1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the quarterly period ended March 31, 2001
-------------------------------------------------

Commission file number 001-12367

MIDWAY GAMES INC.
--------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)

Delaware 22-2906244
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

3401 North California Ave., Chicago, IL 60618
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(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (773) 961-2222
-----------------------------

N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.

Indicate by [X] whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 37,718,725 shares of common
stock, $.01 par value, were outstanding at May 4, 2001 after deducting 1,178,500
shares held as treasury shares.

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MIDWAY GAMES INC.

INDEX

PAGE NO
PART I. FINANCIAL INFORMATION:

ITEM 1. Financial Statements:
Condensed Consolidated Statements of Income -
Three and nine months ended March 31, 2001 and 2000............ 2

Condensed Consolidated Balance Sheets -
March 31, 2001 and June 30, 2000............................... 3-4

Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 2001 and 2000...................... 5

Notes to Condensed Consolidated Financial Statements........... 6

ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 10

ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk.............................................. 11

PART II. OTHER INFORMATION:

ITEM 1. Legal Proceedings.............................................. 11

ITEM 4. Submission of Matters to a Vote of Security-Holders............ 11

ITEM 6. Exhibits and Reports on Form 8-K............................... 12

SIGNATURE ............................................................... 13

PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS

MIDWAY GAMES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

Three months ended Nine months ended
March 31, March 31,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
REVENUES

Home video ............................ $ 12,138 $ 26,902 $ 101,578 $ 221,512
Coin-operated video ................... 11,585 28,043 46,415 87,629
--------- --------- --------- ---------
Total revenues ............................ 23,723 54,945 147,993 309,141

COST OF SALES
Home video ............................ 8,481 17,375 55,532 97,953
Coin-operated video ................... 13,719 19,607 40,195 59,012
--------- --------- --------- ---------
Total cost of sales ....................... 22,200 36,982 95,727 156,965
--------- --------- --------- ---------
Gross profit .............................. 1,523 17,963 52,266 152,176

Research and development expense .......... 16,447 18,110 57,326 62,309
Selling and marketing expense ............. 5,943 13,867 26,839 45,264
Administrative expense .................... 5,530 4,985 16,322 16,445
--------- --------- --------- ---------
Operating (loss) income ................... (26,397) (18,999) (48,221) 28,158

Interest income and other expense, net .... 545 712 1,630 1,753
--------- --------- --------- ---------
(Loss) income before tax .................. (25,852) (18,287) (46,591) 29,911
Credit (provision) for income taxes ....... - 6,806 7,777 (11,217)
--------- --------- --------- ---------
Net (loss) income ......................... $ (25,852) $ (11,481) $ (38,814) $ 18,694
========= ========= ========= =========

Earnings (loss) per share of common stock -
Basic and diluted ..................... $ (0.69) $ (0.30) $ (1.03) $ 0.49
========= ========= ========= =========

Shares used in calculations ............... 37,719 37,783 37,714 37,922
========= ========= ========= =========

See notes to condensed consolidated financial statements.

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MIDWAY GAMES INC.

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CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)

March 31, June 30,
2001 2000
--------- ---------
ASSETS

CURRENT ASSETS:

Cash and cash equivalents ................................................... $ 36,225 $ 34,093

Receivables, less allowances of $8,426 and $5,855 ........................... 11,835 25,398
Income tax receivable ....................................................... 859 21,255
Inventories, at lower of cost (Fifo) or market:
Raw materials and work in progress ....................................... 2,049 7,907
Finished goods ........................................................... 4,724 19,621
--------- ---------
6,773 27,528
Deferred income taxes ....................................................... 3,090 5,250
Other current assets ........................................................ 8,954 11,519
--------- ---------

Total current assets...................................................... 67,736 125,043

Property and equipment ........................................................... 43,107 37,220
Less: accumulated depreciation ................................................... (20,710) (19,189)
--------- ---------
22,397 18,031
Deferred income taxes ............................................................ 8,253 -

Excess of purchase cost over amount assigned to net assets acquired, net of
accumulated amortization of $19,556 and $16,615 ............................. 34,444 37,385
Other assets ..................................................................... 5,178 6,116
--------- ---------
$ 138,008 $ 186,575
========= =========

See notes to condensed consolidated financial statements.

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MIDWAY GAMES INC.

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CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)

March 31, June 30,
2001 2000
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable ................................................................ $ 5,351 $ 8,959
Accrued compensation and related benefits ....................................... 3,474 4,015
Accrued royalties ............................................................... 2,044 5,080
Other accrued liabilities ....................................................... 5,381 6,446
--------- ---------
Total current liabilities .................................................... 16,250 24,500

Deferred income taxes ................................................................ - 1,720

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued ....... - -
Common stock, $.01 par value, 100,000,000 shares authorized,
38,897,225 shares issued at March 31,2001
and 38,886,303 at June 30, 2000 .............................................. 389 389
Additional paid-in capital ...................................................... 98,295 98,061
Retained earnings ............................................................... 39,309 78,123
Translation adjustment .......................................................... (132) (115)
Treasury stock, at cost (1,178,500 shares) ...................................... (16,103) (16,103)
--------- ---------
Total stockholders' equity ................................................... 121,758 160,355
--------- ---------
$ 138,008 $ 186,575
========= =========

See notes to condensed consolidated financial statements.

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MIDWAY GAMES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)

Nine months ended
March 31,
-------------------------
2001 2000
----------- ----------
OPERATING ACTIVITIES:

Net (loss) income ......................................................................... $(38,814) $ 18,694
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization ...................................................... 7,114 7,002
Receivables provision .............................................................. 8,682 15,838
Deferred income taxes .............................................................. (7,777) 1,694
Stock option expense ............................................................... 146 -
Tax benefit from exercise of common stock options .................................. - 380
Increase (decrease) resulting from changes in operating assets and liabilities...... 41,772 (30,072)
-------- --------
Net cash provided by operating activities ................................................. 11,123 13,536

INVESTING ACTIVITIES:
Purchase of property and equipment ........................................................ (9,070) (7,905)
-------- --------
Net cash (used) by investing activities ................................................... (9,070) (7,905)

FINANCING ACTIVITIES:
Cash received on the exercise of stock options ............................................ 88 871
Purchase of treasury stock ................................................................ - (6,720)
-------- --------
Net cash provided (used) by financing activities .......................................... 88 (5,849)

Effect of exchange rate changes on cash ................................................... (9) -
-------- --------
Increase (decrease) in cash and cash equivalents .......................................... 2,132 (218)
Cash and cash equivalents at beginning of period .......................................... 34,093 51,546
-------- --------
Cash and cash equivalents at end of period ................................................ $ 36,225 $ 51,328
======== ========

See notes to condensed consolidated financial statements.

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MIDWAY GAMES INC.

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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 provision for
restructuring described below) considered necessary for a fair presentation
have been included. Due to the seasonality of Midway's business, operating
results for the quarter and nine months ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in Midway's Annual Report
on Form 10-K for the year ended June 30, 2000.

2. AMENDMENT TO LINE OF CREDIT
As of April 30, 2001 the line of credit was amended to pledge substantially
all the assets of the Company as collateral; to reduce the letter of credit
availability to $3,500,000; and require the Company to obtain a minimum of
$30,000,000 of additional equity or subordinated debt prior to July 31, 2001
or not be in compliance with the terms of the line of credit. At March 31,
2001, there were no borrowings or letters of credit outstanding under the
line of credit.

3. RESTRUCTURING
During March 2001 the Company further downsized the coin-operated videogame
business and recorded a charge of $3,639,000 or $.10 per share in the three
months and nine months ended March 31, 2001. The provision included severance
of $922,000 for 60 employees, a provision for excess inventory of $2,297,000
and a provision of $420,000 for certain equipment disposal.

4. INCOME TAXES
In the three months ended March 31, 2001 Midway was required under certain
accounting interpretations to provide a valuation allowance for deferred tax
assets resulting primarily from tax loss carry forwards incurred after
December 31, 2000. This valuation allowance increased the net loss per share
by $.21 in the three months and nine months ended March 31, 2001. Midway will
be required to provide a valuation allowance in future periods when a net
loss occurs. The valuation allowance is expected to be reversed into income
in future periods in which Midway returns to profitability.

5. EARNINGS PER SHARE
At March 31, 2001, options were outstanding for 6,816,814 shares of common
stock. The incremental share effect of options was not utilized in the
calculation of net loss per share for the three and nine months ended March
31, 2001 and the three months ended March 31, 2000. The net income per share
calculation for the nine months ended March 31, 2000 did not utilize the
average incremental shares of 583,000 for the three quarters ended March 31,
2000 because they had no effect on rounded earnings per share. Accordingly,
the weighted average common shares outstanding for the nine-month period were
used.

6. CHANGE IN FISCAL YEAR
The Company is changing its fiscal year from June 30 to December 31 effective
December 31, 2001.

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MIDWAY GAMES INC.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This quarterly report on Form 10-Q contains certain forward looking statements
concerning future business conditions and the outlook for the Company based on
currently available information that involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in the
forward looking statements as a result of certain risks and uncertainties,
including, without limitation, the financial strength of the amusement games
industry, dependence on new product introductions and the ability to maintain
the scheduling of such introductions, technological changes, dependence on major
platform manufacturers and other risks more fully described under "Business -
Risk Factors" in the Company's Annual Report on Form 10-K.

FINANCIAL CONDITION

During the nine months ended March 31, 2001 cash provided by operating,
investing and financing activities was $2,132,000 compared with cash used of
$218,000 in the nine months ended March 31, 2000.

Cash used by operating activities before changes in operating assets and
liabilities was $30,649,000 in the nine months ended March 31, 2001 compared to
cash provided of $43,608,000 in the nine months ended March 31, 2000.

The changes in the operating assets and liabilities, as shown in the condensed
consolidated statements of cash flows on page 5, resulted in a cash inflow of
$41,772,000 in the nine months ended March 31, 2001. This cash inflow was
primarily due to cash received on receivables and income tax receivable and a
reduction in inventories from their respective June 30, 2000 balances. The
change in the nine months ended March 31, 2000 period resulted in a cash outflow
of $30,072,000, which was primarily due to the increase in receivables and
inventories from their respective comparable June 30, 1999 balances.

Cash used for the purchase of property and equipment during the nine months
ended March 31, 2001 was $9,070,000 compared with $7,905,000 for the nine months
ended March 31, 2000.

During the nine months ended March 31, 2000, $6,720,000 of cash was used to
acquire 465,500 shares of the Company's common stock held in the treasury. The
Board of Directors authorized the purchase of up to two million shares of which
1,928,500 had been purchased as of March 31, 2001. During the nine months ended
March 31, 2001 and 2000 the Company received $88,000 and $871,000 for the
issuance of 10,922 and 134,803 common shares from the exercise of stock options,
respectively.

The home videogame 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, one platform manufacturer that
manufactures home videogames for the Company requires letters of credit for the
full purchase price at the time a purchase order is accepted.

The Company has established a line of credit that provides for borrowings and
letters of credit. The revolving credit agreement extends to September 19, 2001
and provides for availability of $15,000,000 at March 31, 2001 with an increase
in availability to $35,000,000 at June 30, 2001. The agreement as amended as of
April 30, 2001 (see Note 2 on page 6) requires, among other things, that the
Company maintain a minimum level of stockholders' equity and a specified ratio
of accounts receivable to amounts outstanding under the line of credit. The
Company has secured the line of credit by a pledge of its assets. There were no
borrowings under the credit line at March 31, 2001 and no letters of credit were
outstanding. Management believes that available cash and cash equivalents and
the letter of credit availability under the line of credit will be adequate to
fund the Company's operations to at least July 31, 2001 but that additional
financing and line of credit modification will be needed before the holiday
stocking season that starts in the September 30 quarter. Management is seeking
additional financing and discussions have begun with the bank providing the line
of credit regarding extending and further modifying the line of credit.

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Results of Operations

Three months Ended March 31, 2001 Compared With
Three months Ended March 31, 2000

Revenues decreased $31,222,000 from $54,945,000 in the quarter ended March 31,
2000 to $23,723,000 in the quarter ended March 31, 2001.

Home videogame revenues decreased 55% to $12,138,000 in the March 31, 2001
quarter compared to $26,902,000 in the prior year period. The Company believes
that the decrease is primarily due to the platform transition currently underway
from 32 and 64-bit home videogame consoles such as the Sony PlayStation and
Nintendo 64 to the new generation 128-bit consoles, including Sony's PlayStation
2, Nintendo's GameCube and Microsofts's Xbox. The overall impact of the platform
transition on Midway's profitability has been compounded by the Company's
transition strategy to shift product development resources from older platforms
to the development of products for new generation platforms. Several titles in
development that would have softened the impact of the transition in fiscal 2001
were cancelled in order to have more high quality products available for the new
generation consoles. Because it takes on average 18 to 24 months to develop a
new generation title, the Company is not expected to experience the full benefit
of this strategy until calendar year 2002.

During the fiscal 2001 third quarter the Company released one new home videogame
on four platforms. NBA Hoopz for the Sony PlayStation 2, Sony PlayStation, Sega
Dreamcast and Game Boy Color were shipped during the quarter. In the fourth
quarter ending June 30, 2001, Midway expects to ship three new home videogame
products.

Home videogame gross profit decreased $5,870,000 from $9,527,000 (35.4% of
related revenues) in the third quarter of fiscal 2000 to $3,657,000 (30.1% of
related revenues) in the March 31, 2001 quarter. Discounting of home videogame
sales existed in both quarters. This discounting of previously released titles
was due to a continuation of the pricing pressures from the platform transition
previously mentioned. Since both quarters have been adversely impacted by the
platform transition, the gross profit percentages reported are not believed to
be indicative of gross profit percentages from new generation videogames. It is
expected that future gross profit percentages will return to normal.

Coin-operated videogame revenues decreased to $11,585,000 in the March 31, 2001
quarter compared to $28,043,000 in the prior year period. Midway had only two
current coin-operated products for sale in the quarter, Arctic Thunder and
Touchmaster Infinity. In light of the continued weakened coin-operated market
and no visible rebound, Midway implemented a strategic reassignment of software
development resources from the development of coin-operated games to the direct
development of home videogames for the new generation of platforms. Midway also
reduced its coin-operated development staff in those areas that were not
transferable to home videogame development. Accordingly, it is not expected that
coin-operated revenues will comprise a significant part of operating results in
the future. Midway continues to explore business opportunities with its
coin-operated tournament videogame system.

Coin-operated videogame cost of sales for the March 31, 2001 quarter includes a
restructuring charge of $3,639,000 for the strategic changes as described above.
Excluding the restructuring charge coin-operated gross profit decreased to
$1,505,000 in the quarter ended March 31, 2001 from $8,436,000 in the quarter
ended March 31, 2000.

Research and development expenses decreased $1,663,000 from $18,110,000 in the
quarter ended March 31, 2000 to $16,447,000 in the quarter ended March 31, 2001.
The rate of spending on current research and development projects has actually
increased. However, the component of research and development expense that is
based on current period sales of games has decreased by a greater amount than
the increase in spending on current projects. The component of research and
development expense which is not dependent on current sales and represents
investments for future revenue has increased primarily due to the development of
home videogames for the new platforms.

Selling and marketing expense decreased $7,924,000 from $13,867,000 (25.2% of
revenues) in the quarter ended March 31, 2000 to $5,943,000 (25.1% of revenues)
in the quarter ended March 31, 2001. The decrease in selling and marketing
expense was primarily due to the decrease in home videogame sales.

Administrative expense increased $545,000 from $4,985,000 in the quarter ended
March 31, 2000 to $5,530,000 in the quarter ended March 31, 2001. The increase
in administrative expense is primarily due to the expansion of Midway's
international presence, primarily in Western Europe.

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10
Operating loss increased from $18,999,000 in the quarter ended March 31, 2000 to
$26,397,000 in the quarter ended March 31, 2001. The increase results primarily
from lower revenues resulting in lower gross profit, restructuring charge and a
continued high level of research and development expenditures for the new
generation videogames.

Income taxes were established at an effective rate of 0% for the quarter ended
March 31, 2001 resulting in no credit for income taxes. Midway was required
under certain accounting interpretations to provide a valuation allowance
against the deferred tax asset generated during the quarter. Midway will be
required to provide a valuation allowance in future periods when a net loss
occurs. The valuation allowance is expected to be reversed into income in future
periods in which Midway returns to profitability.

Net loss was $25,852,000, $0.69 per share, in the quarter ended March 31, 2001,
compared with a net loss of $11,481,000, $0.30 per share, in the prior year
period. The net loss for the quarter ended March 31, 2001 includes a $3,639,000,
$0.10 per share, restructuring charge mentioned above and the valuation
allowance for deferred income taxes increased the net loss by $0.21 per share.

Nine months Ended March 31, 2001 Compared With
Nine months Ended March 31, 2000

Revenues decreased $161,148,000 from $309,141,000 in the nine months ended March
31, 2000 to $147,993,000 for the nine months ended March 31, 2001.

Home videogame revenues decreased 54% to $101,578,000 in the nine months ended
March 31, 2001 from $221,512,000 in the prior year period. The Company believes
that the decrease is primarily due to the platform transition currently underway
from 32 and 64-bit home videogame consoles such as the Sony PlayStation and
Nintendo 64 to the new generation 128-bit consoles, including Sony's PlayStation
2, Nintendo's GameCube and Microsofts's Xbox. The overall impact of the platform
transition on Midway's profitability has been compounded by the Company's
transition strategy to shift product development resources from older platforms
to the development of products for new generation platforms. Several titles in
development that would have softened the impact of the transition in fiscal 2001
were cancelled in order to have more high quality products available for the new
generation consoles. Because it takes on average 18 to 24 months to develop a
new generation title, the Company is not expected to experience the full benefit
of this strategy until calendar year 2002.

During the nine months ending March 31, 2001 Midway released twenty new home
videogames on five platforms. The new products shipped included two titles for
the Sony PlayStation 2, seven for Sony PlayStation, five for Nintendo 64, five
for Sega Dreamcast and four for Game Boy Color. Midway's best-selling videogames
during the nine months ended March 31, 2001 were Ready 2 Rumble Boxing: Round 2,
NFL Blitz 2001, San Francisco Rush 2049, NBA Hoopz and Cruis'n Exotica. In the
fourth quarter ending June 30, 2001, Midway expects to ship three new home
videogame products.

Home videogame gross profit decreased $77,513,000 from $123,559,000 (55.8% of
related revenues) in the nine months ended March 31, 2000 to $46,046,000 (45.3%
of related revenues) in the nine months ended March 31, 2001. Discounting of
home videogame sales were more significant to the current year nine-month period
than it was to that of the prior year's period. This discounting of previously
released titles was due to a continuation of the pricing pressures from the
platform transition previously mentioned. Since the current year's nine-month
period has been adversely impacted by the platform transition, the gross profit
percentage reported in this period is not believed to be indicative of gross
profit percentages from new generation videogames. It is expected that future
gross profit percentages will return to normal.

Coin-operated videogame revenues decreased to $46,415,000 in the nine months
ended March 31, 2001 compared to $87,629,000 in the prior year period. Midway
introduced only two coin-operated products in the nine months ended March 31,
2001 compared to four in the prior year period. In light of the continued
weakened coin-operated market and no visible rebound, Midway implemented a
strategic reassignment of software development resources from the direct
development of coin-operated games to the direct development of home videogames
for the new generation of platforms. Midway also

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11

reduced its coin-operated development staff in those areas that were not
transferable to home videogame development. Accordingly, it is not expected that
coin-operated revenues will comprise a significant part of operating results in
the future. Midway continues to explore business opportunities with its
coin-operated tournament videogame system.

Coin-operated videogame cost of sales for the nine months ended March 31, 2001
includes a restructuring charge of $3,639,000 for the strategic changes as
described above. Excluding the restructuring charge coin-operated gross profit
decreased to $9,859,000 in the nine months ended March 31, 2001 from $28,617,000
in the nine months ended March 31, 2000.

Research and development expenses decreased $4,983,000 from $62,309,000 in the
nine months ended March 31, 2000 to $57,326,000 in the nine months ended March
31, 2001. The rate of spending on current research and development projects has
actually increased. However, the component of research and development expense
that is based on current period sales of games has decreased by a greater amount
than the increase in spending on current projects. The component of research and
development expense which is not dependent on current sales and represents
investments for future revenue has increased primarily due to the development of
home videogames for the new platforms.

Selling and marketing expense decreased $18,425,000 from $45,264,000 (14.6% of
revenues) in the nine months ended March 31, 2000 to $26,839,000 (18.1% of
revenues) in the nine months ended March 31, 2001. The decrease in selling and
marketing expense was primarily due to the decrease in home videogame sales.

Administrative expense decreased $123,000 from $16,445,000 in the nine months
ended March 31, 2000 to $16,322,000 in the nine months ended March 31, 2001. The
decrease in administrative expense is primarily due to the additional expenses
relating to the expansion of Midway's international presence, primarily in
Western Europe, was more than offset by other reductions in cost.

Operating loss in the nine months ended March 31, 2001 was $48,221,000 compared
with operating income of $28,158,000 in the nine months ended March 31, 2000.
The decreased operating results is primarily from lower revenues resulting in
lower gross profit, restructuring charge and a continued high level of research
and development expenditures for the new generation videogames.

Income taxes were established at an effective rate of 16.7% for the nine months
ended March 31, 2001. Midway was required under certain accounting
interpretations to provide a valuation allowance against the deferred tax asset
generated subsequent to December 31, 2000. Midway will be required to provide a
valuation allowance in future periods when a net loss occurs. The valuation
allowance is expected to be reversed into income in future periods in which
Midway returns to profitability.

Net loss was $38,814,000, $1.03 per share, in the nine months ended March 31,
2001, compared with net income of $18,694,000, $0.49 per share, in the prior
year period. The net loss for the nine months ended March 31, 2001 includes a
$3,639,000, $0.10 per share, restructuring charge mentioned above and the
valuation allowance for deferred income taxes increased the net loss by $0.21
per share.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information concerning the wrongful death action brought against us and
other companies entitled James, et al. v. Meow Media, et al. as set forth in
"Item 3. Legal Proceedings" in our Annual Report on Form 10-K for the year ended
June 30, 2000 is herein incorporated by this reference. All appellate briefs
have been filed. As of May 8, 2001, no oral argument has been scheduled.

On April 19, 2001, a class action was commenced against us and other companies
by individuals representing the victims (parents, teachers, students living,
injured and deceased) of the shootings by Eric Harris and Dyland Klebold on
April 20, 1999 at Columbine High School in Jefferson County Colorado. The
action, entitled Sanders, et al. v. Meow Media, et al., was brought in the U.S.
District Court for the District of Colorado, Civil Action No. 01- - 0728 against
25 defendants. The defendants include 18 companies in the video game business,
five companies that produced or distributed the movie "The Basketball Diaries"
and two companies that allegedly provided obscene Internet content. The
complaint alleges, with respect to Midway and other video game companies, that
Harris and Klebold, then 17 years old, were influenced by the allegedly violent
content of unspecified video games and that the video game manufacturers and
suppliers are liable for Harris' and Klebold's conduct. The complaint seeks up
to $10 million in compensatory damages for each of the members of the plaintiff
class and $5 billion in punitive damages and relief "necessary to correct the
abuses of the violent video game industry & its marketing of these wares to
children." We received a Request for Waiver of Service of Summons for this
action on May 11, 2001.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

We held our Annual Meeting of Stockholders on January 23, 2001. The matters
submitted to a stockholder vote were:

1) the election of four Class I directors to the Board of Directors; and

2) the ratification of the appointment of Ernst & Young LLP as independent
auditors for the 2001 fiscal year.

The voting results were as follows:

1) Our stockholders re-elected each of the four incumbent Class I directors, as
follows:

Nominee For Withheld
----------------- ------------ ---------

Neil D. Nicastro 31,762,118 2,634,690
William C. Bartholomay 33,088,403 1,308,405
Norman J. Menell 33,686,620 710,188
Louis J. Nicastro 32,671,419 1,725,389

2) Stockholders voted 34,249,946 shares (99.6% of the shares represented at the
meeting) in favor of the ratification of the appointment of Ernst & Young LLP as
independent auditors for the 2001 fiscal year; 49,489 shares (0.4% of the shares
represented at the meeting) voted against approval, and 97,373 shares (less than
0.3% of the shares represented at the meeting) abstained from voting or were
unmarked and not voted.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Amended and Restated Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, File No. 333-11919, filed on
September 13, 1996 (the "S-1 Registration Statement").

3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit
2 to the Registrant's Registration Statement on Form 8-A/A, Amendment
No. 1, filed on April 20, 1998 (the "8-A Registration Statement").

3.3 Form of Certificate of Designations of Series A Preferred Stock
incorporated by reference to Exhibit A to the Rights Agreement filed
as Exhibit 2.2 to the S-1 Registration Statement.

3.4 Amended and Restated By-laws of the Registrant, incorporated by
reference to Exhibit 3 to the 8-A Registration Statement.

4.1 Rights Agreement dated as of October 24, 1996 between the Registrant
and The Bank of New York, as Rights Agent, incorporated by reference
to Exhibit 2.1 to the S-1 Registration Statement.

4.2 First Amendment to Rights Agreement, dated as of November 6, 1997
between the Registrant and The Bank of New York, as Rights Agent,
incorporated by reference to Exhibit 8 to the 8-A Registration
Statement.

10.1 Security Agreement dated as of November 24, 2000 among the Registrant,
certain subsidiaries of the Registrant and Bank of America, N.A.,
among other lenders.

10.2 Second Amendment to Credit Agreement and First Amendment to Security
Agreement dated as of April 30, 2001 among the Registrant, certain
subsidiaries of the Registrant and Bank of America, N.A., among other
lenders.

(b) Reports on Form 8-K

None
12

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SIGNATURE

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

MIDWAY GAMES INC.

Dated: May 15, 2001 By: /s/ Harold H. Bach, Jr.
----------------------------
Harold H. Bach, Jr.
Executive Vice President -
Chief Financial Officer
Principal Financial and
Chief Accounting Officer

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EXHIBIT INDEX

No. Description
--- -----------

3.3 Form of Certificate of Designations of Series A Preferred Stock
incorporated by reference to Exhibit A to the Rights Agreement filed
as Exhibit 2.2 to the S-1 Registration Statement.

3.4 Amended and Restated By-laws of the Registrant, incorporated by
reference to Exhibit 3 to the 8-A Registration Statement.

4.1 Rights Agreement dated as of October 24, 1996 between the Registrant
and The Bank of New York, as Rights Agent, incorporated by reference
to Exhibit 2.1 to the S-1 Registration Statement.

10.1 Security Agreement dated as of November 24, 2000 among the
Registrant, certain subsidiaries of the Registrant and Bank of
America, N.A., among other lenders.