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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 July 1, 2006

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 a large accelerated filer, an accelerated filer or a non-accelerated filer, as defined in Rule 12b-2 of
the Exchange Act.

Large Accelerated Filer ̈Accelerated Filer  x                    Non-Accelerated Filer ̈

Indicate by check mark whether the Registrant is a shell company (as
defined by Rule 12b-2 of the Exchange Act)    YES ̈NO  x

The number of shares of the Registrants Common Stock, $.001 par value per share, outstanding as of
July 31, 2006 was 15,611,068.



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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 June |      |   | For the six months ended fiscal June |  
|                                                       |  | 2006                              |      |   | 2005                                 |   |       | 2006       |  |   | 2005       |  
|                                                       |  | (13 weeks)                        |      |   | (13 weeks)                           |   |       | (26 weeks) |  |   | (26 weeks) |  
|Sales and revenues:                                    |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Franchise royalties and license fees                   |  | $                                 | 16.9 |   |                                      | $ | 17.3  |            |  | $ | 32.1       |   |  | $ | 32.8 |  
|Real estate revenues                                   |  |                                   | 9.1  |   |                                      |   | 8.9   |            |  |   | 18.2       |   |  |   | 17.9 |  
|Company-operated shop retail sales                     |  |                                   | 10.5 |   |                                      |   | 9.6   |            |  |   | 20.0       |   |  |   | 18.7 |  
|Replacement part sales and product royalties           |  |                                   | 7.7  |   |                                      |   | 13.6  |            |  |   | 15.5       |   |  |   | 28.8 |  
|Other                                                  |  |                                   | 0.9  |   |                                      |   | 0.9   |            |  |   | 1.9        |   |  |   | 1.6  |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Total sales and revenues                               |  |                                   | 45.1 |   |                                      |   | 50.3  |            |  |   | 87.7       |   |  |   | 99.8 |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Cost of sales and revenues:                            |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Real estate cost of revenues                           |  |                                   | 5.7  |   |                                      |   | 5.6   |            |  |   | 11.3       |   |  |   | 11.2 |  
|Company-operated shop cost of sales                    |  |                                   | 2.5  |   |                                      |   | 2.3   |            |  |   | 4.7        |   |  |   | 4.4  |  
|Replacement part cost of sales                         |  |                                   | 6.4  |   |                                      |   | 11.1  |            |  |   | 12.9       |   |  |   | 22.8 |  
|Warranty expense                                       |  |                                   | 1.6  |   |                                      |   | 1.9   |            |  |   | 2.9        |   |  |   | 3.7  |  
|Business transformation charges (inventory write-down) |  |                                   |     |   |                                      |   | 4.1   |            |  |   |           |   |  |   | 4.1  |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Total cost of sales and revenues                       |  |                                   | 16.2 |   |                                      |   | 25.0  |            |  |   | 31.8       |   |  |   | 46.2 |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Gross profit                                           |  |                                   | 28.9 |   |                                      |   | 25.3  |            |  |   | 55.9       |   |  |   | 53.6 |  
|Selling, general, and administrative expenses          |  |                                   | 22.2 |   |                                      |   | 23.0  |            |  |   | 44.4       |   |  |   | 45.5 |  
|Gain on sale of assets                                 |  |                                   |     |   |                                      |   | (1.1  | )          |  |   | (3.4       | ) |  |   | (1.9 | )
|Business transformation charges                        |  |                                   | 0.4  |   |                                      |   | 5.4   |            |  |   | 0.5        |   |  |   | 5.5  |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Operating income (loss)                                |  |                                   | 6.3  |   |                                      |   | (2.0  | )          |  |   | 14.4       |   |  |   | 4.5  |  
|Interest expense                                       |  |                                   | (2.3 | ) |                                      |   | (2.5  | )          |  |   | (4.5       | ) |  |   | (5.0 | )
|Other income, net                                      |  |                                   | 0.2  |   |                                      |   | 0.3   |            |  |   | 0.5        |   |  |   | 0.6  |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Income (loss) before income taxes                      |  |                                   | 4.2  |   |                                      |   | (4.2  | )          |  |   | 10.4       |   |  |   | 0.1  |  
|Income tax expense (benefit)                           |  |                                   | 1.6  |   |                                      |   | (1.7  | )          |  |   | 4.0        |   |  |   |     |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Net income (loss)                                      |  | $                                 | 2.6  |   |                                      | $ | (2.5  | )          |  | $ | 6.4        |   |  | $ | 0.1  |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Earnings (loss) per share:                             |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Basic                                                  |  | $                                 | 0.17 |   |                                      | $ | (0.16 | )          |  | $ | 0.42       |   |  | $ | 0.00 |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Diluted                                                |  | $                                 | 0.17 |   |                                      | $ | (0.16 | )          |  | $ | 0.41       |   |  | $ | 0.00 |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Average number of shares:                              |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Common shares outstanding                              |  |                                   | 15.2 |   |                                      |   | 15.8  |            |  |   | 15.2       |   |  |   | 15.8 |  
|Common stock warrants                                  |  |                                   | 0.1  |   |                                      |   | 0.1   |            |  |   | 0.1        |   |  |   | 0.1  |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Shares applicable to basic earnings                    |  |                                   | 15.3 |   |                                      |   | 15.9  |            |  |   | 15.3       |   |  |   | 15.9 |  
|Equivalent shares on outstanding stock awards          |  |                                   | 0.4  |   |                                      |   |      |            |  |   | 0.4        |   |  |   | 0.7  |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  
|Shares applicable to diluted earnings                  |  |                                   | 15.7 |   |                                      |   | 15.9  |            |  |   | 15.7       |   |  |   | 16.6 |  
|                                                       |  |                                   |      |   |                                      |   |       |            |  |   |            |   |  |   |      |  

See notes to condensed financial statements.



1



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MIDAS, INC.

CONDENSED BALANCE SHEETS

(In millions, except per share data)



|                                                                                                                                      |  |                  |       |   |                    |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----- | - | ------------------ | - | ----- | -
|                                                                                                                                      |  | Fiscal June 2006 |       |   | FiscalDecember2005 |  
|                                                                                                                                      |  | (Unaudited)      |       |   |                    |  
|Assets:                                                                                                                               |  |                  |       |   |                    |   |       |  
|Current assets:                                                                                                                       |  |                  |       |   |                    |   |       |  
|Cash and cash equivalents                                                                                                             |  | $                | 1.3   |   |                    | $ | 1.4   |  
|Receivables, net                                                                                                                      |  |                  | 33.5  |   |                    |   | 33.5  |  
|Inventories, net                                                                                                                      |  |                  | 3.4   |   |                    |   | 6.8   |  
|Deferred income taxes                                                                                                                 |  |                  | 7.4   |   |                    |   | 9.1   |  
|Prepaid assets                                                                                                                        |  |                  | 3.8   |   |                    |   | 3.3   |  
|Other current assets                                                                                                                  |  |                  | 3.0   |   |                    |   | 3.2   |  
|                                                                                                                                      |  |                  |       |   |                    |   |       |  
|Total current assets                                                                                                                  |  |                  | 52.4  |   |                    |   | 57.3  |  
|Property and equipment, net                                                                                                           |  |                  | 100.5 |   |                    |   | 104.6 |  
|Intangible assets                                                                                                                     |  |                  | 1.6   |   |                    |   |      |  
|Deferred income taxes                                                                                                                 |  |                  | 58.0  |   |                    |   | 59.5  |  
|Other assets                                                                                                                          |  |                  | 17.6  |   |                    |   | 17.8  |  
|                                                                                                                                      |  |                  |       |   |                    |   |       |  
|Total assets                                                                                                                          |  | $                | 230.1 |   |                    | $ | 239.2 |  
|                                                                                                                                      |  |                  |       |   |                    |   |       |  
|Liabilities and equity:                                                                                                               |  |                  |       |   |                    |   |       |  
|Current liabilities:                                                                                                                  |  |                  |       |   |                    |   |       |  
|Current portion of long-term obligations                                                                                              |  | $                | 1.9   |   |                    | $ | 1.9   |  
|Accounts payable                                                                                                                      |  |                  | 13.3  |   |                    |   | 13.6  |  
|Accrued expenses                                                                                                                      |  |                  | 27.3  |   |                    |   | 31.7  |  
|                                                                                                                                      |  |                  |       |   |                    |   |       |  
|Total current liabilities                                                                                                             |  |                  | 42.5  |   |                    |   | 47.2  |  
|Long-term debt                                                                                                                        |  |                  | 60.7  |   |                    |   | 65.0  |  
|Obligations under capital leases                                                                                                      |  |                  | 3.6   |   |                    |   | 4.1   |  
|Finance lease obligation                                                                                                              |  |                  | 34.4  |   |                    |   | 35.9  |  
|Accrued warranty                                                                                                                      |  |                  | 30.5  |   |                    |   | 30.7  |  
|Other liabilities                                                                                                                     |  |                  | 5.8   |   |                    |   | 6.8   |  
|                                                                                                                                      |  |                  |       |   |                    |   |       |  
|Total liabilities                                                                                                                     |  |                  | 177.5 |   |                    |   | 189.7 |  
|                                                                                                                                      |  |                  |       |   |                    |   |       |  
|Shareholders equity:                                                                                                                 |  |                  |       |   |                    |   |       |  
|Common stock ($.001 par value, 100 million shares authorized, 17.7 million shares and 17.7 million shares issued) and paid-in
capital |  |                  | 11.7  |   |                    |   | 19.8  |  
|Treasury stock, at cost (2.1 million shares and 2.0 million shares)                                                                   |  |                  | (45.3 | ) |                    |   | (45.0 | )
|Unamortized restricted stock awards                                                                                                   |  |                  |      |   |                    |   | (4.2  | )
|Retained income                                                                                                                       |  |                  | 87.5  |   |                    |   | 81.1  |  
|Cumulative other comprehensive loss                                                                                                   |  |                  | (1.3  | ) |                    |   | (2.2  | )
|                                                                                                                                      |  |                  |       |   |                    |   |       |  
|Total shareholders equity                                                                                                            |  |                  | 52.6  |   |                    |   | 49.5  |  
|                                                                                                                                      |  |                  |       |   |                    |   |       |  
|Total liabilities and shareholders equity                                                                                            |  | $                | 230.1 |   |                    | $ | 239.2 |  
|                                                                                                                                      |  |                  |       |   |                    |   |       |  

See notes to condensed financial statements.



2



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MIDAS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)



|                                                                                                                          |  |                                      |       |   |      |   |       |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | - | ---- | - | ----- | -
|                                                                                                                          |  | For the six months ended fiscal June |      
|                                                                                                                          |  | 2006                                 |       |   | 2005 |  
|Cash flows from operating activities:                                                                                     |  |                                      |       |   |      |   |       |  
|Net income                                                                                                                |  | $                                    | 6.4   |   |      | $ | 0.1   |  
|Adjustments reconciling net income to net cash provided by operating activities:                                          |  |                                      |       |   |      |   |       |  
|Depreciation and amortization                                                                                             |  |                                      | 4.5   |   |      |   | 5.3   |  
|Stock based compensation                                                                                                  |  |                                      | 1.7   |   |      |   | 0.9   |  
|Amortization of financing fees                                                                                            |  |                                      | 0.1   |   |      |   | 0.4   |  
|Business transformation charges                                                                                           |  |                                      | 0.5   |   |      |   | 5.5   |  
|Business transformation charges (inventory write-down)                                                                    |  |                                      |      |   |      |   | 4.1   |  
|Gain on sale of assets                                                                                                    |  |                                      | (3.4  | ) |      |   | (1.9  | )
|Deferred income taxes                                                                                                     |  |                                      | 3.2   |   |      |   | (1.8  | )
|Cash outlays for business transformation costs                                                                            |  |                                      | (3.5  | ) |      |   | (1.3  | )
|Changes in assets and liabilities, exclusive of effects of business transformation charges, acquisitions and dispositions |  |                                      | 2.1   |   |      |   | (13.1 | )
|                                                                                                                          |  |                                      |       |   |      |   |       |  
|Net cash provided by (used in) operating activities                                                                       |  |                                      | 11.6  |   |      |   | (1.8  | )
|                                                                                                                          |  |                                      |       |   |      |   |       |  
|Cash flows from investing activities:                                                                                     |  |                                      |       |   |      |   |       |  
|Capital investments                                                                                                       |  |                                      | (1.5  | ) |      |   | (1.0  | )
|Cash paid for acquired businesses                                                                                         |  |                                      | (0.1  | ) |      |   |      |  
|Proceeds from sales of assets                                                                                             |  |                                      | 1.1   |   |      |   | 8.3   |  
|                                                                                                                          |  |                                      |       |   |      |   |       |  
|Net cash provided by (used in) investing activities                                                                       |  |                                      | (0.5  | ) |      |   | 7.3   |  
|                                                                                                                          |  |                                      |       |   |      |   |       |  
|Cash flows from financing activities:                                                                                     |  |                                      |       |   |      |   |       |  
|Principal payments of long-term debt                                                                                      |  |                                      |      |   |      |   | (5.2  | )
|Net borrowings (repayments) under revolving lines of credit                                                               |  |                                      | (4.3  | ) |      |   | 1.7   |  
|Payment of obligations under capital leases                                                                               |  |                                      | (0.5  | ) |      |   | (0.5  | )
|Payment of obligations under finance lease                                                                                |  |                                      | (0.5  | ) |      |   | (0.4  | )
|Cash received for common stock                                                                                            |  |                                      | 1.7   |   |      |   | 3.7   |  
|Cash paid for treasury shares                                                                                             |  |                                      | (7.6  | ) |      |   | (4.6  | )
|                                                                                                                          |  |                                      |       |   |      |   |       |  
|Net cash used in financing activities                                                                                     |  |                                      | (11.2 | ) |      |   | (5.3  | )
|                                                                                                                          |  |                                      |       |   |      |   |       |  
|Net change in cash and cash equivalents                                                                                   |  |                                      | (0.1  | ) |      |   | 0.2   |  
|Cash and cash equivalents at beginning of period                                                                          |  |                                      | 1.4   |   |      |   | 0.9   |  
|                                                                                                                          |  |                                      |       |   |      |   |       |  
|Cash and cash equivalents at end of period                                                                                |  | $                                    | 1.3   |   |      | $ | 1.1   |  
|                                                                                                                          |  |                                      |       |   |      |   |       |  

See notes to condensed financial statements.



3



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MIDAS, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)

(In millions)



|                                                       |  |                                  |  |        |                |   |        |                                     |   |        |                 |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |      |  
|------------------------------------------------------ |  | -------------------------------- |  | ------ | -------------- | - | ------ | ----------------------------------- | - | ------ | --------------- | ----- | --------------------------- |  | ------- | ---- | ---------- |  | - | ---- |  | - | --- |  | - | ---- | -
|                                                       |  | Common Stock And Paid-in
Capital |  |        | Treasury Stock |   |        | Unamortized Restricted Stock Awards |   |        | Retained Income |       | Comprehensive Income (Loss) | 
|                                                       |  | Shares                           |  | Amount |                |   | Shares |                                     |   | Amount |                 |       |                             |  | Current |      | Cumulative | 
|Fiscal year end 2005                                   |  | 17.7                             |  | $      | 19.8           |   |        | (2.0                                | ) |        | $               | (45.0 | )                           |  | $       | (4.2 | )          |  | $ | 81.1 |  |   |     |  | $ | (2.2 | )
|Eliminate remaining deferred compensation (a)          |  |                                 |  |        | (4.2           | ) |        |                                    |   |        |                 |      |                             |  |         | 4.2  |            |  |   |     |  |   |     |  |   |     |  
|Purchase of treasury shares                            |  |                                 |  |        |               |   |        | (0.4                                | ) |        |                 | (7.6  | )                           |  |         |     |            |  |   |     |  |   |     |  |   |     |  
|Stock option transactions                              |  |                                 |  |        | (0.9           | ) |        | 0.1                                 |   |        |                 | 2.6   |                             |  |         |     |            |  |   |     |  |   |     |  |   |     |  
|Restricted stock awards                                |  |                                 |  |        | (4.8           | ) |        | 0.2                                 |   |        |                 | 4.8   |                             |  |         |     |            |  |   |     |  |   |     |  |   |     |  
|Forfeiture of restricted stock awards                  |  |                                 |  |        | 0.1            |   |        |                                    |   |        |                 | (0.1  | )                           |  |         |     |            |  |   |     |  |   |     |  |   |     |  
|Stock based compensation                               |  |                                 |  |        | 1.7            |   |        |                                    |   |        |                 |      |                             |  |         |     |            |  |   |     |  |   |     |  |   |     |  
|Net income                                             |  |                                 |  |        |               |   |        |                                    |   |        |                 |      |                             |  |         |     |            |  |   | 6.4  |  | $ | 6.4 |  |   |     |  
|Other comprehensive income                             |  |                                  |  |        |                |   |        |                                     |   |        |                 |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |      |  
| foreign currency translation                         |  |                                 |  |        |               |   |        |                                    |   |        |                 |      |                             |  |         |     |            |  |   |     |  |   | 0.6 |  |   | 0.6  |  
| gain on derivative financial instruments, net of tax |  |                                 |  |        |               |   |        |                                    |   |        |                 |      |                             |  |         |     |            |  |   |     |  |   | 0.3 |  |   | 0.3  |  
|                                                       |  |                                  |  |        |                |   |        |                                     |   |        |                 |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |      |  
|Comprehensive income                                   |  |                                 |  |        |               |   |        |                                    |   |        |                 |      |                             |  |         |     |            |  |   |     |  | $ | 7.3 |  |   |     |  
|                                                       |  |                                  |  |        |                |   |        |                                     |   |        |                 |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |      |  
|Fiscal second quarter end 2006                         |  | 17.7                             |  | $      | 11.7           |   |        | (2.1                                | ) |        | $               | (45.3 | )                           |  | $       |     |            |  | $ | 87.5 |  |   |     |  | $ | (1.3 | )
|                                                       |  |                                  |  |        |                |   |        |                                     |   |        |                 |       |                             |  |         |      |            |  |   |      |  |   |     |  |   |      |  

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|(a) | On January 1, 2006, the Company adopted the provisions of SFAS No. 123R using the modified prospective method. Under the modified prospective method, contra-equity
accounts related to unearned or deferred compensation for awards previously accounted for pursuant to APB 25 are eliminated against paid-in capital.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See notes to condensed financial statements.



4



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MIDAS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

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 December 31, 2005. 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 July 1, 2006 (second quarter fiscal 2006) and July 2, 2005 (second quarter
fiscal 2005) and of its financial position as of July 1, 2006. All such adjustments are of a normal recurring nature. The results of operations for the second quarter of fiscal 2006 and 2005 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 July 1, 2006 and July 2, 2005 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 2005 financial statements in order to provide consistency with the fiscal 2006 results. These reclassifications did not affect previously reported income (loss) before income taxes, net income (loss) or earnings (loss) per share.

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



|                                           |  |                                   |  |                                      |  |      |  |     
|------------------------------------------ |  | --------------------------------- |  | ------------------------------------ |  | ---- |  | ----
|                                           |  | For the quarter ended fiscal June |  | For the six months ended fiscal June
|                                           |  | 2006                              |  | 2005                                 |  | 2006 |  | 2005
|Weighted-average common shares outstanding |  | 15.2                              |  | 15.8                                 |  | 15.2 |  | 15.8
|Common stock warrants                      |  | 0.1                               |  | 0.1                                  |  | 0.1  |  | 0.1 
|                                           |  |                                   |  |                                      |  |      |  |     
|Shares applicable to basic earnings        |  | 15.3                              |  | 15.9                                 |  | 15.3 |  | 15.9
|Effect of dilutive stock awards            |  | 0.4                               |  |                                     |  | 0.4  |  | 0.7 
|                                           |  |                                   |  |                                      |  |      |  |     
|Shares applicable to diluted earnings      |  | 15.7                              |  | 15.9                                 |  | 15.7 |  | 16.6
|                                           |  |                                   |  |                                      |  |      |  |     
|Potential common share equivalents:        |  |                                   |  |                                      |  |      |  |     
|Stock options                              |  | 1.4                               |  | 1.8                                  |  | 1.4  |  | 1.3 

Common share equivalents were excluded from diluted earnings per share in the quarter ended June
2005 as they would have had 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 six months ended fiscal June |     
|                   |  | 2006                                 |      |   | 2005 |  
|Interest paid      |  | $                                    | 4.2  |   |      | $ | 4.4  |  
|Income tax refunds |  |                                      | (0.3 | ) |      |   | (0.3 | )
|Income taxes paid  |  |                                      | 0.5  |   |      |   | 0.8  |  



5



---

The acquisition of certain company-operated shops resulted in non-cash reductions of accounts receivable
of approximately $1.8 million and $0.5 million during the first six months of fiscal 2006 and 2005, respectively.

3. Inventories

Inventories were composed of finished goods, net of reserves, in both the quarter ended July 1, 2006 and the year ended December 31, 2005.

4. Business Transformation Activities

The
Company is in the process of transforming its business. As part of the Companys business transformation, management 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 include the closure and re-franchising of certain
company-operated shops, the redesign of the Companys wholesale parts distribution network, the exit from exhaust manufacturing and distribution, and the reduction of administrative expenses related to former operating activities. The
implementation of these initiatives has had and will continue to have the effect of lowering overall Company revenues and expenses compared to the prior year. Furthermore, the implementation of the Companys strategic initiatives has resulted
in the Company recording substantial business transformation charges in prior fiscal years to reflect the write-down of assets, the disposition of lease agreements, severance costs, and other related expenses.

In connection with Midas ongoing retail transformation, the Company recently developed a major update to its retail shop image. The new image
program incorporates changes to internal shop appearance and merchandising, as well as a significant redesign of the Midas shop façade. Midas management believes the new image will better showcase the Companys expansion into new
services, enhance efforts to educate customers and significantly increase the visibility and curb appeal of the typical Midas shop. The Company expects a majority of Midas shops throughout North America to adopt the new shop image. In order to
encourage Midas dealers to adopt this new image during 2006 and 2007, the Company is offering to provide a subsidy of up to $2,600 per shop. As a result, Midas management expects that the implementation of this program will result in additional
business transformation costs each quarter during fiscal 2006 and 2007. Midas believes the total charges will be approximately $4 million.

The fiscal 2006 activity to date affecting the accrual for business transformation charges was as follows (shown in millions):



|                                |  |             |      |   |                               |   |      |                                          |  |   |                                         |   |  |                                              |      |       |  |   |     |  |   |      |  
|------------------------------- |  | ----------- | ---- | - | ----------------------------- | - | ---- | ---------------------------------------- |  | - | --------------------------------------- | - |  | -------------------------------------------- | ---- | ----- |  | - | --- |  | - | ---- | -
|                                |  | ImageUpdate |      |   | Exit fromExhaustManufacturing |   |      | Rationalizationof Company-Operated Shops |  |   | Redesign ofWholesaleDistributionNetwork |   |  | AdministrativeCosts,Severance andOther Costs |      | Total | 
|Balance at December 31, 2005    |  | $           |     |   |                               | $ | 3.2  |                                          |  | $ | 0.3                                     |   |  | $                                            | 0.7  |       |  | $ | 0.1 |  | $ | 4.3  |  
|Business transformation charges |  |             | 0.7  |   |                               |   | (0.2 | )                                        |  |   |                                        |   |  |                                              |     |       |  |   |    |  |   | 0.5  |  
|Cash payments                   |  |             | (0.7 | ) |                               |   | (2.1 | )                                        |  |   | (0.1                                    | ) |  |                                              | (0.6 | )     |  |   |    |  |   | (3.5 | )
|Non-cash utilization            |  |             |     |   |                               |   | 0.2  |                                          |  |   |                                        |   |  |                                              |     |       |  |   |    |  |   | 0.2  |  
|                                |  |             |      |   |                               |   |      |                                          |  |   |                                         |   |  |                                              |      |       |  |   |     |  |   |      |  
|Balance at July 1, 2006         |  | $           |     |   |                               | $ | 1.1  |                                          |  | $ | 0.2                                     |   |  | $                                            | 0.1  |       |  | $ | 0.1 |  | $ | 1.5  |  
|                                |  |             |      |   |                               |   |      |                                          |  |   |                                         |   |  |                                              |      |       |  |   |     |  |   |      |  

The above accrual balance for business transformation charges is reflected in the Companys
balance sheet on the Accrued expenses line.

5. Debt Agreements

On March 16, 2004, the Company entered into a three-year, $115 million credit facility to refinance its existing credit facility. This credit
facility was initially comprised of a $55 million revolving credit facility and a $60 million term loan. The facility was secured by substantially all of the assets of the Company and was set to expire on March 16, 2007. 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 floated based on the underlying rate of LIBOR and the Companys
leverage. The facility required maintenance of certain financial covenants including maximum allowable leverage and minimum tangible net worth. In addition, the agreement restricted capital expenditures and prohibited treasury stock purchases and
the payment of dividends.



6



---

On November 5, 2004, the Company amended its March 2004 credit agreement to reduce the required
principal amortization under the term loan, remove certain restrictive covenants, and reduce interest rates. As amended, the term loan required quarterly principal payments of $1.5 million and mandated prepayment of debt with the proceeds generated
from the liquidation of assets in connection with the Companys ongoing restructuring. The amendment also eased the Companys restrictions on capital expenditures, allowed for stock repurchases and dividend payments, and reduced the
interest rate on both the term loan and revolving loan by 50 basis points.

On October 27, 2005, the Company entered into a new
five-year, unsecured $110 million revolving credit facility that further reduced interest rates, eliminated scheduled principal payments and significantly increased the Companys capacity to make treasury stock repurchases and dividend
payments. The new credit facility is expandable to $140 million at the Companys discretion with lender approval. Interest on the new revolving loan was initially payable monthly at LIBOR plus 2.0%. The interest rate floats based on the
underlying rate of LIBOR and the Companys leverage. 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 in senior bank debt from a floating rate to a fixed rate
by locking-in LIBOR at 2.76% for the three-year term of the agreement. The outstanding amount of the swap is reduced by $2.5 million each quarter until the end of the three-year term. As of July 1, 2006, approximately $18.7 million of this
interest rate swap remained outstanding. In November 2005, an additional $20 million in senior bank debt was converted from floating rate to fixed rate by locking-in LIBOR at 4.89% for a five year period with no scheduled reduction.

The April 2004 swap arrangement has been designated as a cash flow hedge and was evaluated to be ineffective subsequent to the Companys October
2005 refinancing. As a result, the change in the fair value is reflected on the statement of operations as interest expense. The November 2005 swap arrangement has been designated as a cash flow hedge and was evaluated to be highly effective. As a
result, the change in the fair value is recorded in other comprehensive income as a gain or loss on derivative financial instruments. As of July 1, 2006, the fair value of these instruments was an asset of approximately $0.8 million.

As of July 1, 2006, a total of $60.7 million was outstanding under the revolving credit facility. As of December 31, 2005, a
total of $65.0 million was outstanding under the revolving credit facility.

6. Pension Plans

Certain Midas employees are covered under various defined benefit pension plans sponsored and funded by Midas. Plans covering salaried and hourly
employees in the corporate office 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. Plan assets are
invested primarily in common stocks, corporate bonds, and government securities. The Company does not expect to make material contributions to the various plans in fiscal 2006.

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



|                                              |  |                                   |      |   |                                     |   |      |      |  |   |      |   |  |   |      |  
|--------------------------------------------- |  | --------------------------------- | ---- | - | ----------------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                              |  | For the quarter ended fiscal June |      |   | For the six monthsended fiscal June |  
|                                              |  | 2006                              |      |   | 2005                                |   |      | 2006 |  |   | 2005 |  
|Service cost  benefits                       |  | $                                 | 0.3  |   |                                     | $ | 0.2  |      |  | $ | 0.6  |   |  | $ | 0.5  |  
|Interest cost on projected benefit obligation |  |                                   | 0.7  |   |                                     |   | 0.8  |      |  |   | 1.4  |   |  |   | 1.5  |  
|Expected return on assets                     |  |                                   | (1.1 | ) |                                     |   | (1.1 | )    |  |   | (2.2 | ) |  |   | (2.1 | )
|Net amortization and deferral                 |  |                                   | 0.2  |   |                                     |   | 0.1  |      |  |   | 0.4  |   |  |   | 0.3  |  
|                                              |  |                                   |      |   |                                     |   |      |      |  |   |      |   |  |   |      |  
|Total net periodic pension cost               |  | $                                 | 0.1  |   |                                     | $ |     |      |  | $ | 0.2  |   |  | $ | 0.2  |  
|                                              |  |                                   |      |   |                                     |   |      |      |  |   |      |   |  |   |      |  

Midas also participates in a multi-employer pension plan, which provides benefits to certain
former unionized employees. Contributions of approximately $75,000 were made to this plan for the six months ended July 1, 2006.



7



---

7. Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board issued Statement No. 123R, Share-Based Payment (SFAS No. 123R or the Statement). This Statement is a
revision of Statement No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB No. 25), and its related implementation guidance. On January 1, 2006, the Company adopted the provisions of SFAS No. 123R using the Modified Prospective Application method. SFAS No. 123R focuses
primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Statement requires entities to recognize compensation expense for awards of equity instruments to employees based on the
grant-date fair value of those awards (with limited exceptions). SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating
cash flow as prescribed under the prior accounting rules. This requirement reduces net operating cash flows and increases net financing cash flows in periods after adoption. Total cash flow remains unchanged from what would have been reported under
prior accounting rules.

Prior to the adoption of SFAS No. 123R, the Company applied the intrinsic-value-based method in
accordance with APB No. 25 to account for its employee stock options and share purchase rights. Accordingly, no compensation expense was recognized for share purchase rights granted in connection with the issuance of stock options under the
Companys stock incentive plans; however, compensation expense was recognized in connection with the issuance of restricted shares. The adoption of SFAS No. 123R primarily resulted in a change in the method of recognizing the fair
value of share-based compensation and estimating forfeitures for all unvested awards. Specifically, the adoption of SFAS No. 123R resulted in recording compensation expense for employee stock options. The Company records an expense for
outstanding unvested stock awards based on the grant-date fair value of those awards. The fair value of stock option awards has been determined using the Black-Scholes option pricing model and the Modified Prospective Application method of adoption
as allowed under SFAS No. 123R.

The following table shows the effect of adopting SFAS No. 123R on selected reported items
(As Reported) and what those items would have been under previous guidance under APB No. 25 (in millions):



|                                    |  |                                       |      |                                           |   |            |  |                 |      |  |   |      |  
|----------------------------------- |  | ------------------------------------- | ---- | ----------------------------------------- | - | ---------- |  | --------------- | ---- |  | - | ---- | -
|                                    |  | For the quarter endedfiscal June 2006 |      | For the six months ended
fiscal June 2006 |  
|                                    |  | AsReported                            |      | Under APBNo. 25                           |   | AsReported |  | Under APBNo. 25 |     
|Statement of Operations:            |  |                                       |      |                                           |   |            |  |                 |      |  |   |      |  
|Operating income                    |  | $                                     | 6.3  |                                           | $ | 6.9        |  | $               | 14.4 |  | $ | 15.5 |  
|Income before income taxes          |  |                                       | 4.2  |                                           |   | 4.8        |  |                 | 10.4 |  |   | 11.5 |  
|Net income                          |  |                                       | 2.6  |                                           |   | 2.9        |  |                 | 6.4  |  |   | 7.1  |  
|                                    |  |                                       |      |                                          
|Earnings per share:                 |  |                                       |      |                                           |   |            |  |                 |      |  |   |      |  
|Basic                               |  | $                                     | 0.17 |                                           | $ | 0.19       |  | $               | 0.42 |  | $ | 0.46 |  
|Diluted                             |  |                                       | 0.17 |                                           |   | 0.19       |  |                 | 0.41 |  |   | 0.45 |  
|                                    |  |                                       |      |                                          
|Balance Sheet:                      |  |                                       |      |                                           |   |            |  |                 |      |  |   |      |  
|Common stock and paid-in capital    |  |                                       |      |                                           |   |            |  | $               | 11.7 |  | $ | 18.9 |  
|Unamortized restricted stock awards |  |                                       |      |                                           |   |            |  |                 |     |  |   | (8.3 | )

The Company did not record an excess tax benefit in the first six months of fiscal 2006;
therefore, there is no impact on cash flows from operating activities or cash flows from financing activities in the Statement of Cash Flows. Under the Modified Prospective Application method, contra-equity accounts related to unearned or deferred
compensation for awards previously accounted for pursuant to APB 25 are eliminated against paid-in capital.

Results for fiscal 2005 have
not been restated. Had compensation expense for employee stock options granted under the stock option plan been determined based on a fair-value method at the grant date consistent with SFAS No. 123R, the Companys net income and
earnings per share for the second quarter and six months ended July 2, 2005 would have been reduced to the pro forma amounts indicated below (in millions):



8



---

|                                                                                            |  |                                      |       |   |                                           |   |       |  
|------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | - | ----------------------------------------- | - | ----- | -
|                                                                                            |  | For the quarterended fiscalJune 2005 |       |   | For the six months ended fiscal June
2005 |  
|Net income (loss)                                                                           |  |                                      |       |   |                                           |   |       |  
|As reported                                                                                 |  | $                                    | (2.5  | ) |                                           | $ | 0.1   |  
|Plus: stock-based compensation expense included in reported net income (loss), net of taxes |  |                                      | 0.4   |   |                                           |   | 0.5   |  
|Less: fair value impact of employee stock compensation, net of taxes                        |  |                                      | (0.7  | ) |                                           |   | (1.2  | )
|                                                                                            |  |                                      |       |   |                                           |   |       |  
|Pro forma                                                                                   |  | $                                    | (2.8  | ) |                                           | $ | (0.6  | )
|                                                                                            |  |                                      |       |   |                                           |   |       |  
|Basic earnings (loss) per share                                                             |  |                                      |       |   |                                           |   |       |  
|As reported                                                                                 |  | $                                    | (0.16 | ) |                                           | $ | 0.00  |  
|Pro forma                                                                                   |  |                                      | (0.18 | ) |                                           |   | (0.04 | )
|                                                                                            |  |                                     
|Diluted earnings (loss) per share                                                           |  |                                      |       |   |                                           |   |       |  
|As reported                                                                                 |  | $                                    | (0.16 | ) |                                           | $ | 0.00  |  
|Pro forma                                                                                   |  |                                      | (0.18 | ) |                                           |   | (0.04 | )

Stock Options

The Midas Stock Incentive Plan, the Midas Treasury Stock Plan and the Midas Directors Deferred Compensation Plan (the Plans) authorize the issuance of up to 4,806,886 shares of Midas common stock
pursuant to the exercise of incentive stock options, non-qualified stock options and stock appreciation rights and the grant of restricted stock and performance awards. In addition, Midas reserved 10,000 shares for issuance upon the grant of stock
awards. Options granted pursuant to the Plans generally vest over a period of three to five years commencing one year after the date of grant. It is the Companys policy to issue shares out of treasury when options are exercised. The following
table summarizes information regarding the outstanding stock options as of July 1, 2006:



|                                    |  |                 |   |  |                     |              |                                |   |                                                     |  |                                         |  |   |     
|----------------------------------- |  | --------------- | - |  | ------------------- | ------------ | ------------------------------ | - | --------------------------------------------------- |  | --------------------------------------- |  | - | ----
|                                    |  | Number ofShares |   |  | Option Price Ranges |              | Weighted AverageExercise Price |   | Weighted AverageRemainingContractual Term(in years) |  | Aggregate Intrinsic Value (in millions)
|Outstanding at fiscal year end 2005 |  | 1,745,148       |   |  | $                   | 6.77 $34.66 |                                | $ | 13.13                                               |  |                                         |  |   |     
|Exercised                           |  | (118,505        | ) |  |                     | 8.09 18.65  |                                |   | 15.01                                               |  |                                         |  |   |     
|Granted                             |  | 98,000          |   |  |                     | 21.74 21.74 |                                |   | 21.74                                               |  |                                         |  |   |     
|Cancelled and forfeited             |  | (39,352         | ) |  |                     | 8.09 22.17  |                                |   | 14.89                                               |  |                                         |  |   |     
|                                    |  |                 |   |  |                     |              |                                |   |                                                     |  |                                         |  |   |     
|Outstanding at July 1, 2006         |  | 1,685,291       |   |  |                     | 6.77 34.66  |                                |   | 13.46                                               |  | 6.4                                     |  | $ | 11.7
|                                    |  |                 |   |  |                     |              |                                |   |                                                     |  |                                         |  |   |     
|Exercisable at July 1, 2006         |  | 897,141         |   |  |                     | 6.77 34.66  |                                |   | 12.68                                               |  | 5.3                                     |  |   | 6.1 
|                                    |  |                 |   |  |                     |              |                                |   |                                                     |  |                                         |  |   |     

Additional information pertaining to option activity during the quarter and six months ended
fiscal June 2006 and 2005 was as follows (in millions):



|                                           |  |                                  |     |                                     |   |      |  |      |     |  |   |    
|------------------------------------------ |  | -------------------------------- | --- | ----------------------------------- | - | ---- |  | ---- | --- |  | - | ---
|                                           |  | For the quarterended fiscal June |     | For the six monthsended fiscal June
|Weighted average grant-date fair value of: |  | 2006                             |     | 2005                                |   | 2006 |  | 2005
|Stock options granted                      |  | $                                | 0.9 |                                     | $ | 0.9  |  | $    | 0.9 |  | $ | 0.9
|Stock options exercised                    |  |                                  | 0.2 |                                     |   | 0.8  |  |      | 0.8 |  |   | 1.8
|Stock options vested                       |  |                                  | 0.9 |                                     |   | 0.9  |  |      | 1.3 |  |   | 1.3

The weighted average estimated fair value of the options granted in the six months ended June 2006
and 2005 was $9.04 and $8.76 respectively, based on the Black-Scholes valuation model using the following assumptions:



|                        |  |       |   |  |       |  
|----------------------- |  | ----- | - |  | ----- | -
|Fiscal Year             |  | 2006  |   |  | 2005  |  
|Risk-free interest rate |  | 5.02  | % |  | 3.80  | %
|Dividend yield          |  | 0.0   | % |  | 0.0   | %
|Expected volatility     |  | 29.78 | % |  | 33.00 | %
|Expected life in years  |  | 6.50  |   |  | 6.00  |  



9



---

As of July 1, 2006, there was $5.6 million in stock option compensation expense related to unvested
awards not yet recognized, which is expected to be recognized over a weighted-average period of 3.9 years.

Restricted Stock

From time to time the Company grants shares of restricted stock to certain of its officers and directors. This restricted stock
generally vests at the five or seven year anniversary, with provisions for accelerated vesting upon the occurrence of certain pre-determined events. The fair value of these grants is equal to the stock price on the date of the grant. Activity for
restricted shares, including the non-vested restricted shares outstanding and the weighted average grant-date fair value of those restricted shares is shown in the table below:



|                                           |  |                           |   |  |                                      |        |  
|------------------------------------------ |  | ------------------------- | - |  | ------------------------------------ | ------ | -
|                                           |  | Number ofRestrictedShares |   |  | Weighted AverageGrant-DateFair Value |       
|Non-vested balance as of December 31, 2005 |  | 293,411                   |   |  | $                                    | 17.88  |  
|Granted                                    |  | 218,500                   |   |  |                                      | 21.74  |  
|Vested                                     |  | (10,000                   | ) |  |                                      | 8.83   |  
|Forfeited                                  |  | (6,333                    | ) |  |                                      | (21.43 | )
|                                           |  |                           |   |  |                                      |        |  
|Non-vested balance as of July 1, 2006      |  | 495,578                   |   |  |                                      | 19.71  |  
|                                           |  |                           |   |  |                                      |        |  

As of July 1, 2006 there was $8.3 million of unamortized restricted stock compensation
included in paid-in capital, which is expected to be recognized over a weighted average period of 5.2 years.

Common Stock Warrants

On March 27, 2003, the Company issued 1.0 million warrants valued at $5.0 million in connection with its 2003 debt
restructuring. On January 5, 2004, 500,000 of these warrants were automatically cancelled because the Company met certain financial objectives contained in the warrant agreements. As of July 1, 2006, a total of 52,593 warrants remained
outstanding. The exercise price of the warrants is $0.01, and the warrants are exercisable at any time up to March 27, 2013. Any warrants that remain unexercised at March 27, 2013 are automatically exercised as of that date.

8. Warranty

Customers are provided a written warranty from
Midas on certain products purchased from Midas shops in North America, namely brake friction, mufflers, shocks and struts. 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.

Year-to-date warranty
activity through the first six months of fiscal 2006 is summarized as follows (in millions):



|                                                             |  |   |      |  
|------------------------------------------------------------ |  | - | ---- | -
|Accrued warranty at beginning of period                      |  | $ | 35.4 |  
|Warranty expense                                             |  |   | 2.9  |  
|Changes in foreign currency exchange rate                    |  |   | 0.2  |  
|Warranty credit issued to franchisees (warranty claims paid) |  |   | (3.3 | )
|                                                             |  |   |      |  
|Accrued warranty at end of period                            |  |   | 35.2 |  
|Less current portion (included in accrued expenses)          |  |   | (4.7 | )
|                                                             |  |   |      |  
|Accrued warranty  non-current                               |  | $ | 30.5 |  
|                                                             |  |   |      |  



10



---

9. Sale of Assets

In March 2005, in connection with the Companys planned exit from exhaust manufacturing, the Company sold its Huth equipment manufacturing operations and recorded a gain of $0.8 million. Also in March 2005, the Company sold its Chicago
distribution center and leased it back for a period of 24 months. The facility continued to be used by Midas as its sole exhaust distribution center until Midas completed its exit from the exhaust distribution business in March 2006, at which point
the Company had no continuing involvement with the facility. The lease required monthly payments of $33,186 and was subject to unilateral cancellation by Midas after the first year with at least 90 days notice. The lease also required Midas to
surrender approximately 51% of the square footage of the facility to the landlord by the first anniversary of the lease.

The sale of this
facility resulted in a gain of $4.5 million, all of which was initially deferred. This gain was recognized quarterly based upon the square footage being occupied by Midas and the expected lease term for that space. This resulted in approximately 51%
of the gain being recognized over 12 months and the remaining 49% scheduled to be recognized over 24 months. When the entire facility was turned back to the landlord ahead of schedule in the first quarter of 2006, the remaining gain was recognized
at that time. As a result of the above, the Company recognized a gain of $1.8 million in the first quarter of fiscal 2006.

During the
first quarter of fiscal 2006, the Company also completed the sale of all remaining manufacturing related equipment which resulted in a gain of approximately $1.6 million. The Company expects to sell the real estate related to its vacant Hartford
manufacturing facility during fiscal 2006 or 2007.



11



---

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

RESULTS OF OPERATIONS

During fiscal 2003, Midas
developed and began to implement a plan to dramatically restructure the Companys operations and re-direct the Companys strategic focus towards the Midas retail system. This plan is 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 fundamental changes in the way Midas dealers are
supplied with Midas brand 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.

During 2003, the Company outsourced the wholesale distribution of Midas brand products and other replacement parts, closed all but one of
the Companys regional distribution centers, disposed of its PWI quick-delivery distribution locations through sale or closure, closed or re-franchised 34 company-operated shops, and significantly reduced corporate administrative overhead. In
connection with the Companys ongoing transformation, management determined that exhaust manufacturing and distribution no longer represented a strategic fit for the Companys evolving retail-focused business model. In May 2005, the
Company entered into an agreement appointing AutoZone, Inc. as the exclusively endorsed supplier of Arvin brand exhaust products to Midas shops in the U.S. Midas also entered into an agreement with ArvinMeritor to sell certain IPC-branded exhaust
assets. In December 2005, the Company announced a similar exhaust supply agreement in Canada with Uni-Select, establishing it as the exclusively endorsed supplier of Walker brand exhaust products to Midas shops in Canada. As a result of these
agreements, Midas ceased production at its Hartford, Wisconsin exhaust manufacturing plant during the third quarter of fiscal 2005. Midas continued to operate its exhaust distribution warehouse in Chicago, Illinois during the first quarter of 2006
in order to provide Midas brand exhaust products to Midas dealers in Canada prior to their final conversion to the new exhaust supply program. During the first quarter of fiscal 2006, all remaining exhaust inventory and equipment was sold and
liquidated and the Chicago exhaust distribution warehouse was closed. In connection with the above described business transformation activities, the Company recorded business transformation charges of approximately $177 million from fiscal 2002
through 2006.

The Companys recently completed exit from exhaust manufacturing and distribution will have the effect of further
reducing overall Company revenues and expenses compared to historical levels, and will increase the Companys operating margin. The Companys vacant Hartford, WI factory is the one asset that remains from the former exhaust manufacturing
and distribution operation. Midas is currently seeking buyers for this facility and expects to ultimately record a gain upon the sale of this facility.

The Midas business transformation, and the resulting changes to the way the Company does business, will continue through fiscal 2006 and beyond. In connection with Midas ongoing retail transformation, the
Company recently developed a major update to its retail shop image. The new image program incorporates changes to internal shop appearance and merchandising, as well as a significant redesign of the Midas shop façade. Midas management
believes the new image will better showcase the Companys expansion into new services, enhance efforts to educate customers and significantly increase the visibility and curb appeal of the typical Midas shop. The Company expects a majority of
Midas shops throughout North America to adopt the new shop image. In order to encourage Midas dealers to adopt this new image during 2006 and 2007, the Company is offering to provide a subsidy of up to $2,600 per shop. As a result, Midas management
expects that the implementation of this program will result in additional business transformation costs each quarter during fiscal 2006 and 2007. Midas believes the total charges will be approximately $4 million.

The ultimate objective of the Midas business transformation was established in 2003 and is reflected in Midas 2010 vision of 4-3-2-1.
Midas management is working towards achieving:



| | (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.



12



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Second Quarter Fiscal 2006 Compared with Second Quarter Fiscal 2005

The following is a summary of the Companys sales and revenues for the second quarter of fiscal 2006 and 2005: ($ in millions)



|                                             |  |      |      |                  |       |   |      |   |                 |  |       |  
|-------------------------------------------- |  | ---- | ---- | ---------------- | ----- | - | ---- | - | --------------- |  | ----- | -
|                                             |  | 2006 |      | Percent to Total |       |   | 2005 |   | Percentto Total | 
|Franchise royalties and license fees         |  | $    | 16.9 |                  | 37.4  | % |      | $ | 17.3            |  | 34.4  | %
|Real estate revenues                         |  |      | 9.1  |                  | 20.2  |   |      |   | 8.9             |  | 17.7  |  
|Company-operated shop retail sales           |  |      | 10.5 |                  | 23.3  |   |      |   | 9.6             |  | 19.1  |  
|Replacement part sales and product royalties |  |      | 7.7  |                  | 17.1  |   |      |   | 13.6            |  | 27.0  |  
|Other                                        |  |      | 0.9  |                  | 2.0   |   |      |   | 0.9             |  | 1.8   |  
|                                             |  |      |      |                  |       |   |      |   |                 |  |       |  
|Total sales and revenues                     |  | $    | 45.1 |                  | 100.0 | % |      | $ | 50.3            |  | 100.0 | %
|                                             |  |      |      |                  |       |   |      |   |                 |  |       |  

Total sales and revenues for the second quarter of fiscal 2006 decreased $5.2 million, or 10.3%,
from the second quarter of fiscal 2005 to $45.1 million, primarily due to the exit from the exhaust business as discussed below. Within the retail auto service business, royalty revenues and license fees decreased $0.4 million, or 2.3%, from the
second quarter of fiscal 2005. This decrease was primarily driven by a 3.3% comparable shop decline in system-wide Midas retail sales, which was partially offset by higher international royalties and a more favorable exchange rate on Canadian
royalty revenue. The comparable shop retail sales decline was due to weak U.S. retail sales of brakes and exhaust. The Company believes that high gasoline prices and the related consumer uncertainty are causing consumers to delay big ticket repair
expenditures. Sales from company-operated shops increased $0.9 million, or 9.4%, above the second quarter of fiscal 2005. The sales increase primarily reflects an increase in number of shops in operation, as well as an increase in comparable shop
sales of 0.5%. As of July 1, 2006, there were 74 company-operated shops compared to 70 shops as of July 2, 2005. Revenues from real estate leases increased slightly to $9.1 million as higher revenues from rent increases and a more
favorable exchange rate on Canadian rental income more than offset a net reduction in the number of shops subject to real estate rental agreements compared to the second quarter of fiscal 2005.

Replacement part sales and product royalties decreased $5.9 million to $7.7 million from $13.6 million in the second quarter of fiscal 2005. Product
royalties primarily reflect royalties earned on the sale of parts to Midas dealers by AutoZone, NAPA and CarQuest in the U.S. and Uni-Select in Canada. The decrease primarily reflects a $6.6 million reduction in revenues from exhaust distribution as
a result of the Companys exit from that business. In addition, product royalty revenues declined as a result of reduced purchases of product from Company suppliers by Midas dealers and a scheduled reduction in the contractual royalty rates
earned from both AutoZone and Uni-Select. These declines were partially offset by an increase in sales of tires and shop equipment to Midas dealers through the Companys alliances with certain supply chain partners.

The Companys gross profit margin increased to 64.1% in the second quarter of fiscal 2006 from 50.3% in the second quarter of fiscal 2005. During
the second quarter of fiscal 2005, the Company recorded business transformation charges to cost of sales and revenues of $4.1 million to write-down the value of certain exhaust inventory to its net realizable value. Excluding these business
transformation charges, the Companys gross profit in the second quarter of fiscal 2005 was 58.4%. The year-over-year improvement in gross margin reflects a more favorable sales mix in which a higher percentage of revenues came from franchise
royalties and company-operated shops, and a lower percentage of revenues were derived from lower margin wholesale sales. The Companys current wholesale operation involves primarily the reselling of Bridgestone-Firestone tires, Interstate
batteries and shop equipment to Midas dealers at a small mark-up that is primarily intended to cover the cost of administering these merchandise programs. In addition, warranty expense declined $0.3 million to $1.6 million, or 3.5% of total sales
for the second quarter of fiscal 2006, compared to $1.9 million, or 3.8% of total sales in the second quarter of fiscal 2005. The decline in warranty expense is the result of the Companys vendors assuming responsibility for the warranty on
certain products, lower retail sales of exhaust and brakes, and a reduction in the warranty redemption and reimbursement rate for brakes.

Selling, general and administrative expenses for the second quarter of fiscal 2006 decreased $0.8 million, or 3.5%, from the second quarter of fiscal 2005 to $22.2 million. The decrease in expenses primarily reflects a $1.3 million
reduction in operating expenses related to the distribution of exhaust and a $0.4 million decrease in administrative overhead expense. The improvement in overhead expense was achieved even as the Company incurred $1.5 million in expenses during the
quarter in connection with hosting the Midas 50thanniversary convention. These savings were partially offset by an
increase of $0.3 million in company-operated shop expenses due to an increase in the number of shops in operation and an increase of $0.6 million for stock option expense as a result of adopting new accounting rules regarding accounting for



13



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stock options (SFAS No. 123R). No expenses for stock options were recorded in the second quarter of fiscal 2005. The Company also realized a gain during
the second quarter of fiscal 2006 of approximately $0.6 million related to the extinguishment of a real estate lease liability, which was offset by incremental severance, relocation, environmental and legal fees.

During the second quarter of fiscal 2006, the Company recorded business transformation charges of $0.4 million primarily driven by the Companys
partial funding of the rollout of a new shop image for Midas dealers. During the second quarter of fiscal 2005, business transformation charges of $5.4 million were recorded in selling, general and administrative expense to reflect expenses for the
Companys exit from exhaust manufacturing and distribution.

No gain or loss on sale of assets was recorded in the second quarter of
fiscal 2006. However, during the second quarter of fiscal 2005, the Company recognized gains on sale of $1.1 million due to the amortization of a $4.5 million gain on sale of the Companys former Chicago exhaust warehouse which was sold and
leased-back in March 2005.

As a result of the above changes, operating income increased $8.3 million to $6.3 million in the second quarter
of fiscal 2006 from a loss of $2.0 million in the second quarter of fiscal 2005. Excluding the impact of the above described business transformation charges and gains on sale, operating income for the second quarter of fiscal 2006 was $6.7 million
compared to $6.4 million for the second quarter of fiscal 2005. Excluding the impact of business transformation charges and gains on sale, operating income margin increased to 14.9% in the second quarter of fiscal 2006 from 12.7% in the second
quarter of fiscal 2005. The improvement in operating margin primarily reflects the elimination of operating losses in the Companys exhaust distribution operation and savings on corporate overhead expense, which more than offset the impact of
$0.6 million in additional expense incurred in connection with the adoption of SFAS No. 123R and the $1.5 million incurred for the cost of the Midas 50thanniversary convention.

Interest expense decreased from $2.5 million in the second
quarter of fiscal 2005 to $2.3 million in second quarter of fiscal 2006 primarily as a result of a reduction in the amortization of financing fees.

Other income decreased from $0.3 million in the second quarter of fiscal 2005 to $0.2 million in the second quarter of fiscal 2006 due to higher foreign currency exchange losses in 2006. Other income consists primarily of interest income on
overdue customer accounts and foreign currency exchange gains or losses.

The Companys effective tax rate was 38.5% in the second
quarter of fiscal 2006 compared to 39.3% in the second quarter of fiscal 2005.

As a result of the above items, net income increased $5.1
million from a net loss of $2.5 million in the second quarter of fiscal 2005 to net income of $2.6 million in the second quarter of fiscal 2006.

Six
Months Ended Fiscal 2006 Compared with Six Months Ended Fiscal 2005

The following is a summary of the Companys sales and revenues
for the first six months of fiscal 2006 and 2005: ($ in millions)



|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  
|-------------------------------------------- |  | ---- | ---- | --------------- | ----- | - | ---- | - | --------------- |  | ----- | -
|                                             |  | 2006 |      | Percentto Total |       |   | 2005 |   | Percentto Total | 
|Franchise royalties and license fees         |  | $    | 32.1 |                 | 36.5  | % |      | $ | 32.8            |  | 32.9  | %
|Real estate revenues                         |  |      | 18.2 |                 | 20.8  |   |      |   | 17.9            |  | 17.9  |  
|Company-operated shop retail sales           |  |      | 20.0 |                 | 22.8  |   |      |   | 18.7            |  | 18.7  |  
|Replacement part sales and product royalties |  |      | 15.5 |                 | 17.7  |   |      |   | 28.8            |  | 28.9  |  
|Other                                        |  |      | 1.9  |                 | 2.2   |   |      |   | 1.6             |  | 1.6   |  
|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  
|Total sales and revenues                     |  | $    | 87.7 |                 | 100.0 | % |      | $ | 99.8            |  | 100.0 | %
|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  

Total sales and revenues for the first six months of fiscal 2006 decreased $12.1 million, or
12.1%, from the first six months of fiscal 2005 to $87.7 million. Within the retail auto service business, royalty revenues and license fees decreased $0.7 million, or 2.1%, from the first six months of fiscal 2005. This decrease was primarily
driven by a 1.2% comparable shop decline in system-wide Midas retail sales and the anniversarying of the one-time recognition of royalties from certain delinquent Canadian franchises during the first six months of fiscal 2005. These were partially
offset by higher international royalties and a more favorable exchange rate on Canadian royalty revenue. Sales from company-operated shops increased $1.3 million, or 6.9%, above the first six months of fiscal 2005. The sales increase primarily
reflects an increase in comparable shop sales of 3.2% and an increase in average number of shops in operation. As of July 1, 2006, there were 74 company-operated shops compared to 70 shops as of July 2, 2005. Revenues from real estate
leases increased slightly to



14



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$18.2 million as higher revenues from rent increases and a more favorable exchange rate on Canadian rental income more than offset a net reduction in the
number of shops subject to real estate rental agreements compared to the first six months of fiscal 2005.

Replacement part sales and
product royalties decreased $13.3 million to $15.5 million from $28.8 million in the first six months of fiscal 2005. The decrease primarily reflects a $13.4 million reduction in revenues from exhaust distribution as a result of the Companys
exit from that business. In addition, product royalty revenues declined as a result of reduced purchases of product from Company suppliers by Midas dealers and a scheduled reduction in the contractual royalty rates earned from both AutoZone and
Uni-Select. These declines were partially offset by an increase in sales of tires to Midas dealers through the Companys alliance with Bridgestone-Firestone.

The Companys gross profit margin increased to 63.7% in the first six months of fiscal 2006 from 53.7% in the first six months of fiscal 2005. During the first six months of fiscal 2005, the Company recorded
business transformation charges to cost of sales and revenues to write-down the value of certain exhaust inventory to its net realizable value. Excluding these business transformation charges, the Companys gross profit in the first six months
of fiscal 2005 was 57.8%. The year-over-year improvement in gross margin reflects a more favorable sales mix in which a higher percentage of revenues came from franchise royalties and company-operated shops, and a lower percentage of revenues were
derived from lower margin wholesale sales. In addition, warranty expense declined $0.8 million to $2.9 million, or 3.3% of total sales for the first six months of fiscal 2006, compared to $3.7 million, or 3.7% of total sales in the first six months
of fiscal 2005. The decline in warranty expense is the result of the Companys vendors assuming responsibility for the warranty on certain products, lower retail sales of exhaust and brakes, and a reduction in the warranty redemption and
reimbursement rate for brakes.

Selling, general and administrative expenses for the first six months of fiscal 2006 decreased $1.1
million, or 2.4%, from the first six months of fiscal 2005 to $44.4 million. The decrease in expenses primarily reflects a $1.5 million reduction in operating expenses related to the distribution of exhaust and a $0.8 million decrease in
administrative overhead expense. The improvement in overhead expense during the first six months was achieved even as the Company incurred $1.5 million in expenses in connection with hosting the Midas 50thanniversary convention. These savings were partially offset by a slight increase in company-operated shop expenses and an increase of $1.1 million for stock
option expense as a result of adopting new accounting rules regarding accounting for stock options (SFAS No. 123R). No expenses for stock options were recorded in the first six months of fiscal 2005.

During the first six months of fiscal 2006, the Company recorded business transformation charges of $0.5 million in connection with the Companys
partial funding of the rollout of a new shop image for Midas dealers. During the first six months of fiscal 2005, business transformation charges of $5.5 million were recorded in selling, general and administrative expense primarily to reflect
expenses for the Companys exit from exhaust manufacturing and distribution.

During the first six months of fiscal 2006, the Company
recorded a $3.4 million gain on sale of assets. This included the recognition of the remaining $1.8 million deferred gain from the March 2005 sale of the Companys Chicago warehouse, and a $1.6 million gain on the sale of equipment liquidated
in connection with the Companys exit from exhaust manufacturing. During the first six months of fiscal 2005, the Company recognized gains on sale of $1.9 million, comprised of $1.1 million due to the amortization of a $4.5 million gain on sale
of the Companys former Chicago exhaust warehouse (sold and leased-back in March 2005) and $0.8 million to reflect the sale of the Companys Huth exhaust equipment manufacturing operation.

As a result of the above changes, operating income increased $9.9 million to $14.4 million in the first six months of fiscal 2006 from $4.5 million in
the first six months of fiscal 2005. Excluding the impact of the above described business transformation charges and gains on sale, operating income for the first six months of fiscal 2006 was $11.5 million compared to $12.2 million for the first
six months of fiscal 2005. Excluding the impact of business transformation charges and gains on sale, operating income margin increased to 13.1% in the first six months of fiscal 2006 from 12.2% in the first six months of fiscal 2005. The
improvement in operating margin primarily reflects the elimination of operating losses in the Companys exhaust distribution operation and savings on corporate overhead expense, which more than offset the impact of $1.1 million in additional
expense incurred in connection with the adoption of SFAS No. 123R and the $1.5 million incurred for the cost of the Midas 50thanniversary convention.

Interest expense decreased from $5.0 million in the first six months of fiscal 2005 to $4.5
million in first six months of fiscal 2006 primarily as a result of a reduction in the amortization of financing fees.



15



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Other income decreased from $0.6 million in the first six months of fiscal 2005 to $0.5 million in the
first six months of fiscal 2006 due to higher foreign currency exchange losses in 2006. Other income consists primarily of interest income on overdue customer accounts and foreign currency exchange gains or losses.

The Companys effective tax rate was 38.5% in the first six months of fiscal 2006 compared to 37.2% in the first six months of fiscal 2005.

As a result of the above items, net income increased $6.3 million from net income of $0.1 million in the first six months of fiscal 2005
to net income of $6.4 million in the first six months of fiscal 2006.

LIQUIDITY AND CAPITAL RESOURCES

Following is a summary of the Companys cash flows from operating, investing and financing activities for the first six months of fiscal 2006 and
2005, respectively (in millions):



|                                                                                                                                        |  |      |       |   |      |   |       |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                                                                                                                        |  | 2006 |       |   | 2005 |  
|Cash provided by operating activities before cash outlays for business transformation costs and total changes in assets and
liabilities |  | $    | 13.0  |   |      | $ | 12.6  |  
|Cash outlays for business transformation costs                                                                                          |  |      | (3.5  | ) |      |   | (1.3  | )
|Total changes in assets and liabilities                                                                                                 |  |      | 2.1   |   |      |   | (13.1 | )
|                                                                                                                                        |  |      |       |   |      |   |       |  
|Net cash provided by (used in) operating activities                                                                                     |  |      | 11.6  |   |      |   | (1.8  | )
|Net cash provided by (used in) investing activities                                                                                     |  |      | (0.5  | ) |      |   | 7.3   |  
|Net cash used in financing activities                                                                                                   |  |      | (11.2 | ) |      |   | (5.3  | )
|                                                                                                                                        |  |      |       |   |      |   |       |  
|Net change in cash and cash equivalents                                                                                                 |  | $    | (0.1  | ) |      | $ | 0.2   |  
|                                                                                                                                        |  |      |       |   |      |   |       |  

The Companys cash management system permits the Company to make daily borrowings and
repayments on its line of credit. This allows Midas to minimize interest expense and to maintain a cash balance close to zero. Midas cash and cash equivalents decreased $0.1 million in the first six months of fiscal 2006.

The Companys operating activities provided net cash of $11.6 million during the first six months of fiscal 2006 compared to $1.8 million of cash
used in the first six months of fiscal 2005. Excluding cash outlays for business transformation costs and changes in assets and liabilities, cash from operating activities increased slightly from $12.6 million in the first six months of fiscal 2005
to $13.0 million in the first six months of fiscal 2006. Cash outlays for business transformation costs increased from $1.3 million in the first six months of fiscal 2005 to $3.5 million in the first six months of fiscal 2006. Cash outlays for
business transformation costs in the first six months of fiscal 2006 were primarily related to the Companys exit from the exhaust manufacturing and distribution business and the update of its retail shop image, while cash outlays in the first
six months of fiscal 2005 were primarily related to the shutdown of the Companys wholesale parts distribution network. As of July 1, 2006, the Company has a remaining liability for business transformation charges of $1.5 million, the
majority of which will be paid during fiscal 2006.

Changes in assets and liabilities swung from a $13.1 million use of cash in the first
six months of fiscal 2005 to a $2.1 million source of cash in the first six months of fiscal 2006. The $15.2 million change was primarily due to a decline in inventories in the first six months of fiscal 2006 as a result of the final liquidation of
exhaust inventory, a delay in the timing of advertising payments, a smaller seasonal increase in accounts receivable due to the exit from the exhaust manufacturing business, a smaller decrease in accounts payable in the first six months of fiscal
2006 than in the first six months of fiscal 2005, and a decrease in long term notes receivable in the first six months of 2006 compared to an increase in the first six months of 2005 in connection with the 2005 conversion of certain overdue dealer
receivables to notes, partially offset by a $1.0 million reduction of the Companys finance lease obligation. The reduction in the finance lease obligation was the result of the sale by Realty Income Corporation of one of the 77 properties
Midas sold in the 2002 sale and lease-back transaction. The sale eliminates the Companys obligation under the finance lease arrangement for this property and resulted in a $0.6 million gain.

Investing activities used $0.5 million of cash during the first six months of fiscal 2006 compared to providing $7.3 million of cash during the first six
months of fiscal 2005. Fiscal 2006 investing activities primarily consisted of $1.5 million in systems development projects and other capital expenditures, $0.1 million paid in conjunction with the acquisition of five Midas shops and other assets
from Midas dealers and $1.1 million in cash generated as the result of the sale of the remaining exhaust manufacturing assets. Fiscal 2005 investing activities primarily consisted of $1.0 million in systems development projects and other capital
expenditures and $8.3 million in cash generated as the result of asset sales. The asset sales in 2005 included the sale and leaseback of the Companys remaining distribution facility in Chicago, the sale of the Companys Huth exhaust
equipment manufacturing operation and the re-franchising of six company-operated shops.



16



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Net cash used in financing activities was $11.2 million in the first six months of fiscal 2006, compared
to net cash used of $5.3 million in the first six months of fiscal 2005. During the first six months of fiscal 2006, the Company reduced total debt by $5.3 million, paid $7.6 million to repurchase shares of the Companys common stock and
received $1.7 million in cash from the exercise of outstanding stock options. In the first six months of fiscal 2005, the Company reduced total debt by $4.4 million, paid $4.6 million to repurchase shares of the Companys common stock and
received $3.7 million in cash from the exercise of outstanding stock options.

On March 16, 2004, the Company entered into a
three-year, $115 million credit facility to refinance its existing credit facility. This credit facility was initially comprised of a $55 million revolving credit facility and a $60 million term loan. The facility was secured by substantially all of
the assets of the Company and was set to expire on March 16, 2007. 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 floated based on the underlying rate of LIBOR and the Companys leverage. The facility required maintenance of certain financial covenants including maximum allowable leverage and minimum tangible net worth. In
addition, the agreement restricted capital expenditures and prohibited treasury stock purchases and the payment of dividends.

On
November 5, 2004, the Company amended its March 2004 credit agreement to reduce the required principal amortization under the term loan, remove certain restrictive covenants, and reduce interest rates. As amended, the term loan required
quarterly principal payments of $1.5 million and mandated prepayment of debt with the proceeds generated from the liquidation of assets in connection with the Companys ongoing restructuring. The amendment also eased the Companys
restrictions on capital expenditures, allowed for stock repurchases and dividend payments, and reduced the interest rate on both the term loan and revolving loan by 50 basis points.

On October 27, 2005, the Company entered into a new five-year, unsecured $110 million revolving credit facility that further reduced interest rates,
eliminated scheduled principal payments and significantly increased the Companys capacity to make treasury stock repurchases and dividend payments. The new credit facility is expandable to $140 million at the Companys discretion with
lender approval. Interest on the new revolving loan was initially payable monthly at LIBOR plus 2.0%. The interest rate floats based on the underlying rate of LIBOR and the Companys leverage. This 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 in senior bank debt from a floating rate to a fixed rate by locking-in LIBOR at 2.76% for the three-year term of the agreement. The outstanding amount of the swap is reduced by $2.5 million each
quarter until the end of the three-year term. As of July 1, 2006, approximately $18.7 million of this interest rate swap remained outstanding. In November 2005, an additional $20 million in senior bank debt was converted from floating rate to
fixed rate by locking-in LIBOR at 4.89% for a five year period with no scheduled reduction.

On November 9, 2004, the Midas Board of
Directors authorized a share repurchase program to begin in fiscal 2005 for up to $25 million of the Companys outstanding common stock. On May 9, 2006, the Midas Board of Directors authorized a $25 million increase in the share repurchase
program. The Company intends to repurchase shares from time to time in the open market and in privately negotiated transactions, depending upon market and business conditions. The Company has paid approximately $7.5 million for the 368,000 shares
acquired under this program during fiscal 2006.

The Company believes that cash generated from operations and availability under the
current debt agreement provides sufficient liquidity to finance operations and execute strategic initiatives for at least the next 12 months.

CRITICAL
ACCOUNTING POLICIES AND ESTIMATES

In preparing the consolidated 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.



17



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Valuation of Warranty Liabilities

Customers are provided a written warranty from Midas on certain products purchased from Midas shops in North America, namely brake friction, mufflers,
shocks and struts. 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. An increase of one percentage point in the estimated percentage of warranted products likely to be redeemed in the U.S. would have the effect of changing Midas December 31, 2005 outstanding U.S. warranty liability by $4.4
million. A change in the estimated current cost of warranty redemptions of one dollar would have the effect of changing Midas outstanding U.S. warranty liability by $1.7 million.

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.

When valuing outstanding receivable balances, the Company also considered the reduced collections that result from the exit from exhaust manufacturing and distribution, as well as the increased likelihood that
customers will not pay amounts due.

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 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.



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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 asset group. 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 July 1, 2006. 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 and general liability claims. In order to reduce its risk and better manage its overall loss exposure, the Company purchased stop-loss insurance
that covers individual claims in excess of the deductible amounts. As of January 30, 2006, the Company is no longer self-insured with respect to workers compensation and general liability claims and has converted to a fully-insured program. In
addition, on January 1, 2004, the Company ended its self-insured program with respect to employee medical claims and converted to a fully-insured medical program. The Company maintains an accrual for the estimated cost to settle open claims
under its former self-insurance programs 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.

IMPACT OF NEW ACCOUNTING STANDARDS

In December 2004,
the Financial Accounting Standards Board (FASB) issued Statement No. 123 (revised), Share-Based Payment, (SFAS No. 123R). This statement is a revision to Statement No. 123, Accounting for Stock-Based
Compensation, (SFAS No. 123) and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires the measurement of the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for
equity instruments for which employees do not render service. Originally, SFAS No. 123R required that companies adopt the provisions of SFAS No. 123R on July 1, 2005. However, in April 2005, the Securities and Exchange Commission
(SEC) adopted a new rule which deferred the compliance date of SFAS No. 123R until 2006 for calendar year companies such as Midas, Inc. Consistent with the new rule, the Company adopted SFAS No. 123R on January 1, 2006,
with compensation cost recorded as an expense for outstanding unvested awards, based on the grant-date fair value of those awards. The Company uses the Black-Scholes option pricing model and the Modified Prospective Application method of adoption as
allowed under SFAS No. 123R.

In June 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements (SFAS No. 154). SFAS No. 154 changes the requirements for the accounting
for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS
No. 154 requires retrospective application to prior periods financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for
accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. The adoption of SFAS No. 154 did not have a material
effect on its consolidated financial position, results of operations or cash flows.



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In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty
in Income Taxes  an Interpretation of FASB Statement No. 109. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that it has
taken or expects to take on a tax return. FIN 48 is effective in the first quarter of 2007. Midas is currently evaluating the impact of this statement on the Company.

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; 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.

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.

In April 2004, the Company entered into an interest rate swap arrangement
to convert $40 million in senior bank debt from a floating rate to a fixed rate by locking-in LIBOR at 2.76% for the three-year term of the agreement. The outstanding amount of the swap is reduced by $2.5 million each quarter until the end of the
three-year term. As of July 1, 2006, approximately $18.7 million of this interest rate swap remained outstanding. In November 2005, an additional $20 million in senior bank debt was converted from floating rate to fixed rate by locking-in LIBOR
at 4.89% for a five year period with no scheduled reduction.

The April 2004 swap arrangement has been designated as a cash flow hedge and
was evaluated to be ineffective subsequent to the Companys October 2005 refinancing. As a result, the change in the fair value is reflected on the statement of operations as interest expense. The November 2005 swap arrangement has been
designated as a cash flow hedge and was evaluated to be highly effective. As a result, the change in the fair value is recorded in other comprehensive income as a gain or loss on derivative financial instruments. As of July 1, 2006, the fair
value of these instruments was an asset of approximately $0.8 million.



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Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

The
Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the Companys Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act.

The Companys management, including the Chief Executive
Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures and its internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

(b) Changes in internal controls over financial
reporting.

There were no significant changes in internal controls during the most recent fiscal quarter that have materially affected
internal controls over financial reporting.



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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Companys
most recent annual report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table includes all issuer repurchases, including those made pursuant to publicly announced plans or programs and those not made pursuant to
publicly announced plans or programs.



|                                                   |  |                                     |  |                            |       |                                                                             |         |                                                                                          |   |           
|-------------------------------------------------- |  | ----------------------------------- |  | -------------------------- | ----- | --------------------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------------------- | - | ----------
|Period                                             |  | Total Number ofShares Purchased (1) |  | AveragePrice Paidper Share |       | Total Number ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs |         | Approximate DollarValue of Shares ThatMay Yet Be PurchasedUnder the Plans
orPrograms (2)
|April 2006: (April 2, 2006 through April 29, 2006) |  | 41,800                              |  | $                          | 21.73 |                                                                             | 41,800  |                                                                                          | $ | 5,212,166 
|May 2006: (April 30, 2006 through May 27, 2006)    |  | 45,111                              |  | $                          | 20.88 |                                                                             | 42,900  |                                                                                          | $ | 29,320,416
|June 2006: (May 28, 2006 through July 1, 2006)     |  | 87,737                              |  | $                          | 19.49 |                                                                             | 87,000  |                                                                                          | $ | 27,623,970
|                                                   |  |                                     |  |                            |       |                                                                             |         |                                                                                          |   |           
|Total                                              |  | 174,648                             |  | $                          | 20.39 |                                                                             | 171,700 |                                                                                          |   |           
|                                                   |  |                                     |  |                            |       |                                                                             |         |                                                                                          |   |           

---

|(1) | Includes shares withheld to cover withholding taxes upon the vesting of restricted stock. During the second quarter of fiscal 2006, a total of 2,948 shares were surrendered in lieu
of taxes.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | On November 9, 2004, the Company announced that the Board of Directors had authorized a share repurchase of up to $25 million in Midas stock. On May 9, 2006, the Midas
Board of Directors authorized a $25 million increase in the share repurchase program. As of July 1, 2006, a total of 1,075,800 shares had been repurchased under this plan since its inception. The average price of shares repurchased under the
plan was approximately $20.80.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 3. Defaults Upon Senior Securities.

None

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

(a) The Annual Meeting of Shareholders was held on May 9, 2006.

(b) Not Applicable

(c) At the Annual Meeting
of Shareholders, the shareholders voted on the following matters: (1) the election of directors to serve until the 2009 Annual Meeting of Shareholders and (2) the approval of independent auditors. The voting results were as follows:



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| | (1) | Each nominee for director was elected by a vote of the shareholders as follows:
| | --- | -------------------------------------------------------------------------------



|                     |  |            |  |          
|-------------------- |  | ---------- |  | ---------
|Director             |  | For        |  | Withheld 
|Jarobin Gilbert, Jr. |  | 12,450,454 |  | 2,244,561
|Diane L. Routson     |  | 12,449,869 |  | 2,244,794

Additional directors, whose terms of office as directors continued after the meeting, are as
follows:



|                      |  |                      
|--------------------- |  | ---------------------
|Term Expiring in 2007 |  | Term Expiring in 2008
|Archie R. Dykes       |  | Thomas L. Bindley    
|Alan D. Feldman       |  | Robert R. Schoeberl  



| | (2) | The proposal to ratify the appointment of KPMG LLP as the independent auditors of Midas, Inc. for the fiscal year ending December 30, 2006 was approved by shareholders as
follows:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|           |  |         |  |        
|---------- |  | ------- |  | -------
|For        |  | Against |  | Abstain
|14,185,405 |  | 181,553 |  | 17,092 

(d) Not Applicable

Item 5. Other Information.

None

Item 6. 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.                                            

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: August 10, 2006 |  | /s/ Alan D. Feldman                              
|                      |  | Alan D. Feldman                                  
|                      |  | Chairman, 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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