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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the
quarterly period ended April 3, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------



For the
transition period from  to



Commission File Number: 01-13409



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MIDAS, INC.

(Exact Name of Registrant as Specified in its Charter)



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|                                                                |  |                                     
|--------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                        |  | 36-4180556                          
|(State or Other Jurisdiction of Incorporation or Organization ) |  | (I.R.S. Employer Identification No.)
|                                                                | 
|1300 Arlington Heights Road, Itasca, Illinois                   |  | 60143                               
|(Address of Principal Executive Offices)                        |  | (Zip Code)                          



(630) 438-3000

(Registrants telephone number, including area code)



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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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2).    Yes  x    No ̈



The number of shares of the Registrants Common Stock, $.001 par value per share, outstanding as of May 4, 2004 was
15,443,458.



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PART I. FINANCIAL INFORMATION



Item 1: Condensed Financial Statements



MIDAS, INC.

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

(In millions, except for earnings per share)



|                                               |  |                                    |       |   |            |   |       |  
|---------------------------------------------- |  | ---------------------------------- | ----- | - | ---------- | - | ----- | -
|                                               |  | For the quarter ended fiscal March |      
|                                               |  | 2004                               |       |   | 2003       |  
|                                               |  | (13 Weeks)                         |       |   | (13 Weeks) |  
|Sales and revenues:                            |  |                                    |       |   |            |   |       |  
|Franchise royalties and license fees           |  | $                                  | 14.5  |   |            | $ | 13.8  |  
|Real estate revenues                           |  |                                    | 9.1   |   |            |   | 9.0   |  
|Company-operated shop retail sales             |  |                                    | 8.6   |   |            |   | 11.7  |  
|Replacement part sales and product royalties   |  |                                    | 14.1  |   |            |   | 39.6  |  
|Other                                          |  |                                    | 0.6   |   |            |   | 0.4   |  
|                                               |  |                                    |       |   |            |   |       |  
|Total sales and revenues                       |  |                                    | 46.9  |   |            |   | 74.5  |  
|                                               |  |                                    |       |   |            |   |       |  
|Cost of sales and revenues:                    |  |                                    |       |   |            |   |       |  
|Real estate cost of revenues                   |  |                                    | 5.5   |   |            |   | 5.1   |  
|Company-operated shop cost of sales            |  |                                    | 1.5   |   |            |   | 2.6   |  
|Replacement part cost of sales                 |  |                                    | 10.5  |   |            |   | 28.1  |  
|Warranty expense                               |  |                                    | 2.1   |   |            |   | 2.9   |  
|                                               |  |                                    |       |   |            |   |       |  
|Total cost of sales and revenues               |  |                                    | 19.6  |   |            |   | 38.7  |  
|                                               |  |                                    |       |   |            |   |       |  
|Gross profit                                   |  |                                    | 27.3  |   |            |   | 35.8  |  
|Selling, general, and administrative expenses  |  |                                    | 22.0  |   |            |   | 37.3  |  
|Business transformation charges                |  |                                    |      |   |            |   | 3.7   |  
|                                               |  |                                    |       |   |            |   |       |  
|Operating income (loss)                        |  |                                    | 5.3   |   |            |   | (5.2  | )
|Interest expense                               |  |                                    | (5.1  | ) |            |   | (4.3  | )
|Loss on early extinguishment of debt           |  |                                    | (4.7  | ) |            |   | (1.4  | )
|Other income, net                              |  |                                    | 0.3   |   |            |   | 0.4   |  
|                                               |  |                                    |       |   |            |   |       |  
|Loss before income tax benefit                 |  |                                    | (4.2  | ) |            |   | (10.5 | )
|Income tax benefit                             |  |                                    | (1.6  | ) |            |   | (4.1  | )
|                                               |  |                                    |       |   |            |   |       |  
|Net loss                                       |  | $                                  | (2.6  | ) |            | $ | (6.4  | )
|                                               |  |                                    |       |   |            |   |       |  
|Loss per share:                                |  |                                    |       |   |            |   |       |  
|Basic                                          |  | $                                  | (0.16 | ) |            | $ | (0.43 | )
|                                               |  |                                    |       |   |            |   |       |  
|Diluted                                        |  | $                                  | (0.16 | ) |            | $ | (0.43 | )
|                                               |  |                                    |       |   |            |   |       |  
|Average number of shares:                      |  |                                    |       |   |            |   |       |  
|Common shares outstanding                      |  |                                    | 15.3  |   |            |   | 15.0  |  
|Common stock warrants                          |  |                                    | 0.3   |   |            |   |      |  
|                                               |  |                                    |       |   |            |   |       |  
|Shares applicable to basic earnings            |  |                                    | 15.6  |   |            |   | 15.0  |  
|Equivalent shares on outstanding stock options |  |                                    |      |   |            |   |      |  
|                                               |  |                                    |       |   |            |   |       |  
|Shares applicable to diluted earnings          |  |                                    | 15.6  |   |            |   | 15.0  |  
|                                               |  |                                    |       |   |            |   |       |  



See notes to condensed
financial statements.



1



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MIDAS, INC.

CONDENSED BALANCE SHEETS

(In millions)



|                                                                                                              |  |                  |       |   |                    |   |       |  
|------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----- | - | ------------------ | - | ----- | -
|                                                                                                              |  | FiscalMarch 2004 |       |   | FiscalDecember2003 |  
|                                                                                                              |  | (Unaudited)      |       |   |                    |  
|Assets:                                                                                                       |  |                  |       |   |                    |   |       |  
|Current assets:                                                                                               |  |                  |       |   |                    |   |       |  
|Cash and cash equivalents                                                                                     |  | $                | 0.6   |   |                    | $ | 7.4   |  
|Receivables, net                                                                                              |  |                  | 42.5  |   |                    |   | 41.4  |  
|Inventories, net                                                                                              |  |                  | 14.5  |   |                    |   | 14.5  |  
|Deferred income taxes                                                                                         |  |                  | 13.4  |   |                    |   | 13.9  |  
|Other current assets                                                                                          |  |                  | 7.0   |   |                    |   | 9.9   |  
|                                                                                                              |  |                  |       |   |                    |   |       |  
|Total current assets                                                                                          |  |                  | 78.0  |   |                    |   | 87.1  |  
|Property and equipment, net                                                                                   |  |                  | 128.8 |   |                    |   | 131.7 |  
|Intangible assets                                                                                             |  |                  | 0.3   |   |                    |   | 0.3   |  
|Deferred income taxes                                                                                         |  |                  | 59.5  |   |                    |   | 56.1  |  
|Other assets                                                                                                  |  |                  | 6.6   |   |                    |   | 8.2   |  
|                                                                                                              |  |                  |       |   |                    |   |       |  
|Total assets                                                                                                  |  | $                | 273.2 |   |                    | $ | 283.4 |  
|                                                                                                              |  |                  |       |   |                    |   |       |  
|Liabilities and equity:                                                                                       |  |                  |       |   |                    |   |       |  
|Current liabilities:                                                                                          |  |                  |       |   |                    |   |       |  
|Current portion of long-term obligations                                                                      |  | $                | 10.5  |   |                    | $ | 8.0   |  
|Accounts payable                                                                                              |  |                  | 16.9  |   |                    |   | 13.7  |  
|Accrued expenses                                                                                              |  |                  | 45.1  |   |                    |   | 47.5  |  
|                                                                                                              |  |                  |       |   |                    |   |       |  
|Total current liabilities                                                                                     |  |                  | 72.5  |   |                    |   | 69.2  |  
|Long-term debt                                                                                                |  |                  | 74.4  |   |                    |   | 85.2  |  
|Obligations under capital leases                                                                              |  |                  | 5.8   |   |                    |   | 6.5   |  
|Finance lease obligation                                                                                      |  |                  | 37.4  |   |                    |   | 37.5  |  
|Accrued warranty                                                                                              |  |                  | 33.5  |   |                    |   | 33.8  |  
|Other liabilities                                                                                             |  |                  | 14.6  |   |                    |   | 15.1  |  
|                                                                                                              |  |                  |       |   |                    |   |       |  
|Total liabilities                                                                                             |  |                  | 238.2 |   |                    |   | 247.3 |  
|                                                                                                              |  |                  |       |   |                    |   |       |  
|Shareholders equity:                                                                                         |  |                  |       |   |                    |   |       |  
|Common stock ($.001 par value, 100 million shares authorized, 17.5 million shares issued) and paid-in capital |  |                  | 22.7  |   |                    |   | 23.8  |  
|Treasury stock, at cost (2.1 million shares and 2.2 million shares)                                           |  |                  | (47.2 | ) |                    |   | (49.6 | )
|Unamortized restricted stock awards                                                                           |  |                  | (0.9  | ) |                    |   | (1.3  | )
|Retained income                                                                                               |  |                  | 72.2  |   |                    |   | 74.8  |  
|Cumulative other comprehensive loss                                                                           |  |                  | (11.8 | ) |                    |   | (11.6 | )
|                                                                                                              |  |                  |       |   |                    |   |       |  
|Total shareholders equity                                                                                    |  |                  | 35.0  |   |                    |   | 36.1  |  
|                                                                                                              |  |                  |       |   |                    |   |       |  
|Total liabilities and equity                                                                                  |  | $                | 273.2 |   |                    | $ | 283.4 |  
|                                                                                                              |  |                  |       |   |                    |   |       |  



See notes to condensed
financial statements.



2



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MIDAS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)



|                                                                                                                          |  |                                  |       |   |      |   |      |  
|------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----- | - | ---- | - | ---- | -
|                                                                                                                          |  | For the quarterendedfiscal March |      
|                                                                                                                          |  | 2004                             |       |   | 2003 |  
|Cash flows from operating activities:                                                                                     |  |                                  |       |   |      |   |      |  
|Net loss                                                                                                                  |  | $                                | (2.6  | ) |      | $ | (6.4 | )
|Adjustments reconciling net loss to net cash provided by operating activities:                                            |  |                                  |       |   |      |   |      |  
|Depreciation and amortization                                                                                             |  |                                  | 3.3   |   |      |   | 4.7  |  
|Amortization of debt discount and financing fees                                                                          |  |                                  | 1.9   |   |      |   | 0.8  |  
|Business transformation charges                                                                                           |  |                                  |      |   |      |   | 3.7  |  
|Loss on early extinguishment of debt                                                                                      |  |                                  | 4.7   |   |      |   | 1.4  |  
|Cash outlays for business transformation costs                                                                            |  |                                  | (4.0  | ) |      |   | (3.5 | )
|Deferred income taxes                                                                                                     |  |                                  | (2.9  | ) |      |   | (0.2 | )
|Changes in assets and liabilities, exclusive of effects of business transformation charges, acquisitions and dispositions |  |                                  | 5.8   |   |      |   | (0.2 | )
|                                                                                                                          |  |                                  |       |   |      |   |      |  
|Net cash provided by operating activities                                                                                 |  |                                  | 6.2   |   |      |   | 0.3  |  
|                                                                                                                          |  |                                  |       |   |      |   |      |  
|Cash flows from investing activities:                                                                                     |  |                                  |       |   |      |   |      |  
|Capital investments                                                                                                       |  |                                  | (0.3  | ) |      |   | (1.0 | )
|Cash paid for acquired businesses                                                                                         |  |                                  | (0.4  | ) |      |   | (0.4 | )
|Proceeds from sales of assets                                                                                             |  |                                  |      |   |      |   | 3.7  |  
|                                                                                                                          |  |                                  |       |   |      |   |      |  
|Net cash provided by (used in) investing activities                                                                       |  |                                  | (0.7  | ) |      |   | 2.3  |  
|                                                                                                                          |  |                                  |       |   |      |   |      |  
|Cash flows from financing activities:                                                                                     |  |                                  |       |   |      |   |      |  
|Net decrease in long-term debt                                                                                            |  |                                  | (10.9 | ) |      |   | (0.6 | )
|Issuance of stock warrants in connection with refinancing                                                                 |  |                                  |      |   |      |   | 5.0  |  
|Cash payments for debt financing fees                                                                                     |  |                                  | (2.1  | ) |      |   | (4.8 | )
|Payment of obligations under capital leases                                                                               |  |                                  | (0.6  | ) |      |   | (0.2 | )
|Payment of obligations under finance lease                                                                                |  |                                  | (0.1  | ) |      |   | (0.2 | )
|Cash received for common stock                                                                                            |  |                                  | 1.7   |   |      |   |     |  
|Cash paid for treasury shares                                                                                             |  |                                  | (0.3  | ) |      |   | (0.1 | )
|                                                                                                                          |  |                                  |       |   |      |   |      |  
|Net cash used in financing activities                                                                                     |  |                                  | (12.3 | ) |      |   | (0.9 | )
|                                                                                                                          |  |                                  |       |   |      |   |      |  
|Net change in cash and cash equivalents                                                                                   |  |                                  | (6.8  | ) |      |   | 1.7  |  
|Cash and cash equivalents at beginning of period                                                                          |  |                                  | 7.4   |   |      |   | 0.5  |  
|                                                                                                                          |  |                                  |       |   |      |   |      |  
|Cash and cash equivalents at end of period                                                                                |  | $                                | 0.6   |   |      | $ | 2.2  |  
|                                                                                                                          |  |                                  |       |   |      |   |      |  



See notes to condensed
financial statements.



3



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MIDAS, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)

(In millions)



|                                                                            |  |                                 |  |        |                |   |        |                                   |   |        |                  |       |   |                             |         |      |   |            |   |      |   |  |   |      |   |  |   |       |  
|--------------------------------------------------------------------------- |  | ------------------------------- |  | ------ | -------------- | - | ------ | --------------------------------- | - | ------ | ---------------- | ----- | - | --------------------------- | ------- | ---- | - | ---------- | - | ---- | - |  | - | ---- | - |  | - | ----- | -
|                                                                            |  | Common StockAnd Paid-in Capital |  |        | Treasury Stock |   |        | UnamortizedRestrictedStock Awards |   |        | RetainedEarnings |       |   | Comprehensive Income (Loss) |        
|                                                                            |  | Shares                          |  | Amount |                |   | Shares |                                   |   | Amount |                  |       |   |                             | Current |      |   | Cumulative |  
|Fiscal year end 2003                                                        |  | 17.5                            |  | $      | 23.8           |   |        | (2.2                              | ) |        | $                | (49.6 | ) |                             | $       | (1.3 | ) |            | $ | 74.8 |   |  |   |      |   |  | $ | (11.6 | )
|Purchase of treasury shares                                                 |  |                                |  |        |               |   |        |                                  |   |        |                  | (0.3  | ) |                             |         |     |   |            |   |     |   |  |   |      |   |  |   |      |  
|                                                                            |  |                                 |  |        |                |   |        |                                  
|Forfeiture of restricted stock awards                                       |  |                                |  |        |               |   |        |                                  |   |        |                  | (0.1  | ) |                             |         | 0.1  |   |            |   |     |   |  |   |      |   |  |   |      |  
|                                                                            |  |                                 |  |        |                |   |        |                                  
|Stock option transactions                                                   |  |                                |  |        | (1.1           | ) |        | 0.1                               |   |        |                  | 2.8   |   |                             |         |     |   |            |   |     |   |  |   |      |   |  |   |      |  
|                                                                            |  |                                 |  |        |                |   |        |                                  
|Amortization of restricted stock awards                                     |  |                                |  |        |               |   |        |                                  |   |        |                  |      |   |                             |         | 0.3  |   |            |   |     |   |  |   |      |   |  |   |      |  
|                                                                            |  |                                 |  |        |                |   |        |                                  
|Net loss                                                                    |  |                                |  |        |               |   |        |                                  |   |        |                  |      |   |                             |         |     |   |            |   | (2.6 | ) |  | $ | (2.6 | ) |  |   |      |  
|                                                                            |  |                                 |  |        |                |   |        |                                  
|Other comprehensive income (loss) foreign currency translation adjustments |  |                                |  |        |               |   |        |                                  |   |        |                  |      |   |                             |         |     |   |            |   |     |   |  |   | (0.2 | ) |  |   | (0.2  | )
|                                                                            |  |                                 |  |        |                |   |        |                                   |   |        |                  |       |   |                             |         |      |   |            |   |      |   |  |   |      |   |  |   |       |  
|Comprehensive income (loss)                                                 |  |                                |  |        |               |   |        |                                  |   |        |                  |      |   |                             |         |     |   |            |   |     |   |  | $ | (2.8 | ) |  |   |      |  
|                                                                            |  |                                 |  |        |                |   |        |                                   |   |        |                  |       |   |                             |         |      |   |            |   |      |   |  |   |      |   |  |   |       |  
|Fiscal first quarter end 2004                                               |  | 17.5                            |  | $      | 22.7           |   |        | (2.1                              | ) |        | $                | (47.2 | ) |                             | $       | (0.9 | ) |            | $ | 72.2 |   |  |   |      |   |  | $ | (11.8 | )
|                                                                            |  |                                 |  |        |                |   |        |                                   |   |        |                  |       |   |                             |         |      |   |            |   |      |   |  |   |      |   |  |   |       |  



See notes to condensed
financial statements.



4



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MIDAS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS



1. Financial Statement Presentation



The condensed interim period financial statements presented herein do not include all of the information and disclosures customarily provided in annual
financial statements and they have not been audited, as permitted by the rules and regulations of the Securities and Exchange Commission. The condensed interim period financial statements should be read in conjunction with the annual financial
statements included in the annual report on Form 10-K for the fiscal year ended January 3, 2004. In the opinion of management, these financial statements have been prepared in conformity with accounting principles generally accepted in the United
States and reflect all adjustments necessary for a fair statement of the results of operations and cash flows for the interim periods ended April 3, 2004 (first quarter fiscal 2004) and March 29, 2003 (first quarter fiscal
2003) and of its financial position as of April 3, 2004. All such adjustments are of a normal recurring nature. The results of operations for the first quarter fiscal 2004 and 2003 are not necessarily indicative of the results of operations
for the full year.



The unaudited condensed financial
statements present the consolidated financial information for Midas, Inc. and its wholly-owned subsidiaries (Midas or the Company). The unaudited condensed financial statements for the quarters ended April 3, 2004 and March
29, 2003 both cover a 13-week period. All significant inter-company balances and transactions have been eliminated in consolidation.



Certain reclassifications have been made to the previously reported fiscal 2003 financial statements in order to provide consistency with the fiscal 2004
results. These reclassifications did not affect previously reported net income or earnings per share.



Basic and diluted earnings per share were calculated based on the following share counts (in millions):



|                                              |  |                                   |  |     
|--------------------------------------------- |  | --------------------------------- |  | ----
|                                              |  | For the quarterended fiscal March
|                                              |  | 2004                              |  | 2003
|Weighted-average common shares outstanding    |  | 15.3                              |  | 15.0
|Common stock warrants                         |  | 0.3                               |  |    
|                                              |  |                                   |  |     
|Shares applicable to basic earnings           |  | 15.6                              |  | 15.0
|Effect of dilutive stock options and warrants |  |                                  |  |    
|                                              |  |                                   |  |     
|Shares applicable to diluted earnings         |  | 15.6                              |  | 15.0
|                                              |  |                                   |  |     
|Potential common share equivalents:           |  |                                   |  |     
|Stock options                                 |  | 1.9                               |  | 1.8 



Potential common share
equivalents have been excluded from diluted earnings per share as they would have an anti-dilutive effect.



2. Supplemental Cash Flow Activity



Net cash flows from operating activities reflect cash payments and receipts for interest and taxes as follows (in millions):



|                   |  |                                    |      |   |      |   |      |  
|------------------ |  | ---------------------------------- | ---- | - | ---- | - | ---- | -
|                   |  | For the quarter ended fiscal March |     
|                   |  | 2004                               |      |   | 2003 |  
|Interest paid      |  | $                                  | 5.9  |   |      | $ | 4.9  |  
|Income tax refunds |  |                                    | (0.1 | ) |      |   | (3.0 | )
|Income taxes paid  |  |                                    |     |   |      |   | 0.1  |  



5



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3. Inventories



Inventories, summarized by major classification, were as follows (in millions):



|                                  |  |                  |      |                    |   |     
|--------------------------------- |  | ---------------- | ---- | ------------------ | - | ----
|                                  |  | FiscalMarch 2004 |      | FiscalDecember2003
|                                  |  | (Unaudited)      |      |                   
|Raw materials and work in process |  | $                | 3.0  |                    | $ | 2.9 
|Finished goods                    |  |                  | 11.5 |                    |   | 11.6
|                                  |  |                  |      |                    |   |     
|                                  |  | $                | 14.5 |                    | $ | 14.5
|                                  |  |                  |      |                    |   |     



4.
Business Transformation Charges



The Company is in the process
of transforming its business. As part of the Companys business transformation, the Company has developed and implemented strategic initiatives that it believes will enhance its long-term competitive position. The Company believes these
initiatives will enable it to reduce costs and enhance sustainable profitability while delivering critical products and services to its customers. These initiatives included the disposition of the assets of Parts Warehouse, Inc. (PWI),
the closure and re-franchising of certain company-operated shops, the redesign of the Companys wholesale parts distribution network, and the reduction of administrative expenses related to former operating activities. The implementation of
these initiatives is having the effect of substantially lowering overall Company revenues and expenses. Furthermore, the implementation of the Companys strategic initiatives has resulted in the Company recording substantial business
transformation charges in fiscal 2003, 2002 and 2001, to reflect the write-down of assets, the disposition of lease agreements, severance costs, and other related expenses.



The fiscal 2004 activity affecting the accrual for business transformation charges was as follows (shown in millions):



|                           |  |                   |      |   |                                          |   |      |                                         |  |   |                                              |   |  |       |      |   |  |   |      |  
|-------------------------- |  | ----------------- | ---- | - | ---------------------------------------- | - | ---- | --------------------------------------- |  | - | -------------------------------------------- | - |  | ----- | ---- | - |  | - | ---- | -
|                           |  | Dispositionof PWI |      |   | Rationalizationof Company-Operated Shops |   |      | Redesign ofWholesaleDistributionNetwork |  |   | AdministrativeCosts,Severance andOther Costs |   |  | Total |     
|Balance at January 3, 2004 |  | $                 | 0.8  |   |                                          | $ | 3.0  |                                         |  | $ | 5.3                                          |   |  | $     | 4.0  |   |  | $ | 13.1 |  
|Cash payments              |  |                   | (0.3 | ) |                                          |   | (0.4 | )                                       |  |   | (2.5                                         | ) |  |       | (0.8 | ) |  |   | (4.0 | )
|                           |  |                   |      |   |                                          |   |      |                                         |  |   |                                              |   |  |       |      |   |  |   |      |  
|Balance at April 3, 2004   |  | $                 | 0.5  |   |                                          | $ | 2.6  |                                         |  | $ | 2.8                                          |   |  | $     | 3.2  |   |  | $ | 9.1  |  
|                           |  |                   |      |   |                                          |   |      |                                         |  |   |                                              |   |  |       |      |   |  |   |      |  



5.
Debt Agreements



As of January 4, 2004, the Company had credit
facilities consisting of a $25 million revolving loan facility, a $64.7 million Term Loan A, and a $29.4 million Term Loan B. These facilities were secured by substantially all of the assets of the Company and were scheduled to expire on October 3,
2004. Interest on the revolving loan was payable monthly at the prime rate plus 2.75% or LIBOR plus 3.75%. Interest on a portion of the Term Loan A was fixed at 7.67%, while interest on the balance of the Term Loan A was payable monthly at the prime
rate plus 5.0% or LIBOR plus 6.0%. The interest rate on the Term Loan B was fixed at 12% cash interest paid monthly plus 6% paid-in-kind (PIK), which was added to principal and due at maturity. Availability under the revolving credit
facility was based on a borrowing base, which took into consideration the Companys inventory and accounts receivable levels. The revolving credit facility was senior to both the Term Loan A and Term Loan B.



On March 16, 2004, the Company entered into a new three-year, $115 million
credit facility to refinance its existing debt facility. The new debt facility is comprised of a $55 million revolving credit facility and a $60 million term loan. The new facility is secured by substantially all of the assets of the Company and
expires on March 16, 2007. Under the terms of the debt refinancing, the Company retired its former $25 million revolving credit facility as well as its Term A



6



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and Term B loans. The refinancing resulted in a loss on early extinguishment of debt of $4.7 million due to the write-off
of unamortized debt discount and financing fees. Due to the refinancing of the Companys debt in March 2004, the amounts due after January 1, 2005 were classified as long-term in the January 3, 2004 balance sheet.



Interest on the $55 million revolving loan was initially payable monthly at
LIBOR plus 3.25%. Interest on the $60 million term loan was initially payable monthly at LIBOR plus 3.5%. The interest rates float based on the underlying rate of LIBOR and the Companys leverage. Availability under the revolving credit
facility is not predicated on a borrowing base. The term loan requires quarterly principal payments of $1.25 million on July 2, 2004 and $2.5 million thereafter. In addition, the term loan must be prepaid by an amount equal to: (i) 100% of equity
issued, or (ii) 75% of any material asset proceeds in excess of $1 million (other than the sale of inventory in the normal course of business), or (iii) 50% of any excess cash flow as provided for by the agreement. The new facility requires
maintenance of certain financial covenants including maximum allowable leverage and minimum tangible net worth.



In April 2004, the Company entered into an interest rate swap arrangement to convert $40 million of the $60 million term loan from a floating rate to a
fixed rate, by locking-in LIBOR at 2.76% for the three-year term of the loan.



The components of debt as of April 3, 2004 and January 3, 2004 were as follows:



|                                 |  |              |      |                |   |      |  
|-------------------------------- |  | ------------ | ---- | -------------- | - | ---- | -
|                                 |  | April 3,2004 |      | January 3,2004 |  
|Revolving credit facility        |  | $            | 23.2 |                | $ |     |  
|Term loan                        |  |              | 60.0 |                |   |     |  
|Term loan A                      |  |              |     |                |   | 64.7 |  
|Term loan B                      |  |              |     |                |   | 29.4 |  
|Unamortized debt discount        |  |              |     |                |   | (2.6 | )
|                                 |  |              |      |                |   |      |  
|Total debt                       |  |              | 83.2 |                |   | 91.5 |  
|Less amounts due within one year |  |              | 8.8  |                |   | 6.3  |  
|                                 |  |              |      |                |   |      |  
|Long-term debt                   |  | $            | 74.4 |                | $ | 85.2 |  
|                                 |  |              |      |                |   |      |  



6.
Pension Plans



Certain Midas employees are covered under
various defined benefit pension plans sponsored and funded by Midas. Plans covering salaried employees provide pension benefits based on years of service, and generally are limited to a maximum of 20% of the employees average annual
compensation during the five years preceding retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Plan assets are invested primarily in common stocks, corporate bonds, and government
securities. No contributions were made to the plans for the quarter ended April 3, 2004. The Company does not expect to make material contributions to the plans during the remainder of the fiscal year.



The components of net periodic benefit cost recognized for the interim period
are presented in the following table (in millions):



|                                              |  |                                  |      |   |      |   |      |  
|--------------------------------------------- |  | -------------------------------- | ---- | - | ---- | - | ---- | -
|                                              |  | For the quarterended fiscalMarch |     
|                                              |  | 2004                             |      |   | 2003 |  
|Service cost  benefits                       |  | $                                | 0.4  |   |      | $ | 0.3  |  
|Interest cost on projected benefit obligation |  |                                  | 0.8  |   |      |   | 0.8  |  
|Expected return on plan assets                |  |                                  | (1.2 | ) |      |   | (1.2 | )
|Amortization of prior service cost            |  |                                  |     |   |      |   | 0.1  |  
|Amortization of net loss                      |  |                                  | 0.3  |   |      |   | 0.2  |  
|                                              |  |                                  |      |   |      |   |      |  
|Total periodic cost                           |  | $                                | 0.3  |   |      | $ | 0.2  |  
|                                              |  |                                  |      |   |      |   |      |  



7.
Stock-Based Compensation



Stock options granted under the
Companys stock incentive plans are granted at market prices on the date of grant and generally vest over three or five years commencing one year after the date of the grant.



7



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Midas accounts for stock-based compensation in accordance with the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations using the intrinsic value method, which resulted in no compensation cost for options granted.



Midass net loss and loss per share would equal the pro forma amounts
shown below if compensation cost had been determined based on the fair value at the grant dates in accordance with SFAS Nos. 123 and 148, Accounting for Stock-Based Compensation.



|                                                                                   |  |                                   |       |   |      |   |       |  
|---------------------------------------------------------------------------------- |  | --------------------------------- | ----- | - | ---- | - | ----- | -
|                                                                                   |  | For the quarterended fiscal March |      
|                                                                                   |  | 2004                              |       |   | 2003 |  
|Net loss                                                                           |  |                                   |       |   |      |   |       |  
|As reported                                                                        |  | $                                 | (2.6  | ) |      | $ | (6.4  | )
|Plus: stock-based compensation expense included in reported net loss, net of taxes |  |                                   | 0.2   |   |      |   | 0.1   |  
|Less: fair value impact of employee stock compensation, net of taxes               |  |                                   | (0.6  | ) |      |   | (0.5  | )
|                                                                                   |  |                                   |       |   |      |   |       |  
|Pro forma                                                                          |  | $                                 | (3.0  | ) |      | $ | (6.8  | )
|                                                                                   |  |                                   |       |   |      |   |       |  
|Basic loss per share                                                               |  |                                   |       |   |      |   |       |  
|As reported                                                                        |  | $                                 | (0.16 | ) |      | $ | (0.43 | )
|Pro forma                                                                          |  |                                   | (0.19 | ) |      |   | (0.45 | )
|Diluted loss per share                                                             |  |                                   |       |   |      |   |       |  
|                                                                                   |  |                                  
|As reported                                                                        |  | $                                 | (0.16 | ) |      | $ | (0.43 | )
|Pro forma                                                                          |  |                                   | (0.19 | ) |      |   | (0.45 | )



8.
Warranty



Customers are provided a written warranty from Midas
on genuine Midas products purchased from Midas shops in North America. The warranty will be honored at any Midas shop in North America and is valid for the lifetime of the vehicle, but is voided if the vehicle is sold. The Company maintains a
warranty accrual to cover the estimated future liability associated with outstanding warranties. The Company determines the estimated value of outstanding warranty claims based on: 1) an estimate of the percentage of all warranted products sold and
registered in prior periods at retail that are likely to be redeemed; and 2) an estimate of the cost of redemption of each future warranty claim on a current cost basis. These estimates are computed using actual historical registration and
redemption data as well as actual cost information on current redemptions.



Prior to fiscal 2003, the Company had not maintained an accrual for estimated future warranty claims related to its lifetime guarantee of exhaust and brake products. Instead, the Company recorded expenses related to
these product warranties as warranty claims were incurred. This was due to the fact that the average warranty claim generated gross profit to the Company, as the revenues and gross profit to Midas from a warranty claim exceeded the cost of
reimbursement to the franchisee. As a result of the fiscal 2003 outsourcing of the Midas distribution function to AutoZone, Inc. in the U.S. and Uni-Select Inc. in Canada, Midas no longer generates sufficient gross profit on a warranty claim to
offset the average warranty claim reimbursement. Consequently, the Company recorded charges during fiscal 2003 to reflect its estimated liability associated with outstanding warranties in the U.S. and Canada. Midas now accrues for the expected
future cost of warranty redemptions at the time of the original installation of the warranted part based on the method described above. Warranty expense is included in cost of sales and revenues in the condensed statements of operations.



Year-to-date warranty activity through April 3, 2004 is summarized as
follows (in millions):



|                                                             |  |   |      |  
|------------------------------------------------------------ |  | - | ---- | -
|Accrued warranty at beginning of period                      |  | $ | 39.0 |  
|Warranty expense                                             |  |   | 2.1  |  
|Changes in foreign currency exchange rate                    |  |   | (0.1 | )
|Warranty credit issued to franchisees (warranty claims paid) |  |   | (2.3 | )
|                                                             |  |   |      |  
|Accrued warranty at end of period                            |  |   | 38.7 |  
|Less current portion (included in accrued expenses)          |  |   | (5.2 | )
|                                                             |  |   |      |  
|Accrued warranty  non-current                               |  | $ | 33.5 |  
|                                                             |  |   |      |  



8



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.



RESULTS OF OPERATIONS



The Midas Business Transformation



The Company is in the process of transforming its business. In the past
year, management has dramatically restructured the Companys operations and re-directed the Companys strategic focus towards the Midas retail system. These actions are intended to transform the Company by improving profitability,
enhancing the competitive position of the Midas retail system, strengthening the Companys balance sheet and reducing future capital requirements. This transformation encompasses sweeping changes in the way Midas dealers are supplied with
genuine Midas products and other replacement auto parts, a re-definition of the service relationship between Midas dealers and their customers, and a shift in the way the Company approaches its relationship with Midas franchisees. The implementation
of these initiatives is having the effect of substantially lowering overall Company revenues and expenses in fiscal 2004 compared with historical levels.



Certain aspects of the transformation were completed in fiscal 2003. During 2003, the Company outsourced the wholesale distribution of genuine Midas
products and other replacement parts, closed all but one of the Companys regional distribution centers, disposed of all 77 PWI quick-delivery distribution locations through sale or closure, closed or re-franchised 34 company-operated shops,
and significantly reduced corporate administrative overhead. However, other changes to the way Midas does business continue to evolve, and this process will continue during fiscal 2004. The ultimate objective of this business transformation is
reflected in Midas 2010 vision of 4-3-2-1. Midas management is working towards:



| | (4) | 40% increase in Midas shop sales on a same-store basis.
| | --- | -------------------------------------------------------



| | (3) | Three core services: brakes, exhaust and maintenance.
| | --- | -----------------------------------------------------



| | (2) | Doubling of Midas dealer profits.
| | --- | ---------------------------------



| | (1) | One Midas: The Company and Midas dealers working together as one in support of the retail system.
| | --- | -------------------------------------------------------------------------------------------------



With these goals in mind, Midas management is committed to the Companys mission of becoming the most trusted
professional and first choice for customers auto service needs.



First
Quarter Fiscal 2004 Compared with First Quarter Fiscal 2003



The following is a summary of the Companys sales and revenues for the first quarter of fiscal 2004 and 2003: ($ millions)



|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  
|-------------------------------------------- |  | ---- | ---- | --------------- | ----- | - | ---- | - | --------------- |  | ----- | -
|                                             |  | 2004 |      | Percentto Total |       |   | 2003 |   | Percentto Total | 
|Franchise royalties and license fees         |  | $    | 14.5 |                 | 30.9  | % |      | $ | 13.8            |  | 18.5  | %
|Real estate revenues                         |  |      | 9.1  |                 | 19.4  |   |      |   | 9.0             |  | 12.1  |  
|Company-operated shop retail sales           |  |      | 8.6  |                 | 18.3  |   |      |   | 11.7            |  | 15.7  |  
|Replacement part sales and product royalties |  |      | 14.1 |                 | 30.1  |   |      |   | 39.6            |  | 53.2  |  
|Other                                        |  |      | 0.6  |                 | 1.3   |   |      |   | 0.4             |  | 0.5   |  
|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  
|Total sales and revenues                     |  | $    | 46.9 |                 | 100.0 | % |      | $ | 74.5            |  | 100.0 | %
|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  



Sales and revenues for
the first quarter of fiscal 2004 decreased $27.6 million or 37.1% from the first quarter of fiscal 2003 to $46.9 million, reflecting the impact of the Companys business transformation that began during fiscal 2003.



Within the retail auto service business, royalty revenues and license fees
increased 5.1% from the first quarter of 2003 due to a 1% comparable shop increase in system-wide Midas retail sales, the positive sales impact of the Companys re-franchising of 24 company-operated shops during fiscal 2003, whose royalties
were previously not included in franchising revenues, and the benefit of a favorable Canadian currency exchange rate. Sales from company-operated shops declined $3.1 million, or a decrease of 26.5% from the same period in fiscal 2003. The sales
decrease



9



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primarily reflected a reduction in the number of company-operated shops in operation during the quarter compared to the
prior year and a decline in comparable shop sales of 1%. As of April 3, 2004, there were 73 company-operated shops compared to 101 shops at the end of the first quarter of fiscal 2003. Revenues from real estate rentals increased slightly to $9.1
million. The increase reflects the improvement in system-wide comparable shop retail sales and the re-franchising of 24 previously company-operated shops during fiscal 2003, which offset a decrease in the number of shops in operation.



Replacement parts sales decreased $25.5 million to $14.1 million from $39.6
million in the first quarter of fiscal 2003. The decrease reflects the Companys exit from the traditional wholesale and PWI parts distribution businesses during fiscal 2003. In fiscal 2004, replacement part revenues are comprised of the
distribution of exhaust products to AutoZone, Inc. in the US, Uni-Select Inc. in Canada and to certain independent exhaust distributors, as well as sales derived from the Companys coordination and administration of certain merchandise programs
on behalf of Midas dealers, including tires, batteries and oil. Product royalties reflect royalties earned on the sale of parts to Midas dealers by AutoZone and Uni-Select. During the first quarter of fiscal 2003, the Company did not derive any
revenue from product royalties.



Gross profit margin increased
to 58.2% in the first quarter of fiscal 2004 from 48.1% in the first quarter of fiscal 2003. This increase was primarily due to a shift in the mix of the Companys revenues. In fiscal 2004, more than 49% of the Companys sales and revenues
were derived from the higher margin franchising and company-operated shop operations, compared with only 34% in the first quarter of fiscal 2003. The favorable shift in sales mix helped to offset lower gross margins generated on the sale of exhaust
parts in connection with the Companys outsourcing of exhaust distribution to AutoZone and Uni-Select.



Selling, general and administrative expenses for the first quarter of 2004 decreased $15.3 million, or 41.0% from 2003 to $22.0 million. The large
decrease in expenses reflects the closure of PWI and all but one of the Companys regional distribution centers during fiscal 2003, as well as lower operating expenses associated with a reduced number of company-operated shops compared to the
first quarter of fiscal 2003.



During the first quarter of
fiscal 2003, the Company recorded a charge of $3.7 million related to the Companys business transformation activities. The charges primarily reflected severance and lease costs related to PWI and company-operated shop closures, and severance
charges for certain former executives who left the Company during the quarter. No such charges were recorded during the first quarter of 2004.



As a result of the above changes, operating income increased $10.5 million from a loss of $5.2 million in the first quarter of 2003 to income of $5.3
million in the first quarter of 2004. These changes caused an increase in operating income margin to 11.3% in the first quarter of 2004 from a negative 7.0% in the first quarter of 2003.



Interest expense increased from $4.3 million in the first quarter of 2003 to $5.1 million in the first quarter of 2004 as
result of much higher interest rates compared to the prior year first quarter, despite a reduction in the overall debt level of the Company. In addition, the Company recorded a loss on early extinguishment of debt of $4.7 million in the first
quarter of fiscal 2004 to reflect a write-off of the unamortized debt discount and financing fees related to the Companys prior debt agreement. In fiscal 2003, the Company recorded $1.4 million in charges related to the extinguishment of a
prior debt agreement.



The Companys effective tax rate
was 38.9% in the first quarter of both fiscal 2003 and fiscal 2004.



As a result of the above items, net loss improved $3.8 million from a loss of $6.4 million in the first quarter of 2003 to a loss of $2.6 million in the first quarter of 2004.



LIQUIDITY AND CAPITAL RESOURCES



Midas cash and cash equivalents decreased $6.8 million in the first quarter of fiscal 2004.



The Companys operating activities generated net cash of $6.2 million
during the first quarter of fiscal 2004 compared to $0.3 million of cash generated in the first quarter of fiscal 2003. The year-over-year increase of $5.9 million was primarily due to a $3.8 million decrease in the net loss and a $6.0 million
decrease in cash required by changes in assets and liabilities, partially offset by a $2.7 million increase in deferred income taxes. In addition,



10



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business transformation costs, net of cash payments, and losses on early extinguishment of debt were $0.9 million lower
than the prior year. The $6.0 million reduction in cash required by changes in assets and liabilities was due to lower first quarter growth in accounts receivable in fiscal 2004 relative to 2003, as the collection of remaining receivables associated
with the traditional wholesale and PWI businesses offset the typical seasonal growth in royalty accounts receivable. Additionally, accounts payable increased during the first quarter of 2004 whereas accounts payable declined in fiscal 2003 as a
result of the wind-down of the Companys traditional wholesale and Parts Warehouse Inc. (PWI) operations.



Investing activities used $0.7 million in cash in during the first quarter of fiscal 2004 compared to generating $2.3 million in cash during the first
quarter of fiscal 2003. Fiscal 2004 investing activities consisted primarily of capital expenditures to maintain facilities and investments in information systems. Fiscal 2003 investing activities primarily consisted of $1.0 million in systems
development projects and other maintenance capital expenditures, and $3.7 million in cash generated as the result of asset sales, including a sale and leaseback of the one of the Companys distribution facilities and the sale of certain PWI
locations.



Net cash used in financing activities was $12.3
million in the first quarter of fiscal 2004, compared to net cash used of $0.9 million in the first quarter of fiscal 2003. In fiscal 2004, the Company reduced total debt by $11.6 million and paid $2.1 million in fees in association with the
Companys debt refinancing in March 2004. In addition, the Company received $1.7 million in cash from the exercise of outstanding stock options. In fiscal 2003, the Company paid $4.8 million in financing fees and reduced total debt by $1.0
million. Additionally, the Company issued 1.0 million warrants valued at $5.0 million in connection with its 2003 debt restructuring.



As of January 4, 2004, the Company had credit facilities consisting of a $25 million revolving loan facility, a $64.7 million Term Loan A, and a $29.4
million Term Loan B. These facilities were secured by substantially all of the assets of the Company and were scheduled to expire on October 3, 2004. Interest on the revolving loan was payable monthly at the prime rate plus 2.75% or LIBOR plus
3.75%. Interest on a portion of the Term Loan A was fixed at 7.67%, while interest on the balance of the Term Loan A was payable monthly at the prime rate plus 5.0% or LIBOR plus 6.0%. The interest rate on the Term Loan B was fixed at 12% cash
interest paid monthly plus 6% paid-in-kind (PIK), which was added to principal and due at maturity. Availability under the revolving credit facility was based on a borrowing base, which took into consideration the Companys
inventory and accounts receivable levels. The revolving credit facility was senior to both the Term Loan A and Term Loan B.



On March 16, 2004, the Company entered into a new three-year, $115 million credit facility to refinance its existing debt facility. The new debt facility
is comprised of a $55 million revolving credit facility and a $60 million term loan. The new facility is secured by substantially all of the assets of the Company and expires on March 16, 2007. Under the terms of the debt refinancing, the Company
retired its former $25 million revolving credit facility as well as its Term A and Term B loans. The refinancing resulted in a loss on early extinguishment of debt of $4.7 million due to the write-off of unamortized debt discount and financing fees.



Interest on the $55 million revolving loan was initially
payable monthly at LIBOR plus 3.25%. Interest on the $60 million term loan was initially payable monthly at LIBOR plus 3.5%. The interest rates float based on the underlying rate of LIBOR and the Companys leverage. Availability under the
revolving credit facility is not predicated on a borrowing base. The term loan requires quarterly principal payments of $1.25 million on July 2, 2004 and $2.5 million thereafter. In addition, the term loan must be prepaid by an amount equal to: (i)
100% of equity issued, or (ii) 75% of any material asset proceeds in excess of $1 million (other than the sale of inventory in the normal course of business), or (iii) 50% of any excess cash flow as provided for by the agreement. The new facility
requires maintenance of certain financial covenants including maximum allowable leverage and minimum tangible net worth.



In April 2004, the Company entered into an interest rate swap arrangement to convert $40 million of the $60 million term loan from a floating rate to a
fixed rate, by locking-in LIBOR at 2.76% for the three-year term of the loan.



The Company believes that availability under the current debt agreement provides sufficient liquidity to finance operations and execute strategic initiatives.



11



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES



In preparing the condensed financial statements in conformity with accounting principles generally accepted in the United
States of America, management must make a variety of decisions which impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied, the assumptions on which to base
accounting estimates, and the consistent application of those accounting principles. Due to the type of industry in which the Company operates and the nature of its business, and the Companys existing business transformation process, the
following accounting policies are those that management believes are most important to the portrayal of the Companys financial condition and results and that require managements most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are inherently uncertain.



Valuation of Warranty Liabilities



Customers are provided a written warranty from Midas on genuine Midas products purchased from Midas shops in North America. The warranty will be honored
at any Midas shop in North America and is valid for the lifetime of the vehicle, but is voided if the vehicle is sold. The Company maintains a warranty accrual to cover the estimated future liability associated with outstanding warranties. The
Company determines the estimated value of outstanding warranty claims based on: 1) an estimate of the percentage of all warranted products sold and registered in prior periods at retail that are likely to be redeemed; and 2) an estimate of the cost
of redemption of each future warranty claim on a current cost basis. These estimates are computed using actual historical registration and redemption data as well as actual cost information on current redemptions.



Valuation of Receivables



The Company records receivables due from its franchisees and other customers
at the time the sale is recorded in accordance with its revenue recognition policies. These receivables consist of amounts due from the sale of products, royalties due from franchisees and suppliers, rents and other amounts. The future
collectibility of these amounts can be impacted by the Companys collection efforts, the financial stability of its customers, and the general economic climate in which it operates. The Company applies a consistent practice of establishing an
allowance for accounts that it feels may become uncollectible through reviewing the historical aging of its receivables and by monitoring the financial strength of its franchisees and other customers. Where the Company becomes aware of a
customers inability to meet its financial obligations (e.g. where it is in financial distress or has filed for bankruptcy), the Company specifically reserves for the potential bad debt to reduce the net recognized receivable to the amount it
reasonably believes will be collected. The valuation of receivables is performed on a quarterly basis.



Inventory Valuation



As a manufacturer and distributor of certain automotive aftermarket parts, inventory has historically represented a substantial portion of the total
assets of the Company. Inventories are valued at the lower of cost or net realizable value. Inventory cost is determined using the weighted-average cost method, which approximates the first-in, first-out method. Additionally, the Company
periodically evaluates the carrying value of its inventory to assess the proper valuation. This includes having adequate accruals to cover losses in the normal course of operation, provide for excess and obsolete inventory, and ensure that inventory
is valued at the lower of cost or market. In performing this evaluation the Company considers historical data such as actual loss experience, past and projected usage, and actual margins generated from sales of its products.



Pensions



The Company has non-contributory defined benefit pension plans covering
certain of its employees. The Companys funding policy for the U.S. plan is to contribute amounts sufficient to meet the minimum funding requirement of the Employee Retirement Income Act of 1974, plus any additional amounts the Company may deem
to be appropriate. The Company accounts for its defined benefit pension plans in accordance with Statement of Financial Accounting Standards (SFAS) No. 87, Employers Accounting for Pensions, which requires that amounts recognized
in the financial statements be determined on an actuarial basis. A minimum liability is required to be established on the balance sheet representing the amount of unfunded accrued pension cost. This represents the difference between the accumulated
benefit obligation and the fair value of plan assets. When it is necessary to establish an additional



12



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minimum pension liability, an amount is recorded as an intangible asset limited to unrecognized prior service cost. Any
amount in excess of unrecognized prior service cost is recorded as a reduction to shareholders equity through cumulative other comprehensive income, net of tax, in the balance sheet.



To account for its defined benefit pension plans in accordance with SFAS No.
87, the Company must make three main determinations at the end of each fiscal year: First, it must determine the actuarial assumption for the discount rate used to reflect the time value of money in the calculation of the projected benefit
obligation for the end of the current fiscal year and to determine the net periodic pension cost for the subsequent year. For guidance in determining this rate, the Company looks at rates of return on high-quality fixed-income investments and
periodic published rate ranges.



Second, the Company must
determine the actuarial assumption for rates of increase in compensation levels used in the calculation of the accumulated and projected benefit obligations for the end of the current fiscal year and to determine the net periodic pension cost for
the subsequent year. In determining this rate the Company looks at its historical and expected rates of annual salary increases.



Third, the Company must determine the expected long-term rate of return on assets assumption that is used to determine the expected return on plan assets
component of the net periodic pension cost for the subsequent year. The difference between the actual return on plan assets and the expected return is deferred under SFAS No. 87 and is recognized to net periodic pension cost over a five-year period.



Carrying Values of Long-Lived Assets



Midas evaluates the carrying values of its long-lived assets to be held
and used in the business by reviewing undiscounted cash flows by reporting unit. Such evaluations are performed whenever events and circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the projected
undiscounted cash flows over the remaining lives of the related assets does not exceed the carrying values of the assets, the carrying values are adjusted for the differences between the fair values and the carrying values. Additionally, in the case
of fixed assets related to locations that will be closed or sold, the Company writes down fixed assets to their estimated recovery value.



Deferred Income Taxes



In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences at April 3, 2004. In the event that management determines the Company would not be able to
realize all or part of the net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.



Self-Insurance Reserves



Historically, the Company has been largely self-insured with respect to workers compensation, general liability, and
employee medical claims. In order to reduce its risk and better manage its overall loss exposure, the Company purchases stop-loss insurance that covers individual claims in excess of the deductible amounts. The Company maintains an accrual for the
estimated cost to settle open claims as well as an estimate of the cost of claims that have been incurred but not reported. These estimates take into consideration the historical average monthly claim volume, the average cost for settled claims,
current trends in claim costs, changes in the Companys business and workforce, and general economic factors. These accruals are reviewed on a quarterly basis, or more frequently if factors dictate a more frequent review. Effective January 1,
2004, the Company is no longer self-insured with respect to employee medical claims and has converted to a fully-insured medical program.



13



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IMPACT OF NEW ACCOUNTING STANDARDS



On May 15, 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity. The provisions of the Statement change the classification of certain freestanding financial instruments that are now classified as equity. Generally, the
Statement is effective for financial instruments entered into or modified after May 31, 2003. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been
deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The adoption of SFAS 150 did not have a material effect on the financial position, results of operations, or cash flows of the Company.



In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities, (FIN 46R) which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company will be required to apply FIN 46R to variable
interests in variable interest entities (VIEs) created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any
VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net
amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be
used to measure the assets, liabilities and noncontrolling interest of the VIE.



FIN 46R specifically allows for certain franchisors to not adopt the above described provisions of FIN 46 when the franchisees have sufficient decision-making authority that enables them to impact the operations and
success of the franchise. Midas management believes Midas franchisees possess this threshold level of decision-making authority and therefore does not treat any of its franchised or licensed shops as VIEs.



In December 2003, FASB Statement No. 132 (revised), Employers
Disclosures about Pensions and Other Postretirement Benefits, was issued. Statement 132 (revised) prescribes employers disclosures about pension plans and other postretirement benefit plans; it does not change the measurement or
recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original Statement 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of
defined benefit pension plans and other postretirement benefit plans. The Statement generally is effective for fiscal years ending after December 15, 2003. The Companys disclosure in Note 6 of Notes to Condensed Financial Statements
incorporates the requirements of Statement 132 (revised).



FORWARD LOOKING
STATEMENTS



This report contains (and oral communications
made by Midas may contain) forward-looking statements that may be identified by their use of words like plans, expects, anticipates, intends, estimates, forecasts,
will, outlook or other words of similar meaning. All statements that address Midas expectations or projections about the future, including statements about Midas strategy for growth, cost reduction goals,
expenditures and financial results, are forward-looking statements. Forward-looking statements are based on Midas estimates, assumptions and expectations of future events and are subject to a number of risks and uncertainties. All such
statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Midas cannot guarantee that these estimates, assumptions and expectations are accurate or will be realized. Midas disclaims any
intention or obligation (other than as required by law) to update or revise any forward-looking statements.



The Companys results of operations and the forward-looking statements could be affected by, among others things: general economic conditions in the
markets in which the Company operates; economic developments that have a particularly adverse effect on one or more of the markets served by the Company; the ability to execute managements internal operating plans; the timing and magnitude of
capital expenditures; the Companys ability to access debt and equity markets; economic and market conditions in the U.S. and worldwide; currency exchange rates; changes in consumer spending levels and demand for new products and services; cost
and availability of raw materials; and overall competitive activities. Certain of these risks are more fully described in Item 1 of Part I of the Companys annual report on Form 10-K. The Company disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.



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Item 3. Quantitative and Qualitative Disclosures About Market Risk.



The Company is subject to certain market risks, including foreign currency
and interest rates. The Company uses a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. The Company uses derivative financial instruments only for risk management and does
not use them for trading or speculative purposes. Interest rate risk is managed through a combination of fixed rate debt and variable rate borrowings. The Company is exposed to potential gains or losses from foreign currency fluctuations affecting
net investments and earnings denominated in foreign currencies. The Companys primary exposure is to changes in exchange rates for the U.S. dollar versus the Canadian dollar.



The Company is exposed to credit risk on certain assets, primarily accounts receivable. The Company provides credit to
customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Companys customer base. The
Company believes its allowance for doubtful accounts is sufficient to cover customer credit risk.



Item 4. Controls and Procedures.



(a) Evaluation of disclosure controls and procedures.



Our Chief Executive Officer and Chief Financial Officer have concluded, based upon their evaluation as of the end of the period covered by this report,
that our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a  15(e) and 15d  15(e)) are effective in ensuring that information required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.



(b) Changes in internal controls over financial reporting.



There have been no changes in internal control over financial reporting that occurred during the first quarter of 2004, that
have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II. OTHER INFORMATION



Item 1. Legal Proceedings.



None



Item 2. Changes in Securities and Use of Proceeds.



None



Item 3. Defaults Upon Senior Securities.



None



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



None



Item 5. Other Information.



None



Item 6. Exhibits and Reports on Form 8-K.



|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|(a)  |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | 
|31.1 |  | Rule 13a  14(a) / 15d  14(a) Certification of Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | 
|31.2 |  | Rule 13a  14(a) / 15d  14(a) Certification of Chief Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | 
|32.1 |  | Section 1350 Certifications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | 
|(b)  |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | 
|     |  | During the first quarter of fiscal 2004, the Company furnished the Securities and Exchange Commission (SEC) a Current Report on Form 8-K dated January 8, 2004, under Item 12  Results of
Operations and Financial Condition, reporting on the status of the Companys debt reduction efforts; furnished the SEC a Current Report on Form 8-K dated February 26, 2004, under Item 12  Results of Operations and Financial Condition,
reporting Midas fourth quarter and full year fiscal 2003 earnings; and filed with the SEC a Current Report on Form 8-K dated March 17, 2004, under Item 5  Other Events, reporting the completion of the Companys debt refinancing
activity.







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SIGNATURE



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



|                   |  |                                                  
|------------------ |  | -------------------------------------------------
|Date: May 13, 2004 |  | /s/ Alan D. Feldman                              
|                   |  | Alan D. Feldman                                  
|                   |  | President and Chief Executive Officer            
|                   | 
|                   |  | /s/ William M. Guzik                             
|                   |  | William M. Guzik                                 
|                   |  | Senior Vice President and Chief Financial Officer
|                   | 
|                   |  | /s/ James M. Haeger, Jr.                         
|                   |  | James M. Haeger, Jr.                             
|                   |  | Vice President and Controller                    



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