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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
--------------- TO
---------------.
COMMISSION FILE NUMBER 0-21336
------------------------
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 NO.)
</TABLE>
600 GALVESTON DRIVE
REDWOOD CITY, CALIFORNIA 94063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(415) 261-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 1997, the number of outstanding shares of the registrants' common
stock was 28,601,829.
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THE 3DO COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements........................................... 3
Consolidated Balance Sheets at June 30, 1997 and March 31, 1997............. 3
Consolidated Statements of Operations for the three months ended
June 30, 1997 and 1996...................................................... 4
Consolidated Statements of Cash Flows for the three months ended
June 30, 1997 and 1996...................................................... 5
Condensed Notes to Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 18
Signatures.................................................................. 19
</TABLE>
2
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PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE 3DO COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
----------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 18,715 $ 14,395
Short-term investments............................................. 27,326 19,222
Accounts receivable, net........................................... 340 429
Prepaid and other current assets................................... 1,192 1,861
--------- ---------
Total current assets................................................. 47,573 35,907
Property and equipment, net.......................................... 4,124 6,681
Deposits and other assets............................................ 2,039 2,366
--------- ---------
Total assets......................................................... $ 53,736 $ 44,954
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 1,122 $ 569
Accrued expenses................................................... 3,874 3,251
Deferred revenue................................................... 30 11,992
Current portion of capital lease obligations....................... 722 807
Hardware incentive obligations..................................... 2,944 2,944
Other current liabilities.......................................... 946 2,277
--------- ---------
Total current liabilities............................................ 9,638 21,840
Capital lease obligations, net of current portion.................... 70 611
Other liabilities.................................................... 1,088 1,104
--------- ---------
Total liabilities.................................................... 10,796 23,555
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized; no shares
issued.......................................................... -- --
Common stock, $.01 par value; 50,000 and 25,000 shares authorized;
28,522 and 28,369 shares issued and outstanding, respectively... 285 284
Additional paid-in capital......................................... 158,819 158,489
Cumulative translation adjustment.................................. (183) (164)
Accumulated deficit................................................ (115,981) (137,210)
--------- ---------
Total stockholders' equity........................................... 42,940 21,399
--------- ---------
Total liabilities and stockholders' equity........................... $ 53,736 $ 44,954
========= =========
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
3
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THE 3DO COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Royalties and license fees........................................... $ 11,962 $ 14,178
Software publishing.................................................. 2,311 892
Developer products and other......................................... 90 259
-------- --------
Total revenues............................................... $ 14,363 $ 15,329
-------- --------
Cost of revenues:
Royalties and pressing fees.......................................... -- 186
Software publishing.................................................. 1,022 133
Developer products and other......................................... 42 813
-------- --------
Total cost of revenues....................................... 1,064 1,132
-------- --------
Gross profit................................................. 13,299 14,197
-------- --------
Operating expenses:
Research and development............................................. 6,503 9,290
In-process research and development.................................. -- 7,700
Sales and marketing.................................................. 1,077 1,144
General and administrative........................................... 2,638 2,780
-------- --------
Total operating expenses..................................... 10,218 20,914
-------- --------
Operating profit (loss)................................................ 3,081 (6,717)
Gain on sale of the Systems assets..................................... 18,032 --
Net interest and other income (expense)................................ 189 326
-------- --------
Income (loss) before income and foreign withholding taxes.............. 21,302 (6,391)
Income and foreign withholding taxes................................... 73 4,000
-------- --------
Net income (loss)...................................................... $ 21,229 $(10,391)
======== ========
Net income (loss) per common and common equivalent share............... $ 0.70 $ (0.39)
======== ========
Common and common equivalent shares used in computing per share
amounts.............................................................. 30,538 26,618
======== ========
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
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THE 3DO COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss).................................................... $ 21,229 $(10,391)
Adjustments to reconcile net profit (loss) to net cash
used in operating activities:
Net loss on disposition of equipment............................ 176 --
Depreciation and amortization................................... 1,288 1,545
Deferred revenue................................................ (11,962) 27,101
Gain on sale of Systems assets.................................. (18,032) --
In-process research and development............................. -- 7,700
Changes in operating assets and liabilities:
Accounts receivable, net..................................... 89 635
Prepaid and other assets..................................... 389 (1,287)
Accounts payable............................................. 553 (523)
Accrued expenses............................................. 623 (804)
Hardware incentives.......................................... -- (1,236)
Other liabilities............................................ (1,347) 1,924
-------- --------
Net cash provided by (used in) operating activities.................... (6,994) 24,664
-------- --------
Cash flows from investing activities:
Proceeds from sale of Systems assets................................. 20,000 --
Proceeds from disposition of equipment............................... 74 --
Short-term investments, net.......................................... (8,104) (2,199)
Capital expenditures................................................. (342) (2,002)
-------- --------
Net cash used in investing activities........................ 11,628 (4,201)
======== ========
Cash flows from financing activities:
Proceeds from issuance of common stock, net.......................... 330 412
Payments on capital lease obligations................................ (626) (414)
-------- --------
Net cash provided by (used in) financing activities.......... (296) (2)
-------- --------
Effect of foreign currency translation................................. (18) 3
-------- --------
Net increase in cash and cash equivalents.............................. 4,320 20,464
Cash and cash equivalents at beginning of period....................... 14,395 9,459
-------- --------
Cash and cash equivalents at end of period............................. $ 18,715 $ 29,923
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest.......................................................... $ 64 $ 297
Income and foreign withholding taxes.............................. $ -- $ 4,000
Supplemental schedule of noncash investing and financing activities:
Assets acquired under capital lease obligations................... $ -- $ 245
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
5
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THE 3DO COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- GENERAL
The consolidated financial statements of The 3DO Company, a Delaware
corporation (the "Company"), as of June 30, 1997 and for the quarter ended June
30, 1997 and 1996 are unaudited. In the opinion of management, these financial
statements include all adjustments (consisting of only normal recurring items)
necessary for the fair presentation of the financial position and results of
operations for the interim periods. Certain amounts for prior periods have been
reclassified to conform to the current period presentation.
These consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997. The results of
operations for the quarter ended June 30, 1997 are not necessarily indicative of
the results expected for the entire year.
NOTE 2 -- REVENUE RECOGNITION
Revenue from third-party engineering and licensing agreements are
recognized using the percentage-of-completion method. Revenue from the sale of
software titles published and distributed by the Company and developer products
is recognized at the time of shipment, provided the Company has no outstanding
obligations. Subject to certain limitations, the Company permits customers to
obtain exchanges of 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 an allowance
for returns and price protection. Software licensing revenue is recognized at
delivery of the product golden master or the first copy. Per-copy royalties on
sales that exceed the guarantee are recognized as earned. Revenue from the
Company's on-line service is recognized monthly on the anniversary date of the
individual account sign-ups.
NOTE 3 -- NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based on the weighted average
number of common shares outstanding, and common equivalent shares from stock
options, when dilutive, using the modified treasury stock method.
NOTE 4 -- GAIN ON SALE OF SYSTEMS GROUP
On June 23, 1997, the Company sold and/or licensed most of the assets of
the Company's 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. CagEnt also acquired
the Company's video encoder business as part of the transaction.
NOTE 5 -- INCENTIVE PROGRAMS
The Company provided a manufacturing incentive of $5.00, $4.00 and $3.00
for each 3DO Multiplayer system distributed in calendar years 1993, 1994 and
1995 (1994, 1995 and 1996 with respect to Japan), respectively. Amounts under
this and certain other incentive programs were accrued as the obligation arose
and as of June 30, 1997, the Company had accrued approximately $2.9 million. The
balance is due to be paid in the third quarter of fiscal 1998.
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THE 3DO COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INCOME TAXES
Income tax expense totaled $0.1 million and $4.0 million for the three
months ended June 30, 1997 and 1996, respectively. Income tax expense represents
foreign income and withholding taxes, and minimum state taxes.
NOTE 7 -- NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128
requires the presentation of basic earnings per share ("EPS") and, for companies
with potential dilutive securities, such as options and warrants, diluted EPS.
SFAS No. 128 is effective for annual and interim periods ending after December
15, 1997. The Company expects that basic EPS for profitable periods will be
higher than primary earnings per share as presented in the accompanying
financial statements and that diluted EPS for profitable periods will not differ
materially from primary earnings per share as presented in the accompanying
financial statements. Computations for loss periods should not change
significantly.
NOTE 8 -- SUBSEQUENT EVENTS
On July 19, 1997, the Board of Directors of the 3DO Company approved a
stock repurchase plan pursuant to which the Company may purchase up to $5.0
million of the Company's stock on the open market or in block trades, from time
to time as management deems appropriate, if the market price of the Company's
stock remains below certain levels. The repurchase plan will remain in effect
until rescinded by the Board.
On July 23, 1997, the Company signed an agreement with Matsushita
Electronic Industrial Co., Ltd. (hereinafter "MEI" or "Matsushita") pursuant to
which it has received approximately 3.2 million shares of its own common stock
that MEI previously owned in exchange, inter alia, for the termination of
certain rights originally granted to 3DO with respect to its M2 technology.
Under the agreement, 3DO relinquished its rights to develop and distribute
software and peripherals that are compatible with M2 hardware products.
Additionally, the Company gave up its royalties with respect to MEI's potential
use of the M2 technology, as well as certain other rights.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The 3DO Company ("3DO" or the "Company") develops, publishes and markets
interactive entertainment products for multiple platforms including
IBM-compatible personal computers (the "PC"), Sony PlayStation and Internet
platforms. During fiscal year 1997, the Company also designed and licensed
hardware technologies for the 64-bit consumer and PC markets. In September 1996,
the Company announced its intention to sell certain assets relating to its
hardware systems business in order to focus on publishing interactive
entertainment software.
The Company developed a next generation 64-bit technology (the "M2
Technology") and, in December 1995, the Company and MEI entered into a
definitive license 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 (the "M2 Agreement"). The license was
originally granted in exchange for an upfront license payment of $100 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. As of June
30, 1997, the Company recognized all revenue in connection with the M2
Agreement.
On April 24, 1996, the Company agreed to make certain modifications to the
M2 system design, pursuant to the terms of an addendum (the "Addendum") to the
M2 Agreement 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. The payments by MEI are contingent upon the Company meeting certain
milestones by particular dates, as stipulated in the Addendum. The Company
intends to recognize this revenue using the percentage-of-completion method, up
to the amount of cash received.
On July 23, 1997, the Company announced the execution of a second addendum
(the "Second Addendum") to the M2 Agreement which the Company entered into with
MEI in December 1995, as amended in April 1996 pursuant to an addendum (the
"Addendum"), pertaining to the M2 Technology. Under the Second Addendum, the
Company relinquished its rights to develop and distribute software and
peripherals that are compatible with hardware products incorporating 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 has returned to the Company all of the
approximately 3.2 million shares of the Company's common stock that it
previously owned.
There can be no assurance that the Company will be able to meet its
milestone delivery obligations as referenced in the M2 Agreement, as amended, or
even at all, or that, if the Company meets its milestone delivery obligations,
MEI will pay all or any of the reduced and/or referred payments on time or at
all. The failure of the Company to meet its amended milestone delivery
obligations or the failure of MEI to pay the amounts due under the M2 Agreement,
as amended, would have material, adverse effects on the Company's revenues and
resulting financial performance.
On June 23, 1997, the Company sold and/or licensed most of the assets of
the Company's 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. 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
8
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under the M2 Agreement with MEI. CagEnt also acquired the Company's video
encoder business as part of the transaction.
Neither the Samsung Agreement, nor any addendum to the M2 Agreement,
relieves the Company of its obligation to complete the deliverables called for
in the M2 Agreement. There can be no assurance that the Company, with CagEnt's
subcontracted assistance, will successfully complete the deliverables required
pursuant to the M2 Agreement. In the event that CagEnt's subcontracted
engineering services are unsatisfactory or are not timely completed, the Company
will incur substantial expenses to complete its obligations under the M2
Agreement. This would have a material adverse impact on the Company, including,
but not limited to, diverting funds from the Company's software publishing
business.
In February 1996, the Company licensed the 3-D graphics portion of the M2
Technology to Cirrus Logic for the potential development of high-end 3-D
graphics chips for the PC market. Under the terms of the Joint Development and
License Agreement (the "Cirrus Agreement") the Company agreed to develop certain
modifications to its semiconductor technology familiarly known as the
"3DEngine." As partial consideration under such agreement, the Company has
received the nonrefundable sum of $2.5 million as of June 30, 1997. This payment
has been recognized as revenue under the percentage-of-completion method.
On October 3, 1996, Cirrus filed a complaint to rescind the Cirrus
Agreement on the grounds of frustration of purpose, mistake, failure of
consideration, concealment, and non-disclosure, and seeking to obtain a
repayment of $2.5 million in nonrefundable payments made to the Company. The
Company has responded to Cirrus' complaint and filed a cross-complaint regarding
Cirrus' breach of the Cirrus Agreement and seeking to enforce its rights under
said agreement, including procurement of Cirrus' payment of $4.5 million in
nonrefundable license fees, prepaid royalties and termination fees, plus
damages, interest, and attorneys' fees and costs. Although the Company believes
Cirrus has specific obligations under the contract to pay such additional $4.5
million in nonrefundable license fees, prepaid royalties, and termination fees,
there can be no assurance that the Company will prevail in the litigation, will
not be required to refund the $2.5 million payment received from Cirrus, or will
receive the additional $4.5 million that it believes Cirrus owes under the
Cirrus Agreement.
Revenue from the sale of software titles published and distributed by the
Company and developer products is recognized at the time of shipment, provided
the Company has no outstanding obligations. Subject to certain limitations, the
Company permits customers to obtain exchanges of 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 an allowance for returns and price protection. Software
licensing revenue is recognized at delivery of the product golden master or the
first copy. Per-copy royalties on sales that exceed the guarantee are recognized
as earned. Revenue from third-party engineering and licensing agreements are
recognized using the percentage-of-completion method. Revenue from the Company's
on-line service is recognized monthly on the anniversary date of the individual
account sign-ups.
The Company provided a manufacturing incentive of $5.00, $4.00 and $3.00
for each 3DO Multiplayer system distributed in calendar years 1993, 1994 and
1995 (1994, 1995 and 1996 with respect to Japan), respectively. This and certain
other incentive programs were accrued as the obligation arose, and as of June
30, 1997, the Company had accrued approximately $2.9 million. The June 30, 1997
balance is due to be paid in the third quarter of fiscal 1998.
The Company will continue to incur substantial expenditures to develop its
business in fiscal 1998. The Company expects that its operating results will
fluctuate as a result of a wide variety of factors, including the timing of
software product introductions by the Company and its competitors, the Company's
expenditures on research and development, marketing and promotional programs,
and the general state of the national and global economies. In addition, the
Company's revenues will be affected by the seasonal nature of the market for
consumer electronics products and variations as a result of the demand for a
particular software title.
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which are subject to the
"safe harbor" created by that section. These forward-looking statements include,
but are not limited to, statements concerning future revenues, expenses, cash
flows and
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capital resources and statements regarding the extent to which the Company will
receive and/or recognize revenue from the M2 Agreement, as amended; the extent
to which CagEnt will assist the Company, as a subcontractor, in completing the
remaining deliverables associated with the M2 Agreement, as amended; the extent
to which the Company will receive and/or recognize revenue from the Cirrus
Agreement; the extent to which the Company will receive and/or recognize revenue
from the sale of software titles it publishes and distributes and/or from its
on-line service; the extent to which the Company will receive and/or recognize
revenue with respect to the sale of software titles it licenses to third-party
publishers; the length of time for which the Company's existing cash resources,
working capital financing and other sources of funds will fund the Company's
activities; the Company's ability to develop software products for new platforms
and the timeliness, cost, and market demand for such products created as part of
its software development activities; and the effect of competitive factors in
the marketplace, including the market acceptance of certain formats and the
timing and release of competitors' products. The Company's actual future results
could differ materially from those projected in the forward-looking statements.
Some factors which could cause future actual results to differ materially from
the Company's recent results or those projected in the forward-looking
statements are described in "Factors Affecting Future Performance," below. The
Company assumes no obligation to update the forward-looking statements or such
factors.
RESULTS OF OPERATIONS
For the quarter ended June 30, 1997, the Company generated a net profit of
$21.2 million compared to a net loss of $10.4 million for the same quarter in
fiscal 1996. Included in the net loss for the three months ended June 30, 1996
was a $7.7 million charge for in-process research and development related to the
acquisition of certain of the assets of New World Computing, Inc., and $4.0
million in withholding taxes related to the payment of $40 million by Matsushita
pursuant to the M2 Licensing Agreement. Net profit for the quarter ended June
30, 1997 includes a one-time $18.0 million gain from the sale of certain of the
hardware-related assets to Samsung.
Revenue for the three months ended June 30, 1997 and 1996 totaled $14.4
million and $15.3 million, respectively. Royalties and license fees of $12.0
million were the largest components of revenue for the three months ended June
30, 1997, compared to $14.2 million for the prior comparable period. The decline
was due principally to the shift of the Company's business strategy from
hardware design and licensing to focus on entertainment software publishing.
Software publishing revenue totaled $2.3 million for the three months ended
June 30, 1997, compared to $0.9 million for the same period last fiscal year.
Revenue for this fiscal year was derived primarily from the Company's shipments
of PC platform titles. Revenue for the prior comparable period was comprised
primarily of the revenue from the licensing and publishing of software titles
for the 32-bit 3DO Multiplayer.
Developer products and other revenue totaled $0.1 million for the quarter
ended June 30, 1997, compared to $0.3 million for the prior comparable period.
Revenue for the quarter ended June 30, 1997 was comprised primarily of shipments
of digital video products. Revenue for the prior comparable period was comprised
primarily of shipments of M2 development systems.
Cost of revenues totaled $1.1 million for the quarters ended June 30, 1997
and 1996. Cost of publishing revenue as a percentage of publishing revenue was
44% for the current quarter compared to 15% for the prior comparable period. The
increase was attributable to higher software licensing revenue in fiscal 1997,
which had no associated cost. Cost of development systems as a percentage of
development systems revenue was 47% for the current quarter compared to 314% for
the quarter ended June 30, 1996. The decrease was due primarily to higher
manufacturing cost for the quarter ended June 30, 1996 as the Company prepared
for the release of its digital video products. Cost of revenues consists of
direct costs associated with development systems products, software titles sold
and royalties paid to third-party software developers. Internal development
costs on software title development for the Company's published titles are
recognized as incurred and included in research and development expenses.
Research and development expenses for the quarter ended June 30, 1997
totaled $6.5 million, compared to $17.0 million for the same fiscal period in
the prior year. The decrease was due primarily to reduced research and
development spending in the hardware systems division as the M2 development
project
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approaches completion and as the Company transitioned certain assets and
projects relating to its hardware systems business unit to Samsung.
Additionally, a one-time $7.7 million expense for in-process research and
development related to the Company's acquisition of certain of the assets of New
World Computing was incurred in June 1996. The decrease was partially offset by
higher on-going development expenses associated with Cyclone Studios, Archetype
Interactive and New World Computing, which were acquired by the Company in
November 1995, May 1996 and June 1996, respectively.
Sales and marketing expenses for the three months ended June 30, 1996 and
1997 were $1.1 million for each quarter. Sales and marketing expenses for the
quarter ended June 30, 1996 primarily consisted of expenses related to the
32-bit 3DO Multiplayer systems, digital video products and PC platform titles.
Sales and marketing expenses incurred during the quarter ended June 30, 1997
principally consisted of expenses related to software for the PC platform.
General and administrative expenses decreased from $2.7 million for the
quarter ended June 30, 1996 to $2.6 million for same period in 1997. The
decrease for the current quarter was attributable to reduced overhead expenses
as the Company transitioned from a hardware systems licensing company to an
entertainment software publishing company, offset by the amortization of
goodwill associated with the acquisition of certain assets of New World
Computing.
Net interest and other income increased from $0.3 million for the quarter
ended June 30, 1996 to $18.2 million for the same period this year due primarily
to the $18.0 million gain on the sale of certain assets of the Company's
hardware systems division to Samsung.
Income and foreign withholding taxes decreased from $4.0 million for the
three months ended June 30, 1996 to $0.1 million for the prior comparable
quarter. The decrease was attributable to the fact that 10% foreign withholding
taxes were incurred in the prior year on a $40 million payment received from MEI
in June 1996 in connection with the M2 Licensing Agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are its cash and cash
equivalent balances and short-term investment balances, which totaled
approximately $46.0 million at June 30, 1997. At March 31, 1997, cash and
short-term investments totaled $33.6 million. This increase was primarily due to
the net proceeds of $20.0 million from Samsung for the sale of certain assets of
the Company's hardware systems business.
The Company will incur negative cash flow for the remainder of fiscal year
1998 from the continued investment in the internal development of entertainment
software titles scheduled to be released in the third and fourth quarters of
fiscal year 1998 and beyond. The Company anticipates that its existing cash
resources, future lease and working capital financing and all other sources of
funds should be sufficient to fund the Company's activities through the end of
fiscal year 1998. There can be no assurance that additional capital will not be
required in fiscal year 1999 since cash flows will be affected by the rate at
which the Company releases its products and the resulting sale of these
products, the market acceptance of such products and the levels of advertising
and promotions required to promote market acceptance of the Company's products.
The level of financing required beyond fiscal year 1998 will depend on these and
other factors. If the Company needs to raise additional funds through public or
private financings, no assurance can be given that additional financing will be
available or that, if available, it will be available on terms acceptable to the
Company or its stockholders. Additional financings may result in substantial and
immediate dilution to existing stockholders. If adequate funds are not available
to satisfy either short or long term capital requirements, the Company may be
required to curtail its operations significantly or to seek funds through
arrangements with strategic partners or others that may require the Company to
relinquish material rights to certain of its technologies, products and/or
potential markets.
11
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FACTORS AFFECTING FUTURE PERFORMANCE
Hardware Systems Group Sale
On June 23, 1997, the Company sold certain assets of its hardware systems
group to Samsung pursuant to an Asset Purchase Agreement (the "Samsung
Agreement"). As part of the Samsung Agreement, CagEnt, a subsidiary of Samsung,
agreed to assist the Company, as a subcontractor, in its efforts to complete the
remaining deliverables associated with the M2 Agreement. Neither the Samsung
Agreement, nor any addendum to the M2 Agreement, relieves the Company of its
obligation to complete the deliverables called for in the M2 Agreement. There
can be no assurance that the Company, with CagEnt's subcontractor assistance,
will successfully complete the deliverables pursuant to the M2 Agreement, as
amended. In the event that CagEnt's subcontracted engineering services are
unsatisfactory, the Company will incur substantial expenses to complete its
obligations under the M2 Agreement. This would have a material adverse impact on
the Company, including, but not limited to, diverting funds from the Company's
software publishing business.
Changing Product Platforms and Formats
The Company is entering new markets with its software products,
specifically the PC, Sony PlayStation and Internet markets. The markets for
entertainment software and entertainment software platforms are undergoing rapid
technological change. As a result, the Company must continually anticipate and
adapt its products to emerging platforms and evolving consumer preferences. The
introduction of new platforms and technologies can render existing products
obsolete and unmarketable. Development of entertainment software products for
new hardware platforms requires substantial investments in research and
development for technologies such as motion capture, digitized speech and sound
effects, music and full motion video, and requires the Company to anticipate and
attempt to develop products for those platforms that will ultimately be
successful. Generally, software development efforts must occur well in advance
of the release of new platforms in order to introduce new products on a timely
basis following the release of such platforms. Although the Company intends to
develop and market entertainment software for certain advanced and emerging
platforms, the development and marketing efforts in connection therewith may
require greater technical and financial resources than currently possessed by
the Company. In addition, there can be no assurance that the platforms for which
the Company develops products will achieve market acceptance and, as a result,
there can be no assurance that the Company's development efforts with respect to
such new platforms will lead to marketable products or products that generate
sufficient revenues to offset research and development costs incurred in
connection with the creation of such products. There can be no assurance that
the Company will be successful in developing and marketing products for new
platforms. Failure to develop products for new platforms that achieve
significant market acceptance would have a material adverse effect on the
Company's business, operating results and financial condition. Furthermore, the
Company does not have a license to develop products for certain of the most
popular platforms, including the proprietary platforms of Sega and Nintendo.
Finally, the Company's products must maintain compatibility with certain
hardware and software accessories. Any changes in any of such third-party
product designs that result in incompatibility of the Company's products could
result in significant product returns and obsolescence.
Dependence on PC Market
The Company's future success is in part dependent on the PC market, which
is extremely dynamic and has historically been characterized by wide
fluctuations in product supply and demand. From time to time, the PC industry
has also experienced significant downturns, often in connection with, or in
anticipation of, declines in general economic conditions. Furthermore, rapid
technological change in PC hardware may render the currently installed base of
PCs and the Company's technology obsolete. There can be no assurance that unit
sales of PCs or the number of entertainment software users in the PC market will
continue at their present levels or increase in the future. The Company's
revenues from its entertainment software products will be dependent on marketing
and distribution of titles to an installed base of PC users. Any decrease in
demand for PCs or the number of entertainment software users in the PC market
would have a material adverse effect on the Company's operating results.
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<PAGE> 13
Dependence on the Sony Playstation Market
The market for software products for the Sony PlayStation is currently
experiencing rapid growth. The Company's future success is partly dependent on
its ability to successfully take advantage of this market and on the continued
growth of the Sony PlayStation market. There can be no assurance that the
Company will be able to develop products for the Sony PlayStation in a timely
manner to take advantage of this growing market, that the Company's Sony
PlayStation software products will achieve market acceptance or that the Sony
PlayStation market will continue to grow. In the event that the Company fails to
develop products while the Sony PlayStation market is expanding or fails to
deliver products that are commercially successful, or if the Sony PlayStation
market does not continue to grow, the Company's operating results would be
adversely affected.
Dependence on the Internet Market
The Company's future success is in part dependent upon continued growth in
the use of the Internet. Rapid growth in the use of and interest in the Internet
is a recent phenomenon. The Internet may not prove to be a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary infrastructure, such as a reliable network
infrastructure, or timely development of performance improvements including high
speed modems. In addition, to the extent that the Internet continues to
experience significant growth in the number of users and level of use, there can
be no assurance that the Internet infrastructure will continue to be able to
support the demands placed upon it by any such growth. In addition, the Internet
could lose its visibility due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased government regulation. Changes in or insufficient
availability of telecommunications services to support the Internet also could
result in slower response times and adversely affect usage of entertainment
software developed for the Internet. If the use of the Internet does not grow,
or if the Internet infrastructure does not effectively support the growth that
may occur, the Company's business, results of operations and financial
conditions would be materially adversely affected.
Interactive Multiple Player Games on the Internet
The availability of multiple player games on the Internet is a recent
phenomenon. The limited history of multiple player games on the Internet has
been characterized by numerous companies entering the market in a short span of
time and competing for a limited number of players of multiple player games by
providing incentives to get player interest and by entering into agreements with
the few companies providing Internet game sites that have developed some player
following. However, there has been little evidence of success in this area and a
profitable business model to capitalize on the Internet multiple player game
market has not yet been established. In addition, multiple player games on the
Internet require the implementation of newly developed software to accept and
process payments from players which may contain errors in the program which have
not yet been discovered or corrected. The Company provides free play time and
other incentives such as discounts and contests to interest the limited number
of players in the market into trying the Company's games, has entered into
agreements to have its games distributed through Internet game sites, is testing
various pricing models to determine the most profitable models and has tested
and has implemented different software applications for the acceptance and
processing of payment from players of its games. There can be no assurance that
any of the incentives provided by the Company or the availability of the
Company's games on Internet game sites will result in increased player interest
in the Company's games, that the costs of providing such incentives or entering
into agreements with Internet game site providers will be compensated for by
increased payments from use of the Company's games, that the Company will be
able to continue to offer the incentives it does in accordance with the laws of
the jurisdictions into which the Company's games are distributed or that the
Company will be able to continue to offer its games through various Internet
game sites. In addition, so far, none of the pricing models implemented for
Internet multiple player games by the Company have yielded profit for the
Company, and there can be no assurance that any such model will do so in the
future. Furthermore, the Company has experienced problems with certain of the
Internet hardware and
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<PAGE> 14
software it has put into operation and there can be no assurance that such
problems or other problems will not reoccur in the future.
Short Product Lifespans
Interactive entertainment software products typically have life spans of
only 3 to 12 months. Accordingly, the Company will need to constantly develop
and bring to market new products that achieve market acceptance quickly. The
Company's future success will depend in large part on its ability to develop and
introduce new products on a timely basis. New products must keep pace with
competitive offerings, adapt to new hardware platforms and emerging industry
standards, and provide additional functionality. If the Company is unable, due
to resource constraints or technological or other reasons, to develop and
introduce such products in a timely manner, this inability would have a material
adverse effect on its operating results and financial condition. There can be no
assurance that the Company will be able to complete the timely development of,
and commercially release, new software products that achieve market acceptance.
Competition
The Company is entering new markets with certain of its software products,
specifically the Sony PlayStation and Internet markets. This will, to some
degree, require distribution through distributors and retailers who have not, in
the past, carried the Company's products. There will be intense competition in
procuring adequate distribution of the Company's software products. There can be
no assurance that the Company will succeed in obtaining sufficient distribution
to enable its products to achieve market success.
The markets in which 3DO's software products compete are expected to
undergo significant changes, due in part to the introduction, or planned
introduction, of new hardware platforms and electronic delivery systems, and the
entry and participation of new industries and companies. Severe competition
exists for retail shelf space in the consumer software industry. A number of
factors, including the Company's historic performance, discounts to retailers,
inventory and return policies, customer service, product support, brand
recognition, perceived quality and entertainment value of specific titles, and
marketing activities all affect access to distributors and retailers. In
addition, sales of interactive entertainment products are becoming increasingly
"hits" driven. Fewer products in that market are successful and publishers of
these games, including the Company, must incur substantial marketing and sales
expenses to promote retailers' efforts to sell such products.
A variety of companies offer products that compete directly with one or
more of the Company's software products. These direct competitors vary in size
from very small companies with limited resources to companies with financial,
managerial and technical resources substantially greater than those of the
Company. The Company's competitors include large independent multi-platform
software developers such as Electronic Arts Inc., Acclaim Entertainment, Inc.,
Lucas Arts Entertainment Co., and Spectrum HoloByte, Inc.; and publishers of
personal computer software such as Microsoft Corporation and Broderbund
Software.
Variability of Operating Results
The Company expects that its operating results will experience significant
fluctuation as a result of changes in the composition of the Company's revenues,
the timing of new video game hardware and software product introductions by the
Company's competitors, the timeliness with which the Company releases its
products to the market, fluctuations in the PC market, the financial impact of
acquisitions of other companies by the Company, and the Company's investments in
research and development, and expenditures on marketing and promotional
programs.
The market for entertainment software is highly seasonal. The Company's
revenues are expected to be affected by the seasonal nature of the market, which
is characterized by increased sales in the fourth calendar quarter coinciding
with the holiday selling season and typically a seasonal low in revenues in the
quarter ending in June. Seasonal trends may also be affected by general economic
or industry factors. The Company's revenues may also reflect substantial
variations as a result of the timing of the introduction of and demand for a
particular software title it has published and/or distributed. Such demand may
increase or decrease as a
14
<PAGE> 15
result of a number of factors, such as consumer preferences, product
announcement by competitors and the popularity of particular hardware platforms,
that cannot be predicted. The software industry is characterized by frequent
product delays which can materially and adversely affect the sales of a product
if the product is not released in time for the holiday season.
The Company has stock-balancing programs for its software products that,
under certain circumstances and up to a specified amount, allow for the return
and exchange of software products by resellers. The Company also typically
provides for price protection for its software products that, under certain
conditions, allows the reseller a price reduction from the Company for unsold
products. The Company maintains a policy of exchanging products or giving
credits, but does not typically give cash refunds. The risk of price protection
requirements is increasing as a result of the maturing and the increasingly
hit-based nature of the video game market. Moreover, the risk of product returns
may increase as new hardware platforms become more popular or market factors
force the Company to make changes in its distribution system. Overstocking in
the distribution channel can result in high returns or the requirement for
substantial price protection in subsequent periods. The Company provides for
reserves for returns and price protection based on estimated future returns of
products, taking into account promotional activities, the timing of new product
introductions, distributor and retailer inventories of the Company's products
and other factors. There can be no assurance that actual returns or price
protection will not exceed the Company's reserves.
Dependence on Distributors
The distribution channels through which consumer software products are sold
have been characterized by change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. The bankruptcy or other business
difficulties of a distributor or retailer could render the Company's accounts
receivable from such entity uncollectible, which could have an adverse effect on
the operating results and financial condition of the Company. In addition, an
increasing number of companies are competing for access to these channels. The
Company's arrangements with its distributors and retailers may be terminated by
either party at any time without cause. Distributors and retailers often carry
products that compete with those of the Company. Retailers of the Company's
products typically have a limited amount of shelf space and promotional
resources for which there is intense competition. There can be no assurance that
distributors and retailers will purchase the Company's products or provide the
Company's products with adequate levels of shelf space.
Dependence on Key Personnel
The Company's future success depends in large part on the continued service
of its key technical, marketing, sales and management personnel. Given the
Company's early stage of development, the Company is dependent on its ability to
recruit, retain and motivate high-quality personnel, especially highly-skilled
engineers, programmers and artists involved in the ongoing development required
to define future interactive technology, refine existing interactive
technologies, introduce enhancements for future applications, and develop novel
software titles. The Company is particularly dependent on the skills and
contributions of several key individuals, any one of whom may voluntarily
terminate employment with the Company at any time and whose departure would have
a material adverse effect on the Company's business. The Company is particularly
dependent upon its Chief Executive Officer, Trip Hawkins, who is also acting as
creative director. The Company does not have "key person" life insurance
policies on any of its employees. The interactive multimedia industry is
characterized by a high level of employee mobility and aggressive recruiting of
skilled personnel. The Company competes with computer hardware, software and
entertainment companies for the recruitment of skilled personnel. There can be
no assurance that the Company's current employees will continue to work for the
Company or that the Company will be able to obtain the services of additional
personnel necessary for the Company's growth.
Proprietary Rights and Licenses
The Company's success will depend in part on its ability to obtain and
enforce intellectual property protection for its technology in both the United
States and other countries. The Company has filed a number
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<PAGE> 16
of patent applications with the United States Patent and Trademark Office ("U.S.
Patent Office") and international counterparts of certain of these applications
with the United States Receiving Office pursuant to the Patent Cooperation
Treaty. The Company intends to file additional applications as it deems
appropriate for patents covering its technology. The process of obtaining patent
protection is expensive and absorbs substantial management and engineering time.
No assurance can be given that any patents will issue from these applications or
that, if any patent does issue, the claims allowed will be sufficiently broad to
protect the key aspects of the Company's technology or that the patent laws will
provide effective legal or injunctive remedies to stop any infringement of the
Company's patents. In addition, no assurance can be given that any patent issued
to the Company will not be challenged, invalidated or circumvented, that the
rights granted under patents will provide competitive advantages to the Company,
or that the Company's competitors will not independently develop or patent
technologies that are substantially equivalent or superior to the Company's
technologies.
The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its employees,
consultants, developers, vendors, and current and prospective licensees. The
Company's license agreements typically prohibit unauthorized disclosure and
unauthorized reverse-engineering of the Company's licensed technology. However,
the Company expects that third parties may attempt to reverse-engineer its
technology without authorization and there can be no assurance that the
Company's confidentiality and license agreements will not be breached or that
the Company will have adequate remedies for any breach. As a result, the Company
may not have an adequate remedy if a competitor disassembles or
reverse-engineers products that incorporate the Company's proprietary
technology, even if such technology is protected by trade secret or copyright
law. There can be no assurance that the Company's trade secrets will not
otherwise become known or be independently discovered by competitors.
The Company relies in part on copyright laws to prevent unauthorized
duplication or distribution of its software, written materials and audiovisual
works. Existing copyright right laws afford only limited protection,
particularly in certain jurisdictions outside the United States where the
Company may seek to license its technology. There can be no assurance that the
copyright laws will adequately protect the Company's technologies.
The Company licenses its name and logo for use in connection with
authorized products. The Company has experienced difficulty in registering some
of its marks in various jurisdictions, including Japan. There can be no
assurance that the Company will obtain sufficient trademark protection for these
marks, that these marks will not be duplicated without authorization, or that
the Company will have adequate remedies for trademark infringement in any
country.
From time to time, the Company receives communications from third parties
asserting that features or content of certain of the Company's or its licensees'
products infringe upon intellectual property rights held by such third parties.
As the number of patents and products in the Company's industry increases and as
the functionality of such products further overlaps, the Company believes that
products based on its technology may increasingly become the subject of
infringement claims. The Company could incur substantial costs in defending
itself or its licensees in litigation brought by others, or in prosecuting
infringement claims against third parties. The Company could also incur
substantial costs in interference proceedings declared by the U.S. Patent Office
in connection with one or more of the Company's or a third party's patents or
patent applications. Those proceedings could result in an adverse decision as to
the priority of the Company's inventions. A third party claiming infringement
may be able to obtain an injunction or other equitable relief, which could
effectively block the ability of the Company's licensees to import into the
United States or to distribute and sell products licensed by the Company. This
would materially and adversely affect the Company. Such a third party could also
assert claims for substantial damages against the Company, its licensees or
distributors of such licensees' products, which could inhibit the manufacture or
sale of licensed products. In the event of a claim of infringement, the Company
or its licensees may be required to obtain one or more licenses from third
parties. There can be no assurance that the Company or its licensees will be
able to obtain from third parties any required license to technology at a
reasonable cost or at all. Failure by the Company or its licensees to obtain any
such license would have a material adverse impact on the Company.
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Volatility of Stock Price
Market prices of securities of companies engaged in the entertainment
software industry have been highly volatile. Factors such as announcements of
the introduction of new products by the Company or its competitors,
announcements of joint development efforts or corporate partnerships in the
entertainment software field, market conditions in the technology,
entertainment, cable, telecommunications and other emerging growth company
sectors, and rumors relating to the Company or its competitors, have had and may
in the future have a significant impact on the market price of the Company's
common stock. Further, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of many high
technology and development-stage companies, such as those in the entertainment
software and semiconductor industries that has often been unrelated to the
operating performance of such companies. These market fluctuations may adversely
affect the price of the Company's common stock.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 3, 1996, Cirrus Logic, Inc. ("Cirrus"), filed a complaint in the
Superior Court of the State of California for the Southern Division of the
County of Alameda to rescind a Joint Development and License Agreement (the
"Cirrus Agreement") entered into between Cirrus and the Company on February 29,
1996, on the grounds of frustration of purpose, mistake, failure of
consideration, concealment, and non-disclosure; and to obtain a repayment of
$2.5 million in nonrefundable payments made to the Company. The Company has
responded to Cirrus' complaint and filed a cross-complaint for Cirrus' breach of
the Agreement to enforce its rights under the Cirrus Agreement, including
procurement of the payment by Cirrus of $4.5 million in nonrefundable license
fees, prepaid royalties, and termination fees; and to recover damages, collect
interest, and obtain attorneys' fees and costs. There can be no assurance that
the Company will prevail in the litigation, will not be required to refund the
$2.5 million payment received from Cirrus, or will receive the additional $4.5
million that it believes Cirrus owes under the Cirrus Agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits have been filed with this report:
<TABLE>
<C> <S>
10.49 Second Addendum dated July 23, 1997, to Technology Licensing Agreement
between the Company and Matsushita Electric Industrial Co., Ltd. dated
December 7, 1995(1)
11.01 Computation of Net Income (Loss) Per Share
27.01 Financial Data Schedule
</TABLE>
- ---------------
(1) Confidential Treatment has been requested with respect to certain portions
of this document.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE 3DO COMPANY
Dated: August 13, 1997 /s/ TERRENCE SCHMID
--------------------------------------
Terrence Schmid
Chief Financial Officer
(Principal Financial Officer and
Principal
Accounting Officer)
(Duly authorized officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------ ----------------------------------------------------------------------------------
<C> <S>
10.49 Second Addendum dated July 23, 1997, to Technology Licensing Agreement between the
Company and Matsushita Electric Industrial Co., Ltd. dated December 7, 1995
11.01 Computation of Net Income (Loss) Per Share
27.01 Financial Data Schedule
</TABLE>
20
<PAGE> 1
Exhibit 10.49
ADDENDUM
This Addendum is entered into and rendered effective as of this 23rd day of
July, 1997 (the "Effective Date"), by and between THE 3DO COMPANY, a California
corporation with principal offices at 600 Galveston Drive, Redwood City,
California, 94086, U.S.A. ("3DO") and MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.,
a Japanese corporation with principal offices at 1006, Kadoma, Osaka, 571, Japan
("MEI"), for the purposes of modifying and amending that certain Technology
Licensing Agreement which the parties entered into on December 7, 1995 (the "M2
License"), as amended by a prior Addendum, dated April 24, 1996 (the "First
Addendum"), and by a subsequent Memorandum which the parties entered into on or
about March 2, 1997 (the "Memorandum").
In consideration of the mutual representations, warranties and covenants
contained herein, and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, 3DO and MEI hereby agree as follows:
1. DEFINITIONS
1.1 "M2 Agreement", as used herein, shall mean, collectively, the M2
License, as amended by the First Addendum and the Memorandum.
1.2 Unless otherwise defined herein, capitalized words and phrases used
in this Addendum shall have the definitions and meanings set forth in the M2
Agreement.
2. ROYALTIES WITH RESPECT TO M2 SOFTWARE PRODUCTS
No royalties shall accrue, and neither MEI nor any software sublicensee
of MEI, shall be obliged to pay any royalties to 3DO with respect to any M2
Software Products that are manufactured on or after January 1, 1998, for
publishing in any media and/or via any form of distribution, and, accordingly,
Sections 8.2, 8.3, 8.4, 8.5 and 8.6(a) of the M2 License are hereby deleted in
their entirety from said agreement. Moreover, the enforceability of Sections
8.6(b), 8.7 and 8.8 of the M2 License, insofar as such Sections relate to any
obligations of MEI (including, but not limited to, the payment of royalties from
MEI to 3DO), is hereby irrevocably waived and rendered of no further force or
effect, while each of said Sections shall continue in full force and effect with
respect to any obligations of 3DO (including, but not limited to, the payment of
royalties by 3DO to MEI (e.g., as referenced in Section 16.6 of the M2
License)).
3. M2 AUTHORING SYSTEMS
3.1 Any and all rights and licenses granted to 3DO under Section 11.1
of the M2 License are hereby terminated in their entirety; provided, however,
notwithstanding the foregoing, MEI acknowledges and agrees that 3DO is entitled,
without any obligation to pay any royalties or other compensation to MEI or any
third party (as a consequence of any license or other rights with respect to M2
Authoring Systems granted by MEI to any such third party), to maintain
possession of the M2 Authoring Systems (both Nubus and PC-based) that are in
3DO's possession or under its control, and to use such M2 Authoring Systems (i)
in connection with the development of the Licensed Technology and the
development of any Improvements and Adaptations thereof that 3DO, at its
discretion, may elect to create, (ii) in connection with 3DO's fulfillment of
any of its obligations under the M2 Agreement and/or this Addendum, (iii) to
publicly display or otherwise
1 CONFIDENTIAL
<PAGE> 2
demonstrate the 3DO M2 Titles (as defined in Section 6.1, below), (iv) in
connection with the development of any software products that are compatible
with any non-M2 API that are derivative works based on or otherwise derived from
the 3DO M2 Titles (as referenced in Section 6.1, below), and (v) in connection
with the development of any Non-M2 Authoring Systems. Notwithstanding the
foregoing, 3DO acknowledges and agrees that (a) its entitlement to use any such
M2 Authoring Systems in connection with the purposes referenced in clauses (i),
(ii), and (iii) of this Section 3.1 shall expire on June 30, 1998 or such later
date as shall be expressly agreed upon by the parties in writing; and (b) its
entitlement to use any such M2 Authoring Systems (as distinguished from any
derivatives thereof) in connection with the purpose referenced in clause (iv) or
this Section 3.1 shall expire on June 30, 1998.
3.2 The words, "any M2 Authoring Systems or", appearing in the fourth
line of Section 11.3 of the M2 License, are hereby deleted from said Section.
3.3 The words, "M2 Authoring Systems (including development and
authoring software, tools and utilities) or", appearing in the first, second and
third lines of Section 11.4 of the M2 License, are hereby deleted from said
Section.
4. M2 PERIPHERAL PRODUCTS
Any and all rights and licenses granted to 3DO under Section 12 of the
M2 License are hereby terminated in their entirety.
5. M2 ARCADE DEVICES
5.1 The second sentence of Section 13.2 of the M2 License is hereby
deleted from said Section.
5.2 The sentence comprising Section 13.6 of the M2 License is hereby
deleted in its entirety and replaced with the following sentence: "For purposes
of clarification, the parties acknowledge and agree that the non-exclusive
license granted by MEI to 3DO in this Section 13 includes no license with
respect to M2 Software Products intended for use with M2 Arcade Devices, which
software products are developed using the M2 API."
6. M2 SOFTWARE PUBLISHING
6.1 Any and all rights and licenses granted to 3DO under Section 14.1
of the M2 License are hereby terminated in their entirety; provided, however,
notwithstanding the foregoing, MEI acknowledges and agrees that 3DO is entitled,
without any obligation to pay any royalties or other compensation to MEI or any
third party (as a consequence of any license or other rights with respect to M2
Software Products granted by MEI to any such third party), to:
(a) Retain reference copies of the source code and object
code forms of the M2 Software Products that 3DO has had in development prior to
the Effective Date of this Addendum, which consist of the software products
that are familiarly known to the parties as "World Championship Racing" and "M2
Baseball" (collectively, the "3DO M2 Titles");
(b) Develop, manufacture, market, distribute and otherwise
exploit, directly or indirectly, derivative works based on or otherwise derived
from the 3DO M2 Titles or any portions thereof, (including, without limitation,
conversions, ports and adaptations of such entertainment software programs), in
such versions, releases, formats and media as are compatible with any
interactive hardware platform(s) that are not M2 Hardware Product(s), and, in
connection with the development of any such derivative works, 3DO may, at its
discretion, (i) refer to and otherwise
2 CONFIDENTIAL
<PAGE> 3
use and exploit the source code and object code forms of the 3DO M2 Titles, and
(ii) load, install, assemble, link, compile, execute, run, and otherwise use the
3DO M2 Titles (or any portions thereof) on any of the M2 Authoring Systems
pursuant to Section 3.1 hereof;
(c) Display and perform the 3DO M2 Titles, whether publicly or
privately, in connection with any demonstration by 3DO of its software
development competence, provided that 3DO does not breach its obligation under
the M2 Agreement to maintain the confidentiality of the M2 Hardware Product
and/or associated M2 Peripheral Products (e.g., controllers) that is/are being
used for any such display of the 3DO M2 Titles, and provided further that 3DO
does not reference the "M2" format name or any M2 Platform Trademark in
association with the 3DO M2 Titles; and
(d) Sell, license or otherwise transfer the 3DO M2 Titles "AS
IS" (i.e., in their current state of development) to a third party or parties
which has/have entered into an agreement with or otherwise been authorized by
MEI to develop, manufacture and distribute M2 Arcade Devices, on such terms and
conditions as 3DO shall be able to negotiate with any such third party or
parties.
6.2 Sections 14.2, 14.3, 14.4, 14.5, 14.6, 14.7, and 14.8 of the M2
License are hereby deleted in their entirety from the M2 License.
7. COMPUTING DEVICES
7.1 The second sentence of Section 17.1(b) of the M2 License is hereby
deleted from said Section.
7.2 The second sentence of Section 17.2 of the M2 License is hereby
deleted from said Section.
8. TRADEMARK MATTERS
8.1 Any and all rights and licenses granted to 3DO under Section 19.1
of the M2 License are hereby terminated in their entirety.
8.2 Sections 1.14, 2.2, 19.2, 19.3(b), 19.3(c), 19.3(d), 19.5, 26.2,
26.3, 26.4, and 26.5 of the M2 License are hereby deleted in their entirety from
the M2 License.
8.3 The words "or use of any of the Trademarks or the M2 Platform
Trademark," appearing in the second and third lines of Section 24 of the M2
License are hereby deleted from said Section.
9. THE M2 STANDARD
9.1 The antecedent semicolon (";") and the words, "and (iii) if capable
of", appearing in the tenth line of Section 1.7 of the M2 License, together with
the remainder of the words comprising clause (iii) of such Section 1.7, are
hereby deleted from said Section.
9.2 Section 5.6 of the M2 License is hereby deleted in its entirety
from the M2 License.
3 CONFIDENTIAL
<PAGE> 4
10. M2 CHIPSET PROGRAM
10.1 Any and all rights granted to 3DO under Sections 10.1 and 10.2 of
the M2 License are hereby terminated in their entirety; provided, however,
notwithstanding the foregoing, MEI acknowledges and agrees that 3DO shall have a
personal and non-transferable right to:
(a) Receive from MEI, at no expense to 3DO and upon 3DO's
request, up to fifty (50) engineering samples from the first wafer lot of each
version of the semiconductor devices familiarly known to the parties as [***],
[***] and [***] (as referenced in Section 10.1 of the M2 License) for use solely
in connection with 3DO's fulfillment of its obligations under the M2 Agreement
and/or this Addendum;
(b) Purchase any and all of the Chipsets (including, without
limitation, [***] and [***]) from MEI at reasonable prices and terms of payment
to be negotiated and agreed upon by 3DO and MEI in good faith, subject to
availability; and
(c) In the event that any particular quantity of any of the
Chipsets should be unavailable for purchase from MEI at any time, 3DO may elect
to purchase such desired quantity of any such Chipset(s) directly from the
foundry or foundries that are then-serving as the sources of production of the
affected Chipset(s), at such prices as 3DO is able to negotiate with the
third-party foundry or foundries, provided that 3DO shall pay directly to MEI a
reasonable chipset royalty as imposed by MEI. For this purpose, the royalty
reporting and payment provisions of Section 8.6(b), 8.7, 8.8, 8.9, and 8.10 of
the M2 License shall apply mutatis mutandis with respect to 3DO's obligation to
pay chipset royalties to MEI.
10.2 The second sentence of Section 10.3 of the M2 License is hereby
deleted from said Section.
11. FUTURE LICENSE TO 3DO
3DO acknowledges and agrees that in the event it should desire to
develop (or have developed) and distribute any M2 Authoring Systems, M2
Peripheral Products, M2 Software Products, and/or any software products or
peripheral products compatible with any other M2 Hardware Products, at any time
and/or in any part of the world, it shall be incumbent upon 3DO to first
negotiate and execute a separate written agreement with MEI regarding the
license and related rights required for 3DO to undertake such activities. MEI
and 3DO both acknowledge and agree that, notwithstanding the parties' good faith
negotiations and efforts to agree upon reasonable terms and conditions regarding
any such license desired by 3DO, nothing herein shall be construed to require
MEI to enter into any such agreement.
12. CONFIDENTIALITY
The words, "twenty-five (25) years", appearing in the first and second
lines of Section 25.3 of the M2 License are hereby deleted and replaced with the
words, "ten (10) years."
13. M2 ACCELERATOR
Section 15 of the M2 License is hereby deleted in its entirety from the
M2 License.
14. NOTICE OF MODIFICATIONS, OTHER RIGHTS
Sections 18.1, 18.2 and 18.3 of the M2 License are hereby deleted in
their entirety from the M2 License.
4 CONFIDENTIAL
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 5
15. LIMITED WARRANTIES OF 3DO
A comma (",") and then the words, "to the extent such products are
authorized to be", are hereby inserted at the end of the second line of Section
21.1(c) of the M2 License, immediately after the word, "Products." In addition,
another comma (",") is hereby inserted in the third line of Section 21.1(c) of
the M2 License, immediately after the word, "hereunder."
16. VARIOUS INTELLECTUAL PROPERTY MATTERS
Section 26.1 of the M2 License is hereby deleted in its entirety from
the M2 License.
17. SEMI-ANNUAL MEETINGS
Section 29.5 of the M2 License is hereby deleted in its entirety from
the M2 License.
18. PC M2 DEVELOPMENT SYSTEM
18.1 Within five (5) days following the Effective Date of this
Agreement, 3DO shall provide MEI with prototype hardware and software components
for a PC-based M2 development system, to the extent such items exist as of the
Effective Date hereof (collectively, the "PC M2 Dev System"), which tangible
items were previously developed by or for 3DO and are set forth in Exhibit A,
attached hereto (and which may include other items if mutually agreed upon by
the parties in writing).
18.2 MEI acknowledges and agrees that all deliverable items comprising
the prototype PC M2 Dev System are provided by 3DO on an "AS IS" basis, without
any representation or warranty of any kind or character, and that 3DO shall have
no obligation or liability to MEI or any third party regarding MEI's use or
operation, or inability to use or operate, the PC M2 Dev System or any portion
or derivative thereof.
18.3 The PC M2 Dev System shall be delivered F.O.B., 3DO's shipping
facilities in Redwood City, CA. 3DO shall deliver the PC M2 Dev System to the
third-party carrier designated by MEI, or, in the absence of such instructions,
to a qualified carrier selected by 3DO which shall be deemed to act as MEI's
agent notwithstanding any payment by 3DO (at 3DO's sole discretion) of any
freight charges made for MEI's account; provided, however, MEI, at its option,
may elect to have its designated representative accept delivery of the PC M2 Dev
System in person at 3DO's offices in Redwood City, California. Title to the
physical items comprising the PC M2 Dev System shall pass to MEI at the
designated F.O.B. point (subject to 3DO's rights and interests therein as
referenced in Section 3, above and Section 18.5, below). 3DO shall have no
liability for any events occurring during shipment. Any claim for damages or
loss must be filed with the designated or selected carrier.
18.4 Consistent with the termination of 3DO's license and related
rights under Section 11.1 of the M2 License (as referenced in Section 3.1,
above), and in furtherance of MEI's exclusive rights to manage the software
development and publishing programs regarding M2 Software Products and the
hardware development and manufacturing programs regarding M2 Hardware Products
(as set forth in Section 9 of the M2 License), 3DO hereby grants MEI, under
3DO's intellectual property rights relating to the 3DO Dev System Technology,
(i) a non-exclusive, fully-paid up, royalty-free, worldwide, perpetual license
to modify, prepare derivative works, and otherwise use and exploit the 3DO Dev
System Technology, and (ii) an exclusive, fully-paid, royalty-free, worldwide,
perpetual license to make (or have made), lease, license, sell, and otherwise
distribute, directly or indirectly, units of the PC M2 Dev System and/or any
derivative
5 CONFIDENTIAL
<PAGE> 6
thereof developed by or for MEI. The term, "3DO Dev System Technology", as used
herein means all technical data, methods, processes, formulae, inventions,
discoveries, software source and object code in all stages of development, and
other technical information regarding the PC M2 Dev System that 3DO has
developed as of the date hereof (including any work-in-process), whether or not
patentable, that is necessary for the development, manufacture, distribution or
use of the PC M2 Dev System, and that is owned by 3DO, or to which 3DO has the
right to grant licenses of the scope granted herein. MEI acknowledges and agrees
that it will need to enter into additional licenses with third parties (as
listed in Exhibit B, attached hereto, which 3DO agrees is a complete list of all
third-party technology incorporated in the PC M2 Dev System for which separate
licenses are required) prior to any commercialization of the PC M2 Dev System.
18.5 Notwithstanding the provisions of Section 18.4, above, MEI
acknowledges and agrees that 3DO is entitled to prepare derivative works and
otherwise use, directly or indirectly, the PC M2 Dev System in connection with
the exercise of the various licenses and rights both granted to and reserved by
3DO under the M2 Agreement, as amended hereby.
18.6 3DO agrees to indemnify and hold MEI harmless from and against any
claim that the PC M2 Dev System (but specifically excluding any claims relating
to the third-party technologies referenced in Exhibit B, attached hereto)
infringes upon the U.S. copyrights and/or trade secrets of any third party
located within the U.S. As a condition to indemnification, MEI shall promptly
inform 3DO in writing of the assertion of any such claim, and the parties shall
cooperate with and assist one another with respect to the defense and/or
settlement of such matter (in a manner consistent with their respective
confidentiality obligations and preservation of attorney/client, work product
and other privileges). MEI shall have the right to participate in the defense of
any such claim with counsel of MEI's own choosing, at MEI's expense, provided
that 3DO shall have the right at all times to control the defense of any claim
for which it has an indemnity obligation hereunder. MEI hereby confirms that it
shall not agree to the settlement of any such claim prior to judgment thereon by
any court of competent jurisdiction unless 3DO's written consent is first
obtained, which consent shall not be unreasonably withheld.
19. ADDITIONAL WARRANTIES
3DO represents and warrants solely for the benefit of MEI that (i) to
the best of 3DO's knowledge and belief, it has not heretofore granted to any
third party any right or license with respect to the Licensed Technology that is
inconsistent with the M2 Agreement and this Addendum, and (ii) it will not
hereafter grant to any third party any right or license with respect to the
Licensed Technology that is inconsistent with the M2 Agreement and this
Addendum.
20. 3DO SHARES OWNED BY MEI
20.1 MEI hereby represents and warrants that it has in its possession
stock certificates evidencing all of the shares of common stock of 3DO currently
beneficially owned and/or held of record by MEI which shares in the aggregate
total three million two hundred fourteen thousand two hundred and eighty-five
(3,214,285) shares of common stock of 3DO (collectively, the "3DO Shares").
20.2. MEI hereby irrevocably and unconditionally assigns, transfers,
and conveys to 3DO all rights, title and interests in and to the 3DO Shares.
20.3 Within five (5) working days following the Effective Date of this
Addendum, MEI shall make commercially reasonable arrangements for the prompt
delivery to 3DO, via air mail or recognized international overnight courier
service or delivery in person (and, in any event, such delivery to 3DO shall
occur no later than July 31, 1997), at its principal offices in Redwood City,
California, of any and all stock certificates evidencing the 3DO Shares,
together with an
6 CONFIDENTIAL
<PAGE> 7
appropriate stock transfer power, duly completed and validly executed by a
duly-authorized representative of MEI. Notwithstanding the foregoing, 3DO, at
its option, may elect to have its designated representative accept delivery of
the stock certificates evidencing the 3DO Shares in person at MEI's offices in
Osaka, Japan.
20.4 MEI represents and warrants that (i) to the best of MEI's
knowledge and belief, it has not previously sold, assigned, leased, licensed, or
in any other way disposed of or encumbered any of the 3DO Shares, nor made or
entered into any agreement or other arrangement with any third party that is
inconsistent with any of the provisions of this Section 20 of this Addendum or
that derogates from or otherwise adversely affects 3DO's exclusive ownership of
all rights, title and interests in and to the 3DO Shares free from all claims of
any third parties; and (ii) it shall execute and deliver such additional
documents, as may be reasonably requested of it from time to time to fully vest
in 3DO all rights, title and interests in and to the 3DO Shares, as well as to
evidence or otherwise perfect 3DO's rights, title and interests in and to any
and all of the 3DO Shares.
20.5 3DO acknowledges and agrees that, except as set forth in Section
20.4, above, the 3DO Shares are hereby transferred on an "AS IS" basis and MEI
expressly disclaims all other representations, warranties and liabilities
relating to the 3DO Shares.
21. Except as expressly modified and/or amended in accordance with the
provisions of this Addendum, all other terms and conditions set forth in the M2
Agreement shall remain if full force and effect and continue to bind the
parties, and their respective successors and assigns.
In witness whereof, the duly-authorized representatives of the parties have
executed this Addendum as of the date first set forth above.
THE 3DO COMPANY MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
By___________________________ By__________________________
Name_________________________ Name________________________
Title________________________ Title_______________________
7 CONFIDENTIAL
<PAGE> 8
Exhibit A
PC-BASED AUTHORING SYSTEM
DELIVERABLES
Notes:
1. Functionality Supported, ("Func. Supt."), means that the listed item is
intended to be included in the PC-Based Authoring System, and that the
item's function is intended to be supported.
2. Starred Items ("*") are [***] code and therefore subject to the [***]
general public license agreement.
1.0 SOFTWARE
A. Programming Tools
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compiler [***] Yes No No
Assembler [***].exe* Yes Yes Yes
Assembler [***].exe Yes No No
Linker link.3do.exe Yes Yes Yes
Librarian [***].exe Yes No No
Make File Gen. Create.exe Yes Yes Yes
Dump Tool dump3do.exe Yes Yes Yes
Debugger GUI terminal.exe Yes Yes Yes
Debugger [***]*(PPC-3DO-M2) Yes Yes Yes
</TABLE>
B. Example Code
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Example Code Folder:Assembly No Yes Yes
Example Code Folder:Audio No Yes Yes
Example Code Folder:Driver No Yes Yes
Example Code Folder:EventBroker No Yes Yes
Example Code Folder:FileSystem No Yes Yes
Example Code Folder:Graphics No Yes Yes
Example Code Folder:Kernel No Yes Yes
Example Code Folder:Mercury No Yes Yes
Example Code Folder:Miscellaneous No Yes Yes
Example Code Folder:[***] No Yes Yes
Example Code Folder:Streaming No Yes Yes
</TABLE>
C. M2 Operating System
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Folios Folder:System.m2 Yes Yes Yes
</TABLE>
D. M2 Programming Interface
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Includes Folder:includes Yes Yes Yes
Libraries Folder:libs Yes Yes Yes
Libraries Folder:System.m2/modules Yes Yes Yes
</TABLE>
8 CONFIDENTIAL
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 9
E. Communication Interface
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PC-M2 Interface wp.exe Yes Yes Yes
</TABLE>
F. Graphics Tools
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texture Page Tool utfcat.exe Yes Yes Yes
Texture Page Tool utfinfo.exe Yes Yes Yes
Texture Page Tool utfpage.exe Yes Yes Yes
Texture Page Tool utfpipcat.exe Yes Yes Yes
Texture Page Tool utfpipsub.exe Yes Yes Yes
Texture Page Tool utfquantmany.exe Yes Yes Yes
Texture Page Tool utfsplit.exe Yes Yes Yes
Texture Page Tool utfunpage.exe Yes Yes Yes
Texture Page Tool psdtoutf.exe Yes Yes Yes
Texture Page Tool quantizer.exe Yes Yes Yes
Texture Page Tool quanttopip.exe Yes Yes Yes
Texture Page Tool sgitoutf.exe Yes Yes Yes
Texture Page Tool tifftoutf.exe Yes Yes Yes
Texture Page Tool utfaclean.exe Yes Yes Yes
Texture Page Tool utfaddlod.exe Yes Yes Yes
Texture Page Tool utfapip.exe Yes Yes Yes
Texture Page Tool utfatmod.exe Yes Yes Yes
Texture Page Tool utfcompress.exe Yes Yes Yes
Texture Page Tool utffit.exe Yes Yes Yes
Texture Page Tool utfflip.exe Yes Yes Yes
Texture Page Tool utfinfo.exe Yes Yes Yes
Texture Page Tool utflitdown.exe Yes Yes Yes
Texture Page Tool utfmakelod.exe Yes Yes Yes
Texture Page Tool utfmakepip.exe Yes Yes Yes
Texture Page Tool utfmakesame.exe Yes Yes Yes
Texture Page Tool utfmerge.exe Yes Yes Yes
Texture Page Tool utfmipcat.exe Yes Yes Yes
Texture Page Tool utfmodpip.exe Yes Yes Yes
Texture Page Tool utfpopfine.exe Yes Yes Yes
Texture Page Tool utffresize.exe Yes Yes Yes
Texture Page Tool utfstrip.exe Yes Yes Yes
Texture Page Tool utfuncompress.exe Yes Yes Yes
Texture Page Tool utfunmip.exe Yes Yes Yes
</TABLE>
G. Geometry Compiler
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Geometry Compiler [***].exe Yes Yes Yes
</TABLE>
H. 3D Converters
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[***] [***].exe Yes Yes Yes
[***] [***].exe Yes Yes No
[***] [***].exe Yes Yes Yes
[***] [***].exe Yes Yes Yes
</TABLE>
I. Font Builder
9 CONFIDENTIAL
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 10
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fontbuilder (english-only) No Yes Yes
</TABLE>
J. Audio Tools
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sound Data Comp. Squashsnd.exe Yes Yes Yes
Midi Data Dump dumpMF.exe Yes Yes Yes
</TABLE>
K. Streaming Tools
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chunked file maker Audchnk.exe Yes Yes No
Chunked file maker [***]Audio.exe Yes Yes Yes
Chunked file maker [***]Vchk.exe Yes Yes Yes
Chunked file maker Datachnk.exe Yes Yes Yes
Weaver Weaver.exe Yes Yes Yes
Stream Data Dump dmpstrm.exe Yes Yes Yes
</TABLE>
L. CD Mastering Tools
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CD Image Layout laytool.exe Yes Yes Yes
</TABLE>
M. Viewer
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[***]File Viewer [***].exe as-is Yes No
</TABLE>
N. [***]
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[***] burn (update from ROM only) Yes Yes Yes
</TABLE>
2.0 HARDWARE
A. Physical Hardware
<TABLE>
<CAPTION>
Type Current Sample Level Status _
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PC-Dev Adaptor. Beta Version Delivered to MEI previously
</TABLE>
B. Documentation
<TABLE>
<CAPTION>
Type Current Sample Level Func. Supt. Source _
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PC-Dev Adaptor. Schematic Diagram Yes photocopy and file
Verilog for Xilinx Chip Yes electronic file
</TABLE>
3.0 ROM CODE
<TABLE>
<CAPTION>
Type Func. Supt. Object Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[***] ROM Code For adaptors Yes Yes Yes
</TABLE>
4.0 DOCUMENTATION
<TABLE>
<CAPTION>
Type Func. Supt. Source
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Manual for GUI based debugger Yes Yes
</TABLE>
Exhibit B
10 CONFIDENTIAL
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 11
THIRD PARTY TECHNOLOGY INCORPORATED
IN THE PC-BASED AUTHORING SYSTEM
Type Name/Version Vendor
- ------------------------------------------------------------------
Compiler [***] Version [***] [***]
Assembler [***].exe* [***]
Assembler [***].exe [***]
Librarian [***].exe [***]
Debugger [***].exe (PPC-3DO-M2) [***]
11 CONFIDENTIAL
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 1
EXHIBIT 11.01
THE 3DO COMPANY
COMPUTATION OF NET INCOME (LOSS) PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1997 1996
------- --------
<S> <C> <C>
Net income (loss)....................................................... $21,229 $(10,391)
======= ========
Weighed average number of common shares outstanding..................... 28,460 26,618
Common equivalent shares from options to purchase common stock.......... 2,078 --
------- --------
Common and common equivalents shares.................................... 30,538 26,618
======= ========
Net income (loss) per common and common equivalents share............... $ 0.70 $ (0.39)
======= ========
</TABLE>
- ---------------
(1) This schedule should be read with Note 3 -- Net Loss Per Share in the
Condensed Notes to Consolidated Financial Statements.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 18,715
<SECURITIES> 27,326
<RECEIVABLES> 2,933
<ALLOWANCES> 2,593
<INVENTORY> 310
<CURRENT-ASSETS> 47,573
<PP&E> 10,598
<DEPRECIATION> 6,473
<TOTAL-ASSETS> 53,736
<CURRENT-LIABILITIES> 9,637
<BONDS> 0
0
0
<COMMON> 285
<OTHER-SE> (182)
<TOTAL-LIABILITY-AND-EQUITY> 53,736
<SALES> 14,363
<TOTAL-REVENUES> 14,363
<CGS> 1,064
<TOTAL-COSTS> 10,218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 21,302
<INCOME-TAX> 73
<INCOME-CONTINUING> 21,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,229
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
</TABLE>
