UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2008
 OR
 o
    
    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 001-12367
 MIDWAY GAMES INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    22-2906244(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)2704 W. Roscoe Street, Chicago, IL
    
    60618(Address of Principal Executive Offices)
    
    (Zip Code)
 (773) 961-2222
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



MIDWAY GAMES INC.
 INDEX
 PAGE NO.Part I. Financial Information:Item 1.Financial Statements:Consolidated Balance Sheets  June 30, 2008 (Unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations  Three and Six Months Ended June 30, 2008 and 2007
(Unaudited)
    
    
    4Consolidated Statements of Cash Flows  Six Months Ended June 30, 2008 and 2007 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4.Controls and Procedures
    
    
    24Part II. Other Information:Item 1.Legal Proceedings
    
    
    24Item 4.Submission of Matters to a Vote of Security Holders
    
    
    24Item 6.Exhibits
    
    
    26Signature
    
    
    27
  2




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##### 



Part I. Financial Information
 Item 1. Financial Statements
 MIDWAY GAMES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    14,558
    
    
    $
    27,524Restricted cash
    
    
    213
    
    
    
    Receivables, less allowances of $19,587 at June
30, 2008 and $32,510 at December 31, 2007
    
    
    96
    
    
    
    44,527Inventories
    
    
    7,101
    
    
    
    3,772Capitalized product development costs
    
    
    64,547
    
    
    
    51,252Prepaid expenses and other current assets
    
    
    10,820
    
    
    
    13,362Total current assets
    
    
    97,335
    
    
    
    140,437Restricted cash
    
    
    888
    
    
    
    Assets held for sale
    
    
    2,793
    
    
    
    Capitalized product development costs
    
    
    8,624
    
    
    
    2,947Property and equipment, net
    
    
    12,234
    
    
    
    19,298Goodwill
    
    
    41,306
    
    
    
    41,307Other assets
    
    
    8,020
    
    
    
    9,372Total assets
    
    $
    171,200
    
    
    $
    213,361Liabilities and Stockholders Equity (Deficit)Current liabilities:Accounts payable
    
    $
    17,619
    
    
    $
    29,642Accrued compensation and related benefits
    
    
    5,952
    
    
    
    6,134Accrued royalties
    
    
    9,232
    
    
    
    12,769Accrued selling and marketing
    
    
    3,242
    
    
    
    5,645Deferred revenue
    
    
    3,698
    
    
    
    2,940Current portion of long-term debt
    
    
    16,327
    
    
    
    Convertible senior notes, less unamortized
discount of $25,658 at June 30, 2008
    
    
    49,342
    
    
    
    Other accrued liabilities
    
    
    15,833
    
    
    
    14,190Total current liabilities
    
    
    121,245
    
    
    
    71,320Convertible senior notes, less unamortized
discount of $27,013 at June 30, 2008 and $67,802
at December 31, 2007
    
    
    47,987
    
    
    
    82,198Long-term debt
    
    
    28,952
    
    
    
    19,167Deferred income taxes
    
    
    11,372
    
    
    
    10,715Other noncurrent liabilities
    
    
    531
    
    
    
    880Stockholders equity (deficit):Common stock, $0.01 par value, 200,000,000
shares authorized; 93,449,306 and 93,268,699
shares issued at June 30, 2008 and December 31,
2007, respectively
    
    
    934
    
    
    
    933Additional paid-in capital
    
    
    521,849
    
    
    
    521,031Accumulated deficit
    
    
    (549,271
    )
    
    
    (480,474
    )Accumulated translation adjustment
    
    
    (2,617
    )
    
    
    (2,629
    )Treasury stock, at cost, 1,355,430 and 1,165,430
shares at June 30, 2008 and December 31, 2007,
respectively
    
    
    (9,782
    )
    
    
    (9,780
    )Total stockholders equity (deficit)
    
    
    (38,887
    )
    
    
    29,081Total liabilities and stockholders equity (deficit)
    
    $
    171,200
    
    
    $
    213,361
  3




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##### 



MIDWAY GAMES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net revenues
    
    $
    23,434
    
    
    $
    31,801
    
    
    $
    53,352
    
    
    $
    42,871Cost of sales:Product costs and distribution
    
    
    11,643
    
    
    
    11,075
    
    
    
    25,844
    
    
    
    17,669Royalties and product development
    
    
    13,239
    
    
    
    9,748
    
    
    
    30,631
    
    
    
    12,446Total cost of sales
    
    
    24,882
    
    
    
    20,823
    
    
    
    56,475
    
    
    
    30,115Gross profit (loss)
    
    
    (1,448
    )
    
    
    10,978
    
    
    
    (3,123
    )
    
    
    12,756Research and development expense
    
    
    6,083
    
    
    
    6,399
    
    
    
    12,811
    
    
    
    14,005Selling and marketing expense
    
    
    9,982
    
    
    
    8,806
    
    
    
    18,612
    
    
    
    15,001Administrative expense
    
    
    5,042
    
    
    
    5,189
    
    
    
    11,795
    
    
    
    10,936Restructuring and other charges (benefits)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (783
    )Operating loss
    
    
    (22,555
    )
    
    
    (9,416
    )
    
    
    (46,341
    )
    
    
    (26,403
    )Interest income
    
    
    101
    
    
    
    633
    
    
    
    259
    
    
    
    1,577Interest expense
    
    
    (11,469
    )
    
    
    (5,602
    )
    
    
    (22,238
    )
    
    
    (9,170
    )Other income (expense), net
    
    
    (420
    )
    
    
    481
    
    
    
    776
    
    
    
    841Loss before income taxes
    
    
    (34,343
    )
    
    
    (13,904
    )
    
    
    (67,544
    )
    
    
    (33,155
    )Provision for income taxes
    
    
    500
    
    
    
    401
    
    
    
    1,253
    
    
    
    964Net loss
    
    $
    (34,843
    )
    
    $
    (14,305
    )
    
    $
    (68,797
    )
    
    $
    (34,119
    )Basic and diluted loss per share of common stock
    
    $
    (0.38
    )
    
    $
    (0.16
    )
    
    $
    (0.75
    )
    
    $
    (0.37
    )Basic and diluted weighted average number of
shares outstanding
    
    
    91,581
    
    
    
    91,103
    
    
    
    91,499
    
    
    
    91,051
  4




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##### 



MIDWAY GAMES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months EndedJune 30,2008
    
    
    2007Operating activities:Net loss
    
    $
    (68,797
    )
    
    $
    (34,119
    )Adjustments to reconcile net loss to net cash used in
operating activities:Amortization of capitalized product development
costs, including writedowns
    
    
    18,607
    
    
    
    7,123Depreciation and amortization
    
    
    3,381
    
    
    
    3,762Receivables provision
    
    
    23,597
    
    
    
    11,960Deferred income taxes
    
    
    1,096
    
    
    
    657Stock-based compensation expense
    
    
    281
    
    
    
    1,609Amortization of debt issuance costs
    
    
    945
    
    
    
    696Amortization of convertible senior notes discount
    
    
    15,131
    
    
    
    3,005(Gain) loss on disposal of property and equipment
    
    
    (770
    )
    
    
    28Changes in operating assets and liabilities:Receivables
    
    
    21,236
    
    
    
    20,229Inventories
    
    
    (3,254
    )
    
    
    (89
    )Capitalized product development costs
    
    
    (37,342
    )
    
    
    (39,042
    )Prepaid expenses and other current assets
    
    
    2,538
    
    
    
    1,861Accounts payable, accruals and deferred revenue
    
    
    (16,947
    )
    
    
    (2,418
    )Other assets and liabilities
    
    
    (888
    )
    
    
    (5
    )Net cash used in operating activities
    
    
    (41,186
    )
    
    
    (24,743
    )Investing activities:Purchases of property and equipment
    
    
    (1,756
    )
    
    
    (4,790
    )Proceeds from the sale of property and equipment
    
    
    5,100
    
    
    
    Restricted cash
    
    
    (1,100
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    2,244
    
    
    
    (4,790
    )Financing activities:Borrowings under former credit facility
    
    
    
    
    
    
    14,722Repayment of borrowings from former credit facility
    
    
    (19,167
    )
    
    
    (1,667
    )Borrowings under secured facility  term loan
    
    
    20,000
    
    
    
    Borrowings under secured facility  revolver
    
    
    13,453
    
    
    
    Repayment of borrowings from secured facility  revolver
    
    
    (4,500
    )
    
    
    Borrowings under unsecured facility  revolver
    
    
    16,327
    
    
    
    Payment of debt issuance costs
    
    
    (469
    )
    
    
    Cash received from exercise of common stock options
    
    
    59
    
    
    
    54Net cash provided by financing activities
    
    
    25,703
    
    
    
    13,109Effect of exchange rate changes on cash and cash equivalents
    
    
    273
    
    
    
    303Decrease in cash and cash equivalents
    
    
    (12,966
    )
    
    
    (16,121
    )Cash and cash equivalents at beginning of period
    
    
    27,524
    
    
    
    73,422Cash and cash equivalents at end of period
    
    $
    14,558
    
    
    $
    57,301
  5




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##### 



MIDWAY GAMES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Financial Statements
  2. Comprehensive Loss
 Reporting Comprehensive Income
 3. Loss per Common Share
  June 30,2008
    
    
    2007Stock options
    
    
    4,039
    
    
    
    3,724Contingent shares
    
    
    523
    
    
    
    923Convertible senior notes
    
    
    18,864
    
    
    
    16,023Total common stock equivalents
    
    
    23,426
    
    
    
    20,670
  4. Restricted Cash
  5. Inventories
  6




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##### 



6. Capitalized Product Development Costs and Research and Development Costs
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Beginning balance
    
    $
    61,596
    
    
    $
    57,173
    
    
    $
    54,199
    
    
    $
    41,613Additions
    
    
    20,159
    
    
    
    21,954
    
    
    
    37,579
    
    
    
    39,042Amortization
    
    
    (5,877
    )
    
    
    (5,503
    )
    
    
    (12,455
    )
    
    
    (6,974
    )Writedowns
    
    
    (2,707
    )
    
    
    (92
    )
    
    
    (6,152
    )
    
    
    (149
    )Ending balance
    
    $
    73,171
    
    
    $
    73,532
    
    
    $
    73,171
    
    
    $
    73,532
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Gross research and development costs
    
    $
    26,242
    
    
    $
    28,353
    
    
    $
    50,390
    
    
    $
    53,047Research and development costs capitalized
    
    
    (20,159
    )
    
    
    (21,954
    )
    
    
    (37,579
    )
    
    
    (39,042
    )Research and development expense
    
    $
    6,083
    
    
    $
    6,399
    
    
    $
    12,811
    
    
    $
    14,005
 7. Credit Facility
   7




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##### 



8. Sale and Leaseback Agreement
    9. Management Changes
   8




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##### 



10. Recently Issued Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 The Hierarchy of
Generally Accepted Accounting Principles The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles
 11. Legal Proceedings
   9




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
  Previous-Generation Home Consoles
    
    Next-Generation Home Consoles- Sonys PlayStation 2(PS2)
    
    - Sonys PlayStation 3(PS3)- Nintendos GameCube(NGC)
    
    - Nintendos Wii- Microsofts Xbox
    
    - Microsofts Xbox 360
 PS3 Xbox 360, Wii.
  10




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##### 



New Console Platform Cycle and Increasing Costs to Develop Video Games
 New Console Platform Cycle PS2 GameCube Xbox, Xbox 360 Wii PS3 Unreal
Tournament 3 Xbox 360 TNA iMPACT! PS3 Xbox 360 Wii PS2 Game Party 2 Wii Blitz: The League II Xbox 360 PS3 Mortal Kombat vs. DC Universe Xbox
360 PS3 Wheelman Xbox 360 PS3 This Is Vegas Xbox 360 PS3
 Increasing Costs to Develop Video Games
 Handheld Market
 DS. PSP. PSP PSP DS PSP Hot Brain, DS The Bee Game Touchmaster Ultimate Mortal Kombat Fosters Home for Imaginary
Friends: Imagination Invaders Touchmaster 2 Mechanic Master DS
 PC Market
 The Lord of the Rings Online:
Shadows of Angmar Stranglehold Unreal Tournament 3, Sins of a Solar Empire Wheelman This Is Vegas
 11




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##### 



Majority Stockholder
  Results of Operations
 Three Months Ended June 30, 2008 Compared with Three Months Ended June 30, 2007
  Three Months Ended June 30,2008
    
    
    2007Net revenues
    
    $
    23,434
    
    
    
    100.0
    %
    
    $
    31,801
    
    
    
    100.0
    %Cost of sales:Product costs and
distribution
    
    
    11,643
    
    
    
    49.7
    %
    
    
    11,075
    
    
    
    34.8
    %Royalties and
product development
    
    
    13,239
    
    
    
    56.5
    %
    
    
    9,748
    
    
    
    30.7
    %Total cost of sales
    
    
    24,882
    
    
    
    106.2
    %
    
    
    20,823
    
    
    
    65.5
    %Gross profit (loss)
    
    
    (1,448
    )
    
    
    (6.2
    )%
    
    
    10,978
    
    
    
    34.5
    %Research and
development expense
    
    
    6,083
    
    
    
    26.0
    %
    
    
    6,399
    
    
    
    20.1
    %Selling and marketing
expense
    
    
    9,982
    
    
    
    42.6
    %
    
    
    8,806
    
    
    
    27.7
    %Administrative expense
    
    
    5,042
    
    
    
    21.5
    %
    
    
    5,189
    
    
    
    16.3
    %Operating loss
    
    
    (22,555
    )
    
    
    (96.3
    )%
    
    
    (9,416
    )
    
    
    (29.6
    )%Interest income
    
    
    101
    
    
    
    0.4
    %
    
    
    633
    
    
    
    2.0
    %Interest expense
    
    
    (11,469
    )
    
    
    (48.9
    )%
    
    
    (5,602
    )
    
    
    (17.6
    )%Other income (expense),
net
    
    
    (420
    )
    
    
    (1.8
    )%
    
    
    481
    
    
    
    1.5
    %Loss before income taxes
    
    
    (34,343
    )
    
    
    (146.6
    )%
    
    
    (13,904
    )
    
    
    (43.7
    )%Provision for income
taxes
    
    
    500
    
    
    
    2.1
    %
    
    
    401
    
    
    
    1.3
    %Net loss
    
    $
    (34,843
    )
    
    
    (148.7
    )%
    
    $
    (14,305
    )
    
    
    (45.0
    )%
 12




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##### 



Three Months EndedSee
    
    June 30,
    
    Increase /
    
    PercentExplanation
    
    2008
    
    2007
    
    (Decrease)
    
    ChangeNet revenues:
    
    
    A
    
    
    $
    23,434
    
    
    $
    31,801
    
    
    $
    (8,367
    )
    
    
    (26.3
    )%North American net
revenues
    
    
    B
    
    
    
    14,171
    
    
    
    23,025
    
    
    
    (8,854
    )
    
    
    (38.5
    )%International net
revenues
    
    
    B
    
    
    
    9,263
    
    
    
    8,776
    
    
    
    487
    
    
    
    5.5
    %Cost of sales:Product costs and
distribution
    
    
    
    
    
    
    11,643
    
    
    
    11,075
    
    
    
    568
    
    
    
    5.1
    %Royalties and
product
development
    
    
    C
    
    
    
    13,239
    
    
    
    9,748
    
    
    
    3,491
    
    
    
    35.8
    %Research and
development expense
    
    
    
    
    
    
    6,083
    
    
    
    6,399
    
    
    
    (316
    )
    
    
    (4.9
    )%Selling and marketing
expense
    
    
    D
    
    
    
    9,982
    
    
    
    8,806
    
    
    
    1,176
    
    
    
    13.4
    %Administrative expense
    
    
    
    
    
    
    5,042
    
    
    
    5,189
    
    
    
    (147
    )
    
    
    (2.8
    )%Interest income
    
    
    E
    
    
    
    101
    
    
    
    633
    
    
    
    (532
    )
    
    
    (84.0
    )%Interest expense
    
    
    F
    
    
    
    (11,469
    )
    
    
    (5,602
    )
    
    
    5,867
    
    
    
    104.7
    %Other income
(expense), net
    
    
    G
    
    
    
    (420
    )
    
    
    481
    
    
    
    (901
    )
    
    
    (187.3
    )%Provision for income
taxes
    
    
    
    
    
    
    500
    
    
    
    401
    
    
    
    99
    
    
    
    24.7
    %
 A. Net Revenues
  Three Months Ended June 30,2008
    
    
    2007Sony PlayStation 3(PS3)
    
    $
    2,422
    
    
    
    10.3
    %
    
    $
    
    
    
    
    
    %Microsoft Xbox 360
    
    
    7,910
    
    
    
    33.8
    %
    
    
    7,094
    
    
    
    22.3
    %Nintendo Wii
    
    
    8,731
    
    
    
    37.3
    %
    
    
    6,323
    
    
    
    19.9
    %Sony PlayStation 2(PS2)
    
    
    1,060
    
    
    
    4.5
    %
    
    
    3,065
    
    
    
    9.6
    %Microsoft Xbox
    
    
    1
    
    
    
    0.0
    %
    
    
    306
    
    
    
    1.0
    %Nintendo GameCube(NGC)
    
    
    (2
    )
    
    
    (0.0
    )%
    
    
    231
    
    
    
    0.7
    %Sony PlayStation Portable(PSP)
    
    
    777
    
    
    
    3.3
    %
    
    
    1,343
    
    
    
    4.2
    %Nintendo DS (DS)
    
    
    1,883
    
    
    
    8.0
    %
    
    
    2,195
    
    
    
    6.9
    %Nintendo Game Boy Advance(GBA)
    
    
    (1
    )
    
    
    (0.0
    )%
    
    
    468
    
    
    
    1.5
    %Personal Computer (PC)
    
    
    (787
    )
    
    
    (3.4
    )%
    
    
    10,026
    
    
    
    31.5
    %Royalties and other
    
    
    1,440
    
    
    
    6.2
    %
    
    
    750
    
    
    
    2.4
    %Net revenues
    
    $
    23,434
    
    
    
    100.0
    %
    
    $
    31,801
    
    
    
    100.0
    %
 13




---



##### 



Video Game Title
    
    Platform
    
    TerritoryThree Months Ended June 30, 2008NBA Ballers: Chosen One
    
    PS3, Xbox 360
    
    North AmericaNBA Ballers: Chosen One
    
    PS3, Xbox 360
    
    InternationalSins of a Solar Empire
    
    PC
    
    InternationalUnreal Tournament 3
    
    Xbox 360
    
    InternationalThree Months Ended June 30, 2007Hot Brain
    
    PSP
    
    North AmericaHour of Victory
    
    Xbox 360
    
    North AmericaThe Lord of the Rings Online: Shadows of Angmar
    
    PC
    
    North AmericaMortal Kombat: Armageddon
    
    Wii
    
    North AmericaTouchmaster
    
    DS
    
    North AmericaHot Brain
    
    PSP
    
    InternationalHour of Victory
    
    Xbox 360
    
    InternationalMortal Kombat: Armageddon
    
    Wii
    
    InternationalTouchmaster
    
    DS
    
    International
 Game Party
  B. Net Revenues by Geography
 North American Net Revenues
 NBA Ballers: Chosen One, Game Party, Mortal Kombat: Armageddon The Lord of the Rings Online: Shadows of Angmar, Hour of Victory, Mortal Kombat:
Armageddon.
 International Net Revenues
 Game Party, Unreal Tournament 3 Touchmaster Hour of Victory,
Touchmaster Mortal Kombat: Armageddon.
 C. Cost of Sales  Royalties and Product Development
  14




---



##### 



Three Months EndedJune 30,Description
    
    2008
    
    
    2007Amortization of capitalized product development costs
    
    $
    5,877
    
    
    $
    5,503Writedowns related to future releases
    
    
    2,707
    
    
    
    92Expenses incurred subsequent to product release
    
    
    217
    
    
    
    102Total
    
    $
    8,801
    
    
    $
    5,697
 Unreal Tournament 3, NBA Ballers: Chosen One Game Party
 D. Selling and Marketing Expense
 NBA Ballers:
Chosen One
 E. Interest Income
  F. Interest Expense
  G. Other Income (Expense), Net
  15




---



##### 



Six Months Ended June 30, 2008 Compared with Six Months Ended June 30, 2007
  Six Months Ended June 30,2008
    
    
    2007Net revenues
    
    $
    53,352
    
    
    
    100.0
    %
    
    $
    42,871
    
    
    
    100.0
    %Cost of sales:Product costs and
distribution
    
    
    25,844
    
    
    
    48.4
    %
    
    
    17,669
    
    
    
    41.2
    %Royalties and
product development
    
    
    30,631
    
    
    
    57.4
    %
    
    
    12,446
    
    
    
    29.0
    %Total cost of sales
    
    
    56,475
    
    
    
    105.9
    %
    
    
    30,115
    
    
    
    70.2
    %Gross profit (loss)
    
    
    (3,123
    )
    
    
    (5.9
    )%
    
    
    12,756
    
    
    
    29.8
    %Research and
development expense
    
    
    12,811
    
    
    
    24.0
    %
    
    
    14,005
    
    
    
    32.7
    %Selling and marketing
expense
    
    
    18,612
    
    
    
    34.9
    %
    
    
    15,001
    
    
    
    35.0
    %Administrative expense
    
    
    11,795
    
    
    
    22.1
    %
    
    
    10,936
    
    
    
    25.5
    %Restructuring and other charges (benefits)
    
    
    
    
    
    
    0.0
    %
    
    
    (783
    )
    
    
    (1.8
    )%Operating loss
    
    
    (46,341
    )
    
    
    (86.9
    )%
    
    
    (26,403
    )
    
    
    (61.6
    )%Interest income
    
    
    259
    
    
    
    0.5
    %
    
    
    1,577
    
    
    
    3.7
    %Interest expense
    
    
    (22,238
    )
    
    
    (41.7
    )%
    
    
    (9,170
    )
    
    
    (21.4
    )%Other income, net
    
    
    776
    
    
    
    1.5
    %
    
    
    841
    
    
    
    2.0
    %Loss before income taxes
    
    
    (67,544
    )
    
    
    (126.6
    )%
    
    
    (33,155
    )
    
    
    (77.3
    )%Provision for income
taxes
    
    
    1,253
    
    
    
    2.3
    %
    
    
    964
    
    
    
    2.2
    %Net loss
    
    $
    (68,797
    )
    
    
    (128.9
    )%
    
    $
    (34,119
    )
    
    
    (79.5
    )%
  Six Months EndedSee
    
    June 30,
    
    Increase /
    
    PercentExplanation
    
    2008
    
    2007
    
    (Decrease)
    
    ChangeNet revenues:
    
    
    A
    
    
    $
    53,352
    
    
    $
    42,871
    
    
    $
    10,481
    
    
    
    24.4
    %North American net
revenues
    
    
    B
    
    
    
    22,460
    
    
    
    29,978
    
    
    
    (7,518
    )
    
    
    (25.1
    )%International net
revenues
    
    
    B
    
    
    
    30,892
    
    
    
    12,893
    
    
    
    17,999
    
    
    
    139.6
    %Cost of sales:Product costs and
distribution
    
    
    C
    
    
    
    25,844
    
    
    
    17,669
    
    
    
    8,175
    
    
    
    46.3
    %Royalties and
product
development
    
    
    D
    
    
    
    30,631
    
    
    
    12,446
    
    
    
    18,185
    
    
    
    146.1
    %Research and
development expense
    
    
    
    
    
    
    12,811
    
    
    
    14,005
    
    
    
    (1,194
    )
    
    
    (8.5
    )%Selling and marketing
expense
    
    
    E
    
    
    
    18,612
    
    
    
    15,001
    
    
    
    3,611
    
    
    
    24.1
    %Administrative expense
    
    
    
    
    
    
    11,795
    
    
    
    10,936
    
    
    
    859
    
    
    
    7.9
    %Restructuring and
other charges
(benefits)
    
    
    F
    
    
    
    
    
    
    
    (783
    )
    
    
    783
    
    
    
    100.0
    %Interest income
    
    
    G
    
    
    
    259
    
    
    
    1,577
    
    
    
    (1,318
    )
    
    
    (83.6
    )%Interest expense
    
    
    H
    
    
    
    (22,238
    )
    
    
    (9,170
    )
    
    
    13,068
    
    
    
    142.5
    %Other income, net
    
    
    
    
    
    
    776
    
    
    
    841
    
    
    
    (65
    )
    
    
    (7.7
    )%Provision for income
taxes
    
    
    
    
    
    
    1,253
    
    
    
    964
    
    
    
    289
    
    
    
    30.0
    %
 16




---



##### 



A. Net Revenues
  Six Months Ended June 30,2008
    
    
    2007Sony PlayStation 3(PS3)
    
    $
    16,127
    
    
    
    30.2
    %
    
    $
    
    
    
    
    
    %Microsoft Xbox 360
    
    
    6,196
    
    
    
    11.6
    %
    
    
    7,889
    
    
    
    18.4
    %Nintendo Wii
    
    
    19,494
    
    
    
    36.5
    %
    
    
    7,991
    
    
    
    18.6
    %Sony PlayStation 2(PS2)
    
    
    2,509
    
    
    
    4.7
    %
    
    
    7,025
    
    
    
    16.4
    %Microsoft Xbox
    
    
    25
    
    
    
    0.1
    %
    
    
    785
    
    
    
    1.8
    %Nintendo GameCube(NGC)
    
    
    (8
    )
    
    
    (0.0
    )%
    
    
    738
    
    
    
    1.7
    %Sony PlayStation Portable(PSP)
    
    
    1,574
    
    
    
    3.0
    %
    
    
    1,540
    
    
    
    3.6
    %Nintendo DS (DS)
    
    
    4,468
    
    
    
    8.4
    %
    
    
    3,536
    
    
    
    8.2
    %Nintendo Game Boy Advance(GBA)
    
    
    22
    
    
    
    0.0
    %
    
    
    1,239
    
    
    
    2.9
    %Personal Computer (PC)
    
    
    52
    
    
    
    0.1
    %
    
    
    10,136
    
    
    
    23.6
    %Royalties and other
    
    
    2,893
    
    
    
    5.4
    %
    
    
    1,992
    
    
    
    4.8
    %Net revenues
    
    $
    53,352
    
    
    
    100.0
    %
    
    $
    42,871
    
    
    
    100.0
    %
  Video Game Title
    
    Platform
    
    TerritorySix Months Ended June 30, 2008Stranglehold: Expansion Pack
    
    PS3, Xbox 360
    
    North AmericaNBA Ballers: Chosen One
    
    PS3, Xbox 360
    
    North AmericaFosters Home for Imaginary Friends:Imagination Invaders
    
    DS
    
    InternationalHour of Victory
    
    PC
    
    InternationalBlacksite: Area 51
    
    PS3
    
    InternationalUnreal Tournament 3
    
    PS3, Xbox 360, PC
    
    InternationalCruisn
    
    Wii
    
    InternationalGame Party
    
    Wii
    
    InternationalNBA Ballers: Chosen One
    
    PS3, Xbox 360
    
    InternationalSins of a Solar Empire
    
    PC
    
    InternationalSix Months Ended June 30, 2007Hot Brain
    
    PSP
    
    North AmericaHour of Victory
    
    Xbox 360
    
    North AmericaThe Lord of the Rings Online: Shadows of Angmar
    
    PC
    
    North AmericaMortal Kombat: Armageddon
    
    Wii
    
    North AmericaTouchmaster
    
    DS
    
    North AmericaThe Ant Bully
    
    Wii
    
    InternationalThe Grim Adventures of Billy & Mandy
    
    Wii
    
    InternationalBlitz: The League
    
    Xbox 360
    
    InternationalHot Brain
    
    PSP
    
    InternationalHour of Victory
    
    Xbox 360
    
    InternationalMortal Kombat: Armageddon
    
    Wii
    
    InternationalTouchmaster
    
    DS
    
    International
 Game Party
 17




---



##### 



B. Net Revenues by Geography
 North American Net Revenues
 Game Party NBA Ballers: Chosen One, Mortal Kombat: Armageddon The
Lord of the Rings Online: Shadows of Angmar, Hour of Victory Mortal Kombat: Armageddon.
 International Net Revenues
 Unreal Tournament 3 Game Party Blacksite: Area 51 Hour of Victory, Happy Feet, Mortal Kombat: Armageddon.
 C. Cost of Sales  Product Costs and Distribution
  D. Cost of Sales  Royalties and Product Development
   Six Months EndedJune 30,Description
    
    2008
    
    
    2007Amortization of capitalized product development costs
    
    $
    12,455
    
    
    $
    6,974Writedowns related to future releases
    
    
    6,152
    
    
    
    149Expenses incurred subsequent to product release
    
    
    1,062
    
    
    
    465Total
    
    $
    19,669
    
    
    $
    7,588
 Unreal Tournament 3, NBA Ballers: Chosen One Game Party
 E. Selling and Marketing Expense
 Unreal
Tournament 3 NBA Ballers: Chosen One
 18




---



##### 



F. Restructuring and other Charges (Benefits)
  G. Interest Income
  H. Interest Expense
   Liquidity and Capital Resources
    19




---



##### 



Unreal Tournament 3
  20




---



##### 



Off-Balance Sheet Arrangements and Contractual Obligations
  21




---



##### 



Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-term debt
obligations(1)
    
    $
    28,952
    
    
    $
    
    
    
    $
    
    
    
    $
    28,952
    
    
    $
    Interest on long-term
debt obligations(2)
    
    
    7,188
    
    
    
    1,797
    
    
    
    3,594
    
    
    
    1,797
    
    
    
    Short-term debt
obligations(1)
    
    
    16,327
    
    
    
    16,327
    
    
    
    
    
    
    
    
    
    
    
    Interest in-kind on
short-term debt(8)
    
    
    913
    
    
    
    913
    
    
    
    
    
    
    
    
    
    
    
    Convertible senior
notes(3)
    
    
    150,000
    
    
    
    75,000
    
    
    
    75,000
    
    
    
    
    
    
    
    Interest on
convertible senior
notes(4)
    
    
    13,992
    
    
    
    9,094
    
    
    
    4,898
    
    
    
    
    
    
    
    Operating lease
obligations(5)
    
    
    13,699
    
    
    
    3,378
    
    
    
    5,320
    
    
    
    4,312
    
    
    
    689Purchase obligations(6)
    
    
    40,321
    
    
    
    30,226
    
    
    
    9,810
    
    
    
    285
    
    
    
    Other liabilities(7)
    
    
    375
    
    
    
    375
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    271,767
    
    
    $
    137,110
    
    
    $
    98,622
    
    
    $
    35,346
    
    
    $
    689
 
 (1)
    
    These obligations are reflected on our consolidated balance sheet as long-term debt at June
30, 2008.(2)
    
    Assumes debt is carried to full term. Debt bears interest at variable rates. The amounts
above assume future interest will be incurred at 6.21% (one month LIBOR rate as of June 30,
2008, plus 3.75%) from July 1, 2008 through June 29, 2012, the maturity date of the long-term
debt obligation. These obligations for future interest payments are not reflected on our
consolidated balance sheet at June 30, 2008.(3)
    
    Assumes our two convertible senior note instruments are carried through the dates the holders
may first redeem the notes, which are April 30, 2009 and May 31, 2010, respectively. These
obligations are reflected on our consolidated balance sheet at June 30, 2008, net of the
unamortized discounts.(4)
    
    Assumes our two convertible senior note instruments are carried through the date the holders
may first redeem the notes, which are April 30, 2009 and May 31, 2010, respectively. The
instruments bear interest at the fixed rates of 6.00% and 7.125% per annum, respectively.
These obligations for future interest payments are not reflected on our consolidated balance
sheet at June 30, 2008.(5)
    
    These obligations are not reflected on our consolidated balance sheet at June 30, 2008.(6)
    
    Purchase obligations are agreements to purchase goods or services that are enforceable and
legally binding on us and that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the approximate
timing of the transaction. The amounts in the table above include inventory items, marketing
commitments, and minimum payments due under various licensing agreements and third party
developer agreements. The amounts disclosed above assume all transactions are carried to
contractual term and do not reflect cancellations within our control. Such cancellations could
result in amounts owed being less than those reflected above. These obligations are not
reflected on our consolidated balance sheet at June 30, 2008.(7)
    
    This item represents the remaining obligations under software license financing arrangements
which are reflected on our consolidated balance sheet in other accrued liabilities at June 30,
2008.(8)
    
    Assumes debt is carried to full term. Debt bears interest-in-kind at variable rates. The
amounts above assume future interest- in-kind will be incurred at 7.46% (one month LIBOR rate
as of June 30, 2008, plus 5.0%) from July 1, 2008 through March 31, 22




---



##### 



Recently Issued Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 The Hierarchy of
Generally Accepted Accounting Principles The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles
 Impact of Inflation
  Seasonality
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
  23




---



##### 



Item 4. Controls and Procedures
   Part II. Other Information
 Item 1. Legal Proceedings
  24




---



##### 



Item 4. Submission of Matters to a Vote of Security Holders
  1)
    
    To elect directors to serve until our next annual meeting and until their successors are duly elected and shall qualify; and2)
    
    To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending
December 31, 2008.
  1)
    
    Our stockholders elected the six nominated directors to serve until our
next annual meeting and until their successors are duly elected and shall
qualify, as follows:
 Nominee
    
    For
    
    WithheldShari E. Redstone
    
    
    82,890,404
    
    
    
    73,296William C. Bartholomay
    
    
    82,858,298
    
    
    
    105,402Peter C. Brown
    
    
    81,667,313
    
    
    
    1,296,387Joseph A. Califano, Jr.
    
    
    81,569,388
    
    
    
    1,394,312Robert J. Steele
    
    
    82,878,920
    
    
    
    84,780Robert N. Waxman
    
    
    82,880,492
    
    
    
    83,208
 2)
    
    Our stockholders ratified the appointment of Ernst & Young LLP
as our independent registered public accounting firm for the
year ending December 31, 2008, as follows:
 For:
    
    82,937,598Against:
    
    23,213Abstentions:
    
    2,889Broker Non-Votes:
    
    0
 25




---



##### 



Item 6. Exhibits
 ExhibitNo.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of the
Registrant dated October 25, 1996, incorporated herein by
reference to the Registrants Registration Statement on Form S-1,
as amended, File No. 333-11919, initially filed on September 13,
1996 and effective October 29, 1996.3.2
    
    Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of the Registrant dated February 25, 1998,
incorporated herein by reference to the Registrants Registration
Statement on Form 8-A/A, Amendment No. 1, filed on April 20,
1998.3.3
    
    Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of the Registrant dated August 5, 2003,
incorporated herein by reference to the Quarterly Report on Form
10-Q for the quarter ended June 30, 2003.3.4
    
    Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of the Registrant dated February 17, 2004,
incorporated herein by reference to the Registrants Registration
Statement on Form S-3, File No. 333-113077, initially filed on
February 25, 2004.3.5
    
    Composite Amended and Restated By-laws of the Registrant, dated
June 13, 2007, incorporated herein by reference to the
Registrants Current Report on Form 8-K, dated June 13, 2007.31
    
    Certifications of Principal Executive Officer and Principal
Financial Officer Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    Certifications of Principal Executive Officer and Principal
Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 26




---



##### 



Signature
  MIDWAY GAMES INC.By:
    /s/ Ryan G. ODeskyRyan G. ODeskyInterim Chief Financial Officer and Treasurer

(Principal Financial Officer and 
duly authorized officer)  27




---



##### 



EXHIBIT INDEX
 ExhibitNo.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of the
Registrant dated October 25, 1996, incorporated herein by
reference to the Registrants Registration Statement on Form S-1,
as amended, File No. 333-11919, initially filed on September 13,
1996 and effective October 29, 1996.3.2
    
    Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of the Registrant dated February 25, 1998,
incorporated herein by reference to the Registrants Registration
Statement on Form 8-A/A, Amendment No. 1, filed on April 20,
1998.3.3
    
    Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of the Registrant dated August 5, 2003,
incorporated herein by reference to the Quarterly Report on Form
10-Q for the quarter ended June 30, 2003.3.4
    
    Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of the Registrant dated February 17, 2004,
incorporated herein by reference to the Registrants Registration
Statement on Form S-3, File No. 333-113077, initially filed on
February 25, 2004.3.5
    
    Composite Amended and Restated By-laws of the Registrant, dated
June 13, 2007, incorporated herein by reference to the
Registrants Current Report on Form 8-K, dated June 13, 2007.31
    
    Certifications of Principal Executive Officer and Principal
Financial Officer Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    Certifications of Principal Executive Officer and Principal
Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 28