UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


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

For the quarterly period ended May 1413, ~~2006~~2007


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

For the transition period from _______ to _______

Commission file number 0-1154

MAX & ERMA’S RESTAURANTS, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		31-1041397 (I.R.S. Employer identification no.)

4849 Evanswood Drive, Columbus, Ohio (Address of principal executive offices)		43229 (Zip Code)

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 þ No o

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 o Accelerated filer o Non-accelerated filer þ

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

As of May 1413, ~~2006~~2007, there were 2,~~551~~554,~~974~~474 shares of common stock outstanding.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	ITEM 1 – FINANCIAL STATEMENTS
ITEM 1 — FINANCIAL STATEMENTS
	ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 2 — \| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 3 — \| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4 — CONTROLS AND PROCEDURES
~~PART II — OTHER INFORMATION~~	PART II — OTHER INFORMATION
	Item 1 — LEGAL PROCEEDINGS
	Item 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Item 6 — EXHIBITS
SIGNATURES
EXHIBIT INDEX
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I –— FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

MAX & ERMA’S RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	May 14, 2006
	May 13, 2007
	(UNAUDITED)		October 3029, ~~2005~~2006
ASSETS
Current Assets:
Cash	$	3,121,525	$	2,910,889
Cash and Equivalents	$	2,809,072	$	2,491,877
Inventories		1,~~206~~274,~~800~~500		1,~~401~~260,~~368~~537
Other Current Assets		2,~~473~~968,~~507~~747		23,~~387~~820,~~896~~938
Total Current Assets		67,~~801~~052,~~832~~319		67,~~700~~573,~~153~~352
Property – At Cost		105,316,493		104,292,729
Property — At Cost		106,998,310		103,704,895
Less Accumulated Depreciation and Amortization		5255,~~154~~617,~~852~~931		4852,~~686~~896,~~165~~054
Property – Net		53,161,641		55,606,564
Property — Net		51,380,379		50,808,841
Other Assets		13,002,180		11,550,568
Deferred Income Taxes and Other Assets		14,790,109		13,972,472
Total	$	7273,~~965~~222,~~653~~807	$	7372,~~857~~354,~~285~~665
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current Maturities of Long-Term Obligations	$	2,~~728~~764,~~829~~393	$	42,~~227~~729,~~282~~989
Accounts Payable		45,~~219~~729,~~315~~105		54,~~589~~829,~~058~~677
Accrued Payroll and Related Taxes		2,~~681~~661,~~753~~740		2,~~718~~770,~~540~~583
Accrued Liabilities		56,~~988~~502,~~194~~082		65,~~197~~925,~~616~~532
Total Current Liabilities		1517,~~618~~657,~~091~~320		1816,~~732~~255,~~496~~781
Long-Term Obligations – Less Current Maturities		43,785,312		41,817,482
Long-Term Obligations — Less Current Maturities		41,731,609		43,065,227
Stockholders’ Equity:
Preferred Stock – $.10 Par Value; Authorized 500,000 Shares – None Outstanding
Preferred Stock — $.10 Par Value;
Common Stock – $.10 Par Value; Authorized 5,000,000 Shares, Issued and Outstanding 2,551,974 Shares At 05/14/06 and 2,546,778 Shares at 10/30/05		255,196		254,677
Authorized 500,000 Shares — None Outstanding
Additional Paid-In Capital		802,720		678,225
Common Stock — $.10 Par Value;
Retained Earnings		12,504,334		12,374,405
Authorized 5,000,000 Shares, Issued and Outstanding 2,554,474 Shares at 05/13/07 and 2,551,974 Shares at 10/29/06		255,446		255,196
Total Stockholders’ Equity		13,562,250		13,307,307
Additional Paid-In Capital		1,135,154		982,697
Total	$	72,965,653	$	73,857,285
Retained Earnings		12,443,278		11,795,764
Total Stockholders’ Equity		13,833,878		13,033,657
Total	$	73,222,807	$	72,354,665

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

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

	Twelve Weeks Ended						Twenty-eight Weeks Ended
	May 14, 2006			May 15, 2005			May 14, 2006			May 15, 2005
	May 13, 2007			May 14, 2006			May 13, 2007			May 14, 2006
REVENUES:	$	42,781,321		$	43,024,863		$	100,398,728		$	100,295,691
REVENUES	$	41,134,932		$	42,781,321		$	96,655,791		$	100,398,728
COSTS AND EXPENSES:
Costs of Goods Sold		10,~~819~~312,~~642~~159			1110,~~098~~819,~~173~~642			2524,~~753~~159,~~263~~772			25,~~610~~753,~~149~~263
Payroll and Benefits		13,~~773~~443,~~438~~100			13,~~844~~773,~~390~~438			3130,~~947~~912,~~741~~900			31,~~850~~947,~~514~~741
Other Operating Expenses		1413,~~116~~874,~~571~~815			14,~~362~~116,~~187~~571			3331,~~345~~763,~~853~~122			33,~~055~~345,~~194~~853
Pre-Opening Expenses		81,~~149~~190			~~116~~8,~~989~~149			813,~~149~~068			~~124~~8,~~038~~149
Impairment of Assets					~~1,450,000~~			~~504,524~~			1504,~~450,000~~524
Administrative Expenses		3,~~408~~224,~~131~~615			3,~~413~~408,~~598~~131			7,~~852~~679,~~711~~407			7,~~921~~852,~~698~~711
Total Operating Expenses		4240,~~125~~855,~~931~~879			4442,~~285~~125,~~337~~931			9994,~~412~~528,~~241~~269			~~100~~99,~~011~~412,~~593~~241
Operating Income (Loss)		655,390			(1,260,474	)		986,487			284,098
Operating Income		279,053			655,390			2,127,522			986,487
Interest Expense		~~646~~771,~~202~~614			~~538~~646,~~233~~202			1,~~470~~841,~~055~~505			1,~~244~~470,~~235~~055
Minority Interest in Income of Affiliated Partnerships		3819,~~503~~252			38,503			38,503			1938,~~252~~503
LOSS BEFORE INCOME TAXES		(29,315	)		(1,798,707	)		(522,071	)		(979,389	)
INCOME (LOSS) BEFORE INCOME TAXES		(511,813	)		(29,315	)		247,514			(522,071	)
INCOME TAXES (CREDIT)		(~~191~~410,000	)		(~~855~~191,000	)		(~~652~~400,000	)		(~~690~~652,000	)
NET INCOME (LOSS)	$	~~161~~(101,~~685~~813	)	$	~~(943~~161,~~707~~685	)	$	~~129~~647,~~929~~514		$	~~(289~~129,~~389~~929	)
NET INCOME (LOSS) PER SHARE
Basic	$	(0.0604	)	$	(0.3706	)	$	0.0525		$	(0.1105	)
Diluted	$	(0.0604	)	$	(0.3706	)	$	0.0525		$	(0.1105	)
SHARES OUTSTANDING:
Basic		2,~~551~~555,~~974~~664			2,~~549~~551,~~083~~974			2,~~550~~554,~~198~~066			2,~~529~~550,~~133~~198
Diluted		2,~~556~~555,~~195~~664			2,~~549~~556,~~083~~195			2,~~559~~554,~~169~~066			2,~~529~~559,~~133~~169

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

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

	Twenty-eight Weeks Ended
	May 14, 2006			May 15, 2005
	May 13, 2007			May 14, 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	129,929		$	(289,389	)
Net income	$	647,514		$	129,929
Depreciation and amortization		4,~~359~~243,~~082~~527			4,~~608~~359,~~310~~082
Loss on Disposition of Assets		148,647			112,122
Minority interest in income of Affiliated Partnerships		38,503			38,503
Impairment of Assets		45,598			1,011,000
Loss on disposition of assets		183,276			148,649
Minority interest in income of Affiliated Partnerships		38,503			19,252
Impairment of fixed assets					45,598
Changes in other assets and liabilities		(2,452,488	)		362,553
Stock based compensation		132,332			46,269
Net cash provided by operating activities		2,269,271			5,823,848
Decrease (increase) in inventories		(13,963	)		194,568
Increase (decrease) in accounts payable		495,783			(1,184,503	)
Increase (decrease) in accrued liabilities		467,707			(246,209	)
Changes in other assets and liabilities		(158,201	)		(1,262,615	)
Net cash provided by operating activities		6,036,478			2,269,271
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(23,~~326~~237,~~157~~650	)		(42,~~258~~326,~~270~~157	)
Decrease in other assets		24,764			75,283
Proceeds from sale of assets		46,716
Net cash used by investing activities		(2,301,393	)		(4,182,987	)
Net decrease (increase) in other assets		(87,490	)		24,764
Net cash used by investing activities		(3,278,424	)		(2,301,393	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations		(2436,~~943~~229,~~097~~258	)		(4224,~~536~~943,~~563~~097	)
Proceeds from long-term obligations		2533,~~767~~825,000			4025,~~557~~767,~~697~~000
Proceeds from exercise of stock options		6420,~~171~~375			~~259~~64,~~694~~171
Debt issue costs		(~~606~~18,~~813~~473	)		(40606,~~950~~813	)
Distributions to minority interests in Affiliated Partnerships		(38,503	)		(1938,~~252~~503	)
Net cash provided by (used by) financing activities		~~242~~(2,~~758~~440,859	)		(1242,~~779,374~~758	)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS		210,636			(138,513	)
NET INCREASE IN CASH AND EQUIVALENTS		317,195			210,636
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		2,~~910~~491,~~889~~877			2,~~187~~910,~~529~~889
CASH AND EQUIVALENTS AT END OF PERIOD	$	32,~~121~~809,~~525~~072		$	23,~~049~~121,~~016~~525
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest (net of $5,000 and $41,000 capitalized in 2006 and 2005)	$	1,550,922		$	1,517,224
Interest	$	2,200,447		$	1,550,922
Income taxes	$	1222,~~188~~832		$	~~342~~12,~~539~~188
Non-cash activities:
Property additions financed by accounts payable	$	~~553~~784,~~583~~029		$	1553,~~818,048~~583
Property additions financed by financing lease obligations	$	1,537,500

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

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.

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 2007 and 2006 each consists of 52 weeks and include one sixteen-week and three twelve-week quarters.

New Financial Accounting Standards

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” and seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In addition, FIN 48 requires expanded disclosure with respect to the uncertainty in income taxes and is effective as of the beginning of the Company’s 2008 fiscal year. The Company is currently evaluating the impact of FIN 48 on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), to eliminate the diversity in practice that exists due to the different definition of fair value and the limited guidance for applying those definitions in accounting principles generally accepted in the United States of America that are dispersed among the many accounting pronouncements that require fair value measurements. SFAS 157 will apply to fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS 157 on its consolidated financial statements.

In June 2006, the FASB ratified the Emerging Issues Task Force (“EITF”) position EITF 06-3, “How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is Gross Versus Net Presentation)” (“EITF 06-3”), that addresses disclosure requirements for taxes assessed by a governmental authority that is both imposed concurrently with a specific revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value-added, and some excise taxes. EITF 06-3 requires disclosure of the method of accounting for the applicable assessed taxes and the amount of assessed taxes that are included in revenues if they are accounted for under the gross method. The provisions of EITF 06-3 are effective for interim and annual reporting periods beginning after December 15, 2006, with earlier

		In October 2005, the FASB issued FASB Staff Position (FSP) 13-1, “Accounting for Rental Costs Incurred during a Construction period.” The guidance requires the rental costs recognized for ground or building operating leases during the construction period be recognized as rental expense. The guidance permits either retroactive or prospective treatment for periods beginning after December 15, 2005. The Company will prospectively change its policy from capitalization to expensing beginning in fiscal 2006. The adoption of the FSP 13-1 will result in an increase of approximately $60,000 in preopening expenses for each new restaurant opened.
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 305,950 shares of common stock were outstanding at May 14, 2006, but options to purchase 296,979 were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Options to purchase 231,950 shares of common stock were outstanding at May 15, 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. The difference between basic shares outstanding and diluted shares outstanding were as follows:

application permitted. The Company presents sales and other taxes collected from customers on a net basis, accordingly such taxes are not included in revenues and cost of goods sold.

	Twelve Weeks Ended				Twenty-eight Weeks Ended
	May 14, 2006		May 15, 2005		May 14, 2006		May 15, 2005
Basic Shares Outstanding		2,551,974		2,549,083		2,550,198		2,529,133
Dilutive Effect of Stock Options		4,221				8,971
Diluted Shares Outstanding		2,556,195		2,549,083		2,559,169		2,529,133

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, “Quantifying Misstatements” (“SAB 108”). SAB 108 provides guidance on quantifying and evaluating the materiality of unrecorded misstatements requiring the use of both a balance sheet and an income statement approach when quantifying and evaluating the materiality of a misstatement. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have a material effect on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “Establishing the Fair Value Option for Financial Assets and Liabilities,” to permit all entities to choose to elect to measure eligible financial instruments at fair value. SFAS No. 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157, “Fair Value Measurements.” An entity is prohibited from retrospectively applying SFAS No. 159, unless it chooses early adoption. Management is currently evaluating the impact of SFAS No. 159 on its consolidated financial statements.

Net Income Per Share

Basic income per share amounts are based on the weighted average number of shares of common stock outstanding during the periods 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 391,450 shares of common stock were outstanding at May 13, 2007, however no options were included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares or the assumed proceeds resulted in a lower number of shares outstanding and, therefore, the effect would be antidilutive. Options to purchase 305,950 shares of common stock were outstanding at May 14, 2006, but options to purchase 296,979 were not included in the computation of diluted earnings per share because the 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:


	Twelve Weeks Ended				Twenty-eight Weeks Ended
	May 13, 2007		May 14, 2006		May 13, 2007		May 14, 2006
Basic Shares Outstanding		2,555,664		2,551,974		2,554,066		2,550,198

Dilutive Effect of Stock Options				4,221				8,971


Diluted Shares Outstanding		2,555,664		2,556,195		2,554,066		2,559,169

4. Stock Options ~~During the twenty-eight weeks ended May 15, 2006, the Company’s stock option activity and weighted average exercise prices were as follows:~~

	Shares			Exercise Price
Outstanding, October 30, 2005		221,950		$	13.44
Granted		95,196			11.67
Forfeited		(6,000	)		(16.50	)
Exercised		(5,196	)		(6.18	)
Outstanding, May 14, 2006		305,950		$	12.95

During the twenty-eight weeks ended May 13, 2007, the Company’s stock option activity and weighted average exercise prices were as follows:

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 $6.27 per share and $4.49 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%, risk-free interest rate of 3.8% and 4.59%, respectively, expected volatilities assumed to be 28% and 31%, respectively, and expected lives of 3.5 to 10 years. The stock-based employee compensation expense for the twelve weeks ended May 14, 2006 was $24,281 ($15,783 net of tax) and for the twenty-eight weeks ended May 14, 2006 was $46,269 ($30,075 net of tax) leaving a remaining unrecognized compensation expense at May 14, 2006 of $357,775 to be recognized over a weighted average period of 3.9 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


	Shares			Exercise Price
Outstanding, October 29, 2006		288,950		$	13.22
Granted		105,000			8.48
Exercised		(2,500	)		(8.15	)

Outstanding, May 13, 2007		391,450		$	11.98

The options granted during the second quarter of 2007 and not exercised were on 102,500 shares and had an intrinsic value of $25,625 and a fair market value of $217,500.

Stock-based employee compensation expense for the twenty-eight weeks ended May 13, 2007 was $132,332 leaving a remaining unrecognized compensation expense at May 13, 2007 of $501,268 to be recognized over a weighted average period of 4.03 years. Stock-based employee compensation expense for the twenty-eight weeks ended May 14, 2006 was $46,269.

Income Taxes

During the twenty-eight weeks ended May 13, 2007, the Company recorded a tax credit of $400,000, which reflects the benefit of the FICA tax on tips credit of approximately $500,000. A valuation allowance against deferred assets at May 13, 2007 is not considered necessary because it is not more likely than not the deferred tax asset will not be fully realized.

~~awards~~ITEM ~~under~~2 ~~the~~— ~~plan consistent with the fair value method of SFAS No. 123, the effect on the Company~~MANAGEMENT’sS ~~net~~DISCUSSION ~~income~~AND ~~and~~ANALYSIS ~~earnings~~OF ~~per~~FINANCIAL ~~share~~CONDITION ~~would~~AND ~~have~~RESULTS ~~been~~OF ~~as follows:~~OPERATIONS

	Twelve Weeks Ended			Twenty-eight Weeks Ended
	May 15, 2005			May 15, 2005
Net income (loss), as reported	$	(943,707	)	$	(289,389	)
Deduct: total stock-based compensation expense determined under the fair value method for all awards, net of related tax benefits		(1,277	)		(6,384	)
Pro forma net income (loss)	$	(944,984	)	$	(295,773	)
As reported earnings per common share:
Basic	$	(0.37	)	$	(0.11	)
Diluted	$	(0.37	)	$	(0.11	)
Pro forma earnings per common share:
Basic	$	(0.37	)	$	(0.12	)
Diluted	$	(0.37	)	$	(0.12	)

OVERVIEW

		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.
		During the second quarter of fiscal 2005, the Company recorded a $1,450,000 asset impairment charge. The charge consisted of $1,260,000 (including $439,000 of cash charges) related to six under-performing restaurants for the write-down of restaurant assets based on a discounted cash flow analysis and the payment to a landlord to obtain a release from one of the leases. Two of the restaurants were closed in 2005. The Company also expensed $190,000 to write-off costs associated with the proposed deregistration of its common stock which was terminated in 2005.

We derive revenues and income from the operation and franchising of restaurants. Our Company-owned and franchised restaurants sell both food and alcoholic beverages. 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. Existing franchised restaurants tend to be located on the outer edge of the mid-west, e.g., Philadelphia, Richmond, Virginia 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. The first Las Vegas location is scheduled to open in the first quarter of 2008. In 2006, we hired a Director of Franchise Development to more aggressively market franchises because we believe it is a key element of our growth. During the first quarter of 2007, we signed a four-restaurant franchise development agreement for the Coastal Carolinas and a ten-restaurant agreement for Southeast Florida. 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.

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. In 2006, we opened one restaurant. Our cash investment in that restaurant was $1,033,000 because we lease the real estate. We expect that the average cash investment in future restaurants will be between $750,000 and $1.0 million as all restaurants are expected to be leased. 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.

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. Since late 2004 and continuing through the second quarter of 2007, same-store sales have been negative. Increased competition is a major factor affecting same-store sales. Other factors such as the mid-western economy, gas prices, utility costs and rising interest rates may also have affected consumer spending at casual dining restaurants. 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 higher sales volume locations at a controlled pace and iv) generating same-store sales increases from improved operations and effective marketing.

6. Periodically ~~Debt~~we ~~Restructuring~~experienced Onfluctuations ~~May~~in 5,cost ~~2006,~~of ~~the~~goods ~~Company~~sold, ~~amended~~as ~~its~~a ~~bank~~percentage ~~loan~~of ~~agreement~~revenues, due ~~and~~to ~~issued~~rising acommodity $7prices.0 ~~million,~~Our ~~interest-only~~approach ~~senior subordinated note~~ to anrising ~~unrelated~~commodity ~~party.~~prices ~~The~~has ~~note~~always ~~bears~~been ~~interest,~~to cautiously ~~payable~~raise ~~quarterly,~~prices periodically at a ~~fixed~~ rate ofconsistent ~~14.5%~~ with ~~principal~~inflation ~~due~~and ~~May~~not 1,over ~~2012.~~react ~~The~~to shorter-term ~~net~~price ~~proceeds of approximately $6~~spikes.5 ~~million~~As ~~were used to pay off~~ a ~~$2.4~~result ~~million bank note that had required annual principal payments~~ of ~~$1.5~~this ~~million through December 2007~~policy, ~~reduce~~we ~~borrowings~~have ~~under~~generally ~~the~~maintained ~~Company’s~~a ~~revolving~~gradually declining ~~credit~~cost ~~line~~of bysales $2percentage.8 ~~million~~This ~~and~~approach ~~increase~~along ~~working~~with ~~capital~~improved bypurchasing ~~$1.3~~and ~~million.~~more favorable Ascommodity aprices ~~result,~~has ~~the~~allowed ~~outstanding~~us ~~borrowings under the Company’s new revolving credit agreement were reduced~~ to areduce ~~$12.8~~our ~~million~~cost ~~five-year term loan, requiring quarterly principal payments~~ of ~~$600,000~~sales ~~and~~percentage ~~approximately~~to ~~$12.2 million outstanding under a $15.0 million revolving credit line. Both~~ the ~~term~~low ~~loan~~end ~~and~~of its ~~revolving~~historical ~~credit~~range ~~line bear interest, payable quarterly,~~ at ~~prime +3/~~25.4% orfor ~~LIBOR~~2006 ~~plus~~and 325.50% atfor the ~~Company’s~~first ~~option,~~half ~~with the outstanding balance under both loans due March 1, 2011. Both the bank loan agreement and the subordinated note agreement require the maintenance~~ of ~~certain financial covenants~~2007. ~~The Company was in compliance with all covenants at May 14, 2006.~~

~~ITEM~~ We 2have –experienced ~~MANAGEMENT’S~~sharply ~~DISCUSSION~~rising ~~AND~~health ~~ANALYSIS~~insurance OFcosts ~~FINANCIAL~~over ~~CONDITION~~the ~~AND~~past ~~RESULTS~~several OFyears. ~~OPERATIONS~~During the first quarter of 2004, we implemented a new health insurance program and increased our employee contribution rates in an effort to reduce our health insurance costs. By increasing employee contribution levels in 2005 and 2006, we reduced health insurance costs 6.5% in 2006 and 23% year-to-date in 2007. We believe that the rising cost of healthcare will continue to be a challenge.

~~OVERVIEW~~ We have debt borrowings of approximately $28.7 million. Three fourths of 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 2007. The remaining debt is a $7.0 million senior subordinated note issued on May 5, 2006. The note carries a fixed interest rate of 14.5%. The principal balance of the note is due May 5, 2012.

WeAs ~~derive~~a ~~revenues~~result ~~and~~of ~~income from~~ the ~~operation~~reduced ~~and~~debt ~~franchising~~service ofresulting ~~restaurants.~~from ~~Our Company-owned~~our ~~and~~second ~~franchised~~quarter ~~restaurants~~2006 ~~sell~~debt restructuring ~~both food~~ and ~~alcoholic beverages (with~~ the ~~exception of~~increased ~~two~~availability ~~franchised~~under ~~locations that sell food only). Our restaurants are primarily located in the midwest, within a 400 mile radius surrounding Columbus, Ohio,~~ our ~~Company’s~~credit ~~headquarters~~line, ~~and~~we toanticipate aan increased ~~lesser~~growth ~~extent~~rate in ~~the~~2007 ~~southeast.~~to ~~Our~~three ~~franchised~~ restaurants. ~~tend~~Presently, towe beexpect ~~located~~annual ondebt ~~the~~service ~~outer~~and ~~edge of~~replacement ~~the~~capital ~~midwest,~~expenditures ~~e.g.,~~will ~~Philadelphia,~~total ~~Green~~approximately ~~Bay,~~$6.4 million ~~and~~per Styear. ~~Louis,~~The ~~with~~availability ~~selective~~of ~~markets~~landlord construction orallowances ~~locations within~~and the ~~midwest~~sale-leaseback ~~also~~of ~~operated~~real byestate, ~~franchisees.~~both Inof ~~late~~which ~~2005,~~result wein ~~signed~~ a ~~ten-restaurant~~reduced ~~franchise~~cash ~~development~~investment ~~agreement~~per ~~for~~new ~~Las Vegas~~restaurant, ~~Nevada.~~will Inlikely ~~2006,~~affect weour ~~have~~future ~~signed~~growth ~~single unit franchise agreements for restaurants to be located in the Virginia Beach Doubletree Hotel and the Norfolk Hilton Hotel~~rate.

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 that affect same-store sales are the economy, gasoline prices, the quality of restaurant operations and reduced discounting. 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 higher sales volume locations at a controlled pace (the last eight restaurant openings reported annualized sales of $2,640,000 during the first twenty-eight weeks of 2006) and iv) generating same-store sales increases from improved operations and effective marketing.

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% and remained at that level through the second quarter of 2006.

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 2.4% for the first half of 2006. Average unit sales increased from $2,344,000 in 2005 to a first half 2006 annualized rate of $2,360,000.

We have borrowings of approximately of $32.0 million. Three fourths of 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. The remaining debt is a $7.0 million senior subordinated note issued on May 5, 2006. The note carries a fixed interest rate of 14.5%. The principal balance of the note is due May 5, 2012. Net proceeds of the note were used to pay off a $2.4 million bank note that required annual principal payments of $1.5 million, reduce the outstanding balance under our revolving credit line and increase working capital. Due to the higher interest rate on this note, the net reduction in annual debt service (principal and interest) should be approximately $1.1 million.

Approximately two thirds of our total borrowings are due to 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.

At current levels of profitability, cash flow after debt service and replacement capital expenditures may be less than $3.0 million annually. Because of this and limited availability of funds under our credit facility, we had reduced our expected growth rate in 2006 to one to two restaurants. As a result of the reduced debt service resulting from our second quarter 2006 debt restructuring and the increased availability under our credit line, we anticipate an increased growth rate in 2007 to two to three restaurants. Subsequent to the restructuring, we are committed to annual debt service and replacement capital expenditures totaling approximately $6.4 million per year. 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 future growth rate.

YEAR-TO-YEAR COMPARISONS AND ANALYSIS

RESULTS OF OPERATIONS

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

	Twelve			Twelve			Twenty-eight			Twenty-eight
	Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended
	May 14, 2006			May 15, 2005			May 14, 2006			May 15, 2005
	May 13, 2007			May 14, 2006			May 13, 2007			May 14, 2006
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of Goods Sold		(25.31	)		(25.83	)		(25.70	)		(25.57	)
Payroll & Benefits		(32.27	)		(32.2	)		(3132.80	)		(31.8	)
Other Operating Expenses		(33.07	)		(33.40	)		(3332.29	)		(33.02	)
Pre-Opening Expenses		—			~~(0.3~~—	)		—			~~(0.1~~—	)
Impairment of Assets		—			~~(3.4~~—	)		~~(0.5~~—	)		(10.45	)
Administrative Expenses		(7.98	)		(7.9	)		(7.89	)		(7.98	)
Interest Expense		(1.59	)		(1.25	)		(1.59	)		(1.25	)
Minority Interest		~~(0.1~~—	)		—(0.1	)		—			—
Income Tax Credit		01.40			2.0.4			0.64			0.76
Net Income		0.4	%		(2.2	)%		0.1	%		(0.2)	%
Net Income (Loss)		(0.2	)%		0.4	%		0.7	%		0.1	%

REVENUES

Revenues for the second quarter of ~~2006~~2007 decreased $~~244~~1,646,000 or ~~less than 1~~3.08% from the second ~~quarter~~ quarter of ~~2005~~2006. The decrease was a result of i) the closing of ~~two~~one ~~restaurants~~restaurant during ~~2005~~the ~~and~~fourth quarter of 2006 and one during the first quarter of ~~2006~~2007 and ii) a $1,~~309~~397,000 or 3.34% decline in sales at ~~restaurants~~ restaurants opened at least eighteen months, the effect of which was ~~significantly~~partially offset by the opening of ~~three~~ one higher sales volume ~~restaurants~~restaurant in ~~2005~~late 2006 and a 1915% increase in franchise fees and royalties to from $~~420~~426,000 ~~during~~for the second quarter. Noof ~~Company-owned~~2006 ~~restaurants~~to ~~opened~~$482,000 ~~during~~for the second quarter. ~~One~~of 2007. No Company-owned or franchised ~~restaurant~~restaurants opened induring the ~~Detroit~~second ~~Airport~~quarter of 2007.

Year-to-date revenues ~~increased~~decreased $~~103,000~~3.7 million or ~~less than 1~~3.07% ~~for~~from ~~2005~~2006 to ~~2006~~2007. The ~~slight increase~~decrease was a result of the ~~three~~closing ~~restaurants~~of ~~that~~two ~~opened~~restaurants induring ~~2005,~~2006 ~~which~~and ~~was~~one ~~offset~~during by the ~~restaurant~~ ~~closing~~first ~~referred~~quarter toof ~~above~~2007 and a $23,~~214~~235,000 or 23.45% decline in same-store sales from ~~2005~~ 2006 to ~~2006~~2007. Year-to-date franchise royalties increased 1330% to $~~914~~1,~~000~~220,000 ~~but~~for ~~franchise~~2007 ~~fees fell~~ from ~~$90,000~~ ~~in 2005 to~~ $25940,000 infor 2006 ~~due to fewer franchised restaurant openings in 2006~~.

11 During the second quarter of 2007, we closed two above average sales volume locations for remodeling to our new prototype look for a combined 25 days. In the comparable time period last year, the two restaurants reported sales of $164,000 during that period. During the first three weeks of the third quarter of 2007, the two restaurants reported a 15% or $43,000 same-store sales increase. Additionally, all seven restaurants remodeled to date to the new prototype look, reported a combined same-store sales increase of 4.8% for the first three weeks of the third quarter of 2007. We believe the remodeling of restaurants to the new prototype look is a key to improving same-store sales.

to During ~~visit~~2007, ~~our~~the ~~restaurants~~per person guest check average increased 6.3% ~~These~~due ~~limited~~to ~~time~~an approximately 3.0% ~~offers~~($2.8 million) ~~may~~menu ~~combine~~price anincrease ~~element~~over 2006 and the introduction of ~~value~~higher ~~with~~priced menu items. However, ~~that~~a ~~may~~decline ~~only~~in becustomer ~~available~~counts ~~for~~of a9.5% ~~relatively~~more than offset the check average increase and ~~short~~resulted ~~period~~in ofthe ~~time~~3.7% decrease in same-store sales. We believe that athe ~~significant~~decline ~~factor~~in customer counts is primarily the result of problems affecting consumer spending and the casual dining industry, such as gas prices, utility costs, interest rates and the overall economy. Our sales are further impacted by our concentration of restaurants in the ~~year~~mid-west, where the economy significantly lags the national economy. Additionally, during the first quarter of 2007, we curtailed the use of television advertising. As a result, the cost of television advertising declined $650,000 or approximately 83%, from 2006 to~~-date~~ 2007. We believe some portion of our customer count and same-store sales decline was isrelated ~~lost~~to ~~sales~~the ~~associated~~reduction ~~with~~in television advertising. We also believe that the advertising was not cost effective as year-to-date restaurant profit margins and profit dollars improved over last year and that some of that improvement was a result of reduced ~~couponing~~advertising expense.

We expect to open ~~one~~three ~~restaurant~~restaurants ~~during~~in the ~~remainder~~fourth quarter of ~~2006~~2007 and three additional restaurants in 2008. We ~~are~~were under contract to purchase ~~one~~or ~~site~~lease four sites at the end of the second quarter of ~~2006,~~2007 ~~with~~and ~~construction expected to commence during the third quarter. We~~ are negotiating for the purchase of ~~one~~three additional ~~location, but believe a total of two to three restaurants will open in 2007~~locations.

We also expect continued increases in franchise fees and royalties. The number of franchised restaurants ~~increased from twenty~~ at the end of the second quarter of ~~2005~~2007 toand 2006 remained at twenty-three. ~~at the~~Three ~~end~~franchised ofrestaurants ~~the~~closed ~~second~~during ~~quarter~~2006. Two of ~~2006.~~the ~~One~~closed franchised ~~restaurant~~locations ~~closed~~were ~~during~~test sites on the ~~first~~Ohio ~~half~~Turnpike ofinvolving ~~2006~~limited table service and no alcoholic beverages. Ultimately, the locations did not generate sufficient sales to expand the test and ~~one~~the locations were closed. One franchised restaurant opened in the Detroit, Michigan airport, during the second quarter of 2006. Three franchised restaurants opened during the first ~~half~~quarter of 2007 in Findlay, Ohio, the Norfolk ~~2006~~Hilton Hotel, and the Virginia Beach Doubletree Hotel. One franchised restaurant closed during the second quarter of 2007 in Green Bay, Wisconsin. We anticipate the opening of ~~three~~four additional franchise ~~franchised~~ restaurants during the ~~second~~remainder ~~half~~ of ~~2006~~2007. During the first quarter of 2007, the Company signed franchise area development agreements for four restaurants in the Coastal Carolinas and ten restaurants in Southeastern Florida.

COSTS AND EXPENSES

Cost of goods sold, as a percentage of revenues, decreased from 25.83% for the second quarter of ~~2005~~2006 to 25.31% for the second quarter of ~~2006.~~2007 ~~The~~due ~~decrease~~to ~~was~~ a ~~result~~40 ~~declining~~basis ~~market~~point ~~prices for beef~~($165,000) ~~chicken~~reduction ~~and~~in meat ~~dairy~~cost ~~products~~ and an50 ~~approximate~~basis 2%point ~~menu~~($205,000) ~~price~~reduction ~~increase~~in ~~over~~seafood ~~last year~~costs. Year-to-date cost of goods sold, as a percentage of revenues, ~~increased~~decreased from 25.57% for ~~2005~~2006 to 25.70% for ~~2006~~2007. The ~~increase~~ decrease was aprimarily ~~result~~due ofto the ~~bundled~~fact ~~discounts~~that ~~built into~~ the ~~“Pick~~bundled ~~Three”~~discount ~~menu promotion~~in ~~that~~last ~~ran~~year’s ~~during the~~ first quarter ~~of 2006. The typical~~ “Pick Three” ~~combination was sold~~ ~~with~~promotion ~~a cost~~ (approximately ~~seven~~30%) ~~percentage~~was ~~points~~ higher than ~~our~~the ~~overall~~discount ~~cost~~built ofinto ~~sales.~~2007’s ~~With approximately~~“Three ~~12%~~Degrees of ~~our customers selecting a “Pick Three~~ Temptation” ~~combination and with the~~ promotion ~~running~~ ~~for~~ (approximately ~~ten~~15%). ~~weeks,~~A it3% ~~had~~menu ~~the~~price ~~overall~~increase ~~effect~~over oflast ~~increasing~~year ~~cost~~also ~~of goods sold by~~helped 25reduce ~~to 30 basis points for the year-to-date period. Subsequent to the end of the promotion,~~ cost of goods sold, as a percentage of revenues, ~~fell~~for toboth ~~approximately~~the ~~25.3%~~quarter and ~~remained there through the~~year-to-date ~~second quarter~~periods.

Payroll and benefits, as a percentage of revenues, ~~remained~~increased atfrom 32.2% for ~~both~~ the second ~~quarter~~ quarter of ~~2005~~2006 ~~and~~to 32.7% for the second quarter of ~~2006~~2007. ~~For~~Payroll ~~both the quarter and year-to-date periods, higher benefits~~ expense, ~~primarily~~rose ~~health~~approximately ~~care, offset lower payroll costs.~~90

~~Other operating expenses, as a percentage of revenue decreased from 33.4% for the second~~10 quarter of 2005 to 33.0% for the second quarter of 2006. The decrease was a result of reduced advertising in the second quarter of 2006, the effect of which was partially offset by rising utility costs. Year-to-date, other operating expenses increased from 33.0% for 2005 to 33.2% for 2006. The increase was entirely due to a $524,000 or 14% increase in utilities from 2005 to 2006 which offset other cost savings.

~~Pre-opening~~basis points ~~expenses~~($370,000) asin athe ~~percentage~~second quarter of ~~revenues~~2007 due to the decline in same-store sales during the quarter and due to the increase in the Ohio minimum wage (approximately $200,000), ~~declined~~which ~~from~~went 0into effect January 1, 2007.3% ~~for~~Benefits ~~the~~expense ~~second~~declined ~~quarter~~approximately 40 basis points (approximately of$200,000) ~~2005~~due primarily to reduced healthcare costs. Year-to-date, payroll and benefits increased from 031.18% for ~~2005~~ 2006 to 32.0% for 2007. The year-to-date toincrease 0%was ~~for~~due ~~both~~to the ~~second~~effect ~~quarter~~ of ~~2006~~the ~~and~~Ohio ~~year-~~minimum wage increase referred to~~-date~~ ~~2006~~above as(approximately no$380,000) ~~restaurants~~which ~~were~~was ~~opened~~partially ~~during~~offset ~~2006~~by a combined 23% or $410,000 decline in Worker’s Compensation and health insurance expense.

Other operating expenses, as a percentage of revenues, increased from 33.0% for the second quarter of 2006 to 33.7% for the second quarter of 2007. The increase was primarily a result of higher utilities and repair and maintenance expenses, each of which was up approximately 40 basis points or $140,000 over the second quarter of 2006. Year-to-date, other operating expenses as a percentage of revenues declined from 33.2% for 2006 to 32.9% for 2007. The reduction was a result of a $525,000 (0.5%, as a percentage of revenues) decline in advertising expense, as we curtailed the use of television advertising and reduced menu ($143,000) and linen ($155,000) expense. These reductions were partially offset by higher repair and maintenance expense ($120,000 or 0.2% as a percentage of revenues) and the effect of declining same-store sales on fixed expenses.

Pre-opening expenses, as a percentage of revenues, remained at 0% for the quarter and year-to-date periods of both years as no restaurants were opened during the first half 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.

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 subsequently closed two of the restaurants during the third quarter of 2005. The closed restaurants were both within three years of the end of their lease terms. Through the first twenty-eight weeks of 2005, the two restaurants that were closed had operating losses of $300,000. 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 a fair value based upon future discounted cash flows.

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, remained relatively stable at approximately 7.9% over the periods reported. In dollar terms, administrative expenses ~~decreased~~ declined slightly for both the quarter and year-to-date periods. ~~The~~Administrative ~~decreases~~expenses ~~were~~include astock based ~~result~~compensation oftotaling ~~overhead~~approximately ~~reduction~~$65,000 ~~put~~and ~~in place in late 2005~~$24,000 for the ~~effect~~second quarter of ~~which~~2007 ~~was~~and 2006, ~~partially~~respectively, ~~offset~~and by$132,000 ~~higher~~and ~~benefit~~$46,000 ~~expense~~ for ~~corporate employees,~~the ~~primarily~~year-to-date ~~health~~periods ~~care~~of ~~costs~~2007 and 2006, respectively.

1311

INTEREST EXPENSE

Interest expense increased 2019% from the second quarter of ~~2005~~2006 to the second quarter of ~~2006~~2007 and 25% year-to-date ~~18% from 2005 to 2006~~ due ~~primarily~~ to anthe increase in the prime interest rate and LIBOR and the issuance of a higher rate senior subordinated note in the second quarter of 2006. The interest rate under our revolving credit agreement is based upon the ratio of bank indebtedness plus ~~future~~rent ~~minimum rental commitments~~ expense multiplied by 8 to earnings before interest, taxes, depreciation, amortization and ~~amortization.~~rent expense. Based upon results for fiscal ~~2004~~2005 and ~~2005~~2006, the interest rate under our credit agreement was LIBOR plus 3.5% or prime plus 3/4 percent for both ~~2005~~2006 and ~~2006~~2007. As a result of increases in prime and LIBOR, the interest rate under our revolving credit ~~line was 8.5% at May 14, 2006, as compared to 6.75% at May 15, 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~~ 9.90% at May 1513, ~~2005.~~2007 ~~The~~as ~~interest rate on the balance of the two term loans was 6.75%.~~compared ~~The~~to interest rate protection agreement expired October 31, 2005. As a result of our May 5, 2006 debt restructuring, one of our two term loans was paid in full at May 14, 2006. The interest rate on both the second term loan, with a $12.8 ~~million balance and our revolving credit line with a $12~~.~~2 million balance, was 8.~~5% at May 14, 2006. ~~The interest rate on the $7.0 million senior~~ subordinated note issued May 5, 2006 was fixed at 14.5%. As a result of the higher interest rate on our senior subordinated note, we anticipate an approximate 20% increase in our interest expense during the remainder of 2006 and into 2007.

Total interest bearing debt ~~increased~~(excluding lease obligations) decreased from $2932.10 million at May 15 14, ~~2005~~2006 to $3228.07 million at May 1413, ~~2006~~2007. The ~~increase~~decrease was due to ~~funding~~scheduled principal amortization and a reduction in the outstanding balance of ~~construction~~our ~~costs~~revolving ~~incurred~~credit ~~during~~line. ~~2005~~As a result of our May 5, ~~less~~2006 debt restructuring, one of two term loans was repaid in full. The interest rate ~~scheduled~~on ~~principal~~both ~~amortization~~the second term loan, with a $10.4 million Webalance ~~capitalized~~at May 13, 2007 and our revolving credit line, with a $11.3 million balance at May 13, 2007, was 9.0%. The interest rate on the $7.0 million senior subordinated note issued May 5,~~000~~ of2006 ~~construction~~was ~~period~~fixed at 14.5%. At May 14, 2006, the interest ~~during~~rate on the $25.0 million balance outstanding under our revolving credit agreement was 8.5%. During the first ~~28 weeks~~quarter of ~~2006~~2007, ~~versus~~we incurred a $411.5 million financing lease obligation,~~000~~ with ~~during~~an 8.35% fixed interest rate, in connection with the ~~first~~funding 28of construction costs for our Springboro, Ohio restaurant, which opened in October ~~weeks~~2006. We anticipate that subsequent to the second quarter of ~~2005~~2007, interest expense will decline as we reduce the outstanding balance of our term loan.

We capitalized $15,000 of construction period interest during the first 28 weeks of 2007 versus $5,000 during the first 28 weeks of 2006.

INCOME TAXES

For the first 28 weeks of ~~2006~~2007, we reported a tax credit of $~~652~~400,000, which reflects the tax benefit of the ~~reported loss before income taxes and the~~ FICA tax on tips credit of approximately $~~475~~500,000. For ~~2005~~2006, we recorded a tax credit of $~~690~~652,000 which reflects the tax benefit of the reported loss before income taxes and the FICA tax on tips credit of approximately $~~357~~475,000. We believe we have appropriately estimated the effect of this credit on our tax provisions. However, unusual fluctuation in pre-tax income or a pre-tax loss make this a difficult calculation and may cause our effective tax rate or tax credits to vary from quarter to quarter.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital ratio ~~remained~~declined atfrom 0.45 to 1 at October 3029, ~~2005~~2006 ~~and~~to 0.4 to 1 at May 1413, 2007. ~~2006~~The decline was due to the collection of a $1.5 million receivable early in the first quarter of 2007 for reimbursement of the construction costs of a restaurant which opened late in the fourth quarter of 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.~~

1412

~~During~~once ~~the~~every ~~first 28~~10 ~~weeks~~days) ofpermits ~~2006,~~a welimited ~~expended~~investment ~~approximately~~in $2inventory,~~326,000~~ ~~for property additions~~ and ~~$24,943,000~~3) totrade ~~reduce~~payables ~~long-term obligations and increased cash on hand $210,000. Funds~~ for food ~~such~~purchases ~~expenditures~~usually ~~were~~become ~~provided~~due ~~primarily~~after byreceipt ~~$25,767,000 from proceeds~~ of ~~long-term~~cash ~~obligations and $2,269,000~~ from ~~operations. We routinely draw down and repay balances under our revolving credit agreement,~~ the ~~gross~~related ~~amounts of which are included in the above numbers~~sales.

WeDuring ~~intend~~the tofirst ~~open~~twenty-eight ~~one~~weeks ~~Max & Erma’s restaurant during the remainder~~ of ~~2006 and two to three in~~ 2007~~. At May 14~~, ~~2006,~~ we ~~were~~expended ~~contractually~~approximately ~~committed~~$3,103,000 tofor ~~the purchase of one site. The estimated~~property ~~cost~~additions toand ~~complete that restaurant is approximately~~ $~~2.8 million as of May 14~~36, ~~2006. Additionally~~229, we000 ~~plan~~ to ~~remodel~~reduce uplong-term toobligations ~~five~~and ~~restaurants~~increased ~~per~~cash ~~year~~on athand anby ~~estimated cost of~~ $~~200~~317,000 ~~per remodel~~. ~~Funding~~Funds for ~~new~~such ~~restaurants~~expenditures ~~and~~were ~~restaurant remodels is expected to be~~ provided primarily by ~~cash~~$33,825,000 ~~flow~~ from ~~operations,~~ ~~the~~proceeds ~~sale-leaseback~~ of ~~real~~long-term obligations ~~estate, landlord construction allowances~~ and ~~our~~$6,036,000 ~~revolving credit~~from ~~line~~operations. AtWe ~~May 14,~~routinely ~~2006,~~draw wedown ~~had~~and ~~approximately~~repay ~~$2.8 million~~balances ~~available~~ under our ~~$15.0 million~~ revolving credit ~~line and a $2.5 million sale-leaseback commitment. Typically~~agreement, ~~these~~the ~~have~~gross ~~been~~amounts ~~the sources~~ of ~~funding~~which ~~for~~are ~~capital~~included ~~expenditures~~in ~~and~~the weabove ~~expect that they will remain so~~numbers.

InWe ~~addition~~intend to ~~expenditures~~open ~~for~~three ~~new~~Max & Erma’s restaurants, ~~our~~during ~~other~~the ~~significant~~fourth ~~uses~~quarter of ~~cash~~2007 ~~are~~and ~~for~~three ~~fixed~~per ~~asset~~year ~~replacements and debt repayment~~thereafter. WeAt ~~expect to expend approximately $4.0~~May ~~million~~13, ~~and $2.4 million annually on fixed asset replacement and debt repayment~~2007, ~~respectively.~~we ~~Expenditures~~were ~~for new~~contractually ~~restaurants,~~committed ~~prior~~ to ~~signing~~ the ~~related contract to~~ purchase or lease, ~~and restaurant~~of ~~remodels~~four ~~are~~sites. ofThree aadditional ~~more~~sites ~~discretionary~~had ~~nature~~been ~~and~~approved ~~may be curtailed if cash flow from operations~~ and ~~other~~ ~~financing sources~~ were ~~diminished.~~in ~~Based~~some ~~upon~~stage ~~the first 28 weeks~~ of ~~2006, cash flow from operations is $2,269,000 (due to depreciation) which was slightly less than capital expenditures for the period~~negotiations. ~~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.~~

InThe ~~the~~estimated ~~second~~cost ~~quarter~~to ofcomplete ~~2006,~~the wefour ~~completed~~restaurants athat ~~restructuring~~we ofare ~~our~~contractually ~~long-term~~committed ~~debt.~~to ~~The~~is ~~restructuring~~approximately ~~consisted~~$10.2 million as of anMay 13, ~~amendment~~2007. Additionally, we plan to ~~our~~remodel ~~bank~~up ~~loan~~to ~~agreement~~five restaurants ~~and~~per ~~the~~year ~~issuance~~at ofan aestimated ~~$7.0 million,~~cost ~~interest~~of ~~only~~$200,000 ~~senior~~per ~~subordinated note~~remodel. ~~The~~Funding ~~net~~for ~~proceeds~~new ofrestaurants ~~approximately $6.5 million~~and ~~were~~restaurant ~~used~~remodels tois ~~payoff~~expected ato ~~$2.4 million~~be ~~bank~~provided ~~note,~~by ~~reduce~~cash ~~borrowings~~flow ~~under~~from ~~our~~operations, ~~revolving~~the ~~credit~~sale-leaseback ~~line by~~of ~~$2.8 million~~real ~~and~~estate ~~increase~~under ~~working~~financing ~~capital~~lease byobligations, ~~$1.3 million.~~landlord Asconstruction aallowances ~~result,~~and ~~annual~~our ~~principal payments~~revolving ~~under~~credit ~~our~~line. ~~bank~~At ~~loan~~May 13, ~~agreement~~2007, ~~have~~we ~~been~~had ~~reduced~~approximately ~~from~~ $3.97 million toavailable ~~$2.4 million and the outstanding balance~~ under our $15.0 million revolving credit line, ~~has~~and ~~been reduced to~~ $~~12.~~2.5 million at ~~May 14,~~of ~~2006.~~landlord ~~Under~~construction ~~the~~allowances ~~amended~~committed ~~bank~~to ~~loan~~us. ~~agreement~~On March 2, ~~the~~2007, ~~due~~we ~~date~~received ~~for~~a ~~both the term loan and revolving credit line has been extended to March~~$10.0 1,million ~~2011.~~sale-leaseback ~~The~~commitment ~~senior~~for ~~subordinated~~four ~~note~~new ~~is due in~~restaurants. ~~full May 1~~Typically, ~~2012.~~these Wehave ~~believe~~been ~~this~~the ~~debt~~sources ~~restructuring~~of ~~will~~funding ~~help~~for uscapital toexpenditures ~~accelerate~~and ~~the~~we ~~rate~~expect ofthat they ~~restaurant~~will ~~remodelings~~remain ~~and new restaurant development~~so.

15 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 $4.0 million and $2.4 million annually on fixed asset replacement and debt repayment, respectively. We believe that cash flow from operations will be sufficient to fund these expenditures and that remaining cash flow from operations along with our other cash sources will be sufficient to fund expenditures for new restaurants.

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~~13

OurTable Companyof 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. Contents

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 Annually or more frequently, if events or circumstances change, 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.

Self-Insurance Reserves

We self fund our health insurance and worker’s compensation insurance for the State of Ohio. Both programs include stop loss coverage, which limits our loss exposure to maximum amounts for any single claim. Additionally, both programs are administered by independent third-party administrators. At the end of each reporting period, we adjust the reserves for future claims based upon either reserves established by the administrator or the history and timing of claim payments.

Income Taxes and Deferred Tax Asset

We have accounted for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” In doing so, we have recorded a deferred tax asset in excess of $11,000,000 (included in other assets). The major components of the deferred tax asset are the tax effect of expensing rent and depreciation for financial reporting purposes in excess of that expensed for tax purposes and the FICA tax on tips credit. Annually, we assess the realization of the deferred tax assets based upon recent trends in income, income projections for future years, projected book/tax differences in the items comprising our deferred tax assets and the future expiration dates of tax credits. Based upon our most recent assessment, at May 13, 2007, a valuation in allowance against deferred tax assets is not considered necessary because it is not more likely than not that the deferred tax asset will not be fully realized.

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~~14

~~average~~SAFE ~~cash~~HARBOR ~~investment in~~STATEMENT ~~new~~UNDER ~~restaurants~~THE ~~(paragraph~~PRIVATE ~~2), financing of new locations through sale-leaseback transactions~~ ~~(paragraph~~SECURITIES ~~2),~~LITIGATION ~~annual~~REFORM ~~sales~~ACT atOF ~~new Company-owned locations (paragraph 2), royalties from new~~1995 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), our anticipated increase in our growth rate as a result of our debt restructuring (paragraph 8), the belief that coupon customers are not loyal customers (paragraph 12), the belief that we can achieve positive same-store sales through other types of marketing (paragraph 12), the belief that reduced couponing in 2006 is a significant factor causing our year-to-date same-store sales decline (paragraph 12), the expectation of future restaurant openings (paragraph 13 and 28), the expectation of increased franchise fees and royalties and the opening of franchised restaurants (paragraph 14), the expectation that we will continue to operate restaurants associated with the second quarter 2005 impairment charge (paragraph 20), the anticipated increase in interest expense (paragraph 23), the belief that we have appropriately estimated the effect of the FICA tax on tips credit (paragraph 25), the estimated cost to complete restaurants currently under contract (paragraph 28), the source of funds for new restaurants and restaurant remodels (paragraph 28), and the expectation that we will expend $4.0 million and $2.4 million on fixed asset replacements and debt service, respectively (paragraph 29), the belief that we could operate at a break even for an extended period of time and still generate sufficient cash flow to meet our cash needs (paragraph 29), the belief that second quarter 2006 debt restructuring will allow us to accelerate restaurant remodelings and new restaurant development (paragraph 30).

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 the belief that franchising is a key element of our growth (paragraph 1), regarding the amount of additional franchise royalties from new franchised locations (paragraphs 1 and 14), expectations regarding our average cash investment in new restaurants (paragraph 2), the expectations that new restaurants will be leased (paragraph 2), annual sales at new Company-owned locations (paragraph 2), the belief that rising costs of healthcare will continue to be a challenge (paragraph 5), the anticipated increase in our growth rate as a result of our debt restructuring (paragraph 7), the expectation that annual debt service and replacement capital expenditures will total $6.4 million (paragraph 7), the belief that remodeling of restaurants to the new prototype look is key to improving same-store sales (paragraph 11), the belief that our customer count decline was primarily the result of problems affecting consumer spending and the casual dining industry, such as gas prices, utility costs, interest rates, and the overall economy (paragraph 12), the belief that some portion of our customer count and same-store sales decline was a result of reduced television advertising (paragraph 12), the belief that television advertising was not cost effective (paragraph 12), the expectation of future restaurant openings (paragraph 13 and 27), the expectation of increased franchise fees and royalties and the opening of franchised restaurants (paragraph 14), the anticipated decline in interest expense subsequent to the second quarter of 2007 (paragraph 22), the belief that we have appropriately estimated the effect of the FICA tax on tips credit (paragraph 24), the estimated cost to complete restaurants currently under contract (paragraph 28), the planned remodeling of five restaurants per year (paragraph 28), the source of funds for new restaurants and restaurant remodels (paragraph 28), the expectation that we will expend $4.0 million and $2.4 million on fixed asset replacements and debt service, respectively (paragraph 29), the belief that cash flow from operations and our other cash sources will be sufficient to meet our cash needs (paragraph 29), the belief that we will realize the full value of our deferred tax asset (paragraph 34) and the belief that inflation had no material impact on our results of operations (paragraph 35).

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.

1715

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 $2725.84 million. At May 13, 2007, there was approximately $21.7 million outstanding under the agreement. A one-percentage point increase in interest rates would increase annual interest expense by approximately $217,000 annually.

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~~may enter into purchasing contracts for periods of time of a year or less at fixed prices or with floor and ceiling prices. Approximately 80% of all food items purchased for our restaurants are purchased under some type of contract that attempts to minimize price volatility. Prolonged price increases could impact our profitability, but would allow sufficient time to seek alternative suppliers or to increase selling prices, if possible.

Item 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.

18 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

~~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 May 1413, ~~2006~~2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

1917

PART II –— OTHER INFORMATION

Item 41 –— ~~SUBMISSION~~LEGAL ~~OF MATTERS TO A VOTE OF SECURITY HOLDERS~~PROCEEDINGS

~~The~~ In ~~Company~~March 2007, ~~held~~a ~~its~~class ~~Annual~~action ~~Meeting~~complaint ofwas ~~Stockholders~~filed onagainst ~~March 14,~~us ~~2006~~in the United States District Court for the ~~purpose~~Western District of Pennsylvania, alleging violations of The Fair Credit Reporting Act (ior “the Act”) ~~electing~~. ~~two~~The ~~class~~Act IIprovides ~~directors~~in ~~for~~part ~~three-year~~that ~~terms~~expiration ~~expiring~~dates inmay ~~2009~~not orbe ~~until~~printed ~~their~~on ~~successors~~credit ~~are~~or ~~duly~~debit ~~elected~~card ~~and~~receipts ~~qualified~~given ~~and~~to ~~(ii) ratifying~~customers. ~~Deloitte~~The &Act ~~Touche~~imposes ~~LLP~~significant aspenalties ~~the~~upon ~~Company’s~~violators ~~independent~~of ~~public~~these ~~accountants~~rules ~~for~~and regulations where the ~~2006~~violation ~~fiscal~~is ~~year.~~deemed Ato ~~total~~have ofbeen 2willful. Otherwise,~~450,411~~ ~~shares~~damages are ~~were~~limited ~~represented~~to ~~in person~~actual orlosses incurred by ~~proxy~~the atcard ~~the~~holder ~~Annual~~and ~~Meeting~~attorneys fees. The ~~number~~Company ofdoes ~~shares~~not believe that ~~were~~it ~~voted~~has any liability for, the violations alleged in the complaint and ~~that~~will ~~were~~vigorously ~~withheld~~contest ~~from,~~these ~~each~~allegations. ofWe do not believe the ~~director~~outcome ~~nominees~~will ishave asa ~~follows:~~material adverse effect on our results of operations or financial condition.

Director Nominee	For		Withheld
Donal H. Malenick		1,310,430		0
Mark F. Emerson		1,310,430		0
Timothy C. Robinson		1,040,219		99,762
Robert A. Rothman		1,020,307		119,674

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

~~Thus,~~ The ~~Messrs. Malenick~~Company ~~and~~held ~~Emerson~~its ~~were~~Annual ~~duly~~Meeting ~~elected~~of ~~Class II~~Stockholders ~~directors~~on toMarch 13, ~~serve~~2007 for the purpose of (i) electing two class III directors for three-year terms expiring in ~~2009~~2010 or until their successors are duly elected and qualified., ~~The terms~~(ii) approving ofthe ~~Class III~~2007 ~~directors~~Stock ~~William~~Incentive E.Plan ~~Arthur,~~and ~~Todd~~(iii) ratifying Deloitte B.& ~~Barnum~~Touche ~~and~~LLP ~~Thomas~~as R.the ~~Green,~~Company’s ~~and~~independent ~~Class I directors~~public ~~Michael~~accountants D.for ~~Murphy~~the ~~and~~2007 ~~William~~fiscal Cyear. ~~Niegsch~~A total of 2,377,285 ~~Jr.~~shares ~~continued~~were ~~after~~represented in person or by proxy at the Annual Meeting. ~~Mr.~~The number ~~Arthur~~of ~~subsequently~~shares ~~resigned~~that onwere ~~June 12~~voted for, ~~2006~~ and ~~Mr. Murphy~~that ~~died~~were onwithheld ~~March 21~~from, ~~2006.~~each of the director nominees is as follows:

Additionally, Deloitte & Touche LLP was ratified as the Company’s independent public accountants for the 2006 fiscal year by a vote of 1,964,147 shares for 1,058 against and 8,617 shares abstained. There were no broker non-votes on the matter.


Director Nominee	For		Withheld
Todd B. Barnum		2,253,421		123,802
Jay B. Barney		2,259,314		117,909

~~Item~~ Thus, Messrs. 6Barnum –and ~~EXHIBITS~~Barney were duly elected Class III directors to serve for three-year terms expiring in 2010 or until their successors are duly elected and qualified. The terms of Class I directors William C. Niegsch, Jr. and Curtis A. Loveland and Class II directors Donal H. Malenick, Mark E. Emerson and Michael G. Giulioli continued after the Annual Meeting.

The 2007 Stock Incentive Plan was approved and adopted by a vote of 1,111,758 shares for, 175,337 against and 16,200 shares abstained with 696,040 broker non-votes.

Additionally, Deloitte & Touche LLP was ratified as the Company’s independent public accountants for the 2007 fiscal year by a vote of 1,993,829 shares for, 14,402 against and 1,104 shares abstained.

Item 6 — EXHIBITS

Exhibit 3 — Amended and Restated Bylaws, effective March 16, 2007 (Reference is made to Exhibit 3 on Report on Form 8-K filed on March 21, 2007)

Exhibit 10.1* — Form of Stock Option Agreement under 2007 Stock Incentive Plan

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.

2019

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)
June 21, 2006
Date


	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)

21 June 20, 2007 Date

EXHIBIT INDEX

Exhibit No.	Exhibit	Page No.
31.1*	Rule 13a-14(a) Certification of Principal Executive Officer	Page 23
3	Amended and Restated Bylaws, effective March 16, 2007 (reference is made to Exhibit 3 of Report on Form 8-K filed on March 21, 2007)	N/A
31.2*	Rule 13a-14(a) Certification of Principal Financial Officer	Page 25
10.1*	Form of Stock Option Agreement under 2007 Stock Incentive Plan	Page 22
32.1+	Section 1350 Certification of Principal Executive Officer	Page 27
31.1*	Rule 13a-14(a) Certification of Principal Executive Officer	Page 24
32.2+	Section 1350 Certification of Principal Financial Officer	Page 28
31.2*	Rule 13a-14(a) Certification of Principal Financial Officer	Page 26
32.1+	Section 1350 Certification of Principal Executive Officer	Page 28
32.2+	Section 1350 Certification of Principal Financial Officer	Page 29


*		Filed with this report.

+		Furnished with this report.

2221

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · MAX & ERMAS RESTAURANTS INC