<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                   For the fiscal year ended October 30, 2005

                         Commission File Number: 0-11514

                         Max & Erma's Restaurants, Inc.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
            Delaware                                            No. 31-1041397
(State or other jurisdiction of                                (I.R.S. Employer
 incorporation or organization)                              Identification No.)
</TABLE>

<TABLE>
<S>                                                               <C>
  4849 Evanswood Drive, Columbus, Ohio                               43229
(Address of principal executive offices)                          (Zip Code)
</TABLE>

Registrant's telephone number, including area code (614) 431-5800

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

     None

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

                          Common Shares, $.10 Par Value
                                (title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer as
defined in Rule 405 of the Securities Act.       Yes   X   No
                                           -----     -----

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act.       Yes   X   No
                                            -----     -----

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

<PAGE>

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

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

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).       Yes   X   No
                        -----     -----

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates, computed by reference to the price at which the common equity
was last sold, or the closing bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second
quarter. The aggregate market value of Max & Erma's Common Stock held by
non-affiliates was approximately $29,261,000 on May 15, 2005.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 2,546,778 Common Shares were
outstanding at December 31, 2005.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Annual Report to Stockholders for the Fiscal Year Ended October 30, 2005
     (in pertinent parts, as indicated) . . . Parts II and IV.

2.   Proxy Statement for 2006 Annual Meeting of Stockholders (in pertinent
     parts, as indicated) . . . Part III.

<PAGE>

                                     PART I

Item 1. BUSINESS

     Max & Erma's Restaurants, Inc. owns and operates (79) and franchises (23) a
chain of 102 Max & Erma's restaurants at December 31, 2005. We are a Delaware
corporation organized in 1982, as the successor to a restaurant business founded
in 1971. We have registered the phrase "Max & Erma's - The Hometown Favorite"
and its associated logo as a service mark with the United States Patent and
Trademark Office.

     Our executive offices are located at 4849 Evanswood Drive, Columbus, Ohio
43229, and our telephone number is (614) 431-5800.

Description of Business

     Our restaurants are famous for gourmet burgers, overstuffed sandwiches,
homemade pasta dishes, chargrilled steak and chicken specialties, super salads
and taste-tempting munchies. Unique to the Max & Erma's concept is the
Build-Your-Own-Sundae Bar, a bathtub filled with vanilla ice cream, special
sauces and lots of toppings along with fresh baked chocolate chip cookies. In
addition, the restaurants offer a full complement of alcoholic and non-alcoholic
beverages. We believe that the decor and theme of our restaurants allows the
introduction of a broad range of menu items, thus permitting rapid adjustment to
changing customer preferences.

     Antique artifacts and local paraphernalia make Max & Erma's a fun, unique
place to take friends and family. The use of brick, a combination of light and
dark colors, and dropped lighting creates a roomy, yet cozy feel for customers
to enjoy while dining. The neighborhood atmosphere of each restaurant is
enhanced by inclusion of local items in each restaurant's decor, including
sports team paraphernalia and historical artifacts. Additional decor items
include a giant bubble gum machine, a three-dimensional burger, an antique love
tester and many other things. Giant murals, both inside and outside the
restaurant, combine the history and tradition of each market with the Max &
Erma's story.

     Our restaurants are open for both lunch and dinner seven days a week. Hours
of operation are generally 11:00 a.m. to midnight. During fiscal 2005, the
average check was approximately $11.57 at lunch and $12.46 at dinner. The lunch
and dinner meal periods accounted for approximately 39.5% and 60.5% of net
sales, respectively. Alcoholic beverages constituted approximately 9.1% of net
sales in fiscal 2005. Generally, our business does not experience seasonal
fluctuations of sales.

     Our strategy is to compete in the casual dining segment of the restaurant
industry by offering a variety of high quality food in a casual, comfortable and
fun atmosphere and with a uniquely personable service style. Our philosophy is
to focus on the details of the customer experience that instill customer loyalty
and promote repeat business. The purpose of every associate is to "help our
guests enjoy their total dining experiences so they can't wait to come back."
Being a "purpose-driven" company requires an ability to understand what guests
want, and a dedication to focus all associates' energies on exceeding those
expectations. This means that associates treat guests with respect, like friends
or neighbors, and provide them with the kind of food, service and atmosphere
that will make them want to return often.


                                       1

<PAGE>

     We believe the dining experience starts with the food and therefore we use
only the freshest and highest quality ingredients in every menu item. Freshness
and quality are truly the foundations upon which Max & Erma's was built. We
strive to do things the right way, not the easy way. We believe this dedication
makes us better and that our guests return more often. Market research indicates
that customers often know what they are going to order before they get to our
restaurants because they crave certain signature items.

     We believe that our reputation is built every day with every customer
served and that a key to customer loyalty is the server. Food is delivered to
the table by the server instead of a food runner, and servers are required to
recheck the table two minutes after delivering the meal. Moreover, the wait
staff is empowered to address customer problems without the assistance of
restaurant management.

     Max & Erma's restaurants have always been known for gourmet hamburgers and
specialty sandwiches; however, one part of our focus on the customer is an
evolving menu that changes to meet consumer tastes. We believe our menu should
be fun as well as innovative. We review and revise the menu twice each year, and
in addition offer seasonal menu inserts at various times of the year. By
periodically modifying our menu through the introduction of a broad range of
appealing new menu items we have achieved a more diversified sales mix.

     We make use of consumer focus groups to conduct marketing research. We
incorporate the findings of this market research in our advertising, menu
development, employee training, and building design and decor. According to
customers, the major point of difference between us and our competitors is that
Max & Erma's restaurants are perceived as being more of a "fun place," an image
we try to foster in our advertising. We spent approximately 2.8% of sales on
advertising in 2005. We primarily use special events and localized store
marketing designed to increase customer awareness and repeat business, and to a
lesser extent billboards, direct mail, radio and television.

     We own the business, exclusive of the real estate, for 78 of the Max &
Erma's restaurants in operation at December 31, 2005. The business and real
estate for one restaurant is owned by a separate affiliated partnership. In
addition to a 60% interest in the profits and losses of the affiliated
partnership, we are paid an annual fee equal to 6% of gross revenues for
managing the Max & Erma's restaurant owned by the partnership. The management
contract provides for monthly payments to us for an initial term of two years
and renewal terms aggregating 20 additional years upon the mutual agreement of
the parties. As general partner we are potentially liable for 100% of the
partnership losses.

     We franchise 23 restaurants to unaffiliated franchisees at December 31,
2005. The first two franchised restaurants opened in 1998 in the Columbus and
Cleveland, Ohio airports. Beginning in fiscal 2000, and each year thereafter,
three to four franchised restaurants have opened annually. In fiscal 2005
franchised locations opened in Mishawaka, Indiana; Richmond, Virginia; and
Huntington, West Virginia. Terms of the agreements call for an initial franchise
fee plus a monthly royalty generally equal to 4% of sales.

     At December 31, 2005 two franchised restaurants were approved and in the
final stages of permitting. In addition to these two restaurants, we anticipate
the opening of an additional three franchised restaurants during fiscal 2006. At
December 31, 2005, we had seven multi-unit franchised agreements signed,
requiring the total development of an additional 33 restaurants over the next
ten years.


                                       2

<PAGE>

Competition

     The restaurant business, particularly in the casual dining segment, is
highly competitive in terms of quality and value of products served, type and
variety of menu offered, quality and efficiency of service, ambiance and
attractiveness of facilities and site location. Max & Erma's restaurants compete
with food service operations of various types within their respective locations,
including national and regional chains as well as locally-owned and operated
restaurants. Many of our competitors are substantially larger than us and have
greater financial resources.

Employees

     At October 31, 2005, we had 5,344 employees, of which 1,776 were full-time
restaurant employees, 3,195 were part-time restaurant employees, 85 were
corporate staff personnel and 288 were restaurant managerial personnel. None of
our employees are represented by a labor union or a collective bargaining unit.
We consider relations with our employees to be good.

Restaurant Operations

     We strive to maintain quality and uniformity in our restaurants through
careful training and supervision of personnel. All restaurants are operated in
accordance with uniform Company specifications, which are set forth in detailed
operating manuals relating to food and beverage preparation, maintenance of
premises and employee conduct. Through the end of 2005, we utilized an
independent shopping service to monitor implementation of our operating
standards. Along with the shopping service, we have developed testing standards
for the major aspects of restaurant operation, including physical appearance,
cleanliness, wait staff and food quality. The shopping service has "mystery
shoppers" visit each restaurant four times each quarter to evaluate and grade
the restaurant. A report is prepared by the shopping service for each visit and
is reviewed by our Chief Operating Officer and the respective regional and
general managers. A portion of the bonus for each regional and general manager
is based on the scores received on the shopping service reports.

     At the start of 2006, we discontinued the use of the independent shopping
service and commenced using Performance Scope. Performance Scope is a program
driven by our point of sale system that randomly selects a number of customers
to be surveyed at each restaurant. Selected customers can respond by telephone
or via the Internet. The purpose of the survey is to measure customer
satisfaction. We believe this is a better measurement tool than the independent
shopping service because it measures what the customer considers important
through their feedback. Additionally, the sample size, approximately 300 per
quarter per restaurant versus four, is much greater thus giving a statistically
more accurate indication of customer satisfaction. When the program is fully
operational, we will utilize it in our regional and general manager bonus
program.

     Restaurant operations are administered by a management staff headed by the
Chief Operating Officer. Two Regional Vice Presidents of Operations and a
Director of Regional Operations report directly to the Chief Operating Officer.
Sixteen regional managers, each of whom supervises the operations of four to
five restaurants, report to either the Chief Operating Officer or to one of the
Regional Vice Presidents of Operations or the Director of Regional Operations.
Two franchise regional managers also report to either the Chief Operating
Officer or one of the Regional Vice Presidents. Each restaurant has a general
manager, who is responsible for training and supervising approximately 40 to 100
employees, and two or three assistant managers. Regional managers are
responsible for hiring their general and assistant managers. General managers,
with


                                       3

<PAGE>

the assistance of the regional manager, are responsible for hiring restaurant
employees. We seek to hire experienced restaurant personnel who must complete a
14-week training program conducted by us before becoming an assistant manager.
We have historically promoted from within to fill our regional and general
manager positions.

     Both regional and general managers receive a base salary plus a bonus based
upon performance against budget and average independent shopping service scores.
General managers prepare quarterly budgets for their stores and regional
managers prepare quarterly budgets for their regions. Bonuses are based on
specific goals derived from these quarterly budgets. Both regional and general
managers are eligible for a cash bonus equal to one-half of the purchase price
of the first 250 shares of our common stock they purchase each quarter. We
believe that our bonus system and the ability to purchase common stock promotes
loyalty and highly motivates managers to meet our goals.

     We believe that the combination of the authority delegated to our regional
and general managers, particularly with respect to hiring employees, together
with our goal-specific bonus plans, results in a positive work environment and
has contributed to relatively low management turnover.

Managing Partner Program

     At the start of 1999 we introduced our Managing Partner Program. Under this
program we enter into a five-year agreement with an eligible general manager in
which the general manager places either 500 or 1,000 shares of Max & Erma's
common stock which he or she owns in escrow with us and agrees to manage his or
her restaurant for a five year period. The shares of stock are forfeited if the
general manager terminates their employment during the term of the agreement. In
return we agree to not relocate the general manager during the term of the
agreement. During the term of the agreement the general manager's base salary is
fixed. As additional compensation he or she receives 25% of the increase in
profit before fixed expenses over a pre-established base profit (generally the
average of profit before fixed expenses for the most recent three fiscal years).
We believe the program encourages the general manager to both build sales and
control margins, creates a sense of ownership, reduces management turnover and
promotes a longer-term perspective. At the end of fiscal 2005, we had a total of
13 Managing Partners. We also added 14 additional Managing Partners at the start
of fiscal 2006.

Purchasing and Inventory

     Meat and most other food and restaurant supply items are purchased through
one major distributor in order to obtain favorable prices and to ensure
consistent quality and delivery. For major items, we typically negotiate prices
directly with producers. For other items, we provide the distributor with
specifications and receive monthly prices for such items, generally based upon a
"cost plus" formula. Restaurant managers purchase these items directly from the
distributor, and each restaurant is billed directly for its purchases. Although
most of our food and supplies are presently furnished by one distributor, we
believe alternate food suppliers are available and we have not experienced a
shortage of food or supplies. A daily inventory is taken for high cost items,
such as steaks, ground meat, seafood and liquor. A physical inventory of all
items is made at the end of each four-week accounting period.


                                       4

<PAGE>

Government Regulation

     We are subject to federal, state and local laws affecting the operation of
our restaurants, including zoning, health, sanitation and safety regulations and
alcoholic beverage licensing requirements. Each restaurant is operated in
accordance with standardized procedures designed to assure compliance with all
applicable codes and regulations. The suspension of a food service or liquor
license could cause an interruption of operations at affected restaurants.

Future Expansion

     We intend to open one to two Company-owned and five franchised Max & Erma's
restaurants during fiscal 2006. All but four of the existing Company-owned Max &
Erma's restaurants are located in suburban areas. Of the existing Company-owned
Max & Erma's restaurants, 66 are freestanding and 13 are in-line shopping
center/mall locations. The following table sets forth the location of each Max &
Erma's restaurant as of October 30, 2005 and the locations of restaurants
currently under negotiation or development and scheduled to open during fiscal
2006:

<TABLE>
<CAPTION>
                             Company Owned                   Franchised
                     ----------------------------   ----------------------------
                     Existing   Under Development   Existing   Under Development
                     --------   -----------------   --------   -----------------
<S>                  <C>        <C>                 <C>        <C>
GEORGIA
   Atlanta               2              --

ILLINOIS
   Chicago               8              --

INDIANA
   Aztar Casino                                         1              --
   Columbus                                             1              --
   Indianapolis          5              --
   Merriville                                                           1
   Mishawaka                                            1              --
   Seymour                                              1              --

KENTUCKY
   Crestview Hills       1
   Lexington             2              --
   Louisville            2              --

MICHIGAN
   Ann Arbor             1              --
   Detroit              10              --                              1
   Grand Rapids          1              --
   Lansing               1              --

MISSOURI
   St. Louis                                            2               1

NEVADA
   Las Vegas                                                            1

NORTH CAROLINA
   Charlotte             2              --
</TABLE>


                                       5

<PAGE>

<TABLE>
<S>                     <C>             <C>            <C>             <C>
OHIO
   Akron                 1              --
   Canton                1              --
   Chillicothe                                          1              --
   Cincinnati            5              --              1
   Cleveland             5              --              2
   Columbus             13              --              2
   Dayton                3               1              1
   Niles                 1              --
   Ohio Turnpike                        --              2              --
   Sandusky                                             1              --
   Toledo                3
   Wilmington                                           1              --

PENNSYLVANIA
   Erie                  1              --
   Philadelphia                                         2              --
   Pittsburgh            9              --

VIRGINIA
   Norfolk               1              --
   Richmond                                             1               1
   Virginia Beach        1              --

WEST VIRGINIA
   Huntington                                           1              --

WISCONSIN
   Green Bay                                            2              --

   TOTAL                79               1             23               5
</TABLE>

     Our preference is to acquire the land and build new freestanding
restaurants for Max & Erma's. However, in order to acquire suitable sites, we
will utilize ground leases, or lease and convert existing premises. The site
under development is freestanding. We believe that the clustering of three or
more restaurants in markets of sufficient size increases customer awareness,
enhances the effectiveness of advertising and improves management efficiency.

Business Risks

     We desire to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Many of the
following important factors have been discussed in our prior filings with the
Securities and Exchange Commission.

     In addition to the other information in this Report, readers should
carefully consider that the following important factors, among others, in some
cases have affected, and in the future could affect, our actual results and
could cause our actual results of operations for fiscal 2006 and beyond, to
differ materially from those expressed in any forward-looking statements made by
us.

1.   Dependence on Senior Management. Our three senior management officials have
     over 75 years combined experience with us. Although we have attempted to
     develop additional management capabilities, the loss of one or both of the
     two senior executives could have a material adverse effect on us.


                                       6

<PAGE>

2.   Competition. The casual dining segment of the restaurant industry is highly
     competitive with respect to price, service, food quality, location, and
     employees, including restaurant managers. Many of our competitors are
     larger in size, have greater financial and other resources, and have longer
     operating histories.

3.   Restaurant Industry Changes. The restaurant industry is affected by changes
     in consumer tastes and attitudes, economic conditions, traffic patterns and
     changes, and other factors, which requires regular changes in the operation
     of restaurants to remain competitive. There is a risk that we will not
     effectively adapt to changes in the industry.

4.   Cost of Doing Business. The restaurant business is subject to sudden cost
     changes, particularly for food, energy, labor and insurance. We may not be
     able to recover cost increases by increasing prices for our menu items.

5.   Legal. We may be exposed to various tort and other claims including notably
     liability claims resulting from the sale of alcoholic beverages. While we
     currently maintain insurance for such claims, there can be no assurance
     that such insurance will be adequate or available in the future. An
     uninsured or excess claim could have a material adverse effect on us.

6.   Government Regulation. The restaurant industry is subject to extensive
     government regulations relating to the sale of food and alcoholic
     beverages, and sanitation, fire and building codes. Changes in regulations
     or the suspension or inability to renew any of the related licenses and
     permits could adversely affect our operations. Also, government actions
     affecting minimum wages, payroll tax rates, and mandated benefits could
     adversely affect operating results.

7.   Franchising. We intend to expand the franchising of the Max Erma's concept.
     Failure to properly select, train, and supervise franchisees could have a
     detrimental effect on the overall reputation and results of operations of
     the restaurants owned by us.

8.   Unfavorable Publicity. Adverse publicity resulting from poor food quality,
     illness, injury or other health concerns or operations at one or a limited
     number of our restaurants or franchisee's restaurants could have material
     adverse effect on our business, results of operations and financial
     condition.

9.   Acts of God, Terrorism. Our business could be materially adversely affected
     by acts of God, including extremely harsh weather or natural disasters, and
     by terrorist acts such as the events of September 11, 2001.

10.  Consumer Perceptions of Food Safety. Our business could be materially
     adversely affected by consumer perceptions of food safety in the United
     States or in the market areas in which we operate, whether such perceptions
     are based on fact or not and whether such perceptions are caused by acts of
     terrorism or other events.


                                       7

<PAGE>

11.  Leverage; Interest Rate Risk. Our business is relatively highly leveraged,
     resulting in long term indebtedness (including current maturities) of
     approximately $31.2 million as of October 30, 2005, which represents the
     balance due under our revolving credit agreement and bears interest at
     variable rates. A one percentage point increase of decrease in interest
     rates could increase or decrease our pre-tax income by approximately
     $312,000. A change in interest rates will likely have a significant impact
     on our earnings. In addition, as a result of our substantial leverage, we
     are restricted by loan covenants that may impact our ability to grow in the
     future.

12.  Utilization of FICA Tax on Tips Credit. We have recorded a deferred tax
     asset of $3,046,000 for unused FICA Tax on Tips Credit. The credits expire
     from 2023 through 2025. To utilize the credits, we must return to a
     continued level of profitability. If we do not return to sustained
     profitability, we may not be able to recognize the tax benefit of future
     credits and could be forced to write off all or a portion of the existing
     deferred tax asset associated with credits previously earned.

13.  Bank Covenants. We have attained waivers of certain loan covenant
     violations under our revolving credit agreement over the last three
     quarters of 2005. While we have a very good relationship with our lenders,
     there can be no assurance that they will continue to waive covenant
     violations. To assure compliance with our loan covenants, we must return to
     profitability.

Item 2. PROPERTIES

     All but one of our restaurants are occupied under leases expiring from 2007
to 2025, with most leases having renewal options for five to twenty additional
years. Restaurant leases are generally collateralized by liens on leasehold
improvements, equipment, furniture and fixtures. We lease our executive offices
(30,000 square feet) and general warehouse and storage facilities (17,000 square
feet) in Columbus, Ohio under an operating lease expiring in January 2009.

     The last 61 Max & Erma's restaurants to open are based on one of three very
similar prototype designs with the major differences being square footage. The
prototype gives our restaurants a distinct identity and emphasizes an
unpretentious neighborhood ambiance. The prototype design downplays the use of
brass, Tiffany lamps and other design features common to many other casual
dining restaurants. Our restaurants established prior to the introduction of the
prototype vary in design and appearance, but average 6,000 square feet and seat
an average of 160 customers. Most of our older restaurants have been remodeled
or redecorated to the prototype look. The majority of the freestanding
prototypes are approximately 6,800 or 5,500 square feet depending on the size of
the site and its sales potential and seat 210 or 175 patrons, respectively, for
dining in addition to the bar area. A 30 to 40 seat seasonal patio area is
optional depending on the site and location. The prototype design is readily
adaptable to a variety of sites including shopping center and mall locations.
During 2002, a third version of the prototype building was designed. It is
approximately 5,700 square feet, and seats approximately 190. Sixteen prototype
buildings of this design were built from 2002 through 2005.

     In 2005, we developed a new prototype building. This building was designed
to incorporate several operational workflow improvements in the kitchen and to
broaden our concept's appeal through a change in both the interior and exterior
design. The building's exterior is designed to differentiate itself from the
typical casual dining restaurant by use of different materials and colors


                                        8

<PAGE>

and by incorporating a fireplace, floor-to-ceiling windows, and a more dramatic
entryway. The inside of our prototype restaurant has been changed by utilizing
softer color tones, lighter woodwork, and less cluttered decor. The new
prototype building is approximately 6,300 square feet and seats 184 patrons for
dining in addition to the bar area. With the exception of one restaurant, which
is already permitted, all future restaurants will be built to the new design.

     We believe that our focus on selecting high profile restaurant sites is
critical to our success. Our present site selection strategy is to locate our
restaurants in prime, high visibility, high traffic suburban locations. We
believe that selection of high profile sites along with the implementation of
our prototype restaurant will result in improved unit economics.

Item 3. LEGAL PROCEEDINGS

     None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                     PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
     ISSUER PURCHASES OF EQUITY SECURITIES

     The information contained under the captions "SELECTED QUARTERLY FINANCIAL
DATA" and "STOCKHOLDER INFORMATION" is incorporated herein by reference from the
inside back cover of our Annual Report to Stockholders for the fiscal year ended
October 30, 2005.

Item 6. SELECTED FINANCIAL DATA

     The information contained under the caption "SELECTED FINANCIAL DATA" is
incorporated herein by reference from page 4 of our Annual Report to
Stockholders for the fiscal year ended October 30, 2005.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
     OF OPERATIONS

     The information contained under the caption "MANAGEMENT'S DISCUSSION AND
ANALYSIS" is incorporated herein by reference from pages 5 through 9 of our
Annual Report to Stockholders for the fiscal year ended October 30, 2005.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

     As of October 30, 2005, our total long-term indebtedness (including current
maturities) was approximately $31.2 million, which represents the balance due
under our revolving credit agreement and bears interest at variable rates. A one
percentage point increase or decrease in interest rates could increase or
decrease our pre-tax income by approximately $312,000. Based upon quarter ending
balances, the average borrowings under our revolving credit agreement during


                                        9

<PAGE>

2005 was $30.5 million. The high and low balance outstanding under the revolving
credit agreement during 2005 was $32.2 million and $29.1 million, respectively.
As required under our revolving credit agreement, we entered into a $20.0
million partial interest rate protection agreement that expired October 31, 2005
and was not required to be renewed. For a further description of our
indebtedness, see Item 8, Financial Statements and Supplementary Data - Notes 3
and 4 to the Consolidated Financial Statements.

Commodity Risk

     We purchase certain products in the normal course of business, which are
affected by commodity prices. These products may include food items such as
ground beef, steak, chicken, produce, cheese, and shrimp, or commodities such as
natural gas and electricity. We are exposed to market price volatility on these
items. We do not utilize financial instruments to hedge our risk associated with
these commodities. In an effort to minimize price volatility, we will enter into
purchasing contracts for periods of time of a year or less at fixed prices or
with floor and ceiling prices. Approximately 80% of all food items purchased for
our restaurants are purchased under some type of contract that attempts to
minimize price volatility. Prolonged price increases could impact our
profitability, but would allow sufficient time to seek alternative suppliers or
to increase selling prices, if possible.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated balance sheets as of October 30, 2005 and October 31,
2004, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended October
30, 2005, and the related notes to the consolidated financial statements
together with the independent registered public accounting firm's report thereon
and the Selected Quarterly Financial Data are incorporated by reference from
pages 10 through 20 and the inside back cover of our Annual Report to
Stockholders for the fiscal year ended October 30, 2005.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
     FINANCIAL DISCLOSURES

     None.

Item 9A. CONTROLS AND PROCEDURES

     Disclosure Controls and Procedures. As of the end of the period covered by
this report, our management, with the participation of our chief executive
officer and chief financial officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15
promulgated under the securities Exchange Act of 1934, as amended (the "Exchange
Act"). Based upon this evaluation, our chief executive officer and our chief
financial officer concluded that our disclosure controls and procedures were (1)
designed to ensure that material information relating to our Company is
accumulated and made known to our management, including our chief executive
officer and chief financial officer, in a timely manner, particularly during the
period in which this report was being prepared and (2) effective, in that they
provide reasonable assurance that information we are required to disclose in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.


                                       10

<PAGE>

     Management believes, however, that a controls systems, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the controls system are met, and no evaluation of controls can provide absolute
assurance that all control and instances of fraud, if any, within a company have
been detected.

     Internal Controls. There has been no change in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated
under the Exchange Act) during our fiscal quarter ended October 30, 2005, that
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

Item 9B. Other Information

None.

                                    PART III

Items 10, 11, 12 and 13 and 14. DIRECTORS AND EXECUTIVE OFFICERS OF THE
     REGISTRANT; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN
     BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS; CERTAIN
     RELATIONSHIPS AND RELATED TRANSACTIONS AND PRINCIPAL ACCOUNTING FEES AND
     SERVICES

     Information required under these Items is incorporated herein by reference
from our Proxy Statement for our 2006 Annual Meeting of Stockholders to be held
on or about March 14, 2006, pursuant to Regulation 14A.

                                     PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (a)(1) and (2): Financial Statements

     The financial statements listed in the accompanying index to financial
statements on page 13 are filed as part of this report.

     (a)(3) and (b): Exhibits

     The exhibits listed in the accompanying index to exhibits on pages 13 and
14 are filed as part of this report.

     (c) Financial Statement Schedules

     None.


                                       11

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report
to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: January 17, 2006                 Max & Erma's Restaurants, Inc.


                                        By: /s/ Todd B. Barnum
                                            ------------------------------------
                                        Todd B. Barnum
                                        Chairman of the Board and Chief
                                        Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated and on the 17th day of January 2006.

<TABLE>
<CAPTION>
Signature                               Title
---------                               -----
<S>                                     <C>


/s/ Todd B. Barnum                      Chairman of the Board, Chief Executive
-------------------------------------   Officer and Director (Principal
Todd B. Barnum                          Executive Officer)


/s/ William C. Niegsch, Jr.             Executive Vice President, Chief
-------------------------------------   Financial Officer, Treasurer, Secretary
William C. Niegsch, Jr.                 and Director (Principal Financial and
                                        Accounting Officer)


*/s/ William E. Arthur                  Director
-------------------------------------
William E. Arthur


*/s/ Robert A. Rothman                  Director
-------------------------------------
Robert A. Rothman


*/s/ Michael D. Murphy                  Director
-------------------------------------
Michael D. Murphy


*/s/ Thomas R. Green                    Director
-------------------------------------
Thomas R. Green


*/s/ Timothy C. Robinson                Director
-------------------------------------
Timothy C. Robinson


*/s/ William C. Niegsch, Jr.
--------------------------------
William C. Niegsch, Jr.
Attorney-in-Fact
</TABLE>


                                       12

<PAGE>

                 MAX & ERMA'S RESTAURANTS, INC. AND SUBSIDIARIES
                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
                                     ITEM 8

<TABLE>
<CAPTION>
                                                                  REFERENCE PAGE
                                                                   ANNUAL REPORT
                                                                 TO SHAREHOLDERS
                                                                 ---------------
<S>                                                              <C>
The following items are required to be included in Item 8 are
incorporated by reference from the attached Annual Report to
Shareholders of Max & Erma's Restaurants, Inc. for the fiscal
year ended October 30, 2005:

   -    Consolidated Balance Sheets as of October 30, 2005 and
        October 31, 2004                                             10 - 11

For the years ended October 30, 2005, October 31, 2004 and
October 26, 2003:

   -    Consolidated Statements of Operations                           12

   -    Consolidated Statements of Stockholders' Equity                 13

   -    Consolidated Statements of Cash Flows                           14

   -    Notes to Consolidated Financial Statements                   15 - 19

   -    Report of Independent Registered Public Accountant              20

No financial statement schedules are required to be filed
because the conditions requiring their filing do not exist or
because the information is given in the consolidated financial
statements or notes thereto.
</TABLE>


                                       13

<PAGE>

                           ANNUAL REPORT ON FORM 10-K

                         MAX & ERMA'S RESTAURANTS, INC.

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
  No.                                Description                                           Page No.
-------                              -----------                                           --------
<S>       <C>                                                                <C>
   2      Plan and Agreement of Reorganization, as amended October 15,       Reference is made to Exhibit 2 of
          1991.                                                              Report on Form 10-K filed January
                                                                             24, 1992.
  3(a)    Restated Certificate of Incorporation, as amended April 4, 1985.   Reference is made to Exhibit 4(c) of
                                                                             Report on Form 10-Q filed June 26,
                                                                             1985.
  3(b)    Restated By-Laws, as amended April 4, 1985.                        Reference is made to Exhibit 4(d) of
                                                                             Report on Form 10-Q filed June 26,
                                                                             1985.
  3(c)    Certificate of Amendment of Certificate of Incorporation           Reference is made to Exhibit 3(c) of
          September 22, 1986.                                                Report on Form 10-K filed January
                                                                             23, 1987.
  3(d)    Certificate of Amendment of Certificate of Incorporation May       Reference is made to Exhibit 3(d) of
          30, 1990.                                                          Report on form 10-K filed January
                                                                             25, 1991.
   4      Form of Common Stock Certificate.                                  Reference is made to Exhibit 4(a) of
                                                                             Registration Statement on Form S-1
                                                                             (Registration No. 2-85585).
 10(a)    Max & Erma's Ltd. Agreement of Limited Partnership, dated May      Reference is made to Exhibit 10(b)
          17, 1972.                                                          of Registration Statement on Form
                                                                             S-1 (Registration No. 2-85585).
 10(b)    First Amendment to Agreement of Limited Partnership of Max &       Reference is made to Exhibit 10(b)
          Erma's Ltd., dated September 9, 1974.                              of Registration Statement on Form
                                                                             S-1 (Registration No. 2-85585).
 10(c)    Letter Agreement between Nine Limited Leasing, Max & Erma's,       Reference is made to Exhibit 10(bb)
          Inc., and Max & Erma's Indianapolis, Ltd., dated April 24, 1977.   of Registration Statement on Form
                                                                             S-1 (Registration No. 2-85585).
 10(d)    Letter Agreement between Nine Limited Leasing, Max & Erma's,       Reference is made to Exhibit 10(dd)
          Inc., and Max & Erma's East, Ltd., dated May 27, 1977.             of Registration Statement on Form
                                                                             S-1 (Registration No. 2-85585).
 10(e)    Letter Agreement between Nine Limited Leasing, Max & Erma's,       Reference is made to Exhibit 10(ee)
          Inc., and Max & Erma's Dayton, Ltd., dated October 1, 1977.        of Registration Statement on Form
                                                                             S-1 (Registration No. 2-85585).
 10(f)    Letter Agreement between Nine Limited Leasing, Max & Erma's,       Reference is made to Exhibit 10(gg)
          Inc., and Max & Erma's North, Ltd., dated December 28, 1981.       of Registration Statement on Form
                                                                             S-1 (Registration No. 2-85585).
 10(g)*   1992 Stock Option Plan.                                            Reference is made to Exhibit 10(q)
                                                                             of Report on Form 10-K filed January
                                                                             25, 1993.
 10(h)*   1996 Stock Option Plan.                                            Reference is made to Exhibit 10(p)
                                                                             of Report on Form 10-K filed January
                                                                             1996.
 10(i)*   2002 Stock Option Plan.                                            Reference is made to Exhibit 4(a) of
                                                                             Form S-8 filed June 28, 2002.
 10(j)*   Indemnification Agreement (form) between Max & Erma's              Reference is made to Exhibit 10(y)
          Restaurants, Inc. and each of its directors dated as of June       of Report on Form 10-K filed January
          18, 1986.                                                          23, 1987.
</TABLE>


                                       14

<PAGE>

<TABLE>
<S>       <C>                                                                <C>
 10(k)*   Written description of split dollar life insurance program for     Reference is made to footnote 3 to
          officers.                                                          the Summary Compensation Table
                                                                             presented in the Company's Proxy
                                                                             Statement for the 2003 Annual
                                                                             Meeting of Shareholders, which is
                                                                             incorporated by Reference herein.
 10(l)*   Board of Directors' Resolution adopted November 2, 1987            Reference is made to Exhibit 10(dd)
          relating to split dollar life insurance program for officers.      of Report on Form 10-K filed January
                                                                             25, 1993.
 10(m)*   Board of Directors' Resolution adopted October 19, 1992            Reference is made to Exhibit 10(ee)
          relating to split dollar life insurance program for officers.      of Report on Form 10-K filed January
                                                                             25, 1993.
 10(n)*   Form of Severance Agreement in Event of Change In Control for      Reference is made to Exhibit 10(m)
          Senior Executive Officers.                                         of Report on Form 10-K filed January
                                                                             18, 2000.
 10(o)*   List of Senior Executive Officers with Severance Agreements in     Reference is made to Exhibit 10(o)
          the form of Exhibit 10(n).                                         of Report on Form 10-K filed January
                                                                             16, 2004.
 10(p)*   Form of Severance Agreement in Event of Change In Control for      Reference is made to Exhibit 10(o)
          Executive Officers.                                                of Report on Form 10-K filed January
                                                                             18, 2000.
 10(q)*   List of Executive Officers with Severance Agreements in the
          form of Exhibit 10(p).
 10(r)*   Description of the Material Terms of Max & Erma's Restaurants,     Reference is made to Exhibit 10 of
          Inc.'s Fiscal 2005 Executive Compensation Program.                 Report on Form 8-K filed January 21,
                                                                             2005.
 10(s)*   Description of the Material Terms of Max & Erma's Restaurants,     Reference is made to Exhibit 10 of
          Inc.'s Fiscal 2006 Executive Compensation Program.                 Report on Form 8-K filed November 8,
                                                                             2005.
 10(t)*   Independent Contractor Consulting Agreement, dated July 25,        Reference is made to Exhibit 10.1 of
          2005, between Max & Erma's Restaurants, Inc. and Bonnie            Report on Form 8-K filed July 28,
          Brannigan.                                                         2005.
 10(u)    Fifth Amended and Restated Revolving Credit Agreement dated        Reference is made to Exhibit 10(t)
          September 22, 2003, between Max & Erma's Restaurants, Inc. and     of Report on Form 10-K filed January
          The Provident Bank.                                                16, 2004.
 10(v)    Amendment No. 1 to Fifth Amended and Restated Revolving Credit     Reference is made to Exhibit 10(t)
          Agreement, dated December 31, 2003, between Max & Erma's           of Report on Form 10-K, as amended,
          Restaurants, Inc. and The Provident Bank.                          filed January 19, 2005.
 10(w)    Amendment No. 2 to Fifth Amended and Restated Revolving Credit     Reference is made to Exhibit 10(u)
          Agreement, dated May 17, 2004, between Max & Erma's                of Report on Form 10-K, as amended,
          Restaurants, Inc. and The Provident Bank.                          filed January 19, 2005.
 10(x)    Amendment No. 3 to Fifth Amended and Restated Revolving Credit     Reference is made to Exhibit 10(v)
          Agreement, dated December 17, 2004, between Max & Erma's           of Report on Form 10-K, as amended,
          Restaurants, Inc. and The Provident Bank.                          filed January 19, 2005.
 10(y)    Amendment No. 4 to Fifth Amended and Restated Revolving Credit
          Agreement, dated March 29, 2005, between Max & Erma's
          Restaurants, Inc. and The Provident Bank.
 10(z)    Amendment No. 5 to Fifth Amended and Restated Revolving Credit
          Agreement, dated May 4, 2005, between Max & Erma's Restaurants,
          Inc. and The Provident Bank.
 10(aa)   Amendment No. 6 to Fifth Amended and Restated Revolving Credit
          Agreement, dated August 31, 2005, between Max & Erma's
          Restaurants, Inc. and The Provident Bank.
</TABLE>


                                       15

<PAGE>

<TABLE>
<S>       <C>                                                                <C>
   13     Portions of the Annual Report to Stockholders for the Fiscal
          Year ended October 30, 2005, incorporated herein by reference
          (except for those pages which are specifically incorporated by
          reference, the Company's Annual Report to Stockholders is not
          to be deemed as filed as part of this report).
   23     Consent of Deloitte & Touche LLP.
   24     Power of Attorney.
  31.1    Rule 13a-14(a) Certification of Chief Executive Officer.
  31.2    Rule 13a-14(a) Certification of Chief Financial Officer.
  32.1    Section 1350 Certification of Chief Executive Officer.
  32.2    Section 1350 Certification of Chief Financial Officer.
</TABLE>

----------
*    Management contract or compensatory plan or arrangement required to be
     filed as an exhibit to this Report on Form 10-K pursuant to Item 15(a)(3)
     of the Report on Form 10-K.


                                       16