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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended April 2, 2005



OR



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



For the transition period from
 to



Commission File Number: 01-13409



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MIDAS, INC.

(Exact Name of Registrant as Specified in its Charter)



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



(630) 438-3000

(Registrants telephone number, including area code)



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



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



The number of shares of the Registrants Common Stock, $.001 par value per share, outstanding as of May 1, 2005 was
16,000,266.



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PART I. FINANCIAL INFORMATION

Item 1: Condensed Financial Statements

MIDAS, INC.

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

(In millions, except for earnings per share)

|                                              |  |                                    |      |   |            |   |       |  
|--------------------------------------------- |  | ---------------------------------- | ---- | - | ---------- | - | ----- | -
|                                              |  | For the quarter ended fiscal March |     
|                                              |  | 2005                               |      |   | 2004       |  
|                                              |  | (13 Weeks)                         |      |   | (13 Weeks) |  
|Sales and revenues:                           |  |                                    |      |   |            |   |       |  
|Franchise royalties and license fees          |  | $                                  | 15.5 |   |            | $ | 14.5  |  
|Real estate revenues                          |  |                                    | 9.0  |   |            |   | 9.1   |  
|Company-operated shop retail sales            |  |                                    | 9.1  |   |            |   | 8.6   |  
|Replacement part sales and product royalties  |  |                                    | 15.2 |   |            |   | 14.1  |  
|Other                                         |  |                                    | 0.7  |   |            |   | 0.6   |  
|                                              |  |                                    |      |   |            |   |       |  
|Total sales and revenues                      |  |                                    | 49.5 |   |            |   | 46.9  |  
|                                              |  |                                    |      |   |            |   |       |  
|Cost of sales and revenues:                   |  |                                    |      |   |            |   |       |  
|Real estate cost of revenues                  |  |                                    | 5.6  |   |            |   | 5.5   |  
|Company-operated shop cost of sales           |  |                                    | 2.1  |   |            |   | 1.5   |  
|Replacement part cost of sales                |  |                                    | 11.7 |   |            |   | 10.5  |  
|Warranty expense                              |  |                                    | 1.8  |   |            |   | 2.1   |  
|                                              |  |                                    |      |   |            |   |       |  
|Total cost of sales and revenues              |  |                                    | 21.2 |   |            |   | 19.6  |  
|                                              |  |                                    |      |   |            |   |       |  
|Gross profit                                  |  |                                    | 28.3 |   |            |   | 27.3  |  
|Selling, general, and administrative expenses |  |                                    | 22.5 |   |            |   | 22.0  |  
|Business transformation charges               |  |                                    | 0.1  |   |            |   |      |  
|                                              |  |                                    |      |   |            |   |       |  
|Operating income                              |  |                                    | 5.7  |   |            |   | 5.3   |  
|Interest expense                              |  |                                    | (2.5 | ) |            |   | (5.1  | )
|Loss on early extinguishment of debt          |  |                                    |     |   |            |   | (4.7  | )
|Gain on sale of assets                        |  |                                    | 0.8  |   |            |   |      |  
|Other income, net                             |  |                                    | 0.3  |   |            |   | 0.3   |  
|                                              |  |                                    |      |   |            |   |       |  
|Income (loss) before income taxes             |  |                                    | 4.3  |   |            |   | (4.2  | )
|Income tax expense (benefit)                  |  |                                    | 1.7  |   |            |   | (1.6  | )
|                                              |  |                                    |      |   |            |   |       |  
|Net income (loss)                             |  | $                                  | 2.6  |   |            | $ | (2.6  | )
|                                              |  |                                    |      |   |            |   |       |  
|Earnings (loss) per share:                    |  |                                    |      |   |            |   |       |  
|Basic                                         |  | $                                  | 0.16 |   |            | $ | (0.16 | )
|                                              |  |                                    |      |   |            |   |       |  
|Diluted                                       |  | $                                  | 0.16 |   |            | $ | (0.16 | )
|                                              |  |                                    |      |   |            |   |       |  
|Average number of shares:                     |  |                                    |      |   |            |   |       |  
|Common shares outstanding                     |  |                                    | 15.7 |   |            |   | 15.3  |  
|Common stock warrants                         |  |                                    | 0.1  |   |            |   | 0.3   |  
|                                              |  |                                    |      |   |            |   |       |  
|Shares applicable to basic earnings           |  |                                    | 15.8 |   |            |   | 15.6  |  
|Equivalent shares on outstanding stock awards |  |                                    | 0.6  |   |            |   |      |  
|                                              |  |                                    |      |   |            |   |       |  
|Shares applicable to diluted earnings         |  |                                    | 16.4 |   |            |   | 15.6  |  
|                                              |  |                                    |      |   |            |   |       |  

See notes to condensed financial statements.



1



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MIDAS, INC.

CONDENSED BALANCE SHEETS

(In millions)



|                                                                                                                                      |  |                   |       |   |                    |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | - | ------------------ | - | ----- | -
|                                                                                                                                      |  | Fiscal March 2005 |       |   | FiscalDecember2004 |  
|                                                                                                                                      |  | (Unaudited)       |       |   |                    |  
|Assets:                                                                                                                               |  |                   |       |   |                    |   |       |  
|Current assets:                                                                                                                       |  |                   |       |   |                    |   |       |  
|Cash and cash equivalents                                                                                                             |  | $                 | 1.1   |   |                    | $ | 0.9   |  
|Receivables, net                                                                                                                      |  |                   | 37.7  |   |                    |   | 33.4  |  
|Inventories, net                                                                                                                      |  |                   | 12.1  |   |                    |   | 12.2  |  
|Deferred income taxes                                                                                                                 |  |                   | 9.5   |   |                    |   | 9.0   |  
|Other current assets                                                                                                                  |  |                   | 5.5   |   |                    |   | 6.8   |  
|                                                                                                                                      |  |                   |       |   |                    |   |       |  
|Total current assets                                                                                                                  |  |                   | 65.9  |   |                    |   | 62.3  |  
|Property and equipment, net                                                                                                           |  |                   | 114.0 |   |                    |   | 117.4 |  
|Deferred income taxes                                                                                                                 |  |                   | 59.6  |   |                    |   | 60.3  |  
|Other assets                                                                                                                          |  |                   | 12.8  |   |                    |   | 10.1  |  
|                                                                                                                                      |  |                   |       |   |                    |   |       |  
|Total assets                                                                                                                          |  | $                 | 252.3 |   |                    | $ | 250.1 |  
|                                                                                                                                      |  |                   |       |   |                    |   |       |  
|Liabilities and equity:                                                                                                               |  |                   |       |   |                    |   |       |  
|Current liabilities:                                                                                                                  |  |                   |       |   |                    |   |       |  
|Current portion of long-term obligations                                                                                              |  | $                 | 7.9   |   |                    | $ | 7.9   |  
|Accounts payable                                                                                                                      |  |                   | 17.1  |   |                    |   | 16.1  |  
|Accrued expenses                                                                                                                      |  |                   | 38.9  |   |                    |   | 32.5  |  
|                                                                                                                                      |  |                   |       |   |                    |   |       |  
|Total current liabilities                                                                                                             |  |                   | 63.9  |   |                    |   | 56.5  |  
|Long-term debt                                                                                                                        |  |                   | 53.5  |   |                    |   | 63.0  |  
|Obligations under capital leases                                                                                                      |  |                   | 4.8   |   |                    |   | 5.1   |  
|Finance lease obligation                                                                                                              |  |                   | 36.5  |   |                    |   | 36.7  |  
|Accrued warranty                                                                                                                      |  |                   | 31.9  |   |                    |   | 32.1  |  
|Other liabilities                                                                                                                     |  |                   | 8.3   |   |                    |   | 7.8   |  
|                                                                                                                                      |  |                   |       |   |                    |   |       |  
|Total liabilities                                                                                                                     |  |                   | 198.9 |   |                    |   | 201.2 |  
|                                                                                                                                      |  |                   |       |   |                    |   |       |  
|Shareholders equity:                                                                                                                 |  |                   |       |   |                    |   |       |  
|Common stock ($.001 par value, 100 million shares authorized, 17.7 million shares and 17.6 million shares issued) and paid-in
capital |  |                   | 20.8  |   |                    |   | 21.4  |  
|Treasury stock, at cost (1.7 million shares and 1.8 million shares)                                                                   |  |                   | (39.1 | ) |                    |   | (41.2 | )
|Unamortized restricted stock awards                                                                                                   |  |                   | (1.8  | ) |                    |   | (2.2  | )
|Retained income                                                                                                                       |  |                   | 81.5  |   |                    |   | 78.9  |  
|Cumulative other comprehensive loss                                                                                                   |  |                   | (8.0  | ) |                    |   | (8.0  | )
|                                                                                                                                      |  |                   |       |   |                    |   |       |  
|Total shareholders equity                                                                                                            |  |                   | 53.4  |   |                    |   | 48.9  |  
|                                                                                                                                      |  |                   |       |   |                    |   |       |  
|Total liabilities and shareholders equity                                                                                            |  | $                 | 252.3 |   |                    | $ | 250.1 |  
|                                                                                                                                      |  |                   |       |   |                    |   |       |  



See notes to condensed
financial statements.



2



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MIDAS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)



|                                                                                                                          |  |                                   |      |   |      |   |       |  
|------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ---- | - | ---- | - | ----- | -
|                                                                                                                          |  | For the quarterended fiscal March |     
|                                                                                                                          |  | 2005                              |      |   | 2004 |  
|Cash flows from operating activities:                                                                                     |  |                                   |      |   |      |   |       |  
|Net income (loss)                                                                                                         |  | $                                 | 2.6  |   |      | $ | (2.6  | )
|Adjustments reconciling net income (loss) to net cash provided by operating activities:                                   |  |                                   |      |   |      |   |       |  
|Depreciation and amortization                                                                                             |  |                                   | 3.0  |   |      |   | 3.3   |  
|Amortization of debt discount and financing fees                                                                          |  |                                   | 0.2  |   |      |   | 1.9   |  
|Business transformation charges                                                                                           |  |                                   | 0.1  |   |      |   |      |  
|Gain on sale of assets                                                                                                    |  |                                   | (0.8 | ) |      |   |      |  
|Loss on early extinguishment of debt                                                                                      |  |                                   |     |   |      |   | 4.7   |  
|Cash outlays for business transformation costs                                                                            |  |                                   | (0.7 | ) |      |   | (4.0  | )
|Deferred income taxes                                                                                                     |  |                                   | 0.2  |   |      |   | (2.9  | )
|Changes in assets and liabilities, exclusive of effects of business transformation charges, acquisitions and dispositions |  |                                   | (2.5 | ) |      |   | 5.8   |  
|                                                                                                                          |  |                                   |      |   |      |   |       |  
|Net cash provided by operating activities                                                                                 |  |                                   | 2.1  |   |      |   | 6.2   |  
|                                                                                                                          |  |                                   |      |   |      |   |       |  
|Cash flows from investing activities:                                                                                     |  |                                   |      |   |      |   |       |  
|Capital investments                                                                                                       |  |                                   | (0.6 | ) |      |   | (0.3  | )
|Cash paid for acquired businesses                                                                                         |  |                                   | (0.5 | ) |      |   | (0.4  | )
|Proceeds from sales of assets                                                                                             |  |                                   | 8.3  |   |      |   |      |  
|                                                                                                                          |  |                                   |      |   |      |   |       |  
|Net cash provided by (used in) investing activities                                                                       |  |                                   | 7.2  |   |      |   | (0.7  | )
|                                                                                                                          |  |                                   |      |   |      |   |       |  
|Cash flows from financing activities:                                                                                     |  |                                   |      |   |      |   |       |  
|Principal payments of long-term debt                                                                                      |  |                                   | (3.4 | ) |      |   |      |  
|Borrowing under new debt agreements                                                                                       |  |                                   |     |   |      |   | 60.0  |  
|Retirement of long term debt                                                                                              |  |                                   |     |   |      |   | (94.1 | )
|Net borrowings (repayments) under revolving lines of credit                                                               |  |                                   | (6.1 | ) |      |   | 23.2  |  
|Cash payments for debt financing fees                                                                                     |  |                                   |     |   |      |   | (2.1  | )
|Payment of obligations under capital leases                                                                               |  |                                   | (0.3 | ) |      |   | (0.6  | )
|Payment of obligations under finance lease                                                                                |  |                                   | (0.2 | ) |      |   | (0.1  | )
|Cash received for common stock                                                                                            |  |                                   | 2.1  |   |      |   | 1.7   |  
|Cash paid for treasury shares                                                                                             |  |                                   | (1.2 | ) |      |   | (0.3  | )
|                                                                                                                          |  |                                   |      |   |      |   |       |  
|Net cash used in financing activities                                                                                     |  |                                   | (9.1 | ) |      |   | (12.3 | )
|                                                                                                                          |  |                                   |      |   |      |   |       |  
|Net change in cash and cash equivalents                                                                                   |  |                                   | 0.2  |   |      |   | (6.8  | )
|Cash and cash equivalents at beginning of period                                                                          |  |                                   | 0.9  |   |      |   | 7.4   |  
|                                                                                                                          |  |                                   |      |   |      |   |       |  
|Cash and cash equivalents at end of period                                                                                |  | $                                 | 1.1  |   |      | $ | 0.6   |  
|                                                                                                                          |  |                                   |      |   |      |   |       |  



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 Earnings |       | Comprehensive Income (Loss) | 
|                                                      |  | Shares                           |  | Amount |                |   | Shares |                                     |   | Amount |                   |       |                             |  | Current |      |   | Cumulative |  
|Fiscal year end 2004                                  |  | 17.6                             |  | $      | 21.4           |   |        | (1.8                                | ) |        | $                 | (41.2 | )                           |  | $       | (2.2 | ) |            | $ | 78.9 |  |   |      |   |  | $ | (8.0 | )
|Purchase of treasury shares                           |  |                                 |  |        |               |   |        | (0.1                                | ) |        |                   | (1.2  | )                           |  |         |     |   |            |   |     |  |   |      |   |  |   |     |  
|Stock option transactions(a)                          |  |                                 |  |        | (0.9           | ) |        | 0.2                                 |   |        |                   | 3.3   |                             |  |         |     |   |            |   |     |  |   |      |   |  |   |     |  
|Tax benefit on restricted stock vesting               |  |                                 |  |        | 0.3            |   |        |                                    |   |        |                   |      |                             |  |         |     |   |            |   |     |  |   |      |   |  |   |     |  
|Exercise of stock warrants                            |  | 0.1                              |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |   |            |   |     |  |   |      |   |  |   |     |  
|Amortization of restricted stock awards               |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         | 0.4  |   |            |   |     |  |   |      |   |  |   |     |  
|Net income                                            |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |   |            |   | 2.6  |  | $ | 2.6  |   |  |   |     |  
|Other comprehensive income (loss)                     |  |                                  |  |        |                |   |        |                                     |   |        |                   |       |                             |  |         |      |   |            |   |      |  |   |      |   |  |   |      |  
|foreign currency translation adjustments             |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |   |            |   |     |  |   | (0.1 | ) |  |   | (0.1 | )
|gain on derivative financial instruments, net of tax |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |   |            |   |     |  |   | 0.1  |   |  |   | 0.1  |  
|                                                      |  |                                  |  |        |                |   |        |                                     |   |        |                   |       |                             |  |         |      |   |            |   |      |  |   |      |   |  |   |      |  
|Comprehensive income                                  |  |                                 |  |        |               |   |        |                                    |   |        |                   |      |                             |  |         |     |   |            |   |     |  | $ | 2.6  |   |  |   |     |  
|                                                      |  |                                  |  |        |                |   |        |                                     |   |        |                   |       |                             |  |         |      |   |            |   |      |  |   |      |   |  |   |      |  
|Fiscal first quarter end 2005                         |  | 17.7                             |  | $      | 20.8           |   |        | (1.7                                | ) |        | $                 | (39.1 | )                           |  | $       | (1.8 | ) |            | $ | 81.5 |  |   |      |   |  | $ | (8.0 | )
|                                                      |  |                                  |  |        |                |   |        |                                     |   |        |                   |       |                             |  |         |      |   |            |   |      |  |   |      |   |  |   |      |  



|(a) | Common stock includes $0.3 million tax benefit from stock option exercises.
|--- | ---------------------------------------------------------------------------



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 January 1, 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 April 2, 2005 (first quarter fiscal 2005) and April 3, 2004 (first quarter fiscal
2004) and of its financial position as of April 2, 2005. All such adjustments are of a normal recurring nature. The results of operations for the first quarter fiscal 2005 and 2004 are not necessarily indicative of the results of operations
for the full year.



The unaudited condensed financial
statements present the consolidated financial information for Midas, Inc. and its wholly-owned subsidiaries (Midas or the Company). The unaudited condensed financial statements for the quarters ended April 2, 2005 and April
3, 2004 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 2004 financial statements in order to provide consistency with the fiscal 2005
results. These reclassifications did not affect previously reported operating income, loss before income taxes, net loss or loss per share.



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



|                                           |  |                                   |  |     
|------------------------------------------ |  | --------------------------------- |  | ----
|                                           |  | For the quarterended fiscal March
|                                           |  | 2005                              |  | 2004
|Weighted-average common shares outstanding |  | 15.7                              |  | 15.3
|Common stock warrants                      |  | 0.1                               |  | 0.3 
|                                           |  |                                   |  |     
|Shares applicable to basic earnings        |  | 15.8                              |  | 15.6
|Effect of dilutive stock awards            |  | 0.6                               |  |    
|                                           |  |                                   |  |     
|Shares applicable to diluted earnings      |  | 16.4                              |  | 15.6
|                                           |  |                                   |  |     
|Potential common share equivalents:        |  |                                   |  |     
|Stock options                              |  | 1.4                               |  | 1.9 



Common share
equivalents were excluded from diluted earnings per share in fiscal 2004 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 quarterended fiscal March |     
|                   |  | 2005                              |      |   | 2004 |  
|Interest paid      |  | $                                 | 2.1  |   |      | $ | 5.9  |  
|Income tax refunds |  |                                   | (0.3 | ) |      |   | (0.1 | )
|Income taxes paid  |  |                                   | 0.4  |   |      |   |     |  



5



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3. Inventories



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



|                                  |  |                   |      |                     |   |     
|--------------------------------- |  | ----------------- | ---- | ------------------- | - | ----
|                                  |  | Fiscal March 2005 |      | FiscalDecember 2004
|                                  |  | (Unaudited)       |      |                    
|Raw materials and work in process |  | $                 | 2.4  |                     | $ | 2.7 
|Finished goods, net of reserves   |  |                   | 9.7  |                     |   | 9.5 
|                                  |  |                   |      |                     |   |     
|                                  |  | $                 | 12.1 |                     | $ | 12.2
|                                  |  |                   |      |                     |   |     



4.
Business Transformation Charges



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 included the disposition of the assets of Parts Warehouse, Inc. (PWI),
the closure and re-franchising of certain company-operated shops, the redesign of the Companys wholesale parts distribution network, and the reduction of administrative expenses related to former operating activities. The implementation of
these initiatives has had the effect of substantially lowering overall Company revenues and expenses. Furthermore, the implementation of the Companys strategic initiatives 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.



During the first quarter of fiscal 2005, the Company recorded $0.1 million in business transformation charges related to the wind-up of an hourly pension
plan in Canada as a result of the Companys decision to exit the traditional wholesale distribution business.



The fiscal 2005 activity affecting the accrual for business transformation charges was as follows (shown in millions):



|                                            |  |                   |     |                                          |   |      |                                         |  |   |                                              |   |  |       |      |   |  |   |      |  
|------------------------------------------- |  | ----------------- | --- | ---------------------------------------- | - | ---- | --------------------------------------- |  | - | -------------------------------------------- | - |  | ----- | ---- | - |  | - | ---- | -
|                                            |  | Dispositionof PWI |     | Rationalizationof Company-Operated Shops |   |      | Redesign ofWholesaleDistributionNetwork |  |   | AdministrativeCosts,Severance andOther Costs |   |  | Total |     
|Balance at January 1, 2005                  |  | $                 | 0.1 |                                          | $ | 1.9  |                                         |  | $ | 0.9                                          |   |  | $     | 2.1  |   |  | $ | 5.0  |  
|Business transformation charges             |  |                   |    |                                          |   |     |                                         |  |   | 0.1                                          |   |  |       |     |   |  |   | 0.1  |  
|Cash payments                               |  |                   |    |                                          |   | (0.1 | )                                       |  |   | (0.6                                         | ) |  |       |     |   |  |   | (0.7 | )
|Non-cash utilization                        |  |                   |    |                                          |   |     |                                         |  |   | 0.6                                          |   |  |       | (0.6 | ) |  |   |     |  
|Non-cash real estate lease reclassification |  |                   |    |                                          |   | (1.2 | )                                       |  |   |                                             |   |  |       |     |   |  |   | (1.2 | )
|Non-cash business transformation charges    |  |                   |    |                                          |   |     |                                         |  |   | (0.1                                         | ) |  |       |     |   |  |   | (0.1 | )
|                                            |  |                   |     |                                          |   |      |                                         |  |   |                                              |   |  |       |      |   |  |   |      |  
|Balance at April 2, 2005                    |  | $                 | 0.1 |                                          | $ | 0.6  |                                         |  | $ | 0.9                                          |   |  | $     | 1.5  |   |  | $ | 3.1  |  
|                                            |  |                   |     |                                          |   |      |                                         |  |   |                                              |   |  |       |      |   |  |   |      |  



5.
Debt Agreements



At the beginning of fiscal 2004, the Company
had credit facilities consisting of a $25 million revolving loan facility, a $64.7 million Term Loan A, and a $29.4 million Term Loan B. These facilities were secured by substantially all of the assets of the Company and were scheduled to expire on
October 3, 2004. Interest on the revolving loan was payable monthly at the prime rate plus 2.75% or LIBOR plus 3.75%. Interest on a portion of the Term Loan A was fixed



6



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at 7.67%, while interest on the balance of the Term Loan A was payable monthly at the prime rate plus 5.0% or LIBOR plus
6.0%. The interest rate on the Term Loan B was fixed at 12% cash interest paid monthly plus 6% paid-in-kind (PIK), which was added to principal and due at maturity. Availability under the revolving credit facility was based on a
borrowing base, which took into consideration the Companys inventory and accounts receivable levels. The revolving credit facility was senior to both the Term Loan A and Term Loan B.



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



Interest on the $55 million revolving loan was initially payable monthly at LIBOR plus 3.25%. Interest on the $60 million term loan was initially payable
monthly at LIBOR plus 3.5%. The interest rates float based on the underlying rate of LIBOR and the Companys leverage. Availability under the revolving credit facility is not predicated on a borrowing base. The new facility requires maintenance
of certain financial covenants including maximum allowable leverage and minimum tangible net worth.



On November 5, 2004, the Company amended its new debt facility to reduce required principal amortization under the term loan, remove certain restrictive
covenants, and reduce interest rates. As amended, the term loan now requires quarterly principal payments of $1.5 million, and must be prepaid by an amount equal to: (i) 100% of equity issued, or (ii) $2.5 million of the first $7.5 million of
proceeds from the sale of the Companys exhaust manufacturing business plus 50% of any proceeds between $7.5 million and $15.5 million, or (iii) 75% of any other material asset proceeds in excess of $1 million (other than the sale of inventory
in the normal course of business).



The amendment also
eliminated the Companys restrictions on capital expenditures and treasury stock repurchases, and reduced the interest rate on both the term loan and revolving loan by 50 basis points. Based on the new rates and the Companys first quarter
debt level, interest on the revolving loan is currently payable at LIBOR plus 2.25% and interest on the term loan is currently payable at LIBOR plus 2.5%.



In April 2004, the Company entered into an interest rate swap arrangement to convert $40 million of the $60 million term loan from a floating rate to a
fixed rate, by locking-in LIBOR at 2.76% for the three-year term of the loan. The swap amount is reduced quarterly based on scheduled term loan principal amortization payments. As of April 2, 2005, approximately $31.3 million of the $48.8 million
term loan balance was subject to this interest rate swap arrangement. As of April 2, 2005, the fair value of this instrument was approximately $0.3 million, net of taxes. The swap transaction has been designated as a cash flow hedge and was
evaluated to be highly effective. As such, the change in fair value is recorded in other comprehensive income as a gain on derivative financial instruments.



The components of debt as of April 2, 2005 and January 1, 2005 were as follows (in millions):



|                                 |  |                 |      |                    |   |     
|-------------------------------- |  | --------------- | ---- | ------------------ | - | ----
|                                 |  | FiscalMarch2005 |      | FiscalDecember2004
|Revolving credit facility        |  | $               | 10.7 |                    | $ | 16.8
|Term loan                        |  |                 | 48.8 |                    |   | 52.2
|                                 |  |                 |      |                    |   |     
|Total debt                       |  |                 | 59.5 |                    |   | 69.0
|Less amounts due within one year |  |                 | 6.0  |                    |   | 6.0 
|                                 |  |                 |      |                    |   |     
|Long-term debt                   |  | $               | 53.5 |                    | $ | 63.0
|                                 |  |                 |      |                    |   |     



6.
Pension Plans



Certain Midas employees are covered under
various defined benefit pension plans sponsored and funded by Midas. Plans covering salaried employees provide pension benefits based on years of service, and generally are limited to a maximum of 20% of the employees average annual
compensation during the five years preceding retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Plan assets are invested primarily in common stocks, corporate bonds, and government
securities. The Company does not expect to make material contributions to the various plans in fiscal 2005.



7



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



|                                              |  |                                   |      |   |      |   |      |  
|--------------------------------------------- |  | --------------------------------- | ---- | - | ---- | - | ---- | -
|                                              |  | For the quarterended fiscal March |     
|                                              |  | 2005                              |      |   | 2004 |  
|Service cost  benefits                       |  | $                                 | 0.3  |   |      | $ | 0.4  |  
|Interest cost on projected benefit obligation |  |                                   | 0.7  |   |      |   | 0.8  |  
|Expected return on assets                     |  |                                   | (1.0 | ) |      |   | (1.2 | )
|Net amortization and deferral                 |  |                                   | 0.2  |   |      |   | 0.3  |  
|                                              |  |                                   |      |   |      |   |      |  
|Total net periodic pension cost               |  | $                                 | 0.2  |   |      | $ | 0.3  |  
|                                              |  |                                   |      |   |      |   |      |  



Midas also
participates in a multi-employer pension plan, which provides benefits to certain unionized employees. Contributions of approximately $25,000 were made to this plan for the three months ended April 2, 2005.



7. Stock-Based Compensation



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



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



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



|                                                                                            |  |                                   |      |   |      |   |       |  
|------------------------------------------------------------------------------------------- |  | --------------------------------- | ---- | - | ---- | - | ----- | -
|                                                                                            |  | For the quarterended fiscal March |     
|                                                                                            |  | 2005                              |      |   | 2004 |  
|Net income (loss) (shown in millions)                                                       |  |                                   |      |   |      |   |       |  
|As reported                                                                                 |  | $                                 | 2.6  |   |      | $ | (2.6  | )
|Plus: stock-based compensation expense included in reported net income (loss), net of taxes |  |                                   | 0.2  |   |      |   | 0.2   |  
|Less: fair value impact of employee stock compensation, net of taxes                        |  |                                   | (0.5 | ) |      |   | (0.4  | )
|                                                                                            |  |                                   |      |   |      |   |       |  
|Pro forma                                                                                   |  | $                                 | 2.3  |   |      | $ | (2.8  | )
|                                                                                            |  |                                   |      |   |      |   |       |  
|Basic earnings (loss) per share                                                             |  |                                   |      |   |      |   |       |  
|As reported                                                                                 |  | $                                 | 0.16 |   |      | $ | (0.16 | )
|Pro forma                                                                                   |  |                                   | 0.14 |   |      |   | (0.18 | )
|Diluted earnings (loss) per share                                                           |  |                                   |      |   |      |   |       |  
|As reported                                                                                 |  | $                                 | 0.16 |   |      | $ | (0.16 | )
|Pro forma                                                                                   |  |                                   | 0.14 |   |      |   | (0.18 | )



8.
Warranty



Customers are provided a written warranty from Midas
on genuine Midas products purchased from Midas shops in North America. The warranty will be honored at any Midas shop in North America and is valid for the lifetime of the vehicle, but is voided if the vehicle is sold. The Company maintains a
warranty accrual to cover the estimated future liability associated with outstanding warranties. The Company determines the estimated value of outstanding warranty claims based on: 1) an estimate of the percentage of all warranted products sold and
registered in prior periods at retail



8



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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 fiscal first quarter is summarized as follows (in millions):



|                                                             |  |   |      |  
|------------------------------------------------------------ |  | - | ---- | -
|Accrued warranty at beginning of period                      |  | $ | 37.0 |  
|Warranty expense                                             |  |   | 1.8  |  
|Changes in foreign currency exchange rate                    |  |   | (0.1 | )
|Warranty credit issued to franchisees (warranty claims paid) |  |   | (1.9 | )
|                                                             |  |   |      |  
|Accrued warranty at end of period                            |  |   | 36.8 |  
|Less current portion (included in accrued expenses)          |  |   | (4.9 | )
|                                                             |  |   |      |  
|Accrued warranty  non-current                               |  | $ | 31.9 |  
|                                                             |  |   |      |  



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 sold its Chicago distribution center and leased it back on a short-term basis. In addition, during the first quarter of 2005 the
Company sold and re-franchised six company-operated shops. The sale of these assets generated total proceeds of approximately $8.3 million. The gain on the sale of Huth of approximately $0.8 million is reflected in the first quarter of 2005. The
gain on sale of the Chicago distribution center of approximately $4.5 million will be recognized over the term of the lease-back period. No gain or loss was realized on the six company-operated shops.



10. Subsequent Event



On May 4, 2005, the Company entered into an agreement appointing AutoZone,
Inc. (AutoZone) as the exclusively endorsed supplier of Arvin brand exhaust products to Midas shops in the U.S. In the future, exhaust products in the U.S. will be supplied to AutoZone by the Light Vehicle Aftermarket division of
ArvinMeritor and will replace Midas brand products currently manufactured by Midas and sold to Midas shops by AutoZone. In addition, under a separate agreement, ArvinMeritor agreed to purchase certain IPC brand exhaust assets from Midas.



Midas currently manufactures and distributes exhaust products for resale
to Midas dealers through AutoZone in the U.S. and Uni-Select in Canada. Over the remainder of fiscal 2005, AutoZone and Arvin will convert all Midas dealers in the U.S. from Midas brand exhaust products to Arvin brand exhaust products. During this
transition period, Midas will continue to operate its Hartford, Wisconsin exhaust manufacturing facility and its exhaust distribution warehouse in Chicago, Illinois in order to provide Midas brand exhaust products to Midas dealers prior to their
ultimate conversion to Arvin exhaust. However, as a result of these agreements, Midas expects to close its Hartford manufacturing facility and its Chicago warehouse before the end of fiscal 2005 and liquidate all exhaust-related assets. When
completed, the Company expects that its exit from the manufacturing and distribution of exhaust products will result in a reduction in total company revenues and an increase in the Companys operating margin. However, during the remainder of
fiscal 2005, the Company expects to generate operating losses in its manufacturing and distribution operations prior to closure.



The closure of facilities associated with the exhaust operation will lead to business transformation charges for the write-down of assets, employee
severance and other restructuring costs. The amount and timing of these charges has not yet been determined but is expected to be in the range of $6 million to $9 million (excluding gains related to the sale of Huth and real estate). However, the
Company expects that cash proceeds from the sale of exhaust-related assets, including the Hartford factory real estate and equipment, IPC assets, and inventory will substantially offset cash restructuring costs, principally employee severance.



9



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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 sweeping changes in the way Midas dealers are supplied with genuine Midas products and other
replacement auto parts, a re-definition of the service relationship between Midas dealers and their customers, and a shift in the way the Company approaches its relationship with Midas franchisees.



Certain aspects of the transformation were completed in fiscal 2003 while
others continued into fiscal 2004 and beyond. During 2003, the Company outsourced the wholesale distribution of genuine Midas products and other replacement parts, closed all but one of the Companys regional distribution centers, disposed of
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 October 2004, the Company announced its intention to sell its
IPC exhaust distribution business and exit exhaust manufacturing. On May 4, 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. As a result of these agreements, Midas will exit exhaust manufacturing during fiscal 2005 (See Note 10, Subsequent Event, of the Notes to Midas
Unaudited Financial Statements). The Company believes that exhaust manufacturing no longer represents a strategic fit for the Companys evolving retail-focused business model. When completed, the Company expects that Midas exit from
exhaust manufacturing will have the effect of further reducing overall Company revenues and expenses compared to current and historical levels, and will increase the Companys operating margin.



As a result of its decision to exit the exhaust manufacturing and
distribution business, the Company will eventually close its factory in Hartford, Wisconsin and its distribution center in Chicago, Illinois. The closure of these facilities will result in an estimated $6 million to $9 million of business
transformation charges for employee severance, facility shut down costs, and the write-down of the carrying value of certain fixed assets, inventory and certain other assets to their net realizable value. In March 2005, in connection with the
Companys planned exit from exhaust manufacturing, the Company sold its Huth equipment manufacturing operations. The Company also sold its Chicago distribution center and leased it back on a short-term basis. The Company expects to continue to
liquidate assets as part of the process of exiting manufacturing. The total proceeds from the sale of facilities, equipment and other asset liquidation activity are expected to more than offset the cash costs associated with employee severance and
facility shut down.



The Midas business transformation, and the
resulting changes to the way the Company does business, will continue to evolve through fiscal 2005 and beyond. 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. The specific components of the Midas business transformation and how the Company intends to move forward are discussed in greater detail below.



First Quarter Fiscal 2005 Compared with First Quarter Fiscal 2004



The following is a summary of the Companys sales and revenues for the
first quarter of fiscal 2005 and 2004: ($ in millions)



|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  
|-------------------------------------------- |  | ---- | ---- | --------------- | ----- | - | ---- | - | --------------- |  | ----- | -
|                                             |  | 2005 |      | Percentto Total |       |   | 2004 |   | Percentto Total | 
|Franchise royalties and license fees         |  | $    | 15.5 |                 | 31.3  | % |      | $ | 14.5            |  | 30.9  | %
|Real estate revenues                         |  |      | 9.0  |                 | 18.2  |   |      |   | 9.1             |  | 19.4  |  
|Company-operated shop retail sales           |  |      | 9.1  |                 | 18.4  |   |      |   | 8.6             |  | 18.3  |  
|Replacement part sales and product royalties |  |      | 15.2 |                 | 30.7  |   |      |   | 14.1            |  | 30.1  |  
|Other                                        |  |      | 0.7  |                 | 1.4   |   |      |   | 0.6             |  | 1.3   |  
|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  
|Total sales and revenues                     |  | $    | 49.5 |                 | 100.0 | % |      | $ | 46.9            |  | 100.0 | %
|                                             |  |      |      |                 |       |   |      |   |                 |  |       |  



10



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Total company sales and revenues for the first quarter of fiscal 2005 increased $2.6 million or 5.5% from
the first quarter of fiscal 2004 to $49.5 million. Within the retail auto service business, royalty revenues and license fees increased $1.0 million or 6.9% from the first quarter of 2004. This year-over-year increase was driven by a $0.6 million
increase in Canadian royalties and license fees primarily due to revenue recognized from delinquent franchisees and a more favorable exchange rate, a 3.6% comparable shop increase in system-wide Midas retail sales, higher license fee income as a
result of the re-franchising of six company-operated shops and higher international royalties. Sales from company-operated shops increased $0.5 million, or 5.8% above the first quarter in fiscal 2004. The sales increase primarily reflected an
increase in comparable shop sales of 7%, which was partially offset by a net reduction of the number of shops in operation during the quarter compared to the same period in fiscal 2004. During the first quarter, the Company re-franchised six
company-operated shops and acquired three shops for a net reduction of three company-operated shops. As of April 2, 2005, Midas had 70 company-operated shops compared to 73 shops at the end of the first quarter of fiscal 2004. Revenues from real
estate rentals decreased slightly to $9.0 million. The decrease reflects a net reduction in shops subject to real estate rental agreements relative to the same period in fiscal 2004.



Replacement part sales and product royalties increased $1.1 million to $15.2 million from $14.1 million in the first quarter
of fiscal 2004. The increase primarily reflects higher sales of tires to Midas dealers through the Companys alliance with Bridgestone-Firestone, partially offset by a 4.4% reduction in the sales of exhaust products. During the first quarter of
both fiscal 2005 and 2004, replacement part revenues were comprised of the distribution of exhaust products to AutoZone, Inc. in the U.S., Uni-Select Inc. in Canada and to certain independent exhaust distributors, as well as sales derived from the
Companys coordination and administration of certain merchandise programs on behalf of Midas dealers, including tires, batteries, shop equipment and oil. Product royalties reflect royalties earned on the sale of parts to Midas dealers by
AutoZone, CarQuest and NAPA in the U.S. and Uni-Select in Canada.



Gross profit margin declined to 57.2% in the first quarter of fiscal 2005 from 58.2% in the first quarter of fiscal 2004. This decrease was primarily due to lower margins in company-operated shops and a decrease in replacement part margins
as a result of the higher proportion of revenues derived from tire sales to Midas dealers, partially offset by better exhaust manufacturing fixed cost absorption as the Company increased production and built exhaust inventory in advance of its
planned exit from exhaust manufacturing. The Company resells Bridgestone-Firestone tires to Midas dealers based on a small mark-up that is primarily intended to cover the cost of administering the merchandise program.



Selling, general and administrative expenses for the first quarter of 2005
increased $0.5 million, or 2.3% from 2004 to $22.5 million. The modest increase in expenses primarily reflects the loss of sublease revenue on excess space at the Companys corporate headquarters as well as higher administration costs incurred
in support of the rollout of the 4-3-2-1 business model to Midas dealers. Operating expenses in the company-operated shop business declined slightly even as sales increased as a result of management efforts to better control shop payroll expenses.



During the first quarter of 2005, the Company recorded a
business transformation charge of $0.1 million. The charge reflects costs related to the wind-up of an hourly pension plan in Canada as a result of the Companys decision to exit the traditional wholesale business. No business transformation
charges were recorded during the first quarter of 2004.



As a
result of the above changes, operating income increased $0.4 million to $5.7 million in the first quarter of 2005 from $5.3 million in the first quarter of 2004. These changes caused an increase in operating income margin to 11.5% in the first
quarter of 2005 from 11.3% in the first quarter of 2004.



Interest expense decreased from $5.1 million in the first quarter of 2004 to $2.5 million in the first quarter of 2005 as result of much lower interest rates and a $25.4 million reduction in total debt compared to the prior year first
quarter. During the first quarter of fiscal 2004, the Company recorded a loss on early extinguishment of debt of $4.7 million to reflect a write-off of the unamortized debt discount and financing fees related to a prior debt agreement.



During the first quarter of 2005, the Company recorded a gain of $0.8
million on the sale of the Companys Huth equipment manufacturing operation.



The Companys effective tax rate was 39.2% in the first quarter of fiscal 2005 compared to 38.9% in the first quarter of fiscal 2004.



11



---

As a result of the above items, net income improved $5.2 million from a loss of $2.6 million in the first
quarter of 2004 to income of $2.6 million in the first quarter of 2005.



LIQUIDITY AND CAPITAL RESOURCES



Midas
cash and cash equivalents increased $0.2 million in the first quarter of fiscal 2005.



The Companys operating activities generated net cash of $2.1 million during the first quarter of fiscal 2005 compared to $6.2 million of cash generated in the first quarter of fiscal 2004. The year-over-year
decrease of $4.1 million was primarily due to an $8.3 million increase in cash required by changes in assets and liabilities, a decrease of $1.7 million in amortization of debt discount and financing fees, an $0.8 million increase in gain on sale of
fixed assets and a $0.3 million reduction in depreciation and amortization, which were partially offset by an increase in net income of $5.2 million and a $3.1 million increase in deferred income taxes. In addition, business transformation costs,
net of cash payments, and losses on early extinguishment of debt were $1.3 million lower than the prior year. The $8.3 million increase in cash required by changes in assets and liabilities was due to higher growth in accounts receivable in 2005 due
to increased revenues and normal seasonal growth, lower growth in accounts payable and an increase in long term notes receivable in connection with the securitization of certain overdue dealer receivables. The change in accounts receivable in the
first quarter of 2004 did not reflect normal seasonal growth due to the liquidation of receivables in connection with the Companys exit from the traditional wholesale parts distribution business.



Investing activities provided $7.2 million of cash in during the first
quarter of fiscal 2005 compared to using $0.7 million of cash during the first quarter of fiscal 2004. Fiscal 2005 investing activities primarily consisted of $0.6 million in systems development projects and other capital expenditures, $0.5 million
paid to acquire three Midas shops and other shop assets from a Midas dealer and $8.3 million in cash generated as the result of asset sales. The asset sales 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. Fiscal 2004 investing activities primarily consisted of systems development projects and other capital
expenditures.



Net cash used in financing activities was $9.1
million in the first quarter of fiscal 2005, compared to net cash used of $12.3 million in the first quarter of fiscal 2004. In fiscal 2005, the Company reduced total debt by $10.0 million, paid $1.2 million to repurchase shares of the
Companys common stock, and received $2.1 million in cash from the exercise of outstanding stock options. In fiscal 2004, the Company paid $2.1 million in financing fees, reduced total debt by $11.6 million, paid $0.3 million to repurchase
shares of the Companys common stock, and received $1.7 million in cash from the exercise of outstanding stock options.



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



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



Interest on the
$55 million revolving loan was initially payable monthly at LIBOR plus 3.25%. Interest on the $60 million term loan was initially payable monthly at LIBOR plus 3.5%. The interest rates float based on the underlying rate of LIBOR and the
Companys leverage. Availability under the revolving credit facility is not predicated on a borrowing base. The new facility requires maintenance of certain financial covenants including maximum allowable leverage and minimum tangible net
worth.



12



---

On November 5, 2004, the Company amended its new debt facility to reduce required principal amortization
under the term loan, remove certain restrictive covenants, and reduce interest rates. As amended, the term loan now requires quarterly principal payments of $1.5 million, and must be prepaid by an amount equal to: (i) 100% of equity issued, or (ii)
$2.5 million of the first $7.5 million of proceeds from the sale of the Companys exhaust manufacturing business plus 50% of any proceeds between $7.5 million and $15.5 million, or (iii) 75% of any other material asset proceeds in excess of $1
million (other than the sale of inventory in the normal course of business).



The amendment also eliminated the Companys restrictions on capital expenditures and treasury stock repurchases, and reduced the interest rate on both the term loan and revolving loan by 50 basis points. Based on
the new rates and the Companys first quarter debt level, interest on the revolving loan is currently payable at LIBOR plus 2.25% and interest on the term loan is currently payable at LIBOR plus 2.5%.



In April 2004, the Company entered into an interest rate swap arrangement to
convert $40 million of the $60 million term loan from a floating rate to a fixed rate, by locking-in LIBOR at 2.76% for the three-year term of the loan. The swap amount is reduced quarterly based on scheduled term loan principal amortization
payments. As of April 2, 2005, approximately $31.3 million of the $48.8 million term loan balance was subject to this interest rate swap arrangement.



On November 9, 2004, the Midas Board of Directors authorized a share repurchase program to begin in fiscal 2005 for up to $25 million. The Company intends
to use internally generated funds over the next several years to repurchase shares from time to time in the open market and in privately negotiated transactions, depending upon market and business conditions. The Company purchased 43,600 shares
under this program in the three months ended April 2, 2005. In addition, 14,767 shares were surrendered in lieu of taxes upon the vesting of restricted stock. The Company paid approximately $1.2 million for the 58,367 shares acquired in the three
months ended April 2, 2005.



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.



Valuation of Warranty Liabilities



Customers are provided a written warranty from Midas on genuine Midas products purchased from Midas shops in North America.
The warranty will be honored at any Midas shop in North America and is valid for the lifetime of the vehicle, but is voided if the vehicle is sold. The Company maintains a warranty accrual to cover the estimated future liability associated with
outstanding warranties. The Company determines the estimated value of outstanding warranty claims based on: 1) an estimate of the percentage of all warranted products sold and registered in prior periods at retail that are likely to be redeemed; and
2) an estimate of the cost of redemption of each future warranty claim on a current cost basis. These estimates are computed using actual historical registration and redemption data as well as actual cost information on current redemptions. 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 increasing Midas January 1, 2005 outstanding U.S. warranty liability by $4.5 million, while a
decrease of one percentage point in the estimated U.S. redemption rate would decrease Midas outstanding U.S. warranty liability by $2.6 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 $1.8 million.



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Inventory Valuation



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



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.



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.



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



14



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the remaining lives of the related assets does not exceed the carrying values of the assets, the carrying values are
adjusted for the differences between the fair values and the carrying values. Additionally, in the case of fixed assets related to locations that will be closed or sold, the Company writes down fixed assets to their estimated recovery value.



Deferred Income Taxes



In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences at
April 2, 2005. 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



The Company is 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 purchases stop-loss insurance that covers individual claims in excess of the deductible amounts. The
Company maintains an accrual for the estimated cost to settle open claims as well as an estimate of the cost of claims that have been incurred but not reported. These estimates take into consideration the historical average monthly claim volume, the
average cost for settled claims, current trends in claim costs, changes in the Companys business and workforce, and general economic factors. These accruals are reviewed on a quarterly basis, or more frequently if factors dictate a more
frequent review.



IMPACT OF NEW ACCOUNTING STANDARDS



In November 2004, the FASB issued Statement No. 151, Inventory Costs
 an amendment of ARB No. 43 (FAS 151), which is the result of its effort to converge U.S. accounting standards for inventories with International Accounting Standards. Statement No. 151 requires idle facility expenses,
freight, handling costs, and wasted material (spoilage) costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the cost of conversion be based on normal capacity of the production
facilities. Statement No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is in the process of evaluating the impact of this standard on its financial statements.



In December 2004, the FASB issued Statement No. 123 (revised),
Share-Based Payment, (FAS 123R). This statement is a revision to Statement No. 123, Accounting for Stock-Based Compensation, (FAS 123) and supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees. FAS 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, FAS 123R required that companies adopt the provisions of FAS
123R on July 1, 2005. However, in April 2005, the Securities and Exchange Commission (SEC) adopted a new rule which defers the compliance date of FAS 123R until 2006 for calendar year companies such as Midas, Inc. Consistent with the new
rule, the Company will adopt FAS 123R on January 1, 2006, with compensation cost to be recorded as an expense for outstanding unvested awards, based on the grant-date fair value of those awards. The Company expects to use the Black-Scholes option
pricing model and the Modified Prospective Application method of adoption as allowed under FAS 123R. The Company is in the process of evaluating the impact of this standard on its financial statements.



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,



15



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are forward-looking statements. Forward-looking statements are based on Midas estimates, assumptions and
expectations of future events and are subject to a number of risks and uncertainties. All such statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Midas cannot guarantee that these
estimates, assumptions and expectations are accurate or will be realized. Midas disclaims any intention or obligation (other than as required by law) to update or revise any forward-looking statements.



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



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 of the Companys $60 million term loan from a
floating rate to a fixed rate, by locking-in LIBOR at 2.76% for the three-year term of the loan. As of April 2, 2005, approximately $31.3 million of the $48.8 million term loan balance was subject to this interest rate swap arrangement. As of April
2, 2005, the fair value of the swap instrument was approximately $0.3 million net of taxes.



Item 4. Controls and Procedures.



(a) Evaluation of disclosure controls and procedures.



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



(b) Changes in internal controls over financial reporting.



There have been no changes in internal control over financial
reporting that occurred during the first quarter of 2005, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



In addition, the Company is in the process of implementing a new retail sales
and royalty reporting system for North America. The Company expects to launch the system during the second fiscal quarter of 2005.



16



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PART II. OTHER INFORMATION



Item 1. Legal Proceedings.



None



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 ofSharesPurchased (1) (2) |  | AveragePrice Paidper Share |       | Total Number ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs |        | Approximate Dollar Value of Shares ThatMay Yet BePurchased Under thePlans or Programs
|January 2005: (January 2, 2005 through January 29, 2005)    |  |                                       |  |                            |      |                                                                             | N/A    |                                                                                       | $ | 25,000,000
|                                                            |  |                                        |  |                           
|February 2005: (January 30, 2005 through February 26, 2005) |  | 5,000                                  |  | $                          | 21.36 |                                                                             | 5,000  |                                                                                       | $ | 24,893,180
|                                                            |  |                                        |  |                           
|March 2005: (February 27, 2005 through April 2, 2005)       |  | 53,367                                 |  | $                          | 21.83 |                                                                             | 38,600 |                                                                                       | $ | 24,045,454
|                                                            |  |                                        |  |                            |       |                                                                             |        |                                                                                       |   |           
|Total                                                       |  | 58,367                                 |  | $                          | 21.79 |                                                                             | 43,600 |                                                                                       | $ | 24,045,454
|                                                            |  |                                        |  |                            |       |                                                                             |        |                                                                                       |   |           



|(1) | On November 9, 2004, the Company publicly announced that the Board of Directors had authorized a share repurchase of up to $25 million in Midas stock. As of April 2, 2005, 43,600
shares had been repurchased under this plan.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 14,767 shares purchased that represent restricted shares withheld to cover the withholding taxes upon the vesting of restricted stock.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------



Item 3. Defaults Upon Senior Securities.



None



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



None



Item 5. Other Information.



None



17



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Item 6. Exhibits.



|     |  |                                                                                                                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.29 |  | Second Amendment to Amended and Restated Credit Agreement, dated as of March 18, 2005, among Midas International and the other Borrowers named therein, the Lenders named therein and JPMorgan
Chase Bank, N.A. (successor by merger to Bank One, N.A.).
|     | 
|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: May 12, 2005 |  | /s/ Alan D. Feldman                              
|                   |  | Alan D. Feldman                                  
|                   |  | President and Chief Executive Officer            
|                   | 
|                   |  | /s/ William M. Guzik                             
|                   |  | William M. Guzik                                 
|                   |  | Senior Vice President and Chief Financial Officer
|                   | 
|                   |  | /s/ James M. Haeger, Jr.                         
|                   |  | James M. Haeger, Jr.                             
|                   |  | Vice President and Controller                    



18