<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark one)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended February 19, 2006

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ________ to ________

Commission file number 0-1154

                         MAX & ERMA'S RESTAURANTS, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
                DELAWARE                                          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

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

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [ ]   Accelerated filer [ ]   Non-accelerated filer [X]

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

As of February 19, 2006, there were 2,551,974 shares of common stock
outstanding.

<PAGE>

                         PART I - FINANCIAL INFORMATION
                          ITEM 1 - FINANCIAL STATEMENTS
                         MAX & ERMA'S RESTAURANTS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                   February 19,
                                                       2006        October 30,
                                                    (UNAUDITED)       2005
                                                   ------------   ------------
<S>                                                <C>            <C>
                     ASSETS
Current Assets:
Cash                                               $  2,733,481   $  2,910,889
Inventories                                           1,280,342      1,401,368
Other Current Assets                                  2,516,835      2,387,896
                                                   ------------   ------------
Total Current Assets                                  6,530,658      6,700,153
Property - At Cost                                  104,591,070    104,292,729
Less Accumulated Depreciation and Amortization       50,586,284     48,686,165
                                                   ------------   ------------
Property - Net                                       54,004,786     55,606,564
Other Assets                                         12,432,896     11,550,568
                                                   ------------   ------------
Total                                              $ 72,968,340   $ 73,857,285
                                                   ============   ============

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-Term Obligations        $  4,228,155   $  4,227,282
Accounts Payable                                      4,165,660      5,589,058
Accrued Payroll and Related Taxes                     2,819,060      2,718,540
Accrued Liabilities                                   6,887,027      6,197,616
                                                   ------------   ------------
Total Current Liabilities                            18,099,902     18,732,496
Long-Term Obligations - Less Current Maturities      41,492,160     41,817,482

Stockholders' Equity:
Preferred Stock - $.10 Par Value;
   Authorized 500,000 Shares - None Outstanding
Common Stock - $.10 Par Value;
   Authorized 5,000,000 Shares,
   Issued and Outstanding 2,551,974 Shares
   At 02/19/06 and 2,546,778 Shares at 10/30/05         255,196        254,677
Additional Paid-In Capital                              778,433        678,225
Retained Earnings                                    12,342,649     12,374,405
                                                   ------------   ------------
Total Stockholders' Equity                           13,376,278     13,307,307
                                                   ------------   ------------
Total                                              $ 72,968,340   $ 73,857,285
                                                   ============   ============
</TABLE>

(See notes to interim unaudited condensed consolidated financial statements.)


                                                                               1

<PAGE>

                         MAX & ERMA'S RESTAURANTS, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                             Sixteen Weeks Ended
                                    -------------------------------------
                                    February 19, 2006   February 20, 2005
                                    -----------------   -----------------
<S>                                 <C>                 <C>
REVENUES:                              $57,617,407         $57,270,828
COSTS AND EXPENSES:
Costs of Goods Sold                     14,933,621          14,511,976
Payroll and Benefits                    18,174,303          18,006,124
Other Operating Expenses                19,229,282          18,693,007
Pre-Opening Expenses                                             7,049
Administrative Expenses                  4,444,580           4,508,100
Impairment of Assets                       504,524
                                       -----------         -----------
Total Operating Expenses                57,286,310          55,726,256
                                       -----------         -----------
Operating Income                           331,097           1,544,572
Interest Expense                           823,853             706,002
Minority Interest in Income
   of Affiliated Partnerships                                   19,252
                                       -----------         -----------
INCOME (LOSS) BEFORE INCOME TAXES         (492,756)            819,318
INCOME TAXES (CREDIT)                     (461,000)            165,000
                                       -----------         -----------
NET INCOME (LOSS)                      $   (31,756)        $   654,318
                                       ===========         ===========
NET INCOME (LOSS) PER SHARE
   Basic                               $     (0.01)        $      0.26
                                       ===========         ===========
   Diluted                             $     (0.01)        $      0.25
                                       ===========         ===========
SHARES OUTSTANDING:
   Basic                                 2,548,866           2,514,171
                                       ===========         ===========
   Diluted                               2,548,866           2,576,853
                                       ===========         ===========
</TABLE>

(See notes to interim unaudited condensed consolidated financial statements.)


                                                                               2

<PAGE>

                         MAX & ERMA'S RESTAURANTS, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  Sixteen Weeks Ended
                                                         -------------------------------------
                                                         February 19, 2006   February 20, 2005
                                                         -----------------   -----------------
<S>                                                      <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                           $   (31,756)       $    654,318
Depreciation and amortization                                 2,500,660           2,866,738
Minority interest in income of Affiliated Partnerships
                                                                                     19,252
Changes in other assets and liabilities                      (1,022,289)          1,183,473
                                                            -----------        ------------
Net cash provided by operating activities                     1,446,615           4,723,781
                                                            -----------        ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions                                           (1,540,695)         (2,206,230)
Net Increase in other assets                                      9,629            (125,763)
                                                            -----------        ------------
Net cash used by investing activities                        (1,531,066)         (2,331,994)
                                                            -----------        ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations               (9,548,981)        (29,521,793)
Proceeds from long-term obligations                           9,448,000          27,672,488
Proceeds from exercise of stock options                          64,171             244,006
Debt issue costs                                                (56,147)            (39,384)
Distributions to Minority Interests in Affiliated
   Partnerships                                                                     (19,252)
                                                            -----------        ------------
Net cash used in financing activities                           (92,957)         (1,663,935)
                                                            -----------        ------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                (177,408)            727,852
CASH AT BEGINNING OF PERIOD                                   2,910,889           2,187,529
                                                            -----------        ------------
CASH AT END OF PERIOD                                       $ 2,733,481        $  2,915,381
                                                            ===========        ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
   Interest                                                 $ 1,310,659        $    974,994
   Income taxes                                             $    58,478        $    580,024
Non-cash activities:
   Property additions financed by accounts payable          $   288,117        $    330,684
</TABLE>

(See notes to interim unaudited condensed consolidated financial statements.)


                                                                               3

<PAGE>

                         MAX & ERMA'S RESTAURANTS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   Presentation

     The accompanying unaudited condensed consolidated financial statements have
     been prepared in accordance with the instructions to Form 10-Q and include
     all of the information and disclosures required by accounting principles
     generally accepted in the United States of America for interim reporting,
     which are less than those required for annual reporting. In the opinion of
     management, all adjustments, consisting of only normal recurring accruals,
     considered necessary for a fair presentation have been included.

     The Company and its Affiliated Partnership each have a 52-53 week fiscal
     year, which ends on the last Sunday in October. Fiscal 2006 and 2005
     consist of 52 weeks and includes, one sixteen-week and three twelve-week
     quarters.

2.   New Financial Accounting Standards

     In March 2005, the FASB issued Interpretation No. 47, Accounting for
     Conditional Asset Retirement Obligations, an interpretation of FASB No.
     143, ("FIN 47"). FIN 47 addresses financial accounting and reporting for
     obligations associated with retirement of tangible long-lived assets and
     the associated asset retirement costs. FIN 47 clarifies that the term
     "conditional asset retirement obligation" as used in FASB 143 refers to a
     legal obligation to perform an asset retirement activity in which the
     timing and (or) method of settlement are conditional on a future event that
     may or may not be within the control of the entity. FIN 47 also clarifies
     when an entity would have sufficient information to reasonably estimate the
     fair value of an asset retirement obligation. The provisions of FIN 47 are
     effective no later than the end of fiscal years ending after December 15,
     2005. The Company has not yet completed its assessment of the impact of FIN
     47 on its consolidated financial statements.

     In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
     Corrections ("SFAS 154)". SFAS 154 replaces APB No. 20, Accounting Changes,
     and SFAS No. 3, Reporting Accounting Changes in Interim Financial
     Statements, and changes the requirements for the accounting for and
     reporting of a change in accounting principle. SFAS 154 requires
     retrospective application of changes in accounting principle, unless it is
     impracticable to determine either the period-specific effects or the
     cumulative effect of the change. SFAS 154 defines retrospective application
     as the application of a different accounting principle to prior accounting
     periods as if that principle had always been used or as the adjustment of
     previously issued financial statements to reflect a change in the reporting
     entity. SFAS 154 also redefines restatement as the revising of previously
     issued financial statements to reflect the correction of an error. SFAS 154
     is effective for accounting changes and correction of errors made in fiscal
     years beginning after December 15, 2005.


                                                                               4

<PAGE>

3.   Net Income Per Share

     Basic income per share amounts are based on the weighted average number of
     shares of common stock outstanding during the years presented. Diluted
     income per share amounts are based on the weighted average number of shares
     of common stock and dilutive stock options outstanding during the periods
     presented. Options to purchase 296,950 shares of common stock were
     outstanding at February 19, 2006, but were not included in the computation
     of diluted earnings per share because the Company reported a net loss for
     the sixteen weeks ended February 19, 2006. Options to purchase 171,950
     shares were outstanding at February 20, 2005, but were not included in the
     computation of diluted earnings per share because exercise prices were
     greater than the average market price of the common shares and, therefore,
     the effect would be antidilutive. The difference between basic shares
     outstanding and diluted shares outstanding were as follows:

<TABLE>
<CAPTION>
                          Sixteen             Sixteen
                        Weeks Ended         Weeks Ended
                     February 19, 2006   February 20, 2005
                     -----------------   -----------------
<S>                  <C>                 <C>
Basic Shares
   Outstanding           2,548,866           2,514,171
Dilutive Effect of
   Stock Options                --              62,682
                         ---------           ---------
Diluted Shares
   Outstanding           2,548,866           2,576,853
                         =========           =========
</TABLE>

4.   Stock Options

     During the sixteen weeks ended February 19, 2006, the Company's stock
     option activity and weighted average exercise prices were as follows:

<TABLE>
<CAPTION>
                                           Exercise
                                  Shares     Price
                                 -------   --------
<S>                              <C>       <C>
Outstanding, October 30, 2005    221,950    $13.44
Granted                           80,196     11.80
Exercised                         (5,196)    (6.18)
                                 -------    ------
Outstanding, February 19, 2006   296,950    $13.13
                                 =======    ======
</TABLE>


                                                                               5

<PAGE>

     Adoption of SFAS 123(R)

     Effective October 31, 2005 under the modified prospective method, the
     Company adopted the provisions of SFAS No. 123(R), Share-Based Payment, a
     replacement of SFAS No. 123, Accounting For Stock-Based Compensation, and
     rescission of APB Option No. 25, Accounting for Stock Issued to Employees.
     This statement applies to all awards granted after the effective date and
     to modifications, repurchases, or cancellations of existing awards.
     Additionally, under this modified prospective method of adoption, the
     Company recognizes compensation expense for the portion of outstanding
     awards on the adoption date for which the requisite service period has not
     yet been rendered based on the grant-date fair value of those awards
     calculated under SFAS No. 123 and 148 for pro forma basis only. Using the
     fair value method of SFAS No. 123, the weighted average fair value of
     options granted in fiscal 2004 and 2006 was $6.74 per share and $6.06 per
     share, respectively (none granted in 2005). The fair value of the option
     grants is estimated as of the date of the grant using the Black-Scholes
     option pricing model with the following assumptions: dividend yield
     equaling 0.0%, risk-free interest rate of 4.58%, expected volatilities
     assumed to be 18% and 40%, respectively, and expected lives of 7 years.

     The stock-based employee compensation expense for the sixteen weeks ended
     February 19, 2006 was $21,988 ($14,512 net of tax) leaving a remaining
     unrecognized compensation expense at February 19, 2006 of $432,871 to be
     recognized over a weighted average period of 4.7 years.

     Prior to the adoption of SFAS 123(R)

     During fiscal 2004 and fiscal 2005, the Company had adopted the disclosure
     only provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
     The Company had recorded no compensation expense for stock options because
     the exercise price of the stock options was equal to the fair market value
     of the underlying common stock at the date of grant. Had compensation cost
     for the plan been determined based on the fair value at the grant dates for
     awards under the plan consistent with the fair value method of SFAS No.
     123, the effect on the Company's net income and earnings per share would
     have been as follows:


                                                                               6

<PAGE>

<TABLE>
<CAPTION>
                                          Sixteen Weeks Ended
                                           February 20, 2005
                                          -------------------
<S>                                       <C>
Net income, as reported                        $654,318
Deduct: total stock-based compensation
   expense determined under the fair
   value method for all awards, net of
   related tax benefits
                                                 (5,107)
                                               --------
Pro forma net income                           $649,211
                                               ========
As reported earnings per common share:
   Basic                                       $   0.26
                                               ========
   Diluted                                     $   0.25
                                               ========
Pro forma earnings per common share:
   Basic                                       $   0.26
                                               ========
   Diluted                                     $   0.25
                                               ========
</TABLE>

     SFAS 123(R) requires that forfeitures be estimated over the vesting period,
     rather than being recognized as a reduction of compensation expense when
     the forfeiture actually occurs. The cumulative effect of the use of the
     estimated forfeiture method for prior periods upon adoption of SFAS 123(R)
     was not material.

5.   Asset Impairment

     During the first quarter of 2006, the Company recorded a $505,000 asset
     impairment charge related to the closing and write-off of restaurant assets
     at one restaurant. The charge consisted primarily of the payment of a
     $440,000 lease termination fee.

6.   Bank Covenants

     At February 19, 2006, the Company was not in compliance with the fixed
     charge coverage ratio, senior debt to EBITDA ratio, and financial ratio
     covenants of its bank loan agreement. The Company has obtained a waiver of
     the defaults for the period ended February 19, 2006, and has amended the
     covenants on a go forward basis. Accordingly, it has classified amounts due
     under its loan agreement as long-term obligations less amounts
     appropriately classified as current maturities.


                                                                               7

<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
     OF OPERATIONS

OVERVIEW

     We derive revenues and income from the operation and franchising of
restaurants. Our Company-owned and franchised restaurants sell both food and
alcoholic beverages (with the exception of two franchised locations that sell
food only). Our restaurants are primarily located in the mid-west, within a 400
mile radius surrounding Columbus, Ohio, our Company's headquarters, and to a
lesser extent in the southeast. Our franchised restaurants tend to be located on
the outer edge of the mid-west, e.g., Philadelphia, Green Bay, and St. Louis,
with selective markets or locations within the mid-west also operated by
franchisees. In late 2005, we signed a ten-restaurant franchise development
agreement for Las Vegas, Nevada.

     We generally lease the real estate for our restaurants and invest
approximately $1.0 million dollars in furniture, fixtures, and equipment and
building costs not totally funded by landlords. However in 2005, our average
investment per new restaurant increased to $1,945,000 for the three
company-owned restaurants opened in 2005 due to the fact that all three were
ground leases and only one landlord made a building construction allowance. In
2006, we expect to lower our average cash investment to $750,000 or less as we
expect that all new locations will be financed through sale-leaseback
transactions where the lessor finances approximately 100% of the land and
building costs. We anticipate that new restaurants will generate annual sales of
approximately $2.6 million each and an average restaurant level profit of at
least $300,000. Franchisees generally pay an initial franchise fee of $40,000
per location, plus an annual royalty of 4% of sales. We anticipate that each
additional franchised location will pay annual royalties of approximately
$100,000.

     The restaurant industry is very competitive. We typically compete favorably
with several larger, national restaurant chains in most of our locations.
Nonetheless the amount of competition is one of the most significant factors
affecting the success of a restaurant location. While we seek out less
competitive sites, highly successful locations quickly attract competition,
which may affect sales. In late 2004 and into 2005, same-store sales turned
negative. The most common reason for this decline in sales, on a restaurant by
restaurant basis, is an increased level of competition near the restaurant.
Other factors affecting same-store sales would be the economy, gasoline prices,
and the quality of restaurant operations. At the start of 2006, we established a
plan to increase average unit sales volumes by approximately 15% over a
five-year period. This plan includes i) exiting lower sales volume restaurants
generally at the end of leases if the outlook for sales improvement is low, ii)
remodeling approximately five locations per year to our new prototype look, iii)
opening of higher sales volume locations at a controlled pace (the last eight
restaurant openings reported annualized sales of $2,651,000 during the first
quarter of 2006) and iv) generating same-store sales increases from improved
operations and effective marketing.


                                                                               8

<PAGE>

     Through most of 2004, our restaurants experienced margin pressure due to
rising beef, chicken, produce, and dairy prices. In late 2004 and into 2005, we
began to implement a series of menu specification changes and systematically
re-bid a large number of inventory items. These moves, along with consolidating
our chicken purchasing with one vendor at a then below market fixed price and a
return to more normal costs for produce and dairy, resulted in a decline in cost
of sales, as a percentage of revenues for 2005 as compared to a mid-2004 high
point. Our approach to rising commodity prices has always been to cautiously
raise prices every six months at a rate consistent with inflation and not over
react to shorter-term price spikes. As a result of this policy, we have
generally maintained a gradually declining cost of sales percentage. During the
fourth quarter of 2005, we experienced some further reduction in the costs of
sales percentage resulting from declining market prices for beef due to the
lifting of the ban on importing Canadian beef. In the first quarter of 2006,
cost of sales increased 60 basis points, as anticipated, due to the bundled
discount built into our "Pick Three" menu promotion. When the promotion ended,
cost of sales fell to approximately 25.3%, which was comparable to the first
quarter of 2005.

     By late 2005, both cost of goods sold and payroll and benefits, as
percentages of revenue, had declined and stabilized at acceptable levels. On the
other hand, other operating expenses, as a percentage of revenues, had increased
to 33.3% for all of fiscal 2005 and 33.4% for the first quarter of 2006. This
category of expenses includes many expenses that are primarily fixed, such as
rent, depreciation, real estate and personal property taxes, insurance,
utilities, and repairs and maintenance. As our restaurants have experienced flat
to slightly declining sales over the past 18 to 24 months, these expenses have
risen as a percentage of revenues. To reduce these expenses, as a percentage of
revenue, we believe we must increase average unit sales. We believe we can
achieve this by the plan we put in place at the start of 2006. As a result of
that plan, we closed one restaurant during the first quarter of 2006. This
restaurant had annual sales approximately 60% below chain average. This, along
with the recent remodeling of two locations to our new prototype look and
several operational and marketing initiatives, reduced our same-store sales
decline from negative 6.7% in the fourth quarter of 2005 to negative 1.7% in the
first quarter of 2006. For the last nine weeks of the quarter, same-store sales
were positive 0.7% or approximately $200,000. Average unit sales increased from
$2,344,000 in 2005 to a first quarter annualized rate of $2,368,000.

     We have bank borrowings of approximately of $31.1 million. The related
notes carry variable interest rates. As a result, our Company is exposed to a
risk associated with rising interest rates. Rising interest rates in 2006
resulted in higher interest expense and reduced profitability. Further increases
in interest rates could subject us to even higher interest expense during the
remainder of 2006.

     Approximately two thirds of the outstanding balance under our loan
agreement arose from the repurchase of our common stock. In late 1998, we began
a repurchase program, which has resulted in the repurchase of approximately 2.2
million shares of our common stock primarily over a four-year period. We
currently do not have an authorized stock repurchase program in place.


                                                                               9

<PAGE>

     We are currently committed to debt service and replacement capital
expenditures totaling approximately $6.9 million per year. At current levels of
profitability, cash flow after debt service and replacement capital expenditures
may be less than $2.0 million annually. Because of this and limited availability
of funds under our credit facility, we have reduced our expected growth rate to
one to two restaurants in 2006. The availability of landlord construction
allowances and the sale-leaseback of real estate, both of which result in a
reduced cash investment per new restaurant, will affect our growth rate in 2006.

YEAR-TO-YEAR COMPARISONS AND ANALYSIS

RESULTS OF OPERATIONS

The following table sets forth our operating results as a percentage of
revenues:

<TABLE>
<CAPTION>
                                       Sixteen Weeks Ended
                              -------------------------------------
                              February 19, 2006   February 20, 2005
                              -----------------   -----------------
<S>                           <C>                 <C>
Revenues                            100.0%              100.0%
Cost of Goods Sold                  (25.9)              (25.3)
Payroll & Benefits                  (31.5)              (31.5)
Other Operating Expenses            (33.4)              (32.6)
Pre-Opening Expenses                   --                  --
Impairment of Assets                 (0.9)                 --
Administrative Expenses              (7.7)               (7.9)
Interest Expense                     (1.4)               (1.3)
Income Tax Credit (Expense)           0.8                (0.3)
                                    -----               -----
Net Income                            0.0%                1.1%
                                    =====               =====
</TABLE>

REVENUES

     Revenues for the first quarter of 2006 increased $346,000 or 0.6% from the
first quarter of 2005. The increase was a result of the opening of three
restaurants during 2005, the effect of which was partially offset by i) the
closing of two restaurants during 2005 and one during the first quarter of 2006
and ii) a $905,000 or 1.7% decline in sales at restaurants opened at least
eighteen months. No new Company-owned or franchised restaurants opened during
the first quarter of 2006. Franchise royalties increased 14% to $520,000 during
the quarter, however, no franchise fees were recorded in 2006 as compared to
$90,000 in the first quarter of 2005.

     During the second half of 2005 and into the first quarter of 2006, we have
greatly curtailed the use of couponing and discounting. The retail value of
discounted meals declined approximately $1,072,000 from the first quarter of
2005 to the first quarter of 2006. We believe the use of coupons does not build
loyal repeat customers, but merely attracts price conscious diners and may hurt
the image of our restaurants. In the short run, reduced discounting has
contributed to customer count declines and negative same-store sales. We believe
we can better achieve positive same-store sales by a return to
community-oriented relationship based marketing


                                                                              10

<PAGE>

and the use of limited time menu promotions that create a sense of urgency and
reason to visit our restaurants. These limited time offers may combine an
element of value with menu items that may only be available for a relatively
short period of time.

     During the first quarter of 2006, we introduced our "Pick Three" limited
time offer, which combined a starter, entree, and dessert for one price.
Approximately one in eight customers purchased a "Pick Three" package during its
inclusion in our menus. Same-store sales fluctuated during the quarter.
Generally, same-store sales were negative when the current period was up against
heavy usage of coupons in the prior year's period. As the coupons expired, sales
comparisons turned positive. For the final nine weeks of the quarter, same-store
sales were 0.7% positive compared to the same period last year.

     We expect to open one to two restaurants during the remainder of 2006. We
were under contract to purchase one site at the end of the first quarter of
2006, with construction expected to commence during the second quarter. We were
in some stage of negotiating for the purchase or lease of four additional
locations, one of which could open in late 2006 or early 2007.

     We also expect continued increases in franchise fees and royalties. The
number of franchised restaurants increased from twenty at the end of the first
quarter of 2005 to twenty-two at the end of the first quarter of 2006. One
franchised restaurant closed during the first quarter of 2006. One franchised
restaurant was under construction in the Detroit, Michigan airport, at the end
of the first quarter of 2006. In addition to the franchised restaurant under
construction, we anticipate the opening of four additional franchised
restaurants during 2006.

COSTS AND EXPENSES

     Cost of goods sold, as a percentage of revenues, increased from 25.3% for
the first quarter of 2005 to 25.9% for the first quarter of 2006. The increase
was a result of the bundled discount built into the "Pick Three" menu promotion.
The typical "Pick Three" combination was sold with a cost approximately seven
percentage points higher than our overall cost of sales. With approximately 12%
of our customers selecting a "Pick Three" combination and with the promotion
running for approximately three fourths of the quarter, it had the overall
effect of increasing cost of goods sold by 50 to 60 basis points. Subsequent to
the end of the promotion, cost of goods sold, as a percentage of revenues, fell
to approximately 25.3%.

     Payroll and benefits as a percentage of revenues remained at 31.5% for both
the first quarter of 2005 and the first quarter of 2006. During the first
quarter of 2006, we incurred slightly higher health care and worker's
compensation costs. Payroll costs were slightly below last year's level.

     Other operating expenses as a percentage of revenue increased from 32.6%
for the first quarter of 2005 to 33.4% for the first quarter of 2006. The
increase was essentially a result of an increase in utility costs of
approximately $400,000.


                                                                              11

<PAGE>

     Pre-opening expenses, as a percentage of revenues, remained at 0% for the
first quarter of 2005 and 2006 as no restaurants were opened during the first
quarter of either year.

ASSET IMPAIRMENT

     During the first quarter of 2006, we recorded a $505,000 asset impairment
charge related to the closing and write-off of restaurant assets at one
restaurant. The charge consisted primarily of the payment of a $440,000 lease
termination fee. The restaurant had operating losses of $146,000, including the
cost of closing, during the first quarter of 2006.

ADMINISTRATIVE EXPENSES

     Administrative expenses, as a percentage of revenues, declined from 7.9%
for the first quarter of 2005 to 7.7% for the first quarter of 2006. In dollar
terms, administrative expenses decreased $64,000 or 1% from the first quarter of
2005 to the first quarter of 2006. The decrease was a result of overhead
reductions put in place in late 2005 in response to reduced profitability and a
slower growth rate.

INTEREST EXPENSE

     Interest expense increased 17% from the first quarter of 2005 to the first
quarter of 2006 due primarily to an increase in the prime interest rate and
LIBOR. Our interest rate is based upon the ratio of bank indebtedness plus
future minimum rental commitments multiplied by 8 to earnings before interest,
taxes, depreciation and amortization. Based upon results for fiscal 2004 and
2005, the interest rate under our credit agreement was LIBOR plus 3.5% or prime
plus 3/4 percent for both the first quarters of 2005 and 2006. As a result of
increases in prime and LIBOR, the interest rate under our revolving credit line
was 8.25% at February 19, 2006, as compared to 6.25% at February 20, 2005.
Through the use of an interest rate protection agreement, the interest rate on
approximately 30% of our two term loans was essentially fixed at 9.9% at
February 20, 2005. At February 19, 2006, the interest rate on the entire balance
of the two term loans was 8.25% as the interest rate protection agreement
expired October 31, 2005.

     Total interest bearing debt increased from $29.2 million at February 20,
2005 to $31.1 million at February 19, 2006. The increase was due to funding of
construction costs incurred during 2005, less scheduled principal amortization.
We capitalized $7,000 of construction period interest during the first quarter
of 2005 and zero during the first quarter of 2006. There was no new construction
activity during the first quarter of 2006.

INCOME TAXES

     Our effective tax rate was 20% for the first quarter of 2005. At lower
levels of pre-tax income, the FICA tax on tips credit offsets a significant
portion of our income tax expense. In the first quarter of 2006, we reported a
tax credit of $461,000, which reflects the tax benefit of the reported loss
before income taxes and the FICA tax on tips credit of approximately $300,000.


                                                                              12

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Our working capital ratio remained at 0.4 to 1 at October 30, 2005 and
February 19, 2006. Historically, we have been able to operate with a working
capital deficiency because 1) restaurant operations are primarily conducted on a
cash basis, 2) high turnover (about once every 10 days) permits a limited
investment in inventory, and 3) trade payables for food purchases usually become
due after receipt of cash from the related sales.

     During the first quarter of 2006, we expended approximately $1,541,000 for
property additions and $9,549,000 to reduce long-term obligations. Funds for
such expenditures were provided primarily by $9,448,000 from proceeds of
long-term obligations, $1,447,000 from operations and $177,000 from cash on
hand. We routinely draw down and repay balances under our revolving credit
agreement, the gross amounts of which are included in the above numbers.

     We intend to open one to two Max & Erma's restaurants during the remainder
of 2006 and two per year thereafter. At February 19, 2006, we were contractually
committed to the purchase of one site. Four additional sites had been approved
and were in some stage of negotiations.

     The estimated cost to complete the restaurant that we are contractually
committed to is approximately $2.8 million as of February 19, 2006.
Additionally, we plan to remodel up to five restaurants per year at an estimated
cost of $200,000 per remodel, depending upon the availability of funds. Funding
for new restaurants and restaurant remodels is expected to be provided by cash
flow from operations, the sale-leaseback of real estate, landlord construction
allowances and our revolving credit line. At February 19, 2006, we had
approximately $50,000 available under our $15.0 million revolving credit line
and a $2.5 million sale-leaseback commitment. Typically, these have been the
sources of funding for capital expenditures and we expect that they will remain
so.

     In addition to expenditures for new restaurants, our other significant uses
of cash are for fixed asset replacements and debt repayment. We expect to expend
approximately $3.0 million and $3.9 million annually on fixed asset replacement
and debt repayment, respectively. Expenditures for new restaurants, prior to
signing the related contract to purchase or lease, and restaurant remodels are
of a more discretionary nature and may be curtailed if cash flow from operations
and other financing sources were diminished. While we have not experienced any
problems in obtaining funding for new restaurants, in response to reduced
operating margins and profitability, we have reduced our growth plans to one to
two restaurants in 2006 so as to match our growth to available cash flow. Based
upon the first 16 weeks of 2006, cash flow from operations is $1,447,000 (due to
depreciation) which was slightly less than capital expenditures for the period.
Accordingly, we believe our Company could operate at an approximate break even
for an extended period of time and still generate adequate cash flow from
operations to meet required debt repayment and fund necessary fixed asset
replacements. The Company is in discussions with several lenders to provide
additional financing. Proceeds of any financing would be used to pay down
existing bank debt and provide working capital. However, there can be no
assurances that any such financing will occur.


                                                                              13

<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Management's Discussion and Analysis of Operations and Financial Condition
discusses our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires our
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis, our
management evaluates its estimates and judgments. We believe that of our
significant accounting policies, the following may involve a higher degree of
judgment and complexity.

Derivative Instruments

Our Company utilizes interest rate swap agreements to manage interest rate
exposure on floating-rate obligations. We do not use derivative instruments
unless there is an underlying exposure and, therefore, do not use derivative
instruments for trading or speculative purposes. We assess hedge effectiveness
at each financial reporting date. All derivative instruments are recognized in
the Consolidated Balance Sheet at estimated fair value.

Same-Store Sales

Our Company discloses certain information regarding the performance of certain
restaurants in operation at least 18 consecutive months in our management's
discussion and analysis. We exclude restaurants from this calculation that do
not meet this definition. In addition, restaurants are excluded when unusual
events or circumstances outside our control significantly change the business of
the restaurant.

Asset Impairment

We review each restaurant to ascertain whether property and equipment and
intangibles have been impaired based on the sum of expected future undiscounted
cash flows from operating activities. If the estimated net cash flows are less
than the carrying amount of such assets, we will recognize an impairment loss in
an amount necessary to write down the assets to a fair value as determined from
expected future discounted cash flow.

INFLATION

We believe the effects of inflation have not had a material impact on our
results of operations.


                                                                              14

<PAGE>

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

     This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. The words "plan,"
"anticipate," "believe," "expect," "estimate," and "project" and similar words
and expressions identify forward-looking statements which speak only as of the
date hereof. Forward-looking statements in this MD&A include statements
regarding lowering our average cash investment in new restaurants (paragraph 2),
financing of new restaurants through sale-leaseback transactions (paragraphs 2
and 27), sales at new Company-owned restaurants (paragraph 2), royalties from
new franchised locations (paragraph 2), the belief that increasing average unit
sales will reduce other operating expenses, as a percentage of revenues
(paragraph 5), the belief that the plan put in place at the start of 2006 will
result in increased average unit sales (paragraph 5), the belief that coupon
customers are not loyal customers (paragraph 11), the belief that we can achieve
positive same-store sales through other types of marketing (paragraph 11), the
expectation of future restaurant openings (paragraph 13 and 26), the expectation
of increased franchise fees and royalties and the opening of franchised
restaurants (paragraph 14), the estimated cost to complete restaurants currently
under contract (paragraph 27), the source of funds for new restaurants and
restaurant remodels (paragraph 27), and the expectation that we will expend $3.0
million and $3.9 million on fixed asset replacements and debt service,
respectively (paragraph 28).

     Investors are cautioned that forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from
historical or anticipated results due to many factors, including, but not
limited to, our ability to open or franchise new restaurants as planned, changes
in competition in markets where we operate restaurants, the availability of
restaurant workers, our ability to control administrative expenses, changes in
interest rates, changes in cash flows from operations, the availability of real
estate for purchase or lease, and other risks, uncertainties and factors
described in our most recent Annual Report on Form 10-K and other filings from
time to time with the Securities and Exchange Commission. We undertake no
obligation to publicly update or revise any forward-looking statements.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our Company's primary market risk results from fluctuations in interest
rates. We are exposed to interest rate risk through borrowings under our
revolving credit agreement, which permits borrowings up to $31.1 million.

     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


                                                                              15

<PAGE>

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 4 - CONTROLS AND PROCEDURES

     Disclosure Controls and Procedures. Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information we are
required to disclose in the reports that we file under the Exchange Act is
accumulated and communicated to our management as appropriate to allow timely
decisions regarding required disclosure.

     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 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.

     Management believes, however, that a controls system, 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 issues 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 August 7, 2005 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.


                                                                              16

<PAGE>

PART II - OTHER INFORMATION

ITEM 6 - EXHIBITS

     Exhibit 31.1* - Rule 13a-14(a) Certification of Principal Executive Officer
     Exhibit 31.2* - Rule 13a-14(a) Certification of Principal Financial Officer
     Exhibit 32.1+ - Section 1350 Certification of Principal Executive Officer
     Exhibit 32.2+ - Section 1350 Certification of Principal Financial Officer

*    Filed with this report.

+    Furnished with this report.


                                                                              17

<PAGE>

                                   SIGNATURES

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.

                                        MAX & ERMA'S RESTAURANTS, INC.
                                        Registrant


                                        /s/ Todd B. Barnum
                                        ----------------------------------------
                                        Todd. B. Barnum
                                        Chairman 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)

March 30, 2006
     Date


                                                                              18

<PAGE>

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
   No.    Exhibit                                                       Page No.
-------   -------                                                       --------
<S>       <C>                                                           <C>
31.1*     Rule 13a-14(a) Certification of Principal Executive Officer    Page __
31.2*     Rule 13a-14(a) Certification of Principal Financial Officer    Page __
32.1+     Section 1350 Certification of Principal Executive Officer      Page __
32.2+     Section 1350 Certification of Principal Financial Officer      Page __
</TABLE>

* Filed with this report.

+ Furnished with this report.


                                                                              19