8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 8, 2004

MIDWAY GAMES INC.

(Exact Name of Registrant as Specified in Charter)

Delaware (State or Other Jurisdiction of Incorporation) 1-12367 (Commission File Number) 22-2906244 (I.R.S. Employer Identification Number)

2704 West Roscoe Street, Chicago, Illinois 60618

(Address of Principal Executive Offices) (Zip Code)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 1

Item 2.02Results of Operation and Financial Condition.

On November 8, 2004, Midway Games Inc. issued a press release discussing financial results for the third quarter of 2004 and financial guidance. A copy of the press release is attached to this report as Exhibit 99.1. Exhibit 99.1 is incorporated herein by this reference.

Item 9.01Financial Statements and Exhibits.

(c)Exhibits

Exhibits	Description
99.1	Press Release of Midway Games Inc. dated November 8, 2004.

 2

SIGNATURE

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

        MIDWAY GAMES INC.

November 8, 2004By:     /s/ David F. Zucker                           

David F. Zucker

President and Chief Executive Officer

 3

EXHIBIT INDEX

Exhibits	Description
99.1	Press Release of Midway Games Inc. dated November 8, 2004.

 4

EX-99.1

FOR IMMEDIATE RELEASE
CONTACT: Miguel Iribarren MIDWAY GAMES INC. (773) 961-2222 miribarren@midwaygames.com	Joseph N. Jaffoni Jaffoni & Collins Incorporated (212) 835-8500 mwy@jcir.com

MIDWAY REPORTS THIRD QUARTER REVENUES RISE 47%

- Raises 2004 Revenue Guidance -

- Expects $17.5 Million Net Income in Q4 2004 -

CHICAGO, Illinois, November 8, 2004 -- Midway Games Inc. (NYSE:MWY) today announced results of operations for the three- and nine-month periods ended September 30, 2004. The Company also raised its revenue guidance and reiterated its earnings guidance for the year ending December 31, 2004.

THIRD QUARTER RESULTS

Revenues for the 2004 third quarter were $17.0 million, up 47% from $11.6 million in the 2003 third quarter. The 2004 third quarter net loss was $13.9 million, compared with a 2003 third quarter net loss of $23.3 million. The 2004 third quarter loss applicable to common stock was $16.1 million or $0.20 per share, compared with a 2003 third quarter loss applicable to common stock of $24.1 million or $0.52 per share. The 2004 third quarter loss applicable to common stock includes $1.8 million of accelerated imputed preferred stock dividends as a result of the conversion of 3,504 shares of preferred stock to common stock during the quarter and $1.4 million of charges related to the writedown of capitalized product development costs. The 2004 third quarter results also include a $1.8 million reduction in administrative expenses resulting from the favorable settlement of a litigation matter and the associated reduced reserves for this matter. The 2003 third quarter results include $4.2 million of charges related to the writedown of capitalized product development costs.

Other key operating and financial highlights include the following:

·   Midway released one new videogame in North America: Shadow Hearts: Covenant for PlayStation 2.

·   On October 11, 2004 Midway announced it had acquired Austin, Texas-based Inevitable Entertainment Inc., the development studio working on Midway’s upcoming new videogame, Area 51. The acquisition accelerates Midway’s previously announced plans to open an Austin studio and increases the Company’s internal development resources.

 -more-

 page 2

Midway Games, 11/8/04       

·   $35.04 million (face value) of Series D Convertible Preferred Stock was converted into 9,430,715 shares of common stock. As of November 5, 2004, Midway had 85,715,066 shares of common stock and $4.46 million (face value) of Series D Convertible Preferred Stock outstanding.

·   Midway was the #1-ranked software publisher for games released in the first three quarters of 2004 based on average review scores on Gamerankings.com for publishers with more than five reviewed products (as of November 7, 2004).

“During the third quarter Midway extended its 2004 track record of releasing high-quality games with the launch of Shadow Hearts: Covenant, a game that has garnered average review scores in the upper 80’s, according to Gamerankings.com. Sales of Shadow Hearts in the third quarter as well as recurring sales of titles from our growing catalog of successful products such as NBA Ballers and The Suffering allowed us to outperform our previously stated financial guidance for the quarter,” commented president and chief executive officer David F. Zucker.

NINE-MONTH RESULTS

Revenues for the nine months ended September 30, 2004 were $84.4 million, up from $62.4 million in the nine months ended September 30, 2003. The net loss was $37.6 million, compared with a net loss of $87.5 million in the prior year. The loss applicable to common stock was $42.3 million or $0.62 per share, compared with a loss applicable to common stock of $89.4 million or $1.92 per share in the prior year. The results for the nine months ended September 30, 2004 include:

·   $4.2 million of charges relating to the writedown of capitalized product development costs;

·   $1.6 million of charges associated with the departures of senior executives;

·   $2.3 million of accelerated imputed preferred stock dividends as a result of the conversion of 4,304 shares of preferred stock to common stock; and

·   $1.8 million reduction in administrative expenses resulting from the favorable settlement of a litigation matter and the associated reduced reserves for this matter.

The results for the nine months ended September 30, 2003 included:

·   $27.4 million of charges relating to the writedown of capitalized product development costs;

·   $9.5 million of charges associated with the departure of a senior executive;

·   $2.0 million of administrative expenses due to reserves established for the litigation matter.

-more-

 page 3

Midway Games, 11/8/04

OUTLOOK

For the year ending December 31, 2004, Midway is raising its outlook for revenues from approximately $157 million to approximately $162 million, representing a 75% increase over 2003 revenues. The Company’s full-year 2004 revenue outlook includes estimated revenues of approximately $78 million in the 2004 fourth quarter. The Company has released two titles in North America during the fourth quarter, Mortal Kombat: Deception for PlayStation 2 and Xbox and Midway Arcade Treasures 2 for PlayStation 2, GameCube and Xbox. The Company also expects to release Mortal Kombat: Deception for PlayStation 2 and Xbox internationally during the fourth quarter. Midway continues to expect a net loss of approximately $20 million for the year, an approximately $95 million improvement versus 2003. The Company’s guidance for full-year 2004 results includes estimated net income of approximately $17.5 million in the fourth quarter, the first profitable quarter for the Company since the quarter ended December 31, 1999.

“Midway’s expected net profit in the fourth quarter of 2004 marks another important milestone for the Company. We have effectively stabilized our base of operations to a point where we believe we can consistently produce high-quality games and market them successfully. The next two major steps that Midway faces in its turnaround process are navigating the challenging console transition in 2005-2006 and expanding the revenue base to achieve the size and scale necessary to generate consistent and significant profits coming out of that transition,” concluded Mr. Zucker.

CONFERENCE CALL

Midway Games Inc. is hosting a conference call and simultaneous web cast open to the general public at 4:45 p.m. EST today, Monday, November 8, 2004. The conference call number is (706) 679-7522; please call five minutes in advance to ensure that you are connected prior to the presentation. Questions and answers will be reserved for call-in analysts and investors. Interested parties may also access the live call on the Internet at www.investor.midway.com or at www.fulldisclosure.com. Please log-on fifteen minutes in advance to ensure that you are connected prior to the call's initiation. Following its completion, a replay of the call can be accessed until November 9 at 4:45 p.m. EST, by dialing (800) 633-8284 or (402) 977-9140 (international callers). The access code for the replay is 21211560. Additionally, a replay of the call will be available for twelve months on the Internet via www.investor.midway.com.

Midway Games Inc. is a leading developer and publisher of interactive entertainment software. Midway videogames are available for play on all major videogame platforms including the PlayStation^®2 computer entertainment system, XboxÔ video game system from Microsoft, and Nintendo GameCubeÔ and Game Boy^® Advance.

-more-

 page 4

Midway Games, 11/8/04       

Our reference above to Gamerankings.com is not an endorsement of that site. The information on that site has been prepared by third parties, and Midway does not monitor, endorse or have any responsibility for its content.

This press release contains forward-looking statements concerning future business conditions and the outlook for Midway Games Inc. (the "Company") based on currently available information that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in the forward-looking statements as a result of these risks and uncertainties, including, without limitation, the financial strength of the interactive entertainment industry, dependence on new product introductions and the ability to maintain the scheduling of such introductions, the upcoming console platform transition and other technological changes, dependence on major platform manufacturers and other risks more fully described under "Item 1. Business - Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2003, and in the more recent filings made by the Company with the Securities and Exchange Commission.

- tables follow -

 page 5

Midway Games, 11/8/04       

MIDWAY GAMES INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three-Months Ended September 30,						Nine-Months Ended September 30,
	2004			2003			2004				2003
Revenues	$	16,951		$	11,618		$	84,368			$	62,425
Cost of sales:
Product costs and distribution		9,268			7,924			35,838				32,895
Royalties and product development (1)		7,098			9,977			26,718				46,453
Total cost of sales		16,366			17,901			62,556				79,348
Gross profit (loss)		585			(6,283	)		21,812				(16,923	)
Research and development expense		6,071			4,513			19,658		(2)		15,603
Selling and marketing expense		6,321			8,455			28,017				22,498
Administrative expense (3)		2,115			4,014			11,003		(4)		23,955		(5	)
Restructuring and other charges (6)		27			180			(127	)			9,058
Operating loss		(13,949	)		(23,445	)		(36,739	)			(88,037	)
Interest income		407			204			762				632
Interest expense		(338	)		(25	)		(910	)			(45	)
Other income and (expense), net		299			265			297				922
Loss before income tax		(13,581	)		(23,001	)		(36,590	)			(86,528	)
Provision for income taxes		329			326			985				936
Net Loss		(13,910	)		(23,327	)		(37,575	)			(87,464	)
Preferred stock dividends:
Distributed		441			508			1,820				954
Imputed (7)		1,771			265			2,914				951
Loss applicable to common stock	$	(16,122	)	$	(24,100	)	$	(42,309	)		$	(89,369	)
Basic and diluted loss per common stock	$	(0.20	)	$	(0.52	)	$	(0.62	)		$	(1.92	)
Average number of shares outstanding		81,276			46,469			68,142				46,469

(1)   Royalties and product development costs include charges relating to the writedown of capitalized product development costs of $1.4 million and $4.2 million during the three-months ended September 30, 2004 and 2003, respectively; and $4.2 million and $27.4 million during the nine-months ended September 30, 2004 and 2003, respectively.

(2)   During June 2004, Kenneth J. Fedesna ceased to serve as our executive vice president - product development. As a result of this event, research and development expenses for the nine-months ended September 30, 2004 include $1.3 million of charges incurred under the terms of our severance agreement with Mr. Fedesna.

(3)   We were the defendant in an intellectual property infringement case involving characters appearing in one of our videogames. In October 2004, we entered into an agreement with the plaintiff to settle all related claims. During the nine-months ended September 30, 2003, we recorded an estimate for a loss contingency related to this matter. As a result of this settlement, we reduced administrative expense for the three and nine-months ended September 30, 2004 by $1.75 million.

(4)   During June 2004, Neil D. Nicastro ceased to serve as our Chairman of the Board. As a result of this event, administrative expense for the nine-months ended September 30, 2004 includes an additional $0.3 million of charges.

(5)   During May 2003, Mr. Nicastro ceased to serve as our chief executive officer, president and chief operating officer. As a result of this event, administrative expense for the nine-months ended September 30, 2003 included an additional $9.5 million of charges incurred under the terms of our severance agreement with Mr. Nicastro.

(6)   We incurred restructuring and other charges related to the consolidation of California product development and marketing operations implemented during late 2002 and the first half of 2003.

(7)   Imputed preferred stock dividends include $1.8 million and $2.3 million of accelerated imputed dividends for the three and nine-months ended September 30, 2004 which were recorded upon the conversion of 3,504 and 4,304 shares of Series D redeemable convertible preferred stock to common stock shares during the respective periods. Imputed preferred stock dividends also include $0.3 million of accelerated imputed dividends for the nine-months ended September 30, 2003 which were recorded upon the redemption of 1,312.5 shares of Series B redeemable preferred stock in May 2003.

- balance sheets follow -

 page 6

Midway Games, 11/8/04       

MIDWAY GAMES INC.

Condensed Consolidated Balance Sheets

(In thousands)

	September 30,			December 31,
	2004			2003
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	115,001		$	41,682
Receivables, net		8,911			15,814
Inventories		12,689			3,566
Capitalized product development costs		23,115			11,292
Prepaid expenses and other current assets		7,424			4,634
Total current assets		167,140			76,988
Capitalized product development costs		2,140			-
Property and equipment, net		12,831			13,272
Goodwill		36,076			33,464
Other assets		10,560			1,725
Total assets	$	228,747		$	125,449
Liabilities and Stockholders’ Equity Current liabilities:
Accounts payable	$	10,975		$	5,413
Accrued compensation and related benefits		2,565			3,674
Accrued royalties		8,728			2,961
Accrued selling and marketing		2,351			2,016
Current portion of long-term debt		3,333			-
Due to former parent (WMS Industries Inc.)		6,487			-
Other accrued liabilities		11,252			12,255
Total current liabilities		45,691			26,319
Long-term debt		11,111			-
Due to related parties		-			12,402
Deferred income taxes		6,445			5,460
Other noncurrent liabilities		459			1,219
Redeemable convertible preferred stock, Series
D, redeemable at $4,460 and $35,000 at
September 30, 2004 and December 31, 2003		4,452			32,156
Stockholders’ equity:
Preferred stock		-			-
Common stock		874			588
Additional paid-in capital		388,122			244,963
Accumulated deficit		(208,242	)		(170,667	)
Accumulated translation adjustment		(973	)		(919	)
Deferred compensation		(944	)		(347	)
Treasury stock		(18,248	)		(25,725	)
Total stockholders’ equity		160,589			47,893
Total liabilities and stockholders’ equity	$	228,747		$	125,449

- supplemental data follow -

 page 7

Midway Games, 11/8/04

MIDWAY GAMES INC.

Supplemental Quarterly Data

North American Videogame Releases

Three-Months Ended September 30, 2004

Title	Platform
Shadow Hearts: Covenant	PlayStation 2

	Revenue by Platform
	(In thousands)
	Three-Months Ended September 30,
Platform		2004		2003
Sony PlayStation 2	$	12,086	$	5,784
Microsoft Xbox		2,841		2,848
Nintendo GameCube		843		927
Nintendo Game Boy Advance		8		985
Other		1,173		1,074
Total Revenue	$	16,951	$	11,618

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