<PAGE>
 
                              WMS INDUSTRIES INC.
                                  ____________

                                     INDEX

                                                                         PAGE NO
                                                                         -------
PART I.  FINANCIAL INFORMATION:
-------                        

  ITEM 1.     Financial Statements:
  -------     Condensed Consolidated Statements of Income -
              Three and six months ended December 31, 1996 and 1995......     2
 
              Condensed Consolidated Balance Sheets -
              December 31, 1996 and June 30, 1996........................   3-4
 
              Condensed Consolidated Statements of Cash Flows -
              Six months ended December 31, 1996 and 1995................     5
 
              Notes to Condensed Consolidated Financial Statements.......   6-7
 
  ITEM 2.     Management's Discussion and Analysis of Financial Condition
  -------     and Results of Operations..................................  8-12
 
PART II.  OTHER INFORMATION:
--------                    

  ITEM 1.     Legal Proceedings..........................................    13
  -------                                                     

  ITEM 6.(A)  Exhibits...................................................    14
  ----------                                                  

SIGNATURE     ...........................................................    15






<PAGE>
<TABLE>
<CAPTION>

                              WMS INDUSTRIES INC.
                                 _____________

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
               (Thousands of dollars, except per share amounts)
                                  (Unaudited)

                                                                  Three months ended        Six months ended
                                                                      December 31,             December 31,
                                                                 --------------------     --------------------

                                                                   1996        1995         1996        1995
                                                                   ----        ----         ----        ----
<S>                                                              <C>         <C>          <C>         <C>
Revenues....................................................     $144,142    $113,216     $224,713    $197,456


Costs and expenses
  Cost of sales.............................................       84,812      71,315      128,038     127,714
  Research and development..................................       17,954      12,610       32,627      21,431
  Selling and administrative................................       21,963      16,756       38,414      31,267
  Provisions related to WMS Gaming Inc. patent litigation...       61,925           -       61,925           -
                                                                 --------      ------     --------    --------
Total costs and expenses....................................      186,654     100,681      261,004     180,412
                                                                 --------      ------     --------    --------
Operating income (loss).....................................      (42,512)     12,535      (36,291)     17,044

Gain on Midway Games Inc. public offering...................       79,179           -       79,179           -
Interest and other income...................................        2,378         763        3,253       1,862
Interest expense............................................       (1,185)       (828)      (2,523)     (1,656)
                                                                 --------      ------     --------    --------
Income from continuing operations before income taxes and
  minority interest.........................................       37,860      12,470       43,618      17,250

Provision for income taxes..................................      (14,694)     (4,594)     (16,882)     (6,383)
Minority interest...........................................       (1,698)          -       (1,698)          -
                                                                 --------      ------     --------    --------
Income from continuing operations...........................       21,468       7,876       25,038      10,867

Income (loss) from discontinued operations, net of tax
  provision (credit) of $153 and ($295).....................            -       1,017            -      (1,706)
                                                                 --------      ------     --------    --------
Net income..................................................     $ 21,468      $8,893     $ 25,038      $9,161
                                                                 ========      ======     ========    ========

Income (loss) per share of common stock
  Continuing operations.....................................        $0.89       $0.33        $1.04       $0.45
  Discontinued operations...................................        -            0.04           -        (0.07)
                                                                 --------      ------     --------    --------
  Net income................................................        $0.89       $0.37        $1.04       $0.38
                                                                 ========      ======     ========    ========

Shares used in calculating per share amounts................       24,193      24,120       24,175      24,115
                                                                 ========      ======     ========    ========
</TABLE>

See notes to condensed consolidated financial statements.


                                       2
<PAGE>

                              WMS INDUSTRIES INC.

                                 -------------

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Thousands of dollars)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                           December 31,       June 30,
                                                                               1996             1996
                                                                           -----------        --------
<S>                                                                        <C>              <C>
ASSETS

Current assets:
 Cash and cash equivalents...............................................    $ 83,942        $ 33,550 
 Short-term investments..................................................      50,000          27,109    
 Receivables, less allowances of $14,854 and $1,826......................     125,861          76,965
 Inventories, at lower of cost (Fifo) or market:
  Raw materials and work in progress.....................................      38,061          40,332
  Finished goods.........................................................      13,180          22,722
                                                                             --------        --------
                                                                               51,241          63,054
 Deferred income taxes...................................................      28,882           4,233
 Other current assets....................................................       6,686          11,513
                                                                             --------        --------
  Total current assets...................................................     346,612         216,424

 
Investment in marketable equity securities...............................      17,438          19,437

Property, plant and equipment............................................      68,446          62,871
Less: accumulated depreciation..........................................      (27,534)        (24,349)
                                                                             --------        -------- 
                                                                               40,912          38,522

Excess of purchase cost over amount assigned to net assets acquired, net
   accumulated amortization of $2,922 and $2,035.......................        49,558          23,765
Net assets of discontinued operations....................................      42,169          42,091
Other assets.............................................................      17,364          16,206
                                                                             --------        --------
                                                                             $514,053        $356,445
                                                                             ========        ========
</TABLE>

See notes to condensed consolidated financial statements.


                                       3
<PAGE>
                              WMS INDUSTRIES INC.
                                 _____________

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Thousands of dollars)
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                        December 31,     June 30,
                                                                            1996           1996
                                                                        ------------   ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                       <C>             <C>
CURRENT LIABILITIES:
  Accounts payable...................................................       $ 30,188       $ 23,034
  Accrued compensation and related benefits..........................         13,825          8,268
  Accrued payment on 1996 purchase of Atari Games Corporation........         11,632          3,286
  Accrued discontinuance costs.......................................            900         10,513
  Accrued royalties..................................................         11,796          6,108
  Accrued liability related to WMS Gaming Inc. patent litigation.....         34,700            -
  Accrued payment on 1994 purchase of Tradewest......................          7,200            -
  Income taxes payable...............................................          7,388            -
  Other accrued liabilities..........................................         27,839         19,585
                                                                           ---------      ---------
          Total current liabilities..................................        145,468         70,794


Long-term debt.......................................................         65,363         65,363
Deferred income taxes................................................         35,487          6,548
Accrued payment on 1994 purchase of Tradewest........................         14,400            -
Other noncurrent liabilities.........................................          3,282          3,707

Minority interest....................................................         15,904            -

Stockholders' equity:

  Preferred stock (5,000,000 shares authorized, none issued).........           -                -
  Common stock (24,248,112 and 24,200,062 shares issued).............         12,124         12,100
  Additional paid-in capital.........................................         83,550         82,496
  Retained earnings..................................................        148,944        123,906
                                                                           ---------      ---------
                                                                             244,618        218,502
  Treasury stock, at cost (52,312 shares)............................           (148)          (148)
  Unrealized loss on noncurrent marketable equity securities.........        (10,321)        (8,321)
                                                                           ----------     ----------
      Total stockholders' equity.....................................        234,149        210,033
                                                                           ---------      ---------
                                                                            $514,053       $356,445
                                                                           =========      =========

</TABLE>
See notes to condensed consolidated financial statements.


                                       4
<PAGE>




                              WMS INDUSTRIES INC.

                                 -------------

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Thousands of dollars)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Six months ended
                                                                                   December 31, 
                                                                               --------------------

                                                                                1996         1995
                                                                               -------      -------
<S>                                                                            <C>          <C>
Operating activities:
Net income...................................................................  $25,038      $ 9,161
Adjustments to reconcile net income to net cash used by operating activities:
  Loss from discontinued operations..........................................      -          1,706
  Depreciation and amortization..............................................    4,994        3,259
  Receivables provision......................................................    7,311        4,282
  Provisions related to gaming patent litigation.............................   60,875          -
  Minority interest..........................................................    1,698          -
  Gain on Midway Games Inc. public offering..................................  (79,179)         -
  Deferred income taxes......................................................    5,449       (3,143)
  Tax benefit from exercise of common stock options..........................       94          124
  Decrease resulting from changes in operating assets and liabilities........  (44,067)     (34,414)
                                                                               -------      ------- 
Net cash used by operating activities........................................  (17,787)     (19,025)

Investing activities:
Purchase of property, plant and equipment....................................   (3,221)      (5,847)
Net change in short-term investments.........................................  (22,891)      47,863
                                                                               -------      ------- 
Net cash (used) provided by investing activities.............................  (26,112)      42,016

Financing activities:
Cash received on exercise of common stock options............................      984           28
Net proceeds from Midway Games Inc. public offering..........................   93,385          -
                                                                               -------      -------
Net cash provided by financing activities....................................   94,369           28

Discontinued operations:
Net transfer from (to) discontinued operations...............................      (78)       5,760
                                                                               -------      -------
Increase in cash and cash equivalents........................................   50,392       28,779
Cash and cash equivalents at beginning of period.............................   33,550       42,337
                                                                               -------      -------
Cash and cash equivalents at end of period...................................  $83,942      $71,116
                                                                               =======      =======
</TABLE>

See notes to condensed consolidated financial statements.


                                                                 5

<PAGE>
 
                              WMS INDUSTRIES INC.
                                 _____________

                   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   

1.  FINANCIAL STATEMENTS
    --------------------

    The accompanying unaudited condensed consolidated financial statements have
    been prepared in accordance with generally accepted accounting principles
    for interim financial information, the instructions to Form 10-Q and Article
    10 of Regulation S-X. Accordingly, they do not include all of the
    information and footnotes required by generally accepted accounting
    principles for complete financial statements. In the opinion of management,
    all adjustments (consisting of normal recurring accruals except for the gain
    on Midway Games Inc. public offering and the provisions related to WMS 
    Gaming Inc. patent litigation described in Notes 4 and 5) considered
    necessary for a fair presentation have been included. Due to the seasonality
    of the Company's businesses, operating results for the six month period
    ended December 31, 1996 are not necessarily indicative of the results that
    may be expected for the fiscal year ending June 30, 1997. For further
    information, refer to the consolidated financial statements and footnotes
    thereto included in the Company's Annual Report on Form 10-K for the year
    ended June 30, 1996.


2.  ACQUISITION
    -----------

    On March 29, 1996, a WMS subsidiary acquired all the capital stock of Atari
    Games Corporation ("Atari Games") from Warner Communications Inc.
    ("Warner"), a subsidiary of Time Warner Inc.

    The Company is in the process of assimilating parts of the Atari Games
    business into the Company's similar activities and exiting certain
    activities. A $4,500,000 liability for exit activities was established on
    March 29, 1996, the only major component of which was $2,500,000 of employee
    severance costs. The liability also includes provisions for severance and
    relocation costs for employees of Atari Games, contractual liabilities,
    direct exit costs and estimated losses of the two foreign subsidiaries until
    disposition.

    As of December 31, 1996 costs of $3,485,000 for assimilation and exit
    activities related to the acquisition of Atari Games have been incurred.
    Additional costs will continue to be incurred until the sale of the
    subsidiary in Japan has been completed. The timing and outcome of this event
    will determine the adjustment required, if any, to the liability for exit
    activities. Any change in the exit liability would result in an adjustment
    to goodwill.

    Under the terms of the purchase agreement, Warner is required and agreed on
    January 7, 1997 to make an additional cash payment of $1,403,000 to Atari
    Games in order to increase net current assets to the required amount based
    upon the Atari Games' final March 29, 1996 balance sheet. A receivable for
    this amount is included in the consolidated balance sheet.

    As of December 31, 1996, $11,632,000 was recorded as accrued additional
    purchase price under the four year non-recourse promissory note to Warner
    resulting in recording $5,080,000 of goodwill.

    The April 1994 acquisition of Tradewest provides for additional purchase
    price payments contingent on the level of subsequent earnings. As a result
    of the level of home video earnings through December 31, 1996, the maximum
    additional payment of $7,200,000 due in June 1997 and $14,400,000 due in
    June 1998 were recorded as of December 31, 1996.

                                       6
<PAGE>
 
3.   DISCONTINUED OPERATIONS
     -----------------------

     On June 27, 1996, the Company announced a planned spin-off of its Puerto
     Rico based hotel, casino and hotel management operations that will create a
     new independent public corporation.  Accordingly, the financial position,
     results of operations and cash flows of these business segments have been
     reported as discontinued operations in the condensed consolidated financial
     statements.  The combined hotel/casino operations are expected to have
     positive results from operations through the projected spin-off date and
     accordingly, recognition of the results from discontinued operations will
     be included as part of the final adjustment on the date the spin-off is
     effectuated.

     Completion of the spin-off, among other things, is subject to receipt of a
     ruling from the Internal Revenue Service that the transaction will be tax
     free to the Company and its stockholders.  A ruling was received on January
     31, 1997 containing the requested tax positions.  While completion of the
     spin-off is subject to certain conditions, the Company anticipates that the
     spin-off will be completed during the quarter ended March 31, 1997.

4.   PUBLIC OFFERING BY SUBSIDIARY
     -----------------------------

     On October 30, 1996, the Company's subsidiary, Midway Games Inc.,
     successfully completed an initial public offering of 5,100,000 of its
     shares at a price of $20.00 per share resulting in net proceeds to Midway
     Games Inc. of $93,385,000. The Company recorded a gain of $79,179,000
     ($47,771,000 after tax, $1.98 per share) on the Midway public offering in
     the quarter ended December 31, 1996.  WMS Industries still owns 33,400,000
     shares of Midway Games Inc. representing 86.8% of its outstanding stock.

5.   LITIGATION
     ----------

     The Company's subsidiary, WMS Gaming Inc., is currently involved in patent
     infringement litigation with its competitor International Game Technology
     ("IGT").  The U.S. District Court for the Northern District of Illinois
     previously ruled that WMS Gaming's Model 400 reel spinning slot machine
     infringed IGT's patent and issued a permanent injunction prohibiting the
     sale of Model 400 and held that IGT is entitled to treble damages.  This
     same District Court in December issued a temporary restraining order and
     ultimately a preliminary injunction prohibiting the sale of WMS Gaming's
     reel spinning slot machine Model 401.  The Model 400 and Model 401 operate
     differently and each product is based on separate and distinct methods of
     operation, each corresponding to separate patents granted by the U.S.
     Patent and Trademark Office.  While WMS Gaming believes the District
     Court's findings are in error and subject to reversal on appeal, it
     nevertheless believes that based on the District Court's uniformly adverse
     rulings against WMS Gaming that it is probable the District Court will
     award IGT the total amount of IGT's claimed damages with respect to Model
     400 which is approximately $29,000,000 after trebling.
 
     WMS Gaming has appealed the decisions of the District Court to the U.S.
     Court of Appeals for the Federal Circuit.  However, due to the fact that
     obtaining a reversal before the Federal Circuit occurs in only a minority
     of the patent cases it reviews, management has decided to accrue the
     probable damage award.

     In light of the effects these decisions have had and are expected to have
     on WMS Gaming's reel spinning slot machine business, management has also
     decided to make provisions and adjustments totaling $32,925,000 for among
     other things realization of receivables and inventory and legal fees.  The
     major components of the provisions are $8,300,000 for sales returns and
     uncollectible receivables and $19,000,000 for excess and unusable reel
     spinning slot machine inventory.
    
     The total provision of $61,925,000 ($37,361,000 after tax, $1.55 per share)
     was recorded in the quarter ended December 31, 1996.

                                       7
<PAGE>
 
                                 WMS INDUSTRIES INC.
                                 _______________

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                                 AND RESULTS OF OPERATIONS

     The following discussion contains certain forward looking statements that
     involve risks and uncertainties including reference to statements relating
     to the outcome and effects of litigation.  The Company's actual results
     could differ materially from those anticipated in the forward looking
     statements as a result of certain factors including court decisions,
     customer actions and success in product development.

     FINANCIAL CONDITION
     -------------------

     Cash flows from operating, investing and financing activities before
     discontinued operations during the six months ended December 31, 1996
     resulted in net cash provided of $50,470,000 as compared with net cash
     provided of $23,019,000 during the six months ended December 31, 1995.  See
     condensed consolidated statements of cash flows on page 5.

     Cash provided by operating activities before changes in operating assets
     and liabilities was $26,280,000 for the six months ended December 31, 1996
     and $15,389,000 for the six months ended December 31, 1995.

     The changes in operating assets and liabilities, as shown in the
     consolidated statements of cash flows, resulted in $44,067,000 of cash
     outflow during the six months ended December 31, 1996 compared with a cash
     outflow of $34,414,000 during the six months ended December 31, 1995. Cash
     outflow in the six months ended December 31, 1996 and 1995 was primarily
     due to increased receivables in the home video game business.

     Cash used by investing activities was $26,112,000 for the six months ended
     December 31, 1996 compared with cash provided of $42,016,000 for the six
     months ended December 31, 1995.  The six months ended December 31, 1996
     utilized $22,891,000 toward the purchase of short-term investments while
     during the six months ended December 31, 1995 cash of $47,863,000 was
     provided from short-term investments.  This difference is primarily a
     function of investing in items not considered a cash equivalent (short-term
     investments) or investing in items considered to be a cash equivalent.
     Cash used for the purchase of property, plant and equipment during the six
     months ended December 31, 1996 was $3,221,000 compared with $5,847,000 for
     the six months ended December 31, 1995.

     See Note 4 to the condensed consolidated financial statements regarding
     proceeds from a public offering by a subsidiary of the Company reported as
     a cash flow financing activity.

     The home video game business is highly seasonal and significant working
     capital is required to finance high levels of inventories and accounts
     receivable during certain months of the fiscal year.  In addition, certain
     home video game manufacturers that supply the Company require letters of
     credit for the full purchase price at the time the purchase order is
     accepted.

     At December 31, 1996, WMS Industries Inc.'s subsidiary Midway Games Inc.,
     has an uncollateralized bank line of credit which provides for borrowing up
     to $50,000,000 and an additional letter of credit line of up to
     $30,000,000.  The revolving credit agreement is for a one-year term and
     contains usual bank line of credit terms.   At December 31, 1996 there were
     no borrowings from this line of credit but there were outstanding letters
     of credit totaling $9,751,000.  Management believes that cash and cash
     equivalents, cash flow from operations and amounts available under the line
     of credit will be adequate to fund the level of inventories and receivables
     required in the operations of the business and the Company's other
     presently anticipated needs, as well as pay any amounts due under the
     Tradewest and Atari Games acquisitions.

                                       8
<PAGE>
 
RESULTS OF OPERATIONS
---------------------

The following summarizes the Condensed Consolidated Statements of Income for the
periods shown in the format presented as segment information in the notes to the
year-end consolidated financial statements (thousands of dollars):

<TABLE>
<CAPTION>
                                             Three months ended    Six months ended
                                                 December 31,        December 31,
                                            -------------------   -------------------
                                              1996       1995       1996       1995
                                            --------   --------   --------   --------
<S>                                         <C>        <C>        <C>        <C>
REVENUES
  Video games.............................  $125,519   $ 89,162   $191,074   $157,100
  Pinball and novelty.....................    11,270     15,109     19,181     28,274
  Gaming..................................     7,353      8,945     14,458     12,082
                                            --------   --------   --------   --------
    Total revenues........................  $144,142   $113,216   $224,713   $197,456
                                            ========   ========   ========   ========
GROSS PROFIT
  Video games.............................  $ 55,203   $ 40,615   $ 89,583   $ 67,931
  Pinball and novelty.....................     2,361        (44)     3,229        303
  Gaming..................................     1,766      1,330      3,863      1,508
                                            --------   --------   --------   --------
    Total gross profit....................  $ 59,330   $ 41,901   $ 96,675   $ 69,742
                                            ========   ========   ========   ========
OPERATING INCOME (LOSS)
  Video games.............................  $ 23,499   $ 19,108   $ 34,274   $ 30,739
  Pinball and novelty.....................      (539)    (3,499)    (2,574)    (6,889)
  Gaming..................................    (3,048)    (2,135)    (5,148)    (5,168)
  Provisions related to WMS Gaming Inc.
    patent litigation.....................   (61,925)         0    (61,925)         0
  Unallocated general corporate expenses..      (499)      (939)      (918)    (1,638)
                                             -------    -------    -------   --------
    Total operating income (loss).........   (42,512)    12,535    (36,291)    17,044

Gain on Midway Games Inc. public offering.    79,179          0     79,179          0
Interest and other income.................     2,378        763      3,253      1,862
Interest expense..........................    (1,185)      (828)    (2,523)    (1,656)
                                            --------   --------   --------   --------
Income from continuing operations before
  income taxes and minority interest......  $ 37,860   $ 12,470   $ 43,618   $ 17,250
                                            ========   ========   ========   ========
</TABLE>

THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1995

Consolidated revenues increased to $144,142,000 in the quarter ended December
31, 1996 from $113,216,000 in the quarter ended December 31, 1995.  Video games
revenues increased $36,357,000 or 40.8% in the quarter ended December 31, 1996
from the prior year primarily because of higher home video and coin-operated
video game sales.  Gaming revenues decreased $1,592,000 or 17.8% from the prior
year primarily because of the effects of the patent litigation.  Pinball and
novelty revenues decreased by $3,839,000 or 25.4% primarily due to the
continuing industry wide decline in demand for pinball games.

Consolidated gross profit increased to $59,330,000 in the quarter ended December
31, 1996 from $41,901,000 in the quarter ended December 31, 1995 due primarily
to increased video game revenues.

Consolidated research and development expenses increased 42.4% to $17,954,000 in
the quarter ended December 31, 1996 from $12,610,000 in the quarter ended
December 31, 1995.  The increased research and development expense was primarily
from the video game business and results primarily from including Atari Games in
the December 31, 1996 quarter subsequent to its acquisition in March 1996.

Consolidated selling and administrative expense increased in the December 31,
1996 quarter primarily as a result of the increased advertising and promotion
costs to support the increased home video sales and the administrative expense
of Atari Games, which was acquired subsequent to December 31, 1995.

                                       9
<PAGE>
 
In the quarter ended December 31, 1996 the Company recorded a provision of
$61,925,000 for the probable effects of patent litigation.  See Note 5 to the
condensed consolidated financial statements.

The gain on the Midway Games Inc. public offering was recorded in the quarter
ended December 31, 1996.  See Note 4 to the condensed consolidated financial
statements.

The increase in interest and other income was primarily from an increase in
interest income on invested cash and approximately $900,000 in a litigation
settlement.

The minority interest represents the earnings of Midway Games Inc. subsequent to
the October 30, 1996 public offering that are allocated to the public
shareholders of Midway Games Inc.

Income from continuing operations was $21,468,000, $.89 per share, in the
quarter ended December 31, 1996 compared with $7,876,000, $.33 per share, in the
quarter ended December 31, 1995.  Excluding the after tax provisions relating to
gaming patent litigation of $37,361,000 and the after tax gain on Midway public
offering of $47,771,000, income from continuing operations was $11,058,000, $.46
per share, in the quarter ended December 31, 1996 or a 40.4% increase from the
prior year.  The increase was primarily from increased operating profits of the
video games segment and reduced pinball and novelty operating loss.  Higher
research and development expenses in the quarter ended December 31, 1996, the
benefits of which are expected to be realized in future periods, reduced income
from continuing operations for the quarter.

VIDEO GAMES

Video game revenues increased to $125,519,000 in the quarter ended December 31,
1996 from $89,162,000 in the quarter ended December 31, 1995.  Home video sales
increased by $21,404,000 and coin-operated sales increased by $14,953,000.  Home
video game revenues increased primarily due to the increase in units shipped
because of additional titles published and an expanded market due to the growth
in next generation platforms including Nintendo 64.  In the three months ended
December 31, 1996, approximately 75% of the Company's home video game sales were
for the next generation platforms.  Coin-operated video game revenues increased
due to strong market acceptance of the newest games Crusin' World and San
Francisco Rush.

Video game gross profit increased to $55,203,000 (44.0% of segment revenues) in
the quarter ended December 31, 1996 from $40,615,000 (45.6% of segment revenues)
in the quarter ended December 31, 1995.  The increased gross profit was
primarily due to increased sales.

Video game operating income increased to $23,499,000 in the quarter ended
December 31, 1996 from $19,108,000 in the quarter ended December 31, 1995
because of the increase in revenues noted above.  Research and development
expenses for this segment increased $5,239,000 to $14,780,000 in the quarter
ended December 31, 1996 primarily due to the acquisition of Atari Games in March
1996.  The higher level of research and development expenses is expected to
result in increased coin-operated and home video game introductions for fiscal
1997 and subsequent periods.

PINBALL AND NOVELTY

Pinball and novelty revenues decreased 25.4% to $11,270,000 in the quarter ended
December 31, 1996 from $15,109,000 in the quarter ended December 31, 1995.  The
decreased revenues were due to a continued industry-wide decline in demand for
pinball games.

Pinball and novelty gross profit increased to $2,361,000 in the quarter ended
December 31, 1996 and operating loss decreased 84.5% to $539,000 in the quarter
ended December 31, 1996 from $3,499,000 in the quarter ended December 31, 1995.
The changes resulted primarily from the June 1996 downsizing of this segment's
operations.

GAMING

Gaming revenues decreased 17.8% to $7,353,000 in the quarter ended December 31,
1996 from $8,945,000 in the quarter ended December 31, 1995.  The decrease is
attributable to the patent litigation.

                                       10

<PAGE>
 
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
SIX MONTHS ENDED DECEMBER 31, 1995

Consolidated revenues increased to $224,713,000 for the six months ended
December 31, 1996 from $197,456,000 in the six months ended December 31, 1995.
Video games revenue increased $33,974,000 or 21.6% in the six months ended
December 31, 1996 from the prior year because of increased home and coin-
operated video game sales.  Gaming revenues increased $2,376,000 from the prior
year primarily because of increased slot machine sales in the quarter ended
September 30, 1996.  Pinball and novelty revenues decreased by $9,093,000 or
32.2% primarily due to the continuing industry wide decline in demand for
pinball games.

Consolidated gross profit increased to $96,675,000 in the six months ended
December 31, 1996 from $69,742,000 in the six months ended December 31, 1995 due
primarily to increased video game sales.

Consolidated research and development expenses increased 52.2% to $32,627,000 in
the six months ended December 31, 1996 from $21,431,000 in the six months ended
December 31, 1995.  The increased research and development expenses was
primarily from the video game business and results primarily from including
Atari Games in the six months ended December 31, 1996 subsequent to its
acquisition in March 1996.

Consolidated selling and administrative expense increased in the six months
ended December 31, 1996 primarily as a result of the increased advertising and
promotion costs to support the increased home video game sales and the
administrative expense of  Atari Games, which was acquired subsequent to
December 31, 1995 and increased selling expense of the gaming business.

In the quarter ended December 31, 1996 the Company recorded a provision of
$61,925,000 for the probable effects of patent litigation.  See Note 5 to the
condensed consolidated financial statements.

The gain on the Midway Games Inc. public offering was recorded in the quarter
ended December 31, 1996.  See Note 4 to the condensed consolidated financial
statements.

The increase in interest and other income was primarily from an increase in
interest income on invested cash and approximately $900,000 in a litigation
settlement.

Income from continuing operations was $25,038,000, $1.04 per share, in the six
months ended December 31, 1996 compared with $10,867,000, $.45 per share, in the
six months ended December 31, 1995.  Excluding the after tax provisions relating
to gaming patent litigation of $37,361,000 and the after tax gain on Midway
Games Inc. public offering of $47,771,000, income from continuing operations was
$14,628,000, $.61 per share, in the six months ended December 31, 1996 or a
34.6% increase from the prior year.  The increase was primarily from increased
operating profits of the video segment and reduced pinball and novelty operating
loss.  Higher research and development expenses in the six months ended December
31, 1996, the benefits of which are expected to be realized in future periods,
reduced income from continuing operations for the six month period.

VIDEO GAMES

Video game revenues increased to $191,074,000 for the six months ended December
31, 1996 from $157,100,000 in the six months ended December 31, 1995.  Home
video sales increased by $22,241,000 and coin-operated sales increased by
$11,733,000.  Home video game revenues increased primarily due to the
significant increase in the sales of next generation video game units in the
quarter ended December 31, 1996.  Coin-operated video game revenues increased
due to strong market acceptance of Crusin' World and San Francisco Rush
introduced in the quarter ending December 31, 1996.

Video game gross profit increased to $89,583,000 (46.9% of segment revenues) in
the six months ended December 31, 1996 from $67,931,000 (43.2% of segment
revenues) in the six months ended December 31, 1995.  The increased gross profit
was primarily due to increased sales and lower unit cost of home video 16-bit
cartridges.

                                       11

<PAGE>
 
Video game operating income increased to $34,274,000 (17.9% of segment revenues)
in the six months ended December 31, 1996 from $30,739,000 (19.6% of segment
revenues) in the six months ended December 31, 1995 due primarily to the
increase in revenues noted above.  Research and development for this segment
increased $11,391,000 to $26,783,000 in the six months ended December 31, 1996
primarily due to the acquisition of Atari Games in March 1996.  The higher level
of research and development expenses is expected to result in increased coin-
operated and home video game introductions for fiscal 1997 and subsequent
periods.

PINBALL AND NOVELTY

Pinball and novelty revenues decreased 32.2% to $19,181,000 in the six months
ended December 31, 1996 from $28,274,000 in the six months ended December 31,
1995.  The decreased revenues were due to a continued industry-wide decline in
demand for pinball games.

Pinball and novelty gross profit increased $2,926,000 to $3,229,000 and
operating loss decreased 62.6% to $2,574,000 in the six months ended December
31, 1996 from $303,000 and $6,889,000, respectively, in the six months ended
December 31, 1995.  The changes resulted primarily from the June 1996 downsizing
of this segment's operations.

GAMING

Gaming revenues increased 19.7% to $14,458,000 in the six months ended December
31, 1996 from $12,082,000 in the six months ended December 31, 1995.  The
increase occurred during the quarter ended September 30, 1996 and prior to the
effects of the patent litigation.

                                       12

<PAGE>
 
                                    PART II
                               OTHER INFORMATION



ITEM 1.   LEGAL PROCEEDINGS
---------------------------

Reference is made to information concerning the patent litigation between WMS
Gaming Inc. ("WGI") and International Game Technology ("IGT") as set forth in
"Item 3. Legal Proceedings" in Registrant's Report on Form 10-K for the year
ended June 30, 1996 ("1996 10-K"), and as supplemented in Registrant's Report on
Form 10-Q for the quarter ended September 30, 1996.  Capitalized terms used and
not otherwise defined herein shall have the same meanings as ascribed to such
terms in the 1996 10-K.

On December 19, 1996, the United States Court of Appeals for the Federal Circuit
(the "Patent Appeals Court") declined to extend its October 16, 1996 stay of the
injunction issued by the Federal District Court for the Northern District of
Illinois (the "Trial Court") against the future manufacture, use or sale by WGI
of its Model 400 slot machine and against the future trial use of such machines
which had not been purchased by casinos.  The appeal of the Trial Court decision
is in the briefing stage and should be argued in May or June of 1997.

The Trial Court currently has pending before it an action to determine whether
the WGI Model 401 slot machine infringes IGT's patent and WMS expects that a
full trial will be held on this issue later this year.  The Trial Court issued a
preliminary injunction with respect to future manufacture, use and sale by WGI
of its Model 401 slot machine on December 18, 1996, which injunction was
appealed and temporarily stayed by the Patent Appeals Court on December 20,
1996.  This appeal is in the briefing stage and should also be argued in May or
June of 1997.

                                       13
<PAGE>
 
ITEM 6.(a) EXHIBITS
-------------------
                                                    
Exhibit 27 - Financial Data Schedule

                                       14
<PAGE>
 
                              WMS INDUSTRIES INC.
                                _______________

SIGNATURE
---------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.

                                   WMS INDUSTRIES INC.
                                   -------------------
                                   (Registrant)



Dated:  February 14, 1997          By:  /S/ Harold H. Bach, Jr.
                                   ----------------------------
                                   Harold H. Bach, Jr.
                                   Vice President-Finance
                                   Principal Financial and
                                   Chief Accounting Officer

                                       15