------   --------------
  Total...............    144,000     $1,202,786.46    2,474,168      5,850,832     $14,816,348.41   $11,085,594.06
</TABLE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth information known to us for the beneficial
ownership of our common stock as of March 31, 2000:

    - each stockholder known by us to own beneficially more than 5% of our
      common stock;

    - each director;

    - each of our chief executive officer and four other most highly compensated
      executive officers; and

    - all directors and executive officers as a group.

    As of March 31, 2000, there were 36,654,383 shares of common stock
outstanding. This number does not include shares of treasury stock. Except as
otherwise indicated, we believe that the beneficial owners of the common stock
listed below, on the information furnished by such owners, have sole voting
power and investment power over those shares, subject to community property laws
where applicable.

<TABLE>
<CAPTION>
                                                               NUMBER     PERCENT
                                                              ---------   --------
                                                              SHARES BENEFICIALLY
                                                                    OWNED(1)
                                                              --------------------
<S>                                                           <C>         <C>
Trip Hawkins(2).............................................  8,040,681     21.9%

J&W Seligman & Co., Incorporated ...........................  3,870,100     10.6
  100 Park Avenue
  New York, New York 10017

William A. Hall(3)..........................................     89,133     *

H. William Jesse, Jr.(4)....................................     82,333     *

Hugh C. Martin(5)...........................................     56,667     *

James A. Cook(6)............................................    564,649      1.5

Stephen E. Fowler(7)........................................    186,364     *

Richard J. Hicks, III(8)....................................    143,305     *

John W. Adams(9)............................................     60,818     *

All executive officers and directors as a group
  (11 persons)(10)..........................................  8,047,717     22.0%
</TABLE>

------------------------

   * Less than 1% of the outstanding shares of common stock.

 (1) Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission. In computing the number of shares
     beneficially owned by a person and the percentage

                                       52
<PAGE>
ownership of that person, shares of common stock subject to options or warrants
held by that person that are currently exercisable or will become exercisable
within 60 days after March 31, 2000, are deemed outstanding, while such shares
are not deemed outstanding for purposes of computing percentage ownership of any
other person. Unless otherwise indicated in the table above, the address of each
of the individuals listed in the table is 600 Galveston Drive, Redwood City,
California 94063.

 (2) Includes 1,503,778 shares subject to an option exercisable within 60 days
     of March 31, 2000.

 (3) Includes 58,333 shares subject to an option exercisable within 60 days of
     March 31, 2000.

 (4) Includes 53,333 shares subject to an option exercisable within 60 days of
     March 31, 2000.

 (5) Includes 56,667 shares subject to an option exercisable within 60 days of
     March 31, 2000.

 (6) Includes 557,777 shares subject to an option exercisable within 60 days of
     March 31, 2000.

 (7) Includes 156,890 shares subject to an option exercisable within 60 days of
     March 31, 2000.

 (8) Includes 131,666 shares subject to an option exercisable within 60 days of
     March 31, 2000.

 (9) Includes 60,000 shares subject to an option exercisable within 60 days of
     March 31, 2000.

 (10) Includes shares held beneficially by executive officers and directors as
      shown in the foregoing table and 1,158,865 shares subject to options
      exercisable within 60 days of March 31, 2000.

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 1999 annual meeting of stockholders.

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................................          27
     Consolidated Balance Sheets as of March 31, 1999 and 2000...          28
     Consolidated Statements of Operations for the years ended
       March 31, 1998, 1999 and 2000.............................          29
     Consolidated Statements of Stockholders' Equity for the
       years ended March 31, 1998, 1999 and 2000.................          30
     Consolidated Statements of Cash Flows for the years ended
       March 31, 1998, 1999 and 2000.............................          31
     Notes to Consolidated Financial Statements..................       32-46

 2.  Financial Statement Schedules
     Information required by this Item is included in the Notes
       to Consolidated Financial Statements
</TABLE>

                                       53
<PAGE>
3.  Exhibits

    The following exhibits are filed as part of, or incorporated by reference
into, this report:

<TABLE>
<CAPTION>
       NUMBER                                             EXHIBIT TITLE
       ------                                             -------------
<C>                     <C>        <S>
         3.01              --      Registrant's Restated Certificate of Incorporation.(2)

         3.05              --      Registrant's Delaware Bylaws, as amended.(2)

         4.01              --      Form of Specimen Certificate for Registrant's Common
                                   Stock.(2)

        10.01              --      1991 Incentive Stock Plan of the Registrant.(2)

        10.02              --      1993 Incentive Stock Plan of the Registrant.(2)

        10.03              --      Form of Restricted Stock Purchase Agreement of the
                                   Registrant.(2)

        10.04              --      Form of Incentive Stock Option Agreement of the
                                   Registrant.(2)

        10.05              --      Form of Nonstatutory Stock Option Agreement of the
                                   Registrant.(2)

        10.06              --      401(k) Plan of the Registrant.(2)

        10.07              --      Employment Agreement between the Registrant and William M.
                                   Hawkins III dated as of February 1993.(2)

        10.07A             --      Amendment to Employment Agreement between the Registrant and
                                   William M. Hawkins III, dated as of March 22, 1994.(3)

        10.08              --      Form of Indemnity Agreement.(2)

        10.09              --      Lease between Seaport Centre Venture Phase I and the
                                   Registrant for office space at 600 Galveston Drive, Building
                                   5, Redwood City, California.(4)

        10.09A             --      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.(3)

        10.09B             --      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.(5)

        10.10              --      1994 Employee Stock Purchase Plan of the Registrant (6)

        10.11              --      1995 Director Option Plan of the Registrant (6)

        10.12              --      Asset Purchase Agreement between the Registrant and Samsung
                                   Electronics Co., Ltd. (1)(6)

        10.13              --      Second Addendum dated July 23, 1997, to Technology Licensing
                                   Agreement between the Registrant and Matsushita Electronic
                                   Industrial Co., Ltd., dated December 7, 1995 (1) (6)

        10.14              --      WCWA Loan Agreement between the Registrant and Merrill Lynch
                                   & Co. dated November 3, 1998 (7)

        10.15              --      Loan and Security Agreement between the Registrant and Coast
                                   Business Credit dated March 18, 1999 (7)

        10.16              --      Loan and Security Agreement by and among The 3DO Company
                                   (California), The 3DO Company (Delaware), 3DO Europe,
                                   certain lenders as signatories and Foothill Capital
                                   Corporation dated April 6, 2000

        21.01              --      List of Subsidiaries of the Registrant.

        23.01              --      Consent of KPMG LLP.
</TABLE>

                                       54
<PAGE>

<TABLE>
<CAPTION>
       NUMBER                                             EXHIBIT TITLE
       ------                                             -------------
<C>                     <C>        <S>
        24.01              --      Power of Attorney.
</TABLE>

------------------------

(1) Confidential treatment has been granted with respect to certain portions of
    this document.

(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 exhibits 10.21A, 10.34A, 10.36, 10.37,
    10.38 and 10.39 filed with the Registrant's Registration Statement on
    Form S-1 No. 33-71364.

(4) Incorporated by reference to the exhibits 10.34, 10.40 and 10.41 filed with
    the Registrant's Annual Report on Form 10-K for the year ended March 31,
    1994

(5) Incorporated by reference to the exhibit 10.34B filed with the Registrant's
    Annual Report on Form 10-K for the year ended March 31, 1995

(6) Incorporated by reference to the exhibits 10.46, 10.47, 10.48 and 10.49
    filed with the Registrant's Annual Report on Form 10-K for the year ended
    March 31, 1997.

(7) Incorporated by reference to the same-numbered exhibits filed with the
    Registrant's Annual Report on Form 10-K for the year ended March 31, 1999.

    (b) Reports on Form 8-K:

       No Reports on Form 8-K were filed during the quarter ended March 31,
       1999.

    (c) Exhibits:

       The registrant hereby incorporates as part of this Form 10-K the exhibits
       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.

                                       55
<PAGE>
                                   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:

<TABLE>
<S>                                                    <C>  <C>
                                                       THE 3DO COMPANY
                                                       a Delaware Corporation

                                                       By:             /s/ JAMES ALAN COOK
                                                            -----------------------------------------
                                                                         James Alan Cook
                                                                    EXECUTIVE VICE PRESIDENT,
                                                                  GENERAL COUNSEL AND SECRETARY
                                                                    (DULY AUTHORIZED OFFICER)

Date: June 29, 2000
</TABLE>

                                       56
<PAGE>
                                THE 3DO COMPANY
                            REPORT ON FORM 10-K FOR
                         THE YEAR ENDED MARCH 31, 2000

                               INDEX TO EXHIBITS*

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                   EXHIBIT NAME
---------------------                           ------------
<C>                     <S>
        10.16           Loan and Security Agreement by and among The 3DO Company
                          (California), The 3DO Company (Delaware), 3DO Europe,
                          certain Lenders as Signatories and Foothill Capital
                          Corporation dated April 6, 2000
        21.01           List of Subsidiaries of the Registrant.
        23.01           Consent of KPMG LLP.
        24.01           Power of Attorney.
        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.

                                       57