##### 



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C. 20549
      Form 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
  Commission File Number 1-12367
      MIDWAY GAMES INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

22-2906244(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)2704 West Roscoe Street,
    Chicago, Illinois

60618(Address of principal executive
    offices)

(Zip
    Code)   Registrants telephone number, including area code:
    (773) 961-2222
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $.01 par value

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large
    accelerated
    filer o     Accelerated
    filer þ     Non-accelerated
    filer o
  Rule 12b-2 o þ
    DOCUMENTS
    INCORPORATED BY REFERENCE:




---



##### 



Midway®
    is our registered trademark. Our product names mentioned in this
    report are also our trademarks, except where we license them.
    Other product names mentioned in this report are the trademarks
    of their respective owners.
  This report contains forward-looking statements,
    within the meaning of the Private Securities Litigation Reform
    Act of 1995, which describe our plans, strategies and goals, our
    beliefs concerning future business conditions and our outlook
    based on currently available information. Where possible, we
    have identified these forward-looking statements by words such
    as may, will, should,
    could, expect, eventually,
    anticipate, plan, strategy,
    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, but are
    not limited to, the performance of the interactive entertainment
    industry, dependence on new product introductions and the
    ability to maintain the scheduling of such introductions, the
    current console platform transition and other technological
    changes, dependence on major platform manufacturers, volatility
    of the market price of our common stock, decisions by Sumner
    Redstone or his affiliates with respect to his ownership or
    trading of our common stock, and other risks more fully
    described under Item 1A. Risk Factors. Each
    forward-looking statement, including, without limitation,
    financial guidance, speaks only as of the date on which it is
    made, and we undertake no obligation to update any
    forward-looking statement to reflect events or circumstances
    after the date on which it is made or to reflect the occurrence
    of anticipated or unanticipated events or circumstances, except
    as required by law.
 2




---



##### 



PART I
  Item 1.
    Business.  Development
    of Our Business
  Xbox, GameCube Game Boy Advance Nintendo DS PlayStation 2 PlayStation Portable. Xbox 360, Wii PlayStation 3 Xbox 360 Wii PlayStation 3.
  Mortal Kombat
  
    Happy Feet(2006);
    Mortal Kombat: Armageddon(2006);
    Blitz: The League(2005);
    Mortal Kombat: Shaolin Monks(2005);
    Mortal Kombat: Deception(2004);
    NBA Ballers(2004);
    Midway Arcade Treasures(2003); and
    Mortal Kombat: Deadly Alliance(2002).    
    Ed, Edd n Eddy  based upon the
    animated television series from Warner Bros. Interactive
    Entertainment/Cartoon Network;
    The Grim Adventures of Billy & Mandy 
    based upon the animated television series from Warner Bros.
    Interactive Entertainment/Cartoon Network; 3




---



##### 




    The Ant Bully  based upon the animated film
    from Warner Bros. Interactive Entertainment; and
    Happy Feet  based upon the
    Oscar-winning
    animated film from Warner Bros. Interactive Entertainment.  Total NonStop Action Wrestling pay-per-view
        Form 10-K, Form 10-Q, Form 8-K
    Industry
    Overview
   4




---



##### 



The Home Console and Handheld Platform
    Market.
  project-by-project
    Older-Generation Home
    Consoles

Current-Generation Home
    Consoles

Next-Generation Home
    Consoles- Sonys PlayStation

- Sonys PlayStation 2

-Sonys PlayStation 3- Nintendo 64

- Nintendos GameCube

- Nintendos Wii- Microsofts Xbox

- Microsofts Xbox 360   Xbox 360 Wii PlayStation 3 PlayStation 3
  Game Boy, Game Boy Advance, Game Boy
    Advance SP Nintendo DS, PlayStation Portable,
  The Personal Computer Game Market.
  The Online and Wireless Markets. head-to-head
 5




---



##### 



Distribution.
  Our
    Business Strategy
    Leverage
    core competencies and established franchises
  over-the-top
  
    Established franchises  Many of the games we
    have released over the past 20 years have been best-sellers
    and have attracted loyal fan bases. The popularity of many of
    our games has enabled us to successfully market sequels,
    including sequels for Mortal Kombat, Spy Hunter, Gauntlet,
    MLB SlugFest, Blitzand San Francisco Rush Extreme
    Racing. A sequel in the Mortal Kombatseries that we
    released in the fourth quarter of 2006, Mortal Kombat:
    Armageddon, proved to be our second best selling game of
    2006. We intend to leverage our franchises to create popular
    titles for play on traditional console platforms and new gaming
    mediums. We also control the intellectual property rights to
    hundreds of classic video game titles, including titles
    originally released under the Midway, Williams and Atari brands.
    We have leveraged this large library of proven intellectual
    properties by releasing 19 collections of arcade
    classics for home consoles, ten for handheld platforms and
    one for the PC.
    Over-the-top
    sports games  We have enjoyed strong sales from
    our line of sports games, including NBA Ballers, the
    Blitzfranchise, NHL Hitz, MLB SlugFestand
    Ready 2 Rumble Boxing. Our titles in this popular
    category are characterized by extreme game play and the
    exaggerated abilities of the characters in these games, which we
    refer to as
    over-the-top
    sports entertainment. We believe our
    over-the-top
    style makes these games popular and differentiates them from the
    simulation style of most publishers sports
    video games. In future periods, we plan to release new versions
    of
    over-the-top
    sports games with novel and innovative features.
    Mature games  The development of M
    rated games for consumers age 17 and older is one of our
    historic strengths. During the older-generation home
    console cycle, from 1995 to 1999, we were the industry leader in
    M rated dollar and unit sales. We also released the
    most M rated titles during that period. Our most
    successful and profitable video game franchise, Mortal
    Kombat, is marketed to mature audiences. We have sold over
    20 million copies of this franchise across eight major home
    console releases. The majority of video game players on current
    consoles are over 18 years of age and the average age of
    video game players is increasing. We expect mature games to
    continue to be a fast growing segment in the industry.  Continue
    to pursue the childrens, licensed and PC games
    markets
  Ed, Edd n Eddy
 6




---



##### 



The Ant Bully, The Grim
    Adventures of Billy & Mandy Happy Feet.
  The Lord of the Rings
    Online: Shadows of Angmar Unreal
    Tournament III
  Develop
    ambitious,
    mass-market
    next-generation
    games
      Invest
    in internal product development to drive efficient production of
    next-generation
    games
      Expand
    international presence
   7




---



##### 



Products
  PlayStation 2 PS2 PlayStation Portable PSP Xbox Xbox GameCube NGC Wii Game Boy Advance GBA Nintendo DS (DS) PlayStation 3 PS3 Xbox 360 Wii. Blitz: The League Xbox 360 Wii. PS3.
        Mortal Kombat
 8




---



##### 



2006
    Video Game Releases
    Video Game Title

Platform

TerritoryBlitz: Overtime

PSP

North AmericaBlitz: The League

Xbox 360

North AmericaGauntlet: Seven
    Sorrows

PS2;
    Xbox

InternationalHappy Feet

PS2;
    Wii;PC; GBA; DS

North America, InternationalHappy Feet

NGC

North AmericaL.A. RUSH

PC

North America, InternationalMaya the Bee 2

GBA; DS

InternationalMidway Arcade Treasures: Deluxe
    Edition

PC

North AmericaMidway Arcade Treasures:
    Extended Play

PSP

InternationalMLB Slugfest 2006

PS2;
    Xbox

North AmericaMortal Kombat:
    Armageddon

PS2

North America, InternationalMortal Kombat:
    Armageddon

Xbox

North AmericaMortal Kombat:
    Unchained

PSP

North America, InternationalMyst

PSP

InternationalNBA Ballers: Phenom

PS2;
    Xbox

North AmericaNBA Ballers: Rebound

PSP

North AmericaRampage: Total
    Destruction

PS2; Wii

North America, InternationalRampage: Total
    Destruction

NGC

North AmericaRise & Fall:
    Civilizations At War

PC

North America, InternationalRUSH

PSP

North America, InternationalSpyHunter: Nowhere to
    Run

PS2

North America, InternationalSpyHunter: Nowhere to
    Run

Xbox

North AmericaThe Ant Bully

PS2;
    PC; GBA

North America, InternationalThe Ant Bully

NGC;
    Wii

North AmericaThe Grim Adventures of
    Billy & Mandy

PS2;
    NGC; Wii; GBA

North AmericaUnreal Tournament
    Anthology

PC

North America, International   2005
    Video Game Releases
    Video Game Title

Platform

TerritoryArea 51

PS2;
    Xbox; PC

North America, InternationalBlitz: The League

PS2;
    Xbox

North AmericaEarth 2160

PC

North AmericaEd, Edd n
    Eddy

PS2;
    GBA; PC

North America, InternationalEd, Edd n
    Eddy

Xbox;
    NGC

North AmericaGauntlet: Seven
    Sorrows

PS2;
    Xbox

North AmericaL.A. RUSH

PS2;
    Xbox

North America, InternationalMaya the Bee

GBA

InternationalMidway Arcade Treasures:
    Extended Play

PSP

North AmericaMidway Arcade Treasures
    3

PS2;
    Xbox

North America, InternationalMidway Arcade Treasures
    3

NGC

North AmericaMortal Kombat:
    Deception

NGC

North AmericaMortal Kombat: Shaolin
    Monks

PS2;
    Xbox

North America, InternationalNARC

Xbox

North America, InternationalNARC

PS2

North AmericaThe Suffering: Ties that
    Bind

PS2;
    Xbox; PC

North America, InternationalShadow Hearts:
    Covenant

PS2

InternationalUnreal Championship 2: The
    Liandri Conflict

Xbox

North America, International   2007
    Products
  Stranglehold PS3 Xbox 360 Stranglehold Hard Boiled BlackSite:
    Area
 9




---



##### 



51 PS3 Xbox 360 Hour of Victory Xbox 360, Unreal Tournament III Xbox
    360 The Lord of the Rings Online: Shadows of
    Angmar
  Product
    Development
      state-of-the-art
       10




---



##### 



Marketing
    and Distribution
    
    mass merchandisers;
    foreign, national and regional retailers;
    discount store chains; and
    video rental retailers.        point-of-purchase
 11




---



##### 



Years Ended December 31,2006


2005


2004Net





Net





NetRevenues


%


Revenues


%


Revenues


%(Dollars in thousands)North America:United States

$
116,714



70.5
%

$
109,993



73.3
%

$
123,330



76.3
%Outside United States


7,398



4.5



8,292



5.5



8,745



5.4Total North America


124,112



75.0



118,285



78.8



132,075



81.7International


41,462



25.0



31,793



21.2



29,520



18.3Total Net Revenues

$
165,574



100.0
%

$
150,078



100.0
%

$
161,595



100.0
%     Competition
      
    the ability to select and develop popular titles;
    the ability to identify and obtain rights to commercially
    marketable intellectual properties; and
    the ability to adapt products for use with new technologies.       12




---



##### 



Mortal Kombat, Blitz: The League Midway Arcade Treasures,
    Manufacturing
    and Distribution
        Game Boy Advance Nintendo DS PlayStation Portable
   13




---



##### 



agreed-upon
      Licenses
    and Intellectual Property
  Platform Licenses.
    Intellectual Property Licenses.
  Patent, Trademark and Copyright
    Protection.
  
    trademarks associated with elements of the game, such as team
    logos;
    trademarks under which the game is marketed;
    the copyrights for the game software, including the games
    audiovisual elements; and
    the patents for inventions in the game software.   14




---



##### 



Seasonality
    Employees
    Item 1A.  Risk
    Factors.
  The occurrence of any of the following risks could
    significantly harm our business, results of operations or
    financial condition or have an adverse effect on the market
    value of our common stock or convertible senior notes. In that
    case, you may lose all or part of your investment.
  We have
    experienced operating and net losses in recent years, and we
    expect to incur future losses.
    
    $72.0 million for 2006;
    $108.5 million for 2005; and
    $25.0 million for 2004.    
    releasing titles that failed to gain popularity and generate
    expected sales;
    increasing costs of developing new games for current and
    next-generation platforms;
    a tendency for retailers to stock only video games for which
    consumer demand is expected to be strongest; and
    weakness in the home video game industry during the home console
    transition periods.   15




---



##### 



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.
    Product
    development schedules are long and frequently unpredictable, and
    we may experience delays in introducing new products, which may
    adversely affect our revenues.
    Our
    market is subject to rapid technological change, and if we do
    not adapt to, and appropriately allocate our new resources
    among, emerging technologies, our revenues would be negatively
    affected.
    If
    consumers discontinue purchasing our products for
    current-generation home consoles or the prices for our
    current-generation products further decrease as a result of the
    current home console transition period, our revenues and margins
    would be adversely affected.
  Xbox 360 Wii PS3 PS3
 16




---



##### 



Our
    operating results may fluctuate from quarter to quarter, making
    our results difficult to predict.
    
    variations in the level and duration of market acceptance of our
    products;
    delays and timing of product development and introductions;
    fluctuations in our mix of products with varying profit margins;
    dependence on a relatively limited number of products in any
    quarter to produce revenues;
    introduction and market penetration of game platforms;
    the amount of royalties payable by us for the content contained
    in our video games;
    development and promotional expenses relating to the
    introduction of our products;
    peak demand during the year-end retail holiday selling season,
    which typically results in higher revenues in our fourth quarter;
    changes in our pricing practices and those of our competitors;
    the accuracy of the forecasts of consumer demand made by
    retailers and by us; and
    the timing of orders from major customers, order cancellations
    and delays in shipment.    Restrictive
    debt covenants in our credit facility and the indenture for our
    7.125% convertible senior notes issued in May 2006 limit
    our operating flexibility, and all amounts outstanding under our
    credit facility, including our term loan, and our convertible
    senior notes may become immediately payable if we default under
    the facility or the indenture.
    
    make payments, including dividends or other distributions, on
    our capital stock, except in shares of common stock;
    incur additional indebtedness;
    sell, lease, license or dispose of any of our assets;
    make loans or investments;
    acquire companies or businesses;
    cause or permit a change of control; 17




---



##### 




    repurchase or redeem any shares of our capital stock;
    issue or sell securities of our subsidiaries; and
    make capital expenditures.      Increased
    leverage may harm our results of operations and financial
    condition.
      
    it could affect our ability to satisfy our debt and capital
    lease obligations;
    a substantial portion of our cash flows from operations will be
    dedicated to interest and principal payments on our debt and
    capital lease, thereby reducing our ability to fund operations,
    working capital, capital expenditures, expansion, acquisitions,
    or general corporate or other purposes;
    it may impair our ability to obtain additional financing in the
    future;
    it may limit our flexibility in planning for, or reacting to,
    changes in our business and industry;
    it may place us at a competitive disadvantage compared to
    competitors that have less indebtedness; and
    it may make us more vulnerable to downturns in our business, our
    industry or the economy in general.     18




---



##### 




    seek additional financing in the debt or equity markets;
    refinance or restructure all or a portion of our indebtedness,
    including the convertible senior notes;
    sell assets; and/or
    reduce or delay planned expenditures on research and development
    and/or commercialization activities.    If in the
    future we need to seek additional capital due to continuing
    operating losses or otherwise, we may incur additional expenses
    in the form of periodic interest or other debt service payments,
    or our stockholders may suffer dilution in their percentage
    ownership of common stock.
    Our
    market is highly competitive. If we are unable to compete
    effectively, our business, results of operations and financial
    condition would be adversely affected.
      
    the ability to select and develop popular titles;
    the ability to identify and obtain rights to commercially
    marketable intellectual properties; and
    the ability to adapt products for use with new technologies.       19




---



##### 



If
    product returns and price adjustments exceed our allowances, we
    will incur additional charges, which would have an adverse
    effect on our results of operations.
    If game
    platform manufacturers refuse to license their platforms to us
    or do not manufacture our games on a timely basis or at all, our
    revenues would be adversely affected.
    
    we may only publish our games for play on their game platforms
    if we receive a platform license from them, which is renewable
    at their discretion;
    prices for platform licenses may be economically prohibitive;
    we must obtain their prior review and approval to publish games
    on their platforms;
    if the popularity of a game platform declines or, if the
    manufacturer stops manufacturing a platform, does not meet the
    demand for a platform or delays the introduction of a platform
    in a region important to us, the games that we have published
    and that we are developing for that platform would likely
    produce lower sales than we anticipate;
    these manufacturers control the manufacture of, or approval to
    manufacture, and manufacturing costs of our game discs and
    cartridges; and
    these manufacturers have the exclusive right to (1) protect
    the intellectual property rights to their respective hardware
    platforms and technology and (2) discourage others from
    producing unauthorized software for their platforms that compete
    with our games.   20




---



##### 



Approximately
    half of our total net revenues are attributable to our five
    largest customers.
      A
    business failure by any of our major customers could have an
    adverse effect on our revenues and our ability to collect
    receivables.
    Rating
    systems for interactive entertainment software, potential
    legislation and vendor or consumer opposition could inhibit
    sales of our products.
     21




---



##### 



Lawsuits
    alleging damages as a result of our video games may require
    significant expenditures, divert the attention of management and
    generate negative publicity, and thereby have an adverse effect
    on our results of operations.
    We are
    dependent on third parties to manufacture our products, and any
    increase in the amounts we have to pay to have our products
    manufactured or any delay or interruption in production would
    negatively affect both our ability to make timely product
    introductions and our results of operations.
    We have
    limited control over the personnel, scheduling and use of
    resources by third parties that develop certain of our game
    titles, and our revenues may be adversely affected by delays
    caused by these developers.
    If we are
    not able to maintain or acquire licenses for intellectual
    property necessary to the success of some of our games, or if
    that intellectual property does not achieve market acceptance,
    our revenues would be adversely affected.
       22




---



##### 



We may
    experience increased costs to continue to attract and retain
    senior management and highly qualified software
    developers.
    If our
    products contain errors, our reputation, results of operations
    and financial condition may be adversely affected.
    If we are
    unsuccessful in protecting our intellectual property, our
    revenues may be adversely affected.
    If we
    infringe the intellectual property of others, our costs may rise
    and our results of operations may be adversely
    affected.
    We face
    risks associated with doing business in foreign countries,
    including our ability to generate international demand for our
    products.
    
    our ability to obtain or enforce our rights to the intellectual
    property developed by developers outside the United States;
    the time and costs associated with translating and localizing
    products for foreign markets; 23




---



##### 




    foreign currency fluctuations;
    unexpected changes in regulatory requirements, including import
    and export control regulations; and
    difficulties and costs of staffing and managing foreign
    operations, or licensing to foreign entities.    We may
    face limitations on our ability to find suitable acquisition
    opportunities or to integrate any additional acquired
    businesses.
  reductions-in-force,
  Through
    their control of over 85% of our outstanding common stock,
    Sumner M. Redstone and his related parties decide the outcome of
    votes of our stockholders and are able to control our business
    strategies and policies.
     24




---



##### 



Decisions
    by Mr. Redstone and his related parties with respect to
    their ownership or trading of our common stock could have an
    adverse effect on the market value of our common stock and our
    convertible senior notes.
         25




---



##### 



Effects
    of anti-takeover provisions could inhibit a change in control of
    Midway and could adversely affect the market price of our common
    stock.
    Blank
    check preferred stock
    Charter
    provisions
    
    directors may be removed only for cause by a majority of the
    votes cast at a meeting of the stockholders by holders of shares
    of our common stock entitled to vote;
    any vacancy on our board of directors may be filled only by a
    vote of a majority of the remaining directors then in office;
    stockholders may not act by written consent;
    only the Chairman or our board of directors by a majority vote
    may call special meetings of stockholders, and the only business
    permitted to be conducted at such special meetings is business
    brought before the meeting by or at the direction of our board
    of directors;
    stockholders must follow an advance notice procedure for the
    submission of director nominations and other business to be
    considered at an annual meeting of stockholders;
    either a majority vote of our board of directors or an
    affirmative vote of holders of at least 80% of our outstanding
    common stock entitled to vote is needed in order to adopt, amend
    or repeal our bylaws; and
    either a majority vote of our board of directors or an
    affirmative vote of holders of at least 80% of our outstanding
    common stock entitled to vote is needed in order to amend or
    repeal the above provisions.  Section 203
    of the Delaware General Corporation Law
    The
    market price for our common stock may be highly
    volatile.
   26




---



##### 



Shares
    available for future issuance, conversion and exercise could
    have an adverse effect on the earnings per share and the market
    price of our common stock.
            Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.      Item 3.
    Legal
    Proceedings.   27




---



##### 



Item 4.
    Submission
    of Matters to a Vote of Security Holders.    PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.    Calendar Period

High


Low2005First Quarter

$
10.66


$
8.69Second Quarter

$
11.11


$
8.19Third Quarter

$
16.51


$
11.19Fourth Quarter

$
23.39


$
15.092006First Quarter

$
18.17


$
9.22Second Quarter

$
10.45


$
5.88Third Quarter

$
10.65


$
8.40Fourth Quarter

$
9.18


$
6.942007First Quarter (through
    March 5, 2007)

$
7.69


$
6.00     Dividends.
 28




---



##### 



Corporate Performance Graph.
  Comparison of
    Cumulative Five Year Total Return
  
  12/31/01

12/31/02

12/31/03

12/31/04

12/31/05

12/31/06(GRAPH)Midway

$
100


$
27.78


$
25.85


$
69.95


$
126.38


$
46.50(GRAPH)S&P 500

$
100


$
77.90


$
100.25


$
111.15


$
116.61


$
135.03(GRAPH)S&P Leisure

$
100


$
99.56


$
124.59


$
138.78


$
122.33


$
153.63   Recent Sales of Unregistered Securities.
  Issuer Repurchases.
  Purchases of Equity Securities by the Issuer and Affiliated
    Purchasers.
 29




---



##### 



Item 6.
    Selected
    Financial Data.  Form 10-K.
  Years Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share amounts)SELECTED OPERATING
    DATANet revenuesHome video

$
165,574


$
150,078


$
161,595


$
92,524


$
190,412Coin-operated video(1)


















1,445Total net revenues


165,574



150,078



161,595



92,524



191,857Gross profit (loss)


29,360



18,014



57,578



(20,781
)(6)


49,158Operating loss


(71,979
)


(108,516
)(3)


(25,045
)


(115,975
)(7)


(52,265
)(8)Loss before income taxes


(76,137
)


(111,226
)


(18,631
)(5)


(113,963
)


(48,346
)Provision for income taxes(2)


1,646



1,261



1,314



1,264



5,477
(9)Net loss


(77,783
)


(112,487
)


(19,945
)


(115,227
)


(53,823
)Preferred stock dividends:Distributed






282



1,884



1,455



1,159Imputed






6



2,915
(10)


1,252



18,636
(10)Loss applicable to common stock

$
(77,783
)

$
(112,775
)

$
(24,744
)

$
(117,934
)

$
(73,618
)Basic and diluted loss per share of
    common stock

$
(0.86
)

$
(1.30
)

$
(0.34
)

$
(2.43
)

$
(1.61
)Average number of shares outstanding


90,708



86,937



72,421



48,486



45,586SELECTED BALANCE SHEET
    DATATotal assets

$
254,061


$
248,263


$
242,317


$
125,449


$
201,400Working capital


129,750



136,722



141,894



50,669



100,637Long-term obligations, excluding
    redeemable convertible preferred stock


155,420
(4)


90,814
(4)


17,391



19,081



8,079Redeemable convertible preferred
    stock










4,453



32,156



12,571Stockholders equity


52,707



115,445



187,017



47,893



139,967     (1)
    
    We exited our coin-operated video game product line in the
    quarter ended June 30, 2001.(2)
    
    After December 31, 2000, we have not provided for an income
    tax benefit due to the recording of a full valuation allowance
    on our deferred tax assets in the periods subsequent to
    December 31, 2000.(3)
    
    During 2005, we incurred restructuring and other charges
    totaling $10.8 million related to the closing of our
    Adelaide, Australia development studio. See Note 13 to the
    consolidated financial statements.(4)
    
    We completed two separate $75 million convertible senior
    note issuances in 2005 and 2006. See Note 9 to the
    consolidated financial statements.(5)
    
    Loss before income taxes for 2004 includes a $5.0 million
    gain from the settlement of liabilities with our former parent,
    WMS Industries Inc (WMS). See Note 16 to the
    consolidated financial statements. Also during 2004, we recorded
    a $1.8 million reduction of expenses previously recorded in
    2003 related to legal proceedings.(6)
    
    During 2003, $33.2 million of charges related to the
    writedown of capitalized product development costs are included
    in cost of sales.(7)
    
    During 2003, Neil D. Nicastro ceased to serve as our Chief
    Executive Officer, President and Chief Operating Officer. As a
    result, 2003 administrative expense includes $9.5 million
    of charges incurred under the terms of our employment agreement
    and severance agreement with Mr. Nicastro. In addition, we
    incurred $9.7 million of restructuring and other charges
    relating to the consolidation of California product development
    and marketing operations, net of reductions recorded in prior
    year restructuring activities.(8)
    
    During 2002, we incurred selling and marketing expense and
    administrative expense totaling $0.9 million relating to
    the closing of administrative facilities located in Corsicana,
    Texas. We also incurred restructuring and other charges totaling
    $10.6 million relating primarily to the consolidation of
    product development operations in California and the closing of
    the Corsicana facility, net of reductions recorded in prior year
    restructuring activities. 30




---



##### 



(9)
    
    During 2002, provision for income taxes includes
    $5.4 million of deferred income tax expense resulting from
    the revaluation of net deferred tax assets. We also incurred
    $0.1 million of current foreign income tax expense during
    2002.(10)
    
    Amounts in 2002 and 2004 include the accelerated recognition of
    imputed (non-cash) preferred stock dividends related to the
    conversion of redeemable convertible preferred stock into shares
    of common stock.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  Overview
  PlayStation 2 PS2 PlayStation Portable PSP Xbox Xbox 360; GameCube NGC Wii Game Boy Advance GBA , Nintendo DS DS PlayStation 3 PS3 Xbox 360 Wii. Blitz: The League Xbox 360 Wii. PS3.
  over-the-top Mortal
    Kombat: Armageddon, Mortal Kombat NBA Ballers: Phenom NBA Ballers:
    Rebound, one-on-one two-on-two .
     31




---



##### 



New
    Platform Cycle, Recent Trends and Uncertainties
    New Platform Cycle PS2 GameCube Xbox, Xbox 360 Wii PS3 PS3
  Decreasing Revenues and Selling Prices per-unit
    Increasing Costs to Develop Video Games
 32




---



##### 



Handheld
    Market
  DS. PSP. PSP PSP DS
  PC
    Market
  Rise & Fall: Civilizations at
    War The
    Lord of the Rings Online: Shadows of Angmar Unreal Tournament III
  Childrens
    Market
  Ed, Edd n
    Eddy The Ant Bully The Grim Adventures of Billy & Mandy Happy Feet.
  Strategic
    Alliances
  L.A. RUSH, PS2 Xbox, The Wheelman
    The Lord of
    the Rings Online: Shadows of Angmar The
    Lord of the Rings Online
   33




---



##### 



Expansion
    of Product Development Resources
    Issuance
    of Convertible Senior Notes
      Stock-based
    Compensation
  Share-Based Payment ,
  Accounting for Stock Issued to Employees
   34




---



##### 



Majority
    Stockholder
      Critical
    Accounting Policies and Estimates
    Revenue
    recognition
  97-2, Software Revenue Recognition.
 35




---



##### 



Price
    protection, returns and discounts
      Doubtful
    accounts
      Capitalized
    product development costs
  Accounting for the Costs of Computer Software to be Sold,
    Leased, or Otherwise Marketed. product-by-product
 36




---



##### 



product-by-product
    Goodwill
      Valuation
    of deferred tax assets
   37




---



##### 



Results
    of Operations
    Years Ended December 31,2006


2005


2004(Dollars in thousands)Net revenues

$
165,574



100.0
%

$
150,078



100.0
%

$
161,595



100.0
%Cost of sales:Product costs and distribution


67,331



40.7



56,212



37.5



62,742



38.8Royalties and product development


68,883



41.6



75,852



50.5



41,275



25.6Total cost of sales


136,214



82.3



132,064



88.0



104,017



64.4Gross profit


29,360



17.7



18,014



12.0



57,578



35.6Research and development expense


37,022



22.4



39,693



26.4



25,621



15.8Selling and marketing expense


43,150



26.1



57,189



38.1



41,159



25.5Administrative expense


21,297



12.8



18,864



12.6



15,949



9.9Restructuring and other charges


(130
)


(0.1
)


10,784



7.2



(106
)


(0.1
)Operating loss


(71,979
)


(43.5
)


(108,516
)


(72.3
)


(25,045
)


(15.5
)Interest income


4,384



2.7



2,449



1.6



1,267



0.8Interest expense


(11,241
)


(6.8
)


(3,119
)


(2.1
)


(1,248
)


(0.8
)Other (expense) income, net


2,699



1.6



(2,040
)


(1.3
)


6,395



4.0Loss before income taxes


(76,137
)


(46.0
)


(111,226
)


(74.1
)


(18,631
)


(11.5
)Provision for income taxes


1,646



1.0



1,261



0.8



1,314



0.8Net loss


(77,783
)


(47.0
)


(112,487
)


(74.9
)


(19,945
)


(12.3
)Preferred stock dividends:Distributed










282



0.2



1,884



1.2Imputed










6







2,915



1.8Loss applicable to common stock

$
(77,783
)


(47.0
)%

$
(112,775
)


(75.1
)%

$
(24,744
)


(15.3
)%     Video Game Title

Year ReleasedHappy Feet


2006Mortal Kombat:
    Armageddon


2006Blitz: The League


2005Mortal Kombat: Shaolin
    Monks


2005Mortal Kombat:
    Deception


2004NBA Ballers


2004Midway Arcade
    Treasures


2003Mortal Kombat: Deadly
    Alliance


2002  38




---



##### 



2006
    Compared with 2005
  year-to-year
  Years Ended December 31,See





% of Net





% of Net


Increase/Explanation


2006


Revenues


2005


Revenues


(Decrease)


% ChangeConsolidated net revenues


A


$
165,574



100.0
%

$
150,078



100.0
%

$
15,496



10.3
%North American net revenues


B



124,112



75.0
%


118,285



78.8
%


5,827



4.9
%International net revenues


C



41,462



25.0
%


31,793



21.2
%


9,669



30.4
%Cost of sales:Product costs and distribution


D



67,331



40.7
%


56,212



37.5
%


11,119



19.8
%Royalties and product development


E



68,883



41.6
%


75,852



50.5
%


(6,969
)


(9.2
)%Research and development expense


F



37,022



22.4
%


39,693



26.4
%


(2,671
)


(6.7
)%Selling and marketing expense


G



43,150



26.1
%


57,189



38.1
%


(14,039
)


(24.5
)%Administrative expense


H



21,297



12.8
%


18,864



12.6
%


2,433



12.9
%Restructuring and other charges


I



(130
)


(0.1
)%


10,784



7.2
%


(10,914
)


(101.2
)%Interest income


J



4,384



2.7
%


2,449



1.6
%


1,935



79.0
%Interest expense


K



(11,241
)


(6.8
)%


(3,119
)


(2.1
)%


(8,122
)


260.4
%Other (expense) income, net


L



2,699



1.6
%


(2,040
)


(1.3
)%


4,739



(232.3
)%Provision for income taxes


M



1,646



1.0
%


1,261



0.8
%


385



30.5
%Preferred stock dividends


N







0.0
%


288



0.2
%


(288
)


(100.0
)%   A.
    Consolidated
    Net Revenues    Years Ended December 31,2006


2005Microsoft Xbox 360

$
3,469



2.1
%

$




0.0
%Nintendo Wii


11,456



6.9







0.0Sony PlayStation 2


75,955



45.8



77,590



51.7Microsoft Xbox


14,602



8.8



51,570



34.4Nintendo GameCube


11,184



6.8



5,452



3.6Sony PlayStation Portable


13,845



8.4



1,729



1.2Nintendo DS


9,870



6.0







0.0Nintendo Game Boy Advance


9,417



5.7



2,333



1.6Personal Computer


9,307



5.6



4,016



2.7Licenses and Royalty


6,301



3.8



6,145



4.1Other


168



0.1



1,243



0.7Total Consolidated Net Revenues

$
165,574



100.0
%

$
150,078



100.0
%   per-unit per-unit
 39




---



##### 



B.
    North
    American Net Revenues  Mortal Kombat: Armageddon Happy Feet Rampage: Total Destruction Blitz: The League, Mortal
    Kombat: Shaolin Monks Area 51.
  C.
    International
    Net Revenues  Happy Feet, Rise & Fall: Civilizations at War Mortal Kombat: Armageddon. Area 51,
    Mortal Kombat: Shaolin Monks L.A. RUSH
  D.
    and E.
    Cost of Sales  Product
    Costs and Distribution
  per-unit per-unit
  Royalties
    and Product Development
  Happy Feet The Ant Bully NBA
    Ballers: Phenom SpyHunter: Nowhere to
    Run. Unreal Championship 2: The
    Liandri Conflict Earth 2160.
    Years Ended December 31,Description

2006


2005Amortization of capitalized
    product development costs

$
53,628,000


$
55,417,000Writedowns related to future
    releases






4,366,000Writedowns related to current
    releases


1,696,000



7,691,000Total

$
55,324,000


$
67,474,000    40




---



##### 



F.
    Research
    and Development Expense    Years Ended December 31,Description

2006


2005Gross research and development
    costs

$
106,364,000


$
108,735,000Research and development costs
    capitalized


(69,342,000
)


(69,042,000
)Research and development expense

$
37,022,000


$
39,693,000   L.A. RUSH
  G.
    Selling
    and Marketing Expense    Mortal Kombat:
    Deception, PS2 Xbox NGC
  H.
    Administrative
    Expense    I.
    Restructuring
    and Other Charges   41




---



##### 



Years Ended December 31,Description

2006


2005Impairment of fixed and intangible
    assets and goodwill

$



$
5,416,000Impairment of capitalized product
    development costs






2,632,000Lease and long-term commitments
    and other costs






1,410,000Severance and related costs






1,326,000Reversals of previously accrued
    charges, net


(130,000
)


Total

$
(130,000
)

$
10,784,000   J.
    Interest
    Income    K.
    Interest
    Expense        L.
    Other
    (Expense) Income, net   42




---



##### 



M.
    Provision
    for Income Taxes    N.
    Preferred
    Stock Dividends    2005
    Compared with 2004
  year-to-year
  Years Ended December 31,See





% of Net





% of Net


Increase/Explanation


2005


Revenues


2004


Revenues


(Decrease)


% ChangeConsolidated net revenues


A


$
150,078



100.0
%

$
161,595



100.0
%

$
(11,517
)


(7.1
)%North American net revenues


B



118,285



78.8
%


132,075



81.7
%


(13,790
)


(10.4
)%International net revenues


C



31,793



21.2
%


29,520



18.3
%


2,273



7.7
%Cost of sales:Product costs and distribution


D



56,212



37.5
%


62,742



38.8
%


(6,530
)


(10.4
)%Royalties and product development


E



75,852



50.5
%


41,275



25.6
%


34,577



83.8
%Research and development expense


F



39,693



26.4
%


25,621



15.8
%


14,072



54.9
%Selling and marketing expense


G



57,189



38.1
%


41,159



25.5
%


16,030



38.9
%Administrative expense


H



18,864



12.6
%


15,949



9.9
%


2,915



18.3
%Restructuring and other charges


I



10,784



7.2
%


(106
)


(0.1
)%


10,890



10,273.6
%Interest income


J



2,449



1.6
%


1,267



0.8
%


1,182



93.3
%Interest expense


K



(3,119
)


(2.1
)%


(1,248
)


(0.8
)%


(1,871
)


149.9
%Other (expense) income, net


L



(2,040
)


(1.3
)%


6,395



4.0
%


(8,435
)


(131.9
)%Provision for income taxes


M



1,261



0.8
%


1,314



0.8
%


(53
)


(4.0
)%Preferred stock dividends


N



288



0.2
%


4,799



3.0
%


(4,511
)


(94.0
)%  43




---



##### 



A.
    Consolidated
    Net Revenues    Years Ended December 31,2005


2004Sony PlayStation 2

$
77,590



51.7
%

$
97,299



60.2
%Microsoft Xbox


51,570



34.4



54,889



34.0Nintendo GameCube


5,452



3.6



4,764



2.9Personal Computer


4,016



2.7







Nintendo Game Boy Advance


2,333



1.6



293



0.2Sony PlayStation Portable


1,729



1.2







License and Royalty


6,145



4.1



3,588



2.2Other


1,243



0.7



762



0.5Total Consolidated Net Revenues

$
150,078



100.0
%

$
161,595



100.0
%   B.
    North
    American Net Revenues  Blitz: The League, Mortal Kombat: Shaolin
    Monks Area 51 Mortal Kombat: Deception, NBA Ballers The
    Suffering.
    C.
    International
    Net Revenues  Area 51, Mortal Kombat: Shaolin Monks L.A. RUSH Mortal Kombat: Deception, The Suffering Psi-Ops:
    The Mindgate Conspiracy.
  D.
    and E.
    Cost of Sales  Product
    Costs and Distribution
  per-unit Mortal Kombat: Deception over-the-top NBA Ballers.
 44




---



##### 



Royalties
    and Product Development
  NBA
    Ballers.
    Years Ended December 31,Description

2005


2004Amortization of capitalized
    product development costs

$
55,417,000


$
21,462,000Writedowns related to future
    releases


4,366,000



9,184,000Writedowns related to current
    releases


7,691,000



384,000Writedowns related to cancelled
    games






275,000Total

$
67,474,000


$
31,305,000     F.
    Research
    and Development Expense    Years Ended December 31,Description

2005


2004Gross research and development
    costs

$
108,735,000


$
74,293,000Research and development costs
    capitalized


(69,042,000
)


(48,672,000
)Research and development expense

$
39,693,000


$
25,621,000      45




---



##### 



G.
    Selling
    and Marketing Expense    Mortal Kombat: Deception, PS2 Xbox NGC
  H.
    Administrative
    Expense    I.
    Restructuring
    and Other Charges    Years Ended December 31,Description

2005


2004Impairment of fixed and intangible
    assets and goodwill

$
5,416,000


$
Impairment of capitalized product
    development costs


2,632,000



Lease and long-term commitments
    and other costs


1,410,000



76,000Severance and related costs


1,326,000



Reversals of previously accrued
    charges






(182,000
)Total

$
10,784,000


$
(106,000
)   J.
    Interest
    Income    K.
    Interest
    Expense   46




---



##### 



L.
    Other
    (Expense) Income, net    M.
    Provision
    for Income Taxes    N.
    Preferred
    Stock Dividends    Impact of
    Recently Issued Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes  An
    Interpretation of FASB Statement No. 109 Accounting for Income
    Taxes.
    Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
 47




---



##### 



Liquidity
    and Capital Resources
             48




---



##### 



Form 10-K.
    and/or
  Off
    Balance Sheet Arrangements and Contractual Obligations
      Payments Due by PeriodLess Than


1-3


3-5


More ThanContractual Obligations

Total


1 Year


Years


Years


5 YearsLong-term debt obligations(1)

$
6,944


$
3,333


$
3,611


$



$
Interest on long-term debt
    obligations(2)


638



447



191







Convertible senior notes(3)


150,000







75,000



75,000



Interest on convertible senior
    notes(4)


28,758



9,844



16,687



2,227



Operating lease obligations(5)


17,427



4,238



5,313



4,096



3,780Purchase obligations(6)


51,165



19,646



24,029



7,410



80Other liabilities(7)


1,156



1,156











Total

$
256,088


$
38,664


$
124,831


$
88,733


$
3,860     (1)
    
    These obligations are reflected on our consolidated balance
    sheet at December 31, 2006 in current portion of long-term
    debt and long-term debt, as appropriate. 49




---



##### 



(2)
    
    Assumes debt is carried to full term. Debt bears interest at
    variable rates. The amounts above assume future interest will be
    incurred at the banks base rate on December 31, 2006
    (8.25%). These obligations are not reflected on our consolidated
    balance sheet at December 31, 2006.(3)
    
    Assumes our two convertible senior note instruments are carried
    through the dates the holders may first require redemption of
    the notes, which are April 30, 2009 and May 31, 2010,
    respectively. These obligations are reflected on our
    consolidated balance sheet at December 31, 2006.(4)
    
    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. The
    Notes bear interest at fixed rates of 6.00% and 7.125% per
    annum, respectively. These obligations are not reflected on our
    consolidated balance sheet at December 31, 2006.(5)
    
    These obligations are not reflected on our consolidated balance
    sheet at December 31, 2006.(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 December 31,
    2006.(7)
    
    This item represents the remaining obligation under our capital
    lease and is reflected on our consolidated balance sheet at
    December 31, 2006 in current liabilities.  Impact of
    Inflation
    Seasonality
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.  Interest
    Rate Risk
     50




---



##### 



Foreign
    Currency Risk
  and/or
    Item 8.
    Financial
    Statements and Supplementary Data.    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.  Disclosure
    Controls and Procedures.
  Rule 13a-15(b)
  Internal
    Control over Financial Reporting.
  Managements Annual Report on Internal Control over
    Financial Reporting. page F-2
  Attestation Report of the Registered Public Accounting
    Firm. page F-4
  Changes in Internal Control over Financial
    Reporting. Rule 13a-15(d)
  Item 9B.
    Other
    Information.   51




---



##### 



PART III
  Item 10.
    Directors,
    Executive Officers and Corporate Governance.  Identification of Directors and Executive
    Officers. his/her
  Name and Age

Position(s) with Midway

Committee(s)David F. Zucker (44)

President and Chief Executive
    OfficerThomas E. Powell (45)

Executive Vice
    President  Finance, Treasurer and Chief Financial
    OfficerSteven M. Allison (39)

Senior Vice President 
    Marketing and Chief Marketing OfficerMatthew V. Booty (40)

Senior Vice President 
    Worldwide StudiosDeborah K. Fulton (43)

Senior Vice President, Secretary
    and General CounselMiguel Iribarren (40)

Vice President 
    PublishingJames R. Boyle (42)

Vice President 
    Finance, Controller, Assistant Treasurer and Chief Accounting
    OfficerWilliam C. Bartholomay (78)

Director


(2)*;(5)Peter C. Brown (48)

Director


(1);Joseph A. Califano, Jr. (75)

Director


(2); (3);(4)Kenneth D. Cron (50)

Chairman of the Board of Directors


(2); (3); (5)*Shari E. Redstone (52)

Vice Chairwoman of the Board of
    Directors


(2); (3)*;(4)Ira S. Sheinfeld (69)

Director


(4)*Robert J. Steele (53)

Director


(1);Robert N. Waxman (70)

Director


(1)*; (5)     (1)
    
    Member of the Audit Committee(2)
    
    Member of the Compensation Committee(3)
    
    Member of the Nominating Committee(4)
    
    Member of the Corporate Governance Committee(5)
    
    Member of the Special Committee of Independent Directors(*)
    
    Indicates chair of committee whose number precedes the asterisk
    (*).  Biographical
    Information
  David F. Zucker Travel Agent Magazine;
 52




---



##### 



Thomas E. Powell
  Steven M. Allison
  Matthew V. Booty
  Deborah K. Fulton
  Miguel Iribarren
  James R. Boyle
  William C. Bartholomay
  Peter C. Brown
  Joseph A. Califano, Jr.
 53




---



##### 



Kenneth D. Cron
  Shari E. Redstone
  Ira S. Sheinfeld
  Robert J. Steele
  Robert N. Waxman, partner-in-charge not-for-profit
  Section 16(a) Beneficial Ownership Reporting
    Compliance.
  Audit Committee Membership.
 54




---



##### 



Audit Committee Financial Expert.
  Code of Business Conduct and Ethics.
  Nominating Committee.
  Item 11.
    Executive
    Compensation.  Compensation
    Discussion and Analysis
  Overview
    of the Objectives and Philosophy of the Compensation Program for
    our Named Executive Officers
      Elements
    of our Compensation Program
  Salary
    Cash
    Bonus
   55




---



##### 



Equity
    Awards
      Form 10-K
    Perquisites
    and Other Benefits
    out-of-pocket
 56




---



##### 



Change of
    Control Payments
    Compensation
    Consultant
      Tax
    Considerations
    Summary
    Compensation Table
   57




---



##### 



2006
    SUMMARY COMPENSATION TABLE
  Change inPensionValue andNon-Equity


NonqualifiedName and










Stock


Option


Incentive Plan


Deferred


All OtherPrincipal Position

Year


Salary($)


Bonus($)


Awards($)(1)


Awards($)(1)


Compensation($)


Earnings($)


Compensation($)(2)


Total($)David F. ZuckerPresident and ChiefExecutive Officer (PEO)


2006



600,193







49,583



2,451,919











11,915



3,113,610Thomas E. PowellExecutive Vice President Finance, Treasurer and ChiefFinancial Officer (PFO)


2006



322,271











24,358











5,838



352,467Steven M. AllisonSenior Vice President Marketing and ChiefMarketing Officer


2006



290,000











53,799















343,799Matthew V. BootySenior Vice President Worldwide Studios


2006



342,121











84,281











7,043



433,445Miguel IribarrenVice President 
    Publishing


2006



240,195











24,463











7,113



271,771     (1)
    
    Represents fair value of awards recognized as compensation cost
    during the year over the respective vesting periods of the
    awards. See discussion of Midways valuation procedures and
    fair value assumptions for stock option awards at Note 12
    to the consolidated financial statements.(2)
    
    Represents payments made under our Exec-U-Care supplemental
    health insurance program.  Grants Of
    Plan-Based Awards
    Outstanding
    Equity Awards At Year-End
   58




---



##### 



2006
    OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
  Option Awards










Stock AwardsEquityIncentive


EquityEquity













Plan


Incentive PlanIncentive













Awards:


Awards:Plan













Number of


Market orAwards:







Number


Market


Unearned


Payout ValueNumber of


Number of


Number of







of Shares


Value of


Shares,


of UnearnedSecurities


Securities


Securities







or Units


Shares or


Units or


Shares, UnitsUnderlying


Underlying


Underlying







of Stock


Units of


Other


or OtherUnexercised


Unexercised


Unexercised


Option




That


Stock That


Rights That


Rights ThatOptions (#)


Options (#)


Unearned


Exercise


Option

Have Not


Have Not


Have Not


Have NotName

Exercisable


Unexercisable


Options


Price($)


Expiration Date

Vested (#)


Vested ($)


Vested (#)


Vested ($)(1)David F. Zucker


188,347



37,621







2.92



5/5/2013










90,000



628,200900,357



187,500







3.57



5/5/2013














2,355



337







6.27



5/5/2013














1,460



209







6.53



5/5/2013














95



14







6.59



5/5/2013














413



59







6.70



5/5/2013














599



86







7.25



5/5/2013














350



49







7.38



5/5/2013














151



22







7.75



5/5/2013














47



7







8.10



5/5/2013














61,774



30,887







8.12



5/5/2013














29,877



14,939







8.30



5/5/2013














519



75







8.30



5/5/2013














271



39







8.61



5/5/2013














564



81







8.90



5/5/2013














1,876



269







9.10



5/5/2013














68



10







9.11



5/5/2013














6,961



995







9.21



5/5/2013














345



50







9.29



5/5/2013














28



4







9.36



5/5/2013














288



42







9.38



5/5/2013














23



4







9.39



5/5/2013














933



134







9.42



5/5/2013














1,724



247







9.49



5/5/2013














48



7







9.57



5/5/2013














108



16







9.59



5/5/2013














18



3







9.90



5/5/2013














294



42







9.91



5/5/2013














7,541



3,771







10.00



5/5/2013














381



55







10.03



5/5/2013














8,057



3,846







10.06



5/5/2013














805



117







10.13



5/5/2013














602



86







10.14



5/5/2013














1,840



264







10.15



5/5/2013














323



47







10.19



5/5/2013














 59




---



##### 



Option Awards










Stock AwardsEquityIncentive


EquityEquity













Plan


Incentive PlanIncentive













Awards:


Awards:Plan













Number of


Market orAwards:







Number


Market


Unearned


Payout ValueNumber of


Number of


Number of







of Shares


Value of


Shares,


of UnearnedSecurities


Securities


Securities







or Units


Shares or


Units or


Shares, UnitsUnderlying


Underlying


Underlying







of Stock


Units of


Other


or OtherUnexercised


Unexercised


Unexercised


Option




That


Stock That


Rights That


Rights ThatOptions (#)


Options (#)


Unearned


Exercise


Option

Have Not


Have Not


Have Not


Have NotName

Exercisable


Unexercisable


Options


Price($)


Expiration Date

Vested (#)


Vested ($)


Vested (#)


Vested ($)(1)David F. Zucker


66



10







10.20



5/5/2013














9,144



1,307







10.21



5/5/2013














13,727



1,962







10.22



5/5/2013














5



1







10.26



5/5/2013














10,805



1,544







10.36



5/5/2013














28



5







10.38



5/5/2013














60



9







10.39



5/5/2013














53



8







10.40



5/5/2013














249



36







10.42



5/5/2013














16



3







10.45



5/5/2013














60



9







10.46



5/5/2013














198



29







10.50



5/5/2013














602



86







10.52



5/5/2013














1,163



167







10.54



5/5/2013














104



15







10.55



5/5/2013














2,148



307







10.61



5/5/2013














166



24







10.63



5/5/2013














72



11







10.64



5/5/2013














52



8







10.72



5/5/2013














7,878



3,940







10.74



5/5/2013














42



6







10.78



5/5/2013














43



7







10.82



5/5/2013














2,128



305







10.84



5/5/2013














2,423



347







10.85



5/5/2013














14,352



2,051







10.90



5/5/2013














18



3







10.91



5/5/2013














602



86







10.96



5/5/2013














2,758



395







11.16



5/5/2013














48



7







11.28



5/5/2013














34



5







11.29



5/5/2013














3,922



561







11.32



5/5/2013














23,617



11,809







11.43



5/5/2013














7,310



3,656







11.46



5/5/2013














22



4







11.49



5/5/2013














1,176



169







11.52



5/5/2013














120



18







11.54



5/5/2013














54,268



7,753







11.55



5/5/2013














523



75







11.60



5/5/2013














12,970



6,486







11.61



5/5/2013














144



21







11.63



5/5/2013














665



96







11.66



5/5/2013














 60




---



##### 



Option Awards










Stock AwardsEquityIncentive


EquityEquity













Plan


Incentive PlanIncentive













Awards:


Awards:Plan













Number of


Market orAwards:







Number


Market


Unearned


Payout ValueNumber of


Number of


Number of







of Shares


Value of


Shares,


of UnearnedSecurities


Securities


Securities







or Units


Shares or


Units or


Shares, UnitsUnderlying


Underlying


Underlying







of Stock


Units of


Other


or OtherUnexercised


Unexercised


Unexercised


Option




That


Stock That


Rights That


Rights ThatOptions (#)


Options (#)


Unearned


Exercise


Option

Have Not


Have Not


Have Not


Have NotName

Exercisable


Unexercisable


Options


Price($)


Expiration Date

Vested (#)


Vested ($)


Vested (#)


Vested ($)(1)David F. Zucker


446



65







11.75



5/5/2013














222



33







11.79



5/5/2013














276



40







11.80



5/5/2013














90



13







11.83



5/5/2013














76



11







11.86



5/5/2013














12



2







11.87



5/5/2013














1,249



179







11.89



5/5/2013














10,215



1,461







11.90



5/5/2013














185



27







11.98



5/5/2013














29



5







11.99



5/5/2013














97



14







12.03



5/5/2013














796



114







12.06



5/5/2013














2,737



391







12.20



5/5/2013














96



14







12.25



5/5/2013














483



69







12.33



5/5/2013














829



119







12.40



5/5/2013














390



56







12.41



5/5/2013














327



47







12.45



5/5/2013














90



13







12.53



5/5/2013














1,105



158







12.55



5/5/2013














2,223



318







12.58



5/5/2013














580



83







12.59



5/5/2013














5,192



742







12.61



5/5/2013














4,968



710







12.63



5/5/2013














7,796



3,899







12.65



5/5/2013














5,204



744







12.70



5/5/2013














991



142







12.85



5/5/2013














Thomas E. Powell


12,500



12,500







2.35



8/12/2013










45,000



314,10010,000











13.70



1/14/2012














Steven M. Allison


21,250



21,250







3.72



12/21/2013










45,000



314,100Matthew V. Booty


50,000











9.89



6/4/2012










45,000



314,10037,500



12,500







2.35



8/12/2013














5,000











20.00



5/8/2007














1,125











6.50



10/31/2010














Miguel Iribarren


22,500



7,500







2.35



8/12/2013










30,000



209,40035,000











10.78



2/13/2012














     (1)
    
    Based on the closing price of our common stock on the NYSE on
    December 29, 2006, which was $6.98 per share. 61




---



##### 



Option
    Exercises and Stock Vested
    2006
    OPTION EXERCISES and STOCK VESTED
  Option Awards


Stock AwardsNumber ofNumber of





Shares


ValueShares Acquired


Value Realized


Acquired on


Realized onName

on Exercise (#)


on Exercise ($)


Vesting (#)


Vesting ($)David F. Zucker


200,000



2,611,774



72,918



725,534Thomas E. Powell














Steven M. Allison














Matthew V. Booty














Miguel Iribarren














   Potential
    Payments Upon Termination or
    Change-In-Control
  Post-Employment
    Compensation
  employee-at-will
  Termination
    and Change of Control Arrangements
  Mr. Zucker
    
    The Company shall pay Mr. Zucker, within 30 days after
    the date of termination, his base salary in effect at the date
    of termination through the date of termination, to the extent it
    was not already paid to Mr. Zucker; and
    Within 30 days after the Company publicly announces its
    audited results for the year in which the date of termination
    occurs, the product of:  o
    The annual bonus, if any, earned by Mr. Zucker under his
    employment agreement as if Mr. Zucker had remained employed
    for the entire year; ando
    A fraction, the numerator of which is the number of days in the
    applicable year, through the date of termination, and the
    denominator of which is 365, less any payments previously made
    to Mr. Zucker in respect of the annual bonus; and  
    Whether or not Mr. Zucker seeks or accepts other
    employment, the Company shall pay to Mr. Zucker an amount
    equal to two times his base salary in effect on the date of
    termination, which shall be payable 25% on the date of
    termination, and an additional 25% on each of 121 days,
    242 days and 365 after the date of termination. 62




---



##### 




    conviction of a felony, or any other crime involving fraud,
    dishonesty or breach of trust relating to the Company or
    Mr. Zuckers employment;
    failure and refusal to follow a reasonable direction of the
    board of directors of the Company after notice in writing of
    such failure or refusal and a cure period of ten days after the
    notice in writing;
    commission of any dishonest or grossly negligent act which has
    or is reasonably likely to have a material adverse effect on the
    Company or its customer or trade relationships provided that
    such act was not taken with the approval of the board of
    directors of the Company; or
    a breach by Mr. Zucker of any material provision of his
    employment agreement, after the Company has provided him with
    notice in writing and a cure period of ten days.    
    individuals who constitute the board of directors at May 6,
    2003 or who have been recommended for election to the board by
    two-thirds of the board consisting of individuals who are
    members of the board at May 6, 2003 or such recommended
    successors cease for any reason to constitute at least a
    majority of such board; and
    Mr. Zucker is not offered the opportunity to continue as
    Chief Executive Officer after such a board change on the terms
    of this employment agreement.    
    the sum of:  o
    one years base annual salary currently in effect; ando
    the bonus payable to Mr. Zucker, if any, for the year
    immediately prior to the change of control,  
    multiplied by 2.99.     63




---



##### 




    a breach by the Company of any material provision of
    Mr. Zuckers employment agreement, after
    Mr. Zucker has provided the Company with notice in writing
    thereof and a cure period of ten days;
    there has occurred any material diminution or reduction in
    Mr. Zuckers duties, whether in scope or nature, or
    Mr. Zucker is required to report to anyone other than the
    board of directors of the Company or any committee thereof;
    the board of directors elects an executive officer senior in
    rank to Mr. Zucker;
    the Companys principal place of business is moved more
    than 50 miles from 2704 West Roscoe Street, Chicago,
    Illinois and as a result of such move, Mr. Zuckers
    commute to work is increased by more than 50 miles each
    way; or
    a change of control occurs and within 60 days after the
    change of control Mr. Zucker notifies the Company of his
    election to terminate his employment.  12-month
  Messrs. Powell
    and Iribarren
    
    within five years of February 10, 2003; and
    within two years after the change of control a terminating
    condition occurs,        
    the employment of Messrs. Powell or Iribarren is terminated
    by the Company without cause;
    Mr. Powell or Mr. Iribarren gives Midway a written
    resignation from his employment after, without his consent, the
    business facility at which he is required to perform his duties
    to the Company is relocated more than 50 miles from the
    business location at which he is performing his duties to
    Midway; or
    Mr. Powell or Mr. Iribarren gives the Company a
    written resignation from his employment after, without his
    consent, either he is placed in a position with the Company of
    lesser stature than his present position with the Company or he
    is assigned duties with the Company inconsistent with such
    position or duties which, if performed, would result in a
    significant change in the nature or scope of powers, authority,
    functions or duties inherent in such position on
    February 10, 2003 or Mr. Powell or Mr. Iribarren
    is assigned by the Company performance requirements and working
    conditions which are a variance with the performance
    requirements and working conditions in effect on
    February 10, 2003, provided that such assigned duties,
    performance requirements
    and/or
    working conditions are not associated with his achieving a
    position of greater stature, authority
    and/or
    responsibility than his position with his present position with
    the Company.   64




---



##### 



Potential
    Payments to Officers under Existing Employment or Retention
    Agreements
  Mr. Zucker
    Involuntary Not for Causeor Voluntary For Good


Termination Following aType of Payment

Reason Termination


Change of ControlSalary

$
1,200,000


$
1,794,000Bonus (1)






Stock Options (2)






848,000Restricted Shares (3)






628,200Total

$
1,200,000


$
3,270,200             Mr. Powell
    Termination Following aType of Payment

Change of ControlSalary (1)

$
642,720Other


Total

$
642,720    65




---



##### 



Mr. Iribarren
    Termination Following aType of Payment

Change of ControlSalary (1)

$
360,000Other


Total

$
360,000       Non-Employee
    Director Compensation Table
    DIRECTOR
    COMPENSATION
  Change inPension ValueandNonqualifiedStock



Non-Equity

DeferredFees Earned or

Awards



Incentive Plan

Compensation

All OtherName

Paid in Cash ($)

($)

Option Awards ($)(1)

Compensation ($)

Earnings

Compensation ($)(2)

Total ($)William C. Bartholomay


60,780





63,551











124,331Peter C. Brown


64,780





63,551











128,331Joseph A. Califano, Jr.


63,780





63,551











127,331Kenneth D. Cron


248,250





63,551








10,440


322,241Shari E. Redstone


58,280





63,551











121,831Ira S. Sheinfeld


57,280





63,551











120,831Robert J. Steele


34,780





63,551











98,331Robert N. Waxman


70,780





63,551








14,774


149,105            66




---



##### 



Compensation
    Committee Interlocks and Insider Participation
    Compensation
    Committee Report
  Regulation S-K Form 10-K
  Compensation
    Committee William
    C. Bartholomay, Chairman
    Joseph A. Califano, Jr.
    Kenneth D. Cron
    Shari E. Redstone
 67




---



##### 



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.  Principal
    Stockholders
    Number of Shares of


Percentage ofCommon Stock


OutstandingName and Address of Beneficial Owner

Beneficially Owned(1)


Common Stock(1)Sumner M. Redstone


80,339,266
(2)


87.9
%200 Elm StreetDedham, MA 02026National Amusements, Inc.


22,687,479
(2)


24.8
%200 Elm StreetDedham, MA 02026Sumco, Inc.


45,218,230
(2)


49.5
%200 Elm StreetDedham, MA 02026     (1)
    
    Under
    Rule 13d-3(d)(1)
    of the Securities Exchange Act of 1934, shares underlying
    options are deemed to be beneficially owned if the holder of the
    option has the right to acquire beneficial ownership, of the
    underlying shares within 60 days. Percentage calculations
    are based on 91,389,672 shares outstanding on March 5,
    2007, excluding treasury shares.(2)
    
    Based upon a Form 4 filed with the SEC by Sumner M.
    Redstone on February 8, 2007. Mr. Redstone reported
    direct ownership of 12,433,557 and indirect ownership through
    NAI (shared voting power) of 22,687,479 and Sumco (shared voting
    power) of 45,218,230 shares of our common stock.
    Mr. Redstones shares do not include
    17,500 shares held by his wife, Paula Redstone, with
    respect to which shares Mr. Redstone disclaims beneficial
    ownership. As a result of his stock ownership in NAI and Sumco,
    Mr. Redstone is deemed the beneficial owner of the shares
    of common stock owned by both NAI and Sumco. 68




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##### 



Security
    Ownership of Management
    Number of Shares of


Percentage ofCommon Stock


OutstandingName of Beneficial Owner

Beneficially Owned(1)


Common Stock(1)Steven M. Allison


55,625
(2)


*William C. Bartholomay


120,982
(3)


*Matthew V. Booty


138,625
(4)


*Peter C. Brown


3,999
(5)


*Joseph A. Califano, Jr.


13,999
(6)


*Kenneth D. Cron


3,999
(7)


*Miguel Iribarren


87,500
(8)


*Thomas E. Powell


67,500
(9)


*Shari E. Redstone


67,919,289
(10)


74.3
%Ira S. Sheinfeld


95,863
(11)


*Robert J. Steele


3,999
(12)


*Robert N. Waxman


28,999
(13)


*David F. Zucker


1,847,532
(14)


2.0
%Directors and Executive Officers
    as a Group (15 persons)


70,460,331
(15)


77.1
%     *
    
    Less than 1%  (1)
    
    Under
    Rule 13d-3(d)(1)
    of the Securities Exchange Act of 1934, shares underlying
    options are deemed to be beneficially owned if the holder of the
    option has the right to acquire beneficial ownership of the
    underlying shares within 60 days. Percentage calculations
    are based on 91,389,672 shares outstanding on March 5,
    2007, excluding treasury shares. No shares have been pledged as
    security by our directors or executive officers.(2)
    
    Includes 10,625 shares of common stock underlying stock options.(3)
    
    Includes 75,612 shares of common stock underlying stock options.(4)
    
    Includes 93,625 shares of common stock underlying stock options.(5)
    
    Includes 3,999 shares of common stock underlying stock options.(6)
    
    Includes 3,999 shares of common stock underlying stock options.(7)
    
    Includes 3,999 shares of common stock underlying stock options.(8)
    
    Includes 57,500 shares of common stock underlying stock options.(9)
    
    Includes 22,500 shares of common stock underlying stock options.(10)
    
    Includes 67,905,709 shares (74.3%) owned by NAI and Sumco
    as of March 5, 2007. As a director, President and shareholder of
    NAI, Ms. Redstone may be deemed a beneficial owner of
    NAIs shares of our common stock. Also, as President of
    Sumco, Ms. Redstone has voting and investment power with
    respect to shares of our common stock held by Sumco. Also
    includes 3,999 shares of common stock underlying stock
    options.(11)
    
    Includes 74,062 shares of common stock underlying stock options.(12)
    
    Includes 3,999 shares of common stock underlying stock options.(13)
    
    Includes 20,999 shares of common stock underlying stock options.(14)
    
    Includes 1,774,614 shares of common stock underlying stock
    options.(15)
    
    Includes an aggregate of 2,170,782 shares of common stock
    underlying stock options. 69




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##### 



Securities
    Authorized for Issuance Under Equity Compensation
    Plans
             70




---



##### 



EQUITY
    COMPENSATION PLAN INFORMATION
  (a)


(b)


(c)Number of SecuritiesRemaining Available forNumber of Securities to


Weighted-Average Exercise


Future Issuance Under Equitybe Issued upon Exercise


Price of Outstanding


Compensation Plansof Outstanding Options,


Options, Warrants and


(Excluding SecuritiesPlan Category

Warrants and Rights


Rights


Reflected in Column (a))Equity compensation plans approved
    by stockholders


3,809,554
(1)

$
7.56



2,597,088     (1)
    
    Total excludes the 640,000 performance-based restricted shares
    granted to management that are outstanding at December 31,
    2006. See Note 12 to our consolidated financial statements
    for details.    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence.    Other
    Transactions
        agreed-upon L.A. RUSH,
 71




---



##### 



L.A. RUSH
      Corporate
    Governance
  www.investor.midway.com.
  Controlled Company Exemptions.
  
    A majority of the members of the board of directors must qualify
    as independent directors who have no material
    relationship with the issuer other than serving as a director
    and who meet the other requirements of independence set forth in
    Section 303A.02 of the listing standards of the New York
    Stock Exchange;
    Issuers have a nominating and corporate governance committee (or
    committees that are responsible for each of these functions)
    composed entirely of independent directors; and
    Issuers have a compensation committee composed entirely of
    independent directors.   72




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##### 



Item 14.
    Principal
    Accountant Fees and Services.    Years EndedDecember 31,2006


2005Audit Fees(1)

$
925,000


$
1,213,000Audit-Related Fees(2)


22,000



40,000Tax Fees






50,000All Other Fees






Total

$
947,000


$
1,303,000     (1)
    
    Comprised of the audit of our annual consolidated financial
    statements, internal control attestation services required to
    comply with the requirements of the Sarbanes-Oxley Act, review
    of financial statements included in our
    Form 10-Qs
    and other services provided by the accountant in connection with
    statutory and regulatory filings.(2)
    
    Comprised of 401(k) audit procedures and various other services.  Pre-approval
    Policies and Procedures
    Percentage
    of Services Approved Under S-X
    Rule 2-01(c)(7)(i)(C)
   73




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##### 



PART IV
  Item 15.
    Exhibits
    and Financial Statement Schedule.  Financial Statements.
  Financial Statement Schedule. page F-1.
  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/A,
    as amended, File
    No. 333-11919,
    filed on October 18, 1996 and effective October 29,
    1996 (the
    S-1
    Registration Statement).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 Registrants 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

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,
    initially filed on June 10, 2004 (the
    6/10/04
    S-3).10
.1*

1996 Stock Option Plan,
    incorporated herein by reference to the Registrants
    Registration statement on
    Form S-1/A,
    as amended, File
    No. 333-11919,
    filed on October 25, 1996 and effective October 29,
    1996.10
.2*

Old form of Indemnity Agreement
    authorized to be entered into between the Registrant and
    officers and directors of the Registrant, incorporated herein by
    reference to the
    S-1
    Registration Statement.10
.3*

1998 Non-Qualified Stock Option
    Plan, incorporated herein by reference to the Registrants
    Registration Statement on
    Form S-8,
    filed on June 24, 1998 (File
    No. 333-57583).10
.4*

1998 Stock Incentive Plan,
    incorporated herein by reference to the Registrants
    Registration Statement on
    Form S-8,
    filed on December 4, 1998 (File
    No. 333-68373).10
.5*

1999 Stock Option Plan,
    incorporated herein by reference to the Registrants
    Registration Statement on
    Form S-8,
    filed on March 5, 1999 (File
    No. 333-73451).10
.6*

2000 Non-Qualified Stock Option
    Plan, incorporated herein by reference to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended June 30, 2000.10
.7*

Amendment to 1998 Stock Incentive
    Plan, incorporated herein by reference to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended September 30, 2001.10
.8*

2002 Stock Option Plan,
    incorporated herein by reference to the Registrants
    definitive proxy statement filed on December 5, 2001.10
.9*

Letter Agreement dated as of
    March 21, 2001, between the Registrant and Thomas E. Powell
    regarding Mr. Powells employment by the Registrant,
    incorporated herein by reference to the Registrants
    Transition Report on
    Form 10-KT-405
    for the six-month transition period ended December 31,
    2001, filed on March 28, 2002.10
.10*

2002 Non-Qualified Stock Option
    Plan, incorporated herein by reference to the Registrants
    Registration Statement on
    Form S-8,
    filed on August 26, 2002 (File
    No. 333-98745). 74




---



##### 



ExhibitNo.

Description10
.11*

Letter Agreement dated as of
    February 10, 2003 between the Registrant and Thomas E.
    Powell regarding Mr. Powells employment by the
    Registrant, incorporated herein by reference to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2002 filed with the
    SEC on March 28, 2003.10
.12*

Executive Employment Agreement
    made as of the 6th day of May, 2003, between the Registrant
    and David Zucker, incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on May 7, 2003 (the
    5/7/03
    8-K).10
.13*

Stock Option Agreement made as of
    the 6th day of May, 2003, between the Registrant and David
    Zucker, incorporated herein by reference to the
    5/7/03
    8-K.10
.14*

Stock Option Agreement under 2002
    Stock Option Plan made as of the 6th day of May, 2003,
    between the Registrant and David Zucker, incorporated herein by
    reference to the
    5/7/03
    8-K.10
.15*

Restricted Stock Agreement entered
    into as of the 6th day of May, 2003, between the Registrant
    and David Zucker, incorporated herein by reference to the
    5/7/03
    8-K.10
.16

Xbox Publisher License Agreement
    dated October 30, 2000 between Microsoft Licensing Inc. and
    Midway Home Entertainment Inc., incorporated by reference to the
    Registrants Registration Statement on
    Form S-3/A,
    as amended, File
    No. 333-106643,
    filed on August 18, 2003 (August 2003
    S-3/A).
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.17

Amendment to the Xbox Publisher
    Licensing Agreement effective January 31, 2003 between
    Microsoft Licensing Inc. and Midway Home Entertainment Inc.,
    incorporated herein by reference to the August 2003
    S-3/A.
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.18

Confidential License Agreement for
    Nintendo GameCube dated February 19, 2002 between Nintendo
    of America Inc. and Midway Home Entertainment Inc., incorporated
    herein by reference to the August 2003
    S-3/A.
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.19

PlayStation 2 CD-ROM/DVD-ROM
    Licensed Publisher Agreement dated April 1, 2002 between
    Sony Computer Entertainment America Inc. and Midway Home
    Entertainment Inc., incorporated herein by reference to the
    August 2003
    S-3/A.
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.20

PlayStation 2 Licensed Publisher
    Agreement dated November 14, 2000 between Sony Computer
    Entertainment Europe Limited and Midway Games Limited.,
    incorporated herein by reference to the August 2003
    S-3/A.
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.21

Loan and Security Agreement by and
    among the Registrant, specified subsidiaries of the Registrant,
    the lenders signatories thereto, and Wells Fargo Foothill, Inc.,
    dated as of March 3, 2004, incorporated herein by reference
    to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2003 (the 2003
    10-K).10
.22

Continuing Guaranty dated as of
    March 3, 2004, between the Registrant and specified
    subsidiaries in favor of Wells Fargo Foothill, Inc.,
    incorporated herein by reference to the 2003
    10-K.10
.23

Intercompany Subordination
    Agreement dated as of March 3, 2004 among the Registrant,
    specified subsidiaries of the Registrant and Wells Fargo
    Foothill, Inc., incorporated herein by reference to the 2003
    10-K.10
.24

Form of Pledge Agreement dated as
    of March 3, 2004, between the Registrant, specified
    subsidiaries of the Registrant and Wells Fargo Foothill, Inc.,
    incorporated herein by reference to the 2003
    10-K.10
.25

Xbox Live Distribution Amendment
    to the Xbox Publisher License Agreement entered into as of
    December 8, 2003 by and among 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.),
    incorporated herein by reference to the 2003
    10-K. 75




---



##### 



ExhibitNo.

Description10
.26*

Waiver, dated as of April 5,
    2004, by David F. Zucker, incorporated herein by reference to
    the Registrants Current Report on
    Form 8-K
    filed on April 13, 2004.10
.27

Consent and First Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of April 5, 2004, incorporated
    herein by reference to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2004 (the
    3/31/04
    10-Q).10
.28

Second Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of April 14, 2004, incorporated herein by
    reference to the
    3/31/04
    10-Q.10
.29*

Amendment to Stock Option Plans of
    the Registrant, incorporated herein by reference to the
    6/10/04
    S-3.10
.30

Third Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of August 30, 2004, incorporated herein
    by reference to the Registrants Current Report on
    Form 8-K
    filed on September 3, 2004.10
.31

Fourth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of September 15, 2004, incorporated
    herein by reference to the Registrants Current Report on
    Form 8-K
    filed on September 20, 2004.10
.32

Letter Agreement entered into as
    of September 20, 2004 amending the
    PlayStation®2
    CD-ROM/ DVD-ROM Licensed Publisher Agreement effective as of
    April 1, 2000 between Sony Computer Entertainment America
    Inc. and Midway Home Entertainment Inc., incorporated herein by
    reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on September 30, 2004 (the
    9/30/2004
    10-Q).
    (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
.33

Fifth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of October 5, 2004, incorporated herein
    by reference to the
    9/30/2004
    10-Q.10
.34*

First Amendment made as of
    October 18, 2004, to Restricted Stock Agreement entered
    into as of May 6, 2003 between the Registrant and David F.
    Zucker, incorporated herein by reference to the
    9/30/2004
    10-Q.10
.35

Sixth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of November 1, 2004, incorporated herein
    by reference to the
    9/30/2004
    10-Q.10
.36*

2000 Stock Option/Stock Issuance
    Plan for Midway Studios  Austin Inc. and Form of
    Option Agreement, incorporated herein by reference to the
    Registrants Registration Statement on
    Form S-8,
    File
    No. 333-120347,
    filed on November 10, 2004.10
.37

Term Extensions to Xbox Publisher
    License Agreement, incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on November 18, 2004.10
.38

Consent and Seventh Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of November 23, 2004, incorporated
    herein by reference to the Registrants Current Report on
    Form 8-K
    filed on November 30, 2004.10
.39*

2004 Form of Indemnity Agreement
    authorized to be entered into between the Registrant and
    officers and directors of the Registrant, 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
.40

Consent and Eighth Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of December 28, 2004,incorporated
    herein by reference to the 2004
    10-K.10
.41

Consent and 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 2004
    10-K.10
.42*

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
.43*

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
.44*

Amended and Restated Midway
    Incentive Plan, incorporated herein by reference to the 2004
    10-K. 76




---



##### 



ExhibitNo.

Description10
.45

Amendment to the
    XboxtmPublisher Licensing Agreement dated as of January 10, 2005
    between Microsoft Licensing, GP and Midway Home Entertainment,
    Inc., incorporated herein by reference to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on March 31, 2005 (the
    3/31/2005
    10-Q),
    (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
.46

Amendment to the
    XboxtmPublisher Licensing Agreement dated as of March 1, 2005
    between Microsoft Licensing, GP and Midway Home Entertainment,
    Inc., incorporated herein by reference to the
    3/31/2005
    10-Q,
    (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
.47

Tenth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of March 11, 2005, incorporated herein by
    reference to the
    3/31/2005
    10-Q.10
.48

Eleventh Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of April 26, 2005, incorporated herein by
    reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on June 30, 2005 (the
    6/30/2005
    10-Q).10
.49*

2005 Long-Term Incentive Plan,
    incorporated herein by reference to the Registrants
    definitive proxy statement filed on April 29, 2005 (File
    No. 001-12367).10
.50*

Form of Stock Option Agreement
    used currently by the Registrant for employees under its 2005
    Long-Term Incentive Plan, incorporated herein by reference to
    the
    6/30/2005
    10-Q.10
.51

Consent and Twelfth Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of August 4, 2005, incorporated
    herein by reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on September 30, 2005.10
.52

Indenture, dated as of
    September 19, 2005, between the Registrant and Wells Fargo
    Bank, National Association, incorporated herein by reference to
    the Registrants current report on
    Form 8-K
    filed on September 19, 2005 (the
    9/19/2005
    8-K).10
.53

Registration Rights Agreement,
    dated as of September 19, 2005 between the Registrant and
    Banc of America Securities, LLC, as representative of the
    Initial Purchasers, incorporated herein by reference to the
    9/19/2005
    8-K.10
.54

Consent and Thirteenth Amendment
    to Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of September 19, 2005, incorporated
    herein by reference to the
    9/19/2005
    8-K.10
.55*

Form of Restricted Stock Agreement
    used currently by the Registrant for management under its 2005
    Long-Term Incentive Plan, incorporated herein by reference to
    the Registrants Current Report on
    Form 8-K
    filed on October 7, 2005.10
.56

Consent and Fourteenth Amendment
    to Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of October 3, 2005, incorporated
    herein by reference to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2005 (the 2005
    10-K).10
.57

Waiver, Consent and Fifteenth
    Amendment to Loan and Security Agreement between the Registrant
    and Wells Fargo Foothill dated as of October 17, 2005,
    incorporated herein by reference to the 2005
    10-K.10
.58

Consent and Sixteenth Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of November 3, 2005, incorporated
    herein by reference to the 2005
    10-K.10
.59*

Letter Agreement dated as of
    February 10, 2003 between the Registrant and Miguel
    Iribarren regarding Mr. Iribarrens employment by the
    Registrant, incorporated herein by reference to the 2005
    10-K. 77




---



##### 



ExhibitNo.

Description10
.60

Confidential License Agreement for
    Game Boy Advance (Western Hemisphere) dated August 6, 2001
    between Midway Home Entertainment Inc. and Nintendo of America
    Inc. incorporated herein by reference to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on March 31, 2006 (the
    3/31/06
    10-Q)
    (portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended).10
.61

First Amendment to Confidential
    License Agreement for Game Boy Advance dated September 17,
    2004 between Midway Home Entertainment Inc. and Nintendo of
    America Inc. incorporated herein by reference to the
    3/31/06
    10-Q.10
.62

PlayStation Portable
    (PSP) Licensed PSP Publisher Agreement dated
    March 26, 2005 between Midway Home Entertainment Inc. and
    Sony Computer Entertainment America Inc. incorporated herein by
    reference to the
    3/31/06
    10-Q
    (portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended).10
.63

Purchase Agreement, dated as of
    May 24, 2006, between the Registrant and Banc of America
    Securities LLC incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on May 24, 2006.10
.64

Indenture, dated as of
    May 30, 2006, between the Registrant and Wells Fargo Bank,
    National Association, incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on May 30, 2006 (the
    5/30/06
    8-K).10
.65

Registration Rights Agreement,
    dated as of May 30, 2006, between the Registrant and Banc
    of America Securities, LLC, incorporated herein by reference to
    the 5/30/06
    8-K.10
.66

Consent and Seventeenth Amendment
    to Loan and Security Agreement among the Registrant, several of
    the Registrants subsidiaries and Wells Fargo Foothill,
    Inc. dated as of May 30, 2006, incorporated herein by
    reference to the
    5/30/06
    8-K.10
.67

Notice of Adjustment, dated
    July 13, 2006, incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on July 14, 2006.10
.68*

Form of Non-Employee Director
    Stock Option Agreement under the 2005 Long-Term Incentive Plan
    incorporated herein by reference to the Registrants
    Current Report on
    Form 8-K
    filed on September 12, 2006.10
.69

Eighteenth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill, Inc. dated as of October 10, 2006 incorporated
    herein by reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended September 30, 2006.10
.70

Nineteenth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill, Inc. dated as of November 29, 2006.10
.71

Xbox 360 Publisher License
    Agreement entered in to as of October 25, 2006 by and
    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).21


Subsidiaries of the Registrant.23


Consent of Ernst & Young
    LLP.31


Certifications of Chief Executive
    Officer and Chief Financial Officer Pursuant to
    Rule 13a-14(a)
    under the Securities Exchange Act of 1934, as amended, as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32


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.*


Indicates a management contract or
    compensatory plan or arrangement.  78




---



##### 



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    Page has been left blank intentionally.)
 79




---



##### 



MIDWAY
    GAMES INC.
  INDEX TO FINANCIAL INFORMATION
  
  Page No.Financial Statements and Financial
    Statement ScheduleManagement Annual
    Report on Internal Control over Financial Reporting


F-2Reports of
    Independent Registered Public Accounting Firm


F-3Consolidated
    Balance Sheets at December 31, 2006 and 2005


F-5Consolidated
    Statements of Operations for the years ended December 31,
    2006, 2005 and 2004


F-6Consolidated
    Statements of Changes in Stockholders Equity for the years
    ended December 31, 2006, 2005 and 2004


F-7Consolidated
    Statements of Cash Flows for the years ended December 31,
    2006, 2005 and 2004


F-8Notes to
    Consolidated Financial Statements


F-9Financial Statement
    Schedule II  Valuation and Qualifying Accounts
    for the years ended December 31, 2006, 2005 and
    2004


F-36     F-1




---



##### 



MANAGEMENT
    ANNUAL REPORT ON INTERNAL CONTROL
    OVER FINANCIAL REPORTING  Rule 13a-15(f) 15d-15(f)
  Internal Control 
    Integrated Framework.
    page F-4.
 F-2




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON CONSOLIDATED FINANCIAL STATEMENTS               
    F-3




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON INTERNAL CONTROL OVER FINANCIAL REPORTING
                 
    F-4




---



##### 



MIDWAY
    GAMES INC.
  CONSOLIDATED BALANCE SHEETS
  December 31,2006


2005(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
73,422


$
98,376Receivables, less allowances of
    $19,408 and $16,130 at 2006 and 2005, respectively


51,366



30,835Inventories


2,891



5,811Capitalized product development
    costs


35,213



27,570Prepaid expenses and other current
    assets


12,792



16,134Total current assets


175,684



178,726Capitalized product development
    costs


6,400



25Property and equipment, net


20,407



19,049Goodwill


41,273



41,108Other assets


10,297



9,355Total assets

$
254,061


$
248,263LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
7,864


$
12,431Accrued compensation and related
    benefits


4,541



4,060Accrued royalties


8,097



3,938Accrued selling and marketing


4,935



4,418Deferred revenue


2,000



384Current portion of long-term debt


3,333



3,333Other accrued liabilities


15,164



13,440Total current liabilities


45,934



42,004Convertible senior notes, less
    unamortized discount of $7,990 at December 31, 2006


142,010



75,000Long-term debt


3,611



6,944Deferred income taxes


9,402



8,086Other noncurrent liabilities


397



784Stockholders equity:Preferred stock, $0.01 par
    value, 5,000,000 shares authorized and
    4,995,250 shares undesignated






Common stock, $0.01 par value,
    200,000,000 shares authorized; 92,487,105 and
    92,233,807 shares issued at 2006 and 2005, respectively


925



922Additional paid-in capital


444,115



431,273Accumulated deficit


(380,882
)


(303,099
)Accumulated translation adjustment


(1,671
)


(439
)Deferred compensation






(3,610
)Treasury stock, at cost, 1,115,430
    and 1,093,627 shares at 2006 and 2005, respectively


(9,780
)


(9,602
)Total stockholders equity


52,707



115,445Total liabilities and
    stockholders equity

$
254,061


$
248,263    F-5




---



##### 



MIDWAY
    GAMES INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Years Ended December 31,2006


2005


2004(In thousands, except per share amounts)Net revenues

$
165,574


$
150,078


$
161,595Cost of sales:Product costs and distribution


67,331



56,212



62,742Royalties and product development


68,883



75,852



41,275Total cost of sales


136,214



132,064



104,017Gross profit


29,360



18,014



57,578Research and development expense


37,022



39,693



25,621Selling and marketing expense


43,150



57,189



41,159Administrative expense


21,297



18,864



15,949Restructuring and other charges


(130
)


10,784



(106
)Operating loss


(71,979
)


(108,516
)


(25,045
)Interest income


4,384



2,449



1,267Interest expense


(11,241
)


(3,119
)


(1,248
)Other (expense) income, net


2,699



(2,040
)


6,395Loss before income taxes


(76,137
)


(111,226
)


(18,631
)Provision for income taxes


1,646



1,261



1,314Net loss


(77,783
)


(112,487
)


(19,945
)Preferred stock dividends:Distributed






282



1,884Imputed






6



2,915Loss applicable to common stock

$
(77,783
)

$
(112,775
)

$
(24,744
)Basic and diluted loss per share
    of common stock

$
(0.86
)

$
(1.30
)

$
(0.34
)Average number of shares
    outstanding


90,708



86,937



72,421    F-6




---



##### 



MIDWAY
    GAMES INC.
  CONSOLIDATED STATEMENTS OF CHANGES IN
    STOCKHOLDERS EQUITY
  Common Stock


Additional





Cumulative





Treasury


TotalNumber


Par


Paid-In


Accumulated


Translation


Deferred


Stock At


Stockholdersof Shares


Value


Capital


Deficit


Adjustment


Compensation


Cost


Equity(In thousands)Balance at December 31,
    2003


58,842


$
588


$
244,963


$
(170,667
)

$
(919
)

$
(347
)

$
(25,725
)

$
47,893Net loss














(19,945
)














(19,945
)Translation adjustment


















(501
)










(501
)Comprehensive loss






























(20,446
)Stock option cost










410



















410Sale of common stock


11,350



114



78,185



















78,299Exercise of common stock options


4,229



42



24,132















134



24,308Exercise of common stock warrants


1,141



11



4,267



















4,278Issuance of stock for acquisitions


540



5



5,199















4,845



10,049Conversion of Series D
    preferred stock


11,644



117



43,587



















43,704Issuance of restricted common stock


137



2



1,720











(5,363
)


3,641



Restricted stock compensation cost






















1,331







1,331Treasury shares issued pursuant to
    payment of retirement benefits










(5,487
)














7,477



1,990Dividend on Series D preferred
    stockDistributed










(1,884
)


















(1,884
)Imputed










(2,915
)


















(2,915
)Balance at December 31,
    2004


87,883



879



392,177



(190,612
)


(1,420
)


(4,379
)


(9,628
)


187,017Net loss














(112,487
)














(112,487
)Translation adjustment


















981











981Comprehensive loss






























(111,506
)Exercise of common stock options


2,465



25



24,401















92



24,518Exercise of common stock warrants


124



1



1,311



















1,312Issuance of stock for acquisitions


493



5



6,557



















6,562Conversion of Series D
    preferred stock


1,121



11



4,587



















4,598Issuance of restricted common stock


150



1



2,561











(2,562
)






Forfeiture of restricted common
    stock


(2
)






(33
)










99



(66
)


Restricted stock compensation cost






















3,232







3,232Dividend on Series D preferred
    stockDistributed










(282
)


















(282
)Imputed










(6
)


















(6
)Balance at December 31,
    2005


92,234



922



431,273



(303,099
)


(439
)


(3,610
)


(9,602
)


115,445Net loss














(77,783
)














(77,783
)Translation adjustment


















(1,232
)










(1,232
)Comprehensive loss






























(79,015
)Exercise of common stock options


239



3



1,026















7



1,036Issuance of common stock rights


11



























Forfeiture of restricted common
    stock


3







185















(185
)


Elimination of deferred
    compensation upon adoption of SFAS No. 123R










(3,610
)










3,610







Restricted stock compensation cost










2,603



















2,603Stock option compensation cost










3,519



















3,519Record discount on convertible
    senior notes










9,119



















9,119Balance at December 31,
    2006


92,487


$
925


$
444,115


$
(380,882
)

$
(1,671
)

$



$
(9,780
)

$
52,707    F-7




---



##### 



MIDWAY
    GAMES INC.
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Years Ended December 31,2006


2005


2004(In thousands)OPERATING ACTIVITIESNet loss

$
(77,783
)

$
(112,487
)

$
(19,945
)Adjustments to reconcile net loss
    to net cash used in operating activities:Depreciation and amortization


7,739



7,200



5,892Receivables provision


34,141



27,342



16,456Amortization of capitalized product
    development costs, including writedowns


55,324



70,106



31,305Deferred income taxes


1,316



1,313



1,314Stock-based compensation cost


6,122



3,232



1,741Amortization of debt issuance costs


1,236



444



244Amortization of convertible senior
    notes discount


1,129







Loss on disposal of property and
    equipment


30



69



61Loss on impairment of assets






5,416



Gain from settlement of due to
    former parent (WMS Industries Inc.)










(4,987
)Changes in operating assets and
    liabilities:Receivables


(53,587
)


(42,090
)


(15,907
)Inventories


3,013



957



(3,222
)Capitalized product development
    costs


(69,342
)


(69,042
)


(48,672
)Prepaid expenses and other current
    assets


(1,535
)


(4,265
)


(1,688
)Accounts payable, accruals and
    deferred revenue


3,122



6,623



2,932Other assets and liabilities


(3,827
)


4,805



(11,606
)Net cash used in operating
    activities


(92,902
)


(100,377
)


(46,082
)INVESTING ACTIVITIESPurchases of property and equipment


(8,751
)


(6,430
)


(4,161
)Direct costs of acquisitions, net
    of cash acquired






(919
)


76Proceeds from the sale of property
    and equipment


75







Net cash used in investing
    activities


(8,676
)


(7,349
)


(4,085
)FINANCING ACTIVITIESProceeds from issuance of
    convertible senior notes


75,000



75,000



Proceeds from long-term debt










15,000Payment of debt issuance costs


(2,269
)


(2,682
)


(789
)Payment of long-term debt


(3,333
)


(3,333
)


(1,389
)Payment on capital lease obligation


(374
)


(800
)


Net proceeds from sale of common
    stock










78,299Cash received on exercise of common
    stock options


6,318



19,417



24,128Cash received on exercise of common
    stock warrants






1,312



4,278Net proceeds from sale of
    Series D preferred stock










12,422Cash dividend on Series D
    preferred stock






(210
)


(1,658
)Remittance of withholding taxes in
    lieu of stock issuance










(3,924
)Net cash provided by financing
    activities


75,342



88,704



126,367Effect of exchange rate changes on
    cash


1,282



(915
)


431(Decrease) increase in cash and
    cash equivalents


(24,954
)


(19,937
)


76,631Cash and cash equivalents at
    beginning of period


98,376



118,313



41,682Cash and cash equivalents at end of
    period

$
73,422


$
98,376


$
118,313Supplemental Disclosure of Cash
    Flow InformationInterest paid

$
8,519


$
1,257


$
856    F-8




---



##### 



MIDWAY
    GAMES INC.
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  NOTE 1:
    BUSINESS
    AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Nature of
    Business
  PlayStation 2 PlayStation Portable, Xbox Xbox 360, GameCube Wii Game Boy Advance Nintendo DS. PlayStation 3
  Consolidation
    Policy
    Segment
    Reporting
  Disclosures about Segments
    of an Enterprise and Related Information.
  Cash
    Equivalents
    Receivable
    Allowances
     F-9




---



##### 



Inventories
  first-in,
  Capitalized
    Product Development Costs
  Accounting for the Costs of Computer
    Software to be Sold, Leased, or Otherwise Marketed. product-by-product
  product-by-product
    Property
    and Equipment
    Long-Lived
    Assets
  other-than-temporary
 F-10




---



##### 



Goodwill
  Goodwill and Other Intangible
    Assets,
  Intangible
    Assets
    Stock-Based
    Compensation
  Accounting for Stock Issued to Employees Accounting for Stock-Based
    Compensation Accounting for Stock-Based
    Compensation  Transition and Disclosure 
    An Amendment of FASB No. 123 No. 96-18, Accounting for Equity Instruments that are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services.
  Share-Based Payment
   F-11




---



##### 



Transition Election Related to Accounting
    for the Tax Effects of Share-Based Payment Awards paid-in-capital
  Revenue
    Recognition
  97-2, Software Revenue Recognition.
    Distribution
    Costs
    Advertising
    Expense
    Income
    Taxes
   F-12




---



##### 



Foreign
    Currencies
      Comprehensive
    Loss
  Reporting Comprehensive Income,
  Loss per
    Common Share
    December 31,Type

2006


2005


2004Stock options


3,810



4,877



7,583Warrants






555



679Contingent shares


1,045



1,578



1,185Redeemable convertible preferred
    stock, Series D










1,115Convertible senior notes


12,747



4,224



Total


17,602



11,234



10,562     Vesting

NumberPeriod

of Shares2007


3112008


734Total


1,045    F-13




---



##### 



Registration
    Rights
      
    $75,000,000 of convertible senior notes that are convertible
    into common stock at a current conversion rate of
    56.3253 shares per $1,000 principal amount of the
    notes; and
    $75,000,000 of convertible senior notes that are convertible
    into common stock at a current conversion rate of
    113.6364 shares per $1,000 principal amount of the notes.    Concentration
    of Risk
      Years Ended December 31,2006


2005


2004Geographic areasNet revenues outside of United
    States

$
48,860


$
40,085


$
38,265Major customersNet revenues from largest customer
    (Wal-Mart)

$
27,596


$
27,706


$
25,883Net revenues from second largest
    customer (GameStop)

$
24,175


$
20,716


$
16,939       Mortal Kombat
 F-14




---



##### 



Guarantees
    Fair
    Value of Financial Instruments
    Use of
    Estimates
    Reclassifications
    Recently
    Issued Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes  An
    Interpretation of FASB Statement No. 109 Accounting for Income
    Taxes.
  Fair Value Measurements
  Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
 F-15




---



##### 



NOTE 2:
    PRIOR
    ACQUISITIONS  The Wheelman L.A. RUSH,
    Preliminary


FinalNet tangible assets, including
    software

$
446,000


$
445,000Non-compete agreements






54,000Goodwill


1,641,000



1,594,000Total

$
2,087,000


$
2,093,000   NOTE 3:
    CAPITALIZED
    PRODUCT DEVELOPMENT COSTS    Years Ended December 31,2006


2005


2004Beginning balance

$
27,595


$
28,659


$
11,292Additions


69,342



69,042



48,672Amortization, including writedowns


(55,324
)


(67,474
)


(31,305
)Restructuring charges






(2,632
)


Ending balance

$
41,613


$
27,595


$
28,659    F-16




---



##### 



NOTE 4:
    PROPERTY
    AND EQUIPMENT    December 31,2006


2005Land, land improvements, buildings
    and building improvements

$
6,023


$
6,001Leasehold improvements


7,757



6,331Furniture, fixtures, equipment and
    software


51,159



44,311Construction-in-progress


1,140



94666,079



57,589Less accumulated depreciation and
    amortization


(45,672
)


(38,540
)Property and equipment, net

$
20,407


$
19,049     NOTE 5:
    OTHER
    ACCRUED CURRENT LIABILITIES    December 31,2006


2005Product development advance

$
5,351


$
5,351Current portion of capital lease
    obligation


1,156



1,621Interest payable


1,598



1,275Accrued restructuring costs


911



890Other accrued liabilities


6,148



4,303Other accrued current liabilities

$
15,164


$
13,440   NOTE 6:
    CAPITAL
    LEASE    NOTE 7:
    CREDIT
    FACILITY     F-17




---



##### 



NOTE 8:
    INCOME
    TAXES   F-18




---



##### 



Years Ended December 31,2006


2005


2004Current:Federal

$



$
(52
)

$
State










Foreign


330







Total current


330



(52
)


Deferred:Federal


(23,855
)


(39,821
)


(7,605
)State


(1,506
)


(2,519
)


(480
)Foreign


564



(717
)


(448
)Total deferred


(24,797
)


(43,057
)


(8,533
)Valuation allowance


26,113



44,370



9,847Provision for income taxes

$
1,646


$
1,261


$
1,314       Years Ended December 31,2006


2005


2004Statutory federal income tax rate


(35.0
)%


(35.0
)%


(35.0
)%State income taxes, net of federal
    benefit


(2.2
)%


(2.2
)%


(2.2
)%Valuation allowance


34.3
%


39.9
%


52.8
%WMS settlement (See Note 16)










(10.0
)%Other, net


5.1
%


(1.6
)%


1.4
%2.2
%


1.1
%


7.0
%     December 31,2006


2005Federal

$



$
State






Foreign


336



Total payable

$
336


$
    F-19




---



##### 



December 31,2006


2005Deferred tax assets resulting from:Tax loss carryforward

$
192,238


$
164,750Accrued items not currently
    deductible


4,854



4,613Receivable allowance


6,681



3,915Tax over book depreciation


189



Foreign Tax Credit


122



Other


57



25Gross deferred tax assets


204,141



173,303Deferred tax liabilities resulting
    from:Tax over book depreciation






2,193Goodwill


9,402



8,086Capitalized product development
    costs


15,484



10,268Discount on
    7.125% convertible senior notes


2,973



Other


138



220Gross deferred tax liabilities


27,997



20,767Valuation allowance


(185,546
)


(160,622
)Net deferred tax liabilities

$
(9,402
)

$
(8,086
)       NOTE 9:
    CONVERTIBLE
    SENIOR NOTES   F-20




---



##### 



September
    2005 Issuance
      
    Our controlling stockholder and his affiliates become the
    beneficial owner, directly or indirectly, of 90% or more of the
    aggregate fair value of our outstanding capital stock. In this
    event, the conversion rate will increase by 4.4177 shares
    per $1,000 principal amount of the notes. This conversion rate
    increase is subject to future adjustment in accordance with the
    provisions of the indenture governing the 6.0% Notes.
    On April 30, 2007, or in some circumstances,
    September 30, 2007, if the daily volume weighted average
    price of our common stock for the period that is 20 consecutive
    trading days prior to April 30, 2007, or in some
    circumstances, September 30, 2007, is less than $16.14, as
    adjusted for capital changes. In this event, the conversion rate
    will increase at varying amounts. However, after adjustment, the
    conversion rate cannot exceed 100 shares per $1,000
    principal amount of the 6.0% Notes.
    We effect certain business combinations, asset sales or changes
    in ownership where the consideration paid to the common
    stockholders includes securities (or other property) that are
    neither traded on a U.S. national securities exchange nor
    quoted on the Nasdaq National Market nor scheduled to be so
    traded or quoted immediately after such transaction. In these
    events, the conversion rate will increase at varying amounts
    with a maximum increase of 5.63 shares per $1,000 principal
    amount of the 6.0% Notes.
    Issuance of additional rights to holders of our common stock,
    such as stock splits, declaration of dividends and certain other
    distributions and capital changes.        Earnings per Share,
   F-21




---



##### 



May 2006
    Issuance      
    Our controlling stockholder and his affiliates become the
    beneficial owner, directly or indirectly, of 90% or more of the
    aggregate fair market value, as defined, of our outstanding
    capital stock. In this event, the conversion rate will increase
    by 7.2495 shares per $1,000 principal amount of the notes.
    This conversion rate increase is subject to future adjustment in
    accordance with the provisions of the indenture governing the
    7.125% Notes.
    On any date prior to May 31, 2008, if (1) the
    arithmetic average of the daily volume-weighted average price of
    our common stock for any 20 trading days within a period of 30
    consecutive trading days ending on such date, is less than
    $8.00, as may be adjusted for capital changes, and (2) 110%
    of the closing sale price is less than or equal to $8.80, as may
    be adjusted, then the conversion rate will increase on that date
    such that the conversion price would be $8.80 per share of
    common stock ($8.80 Reset Feature).
    On any date prior to May 31, 2008, if (1) the
    arithmetic average of the daily volume-weighted average price of
    our common stock for any 20 trading days within a period of 30
    consecutive trading days ending on such date, is less than
    $6.00, as may be adjusted for capital changes, and (2) 110%
    of the closing sale price is less than or equal to $6.60, as may
    be adjusted, then the conversion rate will increase on that date
    such that the conversion price would be $6.60 per share of
    common stock.
    On May 31, 2008 or May 31, 2009, if 110% of the
    arithmetic average of the daily volume-weighted average price of
    our common stock for any 20 trading days within a period of 30
    consecutive trading days ending on such dates is less than the
    conversion price in effect at that time, then the conversion
    rate will be increased so that the conversion price would be
    110% of the daily volume-weighted average price calculated at
    these respective dates. The conversion rate will not be adjusted
    on these dates if 110% of the daily volume-weighted average
    price for such 20 trading days within such period of 30
    consecutive trading days ending on such dates is equal to or
    greater than the conversion price in effect at that time. In no
    event shall the conversion rate be adjusted such that the
    conversion price would be less than $6.60 per share, as may
    be adjusted for capital changes.
    We effect certain business combinations, asset sales or changes
    in ownership where the consideration paid to the common
    stockholders includes securities (or other property) that are
    neither traded on a U.S. national securities exchange nor
    quoted on the Nasdaq National Market nor scheduled to be so
    traded or quoted immediately after such transaction. In these
    events, the conversion rate will increase at varying amounts
    with a maximum increase of 9.23 shares per $1,000 principal
    amount of the notes.
    Issuance of additional shares of common stock, convertible
    securities, rights to holders of our common stock, such as stock
    splits, declaration of dividends and certain other distributions
    and capital changes.   F-22




---



##### 



Form 10-K.
  Earnings per Share,
    NOTE 10:
    PREFERRED
    STOCK AND WARRANTS    Series B
    Redeemable Convertible Preferred Stock and Warrants
    Series D
    Redeemable Convertible Preferred Stock and Warrants
   F-23




---



##### 




    The holders exercised their rights to acquire the additional
    1,250 shares of Series D preferred stock at
    $10,000 per share, resulting in proceeds of $12,422,000,
    net of cash issuance costs.
    The holders of our Series D preferred stock converted all
    of the initial 3,500 shares of Series D preferred
    stock into 9,589,040 shares of common stock at the
    conversion price of $3.65 per share.
    804 of the additional 1,250 shares of Series D
    preferred stock purchased earlier in 2004 were converted into
    2,010,000 shares of common stock at a conversion price of
    $4.00 per share. An additional 44,546 shares of common
    stock were issued to the holders upon these conversions to
    satisfy net accrued dividends that existed on the dates of
    conversion. These conversions accelerated the recognition of
    $2,301,000 of imputed preferred stock dividends (i.e., non-cash
    dividends) that otherwise would have been recognized in later
    periods.
    The holders of the 1,141,000 warrants exercised all of their
    warrants which resulted in proceeds of $4,278,000.        NOTE 11:
    COMMON
    STOCK  Common
    Stock
    Number ofDescription

SharesCommon stock option and long-term
    incentive plans


7,047Convertible senior notes


20,854Total


27,901   Common
    Stock Issuance to Investors
    Rights
    Agreement
   F-24




---



##### 



Stock-Based
    Awards
      NOTE 12:
    STOCK-BASED
    COMPENSATION  Stock-Based
    Compensation Under SFAS No. 123R
     F-25




---



##### 



Years EndedDecember 31,2005


2004Reported loss applicable to common
    stock

$
(112,775
)

$
(24,744
)Deduct stock-based compensation
    expense(a)


3,232



1,741Add stock-based compensation
    expense determined under the fair value based method for all
    awards(a)


(7,097
)


(9,234
)Pro forma net loss applicable to
    common stock

$
(116,640
)

$
(32,237
)Basic and diluted loss per share:As reported

$
(1.30
)

$
(0.34
)Pro forma

$
(1.34
)

$
(0.45
)     (a)
    
    These amounts reflect no income tax effect.      Determining
    Fair Value of Stock Options Under
    SFAS No. 123R
  Valuation Method.
  Expected Term.
  Expected Volatility.
  Risk-Free Interest Rate.
  Expected Dividend Yield.
  Expected Forfeitures.
 F-26




---



##### 



Years Ended December 31,2006


2005


2004Dividend yield


0.0
%


0.0
%


0.0
%Expected stock price volatility


0.70



0.75



0.82Risk-free interest rate


4.54
%


3.73
%


3.43
%Expected lives


5 years



4 years



4 years   Stock
    Option Activity
    Weighted


Weighted


AggregateAverage


Average


IntrinsicOptions


Exercise


Remaining


Value(in thousands)


Price


Contractual Life


(in thousands)Outstanding at December 31,
    2003


11,230


$
8.30Granted with an exercise price
    equal to the market price


1,180



9.89Granted with an exercise price
    lower than the market price


35



4.05Exercised


(4,245
)


5.73






$
20,421Forfeited


(617
)


9.78Outstanding at December 31,
    2004


7,583



9.85Granted with an exercise price
    equal to the market price


99



10.11Exercised


(2,475
)


9.90






$
19,483Forfeited


(330
)


12.43Outstanding at December 31,
    2005


4,877



9.65Granted with an exercise price
    equal to the market price


104



8.88Exercised


(240
)


4.31






$
2,826Expired


(913
)


19.84Forfeited


(18
)


3.52Outstanding at December 31,
    2006


3,810


$
7.56



5.6 years


$
6,961Exercisable at December 31,
    2005


3,206


$
11.74



4.4 years


$
24,101Exercisable at December 31,
    2006


3,086


$
7.92



5.3 years


$
5,378     Years Ended December 31,2006


2005


2004Weighted average grant date fair
    value of options granted with an exercise price equal to the
    market price

$
5.37


$
5.74


$
6.28Weighted average grant date fair
    value of options granted with an exercise price lower than the
    market price

$



$



$
7.92    F-27




---



##### 



WeightedAverageRemainingWeighted Average


ContractualShares Covered by Options


Exercise Price


LifeExercise Prices

Outstanding


Exercisable


Outstanding


Exercisable


Outstanding$2.32  $3.45


642



454


$
2.64


$
2.69



6.53.57  5.20


1,181



960



3.61



3.61



6.45.24  7.75


179



170



5.89



5.85



5.47.90  11.75


772



492



9.81



9.93



6.911.79  16.83


1,029



1,003



13.67



13.69



3.220.00


7



7



20.00



20.00



0.43,810



3,086



7.56



7.92



5.6       Restricted
    Stock
  and/or
  Restricted
    stock  non-performance-based awards
   F-28




---



##### 



WeightedAverageGrantShares


PriceOutstanding at December 31,
    2003


125


$
3.57Granted


552



9.72Vested


(136
)


6.62Outstanding at December 31,
    2004


541


$
9.10Granted


188



13.60Vested


(289
)


10.85Forfeited


(10
)


9.64Outstanding at December 31,
    2005


430


$
9.89Granted






Vested


(303
)


8.86Forfeited


(20
)


9.41Outstanding at December 31,
    2006


107


$
11.47     Restricted
    stock  performance-based awards
  Form 10-K
  Total
    restricted stock
   F-29




---



##### 



NumberVesting Period

of Shares2007


822008


665Total


747   NOTE 13:
    RESTRUCTURING
    AND OTHER CHARGES    Previously
    Completed Restructuring Plans
    2005
    Workforce Reductions and Consolidation of Development
    Teams
      Impairment of





Lease and


ImpairmentCapitalized





Long-Term


of Fixed andProduct





Commitments


IntangibleDevelopment


Severance


and Other


Assets andCosts


Costs


Costs(a)


Goodwill(b)


TotalProvision

$
2,632


$
1,326


$
1,410


$
5,416


$
10,784     (a)
    
    Includes $98,000 write-off of accumulated cumulative translation
    adjustment.(b)
    
    Includes the impairment of $4,867,000 goodwill initially
    recorded upon the acquisition of Ratbag.   F-30




---



##### 



Rollforward
    of All Restructuring Activity
    Impairment of





Lease and


ImpairmentCapitalized





Long-Term


of Fixed andProduct





Commitments


IntangibleDevelopment


Severance


and Other


Assets andCosts


Costs


Costs


Goodwill


TotalBalances at December 31, 2003

$



$
626


$
1,584


$



$
2,210Provision(a)






(28
)


(78
)






(106
)Usage/payouts






(598
)


(946
)






(1,544
)Balances at December 31, 2004










560







560Provision


2,632



1,326



1,410



5,416



10,784Usage/payouts


(2,632
)


(1,326
)


(684
)


(5,416
)


(10,058
)Balances at December 31, 2005










1,286







1,286Provision(b)










(130
)






(130
)Usage/payouts










(245
)






(245
)Balances at December 31, 2006

$



$



$
911


$



$
911    (a)
    
    During 2004, we recorded reversals of previously accrued charges
    totaling $182,000 related to changes in estimates of severance
    costs, facility lease expense and sublease income.(b)
    
    During 2006, we recorded reversals of previously accrued charges
    totaling $251,000 related to changes in estimates of accrued
    facility lease expense and sublease income.    NOTE 14:
    COMMITMENTS    2007

$
4,2382008


2,9802009


2,3332010


2,0272011


2,069Thereafter


3,780$
17,427      F-31




---



##### 



2007

$
9,9362008


14,2382009


8,4552010


6,4552011


955Thereafter


80$
40,119   NOTE 15:
    LEGAL
    PROCEEDINGS    NOTE 16:
    RELATED
    PARTY TRANSACTIONS  Majority
    Shareholder and Directors
    agreed-upon L.A. RUSH, L.A. RUSH
     F-32




---



##### 




    William C. Bartholomay, a member of our board of directors, is
    Group Vice Chairman of Willis Group Holdings, Ltd. and Vice
    Chairman of Willis North America, Inc. and was formerly
    President of Near North National Group. Mr. Califano also
    serves as a director for Willis Group Holdings, Ltd. We have
    retained these companies or their affiliates as insurance
    brokers and have paid premiums to obtain insurance placed by
    these brokers totaling in the aggregate $1,715,000, $1,513,000,
    and $2,193,000 for 2006, 2005 and 2004, respectively. No amounts
    were owed to Willis Group Holdings, Ltd. and affiliates or Near
    North National Group at December 31, 2006 and 2005.
    Ira S. Sheinfeld, a member of our board of directors, is a
    member of the law firm of Hogan & Hartson L.L.P. (and
    was formerly a member of Squadron, Ellenoff, Plesent &
    Sheinfeld LLP, which merged into Hogan & Hartson
    L.L.P.), which provided tax services for us. Professional tax
    costs incurred were $0, $0 and $123,000 for 2006, 2005 and 2004,
    respectively. There were no amounts owed to Hogan &
    Hartson L.L.P. at December 31, 2006 and 2005. We do not
    plan to retain Hogan & Hartson, L.L.P. in the current
    year.  Consolidated
    German Subsidiary Management
    Australia
    Subsidiary Management
    WMS
    Industries Inc.
   F-33




---



##### 



Former
    Chairman and Chief Executive Officer
        NOTE 17:
    SUBSEQUENT
    EVENT   F-34




---



##### 



NOTE 18:
    SUMMARIZED
    QUARTERLY FINANCIAL INFORMATION (UNAUDITED)    Quarters Ended,March 31,


June 30,


September 30,


December 31,2006


2006


2006


2006Net revenues

$
15,396


$
25,922


$
27,392


$
96,864Gross profit (loss)(1)


712



(1,376
)


77



29,947Research and development expense


10,662



10,715



7,147



8,498Restructuring and other charges






(161
)


1



30Loss applicable to common stock


(22,599
)


(31,007
)


(22,151
)


(2,026
)Basic and diluted loss per share
    of common stock

$
(0.25
)

$
(0.34
)

$
(0.24
)

$
(0.02
)Basic and diluted average number
    of shares outstanding


90,410



90,651



90,812



90,952    (1)
    
    Gross profit includes $886,000, $810,000, $0 and $0 related to
    writedowns of capitalized product development costs reflected in
    cost of sales for the quarters ended March 31,
    June 30, September 30 and December 31, 2006,
    respectively.  Quarters Ended,March 31,


June 30,


September 30,


December 31,2005


2005


2005


2005(1)Net revenues

$
13,815


$
36,926


$
29,527


$
69,810Gross profit (loss)(2)


5,219



1,857



(2,412
)


13,350Research and development expense


8,966



10,444



8,756



11,527Restructuring and other charges














10,784Loss applicable to common stock


(15,958
)


(29,914
)


(29,083
)


(37,820
)Basic and diluted loss per share
    of common stock

$
(0.19
)

$
(0.35
)

$
(0.33
)

$
(0.42
)Basic and diluted average number
    of shares outstanding


85,642



85,941



87,068



89,062    (1)
    
    Restructuring and other charges for the quarter ended
    December 31, 2005 relate to managements plan to
    improve our cost structure and product development efficiency
    through workforce reductions including closing our Adelaide,
    Australia development studio. See Note 13.(2)
    
    Gross profit includes $0, $2,044,000, $6,560,000 and $3,453,000
    related to writedowns of capitalized product development costs
    reflected in cost of sales for the quarters ended March 31,
    June 30, September 30 and December 31, 2005,
    respectively. The amount for the quarter ended December 31,
    2005 excludes $2,632,000 related to writedowns of capitalized
    product development costs that were included in the
    restructuring and other charges. F-35




---



##### 



MIDWAY
    GAMES INC.
  SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
  Column CColumn A

Column B


Additions


Column D


Column EBalance at


Charged to


Charged to





Balance atBeginning of


Costs and


Other





End ofPeriod

Description

Period


Expenses


Accounts


Deductions


PeriodYears ended December 31, 2006, 2005 and 2004Year EndedDecember 31, 2006

Allowance for doubtful accounts

$
1,263,000


$
241,000


$



$
189,000


$
1,315,000Allowance for price protection,
    returns and discounts


14,867,000



33,900,000







30,674,000



18,093,000Deferred tax asset valuation
    allowance


160,622,000



26,113,000







1,189,000



185,546,000Year EndedDecember 31, 2005

Allowance for doubtful accounts

$
714,000


$
692,000


$



$
143,000


$
1,263,000Allowance for price protection,
    returns and discounts


8,122,000



26,650,000







19,905,000



14,867,000Deferred tax asset valuation
    allowance


107,766,000



44,370,000



8,486,000







160,622,000Year EndedDecember 31, 2004

Allowance for doubtful accounts

$
2,410,000


$
(448,000
)

$



$
1,248,000


$
714,000Allowance for price protection,
    returns and discounts


7,002,000



16,904,000







15,784,000



8,122,000Deferred tax asset valuation
    allowance


88,856,000



9,847,000



9,063,000







107,766,000  F-36




---



##### 



SIGNATURES
      By:
    /s/  DAVID
    F. ZUCKER       Name

Title

Date/s/  DAVID
    F. ZUCKERDavid
    F. Zucker

President and Chief Executive
    Officer (Principal Executive Officer)

March 12, 2007/s/  THOMAS
    E. POWELLThomas
    E. Powell

Executive Vice
    President  Chief Financial Officer and Treasurer
    (Principal Financial Officer)

March 12, 2007/s/  JAMES
    R. BOYLEJames
    R. Boyle

Vice President 
    Finance, Controller and Assistant Treasurer (Principal
    Accounting Officer)

March 12, 2007/s/  WILLIAM
    C.
    BARTHOLOMAYWilliam
    C. Bartholomay

Director

March 12, 2007/s/  PETER
    C. BROWNPeter
    C. Brown

Director

March 12, 2007/s/  JOSEPH
    A.
    CALIFANO, JR.Joseph
    A. Califano, Jr.

Director

March 12, 2007/s/  KENNETH
    D. CRONKenneth
    D. Cron

Director

March 12, 2007/s/  SHARI
    E. REDSTONEShari
    E. Redstone

Director

March 12, 2007/s/  IRA
    S.
    SHEINFELDIra
    S. Sheinfeld

Director

March 12, 2007/s/  ROBERT
    J. STEELERobert
    J. Steele

Director

March 12, 2007/s/  ROBERT
    N. WAXMANRobert
    N. Waxman

Director

March 12, 2007




---



##### 



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/A,
    as amended, File
    No. 333-11919,
    filed on October 18, 1996 and effective October 29,
    1996 (the
    S-1
    Registration Statement).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 Registrants 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

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,
    initially filed on June 10, 2004 (the
    6/10/04
    S-3).10
.1*

1996 Stock Option Plan,
    incorporated herein by reference to the Registrants
    Registration statement on
    Form S-1/A,
    as amended, File
    No. 333-11919,
    filed on October 25, 1996 and effective October 29,
    1996.10
.2*

Old form of Indemnity Agreement
    authorized to be entered into between the Registrant and
    officers and directors of the Registrant, incorporated herein by
    reference to the
    S-1
    Registration Statement.10
.3*

1998 Non-Qualified Stock Option
    Plan, incorporated herein by reference to the Registrants
    Registration Statement on
    Form S-8,
    filed on June 24, 1998 (File
    No. 333-57583).10
.4*

1998 Stock Incentive Plan,
    incorporated herein by reference to the Registrants
    Registration Statement on
    Form S-8,
    filed on December 4, 1998 (File
    No. 333-68373).10
.5*

1999 Stock Option Plan,
    incorporated herein by reference to the Registrants
    Registration Statement on
    Form S-8,
    filed on March 5, 1999 (File
    No. 333-73451).10
.6*

2000 Non-Qualified Stock Option
    Plan, incorporated herein by reference to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended June 30, 2000.10
.7*

Amendment to 1998 Stock Incentive
    Plan, incorporated herein by reference to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended September 30, 2001.10
.8*

2002 Stock Option Plan,
    incorporated herein by reference to the Registrants
    definitive proxy statement filed on December 5, 2001.10
.9*

Letter Agreement dated as of
    March 21, 2001, between the Registrant and Thomas E. Powell
    regarding Mr. Powells employment by the Registrant,
    incorporated herein by reference to the Registrants
    Transition Report on
    Form 10-KT-405
    for the six-month transition period ended December 31,
    2001, filed on March 28, 2002.10
.10*

2002 Non-Qualified Stock Option
    Plan, incorporated herein by reference to the Registrants
    Registration Statement on
    Form S-8,
    filed on August 26, 2002 (File
    No. 333-98745).10
.11*

Letter Agreement dated as of
    February 10, 2003 between the Registrant and Thomas E.
    Powell regarding Mr. Powells employment by the
    Registrant, incorporated herein by reference to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2002 filed with the
    SEC on March 28, 2003.10
.12*

Executive Employment Agreement
    made as of the 6th day of May, 2003, between the Registrant
    and David Zucker, incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on May 7, 2003 (the
    5/7/03
    8-K).10
.13*

Stock Option Agreement made as of
    the 6th day of May, 2003, between the Registrant and David
    Zucker, incorporated herein by reference to the
    5/7/03
    8-K.10
.14*

Stock Option Agreement under 2002
    Stock Option Plan made as of the 6th day of May, 2003,
    between the Registrant and David Zucker, incorporated herein by
    reference to the
    5/7/03
    8-K.




---



##### 



ExhibitNo.

Description10
.15*

Restricted Stock Agreement entered
    into as of the 6th day of May, 2003, between the Registrant
    and David Zucker, incorporated herein by reference to the
    5/7/03
    8-K.10
.16

Xbox Publisher License Agreement
    dated October 30, 2000 between Microsoft Licensing Inc. and
    Midway Home Entertainment Inc., incorporated by reference to the
    Registrants Registration Statement on
    Form S-3/A,
    as amended, File
    No. 333-106643,
    filed on August 18, 2003 (August 2003
    S-3/A).
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.17

Amendment to the Xbox Publisher
    Licensing Agreement effective January 31, 2003 between
    Microsoft Licensing Inc. and Midway Home Entertainment Inc.,
    incorporated herein by reference to the August 2003
    S-3/A.
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.18

Confidential License Agreement for
    Nintendo GameCube dated February 19, 2002 between Nintendo
    of America Inc. and Midway Home Entertainment Inc., incorporated
    herein by reference to the August 2003
    S-3/A.
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.19

PlayStation 2 CD-ROM/DVD-ROM
    Licensed Publisher Agreement dated April 1, 2002 between
    Sony Computer Entertainment America Inc. and Midway Home
    Entertainment Inc., incorporated herein by reference to the
    August 2003
    S-3/A.
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.20

PlayStation 2 Licensed Publisher
    Agreement dated November 14, 2000 between Sony Computer
    Entertainment Europe Limited and Midway Games Limited.,
    incorporated herein by reference to the August 2003
    S-3/A.
    (Portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended.)10
.21

Loan and Security Agreement by and
    among the Registrant, specified subsidiaries of the Registrant,
    the lenders signatories thereto, and Wells Fargo Foothill, Inc.,
    dated as of March 3, 2004, incorporated herein by reference
    to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2003 (the 2003
    10-K)10
.22

Continuing Guaranty dated as of
    March 3, 2004, between the Registrant and specified
    subsidiaries in favor of Wells Fargo Foothill, Inc.,
    incorporated herein by reference to the 2003
    10-K.10
.23

Intercompany Subordination
    Agreement dated as of March 3, 2004 among the Registrant,
    specified subsidiaries of the Registrant and Wells Fargo
    Foothill, Inc., incorporated herein by reference to the 2003
    10-K.10
.24

Form of Pledge Agreement dated as
    of March 3, 2004, between the Registrant, specified
    subsidiaries of the Registrant and Wells Fargo Foothill, Inc.,
    incorporated herein by reference to the 2003
    10-K.10
.25

Xbox Live Distribution Amendment
    to the Xbox Publisher License Agreement entered into as of
    December 8, 2003 by and among 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.),
    incorporated herein by reference to the 2003
    10-K.10
.26*

Waiver, dated as of April 5,
    2004, by David F. Zucker, incorporated herein by reference to
    the Registrants Current Report on
    Form 8-K
    filed on April 13, 2004.10
.27

Consent and First Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of April 5, 2004, incorporated
    herein by reference to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2004 (the
    3/31/04
    10-Q).10
.28

Second Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of April 14, 2004, incorporated herein by
    reference to the
    3/31/04
    10-Q.10
.29*

Amendment to Stock Option Plans of
    the Registrant, incorporated herein by reference to the
    6/10/04
    S-3.10
.30

Third Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of August 30, 2004, incorporated herein
    by reference to the Registrants Current Report on
    Form 8-K
    filed on September 3, 2004.




---



##### 



ExhibitNo.

Description10
.31

Fourth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of September 15, 2004, incorporated
    herein by reference to the Registrants Current Report on
    Form 8-K
    filed on September 20, 2004.10
.32

Letter Agreement entered into as
    of September 20, 2004 amending the
    PlayStation®2
    CD-ROM/ DVD-ROM Licensed Publisher Agreement effective as of
    April 1, 2000 between Sony Computer Entertainment America
    Inc. and Midway Home Entertainment Inc., incorporated herein by
    reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on September 30, 2004 (the
    9/30/2004
    10-Q).
    (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
.33

Fifth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of October 5, 2004, incorporated herein
    by reference to the
    9/30/2004
    10-Q.10
.34*

First Amendment made as of
    October 18, 2004, to Restricted Stock Agreement entered
    into as of May 6, 2003 between the Registrant and David F.
    Zucker, incorporated herein by reference to the
    9/30/2004
    10-Q.10
.35

Sixth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of November 1, 2004, incorporated herein
    by reference to the
    9/30/2004
    10-Q.10
.36*

2000 Stock Option/Stock Issuance
    Plan for Midway Studios  Austin Inc. and Form of
    Option Agreement, incorporated herein by reference to the
    Registrants Registration Statement on
    Form S-8,
    File
    No. 333-120347,
    filed on November 10, 2004.10
.37

Term Extensions to Xbox Publisher
    License Agreement, incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on November 18, 2004.10
.38

Consent and Seventh Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of November 23, 2004, incorporated
    herein by reference to the Registrants Current Report on
    Form 8-K
    filed on November 30, 2004.10
.39*

2004 Form of Indemnity Agreement
    authorized to be entered into between the Registrant and
    officers and directors of the Registrant, 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
.40

Consent and Eighth Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of December 28, 2004,incorporated
    herein by reference to the 2004
    10-K.10
.41

Consent and 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 2004
    10-K.10
.42*

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
.43*

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
.44*

Amended and Restated Midway
    Incentive Plan, incorporated herein by reference to the 2004
    10-K.10
.45

Amendment to the
    XboxtmPublisher Licensing Agreement dated as of January 10, 2005
    between Microsoft Licensing, GP and Midway Home Entertainment,
    Inc., incorporated herein by reference to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on March 31, 2005 (the
    3/31/2005
    10-Q),
    (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
.46

Amendment to the
    XboxtmPublisher Licensing Agreement dated as of March 1, 2005
    between Microsoft Licensing, GP and Midway Home Entertainment,
    Inc., incorporated herein by reference to the
    3/31/2005
    10-Q,
    (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
.47

Tenth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of March 11, 2005, incorporated herein by
    reference to the
    3/31/2005
    10-Q.10
.48

Eleventh Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill dated as of April 26, 2005, incorporated herein by
    reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on June 30, 2005 (the
    6/30/2005
    10-Q).




---



##### 



ExhibitNo.

Description10
.49*

2005 Long-Term Incentive Plan,
    incorporated herein by reference to the Registrants
    definitive proxy statement filed on April 29, 2005 (File
    No. 001-12367).10
.50*

Form of Stock Option Agreement
    used currently by the Registrant for employees under its 2005
    Long-Term Incentive Plan, incorporated herein by reference to
    the
    6/30/2005
    10-Q.10
.51

Consent and Twelfth Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of August 4, 2005, incorporated
    herein by reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on September 30, 2005.10
.52

Indenture, dated as of
    September 19, 2005, between the Registrant and Wells Fargo
    Bank, National Association, incorporated herein by reference to
    the Registrants current report on
    Form 8-K
    filed on September 19, 2005 (the
    9/19/2005
    8-K).10
.53

Registration Rights Agreement,
    dated as of September 19, 2005 between the Registrant and
    Banc of America Securities, LLC, as representative of the
    Initial Purchasers, incorporated herein by reference to the
    9/19/2005
    8-K.10
.54

Consent and Thirteenth Amendment
    to Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of September 19, 2005, incorporated
    herein by reference to the
    9/19/2005
    8-K.10
.55*

Form of Restricted Stock Agreement
    used currently by the Registrant for management under its 2005
    Long-Term Incentive Plan, incorporated herein by reference to
    the Registrants Current Report on
    Form 8-K
    filed on October 7, 2005.10
.56

Consent and Fourteenth Amendment
    to Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of October 3, 2005, incorporated
    herein by reference to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2005 (the 2005
    10-K).10
.57

Waiver, Consent and Fifteenth
    Amendment to Loan and Security Agreement between the Registrant
    and Wells Fargo Foothill dated as of October 17, 2005,
    incorporated herein by reference to the 2005
    10-K.10
.58

Consent and Sixteenth Amendment to
    Loan and Security Agreement between the Registrant and Wells
    Fargo Foothill dated as of November 3, 2005, incorporated
    herein by reference to the 2005
    10-K.10
.59*

Letter Agreement dated as of
    February 10, 2003 between the Registrant and Miguel
    Iribarren regarding Mr. Iribarrens employment by the
    Registrant, incorporated herein by reference to the 2005
    10-K.10
.60

Confidential License Agreement for
    Game Boy Advance (Western Hemisphere) dated August 6, 2001
    between Midway Home Entertainment Inc. and Nintendo of America
    Inc. incorporated herein by reference to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended on March 31, 2006 (the
    3/31/06
    10-Q)
    (portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended).10
.61

First Amendment to Confidential
    License Agreement for Game Boy Advance dated September 17,
    2004 between Midway Home Entertainment Inc. and Nintendo of
    America Inc. incorporated herein by reference to the
    3/31/06
    10-Q.10
.62

PlayStation Portable
    (PSP) Licensed PSP Publisher Agreement dated
    March 26, 2005 between Midway Home Entertainment Inc. and
    Sony Computer Entertainment America Inc. incorporated herein by
    reference to the
    3/31/06
    10-Q
    (portions of this exhibit have been omitted pursuant to a
    request for confidential treatment in accordance with
    Rule 406 under the Securities Act of 1933, as amended).10
.63

Purchase Agreement, dated as of
    May 24, 2006, between the Registrant and Banc of America
    Securities LLC incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on May 24, 2006.10
.64

Indenture, dated as of
    May 30, 2006, between the Registrant and Wells Fargo Bank,
    National Association, incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on May 30, 2006 (the
    5/30/06
    8-K).




---



##### 



ExhibitNo.

Description10
.65

Registration Rights Agreement,
    dated as of May 30, 2006, between the Registrant and Banc
    of America Securities, LLC, incorporated herein by reference to
    the 5/30/06
    8-K.10
.66

Consent and Seventeenth Amendment
    to Loan and Security Agreement among the Registrant, several of
    the Registrants subsidiaries and Wells Fargo Foothill,
    Inc. dated as of May 30, 2006, incorporated herein by
    reference to the
    5/30/06
    8-K.10
.67

Notice of Adjustment, dated
    July 13, 2006, incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    filed on July 14, 2006.10
.68*

Form of Non-Employee Director
    Stock Option Agreement under the 2005 Long-Term Incentive Plan
    incorporated herein by reference to the Registrants
    Current Report on
    Form 8-K
    filed on September 12, 2006.10
.69

Eighteenth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill, Inc. dated as of October 10, 2006 incorporated
    herein by reference to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended September 30, 2006.10
.70

Nineteenth Amendment to Loan and
    Security Agreement between the Registrant and Wells Fargo
    Foothill, Inc. dated as of November 29, 2006.10
.71

Xbox 360 Publisher License
    Agreement entered into as of October 25, 2006 by and
    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).21


Subsidiaries of the Registrant.23


Consent of Ernst & Young
    LLP.31


Certifications of Chief Executive
    Officer and Chief Financial Officer Pursuant to
    Rule 13a-14(a)
    under the Securities Exchange Act of 1934, as amended, as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32


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.    *
    
    Indicates a management contract or compensatory plan or
    arrangement.