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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, 2002

Commission File Number 1-12367

MIDWAY GAMES INC.
(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

        The aggregate market value of the 45,258,294 shares of Common Stock held by non-affiliates of the registrant on March 19, 2003 was $150,257,536. Solely for purposes of this calculation, all shares held by directors and executive officers of the registrant have been excluded. This exclusion should not be deemed an admission that these individuals are affiliates of the registrant. On that date, the number of shares of Common Stock outstanding, excluding 2,930,000 shares held as treasury shares, was 46,469,310 shares.

        As used in this Annual Report on Form 10-K, the terms "we," "us," "our" and "Midway" mean Midway Games Inc., a Delaware corporation, and its subsidiaries. The term "common stock" means our common stock, $.01 par value, and the term "preferred stock" means our Series B Convertible Preferred Stock, $.01 par value, unless the context indicates a different meaning. References to "fiscal year" for 2002 or later refer to our new fiscal year ending on December 31. References to "transition period" in this report are to the six-month transition period beginning on July 1, 2001 and ended on December 31, 2001. Other references to "fiscal year" in this report are to the fiscal years ended June 30 of each year prior to or ended on June 30, 2001.

        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 federal securities laws. These statements may be found throughout this report, particularly in the materials set forth under "Item 1. Business" and in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," among others. These statements describe our plans, strategies and goals and our beliefs concerning future business conditions and our business outlook based on currently available information. Where possible, we have identified these statements by the use of terms such as "may," "will," "should," "expect," "anticipate," "believe," "estimate," "intend" and similar words, although some forward-looking statements are expressed differently. Our actual results could differ materially from those described in the forward-looking statements due to a number of risks and uncertainties. These risks and uncertainties include the financial strength of the interactive entertainment industry and the risks more fully described under "Item 1. Business—Risk Factors." We do not intend to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1. Business.

Development of Our Business

        We develop and publish interactive entertainment software. Midway and our predecessors have been in the business of creating videogames for more than 20 years and have published over 400 titles in that time. We currently develop and publish games for play on all the major new generation home videogame consoles and handheld game platforms, including Sony's PlayStation 2 computer entertainment system, Microsoft's Xbox and Nintendo's GameCube and Game Boy Advance. Our titles include many of the most popular game genres such as action, adventure, driving, extreme sports, fighting, role-playing, sports and strategy.

        Over the years, we have released many successful videogames, including Mortal Kombat, a line of games that has sold over 20 million copies, MLB SlugFest, SpyHunter, NHL Hitz, Ready 2 Rumble Boxing, Hydro Thunder, San Francisco Rush Extreme Racing, NFL Blitz, Area 51, Cruis'n USA, NBA Jam, Rampage, Gauntlet, Joust, Defender, Centipede, Asteroids and Pong.

        In fiscal 2002, we released 42 videogames (directly, or under licensing arrangements, including all platforms). During the transition period, we released 12 videogames (directly, or under licensing arrangements, including all platforms). In fiscal 2001, we released 29 videogames (directly or under licensing arrangements, including all platforms). For information about our revenues, assets and results of operations, see our financial statements included near the end of this report, and "Item 6. Selected Financial Data."

        Midway is a Delaware corporation formed in 1988. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports are available through our website as soon as reasonably practicable after we electronically file such materials with the SEC. Our website is located at www.midway.com. Information contained on our website is not a part of this report.

Industry Overview

        The interactive entertainment industry is comprised of game hardware manufacturers and videogame software publishers. Home videogame software is played on game hardware platforms, including home game consoles which connect to a television set, self-contained handheld platforms and personal computers.

        Historically, a new generation of more technologically advanced game consoles has reached the market every four to five years. Each new generation, or cycle, of hardware has resulted in larger numbers of consoles being purchased than the previous cycle, resulting in a progressively larger "installed base" of hardware platforms. At the beginning of each cycle, during the period of rapid growth in the installed base of the new generation of consoles, the interactive entertainment software industry has historically experienced periods of rapid expansion, as buyers purchase videogames for their new consoles. At the end of each cycle, when the introduction of a new generation of home game consoles is announced, sales of the older generation of platforms and games generally diminish, as consumers defer purchases in anticipation of the new platforms and games.

        The industry recently completed a transition from 32- and 64-bit home game consoles to the new more powerful generation of game consoles, with the release of Sony's PlayStation 2 in 2000 and the release of the Nintendo GameCube and Microsoft Xbox in 2001. Similarly, the 8-bit Game Boy Color handheld platform has been succeeded by the 32-bit Game Boy Advance, introduced in 2001.

        Videogame software is created by the platform manufacturers and by many independent developers. Platform manufacturers license publishers to publish games for their platforms and retain a significant degree of control over the content, quality and manufacturing of these games. The developers, subject to the approval of the platform manufacturers, determine the types of games they will create. Software publishers either create their games in-house, through their own development teams, or outsource this function to independent developers.

        Software for game platforms is sold generally by mass merchandise retailers, such as Wal-Mart and Toys-R-Us, or by regional retailers, discount store chains, video rental retailers, software specialty retailers and entertainment software distributors. Software publishers either distribute their products directly to these retailers or sell them through national distributors.

Our Business Strategy

        Highlights of our business strategy include:

        Develop games for multiple new generation game platforms.    We are focusing on developing games for play on all the new platforms. The processing power of the new platforms allows for faster, more complex graphics and superior game design capabilities compared to the older platforms. We currently have over 90 new products in various stages of development for the new generation of platforms.

        Leverage our proven franchises and library value.    Many of our games have been best-sellers. We continue to hold these properties as valuable assets that may be leveraged in the future. The popularity of many of our games has enabled us to successfully market sequels, including sequels for Mortal Kombat, Spy Hunter, Gauntlet, NFL Blitz, NHL Hitz, MLB SlugFest, Rampage, Cruis'n USA, San Francisco Rush Extreme Racing and Ready 2 Rumble Boxing.

        Our most successful and profitable videogame franchise has been Mortal Kombat with over 20 million units sold. We have also licensed two television and two film adaptations of Mortal Kombat and granted merchandising licenses for toys, clothing, comic books, strategy guides and other product lines. We released a new sequel in the Mortal Kombat series, Mortal Kombat: Deadly Alliance, in the fourth quarter of 2002 and this was our top selling game of fiscal 2002.

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        We have also leveraged our large library of "hit" titles by releasing "arcade classics" collections and entering into syndication agreements. We have released 12 collections of arcade classic games for home consoles and nine arcade classic products for handheld platforms. Midway controls the intellectual property rights to hundreds of classic videogame titles, including titles originally released under the Midway, Williams and Atari brands. A number of these classic titles have been licensed for play on a variety of gaming mediums, including websites, interactive television, cellular telephones and other handheld wireless devices. We believe that we can continue to leverage our library of classic titles to produce additional successful titles in the future.

        Continue to expand our sports category.    We have enjoyed strong sales from our line of sports games. Our titles in this popular category, such as NFL Blitz, NHL Hitz, MLB SlugFest, NBA Hoopz and Ready 2 Rumble Boxing, are characterized by extreme game play and the superhuman 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 among sports videogame fans. We are planning to release new versions of these "over-the-top" games for various sports, including baseball, football, basketball and hockey, in 2003.

        Strategic management of our in-house development group.    We seek to enhance and retain our large in-house development staff, employing approximately 345 individuals who work in teams to create our games. Our creative teams have a long history of developing successful titles. We believe that employing in-house developers provides us with the following advantages over competitors that rely more heavily on third-party developers:

•

we have more control over product quality, scheduling and costs, enhancing our ability to release titles on time;



•

our in-house development teams are more likely to collaborate with each other, sharing development techniques and useful experience to form a strong collective and creative environment;



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we can focus their efforts quickly to meet the needs of key projects;



•

we can use the same producer for both an original game and its sequels; and



•

our in-house teams are not subject to the competing needs of other publishers, which is a particular benefit to us prior to the crucial year-end holiday selling season.

        Expand international sales.    We believe that we can expand our presence in foreign markets. In fiscal 2000, we opened an office in the United Kingdom to conduct sales of our products in Europe and Australia. To further expand our international presence, we are developing titles that we believe will have a global appeal.

Products

        We sell games for all of the major videogame platforms, including the PlayStation 2, Xbox, GameCube and Game Boy Advance platforms. We currently have over 90 new products in various stages of development. Our revenues from home videogames are show in "Item 6. Selected Financial Data." Most of our home videogames have suggested retail prices ranging from $39.95 to $49.95. Suggested retail prices for Game Boy Advance games are usually between $29.95 and $34.95.

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2002 Videogame Releases

        During fiscal 2002, we released the following videogames:

Transition Period Videogame Releases

        During the transition period, we released the following videogames:

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2001 Videogame Releases

        During fiscal 2001, we released the following videogames:

Product Development

        We seek to develop videogames that are action-packed and exciting, and which provide sufficient challenge at various levels of proficiency to encourage repeated play. Our game development personnel are organized into teams. The producers manage the work of the other team members and are responsible for the overall design of the game. Each concept is reviewed initially for technical feasibility and evaluated relative to several factors, including whether the proposed product fits within our general strategy and profitability objectives. Our management team meets regularly to formally review and evaluate the progress and quality of each title in development.

        The game design teams operate in a studio environment that encourages creativity, productivity and cooperation among design teams. We believe that this environment, together with a compensation structure that rewards design teams for the success of their games, enables us to attract and retain game designers that are among the best in the industry.

        The designers are supported by state-of-the-art design technology that allows for the creation of cutting-edge, three-dimensional graphics and advanced audio effects. We have developed and acquired a substantial library of proprietary software and development tools. Use of these tools streamlines the development process, allowing members of the development teams to focus their efforts on the play and simulation aspects of the product under development. We have also developed software tools to expedite conversion of software from one hardware format to another and to provide sound and special visual effects. We continually create and acquire new software and development tools and refine and upgrade our existing tools.

        Development of a new videogame generally takes 18 to 24 months or longer and generally costs between $2.0 million and $7.0 million, depending on the specific software requirements. Because of the increasingly complex technology and software involved, both the time and cost to develop games have increased during the past few years. We believe that we can generate significant incremental revenue from our games by introducing them on additional platforms at a much lower cost than the development cost for introducing the game on the first platform. Converting an existing game from one platform to another generally takes three to 12 months, which period may overlap with the

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development period of the original version of the game, and costs at least $300,000. We use both our own personnel and independent third parties to develop and convert videogames.

        We are generally obligated to submit games to the platform manufacturers for approval prior to publishing a game for their platforms. Additionally, prior to release, each product undergoes careful quality assurance testing which involves technical review of each component of the final product and testing on the applicable platforms.

        We incurred research and development expenses of $25.0 million in fiscal 2002, compared to $61.6 million in fiscal 2001 and $67.7 million in fiscal 2000. During the transition period, we incurred research and development expenses of $12.8 million. See Note 7 to the financial statements in this report for information about capitalized development costs.

        From time to time, we have purchased distribution rights to games under development by third parties for various home videogame platforms. Some of these games are sequels to games which have previously been successfully released. From time to time we may also purchase the right to adapt and market games owned by third parties from one platform to another, where we believe that success on the original platform suggests a probability of success on the other platform.

        We endeavor to comply with the rules established by a domestic ratings board voluntarily established by the videogame industry and some foreign countries' ratings boards, and we label our products with these ratings. We believe that ratings labels as to the violence contained in videogames will not have an adverse effect upon us so long as ratings are consistently applied throughout the industry.

Marketing and Distribution

        We market videogames for play on home and handheld platforms under the Midway trademark. We market through our internal sales staff and through independent sales representatives to over 20,000 stores, including:

•

mass merchandisers;



•

foreign, national and regional retailers;



•

discount store chains;



•

video rental retailers; and



•

entertainment software distributors and re-sellers.

        It is customary for the sales representatives and distributors of our home games who are assigned specific customers to also distribute games produced by other manufacturers. Distribution channels are dominated by a select group of companies, and a publisher's access to retail shelf space is a significant competitive factor.

        Our principal customers for home videogames are mass merchandisers such as Wal-Mart and Toys "R" Us. Sales to our largest customer in fiscal 2002, Wal-Mart, represented 14.5% of our total revenues in fiscal 2002. Sales to our second largest customer in fiscal 2002, Toys "R" Us, represented 11.6% of our total revenues in fiscal 2002. We warrant our videogames for a period of 90 days.

        Our distribution efforts are supported by marketing programs, which emphasize product awareness, brand recognition, dealer merchandising opportunities and celebrity endorsements. Our marketing activities include television and print advertising, retail store promotions, direct mailings, user support programs and our website. We also utilize a store-oriented marketing approach which includes point-of-purchase promotions, use of display cards and other forms of merchandise displays. We provide technical support for our home products through a customer support department, which is staffed by personnel trained to respond to customer inquiries.

        Our office in the United Kingdom sells both through distributors and directly to retailers in Europe and Australia. See Note 1 to the financial statements in this report for additional information regarding our foreign revenues.

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Manufacturing

        The manufacturers of the home and handheld game platforms manufacture our videogames for us, either themselves or through their designees, as required by the applicable platform license. Platform manufacturers retain the right to approve the games to be released under manufacturing and licensing arrangements. The platform manufacturers charge us a fixed amount for each software disc or cartridge that they manufacture or a royalty if third parties perform the manufacturing. This charge generally includes a manufacturing, printing and packaging fee, as well as a royalty for the use of the manufacturer's trademarks and proprietary information and technology. The platform manufacturer may change its fee amount without our consent. We are responsible in most cases for resolving, at our expense, any applicable warranty or repair claim. To date, we have not experienced any material costs from warranty or repair claims.

        Production is based upon estimated demand for each specific title. The level of the inventory of finished goods depends upon anticipated market demand during the life of a specific game title. At the time a product is approved for manufacturing, we must generally provide the platform manufacturer with a purchase order for that product and, for one platform manufacturer, an irrevocable letter of credit for 100% of the purchase price. Most of our products are manufactured for us on an "as is" and "where is" basis, and delivery is at our expense and risk. Initial orders generally require seven to 45 days to manufacture depending on the platform. Reorders of disc-based products generally require only seven to 14 days to manufacture, while reorders of cartridge-based products require approximately 30 to 40 days to manufacture. Shipping of orders requires an additional three to ten days, depending on the mode of transport and location of the manufacturer. Only the Nintendo Game Boy Advance uses cartridges, while the new generation home consoles are all disc-based.

        We lease a warehouse facility in Dallas, Texas, from which we distribute our videogames to North America. Some products are imported into the United States, cleared by customs and transferred to our warehouse facility, where they are unpacked and shipped to our customers. At times, some components of our products are assembled into finished products for us by third parties prior to their transfer to our warehouse facility. We participate in the electronic data interchange program maintained by most of our large customers for home games. We generally fill re-orders from inventory within two days. As a result, our videogames traditionally have no backlog of orders.

        We sometimes provide replacements, markdowns or other credits on varying terms to customers holding slow-moving inventory of our home videogames. At the time of product shipment, we establish reserves, including reserves under our policies for price protection and returns, which estimate the potential for future returns of products based on historical return rates, seasonality of sales, retailer inventories of our products and other factors. See "Item 1. Business—Risk Factors—Product returns and price adjustments could exceed our reserves".

Licenses and Intellectual Property

        Platform Licenses.    The major platform manufacturers require that publishers obtain a license from them to publish games for play on their platforms. We have non-exclusive licenses from Nintendo, Sony and Microsoft under which we develop and market software products for their current major platforms. Each platform manufacturer requires that the software and a prototype of each title, together with all related artwork and documentation, be submitted for its pre-publication approval. This approval is generally discretionary.

        Upon expiration of a platform license, we usually have a limited period to sell off our inventory subject to that license, after which time any remaining inventory is generally required to be destroyed. Nintendo, Microsoft and Sony are among the largest publishers of software for use on their respective systems, and they compete directly with us. See "Risk Factors—We depend on game platform manufacturers" below.

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        Intellectual Property Licenses.    While we develop original proprietary games, some of our games are licensed from third party developers or based on trademarks and other rights and properties owned by third parties, such as the National Basketball Association, National Hockey League, Major League Baseball and the National Football League or various players' associations. Typically, we are obligated to make minimum guaranteed royalty payments over the term of these licenses and to advance payment against these guarantees. License agreements generally extend for a term of two to three years, are terminable in the event of a material breach by us, including failure to pay any amounts owing to the licensor in a timely manner, and other events. Some licenses are limited to specific territories or platforms. Each license typically provides that the licensor retains the right to leverage the licensed property for all other purposes, including the right to license the property for use with other products and, in some cases, software for other interactive hardware platforms.

        Patent, Trademark and Copyright Protection.    Each software title may embody a number of separately protected intellectual property rights, including:

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trademarks associated with elements of the game, such as team logos;



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trademarks under which the game is marketed;



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the copyrights for the game software, including the game's audiovisual elements; and



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the patents for inventions in the game software.

        We have hundreds of trademark registrations worldwide for our games, and we apply for trademark protection for all of our game titles, other than those licensed from third parties. Notwithstanding our patent, copyright and trademark protection, preventing and/or bringing infringement actions against unauthorized duplication of software products is difficult and costly.

        Each game also includes patents, copyrights and trademarks licensed from the platform manufacturer. Elements of some of our titles are owned by third parties and licensed to us. We rely on these third parties for protection of our licensed intellectual property rights. Their failure to adequately protect these rights could have a material adverse effect on us.

        The platform manufacturers incorporate security devices in the games that they manufacture for us, and also in their platforms, which seek to prevent unlicensed software products from being played on their platforms. We rely upon each platform manufacturer for protection of this intellectual property from infringement. We bear the risk of claims of infringement brought by third parties arising from the sale of software with respect to intellectual property supplied by third party developers and embodied in our software products. Our agreements with these outside developers generally require the developers to indemnify us for costs and damages incurred in connection with these claims. These software developers, however, may not have sufficient resources to indemnify us for any claims that may arise.

Competition

        The interactive entertainment software business is highly competitive. It is characterized by the continuous introduction of new titles and the development of new technologies. Our competitors vary in size from very small companies with limited resources to very large corporations with greater financial, marketing and product development resources than ours. The principal factors of competition in our industry are the ability to:

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select and develop popular titles;



•

identify and obtain rights to commercially marketable intellectual properties; and



•

adapt products for use with new technologies.

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        Successful competition in our market is also based on:

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price;



•

access to retail shelf space;



•

product quality;



•

product enhancements;



•

brand recognition;



•

marketing support; and



•

access to distribution channels.

        We compete with Nintendo, Microsoft and Sony, who publish software for their respective systems. We also compete with numerous companies licensed by the platform manufacturers to develop or publish software products for use with their respective systems. These competitors include Acclaim, Activision, Capcom, Eidos, Electronic Arts, Infogrames, Konami, Lucas Arts, Namco, Sega, Take-Two Interactive, THQ, 3DO and Ubi Soft, among others. We face additional competition from the entry of new companies, including large diversified entertainment companies, into our market.

Coin-operated Products

        Until June 2001, we sold coin-operated videogames under the Midway trademark. Although coin-operated games were a traditional strength of ours, because of the contraction of the arcade game market, in June 2001 we decided to exit the coin-operated amusement games business, and to discontinue developing and manufacturing coin-operated videogame products. Our revenues from coin-operated videogames are shown in "Item 6. Selected Financial Data".

Seasonality

        The home videogame business is highly seasonal and historically has resulted in higher revenues and operating profit in the quarters ended September 30 and December 31 due to customer purchases preceding the year-end retail holiday selling season.

Employees

        As of March 19, 2003, we had approximately 550 employees, approximately 345 of whom are members of our development staff. We believe that our relations with our employees are satisfactory.

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Risk Factors

        Some of the risks and uncertainties that may cause our operating results to vary from anticipated results or which may materially and adversely affect our operating results or the value of our common stock are listed below. There may be other important risk factors that we have not recognized.

We have experienced recent operating and net losses, and we may incur future losses.

        Midway has not reported a net or operating profit since the second quarter of fiscal 2000. We reported an operating loss in fiscal 2002 of $52.3 million, in fiscal 2001 of $78.4 million and in fiscal 2000 of $20.9 million. We also reported an operating loss in the transition period of $6.9 million. We believe that our losses have been primarily attributable to:

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a weakness in the home videogame industry during the transition to the new generation of home videogame platforms;



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our transition strategy to discontinue games under development for older platforms and concentrate instead on the development of games for these new platforms;



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a decline in the market for coin-operated videogames in fiscal 2000 and 2001;



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a tendency for retailers and consumers to only order and purchase top-tier videogames during late 2002; and



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slower than expected sales of some of our games in fiscal 2002.

        We cannot assure you that we will become profitable again.

We depend on market acceptance of new products.

        Our success depends on generating revenue from new products. Videogame products typically have market life spans of only three to 12 months. Our new products may not achieve and sustain market acceptance during the short life cycle sufficient to generate revenue to recover our investment in developing the products and to cover our other costs. The cost of developing new games for the new generation of platforms is generally between $2 million and $7 million. The cost of converting an existing game from one platform to another is at least $300,000. If our new products fail to gain market acceptance, our operating results and financial condition would be adversely affected.

We may experience delays in introducing new products.

        From time to time, we have experienced delays in product introductions. The timing of a creative process is difficult to predict. Unanticipated delays could cause us to miss an important selling season. A delay in introducing products could also affect our development schedule for other products. In either case, we may not achieve anticipated revenues.

Our market is subject to rapid technological change.

        Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products to emerging technologies, including new hardware platforms, operating systems, online game play and media formats. When we choose to incorporate a new technology into our products or to publish or develop a product for a new platform, we may make a substantial development investment one to two years in advance of initial shipment of these products. We may not be able to identify accurately which emerging technologies will gain widespread acceptance. If we invest in the development of a videogame incorporating a new technology or for a new platform that does not achieve significant commercial success, our revenues from that product will be adversely affected. If, on the other hand, we do not choose to pursue the development of products

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incorporating new technology or for new platforms that achieve significant commercial success, our revenues may also be adversely affected.

        In addition, consumers may defer purchasing home game software for use on existing platforms following the announcement of an introduction date for hardware platforms incorporating new technologies. Once new platform introduction dates have been announced, retail videogame prices may decrease as the market makes the transition to the new generation of hardware and software, resulting in lower revenues for us during that transition period. Accordingly, these announcements could adversely affect sales of our existing videogames.

Our operating results may fluctuate from quarter to quarter.

        We have experienced and expect to continue to experience significant quarterly fluctuations in net sales and other operating results due to a variety of factors, including:

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variations in the level of market acceptance of our products;



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delays and timing of product introductions;



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fluctuations in our mix of products with varying profit margins;



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introduction and market penetration of game platforms;



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development and promotional expenses relating to the introduction of our products;



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peak demand during the year-end retail holiday selling season;



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changes in our pricing policies and those of our competitors;



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the accuracy of the forecasts of consumer demand made by retailers and by us; and



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the timing of orders from major customers, order cancellations and delays in shipment.

        Our purchasing and marketing levels are based, in part, on our expectations regarding future sales. As a result, operating results in any particular quarter may be adversely affected by a decrease in sales or a failure to meet our sales expectations in that quarter.

We may need to seek additional capital.

        If we continue to generate operating losses, our working capital and cash resources may not be adequate. This may cause us to seek additional capital, including through the issuance of debt or equity, or through other financing. If we borrow funds, we likely will be obligated to make periodic interest or other debt service payments. If we seek financing through the sale of equity securities, our current stockholders may suffer dilution in their percentage ownership of common stock. Additionally, we are not certain as to our ability to raise additional capital in the future or under what terms capital would be available.

Our market is highly competitive.

        The interactive entertainment software business is highly competitive. Our ability to compete successfully in this market is based, in large part, upon our ability to:

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select and develop popular titles;



•

identify and obtain rights to commercially marketable intellectual properties; and



•

adapt products for use with new technologies.

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        Successful competition in our market is also based on:

•

price;



•

access to retail shelf space;



•

product quality;



•

product enhancements;



•

brand recognition;



•

marketing support; and



•

access to distribution channels.

        Our competitors vary in size from very small companies with limited resources to large corporations with greater financial, marketing and product development resources than ours. We compete with the platform manufacturers, including Nintendo, Sony and Microsoft. We also compete with companies that we depend upon for foreign distribution or other services. These companies may have an incentive to promote their own products in preference to ours. In addition, due to their dominant position in the industry, the manufacturers of platform hardware have a competitive advantage with respect to retail pricing, acquiring intellectual property licenses and securing shelf space.

        We believe that large diversified entertainment, cable and telecommunications companies, in addition to large software companies, are increasing their focus on the interactive entertainment software market, which will result in greater competition for us. Many of our competitors are developing on-line interactive games and interactive networks. We may not be able to compete successfully against current or future competitors.

Product returns and price adjustments could exceed our reserves.

        We sometimes accept product returns and sometimes provide replacements, markdowns or other credits to customers that hold slow-moving inventory of our home videogames. At the time of product shipment, we establish reserves, including reserves under our policies for price protection and returns. These reserves are established according to estimates of the potential for future returns of products based on historical return rates, seasonality of sales, retailer inventories of our products and other factors. If product returns, markdowns and credits exceed our reserves, our operating results and financial condition could be adversely affected.

We depend on game platform manufacturers.

        We sell our products for use on proprietary game platforms manufactured by other companies. We depend upon these companies for the following reasons:

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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;



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platform manufacturers set the prices for their platform licenses, which may be economically prohibitive;



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we must obtain their prior review and approval to publish games on their platforms;



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if the popularity of a game platform declines, or the manufacturer stops manufacturing, or 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;

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•

these manufacturers control the manufacture of, or approval to manufacture, our game discs and cartridges; and



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these companies have the exclusive right to protect the intellectual property rights to their respective hardware platforms and technology and to discourage others from producing unauthorized software for their platforms that compete with our games.

        Because these manufacturers compete against us in the videogame publishing markets, they could be motivated to give preference to their own products over ours in product approval and manufacturing, in promotion and in granting licenses to us for products that might compete with their products.

We depend on third parties to manufacture our products.

        We depend on third parties, including the platform manufacturers, to manufacture our products. Manufacturing delays or interruptions could cause delays or interruptions in product delivery. If any significant delays occur, we may not achieve anticipated revenues. This is particularly true if any of our products miss an important selling season. Unanticipated price changes from these manufacturers also could adversely affect us.

We depend on third parties to develop some of our game titles.

        Some of our games are developed by third parties. The number of titles developed for us by third parties varies from quarter to quarter. We have less control of a game being developed by a third party because we cannot control the developer's personnel, schedule or resources. This may lead to a game not being completed on time or not at all if the third party's business fails or it experiences delays. If this happens with a game under development, we would lose revenues from the game and could lose our investment in the game.

We may not be able to maintain or acquire licenses for intellectual property.

        Some of our games are based on properties or trademarks owned by third parties, such as Major League Baseball, the National Basketball Association, National Hockey League and National Football League or various players' associations. Our future success may depend upon our ability to maintain existing licenses and to acquire additional licenses for popular intellectual properties. There is competition for these licenses, and we may not be successful in maintaining or acquiring intellectual property rights with significant commercial value.

        Our intellectual property licenses generally require that we submit new products developed under licenses to the licensor for approval prior to release. This approval is generally discretionary. Rejection or delay in approval of a product by a licensor could prevent us from selling the product. As a result, we might not recover our investment in the product. The owners of intellectual property licensed by us generally reserve the right to protect the intellectual property against infringement. If any of these owners fails to protect its own, or infringes someone else's, intellectual property, it could have a material adverse effect on us.

We depend on our key personnel.

        Our success depends to a significant extent upon the performance of senior management and on our ability to continue to attract, motivate and retain highly qualified software developers. The loss of the services of a number of senior management personnel or highly qualified software developers could have a material adverse effect on us. Competition for highly skilled employees is intense in our industry, and we may not be successful in attracting and retaining these personnel. Specifically, we may experience increased costs in order to attract and retain skilled employees.

13

Sumner Redstone and Phyllis Redstone together control 36.6% of our common stock and may dispose of it at any time.

        Based on his most recent public report filed on January 2, 2003, Sumner Redstone owns, individually and through his affiliate, a total of 13,324,053 shares, or 28.7%, of our currently outstanding common stock. Mr. Redstone's former wife, Phyllis Redstone, owns a total of 3,659,783 shares, or 7.9%, of our currently outstanding common stock, based on her most recent public report filed on October 1, 2002. Mr. Redstone or Mrs. Redstone could sell some or all of these shares at any time on the open market or otherwise. The sale either by Mr. Redstone or Mrs. Redstone of a large number of shares would likely have an adverse effect on the market price of our common stock. Although Mr. Redstone and Mrs. Redstone have each stated that they have no plans to acquire control of Midway, they could change their positions or could sell their stock to a person who wishes to acquire control of Midway. Such a person may not agree with our business strategies and goals. These substantial interests in Midway could discourage a third party from making an acquisition of Midway favorable to our other stockholders.

Shares available for sale in the future could have an adverse effect on the market price of our common stock.

        We have 100,000,000 authorized shares of common stock, of which 49.4 million shares were issued and outstanding as of March 19, 2003. As of that date, another 11.8 million shares were reserved for issuance under our stock option plans, 1.7 million shares are issuable under outstanding warrants, and 1.2 million additional shares are issuable under convertible preferred stock at the current conversion price of $10.60.

        If the preferred stock is not converted at the election of the holders prior to November 22, 2003, however, we will be required to redeem the preferred stock in cash, unless we have elected, at least 125 trading days prior to November 22, 2003, to convert all or some of the shares of preferred stock into common stock at a conversion price that will be based on the average trading price of our common stock over a measuring period provided for by the terms of the convertible preferred stock. Assuming that the average trading price of our common stock during the measuring period is the same as the common stock's closing price on March 19, 2003, or $3.32 per share, and assuming that we elect to convert all of the preferred stock into common stock, then we would be required to issue approximately 4.0 million shares of common stock on November 22, 2003.

        Our Board of Directors has broad discretion with respect to the issuance of the remaining authorized but unissued shares, including discretion to issue shares in compensatory and acquisition transactions. In addition, if we seek further financing through the sale of our securities, our then current stockholders may suffer dilution in their percentage ownership of common stock. The future issuance, or even the potential issuance, of shares at a price below the then current market price may depress the future market price of our common stock.

Conversion of our preferred stock and exercise of warrants will dilute our common stock, and the sale of the underlying shares may depress the market price of our common stock.

        We have 1,312.5 shares of Series B Convertible Preferred Stock outstanding, which were issued in a private placement. The shares of preferred stock are convertible into common stock until November 21, 2003, subject to limited redemption rights. These preferred shares are convertible at a conversion price of $10.60 per share into a total of 1,238,208 shares of common stock, subject to anti-dilution adjustments. If we elect to convert the preferred shares into common stock on the maturity date, and assuming that the average trading price of our common stock during the conversion price measuring period is the same as the common stock's closing price on March 19, 2003, or $3.32 per share, then we would be required to issued approximately 4.0 million shares of common stock on

14

November 22, 2003. We also issued three-year warrants to purchase 1,050,000 shares of common stock and five-year warrants to purchase 555,161 shares of common stock, exercisable at $9.33 per share, subject to anti-dilution adjustments. Finally, we issued five-year warrants to purchase 123,821 shares of common stock, exercisable at $10.60 per share, subject to anti-dilution adjustments.

        The conversion or exercise of these securities will likely have a dilutive effect on the price of our common stock. If the holders of the preferred stock and warrants were to sell a large number of their shares over a short period of time, those sales would likely have an adverse effect on the market price of our common stock. Even the potential sale of a large number of shares may depress the future market price of our common stock.

If we fail to fulfill covenants made to the holders of our preferred stock, we may experience adverse financial effects.

        If we breach our agreements with the holders of the preferred stock, or upon a change of control of Midway, the holders of the preferred stock may require us to repurchase the preferred stock at a premium. If we were required to repurchase the preferred stock at a premium, we might suffer serious adverse financial consequences. The premium is 25% above the stated value in the case of a change of control. The premium is 20% above the stated value upon the occurrence of default events including:

•

our failure to maintain an effective registration statement for the underlying common stock beyond permitted grace periods;



•

suspension from trading or failure of our common stock to be listed on the NYSE or the Nasdaq National Market for five consecutive trading days or for more than ten trading days in any 365-day period; and



•

our statement of an intention not to comply with the conversion requirements of the preferred stock or our failure to deliver common stock upon conversion within the allowable time periods.

        The premium is 10% above the stated value upon our breach of any other agreement with, or representation or warranty made to, the selling stockholders, except if the breach would not have a material adverse effect on our business.

The exercise of outstanding stock options may dilute our common stock and depress its market price.

        As of March 19, 2003, we had outstanding options to purchase an aggregate of 8.7 million shares of common stock. Our stock options are generally exercisable for a period of nine years, beginning one year after the date of grant. Stock options are exercised, and the underlying common stock is generally sold, at a time when the exercise price of the options is below the market price of the common stock. Therefore, the exercise of these options generally has a dilutive effect on our common stock outstanding at the time of sale. Such exercises may have an adverse effect on the market price of our common stock. Even the potential for the exercise of a large number of options with an exercise price significantly below the market price may depress the future market price of common stock.

Effects of anti-takeover provisions could inhibit the acquisition of Midway.

        Our Board of Directors or management could use several charter or statutory provisions and agreements as anti-takeover devices to discourage, delay or prevent a change in control of Midway. The use of these provisions and agreements could adversely affect the market price of our common stock:

        Blank Check Preferred Stock.    Our certificate of incorporation authorizes the issuance of 5,000,000 shares of preferred stock with designations, rights and preferences that may be determined from time to time by the Board of Directors. Accordingly, our Board has broad power, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which

15

could adversely affect the voting power or other rights of the holders of our common stock. Other than the 1,312.5 shares of our Series B Convertible Preferred Stock owned by the preferred stockholders, our Board has no current plans, agreements or commitments to issue any shares of preferred stock.

        Rights Plan.    Under a rights agreement with The Bank of New York, each share of our common stock has an accompanying right to purchase, if a person acquires beneficial ownership of 15% or more of our common stock without the prior approval of our Board, convertible preferred stock that permits each holder, other than the acquiror, to purchase a number of shares of common stock at half the market price. The effect of our rights plan is to discourage a hostile takeover by diluting the acquiror's percentage interest in our common stock. We can redeem the rights at $0.01 per right, subject to limited conditions, at any time. The rights expire on December 31, 2006.

        Classified Board.    Our certificate of incorporation provides for a classified Board of Directors. Upon the expiration of staggered terms, one third of Midway's directors are elected at each annual meeting to succeed those directors whose terms expire. This means that a person would not obtain control of our Board until the second annual stockholders' meeting after acquiring a majority of the voting stock.

        Other Charter Provisions.    Our certificate of incorporation and bylaws also provide that:

•

directors may be removed by a vote of the stockholders, only for cause;



•

any vacancy on the Board may be filled only by a vote of a majority of the remaining directors then in office;



•

there may be no stockholder action by written consent;



•

only the President, the Chairman of the Board or the entire Board may call special meetings of stockholders, and the only business permitted to be conducted at stockholder meetings is business brought before the meeting by or at the direction of the Board;



•

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 the Board or an affirmative vote of at least 80% of outstanding common stock is needed in order to adopt, amend or repeal our bylaws; and



•

an affirmative vote of 80% of outstanding common stock is needed in order to amend or repeal the above provisions.

        Section 203 of the Delaware General Corporation Law.    In general, this statute prohibits a publicly-held Delaware corporation from engaging in a business combination with anyone who owns at least 15% of its common stock. This prohibition lasts for a period of three years after that person has acquired the 15% ownership. The corporation may, however, engage in a business combination if it is approved by the Board before the person acquires the 15% ownership or later by the Board and two-thirds of the stockholders of the public corporation.

Item 2. Properties.

        Our principal corporate office is located at 2704 West Roscoe Street, Chicago, Illinois, in premises which we recently purchased from WMS Industries Inc. See "Item 13. Certain Relationships and Related Transactions." Our design and development studios are located in facilities in San Diego, California, and in Chicago, Illinois. We principally conduct our sales and marketing operations out of offices in Milpitas, California and London, England. We also lease a warehouse and distribution facility in Dallas, Texas. With the exception of our principal corporate office and some surrounding parking lots, all of our properties are leased. See Note 12 to the financial statements in this report for additional information regarding our lease commitments.

        We believe that our facilities and equipment are suitable for the purposes for which they are employed, are adequately maintained and will be adequate for current requirements and projected growth.

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Item 3. Legal Proceedings.

        On April 12, 1999, a wrongful death action was commenced against us and other companies by the administrators for three children who were murdered in 1997 by Michael Carneal at the Heath High School in McCracken County, Kentucky. The action, entitled James, et al. v. Meow Media, et al. was brought in the U.S. District Court for the Western District of Kentucky, Paducah Division, Civil Action No. 5:99CV96-J against 25 defendants. The defendants included 18 companies in the videogame business, five companies that produced or distributed the movie "The Basketball Diaries" and two companies that allegedly provide obscene Internet content. The complaint alleged, with respect to Midway and other videogame companies, that Carneal, then 14 years old, was influenced by the allegedly violent content of unspecified videogames and that the videogame manufacturers and suppliers were liable for Carneal's conduct. The complaint sought $10 million in compensatory damages with respect to each of the three children and $100 million in punitive damages.

        The action was dismissed against all defendants by order entered April 6, 2000. On August 13, 2002, the U.S. Court of Appeals for the Sixth Circuit affirmed the trial court's dismissal of all actions. On January 21, 2003, the United States Supreme Court entered an order denying the plaintiffs' Petition for a Writ of Certiorari. Plaintiffs have now exhausted all appeal possibilities, and this matter has ended.

        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 videogame 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 videogame companies, that Harris and Klebold, then 17 years old, were influenced by the allegedly violent content of unspecified videogames and that the videogame 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 videogame industry & its marketing of these wares to children." On March 4, 2002, the court entered an opinion and order dismissing plaintiff's complaint in its entirety as to Midway and the other defendants. Plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the Tenth Circuit on April 5, 2002. The parties have stipulated to a dismissal agreement, which was filed with the U.S. Court of Appeals for the Tenth Circuit. Accordingly, the appeal in the U.S. Court of Appeals for the Tenth Circuit was dismissed on December 10, 2002. This matter is now concluded.

        We currently and from time to time are involved in other litigation incidental to the conduct of our business, none of which, in our opinion, is likely to have a material adverse effect on us.

Item 4. Submission of Matters to a Vote of Security Holders.

        Not Applicable.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

        Our common stock trades publicly on the NYSE under the symbol MWY. The following table shows the high and low sales prices of our common stock for the periods indicated as reported on the NYSE:

         On March 19, 2003, there were approximately 1,100 holders of record of our common stock.

        No cash dividends with respect to the common stock were declared or paid during fiscal 2001, the transition period or fiscal 2002. Under the agreements with our bank and with our preferred stockholders, we are prohibited from paying cash dividends on the common stock. We plan to retain any earnings from operations to fund our business.

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Item 6. Selected Financial Data.

(In thousands, except per share amounts)

(1)

Certain amounts have been reclassified to reflect current period presentation.

(2)

We incurred selling and marketing expenses and administrative expenses totaling $873,000 during fiscal 2002 relating to the closing of administrative facilities located in Corsicana, Texas. We incurred restructuring and other charges totaling $10,621,000 during fiscal 2002 relating primarily to the consolidation of product development operations in California and the closing of the Corsicana, Texas facility. See Note 11 to the financial statements included in this report.

(3)

Administrative expense includes amortization of goodwill for the six-months ended December 31, 2000 and fiscal 2001, 2000, 1999 and 1998 and none for fiscal 2002 and the six-months ended December 31, 2001. See Note 2 to the financial statements included in this report.

(4)

We incurred $5,390,000 of deferred income tax expense resulting from the revaluation of net deferred tax assets. We also incurred $87,000 of current foreign income tax expense. See Note 5 to the financial statements included in this report.

(5)

The six-months ended December 31, 2001 contains a net reversal of restructuring and other charges of $880,000 related to the coin-operated videogame business. See Note 11 to the financial statements included in this report.

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(6)

Fiscal 2001 contains restructuring and other charges totaling $12,527,000 relating to exiting the coin-operated videogame business. No income tax benefit was recorded for the restructuring expense. See Note 11 to the financial statements included in this report.

(7)

After December 31, 2000 we have not provided an income tax benefit due to the establishment of a valuation reserve on our deferred tax assets.

(8)

Fiscal 2000 loss before tax provision includes fourth quarter charges related to market conditions and asset realization of $25,979,000 or $16,151,000 on an after-tax basis.

(9)

Fiscal 1999 operating income includes charges for settlement of litigation, restructuring and other unusual items of $13,023,000 that reduced net income on an after-tax basis by $8,074,000.

(10)

Fiscal 2002 includes the accelerated recognition of imputed (non-cash) preferred stock dividends related to the conversion of $42,000,000 of preferred stock into common stock. See Note 8 to the financial statements included in this report.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

        Effective December 31, 2001, Midway changed its fiscal year from a fiscal year ending on June 30 to a fiscal year ending on December 31. This report covers the year ended December 31, 2002, referred to as "fiscal 2002", as well as required prior periods. All references below to the twelve-months ended December 31, 2001 and six-months ended December 31, 2000 are unaudited. Years ended June 30, 2001 and 2000 are referred to as "fiscal 2001" and "fiscal 2000."

Results of Operations

        The following table sets forth, for the periods indicated, certain items in or derived from Midway's consolidated statements of operations expressed as a percentage of revenues:

20

Fiscal 2002 Compared with Twelve-Months Ended December 31, 2001

        The following table sets forth our operating results in dollars and expressed as a percentage of revenue for fiscal 2002 and the comparable twelve-months ended December 31, 2001 (dollars in thousands):

        Midway exited the coin-operated videogame business in the quarter ended June 30, 2001. Accordingly, activity relating to the coin-operated videogame business for fiscal 2002 was not significant.

21

        Summarized below is net revenue by game console for fiscal 2002 and the comparable twelve-months ended December 31, 2001 (dollars in thousands):

        Home videogame revenues increased 98.3% to $190,412,000 for fiscal 2002 compared to $96,001,000 for the comparable twelve-months ended December 31, 2001. The increase is primarily due to Midway releasing 42 products for the new generation platforms during fiscal 2002 versus releasing 16 products during the comparable twelve-months ended December 31, 2001. The increase in new products is due to our strategy for the platform transition from 32 and 64-bit home videogame consoles to the new generation consoles including Sony's PlayStation 2, Microsoft's Xbox, and Nintendo's GameCube and Nintendo's 32-bit handheld Game Boy Advance, which required significant development efforts before we could release an increased number of games for these new consoles. Midway generally develops videogame titles for release on all new generation consoles. Our top selling videogames for fiscal 2002 included: Mortal Kombat: Deadly Alliance, MLB SlugFest 20-03, NFL Blitz 20-03, SpyHunter and Gauntlet Dark Legacy.

        Home videogame gross profit increased $10,136,000 from $38,190,000 (39.8% of related revenues) for the comparable twelve-months ended December 31, 2001 to $48,326,000 (25.4% of related revenues) for fiscal 2002. The increase in gross profit in fiscal 2002 as compared with the prior year's comparable period was due to the release of more new products in 2002 than in 2001. The revenues for fiscal 2002 were primarily comprised of videogames for the new platforms. Home videogame gross profit as a percentage of related revenues decreased from the prior comparable period primarily due to increased amortization of product development costs capitalized per unit sold. Additionally, the decrease was caused by increased price protection reserves for certain products during fiscal 2002.

        Research and development expense decreased $18,399,000 from $43,406,000 for the comparable twelve-months ended December 31, 2001 to $25,007,000 for fiscal 2002. The decrease is primarily due to the increased amount of product development costs capitalized on new generation games and our exit from the coin-operated videogame business. Product development costs of $70,572,000 and $26,067,000 were capitalized for fiscal 2002 and the comparable twelve-months ended December 31, 2001, respectively. The increase in capitalized software development costs is due to more software development expenses being incurred after the point of technological feasibility. All related development costs subsequent to the establishment of technological feasibility are capitalized. The development activity and expenditures for home videogames are much greater for new generation platforms than previous platforms. This increased development activity represents investment for future revenue to be generated from videogames for the new generation platforms. See Note 7 to the financial statements included in this report for a more complete description of the reasons for the ongoing increase in our capitalized development costs. We anticipate that capitalized development costs will continue to increase as we grow the number of products in development.

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        Selling and marketing expense increased $12,858,000 from $30,745,000 (26.5% of related revenues) for the comparable twelve-months ended December 31, 2001 to $43,603,000 (22.7% of related revenues) for fiscal 2002. The increase in selling and marketing expense was primarily due to a higher level of advertising necessary to support the increased number of new home videogame products released for fiscal 2002.

        Administrative expense decreased $832,000 from $23,024,000 for the comparable twelve-months ended December 31, 2001 to $22,192,000 for fiscal 2002. The comparable twelve-months ended December 31, 2001 included $1,961,000 of goodwill amortization of which none was recorded for fiscal 2002 pursuant to the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. See Note 2 to the financial statements included in this report. The remaining increase in administrative expenses included a number of items, including 2002 charges related to the consolidation of administrative operations located in Corsicana, Texas with existing operations in Chicago, Illinois and Milpitas, California (see Note 11 to the financial statements included in this report), legal expenses related to lawsuits and claims arising in the normal conduct of business, expenses related to moving our European office, and recruiting and relocation expenses.

        Restructuring and other charges for fiscal 2002 of $10,621,000 are primarily related to the consolidation of product development operations in California and the closing of a Texas facility. For the comparable twelve-months ended December 31, 2001 a restructuring charge of $7,026,000 was recorded related to the downsizing of the coin-operated videogame business. See Note 11 to the financial statements included in this report.

        Operating loss for fiscal 2002 was $52,265,000 compared with an operating loss of $63,486,000 for the comparable twelve-months ended December 31, 2001. The decrease in the operating loss is primarily due to increased revenues from the release of products on new generation platforms and decreased research and development expense partially offset by increased selling and marketing expenses.

        Midway provided $5,477,000 for income taxes in fiscal 2002 primarily related to the revaluation of net deferred tax assets. Midway provided no benefit for income taxes for the comparable twelve-months ended December 31, 2001. Midway is required under applicable accounting interpretations to provide a valuation allowance for realization of deferred tax assets resulting from tax loss carryforwards. The valuation allowance decreases the deferred tax assets for tax loss carryforwards to the amount reasonably expected to be utilized within the carryforward period. The applicable accounting interpretations limit the amount expected to be utilized to sources of future taxable income that are more likely than not to be generated within the carryforward period.

        During fiscal 2002, Midway received tax refunds totaling $13,626,000 based on net operating loss carryback claims filed with the Internal Revenue Service (IRS) and state taxing authorities. The $12,900,000 IRS tax refunds were the result of tax legislation enacted in March 2002 that now allows companies to carryback 2001 net operating losses five years where previously they could be carried back two years. The $726,000 state tax refunds were also the result of net operating loss carryback claims.

        Loss applicable to common stock was $73,618,000, or $1.61 per share, for fiscal 2002 compared with $66,778,000, or $1.75 per share, for the comparable twelve-months ended December 31, 2001. Loss applicable to common stock for fiscal 2002 reflected a $1,159,000 distributed dividend and an $18,636,000 imputed dividend on our Series B convertible preferred stock or $0.43 per share. The majority of the $18,636,000 imputed dividend was the result of investors converting $42,000,000 of preferred stock into common stock, accelerating the recognition of imputed preferred stock dividends (i.e. non-cash dividends) that otherwise would have been recognized in subsequent periods. Loss applicable to common stock for the comparable twelve-months ended December 31, 2001 reflected a $1,227,000 distributed dividend and a $4,187,000 imputed dividend on our Series B convertible preferred stock or $0.14 per share.

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Transition Period (Six-Months Ended December 31, 2001) Compared with Six-Months Ended December 31, 2000

        Midway exited the coin-operated videogame business in the quarter ended June 30, 2001. Accordingly, revenue and cost of sales of the coin-operated business for the transition period were not significant. The only expenses incurred by the coin-operated videogame business related to the sale of assets and exploring licensing opportunities for intellectual properties. Expenses related to the coin-operated videogame business were not significant to any of the reported line items for the six-months ended December 31, 2001.

        Home videogame revenues decreased $21,327,000 from $89,440,000 for the six-months ended December 31, 2000 to $68,113,000 for the transition period. The decrease is primarily due to our strategy for the platform transition from 32 and 64-bit home videogame consoles to the new generation consoles including Sony's PlayStation 2, Nintendo's GameCube and Microsoft's Xbox. The transition period primarily consisted of a smaller number of new generation console game sales as compared to the six-months ended December 31, 2000 that consisted primarily of a larger number of 32 and 64-bit console game sales. The adverse impact of the platform transition on our profitability was caused by our shifting product development resources from older platforms to the development of products for the new generation platforms. Several titles in development that could have softened the impact of the platform transition in the six-months ended December 31, 2001 were cancelled in order to develop products for the new consoles, which require an 18 to 24 month development period.

        Home videogame gross profit decreased $549,000 from $32,518,000 (36.4% of revenue) for the six-months ended December 31, 2000 to $31,969,000 (46.9% of revenue) for the transition period. However, Midway achieved higher gross margins resulting from the sale of videogames for the new generation platforms sold in the transition period, due to our product mix. The revenues for the transition period were almost entirely comprised of videogames for the new platforms. The revenues for the six-months ended December 31, 2000 were almost entirely from legacy platform home videogames which required significant discounting of sales price and had higher unit cost cartridge technology. This discounting of previously released titles in the prior period was due to pricing pressures from the platform transition previously mentioned.

        Research and development expenses decreased $18,201,000 from $31,008,000 for the six-months ended December 31, 2000 to $12,807,000 for the transition period. The decrease is primarily due to the increased amount of product development costs capitalized on new generation games and our exit from the coin-operated videogame business as discussed in Note 7 to the financial statements included in this report. Product development costs of $21,490,000 and $4,992,000 were capitalized in the transition period and six-months ended December 31, 2000, respectively. The increase in capitalized product development costs is due to more software development projects that have reached the point of technological feasibility. At that point, all related development costs subsequent to the establishment of technological feasibility are capitalized. The development activity and expense for home videogames has increased. This increased development activity represents investments for future revenue to be generated from videogames for the new generation platforms.

        Selling and marketing expense decreased $1,742,000 from $20,896,000 for the six-months ended December 31, 2000 to $19,154,000 for the transition period. The decrease in selling and marketing was related to a smaller number of new videogame titles released in the transition period. Although fewer titles were released, a high level of advertising support was initiated to support the launch of new home videogame titles on the new generation platforms.

        Administrative expense decreased $804,000 from $10,792,000 for the six-months ended December 31, 2000 to $9,988,000 for the transition period. The transition period includes $1,050,000 for executive retirement benefits. The period ended December 31, 2000 included $1,961,000 of goodwill amortization of which none was recorded for the transition period due to the adoption of Statement of

24

Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. See Note 2 to the financial statements included in this report.

        The transition period included a net reversal of restructuring charges totaling $880,000 that were recorded in fiscal 2001. The net reversal is comprised of a reduction of cost of sales of $1,260,000, an increase of administrative expense of $200,000 and an increase of restructuring expense of $180,000.

        Operating loss for the transition period was $6,947,000 compared with an operating loss of $21,824,000 for the six-months ended December 31, 2000. The decrease in the loss was primarily due to the increased level of software development costs capitalized and the exiting of the coin-operated videogame business.

        Midway provided no benefit for income taxes related to the loss for the transition period. Midway was required under applicable accounting interpretations to provide a valuation allowance for realization of deferred tax assets resulting from tax loss carryforwards. The valuation allowance decreases the deferred tax assets for tax loss carryforwards to the amount reasonably expected to be utilized within the carryforward period. The applicable accounting interpretations limit the amount expected to be utilized to sources of future taxable income that are more likely than not to be generated within the carryforward period. The income tax credit of $7,777,000 for the six-months ended December 31, 2000 was established at an effective rate of 37.5%.

        Loss applicable to common stock was $10,405,000 or $0.27 per share for the transition period, compared with a loss of $12,962,000 or $0.34 per share for the comparable six-months ended December 31, 2000. Loss applicable to common stock for the transition period was increased by distributed dividends in the amount of $1,043,000 and imputed dividends in the amount of $3,515,000 on our Series B convertible preferred stock or $0.12 per share combined as compared to $0.00 per share in the prior period.

Fiscal 2001 Compared with fiscal 2000

        Revenues decreased $165,657,000 from $333,865,000 in fiscal 2000 to $168,208,000 in fiscal 2001. Coin-operated videogame revenues decreased from $104,174,000 to $50,880,000.

        Home videogame revenues decreased $112,363,000 from $229,691,000 in fiscal 2000 to $117,328,000 in fiscal 2001. The decrease is primarily due to our strategy for the platform transition from 32 and 64-bit home videogames consoles to the new generation consoles including Sony's PlayStation 2, Nintendo's GameCube and Microsoft's Xbox. The adverse impact of the platform transition on our profitability was caused by our transition strategy to shift product development resources from older platforms to the development of products for the new generation platforms. Several titles in development that could have softened the impact of the transition on fiscal 2001 were cancelled in order to develop products for the new consoles.

        Coin-operated videogame gross profit was $7,666,000 (15.1% of related revenues) in fiscal 2001 compared with $31,170,000 (29.9% of related revenues) in fiscal 2000. Midway exited the coin-operated videogame business in the quarter ended June 30, 2001.

        Home videogame gross profit decreased $56,630,000 from $95,369,000 (41.5% of related revenues) in fiscal 2000 to $38,739,000 (33.0% of related revenues) in fiscal 2001 when approximately 76% of revenues were from the older generation platforms on games that were either previously released or substantially in development at the time Midway changed its strategy to only develop for the new generation platforms. Many of these sales were made at lower than historical selling prices due to the effects of the platform transition.

        Research and development expenses decreased by $6,087,000 from $67,694,000 in fiscal 2000 to $61,607,000 in fiscal 2001. The decrease was in part due to the elimination of certain coin-operated

25

functions that were not transferable to the home videogame business, and lower expense relating to the component of product development expense that is based on revenues. The development activity and expense for home videogames has increased. This increased development activity represents investments for future revenue to be generated from videogames for the new generation platforms.

        Selling and marketing expense decreased $24,238,000 from $56,725,000 (17.0% of revenues) in fiscal 2000 to $32,487,000 (19.3% of revenues) in fiscal 2001 primarily due to the decrease in total net revenues during the same period. Additionally, fiscal 2000 was adversely impacted by $2,853,000 for the write-down of the unamortized PC distribution agreement acquired in 1998.

        Administrative expense increased $1,824,000 or $859,000 when excluding the additional $965,000 bad debt expense provided for as a result of the exit from the coin-operated videogame business. Administrative expense excluding the additional bad debt expense was $22,863,000 (13.6% of revenues) in fiscal 2001 compared with $22,004,000 (6.6% of revenues) in fiscal 2000. The increase as a percentage of revenues was due to lower revenues.

        Restructuring expense in fiscal 2001 was $6,846,000 and related to the downsizing and the subsequent exiting from the coin-operated business. The restructuring expense for fiscal 2001 includes $2,049,000 for severance for 109 people, $3,070,000 for the disposal of fixed assets, $1,037,000 for lease and other commitments and $690,000 for administrative clean-up activities and other expense. In fiscal 2000, restructuring expense of $997,000 was incurred and represents cost of employee severance relating to reducing certain functions through combining similar activities formerly conducted at different locations.

        Operating loss in fiscal 2001 was $78,363,000 compared with an operating loss of $20,881,000 in fiscal 2000. Operating loss for fiscal 2001 is due to the low level of home videogame revenues with a reduced gross profit as a result of the platform transition and continuing product development expenses from developing games for the new generation of platforms. Fiscal 2001 also includes restructuring charges, additional bad debt and inventory write-downs totaling $12,547,000 relating to Midway's exiting from the coin-operated business. The fiscal 2000 operating loss was also due to weaker than anticipated revenues in the second half of the year, which required unusual charges of $25,979,000.

        The income tax credit was established at an effective rate of 10.2% for fiscal 2001. Midway was required under applicable accounting interpretations to provide a valuation allowance for realization of deferred tax assets resulting from tax loss carryforwards. The valuation allowance decreases the deferred tax assets for tax loss carryforwards to the amount reasonably expected to be utilized within the carryforward period. The applicable accounting interpretations limit the amount expected to be utilized to sources of future taxable income that are more likely than not to be generated within the carryforward period. The credit for income taxes in fiscal 2000 was established at an effective rate of 38.5%.

        Loss applicable to common stock was $69,335,000 or $1.84 per share for fiscal 2001 compared with a loss of $12,041,000 for fiscal 2000. The fiscal 2001 loss includes a charge of approximately $15,695,000 to provide an allowance for recorded potential future tax benefits resulting from tax operating losses, excluding the restructuring charge. Fiscal 2001 also includes charges of $12,527,000 before taxes for the downsizing and subsequent exit from the coin-operated videogame business. The fiscal 2000 loss includes after tax charges of $16,151,000 or $0.43 per share for unusual items that related primarily to the abrupt softening of the home videogame business in fiscal 2000.

Financial Condition and Liquidity

        The home video business is highly seasonal, and significant working capital is required to finance high levels of inventories and accounts receivable during the quarters ended September 30 and

26

December 31. In addition, one manufacturer of home videogames for Midway requires letters of credit for the full purchase price at the time a purchase order is accepted.

        In March 2003, Midway amended its credit facility to modify credit availability and maturity. The amended and restated credit agreement now provides for a letter of credit facility and a revolving line of credit with availability through February 15, 2004. The letter of credit facility provides for the availability of $15,000,000, which is fully collateralized with cash or cash equivalents on deposit. The revolving line of credit provides for the availability of up to $25,000,000 subject to a borrowing base equal to 80% of eligible accounts receivable, less $50,000,000, which is available during the period September 1, 2003 to February 15, 2004 when seasonal working capital requirements are the highest. The agreement requires, among other things, that Midway maintain a minimum level of stockholders' equity and net worth. Additionally, the agreement prohibits cash dividends on common stock and restricts the repurchase of our capital stock. Substantially all of our assets are pledged as collateral under our credit agreement. No borrowings were outstanding under the revolving line of credit at December 31, 2002 and 2001. Letters of credit outstanding were $541,000 and $154,000 at December 31, 2002 and 2001, respectively.

        Management believes that our cash, cash flow from operations and credit facility will be adequate to fund our anticipated levels of inventories, accounts receivable and commitments as described in Note 12 to the financial statements included in this report and other working capital requirements for the operation of our business and our other presently anticipated needs for the twelve months ending December 31, 2003.

        Cash used in operating activities before changes in operating assets and liabilities was $3,228,000 for fiscal 2002 compared to cash used of $41,027,000 for the comparable twelve-months ended December 31, 2001. Although a loss of $53,823,000 was incurred in fiscal 2002, cash of $8,469,000, $28,713,000, and $12,689,000 was provided due to the add back of depreciation and amortization, an increase in the allowance for accounts receivable, and an increase in deferred income taxes (see Note 5 to the financial statements included in this report), respectively. The cash used in the comparable twelve-months ended December 31, 2001 was primarily due to the net loss in that period, offset by $7,800,000 of depreciation and amortization and $9,166,000 for the increase in the allowance for doubtful accounts.

        The changes in the operating assets and liabilities resulted in a cash outflow of $56,714,000 for fiscal 2002 compared to cash provided of $10,847,000 for the comparable twelve-months ended December 31, 2001. The cash outflow from changes in operating assets and liabilities for fiscal 2002 was primarily due to an increase in receivables related to the increase in sales in the 2002 holiday selling and an increase in capitalized software development costs. The cash inflow for the comparable twelve-months ended December 31, 2001 was primarily due to the reduction in inventories and income tax receivable.

        Cash provided by investing activities for fiscal 2002 included a $41,000,000 net decrease in short-term investments partially offset by capital expenditures of $8,442,000. Cash used for investing activities for the comparable twelve-months ended December 31, 2001 of $47,016,000 included a $41,000,000 net increase in short-term investments and $6,016,000 for the purchase of property and equipment.

        Cash used in financing activities for fiscal 2002 was $10,752,000 and consisted primarily of the repurchase of common stock now held as treasury shares for $9,622,000 and the payment of preferred stock dividends of $1,363,000. Cash provided by financing activities of $130,528,000 during the comparable twelve-months ended December 31, 2001 consisted primarily of $72,878,000 of aggregate cash proceeds received from Midway's public offering of 5,175,000 shares of common stock at a price of $15.00 per share, $51,825,000 in net proceeds from the sale of Series B convertible preferred stock and warrants, and $6,490,000 from the exercise of stock options.

27

        Midway leases various office facilities, a warehouse and equipment under non-cancelable operating leases. Additionally, Midway enters into license agreements for the use of intellectual property in specific videogames or for a period of time. Some of these agreements provide for advance payments or guarantee minimum payments of royalties. At December 31, 2002, obligations under these arrangements totaled $11,704,000, net of $2,633,000 of sublease income. These obligations are not recognized as liabilities in the Company's consolidated balance sheet in accordance with generally accepted accounting principles. We had no capital lease obligations at December 31, 2002.

        A summary of Midway's contractual obligations at December 31, 2002 is as follows (in thousands):

Impact of Inflation

        In recent years, the level of inflation affecting Midway has been relatively low. Our ability to pass on future cost increases in the form of higher sales prices will continue to be dependent on the prevailing competitive environment and the acceptance of our products in the marketplace.

Seasonality

        The home videogame business is highly seasonal and historically has resulted in higher revenues and operating profit in the quarters ended September 30 and December 31 due to customer purchases preceding the year-end retail holiday selling season. Significant working capital is required to finance high levels of inventories and accounts receivable during the quarters ended September 30 and December 31.

Critical Accounting Policies and Estimates

Price protection, returns and discounts

        We record an allowance for price protection, returns and discounts at each balance sheet date. We base these allowances on expected trends and estimates. Several factors are used in developing these estimates, including: (a) prior experience with price protection, returns and discounts; (b) expected sell through rates for particular games; (c) expected rates of requests for such credits; (d) specific identification of problem accounts; and (e) existing field inventories. Changes in these factors could result in variances in the amount of allowance required. For example, if customers request price protection in amounts exceeding the rate expected and if management agrees to grant it, then Midway may incur additional charges.

Capitalized software development

        Software development costs incurred prior to the establishment of technological feasibility are expensed by Midway when incurred and are included in research and development expense. Once a software product has reached technological feasibility, then all subsequent software development costs for that product are capitalized until that product is released for sale. Technological feasibility is evaluated on a product-by-product basis and can occur early in the development cycle or later

28

depending on required technology to complete the product and the availability of such technology to Midway. After a product is released, the capitalized product development costs are amortized to expense based on the ratio of current sales to the total of current plus projected future sales for each game. This expense is recorded as a component of cost of sales.

        Midway evaluates the recoverability of capitalized software development costs on a product-by-product basis. A charge is recorded when management's forecast for a particular game indicates that unamortized capitalized costs exceed the net realizable value of that asset. The net realizable value is the estimated future revenues from that game reduced by the estimated future cost of completing and selling the game. As a result, the forecasted sales for a given game are a sensitive factor in this calculation. If revised forecast game sales are less than management's forecast it is possible the Company could record charges to write-down software development costs previously capitalized.

Valuation of long-lived assets, including goodwill

        Long-lived assets, primarily property and equipment, are reviewed for impairment as events or changes in circumstances occur indicating that the amount of the asset reflected in the Company's balance sheet may not be recoverable. An estimate of undiscounted cash flows produced by the asset, or the appropriate group of assets, is compared to the carrying value to determine whether impairment exists. The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management's estimates due to changes in business conditions, operating performance, and economic conditions.

        Beginning on July 1, 2001, Midway adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. As a result of adopting this standard Midway no longer amortizes goodwill, but continues to evaluate whether any event has occurred which might indicate that the carrying value of goodwill is not recoverable. In addition, this standard requires that goodwill be subject to at least an annual assessment for impairment by applying a fair value-based test.

Inventories

        Inventories are stated at the lower of cost or market. We record inventory write-downs when markets rates are lower than cost. Market rates are evaluated based on recent sales transactions, open purchase orders, customer bids, and management's estimates. Cost is determined by the first-in, first-out method.

Valuation of deferred tax assets

        Midway is required under applicable accounting interpretations to provide a valuation allowance for the realization of deferred tax assets, resulting primarily from tax loss carryforwards. The applicable accounting interpretations limit the amount expected to be utilized within the carryforward period to sources of future taxable income that are more likely than not to be generated within the carryforward period. When a valuation allowance is deemed necessary, Midway records an adjustment to the deferred tax asset, with a corresponding charge to the statement of operations. In the event that Midway determines that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

        Not applicable.

Item 8. Financial Statements and Supplementary Data.

        Our Consolidated Financial Statements are included in this report immediately following Part IV.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        Not applicable.

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PART III

Item 10. Directors and Executive Officers of the Registrant.

        Identification of Directors and Executive Officers.    Below is information about our executive officers and directors. Neil D. Nicastro is the son of Louis J. Nicastro; otherwise, there is no family relationship between any of our directors or executive officers. Directors are elected for staggered three year terms to succeed those directors whose terms expire. Each director is elected until the annual meeting to take place in the year listed opposite his name. Executive officers are elected annually by the Board of Directors.

(1)

Member of the Nominating and Corporate Governance Committee

(2)

Member of the Audit Committee

(3)

Member of the Compensation Committee

(4)

Member of the Stock Option Committee

(*)

Indicates chairman of committee whose number precedes the *.

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        Neil D. Nicastro joined our Board in 1988 and has been our President and Chief Operating Officer since 1991. In 1996, Mr. Nicastro became Chairman of the Board and Chief Executive Officer, having served as Co-Chief Executive Officer since 1994. Mr. Nicastro also served in other executive positions for us in the past. Mr. Nicastro has served as a director of WMS Industries Inc., our former parent company, since 1986 and as consultant to WMS since April 1998. Mr. Nicastro became sole Chief Executive Officer of WMS in 1996, Co-Chief Executive Officer in 1994, President in 1991 and Chief Operating Officer in 1991. Mr. Nicastro resigned from his offices with WMS in April 1998 to devote his full business time to Midway.

        William C. Bartholomay joined our Board in 1996. He has been President of Near North National Group, insurance brokers in Chicago, Illinois for more than five years. He has served as Vice Chairman of Turner Broadcasting System, Inc., a division of AOL-Time Warner, Inc. since 1994, having also held that office during the period 1976-1992. He is Chairman of the Board of the Atlanta Braves baseball team. Mr. Bartholomay is a director of WMS.

        Norman J. Menell joined our Board in 1996. He has been Vice Chairman of the Board of WMS since 1990 and is a director of WMS. He previously held various executive offices at WMS from 1981 to 1990, including President.

        Louis J. Nicastro joined our Board in 1988. He was the Chief Executive Officer of WMS from April 1998 until June 2001 and was also its President from April 1998 to April 2000. He has served as Chairman of the Board of WMS since its incorporation in 1974. Mr. Nicastro also served WMS as Chief Executive Officer or Co-Chief Executive Officer from 1974 to 1996 and as President (1985-1988, 1990-1991), among other executive positions. Mr. Nicastro also served as Chairman of the Board and Chief Executive Officer of WHG Resorts & Casinos Inc. and its predecessors from 1983 until January 1998. He also served as our Chairman of the Board and Chief Executive Officer or Co-Chief Executive Officer from 1988 to 1996 and our President from 1988 to 1991.

        Kenneth J. Fedesna joined our Board in 1996. He has been our Executive Vice President—Product Development since May 2000 and was our Executive Vice President—Coin-Op Video from 1996 until May 2000. Mr. Fedesna served as our Vice President and General Manager from 1988 to 1996. He also served as Vice President and General Manager of Williams Electronics Games, Inc., a subsidiary of WMS, for over five years until August 1999.

        William E. McKenna joined our Board in 1996. He has served as a General Partner of MCK Investment Company, Beverly Hills, California for over five years. He also is a director of WMS and Drexler Technology Corporation, a developer and manufacturer of optical data storage products.

        Harvey Reich joined our Board in 1996. He was a member of the law firm of Robinson Brog Leinwand Greene Genovese & Gluck, P.C., New York, New York and its predecessor firms for over five years until his retirement from that firm in July 1998. He is a director of WMS.

        Ira S. Sheinfeld joined our Board in 1996. He has been a partner of the law firm of Hogan & Hartson L.L.P. (formerly known as Squadron, Ellenoff, Plesent & Sheinfeld LLP), New York, New York for over five years. He is a director of WMS.

        Harold H. Bach, Jr. joined our Board in 1996 and served as our Chief Financial Officer and an Executive Vice President from 1996 to September 2001, when he retired. Mr. Bach served as our Senior Vice President—Finance and Chief Financial Officer from 1990 to 1996, and he served as our Treasurer from 1994 to April 2001. Mr. Bach also served as Vice President—Finance, Chief Financial and Chief Accounting Officer of WMS for over five years until September 1999. Mr. Bach was a partner in the accounting firms of Ernst & Young (1989-1990) and Arthur Young & Company (1967-1989).

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        Richard D. White joined our Board in 1996. Mr. White is a private investor. He was a Managing Director of CIBC Capital Partners, New York, New York, an affiliate of CIBC World Markets Corp. and its predecessor, for over five years until May 2002. Mr. White is a director of G-III Apparel Group, Ltd., a manufacturer, designer and importer of outerwear. Mr. White is also a director of ActivCard, Inc., a software company.

        Gerald O. Sweeney, Jr. joined our Board in 1996. He has been a member of the law firm Lord, Bissell & Brook, Chicago, Illinois for over five years.

        Thomas E. Powell joined us as Executive Vice President—Finance and Treasurer in April 2001. In September 2001, he became our Executive Vice President—Finance, Treasurer and Chief Financial Officer. From 1997 to February 2001, Mr. Powell was employed by Dade Behring, Inc., a manufacturer of medical equipment, serving most recently as Vice President of Corporate Business Development, Strategic Planning. From 1991 to 1997, he was employed by Frito-Lay, a division of PepsiCo, Inc., ultimately serving as Director of Finance.

        Mark S. Beaumont has served as our Senior Vice President—Publishing since January 30, 2002. He has served as Senior Vice President—Business Development of our wholly-owned subsidiary, Midway Games West Inc., since January 2000. Mr. Beaumont provided marketing and business development consulting services to Midway from October 1999 to January 2000. Prior to joining Midway, from 1996 to February 1999, Mr. Beaumont was Executive Vice President and General Manager of U.S. Operations for Psygnosis, a division of Sony Corporation of America.

        Deborah K. Fulton has served as our Senior Vice President, Secretary and General Counsel since January 30, 2002. She served us as Vice President, Secretary and General Counsel from May 2000 to January 30, 2002. She was employed by us as Senior Counsel from March 1998 until May 2000 and by WMS as Senior Counsel from 1994 to March 1998. Formerly, she was employed by the law firm of Gardner Carton & Douglas from 1988 until 1994.

        David W. Nichols has served as our Senior Vice President—Administration and Operations since January 30, 2002. He has served as Executive Vice President—Operations of our wholly-owned subsidiary, Midway Home Entertainment Inc., since February 2001. From May 2000 to February 2001, Mr. Nichols served as Vice President—Operations, of Midway Home Entertainment, after serving as that company's Vice President—Administration, from 1997 to May 2000. Mr. Nichols joined us in 1995 as Controller for Midway Home Entertainment.

        Miguel Iribarren has served as our Vice President, Corporate Communications and Strategic Planning, since February 14, 2002. Prior to joining Midway, Mr. Iribarren was a Vice President, Research for Wedbush Morgan Securities. At Wedbush, where he worked from May 2000 to February 2002, Mr. Iribarren was responsible for research on the interactive entertainment industry. From August 1993 to May 2000, Mr. Iribarren was employed by the Atlantic Richfield Corporation, an oil and gas company, in various finance and planning positions, ultimately serving as Manager, Corporate Finance.

        Section 16(a) Beneficial Ownership Reporting Compliance.    Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. These persons are required by regulation to furnish us with copies of all Section 16(a) reports that they file. Based on our review of the copies of these reports received by us, or written representations from the reporting persons that no Form 5 was required for those persons, we believe that, during fiscal 2002, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.

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Item 11. Executive Compensation.

        The summary compensation table below sets forth the compensation earned during fiscal 2002, the transition period, fiscal 2001 and fiscal 2000 by our Chief Executive Officer and our four next most highly compensated executive officers. During fiscal 2000, Mr. Fedesna provided services to both WMS Industries and us. The table below reflects his compensation in those years for service in all capacities to both WMS and Midway. Compensation paid to him in these years was paid by either WMS or Midway and was reimbursed by, or to, us in amounts equal to our allocated cost under an agreement between WMS and us.

SUMMARY COMPENSATION TABLE

*

Six-month transition period ended December 31, 2001.

(1)

Mr. Nicastro's employment agreement with us permits him to receive advances against estimated bonus payments. Advances were made in the first six months of fiscal 2000 for bonuses accrued that were reversed in the second six months of fiscal 2000 totaling $984,000. Mr. Nicastro applied salary of $580,000 during fiscal 2002 and $302,000 during the transition period to the repayment of these advances. As of March 19, 2003, Mr. Nicastro had repaid these advances in full through deductions from his salary. See "Item 13. Certain Relationships and Related Transactions—Other Related Party Transactions."

(2)

On May 4, 2000, our Board granted to Mr. Nicastro an option to purchase 300,000 shares of our common stock in lieu of his salary for fiscal 2001, which he has waived. The option expires on June 30, 2005. The exercise price is $7.00 per share.

(3)

Represents life insurance premiums.

(4)

Represents accruals for contractual retirement benefits. See "Employment Agreements" below.

(5)

Mr. Powell joined Midway on April 9, 2001.

(6)

Mr. Beaumont has served as our Senior Vice President—Publishing, since January 30, 2002.

(7)

Mr. Nichols has served as our Senior Vice President—Administration and Operations, since January 30, 2002.

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Stock Options

        During fiscal 2002, the following options to purchase common stock were granted under our stock option plans to the persons named in the Summary Compensation Table:

OPTION GRANTS IN LAST FISCAL YEAR

(1)

The assumed appreciation rates are set by rules promulgated under the Securities Exchange Act of 1934 and are not related to or derived from the historical or projected prices of our common stock.

        The following table sets forth information with respect to the number and year-end values of options to purchase common stock owned by the executive officers named in the Summary Compensation Table.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

(1)

Based on the closing price of our common stock on the NYSE on December 31, 2002, which was $4.17 per share.

34

        We have adopted a 2002 Non-Qualified Stock Option Plan, a 2002 Stock Option Plan, a 2000 Non-Qualified Stock Option Plan, a 1999 Stock Option Plan, a 1998 Stock Incentive Plan, a 1998 Non-Qualified Stock Option Plan and a 1996 Stock Option Plan. The plans provide for the granting of stock options to our directors, officers, employees, consultants and advisors. During fiscal 2002, we adopted a salary and director fee reduction/stock option program under the 2002 Non-Qualified Stock Option Plan. Employees and Directors who elected to participate in the program voluntarily elected to reduce their base salary or director's fee for a one-year period beginning in January 2003. For each dollar of salary or fee reduction, employees and directors were granted options to purchase one and one-half shares of our common stock. The 1998 Stock Incentive Plan required that participants purchase shares of our common stock at the market price in order to be eligible to receive options. The plans are intended to encourage stock ownership by our directors, officers, employees, consultants and advisors and thereby enhance their proprietary interest in us. Subject to the provisions of the plans, the Stock Option Committee determines which of the eligible directors, officers, employees, consultants and advisors receive stock options, the terms, including applicable vesting periods, of the options, and the number of shares for which options are granted.

        The option price per share with respect to each option is determined by the Stock Option Committee and generally is not less than 100% of the fair market value of our common stock on the date the option is granted. The Plans each have a term of ten years, unless terminated earlier.

        The following is a summary of additional information about securities authorized for issuance under our equity compensation plans as of December 31, 2002:

EQUITY COMPENSATION PLAN INFORMATION

        The average exercise price of outstanding options, at March 19, 2003, was approximately $10.33 per share. See "Item 12. Security Ownership of Certain Beneficial Owners and Management" for information about options held by officers and directors of Midway.

Midway Management Bonus Incentive Plan

        Our executive officers, as well as our other senior employees, are also eligible for participation under the Midway Management Bonus Incentive Plan. The plan offers participants the opportunity to receive bonuses based on a combination of the following factors: (1) base salary; (2) the achievement of targets set for Midway's financial performance; and (3) management's evaluation of the individual and the degree to which he or she meets individual performance goals.

35

Compensation of Directors

        We pay a fee of $32,500 per year to each director who is not also our employee. Each director who serves as the chairman of any committee of the Board receives a further fee of $2,500 per year for his services in that capacity and each member of our Audit Committee receives an additional fee of $2,500 per year. During fiscal 2002, each of our directors elected to reduce their fiscal 2003 fees under the salary and director fee reduction/stock option program in exchange for options to purchase our common stock. These options vest ratably over a one-year period commencing January 1, 2003.

Compensation Committee Interlocks and Insider Participation

        No member of our Compensation Committee or our Stock Option Committee (identified above in the table under "—Identification of Directors and Executive Officers") is or was an employee or officer of Midway, and no officer, director or other person had any relationship required to be disclosed under this heading, except that Mr. Bartholomay, one of the members of our Compensation Committee, is President of Near North National Group, insurance brokers, which we retained to provide insurance services during fiscal 2002 and propose to retain for insurance services during the current fiscal year.

Employment Agreements

        We employ Neil D. Nicastro under the terms of an Employment Agreement dated as of July 1, 1996. The agreement was amended on March 5, 1998, November 5, 1999, May 4, 2000 and October 30, 2000. Mr. Nicastro's base salary is $600,000. The agreement provides for bonus compensation in an amount equal to two percent of our pre-tax income. The employment agreement is subject to automatic extensions in order that the term of Mr. Nicastro's employment shall at no time be less than three years. Upon Mr. Nicastro's retirement or death, Midway is required to deliver to Mr. Nicastro or his designee, or if no designation is made, to his estate, on the first day of each month, for a period of ten years, 5,065 shares of our common stock, subject to adjustment pursuant to the terms of the employment agreement. This benefit is payable notwithstanding Mr. Nicastro's termination of employment for any reason.

        The employment agreement provides that Mr. Nicastro shall devote such time to our business and affairs as is reasonably necessary to perform the duties of his position. Mr. Nicastro may continue to serve as a director of and consultant to WMS as he deems appropriate.

        The employment agreement also provides that Mr. Nicastro may participate and receive the benefits of all pension and retirement plans, bonus plans, health, life, hospital, medical and dental insurance, including reimbursement for all medical and dental expenses incurred by him, his spouse and his children under the age of twenty-one, to the extent that these expenses are not otherwise reimbursed by insurance provided by us, and all other employee benefits and perquisites generally made available to our employees. Additionally, we currently provide Mr. Nicastro with $2,000,000 of life insurance coverage in addition to the standard amount provided to our employees.

        Mr. Nicastro's employment agreement further provides for full compensation during periods of illness or incapacity. We may, however, give 30 days' notice of termination if illness or incapacity disables Mr. Nicastro from performing his duties for a period of more than six months. The termination notice becomes effective if full performance is not resumed within 30 days after the notice is given and maintained for a period of two months thereafter. The employment agreement may be terminated at the election of Mr. Nicastro upon the occurrence without his consent or acquiescence of any one or more of the following events:

•

the placement of Mr. Nicastro in a position of lesser stature or the assignment to Mr. Nicastro of duties, performance requirements or working conditions significantly different from or at variance with those presently in effect;

36

•

the treatment of Mr. Nicastro in a manner which is in derogation of his status as a senior executive;



•

the cessation of service of Mr. Nicastro as a member of our board of directors;



•

the discontinuance or reduction of amounts payable or personal benefits available to Mr. Nicastro under the agreement; or



•

the requirement that Mr. Nicastro work outside his agreed upon metropolitan area.

        In any such event, and in the event that we are deemed to have wrongfully terminated Mr. Nicastro's employment agreement under the terms thereof, we are obligated to make a lump sum payment to Mr. Nicastro equal in amount to the sum of:

•

the aggregate base salary during the remaining term of his employment agreement, but in no event less than three times the highest base salary payable to him during the one-year period prior to such event;



•

the aggregate bonus, assuming that Midway pre-tax income during the remainder of the term of the employment agreement is earned at the highest level achieved in any of the last five full fiscal years prior to such termination; and



•

the retirement benefit, assuming the date of termination is his retirement date, otherwise payable under the terms of the employment agreement.

        Additionally, we would be obligated to purchase, at the election of Mr. Nicastro, all stock options held by him with respect to our common stock at a price equal to the spread between the option price and the fair market price of the stock as defined in the agreement. The employment agreement may also be terminated at the election of Mr. Nicastro if individuals who presently constitute the board of directors, or successors approved by board members, cease for any reason to constitute at least a majority of the board. Upon such an event, we may be required to purchase the stock options held by Mr. Nicastro and make payments similar to those described above.

        If any portion of the amount paid to Mr. Nicastro is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then we must pay additional compensation to Mr. Nicastro to the extent necessary to eliminate the economic effect on him of the resulting excise tax.

        We employ Kenneth J. Fedesna under the terms of an employment agreement dated as of June 1, 1999. This agreement provides for salaried compensation at the rate of $325,000 per year, or a greater amount as may be determined by the board of directors. It also provides for, among other things, full participation in all benefit plans and perquisites generally available to executive employees. The agreement requires that we provide Mr. Fedesna with $400,000 in additional life insurance coverage. The agreement is subject to automatic extensions so that the term of Mr. Fedesna's employment shall at no time be less than three years. Either party may terminate the agreement effective upon expiration of the term upon written notice from the terminating party to the other party dated and received at least three years prior to the respective termination date. We may terminate the agreement upon 30 days' written notice for cause. Mr. Fedesna may terminate the agreement if:

•

he is placed in a position of lesser stature;



•

he is assigned duties significantly different from or incompatible with his position;



•

his performance requirements or working conditions change; or



•

the business facility at which he is required to work is relocated more than 50 miles from our present business location.

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        Mr. Fedesna may also terminate the agreement if the individuals who presently constitute the board of directors, or successors approved by these board members, cease for any reason to constitute at least a majority of the board. If this happens, and Mr. Fedesna gives us notice of termination within 60 days, then in lieu of any other rights under the agreement, all of Mr. Fedesna's unvested stock options will immediately vest, and we will be required to pay him a lump sum of three times his base salary. If any portion of the amount paid to Mr. Fedesna is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then we must pay additional compensation to Mr. Fedesna to the extent necessary to eliminate the economic effect on him of the resulting excise tax.

        We employ Thomas E. Powell as Executive Vice President—Finance, Treasurer and Chief Financial Officer. His current base annual salary is $300,000. Pursuant to the terms of our agreement with Mr. Powell dated March 21, 2001, Mr. Powell's initial grant of 100,000 stock options will automatically vest upon a change of control of Midway. The agreement also provides for, among other things, full participation in all benefit plans and perquisites generally available to executive employees. In addition, pursuant to the terms of our agreement with Mr. Powell dated February 10, 2003, if a change of control occurs within 5 years from the date of the agreement, and within 2 years thereafter, Mr. Powell's employment is terminated (a) by Midway without cause, (b) by Mr. Powell due to the relocation of his office location more than 50 miles from its present location, or (c) by Mr. Powell due to his placement in a position of lessor stature or the assignment of duties at variance with his current duties, then Mr. Powell will receive twenty-four months of severance payments at his then current salary rate.

        We employ Mark S. Beaumont as our Senior Vice President—Publishing. His current base annual salary is $245,000. Pursuant to the terms of our agreement with Mr. Beaumont dated February 10, 2003, if a change of control occurs within 5 years from the date of the agreement, and within 2 years thereafter, Mr. Beaumont's employment is terminated (a) by Midway without cause, (b) by Mr. Beaumont due to the relocation of his office location more than 50 miles from its present location, or (c) by Mr. Beaumont due to his placement in a position of lessor stature or the assignment of duties at variance with his current duties, then Mr. Beaumont will receive twenty-four months of severance payments at his then current salary rate.

        We employ David W. Nichols as our Senior Vice President—Administration and Operations. His current base annual salary is $225,000. Pursuant to the terms of our agreement with Mr. Nichols dated February 10, 2003, if a change of control occurs within 5 years from the date of the agreement, and within 2 years thereafter, Mr. Nichols' employment is terminated (a) by Midway without cause, (b) by Mr. Nichols due to the relocation of his office location more than 50 miles from its present location, or (c) by Mr. Nichols due to his placement in a position of lessor stature or the assignment of duties at variance with his current duties, then Mr. Nichols will receive twenty-four months of severance payments at his then current salary rate.

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Item 12. Security Ownership of Certain Beneficial Owners and Management.

Principal Stockholders

        The following table sets forth information as of March 19, 2003, except as otherwise noted in the footnotes, about persons which, to our knowledge, beneficially own more than 5% of the outstanding shares of our common stock:

(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 46,469,310 shares outstanding on March 19, 2003.

(2)

Based upon a Form 4 filed with the SEC by Sumner M. Redstone on January 2, 2003. Mr. Redstone and National Amusements, Inc., a Maryland corporation, reported direct and indirect beneficial ownership of 9,201,282 and 4,122,771 shares, respectively, of our common stock. As a result of his stock ownership in National Amusements, Inc., Mr. Redstone is deemed the beneficial owner of the shares of common stock owned by National Amusements, Inc.

(3)

Based upon Schedule 13D filed with the SEC on August 8, 2002. The filer reported beneficial ownership, with sole dispositive and voting power, of 3,659,783 shares. The common shares were acquired by Ms. Redstone on July 30, 2002 pursuant to the terms of a Settlement of Divorce.

(4)

Based upon Schedule 13G Amendment No. 4 filed with the SEC on January 22, 2003 by Mellon Financial Corporation, as the parent company of The Boston Company, Inc. and The Boston

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Company, Asset Management, LLC in their various fiduciary capacities. The filer reported beneficial ownership of 3,664,464 shares, sole voting power over 2,536,284 shares, shared voting power over 450,230 shares, sole dispositive power over 3,661,989 shares and shared dispositive power over 2,475 shares.

(5)

Represents 58,962 shares of common stock underlying convertible preferred stock, 50,000 shares of common stock underlying warrants, 2,173,310 shares of common stock underlying stock options and 990,421 shares of common stock owned outright.

(6)

Based upon Schedule 13G filed with the SEC on February 4, 2003. The filer reported beneficial ownership of 3,077,918 shares, sole voting power over 574,000 shares and sole dispositive power over 3,077,918 shares.

(7)

Represents 442,217 shares of common stock underlying convertible preferred stock, 375,000 shares of common stock underlying warrants and 1,613,760 shares of common stock owned outright. Ramius Capital Group, LLC is the investment adviser of Peconic Fund, Ltd. and consequently has voting control and investment discretion over securities held by Peconic. Ramius Capital disclaims beneficial ownership of the shares held by Peconic. Peter A. Cohen, Morgan B. Stark and Thomas W. Strauss are the sole managing members of C4S& Co., LLC, the sole managing member of Ramius Capital. As a result, Messrs. Cohen, Stark and Strauss may be considered beneficial owners of any shares deemed to be beneficially owned by Ramius Capital.

Securities Authorized for Issuance Under Equity Compensation Plans

        Information about securities authorized for issuance under equity compensation plans is discussed above in "Item 11. Executive Compensation—Stock Options."

Security Ownership of Management

        The following table sets forth, as of March 19, 2003, information about the beneficial ownership of our common stock by each of our directors and the executive officers and by all of our directors and executive officers as a group:

*

Less than 1%

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(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 46,469,310 shares outstanding on March 19, 2003, excluding treasury shares.

(2)

Includes 252,712 shares of common stock underlying stock options.

(3)

Includes 64,460 shares of common stock underlying stock options.

(4)

Includes 25,000 shares of common stock underlying stock options.

(5)

Includes 266,019 shares of common stock underlying stock options.

(6)

Includes 71,171 shares of common stock underlying stock options.

(7)

Includes 36,320 shares of common stock underlying stock options.

(8)

Includes 64,460 shares of common stock underlying stock options.

(9)

Represents 58,962 shares of common stock underlying convertible preferred stock, 50,000 shares of common stock underlying warrants, 2,173,310 shares of common stock underlying stock options and 990,421 shares of common stock owned outright. Does not include an aggregate of 607,846 shares of our common stock issuable to Mr. Nicastro in monthly installments over the 10 years following his retirement or death, pursuant to the terms of his employment agreement. See "Item 11. Executive Compensation—Employment Agreements" above.

(10)

Includes 72,436 shares of common stock underlying stock options.

(11)

Includes 95,730 shares of common stock underlying stock options.

(12)

Includes 64,140 shares of common stock underlying stock options.

(13)

Includes 64,160 shares of common stock underlying stock options

(14)

Includes an aggregate of 3,505,398 shares of common stock underlying stock options, 58,962 shares of common stock underlying convertible preferred stock and 50,000 shares of common stock underlying warrants.

Item 13. Certain Relationships and Related Transactions.

Relationship with WMS

        Until October 29, 1996, we were wholly owned by WMS Industries. On that date, we sold common stock in an initial public offering, but WMS continued to own 86.8% of our common stock. On April 6, 1998, WMS distributed all of its shares of our common stock to its stockholders. Seven of our directors are also directors of WMS, including our Chairman and Chief Executive Officer, Neil D. Nicastro, and his father, Louis J. Nicastro. Louis J. Nicastro is the Chairman of the Board of WMS. Neil D. Nicastro is also a consultant to WMS.

        During June 2002, we terminated our lease with WMS and purchased the 2704 West Roscoe Street office building and 3289 N. California Ave. parking lot in Chicago, Illinois from WMS at an aggregate price of $2.3 million. In connection with the purchase, the parties also entered into agreements regarding the use of various parking lot areas near their Chicago facilities.

        In connection with our spinoff from WMS, we entered into a number of agreements with WMS, each dated as of April 6, 1998. Under a Settlement and Temporary Services Agreement, dated as of

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August 31, 2001, we amended some of these agreements. The remaining material agreements between WMS and us dated as of April 6, 1998, as so amended, are described below:

        Confidentiality and Non-Competition Agreement.    Under this agreement, WMS or we may designate business information as confidential, and the other party must use its best efforts to keep this information confidential. The agreement also includes a five-year non-competition clause, which expires in April 2003.

        Third Parties Agreement.    This agreement governs the treatment of the various arrangements with third parties with respect to game development, licensing and other matters. Under the agreement, WMS and we allocate the rights and obligations under third party arrangements so that the party receiving the benefit will bear the burden of those agreements. The agreement shall remain in effect so long as any prior third party arrangements remain outstanding.

        Tax Separation Agreement.    Until April 1998, we were a member of the consolidated group of corporations of which WMS was the common parent for federal income tax purposes. Therefore, we are jointly and severally liable for any federal tax liability of the WMS group for the period that we were part of the WMS group. The agreement sets forth the parties' respective liabilities for federal, state and local taxes as well as other agreements regarding the separation of Midway and its subsidiaries from WMS. The agreement governs, among other things:

•

the filing of tax returns with federal, state and local authorities;



•

the carryover of any tax benefits of Midway;



•

the treatment of the deduction attributable to the exercise of stock options to purchase WMS common stock which are held by employees or former employees of Midway and any other similar compensation related tax deductions;



•

the treatment of specified net operating loss carrybacks;



•

the treatment of audit adjustments; and



•

procedures with respect to any proposed audit adjustment or other claim made by any taxing authority with respect to a tax liability of Midway or any of its subsidiaries.

        We also have the following agreements with WMS:

        Tax Sharing Agreement.    This agreement is dated July 1, 1996 and remains in effect, except to the extent described in the Tax Separation Agreement referred to above. Under this agreement, WMS and we have agreed upon a method for:

•

determining the amount that we must pay to WMS in respect of federal income taxes;



•

compensating any member of the WMS Group for use of its net operating losses, tax credits and other tax benefits in arriving at the WMS Group tax liability as determined under the federal consolidated return regulations; and



•

providing for the receipt of any refund arising from a carryback of net operating losses or tax credits from subsequent taxable years and for payments upon subsequent adjustments.

        Patent License Agreement.    This agreement is dated July 1, 1996. WMS and we each license to the other, on a perpetual, royalty-free basis, some patents used in the development and manufacture of both coin-operated videogames and video lottery terminals and other gaming machines.

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Other Related Party Transactions

        Under his employment agreement with us, Neil D. Nicastro received $984,000 of advances for a bonus accrued in the first six months of fiscal 2000 and later reversed. As of this filing, Mr. Nicastro has repaid these advances in full through deductions from his salary.

        Mr. Ira S. Sheinfeld, a member of our Board of Directors, is a member of the law firm of Hogan & Hartson L.L.P. (formerly known as Squadron, Ellenoff, Plesent & Sheinfeld LLP), which we retain to provide tax services.

        Mr. Richard D. White, a member of our Board of Directors, was a Managing Director of CIBC Capital Partners, an affiliate of CIBC World Markets Corp., until May 2002. CIBC World Markets has rendered financial advisory services to us, including participation as an underwriter in our 1999 public offering.

        Mr. Gerald O. Sweeney, Jr., a member of our Board of Directors, is a member of the law firm of Lord, Bissell & Brook, which performs legal services for Midway from time to time.

        William C. Bartholomay, a member of our Board of Directors, is President of Near North National Group, insurance brokers, which we retain to provide insurance services.

Item 14. Controls and Procedures

        As of a date within 90 days prior to the date of this report, our Chief Executive Officer and our Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that material information about us and our subsidiaries, including the material information required to be disclosed in our filings under the Securities Exchange Act of 1934, is recorded, processed, summarized and communicated to them as appropriate to allow timely decisions regarding required disclosure.

        There were no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation performed by our Chief Executive Officer and our Chief Financial Officer, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

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