FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

(Mark One)

For quarterly period ended June 27, 2004

OR

For the transition period from                     to                    .

Commission file number 1-8766

J. ALEXANDER’S CORPORATION

3401 West End Avenue, Suite 260, P.O. Box 24300, Nashville, Tennessee 37202

(615)269-1900

     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 Securities Exchange Act of 1934).

Yes [  ] No [X]

     Common Stock Outstanding – 6,450,432 shares at August 11, 2004.

Page 1 of 28 pages.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

J. Alexander’s Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amount)

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See notes to condensed consolidated financial statements.

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J. Alexander’s Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited in thousands, except per share amounts)

See notes to condensed consolidated financial statements.

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J. Alexander’s Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited in thousands)

See notes to condensed consolidated financial statements.

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J. Alexander’s Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE A — BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain reclassifications have been made in the prior year’s condensed consolidated financial statements to conform to the 2004 presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and six months ended June 27, 2004, are not necessarily indicative of the results that may be expected for the fiscal year ending January 2, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the J. Alexander’s Corporation (the “Company’s”) annual report on Form 10-K/A for the fiscal year ended December 28, 2003.

     The accompanying condensed consolidated balance sheet at December 28, 2003 has been restated to reflect an increase in additional paid-in capital and a decrease in retained earnings of $552,000 due to a determination by the Company in 2004 that a stock option grant, which previously had been accounted for as a fixed award, should have been accounted for as a variable award. The accompanying condensed consolidated statements of income for the second quarter and six months ended June 29, 2003 have been restated to reflect $122,000 of additional general and administrative expense, and a corresponding decrease of $122,000 in net income, related to this option grant. Diluted earnings per share were reduced by $.02 for both the second quarter and the first six months of 2003 as a result of the non-cash compensation expense associated with this option grant. There was no impact on the condensed consolidated statement of cash flows for the six months ended June 29, 2003 as a result of this change.

     Net income and comprehensive income are the same for all periods presented.

NOTE B — EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted earnings per share:

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     In situations where the exercise price of outstanding employee stock options is greater than the average market price of common shares, such options are excluded from the computation of diluted earnings per share because of their antidilutive impact. For the quarter ended June 27, 2004, options to purchase 128,000 shares of common stock were excluded from the computation of diluted earnings per share due to their antidilutive effect. During the corresponding period of 2003, options to purchase 421,000 shares of common stock were similarly excluded from the computation of diluted earnings per share.

     For the six months ended June 27, 2004 and June 29, 2003, respectively, options to purchase 107,000 and 422,000 shares of common stock were excluded from the diluted earnings per share calculation.

NOTE C – INCOME TAXES

     The Company’s provisions for income taxes for the second quarters and first six months are based on estimated effective annual income tax rates which include estimates of both federal alternative minimum tax (AMT) and state income taxes payable. Estimated federal AMT included in the tax rate calculation is computed by applying the AMT rate to the Company’s estimated pre-tax accounting income for the year after adding back certain “tax preference” items, as well as certain permanent differences and timing differences in book and tax income.

     Because of current AMT regulations, the Company is presently unable to take full advantage of certain tax carryforward benefits it has accumulated. Also, because the Company maintains a valuation allowance on a portion of its deferred tax assets, no direct benefit is recognized in the income tax provisions with respect to the AMT credit carryforwards or other tax assets generated.

     The Company’s federal income tax returns for fiscal years 2001 and 2002 are currently under examination by the Internal Revenue Service. Any adjustments resulting from this examination are not expected to have a material effect on the Company’s consolidated financial condition.

NOTE D – LONG-TERM DEBT

     In January 2004, the Company obtained $750,000 of long-term equipment financing. The note payable related to the financing has an interest rate of 4.97% and is payable in equal

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monthly installments of principal and interest of approximately $14,200 through January, 2009. The note payable is secured by restaurant equipment at one of the Company’s restaurants.

NOTE E – STOCK BASED COMPENSATION

     The Company accounts for its stock compensation arrangements using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25 “Accounting for Stock Issued to Employees” and, accordingly, typically recognizes no compensation expense for such arrangements. One stock option award, issued to the Company’s Chief Executive Officer in 1999 at an initial exercise price equal to the fair market value of the Company’s common stock on the date of the award included a provision whereby the exercise price increased annually as long as the option remained unexercised. This option grant was accounted for as a variable stock option award through May 25, 2004 (see Note A). On that date, the Company’s board of directors fixed the option’s exercise price at $3.94. As a result, under current accounting rules, the grant will be accounted for as a fixed plan award, and no additional compensation expense will be recognized with respect to this option grant. Compensation expense included a credit of $59,000 associated with this option grant for the second quarter of 2004 and $18,000 of expense for the first six months of 2004 compared to $122,000 of compensation expense during the second quarter and first six months of 2003.

     The following table represents the effect on net income and earnings per share if the Company had applied the fair value based Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:

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     For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period.

NOTE F – COMMITMENTS AND CONTINGENCIES

     As a result of the disposition of its Wendy’s operations in 1996, the Company remains secondarily liable for certain real property leases with remaining terms of one to twelve years. The total estimated amount of lease payments remaining on these 28 individual leases at June 27, 2004 was approximately $4.6 million. In connection with the sale of its Mrs. Winner’s Chicken & Biscuit restaurant operations in 1989 and certain previous dispositions, the Company also remains secondarily liable for certain real and personal property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these 29 individual leases at June 27, 2004, was approximately $3.2 million. Additionally, in connection with the previous disposition of certain other Wendy’s restaurant operations, primarily the southern California restaurants in 1982, the Company remains secondarily liable for certain real property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these 11 individual leases as of June 27, 2004, was approximately $1.6 million.

     The Company has received notice of an adverse finding from the EEOC on charges of discrimination made by three former employees. The aggregate amount of these three claims is approximately $350,000. The Company denies all liability and intends to vigorously defend the claims.

     The Company is from time to time subject to routine litigation incidental to its business. The Company believes that the results of such legal proceedings will not have a materially adverse effect on the Company’s financial condition.

NOTE G – SHAREHOLDER RIGHTS PLAN

     Effective May 12, 2004, the Company’s Board of Directors amended the Company’s existing shareholder rights plan by extending the final expiration date to May 16, 2009.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Overview

     J. Alexander’s Corporation (the “Company”) owns and operates high volume, upscale casual dining restaurants which offer a contemporary American menu designed to appeal to a wide variety of tastes. Special emphasis is placed on high quality food, professional service and attractive ambiance. At June 27, 2004, the Company owned and operated 27 J. Alexander’s restaurants in 12 states.

     The Company experienced strong same store sales increases during the first half of 2004, with weekly average same store sales increasing for the second quarter and first six months of the year by 7.8% and 8.0%, respectively, over the same periods of the previous year. Management attributes these increases to continued emphasis on providing high quality food and professional service and to a generally favorable economic and restaurant industry environment. The effect of menu price increases and an increase in the average check per guest also contributed to the increases, particularly in the second quarter. Guest counts also increased during both the second quarter and first six months of 2004 compared to the same periods of 2003, but with the rate of growth slowing somewhat during the second quarter.

     The Company continued to experience significantly higher input costs for food during the first half of 2004 due to significant increases in input costs in virtually all categories of food purchases. The Company did not increase menu prices significantly during 2003. However, in order to offset at least a portion of the cost of sales increases the Company is experiencing, menu prices were increased by approximately 3% in March of 2004 and by approximately 1.5% in the second quarter of 2004. While some moderation in dairy and poultry prices is expected during the last half of 2004, management expects input costs for many major food items purchased by the Company to remain significantly higher than in the last half of 2003. Management is considering additional menu price increases to further offset the effect of higher food costs, but does not plan to be overly aggressive in increasing prices as long as sales trends remain strong and margin dollars from higher sales levels are offsetting the higher cost of sales. Same store sales increases subsequent to the second quarter have remained strong and the outlook for continued improvement in sales remains generally favorable. However, there can be no assurance that these trends will continue or that sales and guest counts will not be negatively affected by menu price increases or other factors.

     Sales of the Company’s two newest restaurants opened in the fourth quarter of 2003 continue to fall considerably below expectations and, as a result, each posted significant operating losses for each of the first two quarters of 2004. Operating results for these restaurants are not expected to improve appreciably until their sales increase significantly. While management is confident in its ability to build sales in these locations over time, as has generally been the case with the Company’s other low volume locations, its current expectation is that this will be a very slow process for these restaurants. While no new restaurants are currently under construction or planned to open in 2004, the Company generally intends to maintain a new

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restaurant development rate of one to two new restaurants per year to allow management to focus intently on improving sales and profits in all of its restaurants while maintaining its pursuit of operational excellence.

     Income before income tax increased by $190,000 for the second quarter of 2004 and by $655,000 for the first six months compared to the same periods of 2003. Net income increased by $183,000 for the second quarter and by $500,000 for the first six months of 2004 compared to the corresponding 2003 periods. Compensation expense recognized in connection with a stock option grant discussed under general and administrative expenses below was $181,000 less for the second quarter and $104,000 less for the first six months of 2004 than for the corresponding periods of 2003. Also, a reduction in pre-opening expense contributed to the increase in income before income taxes for the first six months of 2004 as the Company had no pre-opening expense in 2004 while incurring $290,000 of pre-opening expense in the first half of 2003.

     The following table sets forth, for the periods indicated, (i) the percentages which the items in the Company’s Consolidated Statements of Income bear to total net sales, and (ii) other selected operating data:

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Net Sales

     Net sales increased by $3,432,000, or 13.0%, and $7,771,000, or 14.7%, for the second quarter and first six months of 2004, respectively, as compared to the same periods of 2003. These increases were attributable to three new restaurants opened in 2003 and to sales increases within the Company’s same store restaurant base.

     Same store sales on a base of 24 restaurants averaged $87,400 and $88,900 per week during the second quarter and six months ended June 27, 2004, representing increases of 7.8% and 8.0% compared to the same periods of 2003. The Company’s weighted average weekly sales per restaurant are computed by dividing total restaurant sales for the period by the total number of days all restaurants were open for the period to obtain a daily sales average, with the daily sales average then multiplied by seven to arrive at the weekly average sales per restaurant. Days on which restaurants are closed for business for any reason, other than the scheduled closure of all J. Alexander’s restaurants on Thanksgiving day and Christmas day, are excluded from this calculation. Weighted average weekly same store sales per restaurant are computed in the same manner as described above except that sales and sales days used in the calculation include only those for restaurants open for more than 18 months.

     Management estimates the average check per guest, excluding alcoholic beverage sales, was approximately $16.75 and $16.55 for the second quarter and first six months of 2004. These amounts represent increases of approximately 5.6% and 4% over the same periods of the prior year. Management estimates that menu prices were approximately 5.2% and 3.6% higher for the second quarter and first six months of 2004 than for the same periods in 2003. The Company estimates that customer traffic (guest counts) on a same store basis increased by approximately 1.2% and 3.0% during the second quarter and first six months of 2004, respectively, compared to the corresponding periods of 2003.

Costs and Expenses

     Total restaurant operating expenses increased to 88.0% and 87.3% of sales for the second quarter and first six months of 2004 compared to 87.1% and 86.7% in the corresponding periods of 2003 as the operating efficiencies from higher same store sales levels were more than offset by the impact of higher cost of sales and the effect of operating losses experienced in the Company’s two newest restaurants opened in the fourth quarter of 2003.

     Cost of sales increased to 34.2% of sales in the second quarter of 2004 compared to 32.2% in the second quarter of 2003 and to 33.6% of sales in the first six months of 2004 from 32.0% in the corresponding period of 2003, as menu price increases did not offset, as a percentage of sales, significantly higher input costs associated with beef, poultry, dairy products and other food commodities. Beef purchases represent the largest component of the Company’s cost of sales and comprise approximately 28% of this category. The Company typically enters into an annual pricing agreement covering most of its beef purchases. Due to higher prices in the

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beef market during 2003 and early 2004, prices under the Company’s most recent beef pricing agreement which was effective in March of 2004 increased by an estimated 13% to 14% and are expected to increase the Company’s cost of sales by approximately $1.5 million during the twelve month term of the agreement.

     Restaurant labor and related costs decreased to 31.2% and 31.3% of sales during the second quarter and first six months of 2004 from 32.8% and 32.6% of sales during the same periods of 2003 due to labor efficiencies achieved at higher same store sales levels, which more than offset higher labor costs in new restaurants.

     Depreciation and amortization of restaurant property and equipment as a percentage of sales decreased for the 2004 periods primarily due to the effect of higher same store sales volumes and a reduction in depreciation expense due to assets which became fully depreciated. These decreases more than offset the effect of higher depreciation expense on the new, lower volume locations opened in the fourth quarter of 2003.

     Other operating expenses increased to 18.8% and 18.5% of sales during the second quarter and first six months of 2004 from 18.0% of sales during the same periods of 2003. These increases were primarily related to increases in rent and other expenses associated with restaurants opened by the Company in 2003.

General and Administrative Expenses

     General and administrative expenses, which include supervisory costs as well as management training costs and all other costs above the restaurant level, were approximately the same in the second quarter of 2004 as in the second quarter of 2003. General and administrative expenses increased to $4,366,000 during the first six months of 2004 from $4,042,000 during the corresponding period of 2003.

     General and administrative expenses for the second quarter and first six months of 2003 included $122,000 of non-cash compensation expense in connection with a stock option grant accounted for as a variable plan award. The exercise price of this option grant was fixed by the Company’s Board of Directors in May of 2004 and, as a result, the Company will not, under current accounting rules, recognize additional compensation expense with respect to this grant. Prior to the time the option price was fixed, the Company reduced compensation expense by $59,000 for the second quarter of 2004 and recognized compensation expense of $18,000 in the first six months of 2004 due to changes in the price of the Company’s common stock.

     General and administrative expenses for the second quarter and first six months of 2004 included increases, as compared to the same periods of 2003, in salary expense, including salaries for additional operations supervisory personnel added in connection with the Company’s growth, and other personnel related expenses, including higher health insurance costs and higher management relocation costs, and higher corporate governance and American Stock Exchange compliance related expenses. These increases were almost completely offset for the second quarter of 2004, and partially offset for the first six months of 2004, by lower compensation expense recognized in connection with the stock option discussed above and costs related to the separation from the Company of a corporate executive which were included in 2003 general and administrative expenses.

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     As a percentage of sales, general and administrative expenses decreased to 7.3% for the second quarter of 2004 from 8.2% in the same period of 2003 and to 7.2% for the first six months of 2004 compared to 7.6% for the comparable period in 2003 due to a higher sales base.

Pre-Opening Expense

     Pre-opening costs are expensed as incurred. No pre-opening expenses were incurred for the 2004 periods because no new restaurants were opened or under development. During the first six months of 2003, $290,000 of pre-opening expense was incurred in connection with a new restaurant opened in March of 2003.

Other Income (Expense)

     Net interest expense did not change significantly during the 2004 periods compared to the correspondi