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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended May 13, 2007
 OR
 o
    
    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 0-1154
 MAX & ERMAS RESTAURANTS, INC.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    31-1041397
(I.R.S. Employer
identification no.)4849 Evanswood Drive, Columbus, Ohio
(Address of principal executive offices)
    
    43229
(Zip Code)
 (614) 431-5800
 þ o
  o o þ
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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1  FINANCIAL STATEMENTSItem 2  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 3  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 4  CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONItem 1  LEGAL PROCEEDINGSItem 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSItem 6  EXHIBITSSIGNATURESEXHIBIT INDEXEX-10.1EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 ITEM 1  FINANCIAL STATEMENTS
 MAX & ERMAS RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 May 13, 2007(UNAUDITED)
    
    
    October 29, 2006ASSETSCurrent Assets:Cash and Equivalents
    
    $
    2,809,072
    
    
    $
    2,491,877Inventories
    
    
    1,274,500
    
    
    
    1,260,537Other Current Assets
    
    
    2,968,747
    
    
    
    3,820,938Total Current Assets
    
    
    7,052,319
    
    
    
    7,573,352Property  At Cost
    
    
    106,998,310
    
    
    
    103,704,895Less Accumulated Depreciation and Amortization
    
    
    55,617,931
    
    
    
    52,896,054Property  Net
    
    
    51,380,379
    
    
    
    50,808,841Deferred Income Taxes and Other Assets
    
    
    14,790,109
    
    
    
    13,972,472Total
    
    $
    73,222,807
    
    
    $
    72,354,665LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current Maturities of Long-Term Obligations
    
    $
    2,764,393
    
    
    $
    2,729,989Accounts Payable
    
    
    5,729,105
    
    
    
    4,829,677Accrued Payroll and Related Taxes
    
    
    2,661,740
    
    
    
    2,770,583Accrued Liabilities
    
    
    6,502,082
    
    
    
    5,925,532Total Current Liabilities
    
    
    17,657,320
    
    
    
    16,255,781Long-Term Obligations  Less Current Maturities
    
    
    41,731,609
    
    
    
    43,065,227Stockholders Equity:Preferred Stock  $.10 Par Value;Authorized 500,000 Shares  None OutstandingCommon Stock  $.10 Par Value;Authorized 5,000,000 Shares,
Issued and Outstanding 2,554,474 Shares
at 05/13/07 and 2,551,974 Shares at 10/29/06
    
    
    255,446
    
    
    
    255,196Additional Paid-In Capital
    
    
    1,135,154
    
    
    
    982,697Retained Earnings
    
    
    12,443,278
    
    
    
    11,795,764Total Stockholders Equity
    
    
    13,833,878
    
    
    
    13,033,657Total
    
    $
    73,222,807
    
    
    $
    72,354,665
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MAX & ERMAS RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Twelve Weeks Ended
    
    
    Twenty-eight Weeks EndedMay 13, 2007
    
    
    May 14, 2006
    
    
    May 13, 2007
    
    
    May 14, 2006REVENUES
    
    $
    41,134,932
    
    
    $
    42,781,321
    
    
    $
    96,655,791
    
    
    $
    100,398,728COSTS AND EXPENSES:Costs of Goods Sold
    
    
    10,312,159
    
    
    
    10,819,642
    
    
    
    24,159,772
    
    
    
    25,753,263Payroll and Benefits
    
    
    13,443,100
    
    
    
    13,773,438
    
    
    
    30,912,900
    
    
    
    31,947,741Other Operating Expenses
    
    
    13,874,815
    
    
    
    14,116,571
    
    
    
    31,763,122
    
    
    
    33,345,853Pre-Opening Expenses
    
    
    1,190
    
    
    
    8,149
    
    
    
    13,068
    
    
    
    8,149Impairment of Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    504,524Administrative Expenses
    
    
    3,224,615
    
    
    
    3,408,131
    
    
    
    7,679,407
    
    
    
    7,852,711Total Operating Expenses
    
    
    40,855,879
    
    
    
    42,125,931
    
    
    
    94,528,269
    
    
    
    99,412,241Operating Income
    
    
    279,053
    
    
    
    655,390
    
    
    
    2,127,522
    
    
    
    986,487Interest Expense
    
    
    771,614
    
    
    
    646,202
    
    
    
    1,841,505
    
    
    
    1,470,055Minority Interest in Income
of Affiliated Partnerships
    
    
    19,252
    
    
    
    38,503
    
    
    
    38,503
    
    
    
    38,503INCOME (LOSS) BEFORE INCOME
TAXES
    
    
    (511,813
    )
    
    
    (29,315
    )
    
    
    247,514
    
    
    
    (522,071
    )INCOME TAXES (CREDIT)
    
    
    (410,000
    )
    
    
    (191,000
    )
    
    
    (400,000
    )
    
    
    (652,000
    )NET INCOME (LOSS)
    
    $
    (101,813
    )
    
    $
    161,685
    
    
    $
    647,514
    
    
    $
    129,929NET INCOME (LOSS) PER SHAREBasic
    
    $
    (0.04
    )
    
    $
    .06
    
    
    $
    0.25
    
    
    $
    0.05Diluted
    
    $
    (0.04
    )
    
    $
    .06
    
    
    $
    0.25
    
    
    $
    0.05SHARES OUTSTANDING:Basic
    
    
    2,555,664
    
    
    
    2,551,974
    
    
    
    2,554,066
    
    
    
    2,550,198Diluted
    
    
    2,555,664
    
    
    
    2,556,195
    
    
    
    2,554,066
    
    
    
    2,559,169
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MAX & ERMAS RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Twenty-eight Weeks EndedMay 13, 2007
    
    
    May 14, 2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    647,514
    
    
    $
    129,929Depreciation and amortization
    
    
    4,243,527
    
    
    
    4,359,082Minority interest in income of Affiliated Partnerships
    
    
    38,503
    
    
    
    38,503Loss on disposition of assets
    
    
    183,276
    
    
    
    148,649Impairment of fixed assets
    
    
    
    
    
    
    45,598Stock based compensation
    
    
    132,332
    
    
    
    46,269Decrease (increase) in inventories
    
    
    (13,963
    )
    
    
    194,568Increase (decrease) in accounts payable
    
    
    495,783
    
    
    
    (1,184,503
    )Increase (decrease) in accrued liabilities
    
    
    467,707
    
    
    
    (246,209
    )Changes in other assets and liabilities
    
    
    (158,201
    )
    
    
    (1,262,615
    )Net cash provided by operating activities
    
    
    6,036,478
    
    
    
    2,269,271CASH FLOWS FROM INVESTING ACTIVITIES:Property additions
    
    
    (3,237,650
    )
    
    
    (2,326,157
    )Proceeds from sale of assets
    
    
    46,716Net decrease (increase) in other assets
    
    
    (87,490
    )
    
    
    24,764Net cash used by investing activities
    
    
    (3,278,424
    )
    
    
    (2,301,393
    )CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments under long-term obligations
    
    
    (36,229,258
    )
    
    
    (24,943,097
    )Proceeds from long-term obligations
    
    
    33,825,000
    
    
    
    25,767,000Proceeds from exercise of stock options
    
    
    20,375
    
    
    
    64,171Debt issue costs
    
    
    (18,473
    )
    
    
    (606,813
    )Distributions to minority interests in Affiliated Partnerships
    
    
    (38,503
    )
    
    
    (38,503
    )Net cash provided by (used by) financing activities
    
    
    (2,440,859
    )
    
    
    242,758NET INCREASE IN CASH AND EQUIVALENTS
    
    
    317,195
    
    
    
    210,636CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    2,491,877
    
    
    
    2,910,889CASH AND EQUIVALENTS AT END OF PERIOD
    
    $
    2,809,072
    
    
    $
    3,121,525SUPPLEMENTAL DISCLOSURES:Cash paid during the period for:Interest
    
    $
    2,200,447
    
    
    $
    1,550,922Income taxes
    
    $
    22,832
    
    
    $
    12,188Non-cash activities:Property additions financed by accounts payable
    
    $
    784,029
    
    
    $
    553,583Property additions financed by financing lease obligations
    
    $
    1,537,500
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MAX & ERMAS RESTAURANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1.
    
    Presentation
   2.
    
    New Financial Accounting Standards
    4




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3.
    
    Net Income Per Share
  Twelve Weeks Ended
    
    
    Twenty-eight Weeks EndedMay 13, 2007
    
    
    May 14, 2006
    
    
    May 13, 2007
    
    
    May 14, 2006Basic Shares
Outstanding
    
    
    2,555,664
    
    
    
    2,551,974
    
    
    
    2,554,066
    
    
    
    2,550,198Dilutive Effect of
Stock Options
    
    
    
    
    
    
    4,221
    
    
    
    
    
    
    
    8,971Diluted Shares
Outstanding
    
    
    2,555,664
    
    
    
    2,556,195
    
    
    
    2,554,066
    
    
    
    2,559,169
 
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4.
    
    Stock Options
 
  Shares
    
    
    Exercise PriceOutstanding, October 29, 2006
    
    
    288,950
    
    
    $
    13.22Granted
    
    
    105,000
    
    
    
    8.48Exercised
    
    
    (2,500
    )
    
    
    (8.15
    )Outstanding, May 13, 2007
    
    
    391,450
    
    
    $
    11.98
   5.
    
    Income Taxes
  6




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ITEM 2 
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
    7




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YEAR-TO-YEAR COMPARISONS AND ANALYSIS
 RESULTS OF OPERATIONS
  Twelve
    
    Twelve
    
    Twenty-eight
    
    Twenty-eightWeeks Ended
    
    Weeks Ended
    
    Weeks Ended
    
    Weeks EndedMay 13, 2007
    
    May 14, 2006
    
    May 13, 2007
    
    May 14, 2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of Goods Sold
    
    
    (25.1
    )
    
    
    (25.3
    )
    
    
    (25.0
    )
    
    
    (25.7
    )Payroll & Benefits
    
    
    (32.7
    )
    
    
    (32.2
    )
    
    
    (32.0
    )
    
    
    (31.8
    )Other Operating Expenses
    
    
    (33.7
    )
    
    
    (33.0
    )
    
    
    (32.9
    )
    
    
    (33.2
    )Pre-Opening Expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Administrative Expenses
    
    
    (7.8
    )
    
    
    (7.9
    )
    
    
    (7.9
    )
    
    
    (7.8
    )Interest Expense
    
    
    (1.9
    )
    
    
    (1.5
    )
    
    
    (1.9
    )
    
    
    (1.5
    )Minority Interest
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    Income Tax Credit
    
    
    1.0
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.6Net Income (Loss)
    
    
    (0.2
    )%
    
    
    0.4
    %
    
    
    0.7
    %
    
    
    0.1
    %
 REVENUES
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COSTS AND EXPENSES
   10




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ASSET IMPAIRMENT
  ADMINISTRATIVE EXPENSES
  11




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INTEREST EXPENSE
    INCOME TAXES
  LIQUIDITY AND CAPITAL RESOURCES
  12




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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  13




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Same-Store Sales
  Asset Impairment
  Self-Insurance Reserves
  Income Taxes and Deferred Tax Asset
  INFLATION
  14




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SAFE HARBOR STATEMENT UNDER THE PRIVATE  SECURITIES LITIGATION REFORM ACT OF 1995
   15




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Item 3 
    
    QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK
   
 Item 4  CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures.
   16




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Internal Controls
 17




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PART II  OTHER INFORMATION
 
 Item 1  LEGAL PROCEEDINGS
  
 Item 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Director Nominee
    
    For
    
    
    WithheldTodd B. Barnum
    
    
    2,253,421
    
    
    
    123,802Jay B. Barney
    
    
    2,259,314
    
    
    
    117,909
    18




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Item 6  EXHIBITS
       
 *
    
    Filed with this report.+
    
    Furnished with this report. 19




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SIGNATURES
  MAX & ERMAS RESTAURANTS, INC.
Registrant/s/   Todd B. BarnumTodd. B. BarnumChairman of the Board and
Chief Executive Officer
(Principal Executive Officer)/s/   William C. Niegsch, Jr.William C. Niegsch, Jr.Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer) June 20, 2007Date
  20




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EXHIBIT INDEX
 Exhibit No.
    
    Exhibit
    
    Page No.3
    
    Amended and Restated Bylaws,
effective March 16, 2007 (reference is made to Exhibit 3 of Report on
Form 8-K filed on March 21, 2007)
    
    N/A10.1*
    
    Form of Stock Option Agreement
under 2007 Stock Incentive Plan
    
    Page 2231.1*
    
    Rule 13a-14(a) Certification of Principal Executive Officer
    
    Page 2431.2*
    
    Rule 13a-14(a) Certification of Principal Financial Officer
    
    Page 2632.1+
    
    Section 1350 Certification of Principal Executive Officer
    
    Page 2832.2+
    
    Section 1350 Certification of Principal Financial Officer
    
    Page 29
 
 *
    
    Filed with this report.+
    
    Furnished with this report. 21