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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 Commission file number 001-12367 MIDWAY GAMES INC.  Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
    
    22-2906244
(I.R.S. Employer
Identification No.)
 2704 W. Roscoe Street, Chicago, IL
(Address of Principal Executive Offices)
    
    60618
(Zip Code)
 Registrants telephone number, including area code (773) 961-2222 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule
12b-2 of the Exchange Act). Yes x No o Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date: 86,831,487 shares of common stock, $0.01 par value, were
outstanding at May 04, 2005, excluding 1,096,646 shares held as treasury shares.




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MIDWAY GAMES INC. INDEX PAGENO.Part I. Financial Information:Item 1.
    
    Financial Statements:Consolidated Balance Sheets March 31, 2005 and December 31, 2004
    
    
    1Consolidated Statements of Operations Three-Months Ended March 31, 2005 and 2004
    
    
    2Consolidated Statements of Cash Flows Three-Months Ended March 31, 2005 and 2004
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4.
    
    Controls and Procedures
    
    
    16Part II. Other Information:Item 1.
    
    Legal Proceedings
    
    
    17Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 6.
    
    Exhibits
    
    
    19Signature
    
    
    21




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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) DecemberMarch 31,
    
    
    31,2005
    
    
    2004(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    93,350
    
    
    $
    118,313Receivables, less allowances of $5,104 at March 31, 2005 and $8,836 at
December 31, 2004
    
    
    7,014
    
    
    
    15,724Inventories
    
    
    5,952
    
    
    
    6,893Capitalized product development costs
    
    
    42,227
    
    
    
    27,850Prepaid expenses and other current assets
    
    
    8,296
    
    
    
    6,570Total current assets
    
    
    156,839
    
    
    
    175,350Capitalized product development costs
    
    
    1,461
    
    
    
    809Property and equipment, net
    
    
    19,639
    
    
    
    15,470Goodwill
    
    
    39,576
    
    
    
    39,533Other assets
    
    
    11,646
    
    
    
    11,155Total assets
    
    $
    229,161
    
    
    $
    242,317Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    8,213
    
    
    $
    6,673Accrued compensation and related benefits
    
    
    6,295
    
    
    
    5,183Accrued royalties
    
    
    4,144
    
    
    
    3,493Accrued selling and marketing
    
    
    1,700
    
    
    
    3,525Current portion of long-term debt
    
    
    3,333
    
    
    
    3,333Other accrued liabilities
    
    
    11,004
    
    
    
    11,249Total current liabilities
    
    
    34,689
    
    
    
    33,456Long-term debt
    
    
    9,444
    
    
    
    10,278Deferred income taxes
    
    
    7,101
    
    
    
    6,773Other noncurrent liabilities
    
    
    1,375
    
    
    
    340Redeemable convertible preferred stock, Series D, $0.01 par value, 4,750
shares authorized and designated, 446 shares issued and outstanding,
redeemable at $4,460
    
    
    4,455
    
    
    
    4,453Stockholders equity:Preferred stock, $0.01 par value, 4,995,250 shares authorized and undesignated
    
    
    
    
    
    
    Common stock, $0.01 par value, 200,000,000 shares authorized, 87,926,343 and
87,883,494 shares issued at March 31, 2005 and December 31, 2004
    
    
    879
    
    
    
    879Additional paid-in capital
    
    
    392,313
    
    
    
    392,177Accumulated deficit
    
    
    (206,505
    )
    
    
    (190,612
    )Accumulated translation adjustment
    
    
    (1,235
    )
    
    
    (1,420
    )Deferred compensation
    
    
    (3,727
    )
    
    
    (4,379
    )Treasury stock, at cost, 1,096,646 shares
    
    
    (9,628
    )
    
    
    (9,628
    )Total stockholders equity
    
    
    172,097
    
    
    
    187,017Total liabilities and stockholders equity
    
    $
    229,161
    
    
    $
    242,317
 See notes to consolidated financial statements. 1




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MIDWAY GAMES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited) Three-Months EndedMarch 31,2005
    
    
    2004Net revenues
    
    $
    13,815
    
    
    $
    20,131Cost of sales:Product costs and distribution
    
    
    5,066
    
    
    
    9,175Royalties and product development
    
    
    3,530
    
    
    
    6,325Total cost of sales
    
    
    8,596
    
    
    
    15,500Gross profit
    
    
    5,219
    
    
    
    4,631Research and development expense
    
    
    8,966
    
    
    
    5,069Selling and marketing expense
    
    
    7,280
    
    
    
    9,078Administrative expense
    
    
    4,180
    
    
    
    4,309Operating loss
    
    
    (15,207
    )
    
    
    (13,825
    )Interest income
    
    
    628
    
    
    
    98Interest expense
    
    
    (353
    )
    
    
    (178
    )Other income
and (expense), net
    
    
    (633
    )
    
    
    62Loss before income taxes
    
    
    (15,565
    )
    
    
    (13,843
    )Provision for income taxes
    
    
    328
    
    
    
    328Net loss
    
    
    (15,893
    )
    
    
    (14,171
    )Preferred stock dividends:Distributed
    
    
    63
    
    
    
    503Imputed
    
    
    2
    
    
    
    310Loss applicable to common stock
    
    $
    (15,958
    )
    
    $
    (14,984
    )Basic and diluted loss per share of common stock
    
    $
    (0.19
    )
    
    $
    (0.27
    )Average number of shares outstanding
    
    
    85,642
    
    
    
    55,830
 See notes to consolidated financial statements. 2




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MIDWAY GAMES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) Three-Months EndedMarch 31,2005
    
    
    2004Operating activities:Net loss
    
    $
    (15,893
    )
    
    $
    (14,171
    )Adjustments to reconcile net loss to net cash used in operating activities:Amortization of capitalized product development costs, including writedowns
    
    
    2,981
    
    
    
    5,543Depreciation and amortization
    
    
    1,565
    
    
    
    1,201Receivables provision
    
    
    1,154
    
    
    
    2,569Deferred income taxes
    
    
    328
    
    
    
    328Stock-based compensation expense
    
    
    652
    
    
    
    70Loss on disposal of property and equipment
    
    
    15
    
    
    
    1Changes in operating assets and liabilities:Receivables
    
    
    7,333
    
    
    
    700Inventories
    
    
    902
    
    
    
    (1,591
    )Capitalized product development costs
    
    
    (18,010
    )
    
    
    (11,022
    )Prepaid expenses and other current assets
    
    
    (1,674
    )
    
    
    (426
    )Accounts payable and accruals
    
    
    (286
    )
    
    
    5,694Other assets and liabilities
    
    
    (1,340
    )
    
    
    (926
    )Net cash used in operating activities
    
    
    (22,273
    )
    
    
    (12,030
    )Investing activities:Purchases of property and equipment
    
    
    (1,923
    )
    
    
    (326
    )Financing activities:Payment of long-term debt
    
    
    (834
    )
    
    
    Proceeds from long-term debt
    
    
    
    
    
    
    15,000Payment of debt issuance costs
    
    
    
    
    
    
    (829
    )Cash dividends on preferred stock
    
    
    (65
    )
    
    
    (513
    )Net proceeds from sale of Series D preferred stock
    
    
    
    
    
    
    1,755Cash received on exercise of common stock options
    
    
    316
    
    
    
    809Net cash (used in) provided by financing activities
    
    
    (583
    )
    
    
    16,222Effect of exchange rate changes on cash
    
    
    (184
    )
    
    
    174(Decrease) increase in cash and cash equivalents
    
    
    (24,963
    )
    
    
    4,040Cash and cash equivalents at beginning of period
    
    
    118,313
    
    
    
    41,682Cash and cash equivalents at end of period
    
    $
    93,350
    
    
    $
    45,722
 See notes to consolidated financial statements. 3




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MIDWAY GAMES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 1. Financial Statements The accompanying unaudited consolidated financial statements of Midway Games Inc. (the
Company, we, us, our or Midway) have been prepared in accordance with generally accepted
accounting principles for interim financial information, the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of a normal recurring nature) considered
necessary for a fair presentation have been included. Due to the seasonality of our business,
operating results for the three-months ended March 31, 2005 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2005. For further information, refer
to the consolidated financial statements and footnotes thereto included in our Annual Report on
Form 10-K for the year ended December 31, 2004. 2. Reclassifications Certain prior period balances have been reclassified to conform to the current period
presentation. 3. New Accounting Pronouncement In December 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123R (Revised 2004), Share-Based Payment,which requires that the
compensation cost relating to share-based payment transactions be recognized in financial
statements based on alternative fair value models. The share-based compensation cost will be
measured based on the fair value of the equity or liability instruments issued. We currently use
the Black-Scholes model to calculate the stock option grants fair value and related pro forma
compensation expense quarterly and annually and disclose the impact on loss applicable to common
stock and the related per share amount in a note to the consolidated financial statements. Upon
adoption, pro forma disclosure will no longer be an alternative. See the table in Note 8 for the
estimated impact that such a change in accounting would have had if it had been in effect during
the three-month periods ended March 31, 2005 and 2004. SFAS No. 123R also requires the benefits of
tax deductions in excess of recognized compensation cost to be reported as a financing cash flow
rather than as an operating cash flow as required under current
accounting guidance. The adoption of SFAS No. 123R is required beginning with our three-month period ending March
31, 2006. We currently plan to adopt the modified prospective application method allowed under
SFAS No. 123R and estimate an additional charge to expense of approximately $3,500,000 in 2006 relating to currently outstanding stock options. The actual impact will depend upon the final
fair value model selected and any additional options that may be granted or forfeited up to and
during each period of recognition. 4. Acquisitions During 2004, we acquired three privately-held software developers in all-stock transactions
valued at a total of $10,356,000. The acquisitions strengthen our internal product development team
and reinforce our ability to create high quality games. The operations of each business acquired
are included in our statement of operations for the three-months ended March 31, 2005. These
acquisitions did not occur until after March 31, 2004 and therefore had no impact on our operations
for the three-months then ended. The purchase price allocations for two of these acquisitions,
valued at $6,169,000, are subject to adjustment, based on the final results of a third-party
valuation. 4




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5. New Consolidated Subsidiary During January 2005, we formed a new wholly-owned subsidiary, Midway Games GmbH (MGG), for
the purpose of selling, marketing and distributing our products in Germany, Austria and
Switzerland. MGG is located in Munich, Germany. Its assets, liabilities and results of operations
are included in the consolidated balance sheet and statements of operations and cash flows as of
and for the three-months ended March 31, 2005. All intercompany accounts and transactions have
been eliminated in consolidation. Two members of MGGs management are the sole shareholders of F+F Publishing GmbH (F+F). F+F
is primarily in the business of distributing videogames and other products to retailers. One of
these MGG employees is also the Managing Director of F+F. We sell products directly to retailers,
distributors and F+F. F+F sells our products to various retailers. We generated net revenues of
$76,000 from sales to F+F during the three-months ended March 31, 2005 and had a related receivable
of $76,000 from F+F at March 31, 2005. In addition, we purchase certain products from F+F and in
turn sell these products to retailers and distributors. We incurred costs of sales of $235,000
related to this activity during the three-months ended March 31, 2005 and had a related payable of
$235,000 to F+F at March 31, 2005. 6. Inventories Inventories consist of finished goods and are valued at the lower of cost (determined by the
first-in, first-out method) or market. 7. Capital Lease During January 2005, we entered into a capital lease for the purchase of software to be used
in the development of our videogames. The current and long-term portions of the capital lease
obligations are reflected in other accrued liabilities and other noncurrent liabilities as
appropriate. The original cost of the software capitalized related to this lease is $3,808,000 and
is reflected in property and equipment on the consolidated balance sheet, net of amortization of
$46,000 for the three-months ended March 31, 2005. Of this capitalized software, $1,000,000 was
paid during 2004 and was reflected in other assets, noncurrent at December 31, 2004. This capital
lease has future minimum commitments due beyond March 31, 2005 as follows (in thousands): 2005
    
    $
    1,3002006
    
    
    1,3002007
    
    
    400Total
capital lease obligation
    
    
    3,000Less: Imputed interest
    
    
    (192
    )Present
value of capital lease obligation
    
    
    2,808Current capital lease obligation
    
    
    (1,652
    )Long-term capital lease obligation
    
    $
    1,156
 5




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8. Stock-Based Compensation We account for stock-based awards to employees using the intrinsic value method as prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,and
related interpretations. We recognize compensation expense equal to the difference, if any, between
the exercise price of the stock option and the fair value of the underlying stock at the date of
grant on a straight-line basis over the vesting period. Accordingly, no compensation expense is
recorded for options issued to employees or directors in fixed amounts and with fixed exercise
prices at least equal to the fair market value of our common stock at the date of grant. We have
reflected the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosurean Amendment of
FASB No. 123, through disclosure only. All stock-based awards to non-employees are accounted for at
their fair value in accordance with SFAS No. 123 and Emerging Issues Task Force No. 96-18,
Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. The following table illustrates the effect on loss applicable to common stock and basic and
diluted loss per share of common stock if we had applied the fair value recognition provisions of
SFAS No. 123 (in thousands, except per share amounts): Three-Months EndedMarch 31,2005
    
    
    2004Reported loss applicable to common stock
    
    $
    (15,958
    )
    
    $
    (14,984
    )Deduct stock-based compensation expense
included in reported loss applicable to
common stock (a)
    
    
    652
    
    
    
    70Add stock-based compensation expense
determined under the fair value based method
for all awards (a)
    
    
    (1,703
    )
    
    
    (1,336
    )Pro forma net loss applicable to common stock
    
    $
    (17,009
    )
    
    $
    (16,250
    )Basic and diluted loss per share:As reported
    
    $
    (0.19
    )
    
    $
    (0.27
    )Pro forma
    
    $
    (0.20
    )
    
    $
    (0.29
    )
   (a)
    
    These amounts reflect a $0 income tax effect. See Note 12 for details about our income taxes. Our accounting for stock-based awards will be impacted beginning in 2006 by a recently issued
accounting pronouncement, SFAS No.123R (revised 2004), Share-Based Payment.See Note 3 New
Accounting Pronouncement. 9. Comprehensive Loss SFAS No. 130, Reporting Comprehensive Income, requires us to report foreign currency
translation adjustments as a component of other comprehensive income or loss. Comprehensive loss
amounted to $15,708,000 and $14,302,000 for the three-months ended March 31, 2005 and 2004,
respectively. Accumulated translation adjustment is disclosed on the consolidated balance sheets. 10. Loss per Common Share The following securities exercisable for or convertible into the number of shares of common
stock shown were outstanding on each of the following dates (in thousands): 6




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March 31,Type
    
    2005
    
    
    2004Stock options
    
    
    7,568
    
    
    
    11,035Warrants
    
    
    679
    
    
    
    2,870Contingent shares
    
    
    1,089
    
    
    
    1,332Redeemable convertible preferred stock, Series D
    
    
    1,115
    
    
    
    10,037Total common stock equivalents
    
    
    10,451
    
    
    
    25,274
 The calculation of loss per share of common stock for the three-months ended March 31, 2005
and 2004 did not include the effect of these securities because to do so would have been
antidilutive. Accordingly, the average number of shares outstanding for the three-months ended
March 31, 2005 and 2004 were used in their respective calculations of basic and diluted loss per
share of common stock. 11. Capitalized Product Development Costs The following table reconciles the beginning and ending capitalized product development cost
balances for the following periods (in thousands): Three-Months EndedMarch 31,2005
    
    
    2004Beginning balance
    
    $
    28,659
    
    
    $
    11,292Additions
    
    
    18,010
    
    
    
    11,022Amortization, including writedowns
    
    
    (2,981
    )
    
    
    (5,543
    )Ending balance
    
    $
    43,688
    
    
    $
    16,771
 12. Income Taxes During the three-months ended March 31, 2005 and 2004, we recorded a valuation allowance
against our deferred tax asset to reduce our net deferred tax asset to zero, the amount reasonably
expected to be used. The applicable accounting guidance limits the amount expected to be used to
sources of future taxable income that are more likely than not to be generated within the
carryforward period. Deferred tax liabilities related to indefinite-lived assets, such as goodwill,
cannot be determined to be more likely than not to generate taxable income within the carryforward
period and are therefore not offset against deferred tax assets on the consolidated balance sheets.
To the extent a deferred tax liability related to indefinite-lived assets increases in future
periods, deferred tax expense will be recognized. We will be required to provide additional
valuation allowances in future periods should tax losses occur. Our valuation allowance increased
$6,325,000 and $5,378,000 in the three-months ended March 31, 2005 and 2004, respectively. The
valuation allowance may be reversed into income in future periods if and when we return to
profitability. At December 31, 2004, we had a net operating loss carryforward of $302,530,000 for federal
income tax purposes which expires from 2019 to 2024, and net operating loss carryforwards of
$104,935,000 for state income tax purposes which expire from 2009 to 2022. Stockholder ownership
change(s), as defined under Section 382 of the Internal Revenue Code, may limit the annual amount
of net operating loss carryforward we may use to offset future taxable income. 7




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13. Common Stock During the three-months ended March 31, 2005 and 2004, stock option exercises resulted in the
issuance of an aggregate of 42,849 and 170,749 shares of common stock, at average exercise prices
of $4.67 and $5.29 per share, resulting in total proceeds of approximately $200,000 and $903,000,
respectively. Amounts reflected in the consolidated statements of cash flows may differ from these
amounts due to timing of cash received related to the exercises. There was no other common stock activity during the three-months ended March 31, 2005. 14. Legal Proceedings In June 2004, four putative class action lawsuits were filed against Sumner M. Redstone,
Midway and several directors of Midway in the Circuit Court of Cook County, Illinois, and two
putative class action lawsuits were filed against Sumner M. Redstone, Midway and several directors
of Midway in the Court of Chancery for the State of Delaware in and for New Castle County. These
six putative class actions were brought on behalf of all persons, other than defendants, who own
Midways securities and allege, among other things, that Midway and its directors breached their
fiduciary duties to Midways other stockholders by allowing Sumner M. Redstone to purchase a
substantial amount of Midways common stock from other Midway stockholders. The lawsuits sought
injunctive relief to prevent Mr. Redstone from acquiring the remaining outstanding shares of Midway
in order to take the company private, imposition of a constructive trust and other relief for the
alleged breach of fiduciary duty. A motion to consolidate the four putative class actions pending in the Circuit Court of Cook
County, Illinois was granted, and plaintiffs filed a Consolidated Amended Complaint under the
caption David Shaev Profit Sharing Account F/B/O David Shaev, on behalf of itself and all others
similarly situated v. Sumner M. Redstone, Harold H. Bach, Jr., William C. Bartholomay, Neil D.
Nicastro, Louis J. Nicastro, Ira S. Sheinfeld, Robert N. Waxman and Midway Games, Inc. On October
6, 2004, defendants filed motions to dismiss these consolidated actions, asserting that none of
plaintiffs allegations state a legally viable claim against any of the defendants. On January 26,
2005, the motion was granted with prejudice with respect to Midway and without prejudice with
respect to the individual defendants, and the plaintiffs were granted leave to file an amended
complaint by February 22, 2005. The plaintiffs did not file an amended complaint by that date. On
March 15, 2005, the consolidated actions were dismissed with prejudice as to all defendants. Plaintiffs
in the two Delaware class action complaints filed for dismissal on
March 18, 2005 and May 5, 2005. We have potential liabilities related to tax matters for which we believe the probability of a
future loss is reasonably possible. We estimate any loss to be in the range of $0 to $1,700,000.
In addition, we currently and from time to time are involved in other litigation and disputes
incidental to the conduct of our business, none of which, in our opinion, is likely to have a
material adverse effect on us. No amounts have been accrued at March 31, 2005. 8




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations This report contains forward-looking statements, within the meaning of the federal
securities laws, which describe our plans and goals, our beliefs concerning future business
conditions and the outlook for Midway based on currently available information. Whenever possible,
we have identified these forward-looking statements by words such as may, will, should,
expect, eventually, anticipate, believe, estimate, seek, intend and similar
expressions. Our actual results could differ materially from those described in the forward-looking
statements due to a number of risks and uncertainties. These risks and uncertainties include the
financial strength of the interactive entertainment industry, dependence on new product
introductions and the ability to maintain the scheduling of such introductions, the upcoming
console platform transition and other technological changes, dependence on major platform
manufacturers and other risks more fully described in this Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations and under Item 1. BusinessRisk
Factors in our Annual Report on Form 10-K for the year ended December 31, 2004, and in our more
recent reports filed with or furnished to the SEC. Overview We have one operating segment, developing and publishing interactive entertainment software
(videogames). Videogames for play on home consoles, handheld devices or personal computers (PCs)
are sold to mass merchants, video rental retailers, software specialty retailers and entertainment
software distributors. We sell games primarily in North America, Europe and Australia for the major
videogame platforms, including Sonys PlayStation 2computer entertainment system, Microsofts Xbox
and Nintendos GameCubeand Game Boy Advance. Most of our videogames have suggested retail prices
on the initial release date in North America ranging from $39.95 to $49.95 for console games and
from $19.95 to $29.95 for handheld games. Suggested retail prices on the initial release dates for
PC games are usually between $29.95 and $49.95. Additionally, we earn license and royalty revenue
from licensing the rights to some of our videogames and intellectual property to third parties. New Platform Cycle The current generation of game platforms includes the following home consoles: Sonys
PlayStation 2, released in 2000, the Nintendo GameCubeand Microsoft Xbox, released in 2001, and
the Nintendo handheld platform, Game Boy Advance, introduced in 2001. Historically, a new
generation of more technologically advanced game consoles has reached the market approximately
every four to six years. At the beginning of each new generation, or cycle, during the period of
rapid growth in the installed base of the new generation of consoles, software sales for the new
consoles have historically experienced periods of rapid expansion, as buyers purchase videogames
for the new consoles. At the end of each cycle, when the introduction of a new generation of home
game consoles is announced, net revenues related to the older generation of platforms and games
generally diminish, as consumers defer purchases in anticipation of the new platforms and games.
The time period referred to by the industry as the home console transition period is roughly
defined as the time period from the introduction of the first new generation of home game consoles
until these new consoles supplant the older generation consoles in terms of software sales.
Microsoft announced that it will introduce a new home console platform by late 2005. The
PlayStation 3from Sony is expected to be released in 2006. We are currently planning for this
transition in our product development process. In November 2004, Nintendo launched a dual-screened, portable game system, Nintendo DS. Sony
also entered the handheld market with the introduction of PlayStation Portable(PSP). PSP was
released in Japan in December 2004 and was released in the United States in March 2005. Although we
have begun development of games for the Sony PSP, the handheld market is not currently a
significant part of our business. We may devote more resources toward this market in the future
contingent upon the success of the new handheld systems. PC Market Historically, our revenues generated from products for play on PCs have not been significant.
However, we anticipate generating increased revenues from games played on PCs in the future. Our
recent agreements to publish two PC titles, the next installment of Unreal Tournamentand Rise and
Fall: Civilizations at War,should increase our revenue from the PC market in the future. Historically, the PC business has been less cyclical
than the home console business, and we believe that marketing games to the PC market will help to
stabilize our revenues during the next home console transition period. 9




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##### 



Childrens Market During the three-months ended March 31, 2005, we signed publishing agreements with Warner
Bros. Interactive Entertainment, licensing several properties to develop videogames based on both
television programs and films in the childrens market. These agreements are multi-territory deals
that include games for console, handheld and PC platforms. We believe that videogame sales for
the childrens market will perform well, particularly on the older videogame consoles and the
handheld platforms, as the industry enters the upcoming home console transition period. Expansion of Resources During January 2005, we expanded our international operations with the formation of a new
wholly-owned subsidiary, Midway Games GmbH. This new subsidiary is located in Munich, Germany and
is responsible for Midways sales, marketing and distribution in Germany, Austria and Switzerland.
See Note 5 to the consolidated financial statements for further information about Midway Games
GmbH. During 2004, we also acquired three privately-held software developers:  
    Seattle, Washington-based Surreal Software Inc. (Surreal) in April 2004. Surreal
worked with us in the development of The Suffering, a title we released in March 2004.
    Austin, Texas-based Inevitable Entertainment Inc. (Inevitable) in October 2004.
Prior to the acquisition, Inevitable was working with us on the development of Area 51,
a title we released in April 2005.
    Moorpark, California-based CWS Entertainment Ltd. d/b/a Paradox Development
(Paradox) in November 2004. Prior to the acquisition, Paradox was working with us on
the development of Mortal Kombat: Shaolin Monks, a title we plan to release in 2005. The acquisition of these studios strengthens our internal product development team and
reinforces our ability to make high quality games. Majority Stockholder Sumner M. Redstone, our largest stockholder, reported that he purchased additional shares of
our common stock such that his aggregate holdings exceeded 78% of our outstanding voting securities
as of March 31, 2005. Mr. Redstone has continued to purchase additional shares of our common stock
through the date of this report. See Part II, Item 2 for details of Mr. Redstones purchases
during the three-months ended March 31, 2005. As the majority voting stockholder of Midway, Mr.
Redstone can change our business strategies and policies, select all of the members of our Board of
Directors and control all other stockholder votes. If Mr. Redstone were to dispose of shares of our
common stock, the market price of our common stock would likely decline. If he were to sell his
shares, the purchaser or purchasers might change our business strategies. Mr. Redstone reported
that he has engaged a financial advisor to provide services in connection with the evaluation of a
possible going private or other transaction in which Mr. Redstone would acquire more than eighty
percent of the issued and outstanding equity of Midway. Mr. Redstone has also stated that Midway
could be considered as a potential Viacom acquisition candidate. Mr. Redstone is the Chairman of
the Board and Chief Executive Officer of Viacom. An independent committee of Viacoms board of
directors has been formed to consider any proposed transactions or business arrangements with
Midway. Midway has also formed an independent committee to consider
any proposed transactions or business arrangements with
Mr. Redstone or any of his affiliates. 10




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##### 



Results of Operations Three-Months Ended March 31, 2005 Compared with Three-Months Ended March 31, 2004 The following table sets forth our operating results expressed as a percentage of total
revenue for the periods indicated (dollars in thousands): Three-Months Ended March 31,2005
    
    2004Net revenues
    
    $
    13,815
    
    
    
    100.0
    %
    
    $
    20,131
    
    
    
    100.0
    %Cost of sales:Product costs and distribution
    
    
    5,066
    
    
    
    36.7
    %
    
    
    9,175
    
    
    
    45.6
    %Royalties and product development
    
    
    3,530
    
    
    
    25.5
    %
    
    
    6,325
    
    
    
    31.4
    %Total cost of sales
    
    
    8,596
    
    
    
    62.2
    %
    
    
    15,500
    
    
    
    77.0
    %Gross profit
    
    
    5,219
    
    
    
    37.8
    %
    
    
    4,631
    
    
    
    23.0
    %Research and development expense
    
    
    8,966
    
    
    
    64.9
    %
    
    
    5,069
    
    
    
    25.2
    %Selling and marketing expense
    
    
    7,280
    
    
    
    52.7
    %
    
    
    9,078
    
    
    
    45.1
    %Administrative expense
    
    
    4,180
    
    
    
    30.3
    %
    
    
    4,309
    
    
    
    21.4
    %Operating loss
    
    
    (15,207
    )
    
    
    (110.1
    )%
    
    
    (13,825
    )
    
    
    (68.7
    )%Interest income
    
    
    628
    
    
    
    4.5
    %
    
    
    98
    
    
    
    0.5
    %Interest expense
    
    
    (353
    )
    
    
    (2.6
    %)
    
    
    (178
    )
    
    
    (0.9
    %)Other (expense) income, net
    
    
    (633
    )
    
    
    (4.5
    )%
    
    
    62
    
    
    
    0.3
    %Loss before income taxes
    
    
    (15,565
    )
    
    
    (112.7
    )%
    
    
    (13,843
    )
    
    
    (68.8
    )%Provision for income taxes
    
    
    328
    
    
    
    2.3
    %
    
    
    328
    
    
    
    1.6
    %Net loss
    
    
    (15,893
    )
    
    
    (115.0
    )%
    
    
    (14,171
    )
    
    
    (70.4
    )%Preferred stock dividends:Distributed
    
    
    63
    
    
    
    0.5
    %
    
    
    503
    
    
    
    2.5
    %Imputed
    
    
    2
    
    
    
    0.0
    %
    
    
    310
    
    
    
    1.5
    %Loss applicable to common stock
    
    $
    (15,958
    )
    
    
    (115.5
    )%
    
    $
    (14,984
    )
    
    
    (74.4
    )%
 Consolidated Net Revenues The following table sets forth our total net revenues by platform and territory for the
periods indicated (dollars in thousands): Three-Months Ended March 31,2005
    
    2004Net revenues by platformSony PlayStation 2 (PS2)
    
    $
    6,391
    
    
    
    46.3
    %
    
    $
    10,809
    
    
    
    53.7
    %Microsoft Xbox (XBX)
    
    
    2,654
    
    
    
    19.2
    %
    
    
    6,855
    
    
    
    34.1
    %Nintendo GameCube (NGC)
    
    
    2,606
    
    
    
    18.9
    %
    
    
    1,431
    
    
    
    7.1
    %Nintendo Game Boy Advance (GBA)
    
    
    297
    
    
    
    2.1
    %
    
    
    184
    
    
    
    0.9
    %License and royalty
    
    
    1,785
    
    
    
    12.9
    %
    
    
    612
    
    
    
    3.0
    %Other
    
    
    82
    
    
    
    0.6
    %
    
    
    240
    
    
    
    1.2
    %Total net revenues
    
    $
    13,815
    
    
    
    100.0
    %
    
    $
    20,131
    
    
    
    100.0
    %Net revenues by territoryNorth America
    
    $
    10,723
    
    
    
    77.6
    %
    
    $
    16,226
    
    
    
    80.6
    %International
    
    
    3,092
    
    
    
    22.4
    %
    
    
    3,905
    
    
    
    19.4
    %Total net revenues
    
    $
    13,815
    
    
    
    100.0
    %
    
    $
    20,131
    
    
    
    100.0
    %
 11




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##### 



The following table sets forth our videogame releases by platform and territory for the
periods indicated: Videogame title
    
    Platform
    
    TerritoryThree-Months Ended March 31, 2005Mortal Kombat: Deception
    
    NGC
    
    North AmericaNARC
    
    PS2, XBX
    
    North AmericaMaya the Bee
    
    GBA
    
    InternationalShadowhearts: Covenant
    
    PS2
    
    InternationalThree-Months Ended March 31, 2004The Suffering
    
    PS2, XBX
    
    North AmericaMidway Arcade Treasures
    
    PS2, XBX
    
    InternationalSpyHunter 2
    
    PS2, XBX
    
    International
 From 2004 to 2005, consolidated net revenues for the three-months ended March 31 decreased
$6,316,000 (31.4%). This change was attributable to a decrease in unit sales volume of 38.5% and a
decrease in average per-unit gross selling price of 5.5%. North American Net Revenues From 2004 to 2005, North American net revenues for the three-months ended March 31 decreased
$5,503,000 (33.9%). Our top three selling titles in North America during the three-months ended
March 31, 2005 represented $6,882,000 of current period net revenues. These included NARCand
continued sales of two titles originally released in 2004, Mortal Kombat: Deceptionand NBA
Ballers.Our top three selling titles in North America during the three-months ended March 31,
2004 represented $14,734,000 of net revenues and included The Sufferingand continued sales of two
titles released in prior periods, Midway Arcade Treasuresand Mortal Kombat: Deadly Alliance.
North American net revenues also include license and royalty revenues of $1,785,000 and $612,000
for the three-months ended March 31, 2005 and 2004, respectively. International Net Revenues From 2004 to 2005, international net revenues for the three-months ended March 31 decreased
$813,000 (20.8%). Our top three selling titles internationally during the three-months ended March
31, 2005 represented $2,042,000 of current period net revenues. These included Shadowhearts:
Covenant, Maya the Beeand continued sales of our 2004 release, Mortal Kombat: Deception. Our top
three selling titles internationally during the three-months ended March 31, 2004 represented
$2,974,000 of net revenues and included SpyHunter 2, Midway Arcade Treasuresand continued sales of
our 2003 release, Mortal Kombat: Deadly Alliance. Cost of Sales Cost of sales includes product costs, distribution costs, royalties, and amortization and
writedowns of capitalized product development costs. From 2004 to 2005, product costs and
distribution costs for the three-months ended March 31 decreased $4,109,000 (44.8%). This resulted
from a decrease in unit sales volume of 38.5% as well as a decrease in our per-unit costs of 10.3%.
Royalties and product development costs decreased $2,795,000 (44.2%) from 2004 to 2005 for the
three-months ended March 31. As set forth in the table following, this was due to $2,801,000 of
writedowns of capitalized product development costs in the three-months ended March 31, 2004. Amortization and writedowns of capitalized product development costs were as follows: 12




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##### 



Three-Months EndedMarch 31,Description
    
    2005
    
    
    2004Amortization of capitalized product development costs
    
    $
    2,981,000
    
    
    $
    2,742,000Writedowns related to future releases
    
    
    
    
    
    
    2,291,000Writedowns related to current releases
    
    
    
    
    
    
    235,000Writedowns related to cancelled games
    
    
    
    
    
    
    275,000Total
    
    $
    2,981,000
    
    
    $
    5,543,000
 Research and Development Expense Research and development expense represents product development overhead and product
development costs incurred prior to a product reaching technological feasibility, after which such
costs are capitalized until that product is released for sale. Research and development costs were
as follows: Three-Months EndedMarch 31,Description
    
    2005
    
    
    2004Gross research and development costs
    
    $
    26,976,000
    
    
    $
    16,091,000Research and development costs capitalized
    
    
    (18,010,000
    )
    
    
    (11,022,000
    )Research and development expense
    
    $
    8,966,000
    
    
    $
    5,069,000
 Gross
research and development costs increased $10,885,000 (67.6%) from
2004 to 2005 for the three-months ended March 31. This increase
is attributable to the fact that we have more games in development in
the current period as compared to the prior period. This increased
development activity has been facilitated by increased headcount in
our internal product development teams, from 340 employees to 540
employees at March 31, 2004 and 2005, respectively. This increase
in internal product development team headcount is primarily
attributable to the three studios acquired during
April through November of 2004. Selling and Marketing Expense Selling and marketing expense decreased $1,798,000 (19.8%) from 2004 to 2005 for the
three-months ended March 31. Advertising expenses decreased $1,746,000, from $3,784,000 for the
three-months ended March 31, 2005 compared to $5,530,000 for the three-months ended March 31, 2004.
The decrease relates to the fact that less advertising expense was incurred in 2005 related to
NARC, the only new console title we released in North America during the three-months ended March
31, 2005 compared to The Suffering, the only new console title released in North America during the
three-months ended March 31, 2004. The release of The Sufferingwas supported by a higher amount
of television and print advertising than NARC,which was primarily supported by print advertising. Administrative Expense Administrative expense decreased $129,000 (3.0%) from 2004 to 2005 for the three-months ended
March 31 due to a decrease in payroll expense and legal fees, partially offset by higher other
professional fees. Interest Income Interest income increased $530,000 from 2004 to 2005 for the three-months ended March 31 due
to the higher cash balances during the three-months ended March 31, 2005 compared to the
three-months ended March 31, 2004. 13




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##### 



Interest Expense Interest expense increased $175,000 from 2004 to 2005 for the three-months ended March 31. In
March 2004, we entered into a loan and security agreement with Wells Fargo Foothill, Inc. for a
credit facility of up to $30,000,000 under which we have a $15,000,000 term loan and a revolving
line of credit of up to $15,000,000 (the Credit Facility). The term loan bears interest at our
election of either the banks base rate (5.75% at March 31, 2005) or the LIBOR rate (3.12% at March
31, 2005) plus 2.75%, but in no event less than 4.0%. The interest rate at March 31, 2005 was
5.75%. The outstanding balance of the term loan was $12,777,000 and $15,000,000 at March 31, 2005
and 2004, respectively. The increase in interest expense is due to the term loan being outstanding
for the entire three-months ended March 31, 2005 compared to less than one month for the
three-months ended March 31, 2004. Other (Expense) Income, net Other income and (expense), net during the three-months ended March 31, 2005 reflects $618,000
of foreign currency transaction losses compared to $63,000 of foreign currency transaction gains
during the three-months ended March 31, 2004. Income Taxes Provision for income taxes was consistent between 2004 and 2005 for the three-months ended
March 31. Deferred income tax expense relates to an increase in the difference between the book and
tax basis of goodwill. We are required to record a valuation allowance on net deferred tax assets
if it is more likely than not that we will not realize these deferred tax assets. Given our recent
history of book and tax losses, a full valuation allowance has been recorded on the net deferred
tax asset, excluding the deferred tax liability specifically related to goodwill, in both the
three-months ended March 31, 2005 and 2004. Liquidity and Capital Resources Our principal source of operating cash is from distribution and sale of our videogames. Our
principal uses of cash are for payments associated with both internal and third-party developers of
our software, third-party manufacturers of our videogame inventory and costs incurred to sell and
market our videogames. As of March 31, 2005 our primary source of liquidity was $93,350,000 of cash
and cash equivalents, compared with $118,313,000 at December 31, 2004. Our working capital at March
31, 2005 totaled $122,150,000, compared with $141,894,000 at December 31, 2004. Our strategy
depends on generating revenue from new products. If our new products fail to gain market
acceptance, we may not have sufficient revenues to pay our expenses and to develop a continuous
stream of new games. We actively manage our capital structure and balance sheet as a component of our overall
business strategy. We may issue shares of our common stock, and / or utilize our cash and cash
equivalents, if we identify an opportunity to acquire additional software developers that will
further strengthen our internal product development teams and our ability to create high quality
games. We may also issue additional shares of common stock in the future to settle outstanding
obligations such as our Series D redeemable convertible preferred stock, if terms and conditions
allow, alleviating the use of cash. Receivables, excluding the impact of receivables provisions, decreased by $7,333,000
during the three-months ended March 31, 2005 due to lower sales in the first quarter of 2005
compared to the fourth quarter of 2004 and continued collections on accounts receivable outstanding
at December 31, 2004. During the three-months ended March 31, 2004, accounts payables and accruals increased from
the beginning of the period by a net $5,694,000 due to increased spending on advertising and
marketing costs and inventory costs, including platform royalties owed on releases in the first
quarter of 2004 and early second quarter of 2004. Also, financing activities reflect $1,755,000 of
net proceeds received during March 2004 from the sale of 179 shares of Series D preferred stock. 14




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##### 



Management believes that our cash and cash equivalents on-hand at March 31, 2005 of
$93,350,000, along with additional availability under the bank financing secured in March 2004,
will be adequate to fund the anticipated levels of inventories, receivables and other working
capital requirements for the operation of our business. However, we will continue to assess
opportunities to raise additional debt or equity financing should market conditions appear
favorable. Availability under the revolving line of credit of up to $15,000,000 is reduced by any
letters of credit outstanding and also limited by the borrowing base, which is a function of
eligible accounts receivable and collections as defined under the Credit Facility. At March 31,
2005, we had approximately $3,100,000 available for borrowings under the line of credit. The term
loan can be prepaid at any time without premium or penalty. If the Credit Facility is terminated
before the expiration of the five year term, the lender is entitled to receive prepayment penalties
not to exceed $450,000. In addition, management has the ability, if necessary, to implement
restructuring activities that would substantially reduce personnel and personnel-related costs,
reduce capital expenditures, reduce research and development expenditures and/or reduce selling and
marketing expenditures. Off Balance Sheet Arrangements and Contractual Obligations We lease various office facilities, a warehouse and equipment under non-cancelable operating
leases. Additionally, we enter into license agreements for the use of intellectual property used
in specific videogames or for a period of time. Some of these agreements provide for advance
payments or guarantee minimum payments of royalties. We also enter into arrangements with third
parties to develop some of our videogames. In accordance with generally accepted accounting
principles, some of these obligations are not recognized as liabilities in our consolidated balance
sheet. The following table summarizes our contractual obligations as of March 31, 2005 (in
thousands): Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    After 5Contractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    YearsLong-term debt obligations
    
    $
    12,777
    
    
    $
    3,333
    
    
    $
    6,667
    
    
    $
    2,777
    
    
    $
    Interest on long-term debt obligations(1)
    
    
    1,439
    
    
    
    647
    
    
    
    719
    
    
    
    73
    
    
    
    Operating lease obligations
    
    
    8,623
    
    
    
    3,082
    
    
    
    4,687
    
    
    
    854
    
    
    
    Purchase obligations(2)
    
    
    51,566
    
    
    
    34,876
    
    
    
    8,720
    
    
    
    7,970
    
    
    
    Other long-term liabilities(3)
    
    
    3,150
    
    
    
    1,823
    
    
    
    1,327
    
    
    
    
    
    
    
    Redeemable convertible preferred stock(4)
    
    
    4,460
    
    
    
    4,460
    
    
    
    
    
    
    
    
    
    
    
    Dividends to be distributed on redeemable
convertible preferredstock(5)
    
    
    245
    
    
    
    245
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    82,260
    
    
    $
    48,466
    
    
    $
    22,120
    
    
    $
    11,674
    
    
    $
    
   (1)
    
    Assumes debt is carried to full term. Debt bears interest at variable rates. The amounts
above assume future interest will be incurred at the rate in effect on March 31, 2005 (5.75%).(2)
    
    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.(3)
    
    These items are reflected on our consolidated balance sheets at March 31, 2005 in current and
noncurrent liabilities, as appropriate. 15




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##### 



(4)
    
    Assumes Series D redeemable convertible preferred stock remains outstanding until the
maturity date of March 15, 2006. We may elect to redeem all or part of the Series D preferred
stock in cash or by converting all or a part of the shares of Series D preferred stock into
common stock, under certain circumstances. In addition, the holders of the Series D preferred
stock may convert their shares into shares of common stock at any time.(5)
    
    Assumes Series D redeemable convertible preferred stock remains outstanding until the
maturity date of March 15, 2006. Dividends may be paid in cash or at our option in registered
shares of our common stock. Impact of Inflation In recent years, the level of inflation affecting us has been relatively low. Our ability to
pass on future cost increases in the form of higher sales prices will continue to be dependent on
the prevailing competitive environment and the acceptance of our products in the marketplace. Seasonality The videogame business is highly seasonal and generally has experienced higher revenues in the
quarter ended December 31 due to customer purchases preceding the year-end retail holiday selling
season. Significant working capital is required to finance high levels of inventories and accounts
receivable during that quarter. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Under our credit facility, we have a term loan and a revolving line of credit each up to
$15,000,000. At March 31, 2005, the balance of the term loan was $12,777,000, and there were no
amounts drawn on the revolving line of credit. We had one $31,000 letter of credit outstanding at
March 31, 2005. The term loan bore interest at the banks base rate (5.75% at March 31, 2005).
Changes in market rates may impact the banks base rate. For instance, if the banks base rate were
to increase or decrease by one percentage point (1.0%), our annual interest expense would change by
approximately $110,000. There have been no other significant changes since December 31, 2004. 
 Item 4. Controls and Procedures As of the end of the period covered by this report, our Chief Executive Officer and our Chief
Financial Officer carried out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as required by Rule 13a-15 under the Securities Exchange Act of
1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in ensuring that material information
about us and our subsidiaries, including the material information required to be disclosed in our
filings under the Securities Exchange Act of 1934, is recorded, processed, summarized and
communicated to them as appropriate to allow timely decisions regarding required disclosure. During the first quarter of 2005, we extended our existing internal control over financial
reporting to a new subsidiary formed in Germany. See discussion of this new subsidiary in Note 5
to the consolidated financial statements. No other change was identified as occurring during the
first quarter of 2005 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting. 16




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##### 



Part II. Other Information 
 Item 1. Legal Proceedings As we previously reported, in June 2004, four putative class action lawsuits were filed
against Sumner M. Redstone, Midway and several directors of Midway in the Circuit Court of Cook
County, Illinois, and two putative class action lawsuits were filed against Sumner M. Redstone,
Midway and several directors of Midway in the Court of Chancery for the State of Delaware in and
for New Castle County. These six putative class actions were brought on behalf of all persons,
other than defendants, who own Midways securities and allege, among other things, that Midway and
its directors breached their fiduciary duties to Midways other shareholders by allowing Sumner M.
Redstone to purchase a substantial amount of Midways common stock from other Midway shareholders.
The lawsuits sought injunctive relief to prevent Mr. Redstone from acquiring the remaining
outstanding shares of Midway in order to take the company private, imposition of a constructive
trust and other relief for the alleged breach of fiduciary duty. A motion to consolidate the four putative class actions pending in the Circuit Court of Cook
County, Illinois was granted, and plaintiffs filed a Consolidated Amended Complaint under the
caption David Shaev Profit Sharing Account F/B/O David Shaev, on behalf of itself and all others
similarly situated v. Sumner M. Redstone, Harold H. Bach, Jr., William C. Bartholomay, Neil D.
Nicastro, Louis J. Nicastro, Ira S. Sheinfeld, Robert N. Waxman and Midway Games, Inc. On October
6, 2004, defendants filed motions to dismiss these consolidated actions, asserting that none of
plaintiffs allegations state a legally viable claim against any of the defendants. On January 26,
2005, the motion was granted with prejudice with respect to Midway and without prejudice with
respect to the individual defendants, and the plaintiffs were granted leave to file an amended
complaint by February 22, 2005. The plaintiffs did not file an amended complaint by that date. On
March 15, 2005, the consolidated actions were dismissed with prejudice as to all defendants. Plaintiffs
in the two Delaware class action complaints filed for dismissal on
March 18, 2005 and May 5, 2005. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no exercises of our preferred stock requiring additional issuance of our common
stock during the quarter. 446 shares of Series D preferred stock remain outstanding and may be
converted at the option of the holder until March 15, 2006 at the rate of $4.00 per share; warrants
to purchase 555,161 shares of our common stock at $9.33 per share remain outstanding and may be
exercised until May 2006; and warrants to purchase 123,821 shares of our common stock at $10.60 per
share remain outstanding and may be exercised until August 2006. During the first quarter of 2005, Sumner M. Redstone, our largest stockholder, reported that
he and his affiliate, National Amusements Inc., purchased additional shares of our common stock
such that his aggregate holdings exceeded 78% of our outstanding voting securities as of March 31,
2005. According to filings made by Mr. Redstone with the SEC, he and National Amusements purchased
a total of 5,086,100 shares of our common stock during the first quarter of 2005, as described in
the table below. Subsequent to March 31, 2005, Mr. Redstone reported that he and National
Amusements have continued to purchase additional shares of our common stock. The following table sets forth the information regarding purchases reported by Mr. Redstone,
either directly or through National Amusements, during the period beginning on January 1, 2005 and
ending on March 31, 2005: 17




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##### 



ISSUER (AFFILIATE) PURCHASES OF EQUITY SECURITIES(d) Maximum Number (or(c) Total Number of Shares
    
    
    Approximate(a) Total Number
    
    
    (b) Average
    
    
    Purchased as Part of Publicly
    
    
    Dollar Value) of Shares that May Yetof Shares
    
    
    Price Paid
    
    
    Announced Plans or
    
    
    Be Purchased Under the PlansPeriod
    
    Purchased
    
    
    per Share
    
    
    Programs
    
    
    or Programs1/1/05  1/31/05
    
    
    669,200
    
    
    $
    9.06
    
    
    
    N/A
    
    
    
    N/A2/1/05  2/28/05
    
    
    2,066,000
    
    
    $
    10.25
    
    
    
    N/A
    
    
    
    N/A3/1/05  3/31/05
    
    
    2,350,900
    
    
    $
    10.31
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    5,086,100
    
    
    $
    10.12
    
    
    
    N/A
    
    
    
    N/A
 18




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##### 



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 Designations, Preferences and Rights of
Series D Convertible Preferred Stock of Midway Games Inc.
dated October 14, 2003, incorporated herein by reference to
the Registrants Current Report on Form 8-K filed on
October 15, 2003 (the 10/15/03 8-K).3.5
    
    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, 2004.3.6
    
    Amended and Restated By-laws of the Registrant,
incorporated herein by reference to the Registrants
Registration Statement on Form S-3, File No. 333-116334,
filed on June 10, 2004.4.1
    
    Form of Certificate of Designations of Series A Preferred
Stock incorporated herein by reference to Exhibit A to the
Third Amended and Restated Rights Agreement filed as
Exhibit 4.2 to the 10/15/03 8-K.10.1
    
    Ninth Amendment to Loan and Security Agreement between the
Registrant and Wells Fargo Foothill dated as of January 19,
2005, incorporated herein by reference to the Registrants
Annual Report on Form 10-K for the fiscal year ended
December 31, 2004 (the 2004 10-K).10.2
    
    Tenth Amendment to Loan and Security Agreement between the
Registrant and Wells Fargo Foothill dated as of March 11,
2005.10.3
    
    Amendment to the Xbox Publisher Licensing Agreement dated
as of January 10, 2005 between Microsoft Licensing, GP and
Midway Home Entertainment, Inc. (Portions of this exhibit
have been omitted pursuant to a request for confidential
treatment in accordance with Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.)10.4
    
    Amendment to the Xbox Publisher Licensing Agreement dated
as of March 1, 2005 between Microsoft Licensing, GP and
Midway Home Entertainment, Inc. (Portions of this exhibit
have been omitted pursuant to a request for confidential
treatment in accordance with Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.)10.5
    
    Form of Stock Option Agreement used currently by the
Registrant for directors under its stock option plans,
incorporated herein by reference to the 2004 10-K.10.6
    
    Form of Stock Option Agreement used currently by the
Registrant for employees under its stock option plans,
incorporated herein by reference to the 2004 10-K.10.7
    
    Amended and Restated Midway Incentive Plan, incorporated
herein by reference to the 2004 10-K.31
    
    Certifications of Chief Executive Officer and Chief
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.
 19




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##### 



32
    
    Certifications of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 20




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##### 



Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MIDWAY GAMES INC.By:
    
    /s/ Thomas E. PowellThomas E. PowellExecutive Vice PresidentFinance, Treasurerand Chief Financial OfficerDated: May 9, 2005
    
    
    
    (Principal Financial Officer)
 21




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##### 



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 Designations, Preferences and Rights of
Series D Convertible Preferred Stock of Midway Games Inc.
dated October 14, 2003, incorporated herein by reference to
the Registrants Current Report on Form 8-K filed on
October 15, 2003 (the 10/15/03 8-K).3.5
    
    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, 2004.3.6
    
    Amended and Restated By-laws of the Registrant,
incorporated herein by reference to the Registrants
Registration Statement on Form S-3, File No. 333-116334,
filed on June 10, 2004.4.1
    
    Form of Certificate of Designations of Series A Preferred
Stock incorporated herein by reference to Exhibit A to the
Third Amended and Restated Rights Agreement filed as
Exhibit 4.2 to the 10/15/03 8-K.10.1
    
    Ninth Amendment to Loan and Security Agreement between the
Registrant and Wells Fargo Foothill dated as of January 19,
2005, incorporated herein by reference to the Registrants
Annual Report on Form 10-K for the fiscal year ended
December 31, 2004 (the 2004 10-K).10.2
    
    Tenth Amendment to Loan and Security Agreement between the
Registrant and Wells Fargo Foothill dated as of March 11,
2005.10.3
    
    Amendment to the Xbox Publisher Licensing Agreement dated
as of January 10, 2005 between Microsoft Licensing, GP and
Midway Home Entertainment, Inc. (Portions of this exhibit
have been omitted pursuant to a request for confidential
treatment in accordance with Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.)10.4
    
    Amendment to the Xbox Publisher Licensing Agreement dated
as of March 1, 2005 between Microsoft Licensing, GP and
Midway Home Entertainment, Inc. (Portions of this exhibit
have been omitted pursuant to a request for confidential
treatment in accordance with Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.)10.5
    
    Form of Stock Option Agreement used currently by the
Registrant for directors under its stock option plans,
incorporated herein by reference to the 2004 10-K.10.6
    
    Form of Stock Option Agreement used currently by the
Registrant for employees under its stock option plans,
incorporated herein by reference to the 2004 10-K.10.7
    
    Amended and Restated Midway Incentive Plan, incorporated
herein by reference to the 2004 10-K.31
    
    Certifications of Chief Executive Officer and Chief
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.
 22




---



##### 



32
    
    Certifications of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 23