<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 August 7, 2005

                                       OR

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

     For the transition period from ________ to ________

Commission file number 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 an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes       No   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 August 7, 2005, there were 2,546,778 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>
                                                  August 7, 2005
                                                    (UNAUDITED)    October 31, 2004
                                                  --------------   ----------------
<S>                                               <C>              <C>
                     ASSETS
Current Assets:
Cash                                               $  3,035,375      $ 2,187,529
Inventories                                           1,265,400        1,377,366
Other Current Assets                                  2,842,680        2,865,251
                                                   ------------      -----------
Total Current Assets                                  7,143,455        6,430,146

Property - At Cost                                  102,477,556       98,070,311
Less Accumulated Depreciation and Amortization       47,053,001       42,720,109
                                                   ------------      -----------
Property - Net                                       55,424,555       55,350,202

Other Assets                                         10,520,562        9,326,737
                                                   ------------      -----------
Total                                              $ 73,088,572      $71,107,085
                                                   ============      ===========
      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-Term Obligations        $  4,226,857      $ 4,160,314
Accounts Payable                                      5,277,537        5,334,219
Accrued Payroll and Related Taxes                     2,776,276        1,914,099
Accrued Liabilities                                   5,162,372        4,589,203
                                                   ------------      -----------
Total Current Liabilities                            17,443,042       15,997,835

Long-Term Obligations - Less Current Maturities      42,291,367       41,053,030

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 2,546,778 Shares
   At 08/07/04 and 2,507,328 Shares at 10/31/04         254,677          250,732
Additional Paid-In Capital                              678,248          319,404
Accumulated Other Comprehensive Loss                    (32,679)        (203,406)
Retained Earnings                                    12,453,917       13,689,490
                                                   ------------      -----------
Total Stockholders' Equity                           13,354,163       14,056,220
                                                   ------------      -----------
Total                                              $ 73,088,572      $71,107,085
                                                   ============      ===========
</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>
                                       Twelve Weeks Ended                Forty Weeks Ended
                                -------------------------------   -------------------------------
                                August 7, 2005   August 1, 2004   August 7, 2005   August 1, 2004
                                --------------   --------------   --------------   --------------
<S>                             <C>              <C>              <C>              <C>
REVENUES:                         $42,812,593      $42,090,386     $143,108,284     $137,394,100

COSTS AND EXPENSES:
Costs of Goods Sold                10,885,092       11,210,700       36,495,241       35,282,125
Payroll and Benefits               14,199,428       13,813,500       46,049,942       44,650,628
Other Operating Expenses           14,170,918       13,426,463       47,226,112       43,229,881
Pre-Opening Expenses                  173,728          162,976          297,766          412,010
Impairment of Assets                                                  1,450,000
Administrative Expenses             3,646,076        3,176,174       11,567,774       10,557,008
                                  -----------      -----------     ------------     ------------
Total Operating Expenses           43,075,242       41,789,813      143,086,835      134,131,652
                                  -----------      -----------     ------------     ------------
Operating Income (Loss)              (262,649)         300,573           21,449        3,262,448
Interest Expense                      564,284          473,766        1,808,519        1,585,440
Minority Interest in Income
   of Affiliated Partnerships          19,251                            38,503           19,252
                                  -----------      -----------     ------------     ------------
INCOME (LOSS) BEFORE
   INCOME TAXES                      (846,184)        (173,913)      (1,825,573)       1,657,756
INCOME TAXES (CREDIT)                 100,000         (103,000)        (590,000)         340,000
                                  -----------      -----------     ------------     ------------
NET INCOME (LOSS)                 $  (946,184)     $   (70,193)    $ (1,235,573)    $  1,317,756
                                  ===========      ===========     ============     ============
NET INCOME
   (LOSS) PER SHARE
   Basic                          $     (0.37)     $     (0.03)    $      (0.49)    $       0.54
                                  ===========      ===========     ============     ============
   Diluted                        $     (0.37)     $     (0.03)    $      (0.49)    $       0.51
                                  ===========      ===========     ============     ============
SHARES OUTSTANDING:
   Basic                            2,546,778        2,458,631        2,534,427        2,455,575
                                  ===========      ===========     ============     ============
   Diluted                          2,546,778        2,458,631        2,534,427        2,586,922
                                  ===========      ===========     ============     ============
</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>
                                                                Forty Weeks Ended
                                                         -------------------------------
                                                         August 7, 2005   August 1, 2004
                                                         --------------   --------------
<S>                                                      <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                         $ (1,235,573)    $  1,317,756
Depreciation and amortization                                6,545,126        6,233,073
Minority interest in income of Affiliated Partnerships          38,503           19,252
Proceeds from lease incentives                               1,000,000
Impairment of assets                                         1,450,000
Tax benefit related to exercise of stock options               110,634          152,466
Changes in other assets and liabilities                       (478,604)         590,100
                                                          ------------     ------------
Net cash provided by operating activities                    7,430,086        8,312,647
                                                          ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions                                          (7,622,719)     (14,939,399)
Proceeds from sale of assets                                                  2,805,729
Decrease (increase) in other assets                            (43,870)          (8,410)
                                                          ------------     ------------
Net cash used by investing activities                       (7,666,589)     (12,142,080)
                                                          ------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations             (48,182,605)     (60,085,698)
Proceeds from long-term obligations                         49,112,697       64,371,500
Proceeds from sale of stock                                    252,155           49,682
Purchase of common stock                                                        (20,721)
Debt issue costs                                               (59,395)         (78,765)
Distributions to minority interests in Affiliated
   Partnerships                                                (38,503)         (19,252)
                                                          ------------     ------------
Net cash provided by (used by) financing activities          1,084,349        4,216,746
                                                          ------------     ------------

NET INCREASE IN CASH AND EQUIVALENTS                           847,846          387,313
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD                  2,187,529        2,616,324
                                                          ------------     ------------
CASH AND EQUIVALENTS AT END OF PERIOD                     $  3,035,375     $  3,003,637
                                                          ============     ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
   Interest (net of $76,000 and $143,000 capitalized
      in 2005 and 2004)                                   $  1,747,685     $  1,497,173
   Income taxes                                           $    383,819     $    903,523
Non-cash activities:
   Property additions financed by accounts payable        $  1,089,239     $  2,784,637
</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 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 2005 consists of 52
     weeks and includes one sixteen-week and three twelve-week quarters. Fiscal
     2004 consists of 53 weeks and includes one sixteen-week, two twelve-week
     and one thirteen-week quarters.

2.   Recently Issued Financial Accounting Standards

     In December 2004, the Financial Accounting Standard Board issued Statement
     of Financial Accounting Standards ("SFAS") No. 123R, Share-Based Payment,
     which supersedes Accounting Principle Board ("APB") Opinion No. 25,
     Accounting for Stock Issued to Employees, and SFAS No. 123, Accounting for
     Stock-Based Compensation. This pronouncement eliminates the ability to
     account for share-based compensation transactions using APB Opinion No. 25
     and requires share-based compensation to employees, including employee
     stock options and similar awards, to be measured at their fair value on the
     awards' grant date using either the Black-Scholes or a binomial
     option-pricing model. The value of the awards is recognized as compensation
     expense in the statement of operations over the vesting period of the
     awards. The Company currently does not expense its share-based
     compensation, but discloses the effect of these items as required by SFAS
     No. 123. See Note 4 - Stock Options. SFAS No. 123R is effective for annual
     periods beginning after June 15, 2005. Management is currently evaluating
     the impact the adoption of this accounting standard will have on its
     consolidated financial statements.

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 221,950 shares of common stock were
     outstanding at August 7, 2005 but were not included in the computation of
     diluted earnings per share because the Company reported a net loss for the
     quarter and year-to-date periods and, therefore, the effect would be
     antidilutive. Diluted


                                                                               4
<PAGE>
     shares outstanding for the third quarter of 2004 excludes 114,420 common
     stock equivalents which were considered to be antidilutive. The difference
     between basic shares outstanding and diluted shares outstanding as follows:

<TABLE>
<CAPTION>
                         Twelve           Twelve            Forty           Forty
                       Weeks Ended      Weeks Ended      Weeks Ended      Weeks Ended
                     August 7, 2005   August 1, 2004   August 7, 2005   August 1, 2004
                     --------------   --------------   --------------   --------------
<S>                  <C>              <C>              <C>              <C>
Basic Shares
   Outstanding          2,546,778        2,458,631        2,534,427        2,455,575
Dilutive Effect of
   Stock Options                                                             131,347
                        ---------        ---------        ---------        ---------
Diluted Shares
   Outstanding          2,546,778        2,458,631        2,534,427        2,586,922
                        =========        =========        =========        =========
</TABLE>

4.   Stock Options

     During the forty weeks ended August 7, 2005, the Company's stock options
     activity and weighted average exercise prices were as follows:

<TABLE>
<CAPTION>
                                 Shares    Exercise Price
                                --------   --------------
<S>                             <C>        <C>
Outstanding, October 31, 2004    313,651      $ 12.69
Exercised                        (63,301)       (9.51)
Forfeited                        (28,400)      (13.96)
                                --------      -------
Outstanding, August 7, 2005     $221,950      $ 13.44
                                ========      =======
</TABLE>

     The Company accounts for employee and director stock options using the
     intrinsic value method. Under this method, no compensation expense was
     recorded in all years presented because all stock options were granted at
     an exercise price equal to the fair market value of the Company's stock on
     the date of the grant. If compensation expense for the Company's stock
     option grants had been determined based on their estimated fair value at
     the grant dates, the Company's net income (loss) and earnings (loss) per
     share for the twelve-weeks and forty weeks ending August 7, 2005 and August
     1, 2004 would have been as follows:


                                                                               5
<PAGE>
<TABLE>
<CAPTION>
                                                 Twelve           Twelve            Forty           Forty
                                               Weeks Ended      Weeks Ended      Weeks Ended      Weeks Ended
                                             August 7, 2005   August 1, 2004   August 7, 2005   August 1, 2004
                                             --------------   --------------   --------------   --------------
<S>                                          <C>              <C>              <C>              <C>
Net income (loss) as reported                  $(946,184)       $ (70,193)      $(1,235,573)      $1,317,756

Deduct: total stock-based
   compensation expense
   determined under the fair value
   method for all awards, net of
   related tax benefits                              -0-          (41,369)           (6,384)        (470,718)
                                               ---------        ---------       -----------       ----------
Pro forma net income (loss)                    $(946,184)       $(111,562)      $(1,241,957)      $  847,038
                                               =========        =========       ===========       ==========
Earnings (loss) per common share, basic:
   As reported                                 $   (0.37)       $   (0.03)      $     (0.49)      $     0.54
                                               =========        =========       ===========       ==========
   Pro forma                                   $   (0.37)       $   (0.05)      $     (0.49)      $     0.35
                                               =========        =========       ===========       ==========
Earnings (loss) per common share, diluted:
   As reported                                 $   (0.37)       $   (0.03)      $     (0.49)      $     0.51
                                               =========        =========       ===========       ==========
   Pro forma                                   $   (0.37)       $   (0.05)      $     (0.49)      $     0.33
                                               =========        =========       ===========       ==========
</TABLE>

The fair value of options granted was estimated on the date of the grant using
the Black-Scholes option-pricing model.

5.   Withdrawal Of Proposed Deregistration

     The Company's Board of Directors on March 29, 2005, withdrew the 1-for-200
     reverse stock split proposal which was publicly announced on January 19,
     2005, subject to approval of a vote of its stockholders, after which
     stockholders who owned less than one whole share would be cashed out at $16
     per share. On March 2, 2005, the Securities and Exchange Commission (SEC)
     extended the compliance date for non-accelerated filers, which included the
     Company, to comply with Section 404 of the Sarbanes-Oxley Act (Section
     404). With the extension, the Company will not be required to include in
     its annual reports a report by management on the Company's internal
     controls over financial reporting and an accompanying report of independent
     registered public accounting firm until the filing of its annual report for
     fiscal 2006, which fiscal year ends October 29, 2006. There are also two
     recent initiatives underway concerning future application of Section 404 to
     non-accelerated filers. First, the SEC has established the SEC Advisory
     Committee on Smaller Public Companies to assist the Commission in
     evaluating the current securities regulatory system relating to smaller
     public companies, including the internal control requirements. Second, the
     Committee of Sponsoring Organizations


                                                                               6
<PAGE>
     (COSO) has established a task force to develop new guidance for smaller
     companies regarding internal controls that it intends to publish this fall.
     One of the primary reasons for the Company's 1-for-200 reverse stock split
     proposal was to enable the Company to save substantial annual compliance
     costs that it would have begun to incur in fiscal 2005, by deregistering as
     an SEC reporting company and thereby making Section 404 inapplicable to it.
     Because of the SEC's recent extension in the date of compliance, COSO's
     initiatives to study the application of the new internal controls
     requirements to smaller public companies, and a material increase in the
     estimated number of shares held by stockholders with fewer than 200 shares
     that would have been cashed out in the proposed reverse stock split, the
     Company's Board of Directors determined to withdraw the reverse stock split
     proposal.

6.   Asset Impairment

     During the second quarter of 2005, the Company recorded a $1,450,000 asset
     impairment charge related to six restaurant properties, two of which were
     at or close to the end of their lease terms and the write off of costs
     associated with the proposed deregistration transaction. The Company
     expensed $1,260,000 for the write downs of restaurant assets and for
     payment to a landlord to obtain a release from one of the leases, where the
     related restaurant was closed. The Company currently expects to operate the
     other four restaurants through the remainder of their lease terms, but has
     written down the restaurant assets to estimated fair value based upon
     future discounted cash flows. The Company also recorded a charge of
     $190,000 for expenses, primarily legal, accounting and professional fees,
     associated with the proposed deregistration transaction, which was
     terminated during the second quarter of 2005.

7.   Income Taxes

     During the third quarter of 2005, the Company expensed $550,000 of
     previously recorded deferred State of Ohio tax assets that the Company will
     not be able to realize as a result of recent Ohio corporate tax
     legislation, enacted on June 30, 2005, which phases out Ohio's Corporate
     Franchise tax based on income and phases in a new gross receipts tax called
     Commercial Activity Tax.

8.   Bank Covenants

     As a result of the Asset Impairment charge and the charge related to the
     write-off of the Ohio-deferred tax asset discussed above, the Company was
     in default under the fixed charge coverage ratio, the senior debt to EBITDA
     ratio and liabilities to tangible net worth ratio covenants of its bank
     loan agreement. The Company has obtained a waiver of the defaults for the
     period ended August 7, 2005 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>
9.   Comprehensive Income

     Comprehensive income (loss) consists of net income (loss) and the change in
     the fair value (net of tax) of the Company's interest rate swap agreement.
     Comprehensive income (loss) was approximately $(906,000) and $5,000 for the
     twelve weeks ended and $(1,065,000) and $1,697,000 for the forty weeks
     ended August 7, 2005 and August 1, 2004 respectively.


                                                                               8
<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 only
sell food). 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, St. Louis, and
Richmond, Virginia with selective markets or locations within the mid-west also
operated by franchisees. Late in the third quarter of 2005, we signed a ten-unit
franchise development agreement for the Las Vegas, Nevada market.

     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. We anticipate that new
restaurants will generate annual sales of approximately $2.5 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 very
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.

     During late 2003 and 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 the first forty
weeks of 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. We expect 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.


                                                                               9
<PAGE>
     We also have experienced sharply rising healthcare and workers'
compensation insurance costs over the past several years. At the start of 2004,
we implemented a new health insurance program and increased our employee
contribution rates in an effort to reduce our health insurance costs.
Contribution levels were increased again at the start of 2005. As a result of
these efforts, health insurance expense declined in 2004 and has stabilized in
2005. Late in 2004, we began self-funding our Ohio workers' compensation
insurance. We believe this program will lower our worker's compensation expense
by at least $400,000 or more in 2005.

     During the second quarter of 2005, the Company recorded an asset impairment
charge of $1.45 million primarily related to six restaurant properties, two of
which are at or close to the end of their related lease terms and have been
closed. The two restaurants that were closed had operating losses, including the
costs of closing, of $385,000 during the first forty weeks of 2005. As a result
of the write down of restaurant assets at the other four restaurants
depreciation expense will be reduced by approximately $120,000 annually.
Included in the charge was the write-off of $190,000 of cost associated with the
proposed deregistration transaction, which was terminated during the second
quarter of 2005.

     We have bank borrowings of approximately of $32.1 million. The related
notes carry variable interest rates. As a result, our Company is exposed to a
risk associated with rising interest rates. To mitigate this risk, we have
purchased an interest rate swap, which essentially fixes the rate on
approximately 25% of the outstanding balance. However, rising interest rates in
2005 resulted in higher interest expense and reduced profitability. The interest
rate swap expires October 31, 2005 and depending upon further increases in
interest rates could subject us to higher interest expense.

     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. We currently do not have an authorized stock
repurchase program in place.

     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 determine the exact growth rate
in 2006.


                                                                              10
<PAGE>
YEAR-TO-YEAR COMPARISONS AND ANALYSIS

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                  Twelve Weeks Ended                Forty Weeks Ended
                           -------------------------------   -------------------------------
                           August 7, 2005   August 1, 2004   August 7, 2005   August 1, 2004
                           --------------   --------------   --------------   --------------
<S>                        <C>              <C>              <C>              <C>
Revenues                       100.0%           100.0%           100.0%           100.0%
Cost of Goods Sold             (25.5)           (26.6)           (25.5)           (25.7)
Payroll & Benefits             (33.2)           (32.8)           (32.2)           (32.5)
Other Operating Expenses       (33.1)           (31.9)           (33.0)           (31.5)
Pre-Opening Expenses            (0.4)            (0.4)            (0.2)            (0.3)
Impairment of Assets              --               --             (1.0)              --
Administrative Expenses         (8.5)            (7.6)            (8.1)            (7.7)
Interest Expense                (1.3)            (1.1)            (1.3)            (1.1)
Minority Interest                 --               --               --               --
Income (Taxes) Credit           (0.2)             0.2              0.4             (0.4)
                               -----            -----            -----            -----
Net Income (Loss)               (2.2)%           (0.2)%           (0.9)%            0.8%
                               =====            =====            =====            =====
</TABLE>

REVENUES

     Revenues for the third quarter of 2005 increased $722,000 or 1.7% from the
third quarter of 2004. The increase was a result of i) the opening of three
restaurants during the fourth quarter of 2004, ii) the opening of two
restaurants during the third quarter of 2005, iii) increased franchise fees and
royalties resulting from the opening of four franchised locations during 2004,
and two franchised openings in the third quarter of 2005. Same-store sales at
restaurants opened at least eighteen months declined $1,597,000 or 4.1% from the
third quarter of 2004 to the third quarter of 2005. Two restaurants closed
during the third quarter of 2005.

     Year-to-date revenues increased $5,714,000 or 4.2% from 2004 to 2005. The
increase was a result of i) opening five restaurants during 2004, ii) the
opening of two restaurants during 2005, and iii) increased franchise fees and
royalties. Year-to-date same-store sales decreased $2,537,000 or 2.1% from 2004
to 2005.

     The declines in same-store sales were a result of i) an increased level of
competition - eighteen of our 78 restaurants had two or more competing
restaurants open near or adjacent to our restaurants during the last twelve
months, ii) the opening of two new Max & Erma's during the fourth quarter of
2004 near two of our existing restaurants, which year-to-date, resulted in a
sales decline of $759,000 at the older restaurants, iii) a sluggish mid-western
economy - recent news articles indicate that Ohio, Michigan, Illinois, and
Pennsylvania, where the vast majority of our restaurants are located, lag almost
all other states in job and economic growth statistics, and iv) higher gasoline
prices - we believe our target customer, with household income under $100,000
annually and coming typically from two wage earners, may be more adversely
effected by rising gas prices than either the typical fast food customer or the
customer of higher priced concepts. On a year-to-date basis, same-store sales
were also negatively impacted $487,000 by


                                                                              11
<PAGE>
Christmas falling on a Saturday in the current year as compared to mid-week last
year and a major winter storm during the fourth week of January 2005, which
impacted most of our markets and resulted in a $383,000 sales decline for the
three day weekend.

     We expect to open one additional restaurant during the fourth quarter of
2005. At the end of the third quarter it was under construction. We expect to
open one to two restaurants during 2006. At August 7, 2005, we were under
contract to purchase one site and negotiating several others.

     We also expect continual increases in franchise fees and royalties. The
number of franchised restaurants increased from twenty at the end of third
quarter of 2004 to twenty-two at the end of the third quarter of 2005.
Year-to-date franchise fees and royalties increased 12.5% from 2004 to 2005. One
additional franchised restaurant was under construction in Huntington, West
Virginia, which should open during the fourth quarter of 2005. We anticipate the
opening of three to four additional franchised restaurants in 2006.

COSTS AND EXPENSES

     Cost of goods sold, as a percentage of revenues, decreased from 26.6% for
the third quarter of 2004 to 25.5% for the third quarter of 2005. Year-to-date
cost of goods sold, as a percentage of revenues declined from 25.7% for 2004 to
25.5% for 2005. The declines from the 2004 periods were a result of record high
ground beef and chicken prices in 2004, along with higher than normal dairy and
produce prices. As a result of various cost savings measures, declining market
prices, and a one to two percent menu price increase over last year, we have
reduced cost of goods sold, as a percentage of revenues, from its third quarter
2004 high point to current levels. Ground beef prices remained high through the
third quarter of 2005, but have begun to decline, and may decline further, due
to the lifting of the ban on importing Canadian beef, which will increase the
supply of beef in the U.S.

     Payroll and benefits, as a percentage of revenue, increased from 32.8% for
the third quarter of 2004 to 33.2% for the third quarter of 2005. Year-to-date
payroll and benefits decreased from 32.5% for 2004 to 32.2% for 2005. Payroll
expense over the periods reported was generally stable, with the increase during
the third quarter of 2005 due to the opening of two restaurants during the
quarter as compared to no openings during the third quarter of 2005. Benefits
declined year-to-date as a result of a decrease in workers' compensation expense
due to a change to self-funding Ohio workers' compensation claims. Approximately
40% of our restaurants are located in Ohio.

     Other operating expenses, as a percentage of revenues, increased from 31.9%
for the third quarter of 2004 to 33.1% for the third quarter of 2005.
Year-to-date other operating expenses increased from 31.5% for 2004 to 33.0% for
2005. The increase for both the quarter and year-to-date periods were a result
of increased marketing expenses, cleaning expenses, carryout supplies, higher
credit and gift card fees, higher natural gas prices, and increased repairs and
maintenance expense, and real estate taxes. The increase in other operating
expenses, as a percentage of


                                                                              12
<PAGE>
revenues, was exacerbated by the decline in same-store sales from last year, as
many of the expenses in the category are of a fixed nature.

     Pre-opening expenses, as a percentage of revenues, remained at 0.4% for
both the third quarter of 2004 and the third quarter of 2005. Year-to-date
pre-opening expenses decreased from 0.3% for 2004 to 0.2% for 2005. The
differences were a result of the timing of restaurant openings and that all 2005
openings will be during the second half of the year.

ASSET IMPAIRMENT

     During the second quarter of 2005 we recorded a $1.45 million asset
impairment charge related to six under performing restaurants and to write off
costs associated with the proposed deregistration of our common stock. We
expensed $1.26 million for the write down of restaurant assets at the six
restaurants and for payment to a landlord to obtain a release from one of the
leases. We closed two of the restaurants during the third quarter of 2005. The
restaurants that closed were both within three years of the end of their current
lease terms. Three of the restaurants are in shopping centers where factors
associated with the center have negatively impacted our business. The two
restaurants that closed had operating losses of $385,000, including the cost of
closing. We currently expect to operate the other four restaurants through the
remainder of their lease terms, but may consider a sale or sub-lease of any of
the locations. The restaurant assets at these restaurants were written down to
estimated fair value based upon future discounted cash flows. The write down of
restaurant assets at these four restaurants will reduce annual depreciation
expense by approximately $120,000. We believe that the closing or write down of
the impaired locations, along with related overhead savings, should result in
annual savings of approximately $800,000.

     We also expensed $190,000 of costs associated with the proposed
deregistration of our common stock. Because the Securities and Exchange
Commission extended the date for compliance with the Sarbanes-Oxley Act for
non-accelerated filers and because of two initiatives which may reduce the
compliance costs, we elected to terminate the proposed deregistration
transaction during the second quarter of 2005. Accordingly, we wrote off
approximately $190,000 of costs, primarily legal, accounting and professional
fees, associated with the transaction.

ADMINISTRATIVE EXPENSES

     Administrative expenses, as a percentage of revenues, increased from 7.6%
for the third quarter of 2004 to 8.5% for the second quarter of 2005.
Year-to-date administrative expenses, as a percentage of revenues, increased
from 7.7% for 2004 to 8.1% for 2005. In dollar terms, administrative expenses
increased 14% and 10% for the quarter and year-to-date periods, respectively.
The increases in dollars were a result of raises for corporate personnel, higher
professional fees and costs associated with converting from paper gift
certificate to an electronic gift card program.


                                                                              13
<PAGE>
INTEREST EXPENSE

     Interest expense increased 19% from the third quarter of 2004 to the third
quarter of 2005 and year-to-date 14% from 2004 to 2005 due to an increase in the
interest rate charged under our revolving credit agreement.

     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, and rent. Based upon results for fiscal 2004, the
interest rate under our credit agreement increased to LIBOR plus 3.5% or prime
plus 3/4 percent. As a result, the interest rate under the revolving credit line
was 7.25% at August 7, 2005, as compared to 5.0% at August 1, 2004. Through the
use of an interest rate swap, which expires October 31, 2005, the interest rate
on approximately 25% of our two term loans is essentially fixed at 9.9% at
August 7, 2005 and at August 1, 2004. The interest rate on the balance of the
two term loans increased from 5.0% at August 1, 2004 to 7.25% at August 7, 2005.

     Total interest bearing debt increased from $30.6 million at August 1, 2004
to $32.15 million at August 7, 2005. The increase was due to construction
related borrowings under our revolving credit line and offset scheduled
principal amortization. We capitalized $76,000 of construction period interest
during the first 40 weeks of 2005 versus $143,000 during the first 40 weeks of
2004.

INCOME TAXES

     Our effective tax for the first 40 weeks of 2004 was 20.5%. In 2005 we
recorded a tax credit which reflects the tax benefit of the reported loss before
income taxes and the FICA tax on tips credit, estimated at $1.5 million for
2005. We believe we have appropriately estimated the effect of this credit on
our tax provision for 2005. However, unusual fluctuations in pre-tax income make
this a difficult calculation and may cause our effective tax rate to vary from
quarter to quarter.

     Additionally, during the third quarter of 2005, the state of Ohio
eliminated its corporate franchise income tax and replaced it with a commercial
activity tax to be included in administrative expenses. Accordingly, we have
recorded an income tax expense of $550,000 in the third quarter of 2005, which
represents a charge to write-off previously recorded State of Ohio deferred tax
assets.

LIQUIDITY AND CAPITAL RESOURCES

     Our working capital ratio remained at 0.4 to 1 at October 31, 2004 and
August 7, 2005. 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.


                                                                              14
<PAGE>
     During the first 40 weeks of 2005, we expended approximately $7,623,000 for
property additions, $48,183,000 to reduce long-term obligations and increased
cash on hand by $848,000. Funds for such expenditures were provided primarily by
$49,113,000 from proceeds of long-term obligations and $7,430,000 from
operations. 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 Max & Erma's restaurant during the remainder of 2005
and one to two Max & Erma's restaurants during fiscal 2006. At August 7, 2005 we
were contractually committed to the lease of one site, which was under
construction and to the purchase of one additional site.

     The estimated cost to complete the two restaurants that we are
contractually committed to is approximately $4.0 million as of August 7, 2005.
Funding for new restaurants is expected to be provided by cash flow from
operations, the sale-leaseback of real estate, landlord lease incentives, and
our revolving credit line. At August 7, 2005, we had approximately $1.0 million
available under our $15.0 million revolving credit line. We anticipate obtaining
a sale-leaseback commitment for approximately $2.5 million to fund land and
building related to the site to be purchased. 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, 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 problem 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 40
weeks of 2005, depreciation of $6,545,000 represented 100% of available cash
flow. Therefore, our Company could operate at a break even for an extended
period of time and still generate adequate cash flow from operations to meet
required debt repayment and fund fixed asset replacements.

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.


                                                                              15
<PAGE>
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. In performing our review, we consider the
age of the restaurant and any significant economic events, recognizing that
these restaurants may take 24 to 36 months to become or return to profitability.

INFLATION

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

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 anticipated sales at new Company-owned restaurants (paragraph 2),
anticipated royalties at new franchised locations (paragraph 2), the expectation
that cost of sales will decline further in 2005 (paragraph 4 and 16), the belief
that self-funding of Ohio workers' compensation insurance will lower our expense
by $400,000 in 2005 (paragraph 5), the belief that our target customer may be
more adversely effected by rising gas prices (paragraph 13), the expectation of
future restaurant openings (paragraph 14 and 31), the expectation of increased
franchise fees and royalties from future franchised openings (paragraph 15), the
expectation that we will continue to operate the four restaurants associated
with the asset impairment charge (paragraph 21), the belief that the closing of
two restaurants and the write-down of assets will result in annual savings of
$800,000 (paragraph 21), the belief that we have appropriately estimated the
effect of the FICA tax on tips credit on our 2005 income tax


                                                                              16
<PAGE>
expense (paragraph 27), the estimated cost to complete restaurants currently
under contract (paragraph 32), the source of funds for new restaurants
(paragraph 32), the anticipation that we will be able to obtain a sale-leaseback
commitment (paragraph 32), and the expectation that we will expend $3.0 million
and $3.9 million on fixed asset replacements and debt service, respectively
(paragraph 33).

     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 $33.1 million. To
minimize the effect of interest rate fluctuations, we have entered into an
interest rate swap arrangement. Under this agreement, we pay a fixed rate of
interest on approximately 25% of the outstanding balance.

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


                                                                              17
<PAGE>
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.

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.


                                                                              18
<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, President
                                        and Chief Executive Officer
                                        (Principal Executive Officer)


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

September 14, 2005
Date


                                                                              19
<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 20

31.2*         Rule 13a-14(a) Certification of Principal Financial Officer    Page 22

32.1+         Section 1350 Certification of Principal Executive Officer      Page 24

32.2+         Section 1350 Certification of Principal Financial Officer      Page 25
</TABLE>

*    Filed with this report.

+    Furnished with this report.


                                                                              20