<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

                 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended: JUNE 30, 1998

             [ ] 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: 0-28318

                             Multimedia Games, Inc.
        -----------------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified in its Charter)

                Texas                                    74-2611034
     -------------------------------------------------------------------------
     (State or Other Jurisdiction of      (IRS Employer Identification Number)
             Incorporation) 

                       7335 South Lewis Avenue, Suite 302
                              Tulsa, Oklahoma 74136
                    ----------------------------------------
                    (Address of Principal Executive Offices)

                                 (918) 494-0576
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


                   ------------------------------------------
                     (Former name, former address and former
                   fiscal year, if changed since last report)



Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 30, 1998 there were 5,405,825 shares of the Company's Common Stock,
par value $.01, outstanding.

Transitional Small Business Disclosure Format (Check one)

                              Yes [ ]   No [X]



<PAGE>   2

                                   FORM 10-QSB

                                      INDEX


Part I.  Financial Information


 Item 1. Financial Statements


         Consolidated Balance Sheets
         (June 30, 1998 and September 30, 1997)

         Consolidated Statements of Operations
         (Three months ended  June 30, 1998 and 1997)

         Consolidated Statements of Operations
         (Nine months ended June 30, 1998 and 1997)

         Consolidated Statements of Cash Flows
         (Nine months ended June 30, 1998 and 1997)


         Notes to Unaudited Consolidated Financial Statements

         Report of Review By Independent Accountants


   Item 2.  Management's Discussion and Analysis

Part II.  Other Information

   Item 1.  Legal Proceedings

   Item 2.  Changes In Securities

   Item 6.  Exhibits and Reports on Form 8-K

<PAGE>   3


                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                   AS OF JUNE 30, 1998 AND SEPTEMBER 30, 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  June             September
                                   ASSETS                                         1998               1997
                                                                               ------------      ------------
<S>                                                                            <C>               <C>         
Current assets:
Cash and cash equivalents                                                      $  1,145,000      $  2,380,000
Accounts Receivable:
   Trade, net of allowance for doubtful accounts
   of $101,000 and $123,000                                                       2,437,000         1,443,000
   Other                                                                            119,000           123,000
 Inventory                                                                        2,314,000           511,000
 Prepaid expenses                                                                   283,000            61,000
 Notes receivable                                                                   266,000           286,000
 Notes receivable - related parties                                               1,400,000         1,427,000
 Due from AGN L.L.C                                                                    --             381,000
 Deferred tax asset                                                                  79,000            79,000
                                                                               ------------      ------------

Total current assets
                                                                                  8,043,000         6,691,000
                                                                               ------------      ------------

Restricted cash and cash equivalents                                              1,793,000         1,783,000
Notes receivable - related parties                                                1,196,000         1,010,000
Property and equipment, net                                                       6,166,000         4,970,000
Other assets                                                                        102,000            95,000
Deferred tax asset-non-current                                                      127,000           379,000
Goodwill, net                                                                       452,000           472,000
                                                                               ------------      ------------

Total assets                                                                   $ 17,879,000      $ 15,400,000
                                                                               ============      ============

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt                                                713,000           395,000
   Accounts payable and accrued expenses                                          2,966,000         1,853,000
   Prize fulfillment fees payable                                                   522,000           597,000
                                                                               ------------      ------------

Total current liabilities                                                         4,201,000         2,845,000
                                                                               ------------      ------------

Long-term debt                                                                       32,000           675,000
Other long-term liabilities                                                       1,603,000         1,603,000
Commitments and Contingencies (Note 3)

Stockholders' equity:
   Preferred stock, Series A, $.01 par value, 2,000,000 
      shares authorized, 90,789 and 109,192 shares
      issued and outstanding                                                          1,000             1,000
   Common stock, $.01 par value, 25,000,000 shares
      authorized, 5,439,824 and 4,825,171 shares issued
      and 5,405,825 and 4,791,172 shares outstanding                                 54,000            48,000
   Additional paid-in capital                                                    12,812,000        12,297,000
   Stockholder notes receivable                                                    (818,000)         (596,000)
   Treasury stock, 33,999 shares at cost                                            (87,000)          (87,000)
   Retained earnings (deficit)                                                       81,000        (1,386,000)
                                                                               ------------      ------------
   Total stockholders' equity                                                    12,043,000        10,277,000
                                                                               ------------      ------------

Total liabilities and stockholders' equity                                     $ 17,879,000      $ 15,400,000
                                                                               ============      ============
</TABLE>


           See notes to unaudited consolidated financial statements.

<PAGE>   4


                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                     1998              1997
                                                                 ------------      ------------
<S>                                                              <C>               <C>         
Revenues:
   Gaming revenue                                                $ 16,402,000      $  8,775,000
   Electronic player station sales                                    536,000           409,000
   Electronic player station sales - related parties                1,400,000           633,000
   Electronic player station lease revenue                            921,000           489,000
   Other                                                              217,000              --
                                                                 ------------      ------------

  Total revenues                                                   19,476,000        10,306,000
                                                                 ------------      ------------
Operating costs and expenses:
   Bingo prizes and related costs                                   2,134,000         2,388,000
   Allotments to hall operators                                    10,737,000         4,735,000
   Cost of electronic player stations sold                            283,000           303,000
   Cost of electronic player stations sold - related parties          716,000           310,000
   Salaries and wages                                                 828,000           566,000
   Selling, general and administrative expenses                     2,504,000         1,164,000
   Amortization and depreciation                                      814,000           412,000
                                                                 ------------      ------------


   Total operating costs and expenses                              18,016,000         9,878,000
                                                                 ------------      ------------

Operating income                                                    1,460,000           428,000


Interest income                                                        84,000            10,000
Interest expense                                                      (23,000)          (33,000)
                                                                 ------------      ------------
Income before income taxes                                          1,521,000           405,000
Income taxes
                                                                      577,000              --
                                                                 ------------      ------------

Net income                                                       $    944,000      $    405,000
                                                                 ============      ============

Basic earnings per common share                                  $        .17      $        .09
                                                                 ============      ============

Diluted earnings per common and equivalent share                 $        .15      $        .06
                                                                 ============      ============
</TABLE>


           See notes to unaudited consolidated financial statements.


<PAGE>   5

                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     1998              1997
                                                                 ------------      ------------
<S>                                                              <C>               <C>         
Revenues:
   Gaming revenue                                                $ 42,383,000      $ 23,633,000
   Electronic player station sales                                    580,000           812,000
   Electronic player station sales - related parties                3,750,000           633,000
   Electronic player station lease revenue                          2,352,000         1,077,000
   Other                                                              223,000             1,000
                                                                 ------------      ------------

  Total revenues                                                   49,288,000        26,156,000
                                                                 ------------      ------------


Operating costs and expenses:
   Bingo prizes and related costs                                   6,831,000         6,767,000
   Allotments to hall operators                                    26,730,000        12,247,000
   Cost of electronic player stations sold                            310,000           519,000
   Cost of electronic player stations sold - related parties        1,878,000           310,000
   Salaries and wages                                               2,275,000         1,519,000
   Selling, general and administrative expenses                     6,753,000         3,227,000
   Amortization and depreciation                                    2,160,000         1,015,000
                                                                 ------------      ------------

   Total operating costs and expenses                              46,937,000        25,604,000
                                                                 ------------      ------------

   Operating income                                                 2,351,000           552,000


Interest income                                                       225,000            22,000
Interest expense                                                      (81,000)         (132,000)
                                                                 ------------      ------------
Income before income taxes                                          2,495,000           442,000
Income taxes                                                          948,000              --
                                                                 ------------      ------------

Net income                                                       $  1,547,000      $    442,000
                                                                 ============      ============

Basic earnings per common share                                  $        .28      $        .09
                                                                 ============      ============

Diluted earnings per common and equivalent share                 $        .23      $        .08
                                                                 ============      ============
</TABLE>


           See notes to unaudited consolidated financial statements.



<PAGE>   6

                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS For the
                    nine months ended June 30, 1998 and 1997
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                   1998             1997
                                                               -----------      -----------
<S>                                                            <C>              <C>        
Cash flows from operating activities:
Net income                                                     $ 1,547,000      $   442,000
Adjustments to reconcile net income to cash
   provided by (used for) operating activities:
     Amortization and depreciation                               2,160,000        1,015,000
     Deferred taxes                                                252,000             --
     Other non-cash expenses                                        (7,000)          77,000
(Increase) decrease in:
     Accounts and notes receivable                              (1,129,000)      (2,185,000)
     Inventory                                                  (1,803,000)        (105,000)
     Prepaid expenses and due from AGN LLC                         159,000            9,000
Increase (decrease) in:
     Accounts payable and accrued expenses                       1,113,000          279,000
     Hall's share of surplus                                          --            (31,000)
     Prize fulfillment fees payable                                (75,000)         (21,000)
                                                               -----------      -----------

Net cash provided by (used for) operating activities             2,217,000         (520,000)
                                                               -----------      -----------

Cash flows from investing activities:
     Acquisition of property and equipment                      (3,336,000)      (2,712,000)
     Increase in cash balances in restricted escrow                (10,000)          (7,000)
                                                               -----------      -----------
     Net cash provided by (used for) investing activities       (3,346,000)      (2,719,000)
                                                               -----------      -----------

Cash flows from financing activities:
     Proceeds from sale of common stock                            299,000        2,490,000
     Increase in long-term debt                                       --            489,000
     Principal repayments of debt                                 (325,000)        (288,000)
     Payment of preferred stock dividends                          (80,000)        (104,000)
                                                               -----------      -----------
     Net cash provided  by (used for) financing activities        (106,000)       2,587,000
                                                               -----------      -----------

Net change in cash and cash equivalents                         (1,235,000)        (652,000)

Cash and cash equivalents, beginning of period                   2,380,000        1,508,000
                                                               -----------      -----------

Cash and cash equivalents, end of period                       $ 1,145,000      $   856,000
                                                               ===========      ===========
</TABLE>



           See notes to unaudited consolidated financial statements.
<PAGE>   7


                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                         NOTES TO UNAUDITED CONSOLIDATED
                              FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

         The accompanying financial statements should be read in conjunction
   with the Company's financial statements for the twelve months ended September
   30, 1997 contained within the Company's Annual Report on Form 10-KSB.

         The financial statements included herein as of June 30, 1998 and for
   each of the three and nine month periods ended June 30, 1998 and 1997, have
   been prepared by the Company, without an audit, pursuant to generally
   accepted accounting principles and the rules and regulations of the
   Securities and Exchange Commission. The information presented reflects all
   adjustments (consisting solely of normal recurring adjustments) which are, in
   the opinion of management, necessary for a fair statement of results for the
   periods. Results for the three and nine months ended June 30, 1998, are not
   necessarily indicative of the results which will be realized for the year
   ending September 30, 1998. The September 30, 1997 consolidated balance sheet
   data was derived from audited financial statements, but does not include all
   disclosures required by generally accepted accounting principles.

         INCOME (LOSS) PER COMMON SHARE - Income (loss) per common share is
   computed in accordance with Statement of Financial Accounting Standards No.
   128 ("FAS 128"), which is effective for reporting periods ending after
   December 15, 1997. FAS 128 requires the restatement of prior year's earnings
   (loss) per share to conform to the new standard. Presented below is a
   reconciliation of income (loss) available to common shareholders and the
   differences between actual weighted average shares outstanding, which are
   used in computing basic earnings per share and diluted weighted average
   shares, which are used in computing diluted earnings per share.


<TABLE>
<CAPTION>
                                                                          FOR THE THREE MONTHS ENDED
                                                                                   6/30/98

                                                                                                         Per Share
                                                               Income              Shares                 Amount
                                                            ------------         ------------           ----------
<S>                                                         <C>                  <C>                    <C>      
Net income (loss)                                           $    944,000
Less: preferred stock dividends                                 (25,000)
            Basic EPS:
                                                            ------------  
Income (loss) available to
common shareholders                                              919,000            5,374,144           $     .17
                                                                                                        =========
            Effect of Dilutive Securities:
Options                                                                               325,143
Warrants                                                                               29,811
Convertible preferred stock                                       25,000              435,195

            Diluted EPS:
                                                            ------------         ------------ 
Income (loss) available to common
Shareholders plus assumed conversions                       $    944,000            6,164,293           $     .15
                                                            ============         ============           =========
</TABLE>

<PAGE>   8

                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                         NOTES TO UNAUDITED CONSOLIDATED
                              FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                         FOR THE THREE MONTHS ENDED
                                                                                  6/30/97

                                                                                                        Per Share
                                                               Income               Shares                Amount
                                                            ------------         ------------           ----------
<S>                                                         <C>                  <C>                    <C>      
Net income (loss)                                           $    405,000
Less: preferred stock dividends                                  (30,000)
            Basic EPS:
                                                            ------------ 
Income (loss) available to
common shareholders                                              375,000            4,294,431           $     .09
                                                                                                        =========
            Effect of Dilutive Securities:

Options                                                                               429,334
Warrants                                                                              712,490
Contingent shares                                                                     383,437
Convertible preferred stock                                       30,000              527,510
            Diluted EPS:
                                                            ------------         ------------  
Income (loss) available to common
Shareholders plus assumed conversions                       $    405,000            6,347,202           $     .06
                                                            ============         ============           =========
</TABLE>


<TABLE>
<CAPTION>
                                                                          FOR THE NINE MONTHS ENDED
                                                                                  6/30/98

                                                                                                        Per Share
                                                               Income               Shares                Amount
                                                            ------------         ------------           ----------
<S>                                                         <C>                  <C>                    <C>      
    Net income (loss)                                       $  1,547,000

    Less: preferred stock dividends                              (80,000)
                Basic EPS:
                                                            ------------  
    Income (loss) available to
    Common shareholders                                        1,467,000            5,311,400           $     .28
                                                                                                        =========
                Effect of Dilutive Securities: 
    Options                                                                           595,948
    Warrants                                                                          434,787
    Convertible preferred stock                                   80,000              444,359
                Diluted EPS:
                                                            ------------         ------------     
    Income (loss) available to common
    Shareholders plus assumed conversions                   $  1,547,000            6,786,494           $     .23
                                                            ============         ============           =========
</TABLE>

<PAGE>   9

                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                         NOTES TO UNAUDITED CONSOLIDATED
                              FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                                          FOR THE NINE MONTHS ENDED
                                                                                  6/30/97

                                                                                                         Per Share
                                                               Income               Shares                Amount
                                                            ------------         ------------           ----------
<S>                                                         <C>                  <C>                    <C>      
Net income (loss)                                           $    442,000
Less: preferred stock dividends                                 (104,000)
            Basic EPS:
                                                            ------------  
Income (loss) available to
common shareholders                                              338,000            3,958,047           $     .09
                                                                                                        =========
            Effect of Dilutive Securities:
Options                                                                               331,072
Warrants                                                                              231,429
Contingent Shares                                                                     372,000
Convertible preferred stock                                      104,000              527,510
            Diluted EPS:
                                                            ------------         ------------   
Income (loss) available to common
shareholders plus assumed conversions                       $    442,000            5,420,058           $     .08
                                                            ============         ============           =========
</TABLE>

2.  AMERICAN GAMING NETWORK

         American Gaming Network L.L.C. and its predecessors ("AGN") were
    originally formed by the Company and a 50% third party partner in July 1995
    to pursue the development of gaming opportunities on the Internet.

         In July 1996, the Company purchased the 50% interest of the third party
    partner through a newly formed entity ("AGN Venturers L.L.C."), for
    consideration that included a $400,000 note payable by the new entity to the
    third party partner (the " $400,000 Note"). Contemporaneously, the Company
    sold AGN Venturers L.L.C. to a group of investors ("Investors"), for
    $100,000, the agreement of the Investors to contribute $400,000 to AGN and a
    several guarantee of each Investor of AGN's note payable to the Company in
    the amount of $336,000, which evidenced working capital advances previously
    made to AGN by the Company. One of the Investors is Gordon T. Graves, the
    Company's Chairman of the Board and Chief Executive Officer, who acquired
    10% of AGN Venturers L.L.C. At September 30, 1997, in addition to the
    $336,000 note, AGN owed the Company $45,000. The $336,000 note was repaid in
    October 1997.

         Simultaneously with the sale of AGN Venturers L.L.C., the Company and
    AGN Venturers L.L.C. entered into a Put and Call Agreement pursuant to which
    AGN Venturers L.L.C. had the right to "put" back to the Company its 51%
    interest in AGN and repay the $336,000 note in exchange for 278,667 shares
    of Common Stock. The Put and Call Agreement further provides that the
    Company would issue AGN Venturers L.L.C. an additional 133,333



<PAGE>   10

                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                         NOTES TO UNAUDITED CONSOLIDATED
                              FINANCIAL STATEMENTS

    shares upon the payment by AGN Venturers L.L.C. of the $400,000 note which 
    was guaranteed by AGN. In October 1997, AGN Venturers L.L.C. exercised its
    "put" right with respect to the 278,667 shares and in December 1997 paid
    the $400,000 note and exercised its "put" right with respect to the 133,333
    shares. As a result, beginning in the first quarter of fiscal 1998, AGN is
    100% owned by the Company. As a result of the exercise of the put rights by
    AGN Venturers L.L.C., Mr. Graves acquired 41,200 shares of Common Stock.

3.  COMMITMENTS AND CONTINGENCIES

    MegaMania Litigation

         NORTHERN DISTRICT OF OKLAHOMA. On December 31, 1997, the U.S. Attorney
    (the "Tulsa U.S. Attorney") for the Northern District of Oklahoma (the
    "Northern District") filed a civil forfeiture action in the Federal District
    Court for the Northern District against the player stations and centralized
    computer equipment used to play MegaMania located in the Northern District.
    On that same day, agents of the Federal Bureau of Investigation entered the
    Company's headquarters in Tulsa, Oklahoma and seized the Company's central
    computer system, which caused the play of MegaMania to cease throughout the
    Company's nationwide MegaMania network. Agents also entered the bingo halls
    of the Cherokee Nation and Seneca-Cayuga tribe in the Northern District and
    seized in-place approximately 300 MegaMania player stations. Agents also
    entered the bingo hall of the Choctaw nation in the Eastern District of
    Oklahoma and seized the Company's bingo ball blower that was used to draw
    numbers for the play of MegaMania. No other seizure or enforcement action
    was taken outside the Northern District. About 18 hours following the
    seizure actions, the Company was again operating MegaMania throughout its
    MegaMania network through the use of back-up systems, except at the bingo
    halls in the Northern District where the MegaMania player stations were
    seized, and such play has continued without interference or interruption by
    governmental authorities since that time.

         On January 5, 1998, the Company and the Seneca-Cayuga tribe filed a
    Complaint For Declaratory Relief in the Northern District seeking a
    declaration by the courts that MegaMania is a legal Class II bingo game as
    permitted by the Indian Gaming Regulatory Act of 1988 (the "Gaming Act").
    The Cherokee Nation subsequently joined the Company and the Seneca-Cayuga
    tribe as plaintiffs in the action.



<PAGE>   11

                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                         NOTES TO UNAUDITED CONSOLIDATED
                              FINANCIAL STATEMENTS

         On January 23, 1998, the Company, the Seneca-Cayuga tribe and the
    Cherokee Nation entered into a standstill agreement with the Tulsa U.S.
    Attorney and the other U.S. Attorneys in Oklahoma which allowed the bingo
    halls of the Seneca-Cayuga's and Cherokee's to immediately commence playing
    MegaMania, assured the Company and the tribes that no other seizure or
    enforcement action would be taken in Oklahoma while the matter was before
    the court, and agreed to a speedy trial on the merits of MegaMania. On May
    5, 1998, the Company, the Seneca-Cayuga tribe and the Cherokee Nation filed
    a Motion for Partial Summary Judgment seeking a declaration by the court
    that MegaMania is a Class II game. On July 17, 1998, the Company, the
    Seneca-Cayuga tribe and the Cherokee Nation filed a second Motion for
    Partial Summary Judgment seeking a determination that the electronic player
    stations used to play MegaMania are legal technological aids to the play of
    bingo and not illegal "gambling devices" in violation of the Johnson Act. In
    August 1998, these two motions were consolidated into a single motion for
    Summary Judgment. Very preliminary discovery has been commenced by the Tulsa
    U.S. Attorney who has not yet filed any substantive response to the Motion
    for Summary Judgment.

         WASHINGTON D.C. On January 12. 1998, the Choctaw Nation of Oklahoma,
    the Chickasaw Nation of Oklahoma and the Cheyenne-Arapaho Tribe of Oklahoma
    filed a Complaint against the Department of Justice (DOJ) in the Federal
    Court for the District of Columbia seeking a declaration that MegaMania is a
    legal Class II bingo game. Three additional tribes, the Shoalwater Bay
    Indian Tribe from the State of Washington, and the Cabazon Band of Mission
    Indians and the Viejas Band of Kumeyaay Indians from the state of
    California, subsequently intervened as additional plaintiffs. The DOJ has
    filed a motion to transfer this case to the Northern District, which has
    been opposed by the plaintiffs. The Judge has yet to rule on this motion.

         NORTHERN DISTRICT OF CALIFORNIA. On May 14, 1998, the Assistant U.S.
    Attorney (the "San Francisco AUSA") for the Northern District of California
    filed a Complaint for Civil Forfeiture against approximately 100 electronic
    gaming devices operated by the Red Fox tribe at its casino in Laytonville
    Rancheria, California. This action was one of approximately 30 other actions
    taken in California against Indian tribes that had refused to sign the
    so-called "Pala Compact" with the State of California. Included in the Red
    Fox complaint were approximately 20 MegaMania electronic player stations.
    MegaMania player stations operated by other tribes in California were not
    included in any complaints. On July 13, 1998, the San Francisco AUSA advised
    the Company that he would not dismiss the Company's MegaMania player
    stations from the Red Fox Complaint and on July 22, 1998, the San Francisco
    AUSA filed a motion with the court seeking permission to seize the machines
    that were the subject of the May 14, 1998 Complaint. The Company has opposed
    the seizure motion and has filed its own motions for summary judgment
    seeking determinations that MegaMania is a legal Class II bingo game and
    that the MegaMania electronic player stations are legal technological aids
    to the play of bingo and not illegal "gambling devices" in violation of the
    Johnson Act. A hearing on the government's seizure motion and on the
    Company's summary judgment motions is scheduled for early September, 1998.


<PAGE>   12
         The Company intends to vigorously defend its position that MegaMania is
    a Class II game; however, no assurances can be given that the Company will
    be successful on the merits. If MegaMania is ultimately determined to be
    Class III gaming, the loss of the MegaMania business would have a material
    adverse effect upon the Company's financial condition and results of
    operation. Even if the Company is successful on the merits, the legal fees
    and expenses to be incurred by the Company related to the MegaMania
    litigation will be significant and are expected to materially and adversely
    affect the Company's reported earnings during the periods in which legal
    services are rendered and the related costs are incurred by the Company.

    Network Gaming Litigation

         On February 2, 1998, a complaint was filed by Network Gaming
    International Corporation ("NGI") in the Federal District Court for the
    Northern District of Oklahoma against the Company alleging, among other
    things, breach of contract, misappropriation of trade secrets, fraud and
    interference with prospective advantage. The complaint, which seeks $62
    million in damages and other specified and unspecified relief, also names
    Gordon T. Graves, the Company's Chairman of the Board, and Larry D.
    Montgomery, the Company's former President, as individual defendants. On
    January 23, 1998, the Company had filed its own action in the Court against
    NGI for breach of contract.

         The dispute arises out of a series of related agreements entered into
    between the parties in December 1995 and May and June 1996. In general,
    these agreements contemplate the cross-licensing of certain intellectual
    property and equipment distribution rights. In its January 23 complaint, the
    Company alleges that NGI failed to perform certain obligations owed the
    Company under a Licensing and Distribution Agreement wherein the Company
    licensed certain rights to NGI with respect to Canada and China and that NGI
    failed to perform certain obligations owed the Company under a Licensing and
    Distribution Agreement wherein NGI licensed certain rights to the Company
    with respect to the United States. In its February 2 complaint, NGI alleges
    just the opposite - that the Company failed to perform the obligations owed
    by it to NGI under both contracts.



<PAGE>   13
                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                         NOTES TO UNAUDITED CONSOLIDATED
                              FINANCIAL STATEMENTS

         These actions are in the very preliminary stages and no discovery has
    yet been taken by either party. The Company intends to vigorously defend
    against the claims of NGI and to prosecute its own claim. While the Company
    believes that it will ultimately prevail on the merits, no assurances to
    that effect can be given. In any event, the cost of defending the actions
    could be substantial. In connection with the December 1995 transaction, the
    Company capitalized the $500,000 cost of the license acquired from NGI,
    which the Company is amortizing over the five-year term of the related
    License and Distribution Agreement. As of June 30, 1998, the unamortized
    amount, including certain additional software development costs, was
    $386,000, which the Company is continuing to amortize. The Company believes
    that the most likely conclusion of the dispute with NGI will include an
    affirmation of the Company's right to use the NGI license in connection with
    the Company's planned business. As a result, the Company has determined that
    it is only reasonably possible that this asset has been impaired and
    accordingly has recorded no reduction in the carrying value of the asset as
    of June 30, 1998, other than normal amortization. However, subsequent events
    may occur which would cause the Company to determine that it is necessary
    and appropriate to reduce, or to accelerate the rate of amortization of, all
    or a portion of such capitalized cost. Any such reduction or acceleration
    will have an adverse effect upon the reported earnings of the Company for
    the period in which such action is taken which could, depending upon the
    period involved and the earnings of the Company for such period, be
    material. See Notes 4 and 5 of Notes to Consolidated Financial Statements
    contained within the Company's Annual Report on Form 10-KSB for the fiscal
    year ended September 30, 1997.

    FlashCash Litigation

         In February 1998, the Company introduced FlashCash; a bingo game played
    on interconnected electronic player stations located at participating Indian
    bingo halls. The Company has submitted FlashCash to the NIGC for approval of
    the game as Class II gaming; no determination has yet been made by the NIGC.
    The Company also submitted FlashCash to the Tulsa U.S. Attorney and
    requested a letter from the Tulsa U.S. Attorney that FlashCash was a legal
    Class II bingo game. The Tulsa U.S. Attorney declined to issue an opinion
    and in February 1998, the Company filed a Complaint for Declaratory Relief
    in the Northern District of Oklahoma seeking a declaration by the court that
    FlashCash is a legal Class II bingo game as permitted by the Gaming Act. No
    discovery has commenced and the matter remains in a very preliminary stage.
    The Company intends to vigorously defend its position that FlashCash is a
    Class II bingo game; however, no assurances can be given that the Company
    will be successful on the merits. To date, FlashCash has been well received
    by customers so that, if FlashCash is ultimately determined to be Class III
    gaming, the loss of the FlashCash business could have a material and adverse
    effect upon the Company's financial condition and results of operations.
    Even if successful on the merits, the Company will incur legal fees and
    expenses in defending its position, which could be significant and which
    could, therefore, have a material and adverse effect upon the Company's
    reported earnings for the periods in which such legal services are rendered
    and the related costs are incurred by the Company.




<PAGE>   14
    Shareholder Class Actions

         On June 9, 1998, the company received a copy of a Summons and Class
    Action Complaint for Violations of Federal Securities Laws, that was filed
    on May 29, 1998, in the Federal District Court for the Southern District of
    California. Also named as defendants were Gordon T. Graves, the Company's
    Chairman of the Board, and Larry D. Montgomery, the Company's former
    President. The Complaint, which seeks an unspecified amount of damages on
    behalf of all similarly situated shareholders, alleges that the Company
    violated federal securities laws by making allegedly false and misleading
    statements regarding MegaMania, the Company's interactive, high speed, bingo
    game.

         On July 24, 1998, a similar class action was filed in the Federal Court
    for the Northern District of Oklahoma.

         These actions are in very preliminary stages. The Company intends to
    vigorously defend against these claims and expects to prevail on the merits.
    However, the cost of defending against the claims could by substantial.




<PAGE>   15
                     MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
                         NOTES TO UNAUDITED CONSOLIDATED
                              FINANCIAL STATEMENTS


    Other Litigation

         The Company is a party to various other lawsuits and claims arising out
    of the ordinary course of its business. No accrual for potential loss has
    been made in the accompanying financial statements, as management does not
    believe that the likelihood of a material loss is probable at this time.

4.  RELATED PARTY TRANSACTIONS

         In March 1998, the Company entered into an agreement to sell electronic
    player stations and related equipment to a third party for a sales price of
    approximately $2.4 million. The sales price was paid in March 1998 by
    delivery to the Company of a promissory note of the third party purchaser
    that was due and payable on or before April 30, 1998. Subsequent to March
    31, 1998, the third party purchaser assigned its right under the purchase
    agreement to a newly-formed limited liability company ("EPLLC-2"). An
    affiliate of Gordon T. Graves, the Company's Chairman of the Board and Chief
    Executive Office, and Clifton Lind, the Company's President and Chief
    Operating Officer, each owned a 10.5% interest in EPLLC-2. Mr. Graves also
    owns and controls the corporation having management authority over EPLLC-2.
    The terms of the sale which was assigned to EPLLC-2 are the same as the
    original terms entered into with the third party purchaser in March 1998.
    The promissory note was paid by EPLLC-2 on May 15, 1998.

         In June 1998, the Company sold electronic player stations and related
    equipment to EPLLC-2 for a sales price of approximately $1.4 million, which
    included a non-refundable deposit of $140,000 received on the effective date
    of this transaction. The sales price was paid in June 1998 by delivery to
    the Company of a promissory note of EPLLC-2 that was due and payable on or
    before July 15, 1998 out of funds contributed to EPLLC-2 from a group of
    investors that did not include either Mr. Graves or Mr. Lind or any other
    officer, director or employee of the Company. As a result of the additional
    contribution, the ownership interest of each of Mr. Graves and Mr. Lind in
    EPLLC-2 was reduced to 6.36%. Mr. Graves continues to own and control the
    corporation having management authority over EPLLC-2.


<PAGE>   16


                         INDEPENDENT ACCOUNTANT'S REPORT



    To the Board of Directors and Stockholders
    Multimedia Games, Inc.

         We have reviewed the accompanying consolidated balance sheet of
    Multimedia Games, Inc. and Subsidiaries as of June 30, 1998, and the related
    consolidated statements of operations for the three and nine month periods
    ended June 30, 1998, and the consolidated statement of cash flows for the
    nine month period ended June 30, 1998. These financial statements are the
    responsibility of the Company's management.

         We conducted our review in accordance with standards established by the
    American Institute of Certified Public Accountants. A review of interim
    financial information consists principally of applying analytical procedures
    to financial data and making inquiries of persons responsible for financial
    and accounting matters. It is substantially less in scope than an audit
    conducted in accordance with generally accepted auditing standards, the
    objective of which is the expression of an opinion regarding the financial
    statements taken as a whole. Accordingly, we do not express such an opinion.

         Based on our review, we are not aware of any material modifications
    that should be made to the accompanying financial statements for them to be
    in conformity with generally accepted accounting principles.

         We have previously audited, in accordance with generally accepted
    auditing standards, the consolidated balance sheet as of September 30, 1997,
    and the related consolidated statements of operations, stockholders' equity
    and cash flows for the year then ended (not presented herein); and in our
    report dated December 23, 1997, we expressed an unqualified opinion on those
    consolidated financial statements. In our opinion, the information set forth
    in the accompanying consolidated balance sheet as of September 30, 1997 is
    fairly stated in all material respects in relation to the consolidated
    balance sheet from which is has been derived.




    PricewaterhouseCoopers LLP


    Tulsa, Oklahoma
    August 7, 1998


<PAGE>   17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

        GENERAL

               The Company provides satellite linked, high stakes bingo games
        and interactive high-speed bingo games played on interconnected
        electronic player stations to participating bingo halls owned primarily
        by American Indian tribes located throughout the United States.

               Prior to August 1995, the Company's principal business was to
        conduct high stakes bingo games under the names MegaBingo, MegaCash and
        MegaBingo Lite. MegaBingo and MegaCash are played simultaneously at
        multiple bingo halls using a closed-circuit television satellite link
        thereby allowing a greater number of players to compete against one
        another for prizes generally larger than could be offered by a bingo
        hall acting alone. The participating bingo halls are owned and operated
        on behalf of American Indian tribes and are located in the States of
        Arizona, California, Kansas, Minnesota, New Mexico, Oklahoma and South
        Dakota, among others. MegaBingo Lite provides smaller prizes to
        similarly linked Indian bingo halls and is presently delivered to bingo
        halls located primarily in the State of Oklahoma.

               In August 1995, the Company introduced MegaMania, a high-speed
        bingo game developed by the Company that allows customers to purchase
        bingo cards and to play bingo on an interactive electronic player
        station that requires rapid decisions and presents game results in a
        fast-action color video format featuring graphics and animation
        accompanied by sound. In February 1998, the Company introduced another
        Class II game similar to MegaMania called FlashCash. In June 1998
        another Class II Bingo game was introduced called CornerCash. In all
        three games, the stations are interconnected with other stations at
        participating bingo halls through the Company's computer network, thus
        allowing players to compete against one another to win a common pooled
        prize.

               Significant revenue generation for FlashCash did not begin until
        March 1998, and CornerCash has yet to generate significant revenue. As
        of June 30, 1998, MegaMania, FlashCash, and CornerCash are played at 58
        independently owned American Indian bingo halls, located in 11 different
        states, primarily Oklahoma.

               In June 1998, the Company launched MegaRacing, which provides
        horse racing signals and related services to off-track betting (OTB)
        facilities operated by Indian tribes pursuant to compacts with the State
        in which the tribes are located. The Company presently serves two OTB
        facilities in the State of Oklahoma.

        RESULTS OF OPERATIONS

        The Three Months Ended June 30, 1998 and 1997:

               The Company's total operating revenues were $19,476,000 and
        $10,306,000 for the three months ending June 30, 1998 and 1997
        respectively, or an increase of $9,170,000. The increase was primarily a
        result of an increase in gaming revenue of $7,627,000, an increase in
        electronic player station sales of $127,000, an increase in electronic
        player station sales to related parties of $767,000, an increase in
        electronic player station lease revenue of $432,000 and an increase of
        $217,000 in other income consisting of $101,000 of MegaRacing income and


<PAGE>   18

        management fee increases of $116,000. The increase in gaming revenue was
        driven by increased MegaMania gaming revenues of $4,588,000, revenues of
        $3,362,000 from FlashCash that was introduced in February 1998, and
        revenues of $118,000 from CornerCash that was introduced in June 1998,
        which were partially offset by MegaBingo revenue decreases. The Company
        had an average of approximately 2,450 electronic player stations in
        operation during the three months ended June 30, 1998 compared to an
        average of approximately 1,060 during the same three months of 1997,
        which accounts for a substantial portion of the increase in gaming
        revenues during the current period.

               Bingo prizes and related costs were $2,134,000 and $2,388,000 for
        the three months ended June 30, 1998 and 1997 respectively, or a
        decrease of $254,000. The decrease resulted from decreased MegaBingo
        operations during the period, partially offset by a change in the
        MegaBingo prize structure.

               Allotments to hall operators were $10,737,000 and $4,735,000 for
        the three months ended June 30, 1998 and 1997 respectively. The increase
        of $6,002,000 resulted primarily from the increase in MegaMania and
        FlashCash gaming operations.

               Cost of electronic player stations sold was $283,000 and $303,000
        for the three months ended June 30, 1998 and 1997, respectively, or a
        decrease of $20,000, primarily due to fewer units sold during the
        current period.

               Cost of electronic player stations sold to related parties was
        $716,000 and $310,000 for the three months ended June 30, 1998 and 1997
        respectively, or an increase of $406,000, primarily due to an increase
        in the number of units sold to related parties during the current
        period.

               Salaries and wages were $828,000 and $566,000 for the three
        months ended June 30, 1998 and 1997 respectively, or an increase of
        $262,000. The increase was primarily due to additional staff needed for
        the increased MegaMania, FlashCash, and CornerCash operations.

               Selling, general and administrative expenses were $2,504,000 and
        $1,164,000 for the three months ending June 30, 1998 and 1997,
        respectively, or an increase of $1,340,000. The increase is primarily
        due to an increase in legal and professional fees of approximately
        $614,000 primarily as a result of the MegaMania litigation, an increase
        in business meals and travel of approximately $94,000, an increase in
        contract labor and services of approximately $114,000, an increase in
        advertising expenses of approximately $77,000, an increase in telephone
        expense of approximately $132,000, primarily as a result of increased
        MegaMania and FlashCash activity, an increase in rent expense of
        approximately $25,000 due to the additional office and warehouse space
        in Austin, Texas, an increase in bad debt expense of $46,000, and
        increased other costs of approximately $157,000 primarily as a result of
        increased MegaMania and FlashCash activity. In addition MegaRacing was
        launched during the current quarter and had expenses of $81,000.

               Amortization and depreciation expense was $814,000 and $412,000
        for the three months ending June 30, 1998 and 1997 respectively, or an
        increase of $402,000. The increase results from the acquisition of
        additional MegaMania, FlashCash, and CornerCash electronic player
        stations.

<PAGE>   19
        The Nine Months Ended June 30, 1998 and 1997:

               The Company's total operating revenues were $49,288,000 and
        $26,156,000 for the nine months ended June 30, 1998 and 1997
        respectively, or an increase of $23,132,000. The increase was primarily
        a result of an increase in gaming revenue of $18,750,000, a decrease in
        electronic player station sales of $232,000, an increase in electronic
        player station sales to a related party of $3,117,000, an increase in
        electronic player station lease revenue of $1,275,000 and an increase of
        $222,000 in other income consisting of $101,000 of MegaRacing income and
        management fee increases of $121,000. The increase in gaming revenue was
        driven by increased MegaMania gaming revenues of $14,896,000, revenues
        of $4,134,000 from the introduction of FlashCash in February 1998 and
        revenues of $118,000 from CornerCash that was introduced in June 1998,
        partially offset by MegaBingo revenue decreases. The Company had an
        average of approximately 1,930 electronic player stations in operation
        during the nine months ended June 30, 1998 compared to an average of
        approximately 871 during the same nine months of 1997, which accounts
        for a substantial portion of the increase in gaming revenues during the
        current period.

               Bingo prizes and related costs were $6,831,000 and $6,767,000 for
        the nine months ended June 30, 1998 and 1997 respectively, or an
        increase of $64,000. The increase resulted from a change in the
        MegaBingo prize structure partially offset by decreased MegaBingo
        operations during the period.

               Allotments to hall operators were $26,730,000 and $12,247,000 for
        the nine months ended June 30, 1998 and 1997 respectively. The increase
        of $14,483,000 resulted primarily from the increase in MegaMania and
        FlashCash gaming operations.

               Cost of electronic player stations sold was $310,000 and $519,000
        for the nine months ended June 30, 1998 and 1997, respectively, or a
        decrease of $209,000, primarily due to fewer untis sold during the
        current period.

               Cost of electronic player stations sold to related parties was
        $1,878,000 and $310,000 for the nine months ended June 30, 1998 and
        1997, respectively, or an increase of $1,568,000, primarily due to an
        increase in the number of units sold to related parties during the
        current period.

               Salaries and wages were $2,275,000 and $1,519,000 for the nine
        months ended June 30, 1998 and 1997 respectively, or an increase of
        $756,000. Salaries and wages increased during the nine months ended June
        30, 1998 due to additional staff needed for the increased MegaMania,
        FlashCash, and CornerCash operations.

               Selling, general and administrative expenses were $6,753,000 and
        $3,227,000 for the nine months ending June 30, 1998 and 1997,
        respectively, or an increase of $3,526,000. The increase is primarily
        due to an increase in legal and professional fees of approximately
        $1,773,000, primarily as a result of the MegaMania litigation and of
        increased legal and regulatory activity, an increase in contract labor
        and service expenses of approximately $317,000 related primarily to
        increased MegaMania and FlashCash activity, an increase of $284,000 for
        advertising and the annual report to stockholders, an increase in
        business meals and travel of approximately $305,000, an increase in
        telephone expense of $345,000, primarily as a result of increased
        MegaMania and FlashCash activity, an increase in rent expense of $56,000
        due to the additional office and warehouse space in Austin, Texas, an
        increase in bad debt expense of $46,000 and increased other costs of
        approximately $319,000 primarily as a result of increased MegaMania


<PAGE>   20

        and FlashCash activity. In addition MegaRacing was launched during the
        period and had expenses of approximately $81,000.

               Amortization and depreciation expense was $2,160,000 and
        $1,015,000 for the nine months ending June 30, 1998 and 1997
        respectively, or an increase of $1,145,000. The increase resulted
        primarily from the acquisition of additional MegaMania and FlashCash
        electronic player stations.

        LIQUIDITY AND CAPITAL RESOURCES

               At June 30, 1998, the Company had $1,145,000 in unrestricted cash
        and cash equivalents, a decrease of $1,235,000 from September 30, 1997.
        During the nine month period ended June 30, 1998, the Company had
        positive cash flow from operations of $2,217,000 versus negative cash
        flow of $520,000 in the same period of the prior year. The primary
        components of cash flows from operations in the current nine month
        period include a significant increase in net income, net of non-cash
        charges, an increase in accounts and notes receivable of $1,129,000, an
        increase in inventory of $1,803,000, and an increase in accounts payable
        accrued expenses and prize fulfillment fees payable of $1,038,000. As a
        result, at June 30, 1998, the Company had positive working capital of
        $3,842,000.

               In March 1998, the Company entered into an agreement to sell
        electronic player stations and related equipment to a third party for a
        sales price of approximately $2.4 million. The sales price was paid in
        March 1998 by delivery to the Company of a promissory note of the third
        party purchaser that was due and payable on or before April 30, 1998.
        Subsequent to March 31, 1998, the third party purchaser assigned its
        right under the purchase agreement to a newly-formed liability company
        ("EPLLC-2"). An affiliate of Gordon T. Graves, the Company's Chairman of
        the Board and Chief Executive Office, and Clifton Lind, the Company's
        President and Chief Operating Officer, each owned a 10.5% interest in
        EPLLC-2. Mr. Graves also owns and controls the corporation having
        management authority over EPLLC-2. The terms of the sale which was
        assigned to EPLLC-2 are the same as the original terms entered into with
        the third party purchaser in March 1998. The promissory note was paid by
        EPLLC-2 on May 15, 1998.

               In June 1998, the Company sold electronic player stations and
        related equipment to EPLLC-2 for a sales price of approximately $1.4
        million, which included a non-refundable deposit of $140,000 received on
        the effective date of the transaction. The sales price was paid in June
        1998 by delivery to the Company of a promissory note of EPLLC-2 that was
        due and payable on or before July 15, 1998 out of funds contributed to
        EPLLC-2 from a group of investors that did not include either Mr. Graves
        or Mr. Lind or any other officer, director or employee of the Company.
        As a result of the additional contribution, the ownership interest of
        each of Mr. Graves and Mr. Lind in EPLLC-2 was reduced to 6.36%. Mr.
        Graves continues to own and control the corporation having management
        authority over EPLLC-2.

               During the quarter ended March 31, 1998, the Company incurred
        legal fees and expenses of approximately $1,288,000, or an increase of
        $1,099,000 when compared to the quarter ended December 31, 1997. Most of
        the increase was incurred in the month of January 1998, as the Company
        responded to the December 31, 1997 actions by the Tulsa U.S. Attorney in
        attempting to shut-down the Company's MegaMania bingo game. During the
        quarter ending June 30, 1998, legal fees and expenses were $690,000.
        While legal fees and expenses related to MegaMania and other litigation
        involving the Company will continue to be significant and will continue
        to materially and adversely effect the Company's reported earnings for
        the periods in which the legal services are performed and the related
        costs are incurred by the Company, such fees and expenses are not
        expected to approach the levels seen in January 1998, and are expected
        to approximate the 



<PAGE>   21

        levels seen during the third fiscal quarter. The Company believes that 
        its current operations, including the payment of its expected legal
        fees and expenses and the purchase, assembly and installation of
        approximately 250 player stations per month, can be sustained from cash
        from operations, which is expected to include sales of electronic player
        stations to private investors, which may include related parties. Any
        sales of electronic player stations to private investors will likely
        have an effective cost to the Company that is significantly greater than
        could otherwise be obtained through traditional financing sources. The
        purchase, assembly and installation of additional electronic player
        stations to further expand the Company's electronic gaming operations
        will require funding from external sources. The Company does not
        anticipate being able to access the more traditional sources of
        equipment financing pending a satisfactory outcome of the MegaMania
        litigation. No assurances can be given that the Company will be able to
        obtain such additional funding on a timely basis or upon terms
        satisfactory to the Company.

        FUTURE EXPECTATIONS AND FORWARD LOOKING STATEMENTS

               This Quarterly Report and the information incorporated herein by
        reference contains various "forward-looking statements" within the
        meaning of Federal and state securities laws, including those identified
        or predicated by the words "believes," anticipates," "expects," "
        plans," or similar expressions. Such statements are subject to a number
        of uncertainties that could cause the actual results to differ
        materially from those projected. Such factors include, but are not
        limited to, the uncertainties inherent to the outcome of any litigation
        as well as those described under "Item 1. Description of Business - Risk
        Factors" contained in the Company's Annual Report on Form 10-KSB for the
        fiscal year ended September 30, 1997, which are incorporated herein by
        this reference. Given these uncertainties, readers of this Quarterly
        Report are cautioned not to place undue reliance upon such statements.


<PAGE>   22


                                     PART II

                                OTHER INFORMATION



ITEM 1.           LEGAL PROCEEDINGS

MegaMania Litigation

         NORTHERN DISTRICT OF OKLAHOMA. On December 31, 1997, the Tulsa U.S.
Attorney for the Northern District of Oklahoma filed a civil forfeiture action
in the Federal District Court for the Northern District against the player
stations and centralized computer equipment used to play MegaMania located in
the Northern District. On that same day, agents of the Federal Bureau of
Investigation entered the Company's headquarters in Tulsa, Oklahoma and seized
the Company's central computer system, which caused the play of MegaMania to
cease throughout the Company's nationwide MegaMania network. Agents also entered
the bingo halls of the Cherokee Nation and Seneca-Cayuga tribe in the Northern
District and seized in-place approximately 300 MegaMania player stations. Agents
also entered the bingo hall of the Choctaw nation in the Eastern District of
Oklahoma and seized the Company's bingo ball blower that was used to draw
numbers for the play of MegaMania. No other seizure or enforcement action was
taken outside the Northern District. About 18 hours following the seizure
actions, the Company was again operating MegaMania throughout its MegaMania
network through the use of back-up systems, except at the bingo halls in the
Northern District where the MegaMania player stations were seized, and such play
has continued without interference or interruption by governmental authorities
since that time.

         On January 5, 1998, the Company and the Seneca-Cayuga tribe filed a
Complaint For Declaratory Relief in the Northern District seeking a declaration
by the courts that MegaMania is a legal Class II bingo game as permitted by the
Indian Gaming Regulatory Act of 1988 (the "Gaming Act"). The Cherokee Nation
subsequently joined the Company and the Seneca-Cayuga tribe as plaintiffs in the
action.

         On January 23, 1998, the Company, the Seneca-Cayuga tribe and the
Cherokee Nation entered into a standstill agreement with the Tulsa U.S. Attorney
and the other U.S. Attorneys in Oklahoma which allowed the bingo halls of the
Seneca-Cayuga's and Cherokee's to immediately commence playing MegaMania,
assured the Company and the tribes that no other seizure or enforcement action
would be taken in Oklahoma while the matter was before the court, and agreed to
a speedy trial on the merits of MegaMania. On May 5, 1998, the Company, the
Seneca-Cayuga tribe and the Cherokee Nation filed a Motion for Partial Summary
Judgment seeking a declaration by the court that MegaMania is a Class II game.
On July 17, 1998, the Company, the Seneca-Cayuga tribe and the Cherokee Nation
filed a second Motion for Partial Summary Judgment seeking a determination that
the electronic player stations used to play MaegaMain are legal technological
aids to the play of bingo and not illegal "gambling devices" in violation of the
Johnson Act. In August 1998, these two motions were consolidated into a single
motion for Summary Judgment. Very preliminary discovery has been commenced by
the Tulsa U.S. Attorney who has not yet filed any substantive response to the
Motion for Summary Judgment.


<PAGE>   23
         WASHINGTON D.C. On January 12. 1998, the Choctaw Nation of Oklahoma,
the Chickasaw Nation of Oklahoma and the Cheyenne-Arapaho Tribe of Oklahoma
filed a Complaint against the Department of Justice (DOJ) in the Federal Court
for the District of Columbia seeking a declaration that MegaMania is a legal
Class II bingo game. Three additional tribes, the Shoalwater Bay Indian Tribe
from the State of Washington, and the Cabazon Band of Mission Indians and the
Viejas Band of Kumeyaay Indians from the State of California, subsequently
intervened as additional plaintiffs. The DOJ has filed a motion to transfer this
case to the Northern District, which has been opposed by the plaintiffs. The
Judge has yet to rule on this motion.

         NORTHERN DISTRICT OF CALIFORNIA. On May 14, 1998, the Assistant U.S.
Attorney (the "San Francisco AUSA") for the Northern District of California
filed a Complaint for Civil Forfeiture against approximately 100 electronic
gaming devices operated by the Red Fox tribe at its casino in Laytonville
Rancheria, California. This action was one of approximately 30 other actions
taken in California against Indian tribes that had refused to sign the so-called
"Pala Compact" with the State of California. Included in the Red Fox complaint
were approximately 20 MegaMania electronic player stations. MegaMania player
stations operated by other tribes in California were not included in any
complaints. On July 13, 1998, the San Francisco AUSA advised the Company that he
would not dismiss the Company's MegaMania player stations from the Red Fox
Complaint and on July 22, 1998, the San Francisco AUSA filed a motion with the
court seeking permission to seize the machines that were the subject of the May
14, 1998 Complaint. The Company has opposed the seizure motion and has filed its
own motions for summary judgment seeking determinations that MegaMania is a
legal Class II bingo game and that the MegaMania electronic player stations are
legal technological aids to the play of bingo and not illegal "gambling devices"
in violation of the Johnson Act. A hearing on the government's seizure motion
and on the Company's summary judgment motions is scheduled for early September,
1998.

           The Company intends to vigorously defend its position that MegaMania
is a Class II game; however, no assurances can be given that the Company will be
successful on the merits. If MegaMania is ultimately determined to be Class III
gaming, the loss of the MegaMania business would have a material adverse effect
upon the Company's financial condition and results of operation. Even if the
Company is successful on the merits, the legal fees and expenses to be incurred
by the Company related to the MegaMania litigation will be significant and are
expected to materially and adversely affect the Company's reported earnings
during the periods in which legal services are rendered and the related costs
are incurred by the Company.

Network Gaming Litigation

         On February 2, 1998, a complaint was filed by Network Gaming
International Corporation ("Network Gaming") in the Federal District Court for
the Northern District of Oklahoma against the Company alleging, among other
things, breach of contract, misappropriation of trade secrets, fraud and
interference with prospective advantage. The complaint, which seeks $62 million
in damages and other specified and unspecified relief, also names Gordon T.
Graves, the Company's Chairman of the Board, and Larry D. Montgomery, the
Company's former President, as individual defendants. On January 23, 1998, the
Company had filed its own action in the Court against NGI for breach of
contract.

         The dispute arises out of a series of related agreements entered into
between the parties in December 1995 and May and June 1996. In general, these
agreements contemplate the cross-licensing of certain intellectual property and
equipment distribution rights. In its January 23 


<PAGE>   24

complaint, the Company alleges that NGI failed to perform certain obligations
owed the Company under a Licensing and Distribution Agreement wherein the
Company licensed certain rights to NGI with respect to Canada and China and that
NGI failed to perform certain obligations owed the Company under a Licensing and
Distribution Agreement wherein NGI licensed certain rights to the Company with
respect to the United States. In its February 2 complaint, NGI alleges just the
opposite - which the Company failed to perform the obligations owed by it to NGI
under both contracts.

         These actions are in the very preliminary stages and no discovery has
yet been taken by either party. The Company intends to vigorously defend against
the claims of NGI and to prosecute its own claim. Which the Company believes
that it will ultimately prevail on the merits, no assurances to that effect can
be given. In any event, the cost of defending the actions could be substantial.
In connection with the December 1995 transaction, the Company capitalized the
$500,000 cost of the license acquired from NGI, which the Company is amortizing
over the five-year term of the related License and Distribution Agreement. As of
June 30, 1998, the unamortized amount, including certain additional software
development costs, was $386,000, which the Company is continuing to amortize.
The Company believes that the most likely conclusion of the dispute with NGI
will include an affirmation of the Company's right to use the NGI license in
connection with the Company's planned business. As a result, the Company has
determined that it is only reasonably possible that this asset has been impaired
and accordingly has recorded no reduction in the carrying value of the asset as
of June 30, 1998, other than normal amortization. However, subsequent events may
occur which would cause the Company to determine that it is necessary and
appropriate to reduce, or to accelerate the rate of amortization of, all or a
portion of such capitalized cost. Any such reduction or acceleration will have
an adverse effect upon the reported earnings of the Company for the period in
which such action is taken which could, depending upon the period involved and
the earnings of the Company for such period, be material. See Notes 4 and 5 of
Notes to Consolidated Financial Statements contained within the Company's Annual
Report on Form 10-KSB for the fiscal year ended September 30, 1997.

Flash Cash Litigation

         In February 1998, the Company introduced FlashCash; a bingo game played
on interconnected electronic player stations located at participating Indian
bingo halls. The Company has submitted FlashCash to the NIGC for approval of the
game as Class II gaming; no determination has yet been made by the NIGC. The
Company also submitted FlashCash to the Tulsa U.S. Attorney and requested a
letter from the Tulsa U.S. Attorney that FlashCash was a legal Class II bingo
game. The Tulsa U.S. Attorney declined to issue an opinion and in February 1998,
the Company filed a Complaint for Declaratory Relief in the Northern District of
Oklahoma seeking a declaration by the court that FlashCash is a legal Class II
bingo game as permitted by the Gaming Act. No discovery has commenced and the
matter remains in a very preliminary stage. The Company intends to vigorously
defend its position that FlashCash is a Class II bingo game; however, no
assurances can be given that the Company will be successful on the merits. To
date, FlashCash has been well received by customers so that, if FlashCash is
ultimately determined to be Class III gaming, the loss of the FlashCash business
could have a material and adverse effect upon the Company's financial condition
and results of operations. Even if successful on the merits, the Company will
incur legal fees and expenses in defending its position, which could be
significant and which could, therefore, have a material and adverse effect upon
the Company's reported earnings for the periods in which such legal services are
rendered and the related costs are incurred by the Company.




<PAGE>   25
Shareholder Class Actions

           On June 9, 1998, the company received a copy of a Summons and Class
Action Complaint for Violations of Federal Securities Laws, that was filed on
May 29, 1998, in the Federal District Court for the Southern District of
California. Also named as defendants were Gordon T. Graves, the Company's
Chairman of the Board, and Larry D. Montgomery, the Company's former President.
The Complaint, which seeks an unspecified amount of damages on behalf of all
similarly situated shareholders, alleges that the Company violated federal
securities laws by making allegedly false and misleading statements regarding
MegaMania, the Company's interactive, high speed, bingo game.

           On July 24, 1998, a similar class action was filed in the Federal
Court for the Northern District of Oklahoma.

           These actions are in very preliminary stages. The Company intends to
vigorously defend against these claims and expects to prevail on the merits.
However, the cost of defending against the claims could by substantial.

Other.

         The Company is a party to various other lawsuits and claims arising out
of the ordinary course of its business. No accrual for potential loss has been
made in the accompanying financial statements, as management does not believe
that the likelihood of a material loss is probable at this time.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

During the three months ended June 30, 1998;

         (a) the Company issued 120 shares of Common Stock in a transaction
exempt from registration under the Securities Act of 1933, as amended pursuant
to Section 4 (2) thereof. The shares were issued upon the exercise of a warrant
originally issued in July 1993 at an exercise price of $6.60 per share. Net
proceeds from the issuance of the shares were used for general corporate
purposes.

         (b) the Company granted options to purchase 338,000 shares of Common
Stock to Clifton Lind, President and Chief Operating Officer, at a purchase
price of $3.8125 per share, in a transaction exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4 (2) thereof.

         (c) the Company granted warrants to purchase 262,500 shares of Common
Stock to Equipment Purchasing II LLC at a purchase price of $7.00 per share in a
transaction exempt from registration under the Securities Act of 1933, as
amended pursuant to Section 4 (2) thereof.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) The exhibits filed as part of this Quarterly Report on Form 10-QSB
are listed in the attached Index to Exhibits.


<PAGE>   26
         (b) The following reports on Form 8-K were filed by the Company during
the quarter ended June 30, 1998:

         On June 9, 1998, the Company filed a report of Form 8-K reporting under
Item 5. Other Information the institution of a shareholder class action in the
Southern District of California alleging securities laws violations.

<PAGE>   27
                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant
     caused this report to be signed on its behalf by the undersigned, thereunto
     duly authorized.

     Dated August 11, 1998           Multimedia Games, Inc.



                                     By: /s/ FREDERICK E. ROLL
                                         --------------------------------------
                                         Frederick E. Roll, Vice President and
                                         Chief Financial Officer


<PAGE>   28
                                INDEX TO EXHIBITS



<TABLE>
<CAPTION>
EXHIBIT
NUMBER        DESCRIPTION
------        -----------
<S>           <C>
15            Letter regarding Unaudited Interim Financial Information

27.1          Financial Data Schedule 

27.2          Restated FDS

27.3          Restated FDS
</TABLE>