J. Alexanders (JAX) 10-K2020 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended January 3, 2021.

OR

For the transition period from                      to                      .

Commission file number 1-37473

J. Alexander’s Holdings, Inc.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (615) 269-1900

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☑

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  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of June 28, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock, par value $0.001 per share, held by non-affiliates was approximately $59,629,896.  For the purpose of this calculation, shares held by affiliates include those shares held by officers and directors of J. Alexander’s Holdings, Inc. as well as controlled companies of such directors.

The number of shares of the Company’s common stock, $0.001 par value, outstanding at March 17, 2021 was 15,090,077.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for its 2021 Annual Meeting of Shareholders are incorporated by reference into Part III hereof.

TABLE OF CONTENTS

Dollar amounts within this Annual Report on Form 10-K (“Annual Report”) are presented in thousands except for average weekly sales per restaurant, average weekly same store sales per restaurant, average check per guest and per share amounts.

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PART I

Item 1. Business

Overview

J. Alexander’s Holdings, Inc. (also referred to herein as the “Company,” “we,” “us” or “our”) owns and operates through its subsidiaries complementary upscale dining restaurants including: J. Alexander’s, Redlands Grill, Overland Park Grill, Merus Grill and Stoney River Steakhouse and Grill (“Stoney River”). For 30 years, J. Alexander’s guests have enjoyed a contemporary American menu, polished service and an attractive ambiance. In February 2013, our team brought our quality and professionalism to the steakhouse category with the addition of the Stoney River concept. Stoney River provides “white tablecloth” service and food quality in a casual atmosphere at a competitive price. Our Redlands Grill concept offers guests a different version of our contemporary American menu and a distinct architectural design and feel. In 2018, we successfully converted one of our previous J. Alexander’s locations in Kansas to the Overland Park Grill which continues to offer a contemporary American menu.  In 2019, we opened Merus Grill in Houston, Texas, with a menu that features a wide selection of American classics including prime rib of beef, steaks, fresh seafood, premium sandwiches and entrée salads served in a uniquely designed environment that also includes original artwork.  During 2020, in response to the novel coronavirus (“COVID-19”) pandemic, the Company implemented a robust carry-out program which continues to offer its classic menu items as well as new offerings of “Family Packs” and other specialty items that lend themselves to off‑premise consumption.

For additional information regarding the impact of the COVID-19 pandemic on the Company, see “Item 1A. Risk Factors” under the heading “Risks Related to COVID-19, Health Epidemics and Food Safety” as well as “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Recent Developments and Trends Impacting our Business.”

By offering a collection of restaurants and utilizing unique non-standardized architecture and specialized menus, we believe we are positioned to continue to grow our overall restaurant business in an efficient manner in urban and affluent suburban areas. We want each of our restaurants to be perceived by our guests as a locally managed, stand-alone dining experience. This differentiation permits us to successfully operate multiple restaurants in the same geographic market and avoid being perceived as a “chain.” If this strategy continues to prove successful, we may expand beyond our current existing concepts in the future.

While each restaurant concept operates under a unique trade name, each of our restaurants is identified as a “J. Alexander’s Holdings Restaurant.” As of January 3, 2021, we operated a total of 46 locations across 16 states.

We operate on a 52- or 53-week fiscal year calendar ending on the Sunday closest to December 31, and each quarter typically consists of 13 weeks.  For purposes of this Annual Report, references to 2020 generally refer to our fiscal year 2020, which ended on January 3, 2021 and includes results for 53 weeks of operations.  Fiscal years 2019 and 2018 each included 52 weeks of operations.

The locations currently operating or that have operated under the names Redlands Grill, Overland Park Grill, Lyndhurst Grill (which closed in fiscal 2020) and Merus Grill have been included with the J. Alexander’s locations in the disclosures of key operating metrics such as average weekly sales, average weekly same store sales, average check and other applicable disclosures, and are collectively referred to herein as “J. Alexander’s / Grill” restaurants.

During the second quarter of 2020, the Company made the decision not to reopen the Lyndhurst Grill location in Cleveland, Ohio, after a review of its projected and historical financial performance. This location was required to be closed in mid-March 2020 due to COVID-19 related traffic limitations unique to that specific restaurant and remained closed.  The Company completed the sale of the remaining long-lived assets at this location, including the land and building, during the third quarter of 2020.

History and Corporate Structure

The first J. Alexander’s restaurant opened in 1991 in Nashville, Tennessee. From 1991 to 2012, J. Alexander’s restaurants were owned and operated by J. Alexander’s Corporation (“JAC”), the predecessor to, our subsidiary, J. Alexander’s, LLC. As of March 17, 2021, we operated 19 J. Alexander’s restaurants located in Florida, Georgia, Illinois, Kentucky, Louisiana, Michigan, North Carolina, Ohio, Pennsylvania, Tennessee and Texas.

Stoney River was founded in Atlanta, Georgia in 1996.  From 2000 until 2012, Stoney River was owned and operated by O’Charley’s, Inc., a multi-concept restaurant company that was acquired in April 2012 by affiliates of Fidelity National Financial, Inc. (“FNF”).  In September 2012, JAC was acquired by then Fidelity National Financial Ventures, LLC (“FNFV,” and now conducting business independently as Cannae Holdings, Inc., or “Cannae”), a former wholly owned subsidiary of FNF, and in February 2013,

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ownership of Stoney River Management Company, LLC and its subsidiaries and related restaurant assets were transferred to J. Alexander’s Holdings, LLC, then a newly formed, wholly owned subsidiary of FNFV and the principal holding company for the J. Alexander’s restaurant operations. As of March 17, 2021, we operated 13 Stoney River restaurants located in Georgia, Illinois, Kentucky, Maryland, Michigan, Missouri, North Carolina and Tennessee.

Redlands Grill is a restaurant concept that we launched in the first quarter of 2015 and expanded through the conversion of 12 J. Alexander’s restaurants during the course of fiscal years 2015 and 2016. As of March 17, 2021, we operated 12 Redlands Grill restaurants located in Alabama, Colorado, Florida, Georgia, Illinois, Kentucky, Ohio and Tennessee.  We plan to open our first ground‑up build of a Redlands Grill in San Antonio, Texas, at the end of March 2021.

As noted above, the Company also operates an Overland Park Grill in Overland Park, Kansas and a Merus Grill in Houston, Texas as of March 17, 2021.

J. Alexander’s Holdings, Inc. was incorporated in the State of Tennessee on August 15, 2014. Following certain internal restructuring transactions, J. Alexander’s Holdings, Inc. became the ultimate parent holding company for J. Alexander’s Holdings, LLC’s assets and operations. In the fourth quarter of fiscal year 2015, J. Alexander’s Holdings, Inc. became an independent, publicly-traded company as a result of the “Spin-off” distribution (the “Spin-off”) by FNF of all shares of the Company’s common stock owned by FNF to all holders of FNF’s FNFV Group common stock, as it was known at the time of the Spin-off.

Restaurant Positioning Strategy

Our business plan has evolved over time to include a collection of restaurants dedicated to providing guests with what we believe to be the highest quality of food, levels of professional service and a comfortable ambiance in each of the markets being served. Although we operate distinct concepts, we identify all our restaurants as a “J. Alexander’s Holdings Restaurant.” We believe our restaurant branding strategy enhances our ability to expand feature menu offerings available to guests on a seasonal or rotational basis and facilitate expansion into certain markets which may already have one of our restaurants. We also believe that having multiple concepts will allow us to expand in markets that might not otherwise have been considered viable for expansion opportunities. Additionally, by further developing our carry-out program in each of our restaurant locations with the same attention to detail taken in our dining rooms, we believe we can both increase frequency of usage by our existing loyal guests and reach a wider array of guests who may prefer this level of service when selecting their dining options.

In the upscale segment of the restaurant industry, we believe a “chain” classification is generally perceived negatively. We determined that in order to compete with upscale independent restaurants we would need to offer the service, food quality and building design standards that more resemble an independently owned restaurant than a national chain restaurant group. We differentiate ourselves from chain restaurants by ensuring that no two restaurants have the exact same menu, emphasizing feature items which are typically changed on a daily basis, and executing a 95 percent made-from-scratch menu. In addition, the architecture of each of our restaurants is designed to meet the needs of individual markets and create a unique dining experience at each location.

In further execution of this strategy, we have transitioned 12 previous J. Alexander’s locations to a Redlands Grill and one location to Overland Park Grill, and we anticipate that we could transition additional locations to a Redlands Grill, a Merus Grill, or any of our other existing or newly established trademarked names in the future. The benefits of converting existing J. Alexander’s restaurants to a different concept name are twofold. In larger metropolitan areas and midsize markets, we can operate an additional restaurant, and, in other markets, conversions will reduce the number of J. Alexander’s national locations. This multiple concept strategy will allow us to expand the number of units we operate without directly competing with ourselves in major metropolitan markets and offer our consumers a differentiated look and feel while preserving the made-from-scratch and upscale service our guests have come to expect.

The objective of our strategy is to have less of a chain image and allow us to compete more effectively with independently owned upscale American-style dining restaurants. Determining the specific number of restaurants that should operate under the name J. Alexander’s, Redlands Grill, Stoney River or another concept name requires ongoing evaluation, which we expect to refine over time. The Patient Protection and Affordable Healthcare Act of 2010 (the “PPACA”) defines any restaurant with 20 or more locations as being a chain and requires such restaurants to post the caloric content of each menu item. To the extent that this law grouped us with national fast food and casual dining restaurants, it affirmed our belief that being identified as a chain is inconsistent with our upscale concept.

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Our Restaurants

J. Alexander’s / Grill

The first J. Alexander’s restaurant was opened in 1991 in Nashville, Tennessee. Since its inception, J. Alexander’s has been a quality-focused upscale dining restaurant offering a contemporary American menu in a lively environment with attentive, courteous and professional service. J. Alexander’s menu centers around made-from-scratch items with a focus on fresh ingredients providing guests a variety of high-quality menu options. We believe J. Alexander’s restaurants have a modest table to server ratio which, when coupled with our intensive training program and team approach to table service, allows our servers to provide better, more detail-oriented and attentive service. As of March 17, 2021, we had 19 J. Alexander’s locations in 11 states.

The J. Alexander’s menu features prime rib of beef; hardwood-grilled steaks, seafood and chicken; pasta; salads; soups; and assorted sandwiches, appetizers and desserts. We place special emphasis on high quality and sustainable seafood and daily specials which enable us to efficiently take advantage of variances in food costs. We also incorporate local “farm-to-table” produce to provide menu variety to our guests. As a part of our commitment to quality, the majority of our soups, sauces, salsa, salad dressings and desserts are made daily from scratch; our steaks are cut in house; and our beef, chicken, seafood and select vegetable offerings are grilled over a genuine hardwood fire or, in selected locations, in a 1600-degree Montague® broiler. All of our steaks are U.S.D.A. choice beef (or higher) with a targeted aging of 21 to 38 days. We use only Certified Angus Beef ® for all strip steaks and chuck rolls.  We grind chuck fresh daily for our hand-pattied burgers. Our carry-out program allows us to provide guests with some of their favorite menu items as well as new family-style meals, such as lasagna, baby back ribs, seared salmon, whole carrot cake, bulk side items and cook-at-home hand-cut steaks with the same high-quality ingredients served in our dining rooms. The J. Alexander’s food menu is complemented by a comprehensive wine list that offers familiar varietals.

Redlands Grill offers a broad contemporary American cuisine featuring expanded menu offerings on a seasonal or rotational basis. We anticipate that over time the Redlands Grill concept will have more sushi and contemporary products like in-restaurant prepared flatbreads compared to a J. Alexander’s Restaurant which will emphasize center of the plate proteins. Redlands Grill offers a brunch menu in locations that can support a brunch program. For example, the Redlands Grill on West End Avenue in Nashville, Tennessee features a high-quality sushi program, jumbo fried shrimp, shrimp louie entrée salad, French press coffee service and unique desserts such as a “”Powerful Stuff”, a triple-layered ice cream cake offering, and numerous other feature items not offered in all J. Alexander’s locations. On Sundays, Redlands Grill offers a wide selection of made-from-scratch brunch items including Belgian waffles, eggs benedict, huevos ranchero, quiche, omelets and lemon and ricotta hotcakes. The Redlands Grill on West End also has a more extensive wine program than a typical J. Alexander’s Restaurant, with an award-winning wine program that offers numerous wines by the glass and maintains over 140 bottles. Each restaurant is open for lunch and dinner seven days a week. Menu items are priced similarly to those at J. Alexander’s restaurants. As of March 17, 2021, we operated 12 Redlands Grill restaurants in eight states.

The Company also operates an Overland Park Grill in Overland Park, Kansas, and a Merus Grill in Houston, Texas, as of March 17, 2021. Menus at these locations feature a wide selection of American classics including prime rib of beef, steaks, fresh seafood, premium sandwiches and entrée salads served in uniquely designed environments that also include original artwork.

J. Alexander’s / Grill restaurants are open for lunch and dinner, seven days a week. The breadth of our menu offering helps generate significant traffic at both lunch and dinner.  Entrées range in price from approximately $14.00 to $41.00, while appetizers and entrée salads range from approximately $7.00 to $22.00. In 2020, lunch and dinner represented approximately 33% and 67% of sales, respectively. Alcohol was 16% of sales for the same period. Off-premise sales were approximately 18.1% of net sales in 2020. Our average unit volumes were approximately $4,340 in 2020 compared to $5,800 in 2019 reflecting the impact of COVID-19 in fiscal 2020. Our highest volume restaurant exceeded $8,100 in 2020 annual sales. Our average weekly same store sales for 2020 were $83,200 compared to $113,800 in 2019 again reflecting the impact of COVID-19 on guest traffic and net sales in 2020. The average check for J. Alexander’s / Grill restaurants in 2020 was $33.23.

Architecturally, J. Alexander’s / Grill restaurants employ contemporary designs and unique features contributing to a high-end, upscale environment. Each J. Alexander’s / Grill location incorporates natural materials such as stone and wood and, for much of our history, has been craftsman-style. Our J. Alexander’s / Grill restaurants include open floor plans and, in some cases, exposed structural steel, in each case giving the restaurants a contemporary feel. The architectural design varies from location to location depending on the space available, and several locations include unique attributes such as fire pits or patios. All locations feature original artwork, full bars and open kitchens. We believe this gives our restaurants a boutique, unchained feel which is an important facet of our design and site strategy. J. Alexander’s / Grill locations range in size from 6,900 to 9,000 square feet and can accommodate up to 220 guests, on average, at full capacity without the impact of COVID-19 related restrictions.

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Stoney River Steakhouse and Grill

Stoney River is an upscale steakhouse restaurant that seeks to provide the quality and service of fine dining steakhouses at a lower price point. Stoney River offers a high-quality steakhouse menu and a broad selection of non-steak entrées with an emphasis on featured items. We believe Stoney River restaurants have a modest table to server ratio in line with that of “white tablecloth” steakhouses. This, coupled with our intensive training program and team approach to table service, allows our servers to provide highly attentive service. As of March 17, 2021, we had 13 Stoney River restaurants in eight states.  

Stoney River offers a high-quality steakhouse menu, but unlike menus of many of its more expensive competitors, the menu is not à la carte, and a side item is included with all filets and steaks. Stoney River’s menu features its popular Coffee-Cured Filet Mignon, as well as other U.S.D.A. choice (or higher) aged beef options. Particularly when compared to steakhouse competitors, Stoney River places special emphasis on a broad selection of steak alternatives including baby back ribs, ahi tuna, pasta, chicken, salmon and other popular non-steak dishes. Although beef accounts for a significant portion of our entrée sales, Stoney River also offers an extensive wine list, including high quality and unique selections. The quality of the beef and inclusion of a side item offers our guests a premium offering at a more reasonable price than many steakhouse competitors. Our carry-out program at Stoney River also offers guests access to classic menu items as well as unique Family Packs, such as our famous steak and biscuits, crispy bistro chicken, seared salmon, steak salad and “Grill at Home” steak Family Packs as well as individual hand-cut steaks in our Butchershop and whole loins of beef.

Each restaurant is open for dinner seven days a week, and several are open for lunch or Sunday brunch. Entrées range in price from approximately $14.00 to $46.00, and appetizers and entrée salads range in price from approximately $9.00 to $22.00. Each location has a full bar, and alcohol and wine represented approximately 17% of sales in 2020. Off-premise sales accounted for 16.0% of net sales in 2020. Our average unit volumes were approximately $3,000 in 2020 compared to $4,200 in 2019 reflecting the impact of COVID-19 at our Stoney River locations. Our highest volume restaurant exceeded $4,500 in 2020 annual sales.  Our average weekly same store sales for 2020 were $57,200, and for 2019 were $79,800 again reflecting the impact of COVID-19 on guest traffic and net sales in 2020. During 2020, the average check for Stoney River was $42.05. Stoney River’s basic restaurant design is modeled after an elite and modern mountain lodge-style building. As we executed our recent remodeling program, we elevated the decor to a more updated contemporary feel. Stoney River locations range in size from 6,400 to 8,000 square feet and can accommodate up to 260 guests on average, including private dining spaces. Most locations offer private dining as an option, and private dining has historically accounted for approximately 6.0% of net sales prior to COVID-19 related impacts in 2020. Going forward, we anticipate that each new Stoney River location will operate as a lunch and dinner service restaurant.

Our Competitive Strengths

Over the 30-year operating history of our restaurants, we have developed and refined the following strengths:

Distinct Yet Complementary Concepts

Our restaurant concepts have more than 45 years of combined history, strong brand value and exceptional guest loyalty in their core markets. They blend what we believe are the best attributes of fine and casual dining: a focus on high quality food made with fresh ingredients in a scratch kitchen, exceptional service, diverse menus and individualized interior and exterior design unique to each community. Each restaurant has a distinct identity, and the differentiation in menu and restaurant design is substantial enough that they can successfully operate in the same markets or retail locations.

Over time, we anticipate that we will continue to grow with our multi-concept strategy. Each restaurant concept will have up to 19 restaurants competing in the upscale casual dining segment of the restaurant industry. All of our restaurants will take advantage of our professional service system, made-from-scratch high-quality menu items and our unique architectural designs supported by upscale ambiance. We believe that this strategy will increase our national footprint and overall competitive advantage.

Delivering a Superior Dining Experience with the Highest Quality Service at a Reasonable Price Point

Our restaurants provide a broad range of high-quality menu items that are intended to appeal to a wide range of consumer tastes, and which are served by a courteous, professional and well-trained wait-staff. We provide this high-end experience at a reasonable and attractive price point, which we believe helps us cultivate long-term, loyal and highly satisfied guests who place a premium on the price-value relationship that our restaurants offer.

Premium, Freshly Made Cuisine. All of our restaurants are committed to preparing high quality food from innovative menus. We are selective in our choice of ingredients and menu offerings, including the grades of beef and the freshness of seafood and vegetables we serve. Substantially all protein and vegetable offerings are delivered fresh to our restaurants and are not frozen in

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transport or in storage prior to being served and are predominantly preservative and additive-free. We offer made-to-order items prepared from scratch, with approximately 95% of our items, including stocks, sauces and desserts, made in-house. Our food menu is complemented by comprehensive wine lists that offer familiar varietals. While each restaurant’s menu has its own distinctive profile, we strive to continuously innovate with new recipes and ingredients and local “farm-to-table” produce to provide specials and limited time featured items to keep the experience new and interesting for our guests. All of our new menu items are developed through a process designed to meet our high standards. An important component of the quality assurance system is the preparation of taste plates. Within each restaurant, menu items are taste-tested daily by a manager to ensure that only the highest quality, properly prepared food meeting or exceeding our specifications is served in each restaurant. A key position in each restaurant is the Quality Control coordinator (“QC”). This position is always staffed by a fully trained manager who inspects every plate of food before it is served to our guests. We believe that the QC inspection by a member of management is a significant and vital factor in maintaining consistent, high food quality.

Outstanding Service. We believe that prompt, courteous and efficient service delivered by a knowledgeable staff is an integral component of our restaurants. We enforce strict guidelines on professional appearance for servers as well as timeliness of service. To ensure that all staff are working together to achieve the highest guest satisfaction we employ a modest table to server ratio which, when coupled with team serving by a dedicated staff, we believe provides our guests exceptional service.

Inviting, Sophisticated and Safe Experience. We strive to create an immersive experience for our guests through both our outstanding food and beverage options as well as great attention to enhancing the experience of each of the five senses. Our restaurants use a variety of architectural designs and building finishes to provide guests with beautiful, upscale décor with contemporary and timeless finishes. We are proactive with our repair and maintenance program in all locations, in an attempt to ensure that no restaurant ever looks “highly trafficked” or dated and to reduce the need for periodic remodels to reimage a location to acceptable standards. We also curate a sophisticated background music playlist for each location, and we select our china and silverware to have the quality appearance and feel in the guests' hands that they have come to expect when dining with us. We also take great care to ensure that our guests and our employees feel safe and comfortable while dining or working in one of our restaurants especially in light of the COVID-19 pandemic. We have made recent and ongoing investments to maintain our guests' health and safety in our restaurants including through the installation of pub and booth partitions and the establishment and expansion of outdoor dining facilities. We have also invested in technology to facilitate touchless menus and contactless payment options for our guests. Additionally, we have made investments in our team members by providing training on the use of personal protective equipment and proper sanitation protocols. We remain committed to continually enhancing the guest experience and maintaining a clean, safe and inviting atmosphere in each of our restaurants.

Attractive Unit Economics and Consistent Execution

We believe that we have a long-standing track record of consistently producing high average weekly sales and average unit sales volumes and have proven the viability of our restaurants in multiple markets and regions. Since we began operating Stoney River, we have been able to increase the average weekly sales at the Stoney River restaurants, with exception of the COVID-19 impact in 2020, even while implementing significant operational improvements and remodeling locations. We believe that additional remodels and potential expansions of locations in each of our concepts will contribute to increases in average weekly same store sales.

Strong Cultural Focus on Continuous Training

We believe that our stringent employee hiring standards, coupled with our extensive and continuous training programs for all employees, contribute to providing outstanding service to our guests at each of our restaurants. We prefer to promote our restaurant general managers and regional management from within the organization, and approximately 60% of those roles are currently filled by individuals promoted from within. We believe that this helps to ensure that our unique focus and culture of excellent service are thoroughly disseminated throughout our restaurants. We seek to hire management prospects from top culinary programs nationwide and to train them in our service levels and processes. It can take three to five years of experience in our system for a management trainee to be qualified for promotion to general manager in one of our locations. We also provide ongoing training opportunities for our back of the house and kitchen staff to ensure they maintain and improve their skills and learn how best to prepare our current and new menu items.

Sophisticated and Scalable Back Office and Operations

We have been in operation for 30 years and have a long history of operating high-volume restaurants. We employ a sophisticated menu development process that has successfully created replicable recipes with a focus on maximizing gross margin by highly efficient use of perishable food inventories to create unique and inviting recipes. Our recipes are developed to use premium ingredients sourced from long standing relationships with high quality vendors. Most of our protein purchases are negotiated directly

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with our suppliers. We believe this not only reduces overall food costs but enables us to enforce strict standards on orders and adherence to the detailed instruction manual we provide to producers. Because we deal directly with producers, we are also able to take advantage of seasonal products and provide “farm-to-table” options that change with the seasons and ingredient availability through our unique “featured items” menu. Direct relationships with vendors also provide us cost and flexibility advantages that may not be available from third party distributors. We also have a shared services model for our back-office that centralizes certain functionality at our corporate headquarters and leverages advanced systems platforms. Services shared between our concepts include staff training, real estate development, purchasing, human resources, information technology and finance and accounting, further contributing to the complementary nature of our concepts. We believe that the teams and technology we have put in place to manage these functions, and other non-restaurant operations functions are capable of managing the number of restaurants in our current growth plan with limited additional hires.

From high quality food vendors to technology and maintenance vendors, we believe that we have developed long-term relationships with a highly sophisticated team of vendors capable of effectively servicing our needs as we execute our growth plan. The quality and depth of both our vendor relationships and our shared services have resulted in a scalable platform with the bench strength to support our planned growth with limited adjustments.

Experienced Management Team

We are led by a management team with significant experience in all aspects of restaurant operations. Our experienced team of industry veterans at the executive level has an average of approximately 25 years of restaurant experience, and our 46 general managers, as of January 3, 2021, have an average tenure of approximately 13 years with the Company.

Our Growth Strategies

Although the COVID-19 pandemic negatively impacted our business in 2020, we believe that a strong demand still exists for the products and services that we offer to our guests as evidenced by the sales levels that we experienced during periods of fiscal 2020 when government-mandated capacity restrictions were eased. We believe that once effective vaccines become widely available to the general public, consumer confidence strengthens and governmental capacity restrictions are alleviated, our restaurants will return to serving full dining rooms, while continuing to provide a robust carry-out service. We believe there are significant opportunities to grow our business, strengthen our competitive position and enhance our restaurants through the implementation of the following strategies:

Deliver Consistent Same Store Sales

We believe that we will be able to generate annual same store sales growth on a long-term, consistent basis by providing an attractive price/value proposition for our guests through excellent service in an upscale environment. We continually focus on delivering freshly prepared, contemporary American cuisine to our guests, with exceptional quality and service at a reasonable price point. Though the core menu at each restaurant is consistent and familiar to our guests, we regularly develop and deploy new menu items as well as limited-time featured food and drink offerings that are rotated on a weekly basis. As a result, we are able to adapt to changing consumer tastes and product availability and incorporate local offerings to reinforce our boutique restaurant feel. We continue to explore ways to increase the number of occasions and flexibility of dining options for our guests, including the addition of Sunday brunch at select restaurants, outdoor dining options and additional carry-out options both for celebrations and everyday use.  In addition, we operate a program of continuous investment in all of our locations to maintain our store images at the highest level, and target spending $75 to $100 per year in maintenance capital expenditures per restaurant.

Pursue Disciplined New Restaurant Growth in Target Markets in the Long-Term

We believe each of our concepts has significant growth potential and that there are significant opportunities to grow our concepts on a nationwide basis in both existing and new markets where we believe we can generate attractive unit economics.

Although we slowed development during the early months of the COVID-19 pandemic, we believe it to be in the Company’s best long-term interest to continue to evaluate potential future sites. We are constantly evaluating potential sites for new restaurant openings and currently have many locations in a variety of separate markets under various stages of review and development. We believe that having several sites under review at any one time is necessary in order to meet our development goals. In our experience, sites under analysis often will not result in a new restaurant location for any number of reasons, including the delay or cancelation of larger development projects on which a future restaurant may depend, the loss of potential site locations to competitors or our ultimate determination that a site under review is not appropriate for one of our restaurants. We believe that the number of available and potential sites under review by us, the anticipated costs of opening a new restaurant location and our expected capital resources will

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support up to four new store openings annually beginning in 2022. However, our ability to open any particular number of restaurants in any calendar year is dependent upon many factors, risks and uncertainties, including the impact of COVID-19, beyond our control as discussed more fully elsewhere in this Annual Report under the heading “Item 1A. Risk Factors”.  The most recent restaurant opening was a Merus Grill restaurant in Houston, Texas, during November 2019.  In 2021, the Company expects to open a Redlands Grill in San Antonio, Texas, at the end of March and a J. Alexander’s restaurant in Madison, Alabama, early in the fourth quarter.

We expect that the development of our Redlands Grill and other concepts will further accelerate growth by allowing us to expand into certain markets which currently have a J. Alexander’s and/or Stoney River restaurant and that might not otherwise have been considered viable for expansion opportunities.

Improve Margins and Leverage Infrastructure

We believe that our corporate infrastructure and technology can support a restaurant base greater than our existing footprint.  We have made recent significant investments in updated technology platforms that will enable greater visibility into the real-time operations of each restaurant and are expected to result in efficiencies related to both food and beverage costs as well as labor. As we continue to grow, we expect to drive greater efficiencies in our supply chain and leverage our technology and existing support infrastructure to drive sales and enhance margins and we anticipate that, over time, general and administrative expenses will grow at a slower rate than our restaurant base and net sales.

Further Development of our Carry-out Program

In response to the required dining room closures due to the COVID-19 pandemic, we quickly shifted our service model to a carry-out only platform. Since our restaurants have been able to begin welcoming guests for dine-in service once again, we have continued to offer our guests ordering carry-out options to be picked up inside of our restaurants or via curbside service and in certain markets to be delivered by our online ordering platform provider. We believe that we have developed a robust and attractive carry-out program that allows us to serve our long-time guests on a more frequent basis as well as attract new guests who prefer the carry-out service model. Our carry-out model allows us to provide guests with some of their favorite menu items as well as offer new family-style meals (offering a complete meal for larger parties often including a salad, entrée, side items and dessert), and butcher shop sales of cook at home hand-cut steaks all with the same high-quality ingredients served in our dining rooms at an attractive price point. We also offer cocktails and bottles of wine for off-premise consumption where permitted by local law. We have increased our digital marketing and email campaigns to drive guest awareness of our carry-out program and invested in our online ordering platform and third-party relationships.

Restaurant Design and Site Selection Process

Site Selection

We have developed a targeted site acquisition and qualification process incorporating management’s experience as well as extensive data collection, analysis and interpretation. We are continuously evaluating restaurants in both new and existing markets, and we will seek to expand in selected regions throughout the U.S. We identify and work with local brokers to conduct preliminary research regarding each potential market and location. The preliminary research includes an analysis of traffic patterns, parking, access, demographic characteristics, population density, level of affluence, consumer attitudes or preferences and current or expected co-retail and restaurant tenants. The brokers then present potential sites to our real estate department. If our financial criteria for the site are satisfied, our Chief Executive Officer and Chief Operating Officer visit the site, and once approved, our management negotiates the lease.

For each of our restaurants, our key site criterion is that the population within a five-mile radius has a high concentration of our targeted guests, which includes individuals in the upper income demographic of major metropolitan areas that dine out frequently. In addition, we target high concentrations of retail and upscale office developments to support our lunch business. We also prefer locations with high visibility and ample parking spaces.

Restaurant Design

We do not have a standard prototype for each restaurant with respect to size, location or layout, which enables us to be flexible in our real estate selection process. This allows us to use a combination of new builds and conversions for our new locations. Our restaurants are generally free-standing structures using a variety of interior and exterior finishes and materials which have been developed to allow each location a unique design with a common look and feel within each concept. Each location has been designed to provide a high level of curb appeal as well as a comfortable dining experience. While our restaurants are individually designed to

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create an unchained feel, all locations benefit from a focus on a contemporary and comfortable aesthetic that we believe compliments our food and creates a consistent dining experience across all of our concepts. This flexibility in design has allowed us to utilize a variety of locations and spaces, making the best use of the real estate available.

Many of our J. Alexander’s / Grill building designs utilize craftsman-style architecture, featuring natural materials such as stone, wood and weathered copper. Others reflect a blend of international and craftsman architecture featuring elements such as steel, concrete, stone and glass, subtly incorporated to give a contemporary feel. Several of our restaurants also feature a patio complemented by an exposed fire pit. J. Alexander’s / Grill locations typically contain approximately 6,900 to 9,000 square feet with seating for an average of approximately 220 guests. For J. Alexander’s / Grill locations, we estimate that a new build, excluding land, will typically require a total cash investment of $5,000 to $6,000 (excluding pre-opening costs and any tenant incentives).

Stoney River locations typically contain approximately 6,400 to 8,000 square feet with seating for an average of approximately 260 guests. Most of our Stoney River locations include private dining spaces that have historically contributed approximately 6.0% of sales to the Stoney River concept prior to fiscal 2020 when private dining sales were significantly limited by the COVID-19 pandemic. Historically, the majority of our Stoney River locations operated as a dinner service only restaurant traditionally found within the steakhouse category of restaurants.  Over the past several years, we have added lunch and/or brunch service to selected locations.  Of the 13 Stoney River restaurants, seven and 10 locations are now serving lunch and brunch, respectively. Beginning with the new Stoney River restaurant in Troy, Michigan, which opened in October 2018, we anticipate that each new Stoney River location will operate as a lunch and dinner service restaurant. For Stoney River locations, we estimate that each new build, under the assumption noted above, will typically require a total cash investment of $5,000 to $6,000 (excluding pre-opening costs and any tenant incentives).

The flexibility of our concepts has enabled us to open restaurants in a wide variety of locations, including high-density residential areas, shopping malls, lifestyle centers and other high-traffic locations. On average, it takes us approximately 12 to 18 months from identification of the specific site to opening the doors for business. In order to maintain consistency of food and guest service as well as the unique atmosphere at our restaurants, we have set processes and timelines to follow for all restaurant openings.

Hiring and Training

We are highly focused on providing an unparalleled experience to our guests. Achieving this experience is intricately tied to careful hiring, thorough training and an apprenticeship for management trainees that provides intimate knowledge of every facet of our restaurants. We have implemented a sophisticated and stringent hiring and training program. Maintaining the uniqueness of our culture, with our focus on quality and training, starts with hiring. Excluding the needs of new restaurants and operating under normal conditions, we hire approximately 60 to 75 new management trainees annually. Including new locations, we believe this number is approximately 70 to 85 per year. We focus our recruiting efforts on approximately fifteen of the best culinary programs in the country where we believe our long-standing relationships with the schools enable us to identify and recruit the most promising students. These graduates typically spend three to five years in restaurant management before they are promoted to a department responsibility or a general manager role. During that time, they experience every job in the restaurant. Because of our focus on quality and training, we have traditionally found that some of our most successful managers have been hired from within. All restaurant management candidates, regardless of previous experience, are required to complete a 10-to-13-week training program at the beginning of their employment.

Suppliers

To ensure that we maintain consistent pricing and quality throughout our restaurants, we use centralized contracts or pricing agreements with a network of third-party vendors, suppliers and distributors to provide selected items. We provide each vendor with a set of specifications to ensure that our food quality is maintained at the highest level. Where possible, we also take advantage of local farms or purveyors to provide in-season products to supplement our regular menu with recipes featuring high quality local or “farm-to-table” products. If commodity pricing increases significantly, we can work with our menu development team to create new and unique menu additions that can make the most efficient use of the products we have purchased or to improve the food margin of products on the menu.

Beef is the largest percentage of our food costs, historically representing approximately 30% of total food and beverage costs. We purchase the majority of our beef directly from the producers, rather than through a distributor or third-party supplier. We believe that direct relationships with these vendors provide us cost and flexibility advantages that may not be available from third-party distributors. We have purchased beef from our current primary beef supplier for multiple consecutive years and anticipate this will continue for the foreseeable future. We do not hedge our beef purchases, and instead rely on our direct purchases and menu innovation to offset potential price increases.

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While most of our current supply contracts are for no longer than one year, we have been purchasing from many of our suppliers for a number of years and believe that our relationships are strong, and their financial position secure. However, we believe that we do not rely on any single-source supplier that could not be replaced with one or more alternative suppliers without disruption. Should there be any disruption in our supply chain, we believe we have created a set of product specifications that can be met by a number of common restaurant suppliers.

Seasonality

Our net sales and net income have historically been subject to seasonal fluctuations. Net sales and operating income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday business and the first quarter of the fiscal year due in part to the redemption of gift cards sold during the holiday season. In addition, certain of our restaurants, particularly those located in south Florida, typically experience an increase in guest traffic during the period between Thanksgiving and Easter due to an increase in population in these markets during that portion of the year. Certain of our restaurants are located in areas subject to hurricanes and tropical storms, which typically occur during our third and fourth quarters, and which can negatively affect our net sales and operating results. Certain of our restaurants are located in areas subject to extreme winter weather conditions which typically occur during our fourth and first quarters and can also negatively affect our net sales and operating results. As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year.

Intellectual Property and Trademarks

We own a number of trademarks and service marks registered with the United States Patent and Trademark Office (“PTO”). We have registered the following marks with the PTO, among others: “J. Alexander’s Restaurant,” “Redlands Grill,” “Merus Grill,” “Black River Angus Beef,” “Black River Premium Beef,” “Legendary Steaks,” “Stoney River,” “Stoney River Legendary Steaks,” “Stoney River Steakhouse and Grill,” “Stoney River Legendary Filet,” “Seahorse” and “Birmingham Grill.” In addition, we have also registered the Internet domain names jalexanders.com, jalexandersholdings.com, redlandsgrill.com, overlandparkgrill.com, merusgrill.com and stoneyriver.com, among others, and have registered certain copyrights with the U.S. Copyright Office, including copyrights with respect to the J. Alexander’s menu and the J. Alexander’s cocktail menu.

We believe that our trademarks, service marks and other intellectual property rights have significant value and are important to the marketing of our concepts, and it is our policy to protect and defend vigorously our rights to such intellectual property. However, we cannot predict whether steps taken to protect such rights will be adequate. See “Risk Factors— Failure to enforce and maintain our intellectual property rights could enable others to use names confusingly similar to the names and marks used by our restaurants, which could adversely affect the value of our concepts.”

Marketing and Advertising

We rely on our reputation, our loyal guest base and positive “word of mouth” advertising to maintain and grow our net sales and guest counts rather than focusing on traditional paid advertising through television, radio or print, or using significant discounting and couponing. We also rely on a social media and digital and email marketing strategy that provides us the opportunity to regularly engage with our guests and to reach a targeted new guest base in a cost-efficient manner. This strategy includes communications through Facebook®, Twitter®, Instagram®, YouTube®, and other social media platforms as well as direct email marketing to customers. See “Risk Factors – Any inability to actively and effectively utilize and manage social media could harm our reputation, which could adversely affect our results of operations.”

Locally-driven advertising is also evolving as another important aspect of our marketing strategy. We participate in local media events for critics and writers, including Yelp® events for their elite writers, as well as certain trade area promotional events, guest appearances on local television news restaurant segments, local lifestyle magazine ad buys, and local charitable events. We also make efforts to engage and build awareness with local event planners, hotel concierges and shuttle drivers, shopping center operators, chambers of commerce, neighborhood groups and others in the local communities in which we operate. For restaurants opening in new markets, we also issue press releases through local media channels to increase awareness ahead of the openings.

Regulatory, Environmental, Health and Safety Matters

Environmental

We are subject to federal, state and local environmental laws and regulations concerning waste disposal, pollution and protection of the environment, and the presence, discharge, storage, handling, release and disposal of, or exposure to, hazardous or toxic substances (“environmental laws”). These environmental laws can provide for significant fines and penalties for non-compliance

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and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third-parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances. We are not aware of any environmental laws that will materially affect our earnings or competitive position, or result in material capital expenditures relating to our restaurants. However, we cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered, interpreted or enforced, or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating to, environmental laws. It is possible that we will become subject to environmental liabilities at our properties, and any such liabilities could materially affect our business, financial condition or results of operations. See “Risk Factors— Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition and results of operations.”

Regulatory, Health and Safety

We are subject to extensive and varied federal, state and local government regulation, including regulations relating to the sale of food and alcoholic beverages, public and occupational health and safety, sanitation and fire prevention. We operate each of our restaurants in accordance with standards and procedures designed to comply with applicable codes and regulations, and we maintain all applicable permits and licenses required by the jurisdictions in which we operate.

In addition, in order to develop and construct restaurants, we must comply with applicable zoning, land use and environmental regulations. We are also required to comply with the accessibility standards mandated by the U.S. Americans with Disabilities Act (“ADA”), which generally prohibit discrimination in accommodation or employment based on disability. The ADA became effective as to public accommodations and employment in 1992.

A significant amount of our net sales is attributable to the sale of alcoholic beverages. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants, including the minimum age of patrons and employees, hours of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, inventory control and handling, storage and dispensing of alcoholic beverages. We are also subject in certain states to “dram shop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Of the 16 states where we operate, most have dram-shop statutes or recognize a cause of action for damages relating to sales of alcoholic beverages to obviously intoxicated persons and/or minors. We carry liquor liability coverage as part of our existing comprehensive general liability insurance.

In addition, we are subject to the U.S. Fair Labor Standards Act, the U.S. Immigration Reform and Control Act of 1986, the Occupational Safety and Health Act and various other federal and state laws governing similar matters including minimum wages, overtime, workplace safety and other working conditions.  A significant number of our hourly restaurant staff members receive income from gratuities.  We participate voluntarily in a Tip Reporting Alternative Commitment (“TRAC”) agreement with the Internal Revenue Service. By complying with the educational and other requirements of the TRAC agreement, we reduce the likelihood of potential employer-only FICA tax assessments for unreported or underreported tips. Additionally, a significant number of our hourly employees who receive tips are paid at tipped minimum wage, which is significantly lower in most jurisdictions than full minimum wage rates.  Any increase in minimum wage rates will increase our labor costs. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters, and we have been party to such matters in the past. See “Risk Factors—Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition and results of operations.”

The PPACA, enacted in March 2010, requires chain restaurants with 20 or more locations in the United States operating under the same name and offering substantially the same menus to publish the total number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of a total daily calorie intake. A number of states, counties and cities have also enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to guests, or have enacted legislation restricting the use of certain types of ingredients in restaurants. Many of these requirements are inconsistent or are interpreted differently from one jurisdiction to another. While our ability to adapt to consumer preferences is a strength of our concepts, the effect of such labeling requirements on consumer choices, if any, is unclear at this time. See “Risk Factors— Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition and results of operations.”

There is also a potential for increased regulation of certain food establishments in the United States, where compliance with Hazard Analysis & Critical Control Points (“HACCP”) management systems may now be required. HACCP refers to a management

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system in which food safety is addressed through the analysis and control of potential hazards from raw material production, procurement and handling, to manufacturing, distribution and consumption of the finished product. Many states have required restaurants to develop and implement HACCP programs, and the United States government continues to expand the sectors of the food industry that must adopt and implement HACCP programs. For example, the Food Safety Modernization Act, signed into law in January 2011, granted the U.S. Food and Drug Administration new authority regarding the safety of the entire food system, including through increased inspections and mandatory food recalls. We anticipate that certain requirements may impact our industry. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise harm our business. See “Risk Factors—Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition and results of operations.”

We are also subject to laws and regulations relating to information security, privacy, cashless payments, gift cards and consumer credit protection and fraud, and any failure or perceived failure to comply with these laws and regulations could harm our reputation or lead to litigation, which could adversely affect our financial condition.

Information Technology

All of our restaurants use computerized point-of-sale systems created by Micros Systems, which we believe are scalable to support our future growth plans. Our restaurants process credit cards using point-to-point encryption (“P2PE”) technology to ensure the highest level of credit card security protection for our guests.  The Company also uses EMV chip-card technology to provide an additional layer of credit card security.  We utilize a Windows-based accounting software package and a network that enables electronic communication throughout the Company. In addition, all of our restaurants utilize touch screen point-of-sale and electronic gift card systems, and also employ a theoretical food costing program, all of which were specifically designed for the restaurant industry. We use our management information systems to develop pricing strategies, identify food cost issues, monitor new product acceptance and evaluate restaurant-level productivity. The system also supplies sales, bank deposit and variance data to our accounting department on a daily basis. We use this data to generate daily sales information and weekly consolidated reports regarding sales and other key measures, as well as preliminary weekly detailed profit and loss statements for each location with final reports following the end of each period. During 2020, the Company took measures to increase its off-premise sales during the COVID-19 pandemic, including investing in its online ordering platform with ChowNow®. The Company is also in the process of implementing a contactless payment solution and we anticipate that this initiative will be fully implemented in 2021. In 2019, we committed significant resources to the implementation of both a new restaurant back-office system that handles inventory and invoice management, theoretical food costing, product usage forecasting and other core restaurant-level processes, as well as a new human capital management solution that encompasses payroll processing, human resources and benefits management, recruiting and onboarding and other key talent management functions. We believe the investment in these technologies will allow management to have greater visibility into day-to-day operations, reduce compliance costs and risks, improve efficiency, reduce turnover and overtime labor and better leverage existing talent in managing the business on a long-term basis. We expect to continue to develop our management information systems to assist management in analyzing business issues and to improve efficiency. Federal and state regulation of privacy and security, particularly within the restaurant industry, may increase in scope or severity in the future. A determination by a federal or state agency, or a court, that our practices do not meet such laws or regulations could result in legal liability, adverse publicity, and require us to modify our practices and incur substantial costs and expenses. See “Risk Factors— Information technology system failures, including when transitioning to new systems, or breaches of our network security, including with respect to confidential information, could interrupt our operations and adversely affect our business.”

Industry & Competition

The restaurant industry has historically been fragmented and intensely competitive. We believe guests make their dining decisions based on a variety of factors such as menu offering, taste, quality and price of food offered, perceived value, service, atmosphere, location, overall dining experience and the ability to make a reservation. Although the industry has been severely and uniquely impacted by the COVID-19 pandemic, we believe that intense competition is likely to return to the industry over time.

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Depending on the specific concept, our restaurants compete with a number of restaurants within their markets, including both locally-owned, boutique, chef-driven restaurants and restaurants that are part of regional or national upscale dining concepts. We believe we have two primary types of competitors:

The number, size and strength of our competitors varies widely by region; however, we believe that we benefit from our goal of providing our guests with a combination of check average, food quality and intense levels of service that we believe to be unique in the markets in which we compete.

In virtually all of our markets, we compete primarily against locally-owned boutique restaurants or locally-managed restaurant groups with similar menus and similar concept attributes at check averages that approximate ours. To a lesser extent, we compete with restaurant groups, both regional and national, that market to the same upscale restaurant guest and may have menus, formats and check averages that differ from ours. Del Frisco’s Grill, North Italia, Eddie V’s Prime Seafood and Seasons 52 are concepts that would fall within this second category, and would be considered competitors of our J. Alexander’s / Grill concepts. Stoney River generally competes with restaurants that are considered steakhouses or have a steakhouse format such as The Palm, Ruth’s Chris Steak House, STK, Morton’s The Steakhouse, Del Frisco’s Double Eagle Steak House, and Fleming’s Prime Steakhouse and Wine Bar.

Human Capital Resources

As of January 3, 2021, we employed approximately 3,200 persons, including 44 persons on the corporate staff. Of the employees in our restaurant locations, approximately 240 were employed in restaurant-level exempt management positions and the remainder were non-exempt hourly personnel. We were required to temporarily close our dining rooms in all locations for varying periods of time during 2020 in response to governmental mandates enacted due to the COVID-19 pandemic, and as a result we temporarily furloughed a portion of our hourly restaurant employees. As our dining rooms reopened we were able to bring back the majority of the furloughed hourly team members. During 2020, we implemented an Emergency Sick Leave Policy (“ESLP”) for our team members to provide two weeks of paid leave for those needing time off from work due to a COVID-19 illness or to cover a portion of the time that their restaurants were required to be closed for dining. In 2020, we incurred approximately $3,320 related to the ESLP and other sick or vacation leave and continuing benefits paid in response to the COVID-19 pandemic. Further, despite the negative impact that COVID-19 has had on our business, we have not reduced salaries or hourly rates for our employees who either remained on staff or who have returned from temporary furlough.

The health and safety of our guests and our employees continues to remain a top priority, especially in light of the ongoing COVID-19 pandemic. We have focused on increasing safety measures during 2020 including the observance of social distancing protocols, employing the use of personal protective equipment, checking temperatures of employees daily, routinely sanitizing high-touch surface areas, and installing plexiglass and glass booth and pub dividers in our restaurants. We have also added work from home flexibility for our corporate office employees where appropriate. We continue to seek to align our policies and practices with guidelines issued by the Centers for Disease Control, and other relevant local, state and federal agencies.

We currently are not party to any collective bargaining agreements, and we consider our current employee relations to be good. Our human capital management objectives are to attract, develop, reward and retain a diverse base of the most talented employees in the industry. We believe that we offer competitive pay and benefits packages, including health and welfare and retirement benefits for eligible employees. Our restaurant management and the majority of our corporate staff are eligible to participate in annual cash-based performance bonus plans. Each of our incentive plans rewards individuals for achievement of restaurant-level and Company-wide business goals. For 2020, we paid restaurant management discretionary bonuses in recognition of their outstanding service during the COVID-19 pandemic. We continue to invest in technology platforms to enhance our employees’ workplace experience as well as increase access to and awareness of benefits programs available to them. We also continuously evaluate our training programs for both our hourly team members and restaurant management and make adjustments as needed to ensure that our guests are provided with the highest quality food and service experience possible. Our new restaurant managers must successfully complete a 13-week comprehensive training program upon hire that covers all operational aspects of our business.

We evaluate restaurant management turnover rates routinely. Our tenure at the restaurant General Manager level averages approximately 13 years, and the remainder of restaurant management averages approximately 5 years currently. Our corporate senior management team has an average tenure of over 20 years with the Company. Hiring, developing, and retaining employees is of critical

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importance to the successful operations of our business, and we believe that our tenure and low turnover statistics are indicative of the quality of our programs and strength of our culture.

Legal Proceedings

Refer to Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 18 (c) Commitments and Contingencies – Litigation Contingencies for a discussion of legal proceedings.

Information about our Executive Officers

The following list includes names and ages of all of the executive officers indicating all positions and offices held by each such person and each such person’s principal occupations or employment during the past five years. All such persons have been appointed to serve until the next annual appointment of officers and until their successors are appointed, or until their earlier resignation or removal.

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Financial Information

The financial information that is required to be included in this Item 1, Business is set forth in Item 8, Financial Statements and Supplementary Data.

Available Information

Our Internet website address is http://www.jalexandersholdings.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports as soon as reasonably practical after we electronically file or furnish such materials to the Securities and Exchange Commission (“SEC”). Information contained on the Company’s website is not part of this Annual Report.

Cautionary Statement Regarding Forward-Looking Statements

We caution that certain information contained or incorporated by reference in this report and our other filings with the SEC, in our press releases and in statements made by or with the approval of authorized personnel is forward-looking information that involves risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements contained herein. Forward-looking statements discuss our current expectations and projections relating to our financial conditions, results of operations, plans, objectives, future performance and business.  Forward-looking statements are typically identified by words or phrases such as “may,” “will,” “would,” “can,” “should,” “likely,” “anticipate,” “potential,” “estimate,” “pro forma,” “continue,” “expect,” “project,” “intend,” “seek,” “plan,” “believe,” “target,” “outlook,” “forecast,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.  Forward-looking statements include all statements that do not relate solely to historical or current facts, including statements regarding our expectations, intentions or strategies and regarding the future, including the impact of the COVID-19 pandemic on our operations, reopening of the Company’s restaurants at increased capacities, the Company’s sales, off-premise sales, cash position, cost containment efforts, liquidity and results of operations, new restaurant openings and the Company’s plans to continue its review of strategic alternatives.  We expressly disclaim any intent or obligation to update these forward-looking statements.  Other risks, uncertainties and factors which could affect actual results include, but are not limited to:

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These factors should not be construed as exhaustive and should be read with the other cautionary statements in this Annual Report. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this Annual Report. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Annual Report in the context of these risks and uncertainties.  Forward-looking information provided by the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. We expressly disclaim any intent or obligation to update these forward-looking statements.

Item 1A. Risk Factors

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are including the following cautionary statements identifying important factors that could materially affect the Company and cause actual results to differ materially from those projected in forward looking statements made by, or on behalf of, the Company.  The risks and uncertainties described below should be considered carefully, and with all the other information contained in this Annual Report, in evaluating the Company and its business.

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Risks Related to COVID-19, Health Epidemics and Food Safety

The COVID-19 pandemic has disrupted and may further disrupt our business, and has adversely affected and may further adversely affect our net sales, results of operations, cash flows, liquidity and financial condition.

The COVID-19 pandemic has affected and may continue to adversely affect our net sales, results of operations, cash flows, liquidity and financial condition. Commencing in March 2020 and continuing to the present, we are experiencing unprecedented effects of the COVID-19 pandemic, which has negatively impacted and may continue to negatively impact guest traffic at our restaurants, make it more difficult to staff our restaurants and, in more severe cases, may cause a temporary inability to obtain supplies, increase commodity costs or cause full and partial closures of our affected restaurants, sometimes for prolonged periods of time. After restaurants were permitted to reopen for in-person dining, they have operated at, and most are expected to continue to operate at, decreased capacity to comply with governmental mandates and social distancing requirements. As of March 2021, all of our restaurants are open for in-person dining, subject to varying capacity restrictions, and we continue carry-out services in all of our restaurants. As a result of these changes to our operations, we have experienced severe decreases in net sales, while continuing to incur significant levels of expenses.  There can be no assurance that other state or local authorities will allow dining rooms to remain open even at reduced capacity if there is a surge in cases of COVID-19 or variants in those locations. If federal, state or local jurisdictions determine that another closure of restaurants for dine-in services is warranted, whether temporary or prolonged, our results of operations, net sales, cash flows, liquidity and financial condition will be negatively impacted. Additionally, if prolonged increases in positive cases of COVID-19 occur, it will be difficult for us to staff our restaurants while adhering to quarantine guidelines, which could cause temporary closures of our locations. Further, we have new or additional competitors we may not otherwise face under normal operations, and we may not be able to successfully compete with such establishments. Further, we cannot predict the full impact that the COVID-19 pandemic will have on third parties with whom we do business, including suppliers and other vendors, third-party service providers, and landlords and the degree to which the impact on third parties will affect our business. To the extent these third parties are severely impacted, it may harm our business or change the way we operate

Moreover, the COVID-19 pandemic has impacted, and may continue to impact, the greater economy, causing an economic downturn and generating uncertainty related to factors that may impact our business, such as timing of any economic recovery, changes in guest spending, and changes in consumer habits in light of job losses, lower discretionary income, and higher individual debt levels. The COVID-19 pandemic may also materially adversely affect our ability to implement our growth plans, including closures of existing restaurants, delays in opening new restaurants, and delaying our ongoing exploration of strategic alternatives. These changes have materially adversely affected our net sales, results of operations, cash flows, liquidity and financial condition, and may continue to materially adversely affect such aspects of our business, particularly if these changes continue for an extended period of time.

We have taken steps to conserve capital and cut costs, including reducing our corporate staff, deferring most non-essential capital expenditures and deferring payments to landlords and other parties in order to reduce our capital commitments and supplement our liquidity. We have also taken steps to increase availability under our loan agreement and to extend the maturities of our loans. We cannot assure you that we will be able to access the additional funds available under our loan agreement or obtain any additional payment deferrals or contract concessions sought. If we are unable to obtain additional liquidity, our operations and financial condition may be adversely affected, particularly if restaurant capacity is restricted during any worsening COVID-19 outbreaks.  Depending on its duration and severity, the COVID-19 pandemic may have an adverse effect on our access to financial markets and our ability to service or refinance our indebtedness.

The long-term impact of this or any other pandemic remains uncertain, as viruses may be transmitted through human contact, and the risk of contracting viruses could cause employees or guests to avoid gathering in public places, which has adversely impacted our operations, and could further have longer-term adverse effects on our restaurant guest traffic or the ability to adequately staff our restaurants. Additionally, it is possible that we may experience some reputational harm due to our responses to the COVID‑19 pandemic that may negatively impact our business and results of operations. We will be adversely affected if government authorities impose longer-term or more stringent restrictions on public gatherings, human interactions, operations of restaurants, or mandatory closures. Even if such measures are not implemented and a virus or other disease does not spread significantly after we fully reopen our restaurants, any continuing perceived risk of infection or health risk may adversely affect our business, net sales, cash flows, liquidity, financial condition and results of operations.  Depending on the severity of the pandemic and our business levels, we cannot assure you that we will not be forced to or make the decision to temporarily reclose any locations for indoor dining in response to further outbreaks of COVID-19 including new variants of the virus. Further deterioration in our results from operations could prompt additional long-lived and intangible asset impairment charges, an increase in our valuation allowance relative to deferred tax assets, the write‑down of other assets recorded on the Company’s consolidated balance sheets or the inability to comply with required financial debt covenants under our loan agreement. There may be other effects of the COVID-19 pandemic that are not yet identified and may materially adversely affect our business. The extent of the effects of the COVID-19 pandemic on our business will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, the timing and availability of

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vaccinations and treatments to combat COVID-19, whether or not a recession occurs in the United States or globally, consumer spending, the state of the financial markets, and normal economic and operating conditions to resume. Given the uncertainty as to the extent and timing of the potential future spread or mitigation of COVID-19 and the imposition or relaxation of protective measures, we are presently unable to estimate the full impact to our future business, results of operations, cash flows, or financial condition.

The pace of recovery in demand and our business may be affected by adverse economic conditions in the markets in which our restaurants are located, including job losses, corporate financial performance and spending on expense account and group dining, debt loads, diminished business travel and other factors. Moreover, while we believe our loyal guests will continue to dine with us once restrictions are relaxed or lifted, it is unclear whether guest demand will return, in part, because we cannot predict the levels of consumer confidence and spending following the COVID-19 pandemic. We cannot predict the pace of recovery of our business, or the timing of a return to prepandemic net sales levels and operating results.  

The COVID-19 pandemic has also resulted in significant financial market volatility and uncertainty, including on the market price of our common stock. A continuation or worsening of the levels of market disruption and volatility seen during the pandemic could have an adverse effect on the market price of our common stock.

The potential effects of the COVID-19 pandemic also could intensify or otherwise affect many of our other risk factors that are included in “Part I—Item 1A. Risk Factors” of this Annual Report on 10-K and our subsequent filings, including, but not limited to, risks inherent in the restaurant industry, macroeconomic factors beyond our control, competition for guests, risks related to doing business with third parties, including vendors and suppliers, and risks related to our indebtedness. Because the COVID-19 situation is unprecedented and continuously evolving, the other potential impacts to our risk factors contained herein and that are further described in this Annual Report on Form 10-K are uncertain.

Negative publicity relating to the consumption of beef, seafood, chicken, produce and our other menu offerings, including in connection with food-borne illness, could result in reduced consumer demand for our menu offerings, which could reduce net sales.

Shifts in consumer preferences away from the kinds of food we offer, particularly beef and seafood, whether because of dietary or other health concerns or otherwise, would make our restaurants less appealing and could reduce guest traffic and/or impose practical limits on pricing. In addition, instances of food-borne illness, such as Bovine Spongiform Encephalopathy, which is also known as BSE or mad cow disease, as well as hepatitis A, listeria, salmonella and E. coli, whether or not found in the United States or traced directly to one of our suppliers or our restaurants, could reduce demand for our menu offerings. Any negative publicity relating to these and other health-related matters may affect consumers’ perceptions of our restaurants and the food that we offer, reduce guest visits to our restaurants and negatively impact demand for our menu offerings. Adverse publicity relating to any of these matters, beef in general or other similar concerns could adversely affect our business and results of operations.

Health concerns arising from pandemics, outbreaks of viruses or other diseases, including those that are food-related, may have an adverse effect on our business.

The United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such as norovirus, Hepatitis A, avian flu, “SARS,” H1N1 or “swine flu,” COVID-19 or “Coronavirus,” influenza or other diseases such as bovine spongiform encephalopathy.  However, as has been experienced with COVID-19, if a virus is transmitted by human contact, our employees or guests could become infected, or could choose, or be advised, to avoid gathering in public places, any of which events could adversely affect our restaurant guest volume, and our ability to adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level. We could also be adversely affected if government authorities impose mandatory closures, seek voluntary closures, impose restrictions on operations of restaurants, or restrict the import or export of products, or if suppliers issue mass recalls of products.  Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or health risk may adversely affect our business and results of operations. If a virus or disease is foodborne, or perceived to be foodborne, future outbreaks may adversely affect the price and availably of certain food products and cause our guests to eat less of a product, or could reduce public confidence in food handling and/or public assembly. If we change a restaurant menu in response to such concerns, we may lose guests who do not prefer the new menu, and we may not be able to attract a sufficient new guest base to produce the sales needed to make the restaurant profitable. We also may have different or additional competitors for our intended guests as a result of such a change and may not be able to successfully compete against such competitors. Reputational harm due to an actual or perceived inadequacy of our response to any outbreak of infectious or foodborne disease may adversely affect our business and results of operations. Liability, loss of guest traffic or disruption of our business caused by any of the foregoing would have an adverse effect on our business and results of operations.

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Risks Related to Our Industry, Business, and Growth Strategy

Changes in general economic conditions, including any economic downturn or continuing economic uncertainty, consumer dining preferences and discretionary spending patterns have adversely impacted our business and results of operations in the past and may do so again.

We believe that consumers generally are more willing to make discretionary purchases, including upscale and high-end restaurant meals, during favorable economic conditions. The most recent economic downturn related to the COVID-19 pandemic, uncertainty and disruptions in the overall economy, including high unemployment, reduced access to credit and increased financial market volatility and unpredictability, and the related reduction in consumer confidence, negatively affected guest traffic and sales throughout our industry. If the economy experiences a new downturn, if recovery from the impacts of the COVID-19 pandemic is slowed due to increased cases or a delay in vaccine rollouts, or there are significant uncertainties regarding U.S. budgetary and fiscal policies, our guests, particularly price-sensitive families and couples and cost-conscious business clientele, may reduce their level of discretionary spending, impacting the frequency with which they choose to dine out or the amount they spend on meals while dining out, and in some instances may make long-lasting changes to their spending behavior. Uncertainty in or a worsening of the overall economy, generally or in a number of our markets, and our guests’ reactions to those trends could adversely affect our business.  

Additionally, our success depends in part on our ability to anticipate and respond quickly to changes in consumer preferences, demographic trends, traffic patterns and the type, number and location of competing restaurants. Shifts in consumer preferences away from meals at our price point or our menu offerings, whether as a result of economic, competitive or other factors, could adversely affect our business and results of operations. Many of our restaurants are located in or adjacent to traditional commercial retail centers, and to an extent rely on elevated levels of retail area traffic in these areas, especially during the holiday seasons.  As consumer spending patterns continue to migrate to online shopping or to boutique, local shopping resources, and away from malls and other traditional commercial retail centers, these restaurant locations may be negatively impacted.

In addition, we place a high priority on maintaining the competitive positioning of our restaurants, including the image and condition of our restaurant facilities and the quality of our guest experience. Consequently, we may need to evolve our restaurants in order to compete with popular new restaurant formats or concepts that emerge or for increased off-premise business, which could result in significant capital expenditures in the future for remodeling and updating.

Our future growth depends in part on our ability to open new restaurants and operate them profitably, and if we are unable to successfully execute this strategy, our business and results of operations could be adversely affected.

Our financial success depends in part on management’s ability to execute our growth strategy. One key element of our growth strategy is opening new restaurants. However, future developments, including macroeconomic changes, could cause us to re-evaluate this growth strategy. Additionally, in the past and currently related to the impact of the COVID-19 pandemic, we have experienced delays in opening restaurants, and that could happen in the future. Delays or failures in opening new restaurants and operating them profitably could materially and adversely affect our growth strategy and expected results.

Our ability to open new restaurants on a timely basis, or at all, and operate them profitably is dependent upon a number of factors, many of which are beyond our control, including finding quality site locations; having adequate capital for construction and opening costs; engaging third-party architects and contractors; timely hiring and training skilled personnel; successfully promoting our new locations; and having adequate supply chain resources at reasonable pricing, among others.

It has generally been our experience that new restaurants generate operating losses while they build sales levels to maturity, with maturity typically achieved within 36 months after opening, but in certain instances it has taken considerably longer. Once the restaurant is open, how quickly it achieves a desired level of profitability is impacted by many factors, including the level of market awareness and acceptance of our restaurants when we enter new markets, as well as the availability of experienced, professional staff. Our business and profitability may be adversely affected if it takes longer than expected for our new restaurants to achieve the desired level of profitability.

Our ability to successfully execute new restaurant development depends heavily on successful site selection. If a site does not produce the anticipated results, a restaurant location may never reach our desired level of profitability, if it becomes profitable at all. In those cases, we may be forced to close restaurants and will incur significant costs associated with our exit from those markets, including costs associated with lease terminations or potential losses on the sale of real property that we own. Additionally, previously successful restaurants may cease to produce acceptable or desired results in the future due to changes within the market in which they operate, such as a geographic shift in commercial development that results in fewer guests in the area in which we have an existing location. In those cases, if we determine that the market is still desirable, we may choose to relocate our existing restaurant or restaurants within that same market, which could result in increased costs associated with the purchase or lease of new property.

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Significant capital is required to develop new restaurants and to maintain existing restaurants and to the extent financing is available to us, it may only be available on terms that could impose significant operating and financial restrictions on us.

We believe that the required capital investment in our upscale restaurants is high compared to more casual dining restaurants. Failure of a new restaurant to generate satisfactory net sales and profits in relation to its investment could result in our failure to achieve the desired financial return on the restaurant. Additionally, we may require capital beyond the cash flow provided from operations in order to open new units, which may be difficult to obtain on favorable terms, if at all. The terms of any financing we may obtain could impose restrictions on our operations, development and new financings. Further, after a restaurant is opened, we continue to incur significant capital costs associated with our strategy to reinvest in our restaurants in order to maintain the highly attractive, contemporary and comfortable environment in each of our locations that we believe our guests expect. For 2021, we intend to complete reinvestments and improvements at our existing facilities and to invest approximately $5,325 in new locations, all totaling between $10,000 and $12,000. Consequently, our ability to carry out our growth strategy and to execute on development and capital expenditure decisions that we believe to be in our long-term best interest could be limited by the availability of additional financing sources and could involve additional borrowing which would further increase our long-term debt and interest expense.

If our restaurants are not able to compete successfully with other restaurants, our business, financial condition and results of operations may be adversely affected.

Our industry is highly fragmented and intensely competitive with respect to price, quality of service, restaurant location, ambiance of facilities and type and quality of food. A substantial number of national and regional restaurant chains and independently owned restaurants compete with us for guests, real estate and qualified management and other restaurant staff. The principal competitors for our locations are local, chef-driven restaurants and regional, high-quality restaurant chains in each of our local markets. However, we also compete with other upscale national chains. Some of our competitors have greater financial and other resources, have been in business longer, have greater name recognition and are better established in the markets where our restaurants are located or where we may expand. Additionally, in recent years many upscale and high-end restaurants have expanded into the smaller and midsize markets in which some of our restaurants are located. Our inability to compete successfully with other restaurants may harm our ability to maintain acceptable levels of revenue growth, limit or otherwise inhibit our ability to grow one or more of our concepts, or force us to close one or more of our restaurants.

If we are unable to increase our net sales or improve our margins at existing restaurants our profitability and overall results of operations may be adversely affected.

Another key aspect of our growth strategy is increasing same store sales across all restaurants and improving the restaurant-level margins at our restaurants. Improving same store sales and restaurant-level margins depends in part on whether we achieve revenue growth through increases in the average check or guest counts.  We believe that there are opportunities to increase the average check at our restaurants through, for example, selective introduction of new profitable menu items and increases in menu pricing. However, these strategies may prove unsuccessful, especially in times of economic hardship, as guests may not order new or higher priced items. Further, we believe that part of the appeal of our restaurants is the opportunity to experience outstanding, professional service and high-quality menu items at reasonable prices. Consequently, any price increases must be balanced with our desire to meet guest expectations with respect to service and quality at a reasonable value. Modest price increases generally have not significantly impacted guest traffic; however, we expect that there is a price level at which point guest traffic would be significantly affected, and these changes could cause our net sales to decrease. If we are not able to increase our sales at existing restaurants for any reason, our profitability and results of operations could be adversely affected.

Additionally, if we are unable to maintain or improve performance at our existing restaurants, we may be required to record impairments of our long-lived assets or intangible assets in the future. We assess the potential impairment of our long-lived assets whenever events or changes in circumstances indicate that the carrying value of the assets or asset group may not be recoverable. Factors considered include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner in which an asset is being used, an expectation that an asset will be disposed of significantly before the end of its previously estimated useful life and significant negative industry or economic trends. We cannot accurately predict the amount and timing of any recorded impairment to our assets. Should the value of our assets become impaired, there could be an adverse effect on our financial condition and results of operations.

Our growth may strain our infrastructure and resources, which could delay the opening of new restaurants and adversely affect our ability to manage our existing restaurants.

We believe there are opportunities to open up to four restaurants annually, and we anticipate that we will open two locations in 2021. Our targeted growth will increase our operating complexity and place increased demands on our management as well as our human resources, purchasing and site management teams. We also need to continue to develop awareness of our concepts. This may

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require the commitment of a significant amount of human capital and marketing expenditures. While we have committed significant resources to expanding our current restaurant management systems, financial and management controls, information systems and online ordering platforms, if this infrastructure is insufficient to support our anticipated expansion, our ability to open new restaurants and to manage our existing restaurants could be adversely affected. If we fail to continue to improve our infrastructure or if our infrastructure becomes inadequate, we may be unable to implement our growth strategy or maintain current levels of operating performance in our existing restaurants.

If we are unable to successfully transition or develop restaurants under our various Grill concepts, we may experience reduced net sales and margins at these locations, which could materially and adversely affect our financial condition and results of operation.

A key element of our business model is to pursue a multiple concept strategy consisting of the development of a number of restaurant concepts competing in the upscale casual dining segment of the restaurant industry. This is intended to, among other things, allow us to avoid being identified as a chain restaurant and to operate multiple concepts in the same market. However, we may experience a decrease in guest traffic, net sales or margins related to our strategy. If consumer preferences change, acceptance of the selected Grill concept is not as strong as expected, or the existing guest base patronizing these converted locations diminishes or discontinues, net sales at these restaurants may decrease and we could be required to expend additional resources on advertising and promotion which would reduce profit margins at these locations and adversely affect our overall financial performance.

As a result of the limited number of restaurants or geographic concentrations within our restaurant base, we may be more exposed to economic downturns or other disruptions in certain markets that could harm our business, financial condition and results of operation.

At March 17, 2021, we operated 46 restaurants in 16 states. Because of our relatively small restaurant base, unsuccessful restaurants could have a more adverse effect in relation to our financial condition and results of operations than would be the case in a company with a greater number of restaurants. We currently have a high concentration of restaurants within the South Florida market, the Ohio market and the Tennessee market and may in the future have similar concentrations of restaurants within one or more overlapping markets as we execute on our growth strategy. This concentration exposes us to risks that one or more of these markets may be adversely affected by factors that are unique to that particular market, such as negative publicity, changes in consumer preferences, demographic shifts or other adverse economic impacts, which could adversely affect our business, results of operations or financial condition.  In addition, any natural disaster, prolonged inclement weather, act of terrorism or national emergency, accident, system failure or other unforeseen event in or around regions in which we operate multiple locations could result in significant and prolonged declines in guest traffic in these geographic regions, or a temporary or permanent closing of those locations, any of which could adversely affect our business, financial condition and results of operations.

Our business is subject to seasonal and other periodic fluctuations, and past results are not indicative of future results.

Our net sales and operating income have historically been subject to seasonal fluctuations. Net sales and operating income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday business and the first quarter of the fiscal year due in part to the redemption of gift cards sold during the holiday season. In addition, certain of our restaurants, particularly those located in South Florida, typically experience an increase in guest traffic during the period between Thanksgiving and Easter due to an increase in population in these markets during that portion of the year. Our quarterly results have been and will continue to be affected by the timing of new restaurant openings and their associated pre-opening costs, as well as any restaurant closures and exit-related costs and any asset impairments. As a result of these and other factors, our financial results for any quarter may not be indicative of the results that may be achieved for a full fiscal year.

Hurricanes and other weather-related disturbances could negatively affect our net sales and results of operations.

Certain of our restaurants are located in regions of the country which are commonly affected by hurricanes and tropical storms or extreme winter weather. Restaurant closures resulting from evacuations, damage or power or water outages caused by hurricanes, tropical storms, other natural disasters and winter weather could adversely affect our net sales and profitability. To the extent we maintain insurance policies or programs to mitigate the impact of these risks, our cash flows may be adversely impacted by delay in the receipt of proceeds under those policies or the proceeds may not fully offset any such losses.

We occupy most of our restaurants under long-term, non-cancelable leases which require ongoing rental payments and for which we may remain obligated to perform under even after a restaurant closes, and we may be unable to renew leases at the end of their terms.

We are a lessee for the majority of our restaurant locations, which may be either ground leases or improved leases. Many of our current leases are non-cancelable and typically have terms ranging from approximately 15 to 20 years and provide for rent escalations and for one or more five-year renewal options. We are generally obligated to pay the cost of property taxes, insurance and

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maintenance under such leases, and certain of our leases provide for contingent rentals based upon a percentage of sales at the leased location. We believe that leases that we enter into in the future will be on substantially similar terms. Payments under our operating leases account for a significant portion of our operating expenses. We depend on cash flow from operations to pay our lease obligations and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities and sufficient funds are not otherwise available to us from borrowings under our credit facility or other sources, we may not be able to meet our operating lease obligations, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could adversely affect our business and results of operations.

If we were to close or fail to open a restaurant at a location we lease, we would generally remain committed to perform our obligations under the applicable lease, which could include, among other things, payment of the base rent for the balance of the lease term. Our obligation to continue making rental payments and fulfilling other lease obligations in respect of leases for closed or unopened restaurants could have a material adverse effect on our business and results of operations. Alternatively, at the end of the lease term and any renewal period for a restaurant, we may be unable to renew the lease without substantial additional cost, if at all, or renewals may be subject to higher rents. If we cannot renew such a lease, or cannot renew at a reasonable cost, we may be forced to close or relocate a restaurant, which could subject us to construction and other costs and risks. If we are required to make payments under one of our leases after a restaurant closes, or if we are unable to renew our restaurant leases, our business and results of operations could be adversely affected.

Risks Related to Our Supply Chain and Employees

Increases in the prices of, and/or reductions in the availability of commodities, primarily beef and seafood, could adversely affect our business and results of operations.

Our profitability is dependent in part on our ability to purchase food commodities which meet our specifications and to anticipate and successfully react to changes in food costs and product availability. Ingredients are purchased from suppliers on terms and conditions that management believes are generally consistent with those available to similarly situated restaurant companies. We rely on one or a limited number of suppliers for certain ingredients. This dependence on one or a limited number of suppliers, as well as the limited number of alternative suppliers of beef and quality seafood, subjects us to the possible risks of shortages, interruptions and price fluctuations in beef and seafood. Although alternative distribution sources are believed to be available for most products, increases in overall food prices, failure to perform by suppliers or distributors or limited availability of products at reasonable prices could cause our food costs to fluctuate and/or cause us to make adjustments to our menu offerings.

Beef costs have historically represented approximately 30% of our food and beverage costs. We currently do not purchase beef pursuant to any long-term contractual arrangements with fixed pricing or use futures contracts or other financial risk management strategies to reduce our exposure to potential price fluctuations. The beef market is particularly volatile and is subject to extreme price fluctuations due to seasonal shifts, climate conditions, the price of feed, industry demand, energy demand and other factors. In addition, our dependence on frequent deliveries of fresh seafood subjects us to the risk of possible shortages or interruptions in supply caused by adverse weather, environmental factors or other conditions that could adversely affect the availability and cost of such items. In addition, some types of seafood have been subject to adverse publicity due to certain levels of contamination at their source or a perceived scarcity in supply, which can adversely affect both supply and market demand. We can make no assurances that in the future either seafood contamination or inadequate supplies of seafood might not have a significant and materially adverse effect on our operating results. Finally, the prices of other commodities can affect our costs as well, including corn and other grains, which are ingredients we use regularly and are also used as cattle feed and, therefore, affect the price of beef. Additional factors beyond our control, including adverse weather and market conditions, disease and governmental food safety regulation and enforcement, may also affect food costs and product availability. Energy prices can also affect our bottom line, as increased energy prices may cause increased transportation costs for beef and other supplies, as well as increased costs for the utilities required to run each restaurant. Historically, we have passed increased commodity and other costs on to our guests by increasing the prices of our menu items. There can be no assurance that additional price increases would not affect future guest traffic. Although we believe that our integrated cost systems allow us to anticipate and quickly respond to fluctuations in commodity prices, including beef prices, if prices increase in the future and we are unable to anticipate or react to these increases, or if there are beef shortages, our business and results of operations could be adversely affected.

A failure to recruit, develop and retain effective leaders, or the loss or shortage of personnel with key capacities and skills, could jeopardize our ability to meet growth targets.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff, hosts and servers necessary to meet the needs of our existing restaurants and anticipated expansion schedule, and who can meet the high standards necessary to deliver the levels of food quality, service and professionalism on which our concepts are based. Qualified individuals of the caliber and number needed to fill these positions are in short supply in

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some communities and competition for qualified employees could require us to pay higher wages and provide greater benefits to attract a sufficient number of skilled employees. Any inability to recruit and retain qualified individuals may also delay the planned openings of new restaurants and could adversely impact our existing restaurants. Any such inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could adversely affect our business and results of operations. Further, increases in employee turnover could have an adverse effect on food quality and guest service resulting in an adverse effect on net sales and results of operations.

We depend on the services of key executives and management-level employees, and our business and growth strategy could be materially harmed if we were to lose these individuals and were unable to replace them with executives of equal experience and capabilities.

Our success is materially dependent upon the contributions of our senior executives and management-level employees because their experience in the restaurant industry and tenure with us allow for their invaluable contributions in setting our strategic direction, day-to-day operations, and recruiting and training key personnel. The loss of the services of such key employees could adversely affect our business until a suitable replacement of equal experience and capabilities could be identified. We believe that they could not quickly be replaced with executives of equal experience and capabilities and their successors may not be as effective. See “Information about our Executive Officers.”

Risks Related to Our Reputation

Any inability to actively and effectively utilize and manage social media could harm our reputation, which could adversely affect our results of operations.

Social media provides a powerful medium for consumers, employees and others to communicate their approval of or displeasure with a business. Social media is especially challenging because it allows any individual to reach a broad audience with an ability to respond or react, in near real time, with comments that are often not filtered or checked for accuracy. If we are unable to quickly and effectively respond, any negative publicity could “go viral” causing nearly immediate and potentially significant harm to our reputation, whether or not factually accurate. Our marketing strategy also includes an emphasis on social media. As social media continues to grow in popularity, many of our competitors have expanded and improved their use of social media, making it more difficult for us to differentiate our social media messaging. As a result, we need to continuously innovate and develop our social media strategies and content. If we do not appropriately use and manage our social media strategies, our marketing efforts in this area may not be successful, and any failure to effectively respond to negative or potentially damaging social media, whether accurate or not, could damage our reputation, which could materially adversely affect our financial performance.

Negative customer experiences or negative publicity surrounding our restaurants or other restaurants could adversely affect sales in one or more of our restaurants and make our concepts less valuable.

Because we believe that our success depends significantly on our ability to provide exceptional food quality, outstanding service and an excellent overall dining experience, adverse publicity, whether or not accurate, relating to guest experience, food quality, public health concerns, illness, safety, injury or government or industry findings concerning our restaurants, restaurants operated by other foodservice providers or others across the food industry supply chain could affect us more than it would other restaurants that compete primarily on price or other factors. If customers perceive or experience a reduction in our food quality, service or ambiance or in any way believe we have failed to deliver a consistently positive experience, the value and popularity of one or more of our concepts could suffer. Further, because we rely heavily on “word-of-mouth,” as opposed to more conventional methods of advertisement, to establish and maintain restaurant recognition, our business may be more adversely affected by negative customer experiences than other upscale dining establishments, including those of our competitors.

Risks Related to Governmental Regulation, Litigation and Insurance

Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition and results of operations.

We are subject to various federal, state and local regulations, including those relating to building and zoning requirements and those relating to the preparation and sale of food. We are also subject to regulations, health guidelines and safety protocols related to the COVID-19 pandemic, as well as governmental restrictions related to capacity of our restaurants. The development and operation of restaurants depends to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations and requirements. Our restaurants are also subject to state and local licensing and regulation by health, alcoholic beverage, sanitation, food and occupational safety and other agencies. In addition, stringent and varied

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requirements of local regulators with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations or cause increases in development costs. We are also subject to laws and regulations concerning waste disposal, pollution, protection of the environment, and the presence, discharge, storage, handling, release and disposal of, and exposure to, hazardous or toxic substances. These environmental laws provide for significant fines and penalties for noncompliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of hazardous toxic substances. Further, environmental laws, and the administration, interpretation and enforcement thereof, are subject to change and may become more stringent in the future, each of which could materially adversely affect our business, financial condition and results of operations.

We are subject to the ADA and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, including our restaurants. We may in the future have to modify restaurants by adding access ramps or redesigning certain architectural fixtures, for example, to provide service to or make reasonable accommodations for disabled persons. The expenses associated with these modifications could be material.

Our operations are also subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S. Fair Labor Standards Act, which governs such matters as minimum wages and overtime, and a variety of similar federal, state and local laws that govern these and other employment law matters. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters, and we have been party to such matters in the past. Compliance with these laws can be costly and a failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation. In addition, federal, state and local proposals related to paid sick leave or similar matters could, if implemented, materially adversely affect our business, financial condition and results of operations.

The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of doing business and, therefore, have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Compliance with the aforementioned laws and regulations can be costly, and failure to comply can increase our exposure to litigation or governmental investigations or proceedings.

Changes to minimum wage laws and potential labor shortages could increase our labor costs substantially, which could slow our growth and adversely impact our ability to operate our restaurants.

Under the minimum wage laws in most jurisdictions, we are permitted to pay certain hourly employees a wage that is less than the base minimum wage for general employees because these employees receive tips as a substantial part of their income. A considerable portion of our employees earn this lower minimum wage. If cities, states or the federal government change their laws to require all employees to be paid the general employee minimum base wage regardless of supplemental tip income, our labor costs would increase substantially. Any increases in federal or state minimum wages or tipped minimum wages may cause us to increase the wages paid to our employees who already earn above-minimum wages in order to continue to attract and retain highly skilled personnel. We may be unable or unwilling to increase our prices in order to pass these increased labor costs on to our guests, in which case our business and results of operations could be adversely affected.

Restaurant companies, including ours, have been the target of claims and lawsuits. Claims or proceedings, if successful, could result in our payment of substantial costs and damages.

In recent years, we and other restaurant companies have been subject to claims and lawsuits alleging various matters including personal injury claims, contract claims, regulatory claims, and tax matters. Claims and lawsuits may include class action lawsuits, alleging violations of federal and state laws regarding workplace and employment matters, wage and hour laws, discrimination and similar matters. Guests may file complaints alleging that we are responsible for an illness or injury received while dining at one of our locations. Additionally, restaurants are subject to state “dram-shop” or similar laws which govern claims by injured parties resulting from legally intoxicated persons who may have been served alcoholic beverages at our locations. Public companies have also been the subject of shareholder claims with respect to various matters. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert resources away from our operations. In addition, they may generate negative publicity, which could reduce guest traffic and sales. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. Accordingly, if we are required to pay substantial damages and expenses as a result of these types or other lawsuits, our business and results of operations would be adversely affected. Defense costs, even for unfounded claims, or a judgment or other liability in excess of our insurance coverage for any claims or any negative publicity resulting from claims could adversely affect our business, results of operations and financial condition.

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Our insurance policies may not provide adequate levels of coverage against all claims, and fluctuating insurance requirements and costs could negatively impact our profitability.

We currently maintain insurance coverage that we believe is reasonable for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure. These losses, if they occur, could have a material and adverse effect on our business and results of operations. Additionally, health insurance costs in general have risen significantly across the country over the past few years and are expected to continue to increase. Obtaining insurance coverage responsive to these increases could have a negative impact on our profitability, and there can be no assurance that we will be able to successfully offset the effect of such increases with plan modifications and cost control measures, additional operating efficiencies or the pass-through of such increased costs to our guests or employees.

Risks Related to Technology, Data Privacy, and Intellectual Property

Failure to enforce and maintain our intellectual property rights could enable others to use names confusingly similar to the names and marks used by our restaurants, which could adversely affect the value of our concepts.

We have registered the names J. Alexander’s Restaurant, Redlands Grill, Merus Grill, Overland Park Grill, Stoney River Steakhouse and Grill, Seahorse, Birmingham Grill and certain other names and logos used by our restaurants as trade names, trademarks or service marks with the PTO. The success of our business depends in part on our continued ability to utilize our existing trade names, trademarks and service marks as currently used in order to increase our restaurant concept awareness. In that regard, we believe that our trade names, trademarks and service marks are valuable assets that are critical to our success. The unauthorized use or other misappropriation of our trade names, trademarks or service marks could diminish the value of our restaurant concepts and may cause a decline in our net sales and force us to incur costs related to enforcing our rights. In addition, the use of trade names, trademarks or service marks similar to ours in some markets may keep us from entering those markets. While we may take protective actions with respect to our intellectual property, these actions may not be sufficient to prevent, and we may not be aware of all incidents of, unauthorized usage or imitation by others. Any such unauthorized usage or imitation of our intellectual property, including the costs related to enforcing our rights, could adversely affect our business and results of operations.

Information technology system failures, including when transitioning to new systems, or breaches of our network security, including with respect to confidential information, could interrupt our operations and adversely affect our business.

We rely on our computer systems and network infrastructure across our operations, including point-of-sale processing at our restaurants and integrated cost systems that are instrumental in our procurement processes and in managing our food costs.  The secure and efficient function of our systems, including our human resources management and restaurant back-office systems, is essential to our operations and financial results, including the integrity of our financial reporting.  Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, worms, implementation delays or failures and other disruptive problems. Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations could limit our ability to anticipate and react quickly to changes in our business environment and could subject us to litigation or actions by regulatory authorities.  Unsuccessful or error-ridden implementation of upgrades could interrupt our business, distract our management, adversely affect our ability to process transactions or provide services and interfere with the operation of our restaurants, damaging our reputation and harming our financial results.  In addition, the majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information of their guests has been stolen or compromised. If this or another type of breach occurs at one of our restaurants, we may become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our guests’ credit or debit card information and be required to expend significant additional resources to continue to modify or enhance our protective measures, investigate and remediate any information security vulnerabilities, or respond to any changes to state or federal regulations, policy statements or laws concerning information systems or security. Although we have made significant efforts to secure our computer network and to update and maintain our systems and procedures to meet the payment card industry data security standards, including the implementation of point-to-point encryption and Europay, Mastercard, Visa credit card security systems, our computer network could nevertheless be compromised and confidential information, such as guest credit card information, could be misappropriated. Any failure to maintain adequate security over our information systems, our technology-driven products and services or our guests’ personal and transactional information could negatively affect our business and our reputation and result in fines, penalties, or other costs, including litigation expense and/or additional compliance costs, all of which could have a material adverse effect on our financial condition, results of operations and liquidity. Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with guests and third parties with whom we do business. A successful penetration or circumvention of system security could cause us negative consequences, including loss of guests and business opportunities, disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our guests, or damage to our computers or systems, and could result in a violation of applicable privacy

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laws or industry standards, including those that apply to payment card data, and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial performance. Although we maintain a cyber-risk insurance policy, available coverage and policy limits may not adequately cover or compensate us in the event of losses or liability to third parties that may result from a security incident.

Risks Related to Our Indebtedness

Our level of indebtedness and any future indebtedness we may incur may limit our operational and financing flexibility and negatively impact our business.

As of January 3, 2021, our outstanding indebtedness totaled $14,750, and $25,000 was available for borrowing under our lines of credit. We may incur substantial additional indebtedness in the future. Our credit facility, and other debt instruments we may enter into in the future, may significantly impact our business, including the following:

We expect that we will depend primarily on cash generated by our operations for funds to pay our expenses and any amounts due under our credit facility and any other indebtedness we may incur. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control, including the impacts of the COVID-19 pandemic. Our business may not generate sufficient cash flows from operations in the future and our currently anticipated growth in net sales and cash flows may not be realized, either or both of which could result in our being unable to repay indebtedness or to fund other liquidity needs. If we do not generate adequate resources, we may be required to refinance all or part of our then existing debt, sell assets or borrow more money, in each case on terms that may not be acceptable to us. In addition, the terms of existing or future debt agreements, including our existing credit facility, may restrict us from adopting some or any of these alternatives. Our inability to recapitalize and incur additional debt in the future could also delay or prevent a change in control of our Company, make some transactions more difficult and impose additional financial or other covenants on us. In addition, any significant levels of indebtedness in the future could make us more vulnerable to economic downturns and adverse developments in our business. Our current indebtedness and any inability to pay our debt obligations as they come due or an inability to incur additional debt could adversely affect our business and results of operations.

The terms of our credit facility impose operating and financial restrictions on us.

Our credit facility contains certain restrictions and covenants that generally limit our ability to, among other things, pay dividends or make other restricted payments to our equity holders; incur additional indebtedness; use assets as security in other transactions; sell assets or merge with or into other companies; and sell equity or other ownership interests in our subsidiaries. Our credit facility may limit our ability to engage in these types of transactions even if we believed that a specific transaction would contribute to our future growth or improve our operating results. Our credit facility also requires us to achieve specified financial and operating results and maintain compliance with specified financial ratios, including as a condition to accessing additional amounts available for borrowing. As of January 3, 2021, we were in compliance with each of these financial covenants. Our ability to comply with these provisions may be affected by events beyond our control. A breach of any of these financial covenants or our inability to comply with required financial ratios in our credit facility could result in a default under the credit facility in which case the lenders would have the right to declare all borrowings, which includes any principal amount outstanding, together with all accrued, unpaid interest and other amounts owing in respect thereof, to be immediately due and payable. If we are unable to repay all borrowings when due, whether at maturity or if declared due and payable following a default, the lenders would have the right to proceed against the collateral granted to secure the indebtedness. If we breach these covenants or fail to comply with the terms of the credit facility and the lenders accelerate the amounts outstanding under the credit facility our business and results of operations would be adversely affected. Additionally, we may need to refinance our credit facility at maturity or upon default, and future financing may not be available on acceptable terms, or at all.

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Our credit facility carries floating interest rates, thereby exposing us to market risk related to changes in interest rates. Accordingly, our business and results of operations may be adversely affected by changes in interest rates. Assuming a 100 basis point increase on our base interest rate on our credit facility and a full drawdown on both of the Revolving Line of Credit and Development Line of Credit, our interest expense would increase by approximately $398 over the course of 12 months.

Risks Related to the Ownership of Our Common Stock and Our Organizational Structure

The market price of our common stock may be volatile, and shareholders may not be able to sell shares at an acceptable price.

The market price of our stock could fluctuate significantly, and shareholders may not be able to resell shares at an acceptable price. Those fluctuations could be based on various factors in addition to those otherwise described in this Annual Report, including the following:

In addition, in recent years the stock market has experienced significant price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. These broad market and restaurant industry fluctuations, as well as general economic, political and market conditions such as recessions or interest rate changes, may cause declines in the market price of our common stock.

The market price of our common stock may decline due to significant fluctuations in quarterly operating results.

Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price. Our quarterly operating results may fluctuate significantly because of many factors, including the timing of new restaurant openings, labor costs, changing interest rates, changes in sales levels, macroeconomic conditions, public health concerns and fluctuation in commodity prices, among others. Seasonal factors and the timing of holidays may also cause our net sales to fluctuate from quarter to quarter. As a result of these factors, our quarterly and annual operating results and same store sales may fluctuate significantly. Accordingly, results for a particular quarter are not necessarily indicative of results to be expected for any other quarter or for any year. In the future, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our common stock may decrease.

The exchange of Class B Units for common stock may dilute our shareholders’ ownership and the market price of our common stock could decline due to the number of shares of common stock eligible for future sale upon the exchange of Class B Units.

The Class B Units of J. Alexander’s Holdings, LLC held by members of our management are exchangeable for, at our option, either shares of our common stock or a cash payment from J. Alexander’s Holdings, LLC.  If we elect to issue common stock in respect of these exchanges, investor ownership of common stock will be diluted. If we elect to have J. Alexander’s Holdings, LLC make cash payments in lieu of issuing shares of common stock upon exchanges of Class B Units made by members of our management, such payments may require the payment of significant amounts of cash and may reduce the amount of overall cash flow that would otherwise be available for use in our business. In such event, our ability to successfully execute our growth strategy may be

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negatively affected. Additionally, the market price of our common stock could decline as a result of issuances of additional shares of our common stock eligible for future sale upon the exchange of Class B Units, or the perception that such issuances could occur. These issuances, or the possibility that these issuances may occur, may also make it more difficult for us to raise additional capital by selling equity securities in the future, at a time and price that we deem appropriate.  Approximately 5.3% of the ownership interests in J. Alexander’s Holdings, LLC are Class B Units held by certain members of our management. We will not know the exact number of shares of common stock issuable until an exchange right is exercised by a holder of Class B Units.

We are a smaller reporting company and, as a result of the reduced disclosure and governance requirements applicable to smaller reporting companies, our common stock may be less attractive to investors.

We are considered a smaller reporting company and have elected to take advantage of certain scaled disclosures in this Annual Report, and intend to continue to provide scaled disclosures in the future unless and until we no longer meet the definition of a smaller reporting company. We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of some of these exemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.

We do not pay dividends at present.

We may retain future earnings, if any, for future operations, expansion and debt repayment and currently do not pay a dividend. Any future determination to declare and pay cash dividends will be at the discretion of our Board and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and such other factors as our Board deems relevant. In addition, our current credit facility limits our ability to pay dividends. Our ability to pay dividends may also be limited by covenants of any future outstanding indebtedness we or our subsidiaries incur. As a result, investors may not receive any return on an investment in our common stock unless investors sell our common stock for a price greater than that which they paid for it.

Our charter and bylaws and provisions of Tennessee law may discourage or prevent strategic transactions, including a takeover of our company, even if such a transaction would be beneficial to our shareholders.

Provisions contained in our charter and bylaws and provisions of the Tennessee Business Corporation Act could delay or prevent a third party from entering into a strategic transaction with us, as applicable, even if such a transaction would benefit our shareholders. For example, our charter and bylaws:

In addition, we are subject to certain provisions of Tennessee law that limit, in some cases, our ability to engage in certain business combinations with significant shareholders. These restrictions and provisions could keep us from pursuing relationships with strategic partners and from raising additional capital, which could impede our ability to expand our business and strengthen our competitive position. These restrictions could also limit shareholder value by impeding a sale of us or J. Alexander’s Holdings, LLC.

Risks Related to Our Review of Strategic Alternatives

We have announced that we are exploring strategic alternatives, but there can be no assurance that we will be successful in identifying or consummating any strategic alternatives, that strategic alternatives will yield additional value for shareholders, or that exploration of strategic alternatives will not adversely impact the Company.

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On August 9, 2019, we announced that our Board had expanded its ongoing process to review strategic alternatives to enhance shareholder value and retained Piper Jaffray & Co. (known as Piper Sandler & Company and referred to herein as “Piper”) as financial advisor to assist in the process, with a particular focus on a sale of the entire Company. The Board believed, and took into account the views of shareholders, that the small size of the Company made it inefficient to be a standalone publicly traded company. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction or any other particular outcome. Speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.

There can be no assurance that expanding our review of strategic alternatives will not cause the diversion of management’s attention, incurrence of significant transaction expenses, failure to retain or attract key personnel, vendors or guests, or exposure to potential litigation. If we are unable to mitigate these or other potential risks related to the uncertainty caused by our exploration of strategic alternatives, it may disrupt our business or could have a material adverse effect on our business, financial condition, results of operations or cash flows.

There can be no assurance that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our shareholders than that reflected in the current stock price. Further, our Board of Directors may determine to suspend or terminate the exploration of strategic alternatives at any time due to various factors. Any potential transaction or other outcome of this process is also dependent upon a number of factors that may be beyond our control, including among other factors, market conditions, the impacts of the COVID-19 pandemic, industry trends, availability of credit, regulatory limitations and the interest of third parties in our business.

The COVID-19 pandemic has disrupted our Board’s review of strategic alternatives and there can be no assurance when or if a transaction will occur.

In 2019 and 2020, Piper ultimately contacted over 125 potential interested parties and through an exhaustive process, three interested parties emerged as serious potential acquirers. In 2020, one of those parties was in advanced negotiations with the Company for an acquisition at a premium to the then current market price. The initial impacts of the COVID-19 pandemic led the potential acquirer to reduce its proposed purchase price twice and to insist on conditions relating to the performance of the Company. Ultimately, when government entities mandated the closure of the Company’s restaurants, except for limited carry-out, the Board determined that no transaction at a price that reflected the long-term value of the Company would be able to be consummated until uncertainties surrounding the pandemic were resolved and the Company’s business returned to satisfactory levels. The Company announced that, for the near term, the Company intended to focus on rebuilding its net sales base as its restaurants are able to increase capacity by providing an outstanding dining experience for its guests. The Board has disclosed its expectation that it will be sometime in 2021 before the Company can conclude its evaluation of strategic alternatives focusing on the potential sale of the Company. The timing of any conclusion or any transaction is uncertain and there can be no assurance that a transaction will occur.

Item 1B. Unresolved Staff Comments

Not applicable.

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Item 2. Properties

As of March 17, 2021, we operated 19 J. Alexander’s restaurants, 12 Redlands Grill restaurants, one Overland Park Grill restaurant, one Merus Grill restaurant and 13 Stoney River restaurants. The following table gives the locations of, and describes our interest in, the land and buildings used in connection with our restaurants:

Most of our lease agreements may be renewed at the end of the initial term (generally 15 to 20 years) for periods of five or more years. Certain of these leases provide for minimum rentals plus additional rent based on a percentage of the restaurant’s gross sales in excess of specified amounts. These leases usually require us to pay our portion of related real estate taxes, insurance premiums and maintenance expenses with respect to the leased premises.

Our corporate offices are located in leased office space in Nashville, Tennessee. In addition to the properties listed in the table above, we remain party to one additional lease for a closed location. We are also party to two additional leases for a Redlands Grill and a J. Alexander’s restaurant which are currently slated to open in the first quarter and fourth quarter of 2021, respectively.

All of our owned restaurants are mortgaged as security for our debt obligations. Refer to Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements, Note 10 – Debt in this Annual Report for additional information.

Item 3. Legal Proceedings

The information required by this Item is incorporated by reference to Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements, Note 18(c) – Commitments and Contingencies – Litigation Contingencies in this Annual Report.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The common stock of J. Alexander’s Holdings, Inc. trades on the New York Stock Exchange (“NYSE”) under the symbol “JAX.”

 Holders of Our Common Stock

The number of record holders of J. Alexander’s Holdings, Inc. common stock at March 17, 2021 was approximately 3,350. A substantially greater number of shareholders hold our stock in “street name” and such shares are held by banks, brokers and other financial institutions.

Dividend Policy

The Company has not paid a dividend since listing its common stock on the NYSE during the fourth quarter of 2015. We currently intend to retain all available funds and any future earnings to fund the development, operations and growth of our business and to repay indebtedness and repurchase shares. Additionally, our ability to pay dividends on shares of our common stock is limited by restrictions on the ability of our subsidiaries and us to pay dividends or make distributions under the terms of current agreements governing our indebtedness. Any future determination to declare and pay cash dividends will be at the discretion of our Board and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and such other factors deemed relevant by our Board.

In addition, since we are a holding company, substantially all of the assets shown on our consolidated balance sheet are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends. The ability of our subsidiaries to pay dividends is currently restricted by the terms of our credit facility and may be further restricted by any future indebtedness we or they incur.

Share Repurchase Program

On November 1, 2018, the Company’s Board of Directors authorized a share repurchase program which replaced the previous share repurchase program that expired on October 29, 2018, and allows for the repurchase of shares up to an aggregate purchase price of $15,000 over the three-year period ending November 1, 2021.  Any share repurchases under the current program are expected to be made solely from cash on hand and available operating cash flow.  Repurchases will be made in accordance with applicable securities laws and may be made from time to time in the open market.  The timing, prices and amount of repurchases will depend upon prevailing market prices, general economic and market conditions and other considerations.  The repurchase program does not obligate the Company to acquire any particular amount of stock.  There was no common stock repurchase activity under the program during fiscal year 2020.

Recent Sales of Unregistered Securities

None.

Item 6. Selected Financial Data

This Item is not applicable to smaller reporting companies.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company, as the sole managing member of its subsidiary J. Alexander’s Holdings, LLC, owns and operates complementary upscale dining restaurants including: J. Alexander’s, Redlands Grill, Overland Park Grill, Merus Grill and Stoney River Steakhouse and Grill (“Stoney River”).  For 30 years, J. Alexander’s guests have enjoyed a contemporary American menu, polished service and an attractive ambiance. In February 2013, our team brought our quality and professionalism to the steakhouse category with the addition of the Stoney River concept.  Stoney River provides “white tablecloth” service and food quality in a casual

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atmosphere at a competitive price. Our Redlands Grill concept offers guests a different version of our contemporary American menu and a distinct architectural design and feel. In 2018, we successfully converted one of our previous J. Alexander’s locations in Kansas to the Overland Park Grill.  In 2019, we opened Merus Grill in Houston, Texas. Each of these locations offers a contemporary American menu.

During the second quarter of 2020, the Company made the decision not to reopen the Lyndhurst Grill location in Cleveland, Ohio, after a review of its projected and historical financial performance. This location was required to be closed in mid-March 2020 due to COVID-19 related traffic limitations unique to that specific restaurant and remained closed.  The Company completed the sale of the remaining long-lived assets at this location, including the land and building, during the third quarter of 2020.

Our business plan has evolved over time to include a collection of restaurants dedicated to providing guests with what we believe to be high quality food and beverages, high levels of professional service and a comfortable ambiance.  By offering multiple restaurant concepts and utilizing unique non-standardized architecture and specialized menus, we believe we are positioned to continue to scale and grow our overall restaurant business in an efficient manner in urban and affluent suburban areas.  We want each of our restaurants to be perceived by our guests as a locally managed, stand-alone dining experience.  This differentiation permits us to successfully operate multiple restaurants in the same geographic market.  If this strategy continues to prove successful, we may expand beyond our current existing concepts in the future. While each restaurant concept operates under a unique trade name, each of our restaurants is identified as a “J. Alexander’s Holdings Restaurant.”

We believe our restaurants deliver on our guests’ desire for freshly-prepared, high quality food and exemplary service in a restaurant with architecture and design that varies from location to location.  Through our combination with Stoney River and opening new restaurants, we have grown from 33 restaurants across 13 states in 2012 to 46 restaurants across 16 states as of March 17, 2021.  Our financial performance has allowed us to invest significant amounts of capital to drive growth through the continuous improvement of existing locations, the development of plans to open new restaurants, and the hiring of personnel to support our growth plans.  

We plan to execute the following strategies to continue to enhance the awareness of our concepts, grow our net sales and improve our profitability by:

Our most recent restaurant opening was a Merus Grill in Houston, Texas, during November 2019. Additionally, the Company has announced the signing of two leases to open a new Redlands Grill in San Antonio, Texas, and a new J. Alexander’s restaurant in Madison, Alabama. The Company is currently constructing the new Redlands Grill which will commence operations during March 2021. The J. Alexander’s restaurant in Madison, Alabama, is slated to begin operations in the fourth quarter of 2021. The opening of the Madison, Alabama, location has been delayed from its previously anticipated opening in 2020 due to the Company’s decision to limit capital expenditures in response to the COVID-19 pandemic. Our restaurants often have a slower ramp up than many other restaurant groups due to our reliance on repeat business from a relatively small group of guests within each market. Having opened seven restaurants since the beginning of 2016, all of which are at different stages of maturity, our near-term focus will be on building guest traffic and sales at certain of the newer locations while we continue to evaluate promising opportunities for new restaurant development as well as react to the impact of the COVID-19 pandemic on our liquidity and restaurant performance in the near‑term.

The locations that have been recently transitioned from a J. Alexander’s restaurant to a Redlands Grill, Lyndhurst Grill (now closed) or Overland Park Grill restaurant or opened as a Merus Grill restaurant have been included in the J. Alexander’s results of operations, average weekly same store sales calculations and all other applicable disclosures, and all of these restaurants are collectively referred to herein as “J. Alexander’s / Grill” restaurants.

Recent Developments and Trends Impacting our Business; Effect of COVID-19

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the United States declared it a national public health emergency.  Since March 2020, we have experienced substantial disruptions in our operations including, but not limited to, temporary restaurant closings, reopening of restaurants at limited capacity, suggested and mandated social distancing and stay-at-home orders, limited staffing and carry-out only service in our restaurants. While certain state and local governments have eased restrictions since that time, the Company continues to be impacted by governmental orders that restrict capacity for the majority

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of its restaurants. While optimism is growing with the increasing availability of vaccine solutions as well as current positive trends with respect to the prevalence of the virus, there can be no assurance that other state or local authorities will allow dining rooms to remain open even at reduced capacity if there is an increase in cases of COVID‑19 or variants of such in those locations. Each of these factors have limited our ability to generate net sales, which adversely impacted results from operations and cash flows during fiscal year 2020, and may continue to do so for an extended period of time depending on the length of the pandemic and how significantly it affects the economy. There is significant uncertainty concerning consumer behavior, including guests’ propensity to spend disposable income or changes in consumer habits due to fear of contracting the virus in public or as a result of unemployment or reduced income. Governmental mandates required the Company to keep its dining rooms closed for a significant portion of the second quarter with reopening dates varying by state or local municipality and varying capacity limitations during the balance of the year, including a return to carry-out only or limited outdoor tent operations in our Chicago-area, Michigan and Kentucky locations during the fourth quarter of 2020. Further, most of our restaurants will operate on a limited-capacity basis for some portion of fiscal 2021 in response to orders issued by government officials in an effort to limit the spread of COVID-19, and capacity could be more limited if infections increase or if variants become more widespread. The Company is also closely monitoring the impact of the pandemic on all aspects of its business, including on guests, employees, suppliers, vendors, landlords, distribution channels and other business partners.

As a result of factors noted above, the Company has taken steps to modify its operations, where necessary, including pivoting to a carry-out model as a means of generating net sales and cash flow and reopening dining rooms at a limited capacity in compliance with state and local government guidelines. We have made employee and guest health and safety our first priority as we serve our guests during these uncertain times. We have provided personal protective equipment, such as masks, gloves and hand sanitizer to our team members, and we are checking employee temperatures daily. We are also observing social distancing requirements and routinely sanitizing high-touch surface areas in our restaurants. We have sought to develop menus that are friendly to an off-premise model providing guests with appetizers, salads, entrées, sides, wine, cocktails, family meal kits that can be prepared at home and “butcher shop” style beef offerings at select restaurants. We have also implemented an online ordering platform to allow for ease of ordering and to increase off-premise sales. We have implemented contactless menus in all of our dining rooms as well as contactless payments at certain locations. We have also added pub and booth partitions in many locations in an effort to increase capacity while maintaining guest safety. Restaurant and corporate management have evaluated, and continue to evaluate, ways to curtail spending including an ongoing review of operations to maximize efficiency, adjusting restaurant-level labor and reducing purchases of inventory to align with new levels of demand, limiting discretionary operating expenses including business travel, reducing non-essential capital expenditures, and negotiating the deferral of new restaurant capital expenditures with contractors in addition to certain rent, insurance, tax and debt payments where possible. We also eliminated certain positions at the Company’s corporate office during the second quarter of 2020. During the first quarter of 2020, we made the difficult decision to furlough restaurant employees that were not able to assist with the Company’s carry-out program, but have brought the majority of these employees back to their restaurants during the reopening process at a volume warranted by the allowed dine-in capacity, as applicable, until normal staffing levels can resume. Additionally, the Company has held, and will continue to engage in, discussions with its lender to further enhance its liquidity including the full draw down on its available lines of credit in March 2020 as well as negotiating for modifications of its credit facility during the second quarter of 2020 in order to make additional funds available for operations. In October 2020, the Company was able to extend the maturity date of its credit facility as well as make certain other amendments to its debt agreements. See the discussion contained in “Liquidity and Capital Resources – Credit Facility” below for additional information. Similarly, we have been in discussions with many of our landlords and were able to secure certain COVID‑19 rent concessions for varying lengths of time in order to defer or abate rent payments to conserve cash. The remainder of Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses a number of ways our business has been impacted by COVID-19.

Performance Indicators

We use the following key metrics in evaluating our performance:

Same Store Sales.  We include a restaurant in the same store restaurant group starting in the first full accounting period following the 18^th month of operations. Our same store restaurant base consisted of 45 restaurants at January 3, 2021.  Changes in same store restaurant sales reflect changes in sales for the same store group of restaurants over a specified period of time. This measure highlights the performance of existing restaurants, as the impact of new restaurant openings and closed locations is excluded.

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Measuring our same store sales allows us to evaluate the performance of our existing restaurant base. Various factors impact same store sales including:

Average Weekly Sales. Average weekly sales per restaurant is 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. The daily sales average is then multiplied by seven to arrive at average weekly sales per restaurant. Days on which restaurants are closed for business for any reason other than scheduled closures on Thanksgiving and Christmas are excluded from this calculation. Revenue associated with the reduction in liabilities for gift cards which are not redeemed, commonly referred to as gift card breakage, is not included in the calculation of average weekly sales per restaurant.

Average Weekly Same Store Sales.  Average weekly same store sales per restaurant is computed by dividing total restaurant same store sales for the period by the total number of days all same store restaurants were open for the period to obtain a daily sales average.  The daily same store sales average is then multiplied by seven to arrive at average weekly same store sales per restaurant.  Days on which restaurants are closed for business for any reason other than scheduled closures on Thanksgiving and Christmas are excluded from this calculation.  Sales and sales days used in this calculation include only those for restaurants in operation at the end of the period which have been open for more than 18 months.  Gift card breakage is not included in the calculation of average weekly same store sales per restaurant.

Average Check.  Average check is calculated by dividing total restaurant sales by guest counts for a given time period.  Total restaurant sales include food, alcohol and beverage sales. Average check is influenced by menu prices and menu mix.  Management uses this indicator to analyze trends in guests’ preferences, the effectiveness of menu changes and price increases on per guest expenditures.

Average Unit Volume.  Average unit volume consists of the average sales of our restaurants over a certain period of time.  This measure is calculated by multiplying average weekly sales by the relevant number of weeks for the period presented.  This indicator assists management in measuring changes in guest traffic, guest spending patterns, pricing and development of our concepts.

Food and Beverage Costs. Food and beverage costs is an important metric to management because it is the only truly variable component of cost relative to the sales volume while other components of cost can vary significantly due to the ability to leverage fixed costs at higher sales volumes.

Guest Counts.  Guest counts are measured by the number of entrees sold either for in-restaurant dining or for off-premise dining over a given time period. For purposes of guest count calculations, family pack meals sales are counted as an average of three guests.

Our business is subject to seasonal fluctuations. Historically, the percentage of our annual net sales earned during the first and fourth quarters has been higher due, in part, to increased gift card redemptions and increased private dining during the year-end holiday season. In addition, we operate on a 52- or 53-week fiscal year that ends on the Sunday closest to December 31. Each quarterly period has 13 weeks, except for a 53-week year when the fourth quarter has 14 weeks.  Fiscal 2020 represents a 53-week fiscal year.  As many of our operating expenses have a fixed component, our operating income and operating income margins have historically varied from quarter to quarter. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, or for the full fiscal year.

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Key Financial Definitions

Net Sales.  Net sales consist primarily of food and beverage sales at our restaurants, net of any discounts, such as management meals and employee meals, associated with each sale.  Net sales are directly influenced by the number of operating weeks in the relevant period, the number of restaurants we operate and same store sales growth.  Gift card breakage is also included in net sales.

Food and Beverage Costs.  Food and beverage costs is presented net of earned vendor rebates.  Food and beverage costs are generally influenced by the input cost of food and beverage items, distribution costs and menu mix.  The components of food and beverage costs are variable in nature, increase with net sales, are subject to increases or decreases based on fluctuations in commodity costs, including beef prices, and depend in part on the controls we have in place to manage costs at our restaurants.

Restaurant Labor and Related Costs.  Restaurant labor and related costs includes restaurant management salaries, hourly staff payroll and other payroll-related expenses, including management bonus expenses, vacation pay, payroll taxes, emergency sick leave pay, fringe benefits, health insurance expenses and related payroll tax credits.

Depreciation and Amortization.  Depreciation and amortization principally includes depreciation on restaurant fixed assets, including equipment and leasehold improvements, and amortization of certain intangible assets for restaurants.  We depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life.  As we open additional restaurants, depreciation and amortization is expected to increase as a result of our increased capital expenditures.

Other Operating Expenses.  Other operating expenses includes china and supplies, laundry and linens, repairs and maintenance, credit card fees, rent, property taxes, insurance, utilities, operating supplies and other restaurant-level related operating expenses.

Pre-opening Expense.  Pre-opening expense consists of expenses incurred prior to opening a new restaurant and include principally manager salaries and relocation costs, payroll and related costs for training new employees, travel and lodging expenses for employees who assist with training new employees, and the cost of food and other expenses associated with practice of food preparation and service activities.  Pre-opening expense also includes rent expense for leased properties for the period of time between taking control of the property and the opening of the restaurant. 

General and Administrative Expenses.  General and administrative expenses consist of costs related to certain corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company growth.  These expenses reflect management, supervisory and staff salaries and employee benefits, non-cash share-based compensation, travel, information systems, training, corporate rent, depreciation of corporate assets, professional and consulting fees, technology and market research.  These expenses include costs associated with being a public company, and we believe such expenses will increase over time in response to our anticipated growth. However, as we are able to leverage these investments made in our people and systems, we expect these expenses to decrease as a percentage of net sales over time.

Interest Expense.  Interest expense consists primarily of interest on our outstanding indebtedness. During periods of restaurant construction, interest expense is capitalized at a rate commensurate with the cost incurred to construct the restaurant. Our debt issuance costs are recorded at cost and are amortized over the lives of the related debt.

Income Tax (Expense) Benefit.  This represents tax expense or benefit related to the taxable income at the federal, state and local level.

Discontinued Operations. The Company remains party to a lease agreement for a location that was closed in 2013 and is accounted for as a discontinued operation.  Refer to Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 (c) Summary of Significant Accounting Policies—Discontinued Operations and Restaurant Closing Costs for more information.

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Results of Operations

All comparisons within this summary are compared to the same period in fiscal year 2019 and unless otherwise stated include the impact of a 53rd week in fiscal year 2020.  For discussion of our results of operations for fiscal 2019 compared to fiscal 2018, refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Form 10-K for the fiscal year ended December 29, 2019, filed with the SEC on March 13, 2020.

Year Ended January 3, 2021 (53 weeks) Compared to Year Ended December 29, 2019 (52 weeks)

The following tables set forth, for the periods indicated, (i) the items in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income, including our results expressed as a percentage of net sales, and (ii) other selected operating data:

Note:  NCM means not considered meaningful.

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Net Sales

Net sales decreased by $63,896, or 25.8%, in fiscal year 2020 compared to fiscal year 2019. The sales decrease in 2020 is primarily due to the COVID-19 related dining room closures and capacity restrictions that began March 16, 2020 and continued at varying levels through the end of the fiscal year. These closures resulted in the Company pivoting to a carry-out only program until dining rooms began to reopen at limited capacities in late April 2020, which significantly limited sales volumes during the affected weeks. Once reopened, our dining rooms continued to operate at limited capacities under governmental mandates throughout the year limiting net sales in fiscal 2020 compared to fiscal 2019. Further, during the fourth quarter of 2020, several jurisdictions in which the Company operates again mandated closures of dining rooms for several weeks, some lasting into fiscal 2021. A small number of our restaurants are currently operating at full capacity where state and local authorities have fully lifted governmental mandates to limit dining room capacities.  As of March 12, 2021, our restaurants are currently operating at an average of approximately 70% capacity of available seats. As mentioned above, fiscal 2020 included 53 weeks compared to 52 weeks included in fiscal 2019. Management

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estimates that the inclusion of the 53rd week in fiscal 2020 contributed approximately $4,300 and $770 to net sales and income from continuing operations before income taxes, respectively, in fiscal year 2020.

Average weekly same store sales at J. Alexander’s / Grill restaurants for 2020 decreased by 26.9% to $83,200, compared to $113,800 in 2019.  Average weekly same store sales at Stoney River restaurants decreased by 28.3% in 2020 to $57,200 compared to $79,800 in fiscal 2019.  These decreases reflect the impact of dining room closures as discussed above.  Stoney River experienced the effects of COVID-19 on sales earlier than the J. Alexander’s / Grill restaurants as cancellations related to private dining and business travel and functions began prior to the dining room closures in March 2020. Off-premise sales represented a significant portion of the Company’s total net sales during fiscal 2020 as our restaurants pivoted to a carry-out only model during the period of time when dining rooms were required to be closed. In the months of April, May and June 2020, off-premise sales represented approximately 99%, 56% and 22%, respectively, of total net sales recorded by the Company. Off-premise sales during the third quarter of 2020 averaged 15%–20% of total sales on a weekly basis, which represents approximately $625 on average in off-premise sales weekly. As a result of certain locations reverting back to a carry-out only model due to dining room closures during certain weeks of the fourth quarter of the fiscal year as a result of increased cases of COVID-19, off-premise sales averaged approximately 20% of total net sales, which represented approximately $730 on average in off-premise sales weekly.

At J. Alexander’s / Grill restaurants, the average check per guest, including alcoholic beverage sales, increased by 2.4% to $33.23 in 2020 up from $32.46 in 2019. Within the same store base of restaurants, the average check per guest increased by 2.1% in fiscal year 2020 relative to 2019. Management estimates the impact of a price increase that was taken in August 2020 at J. Alexander’s / Grill restaurants was approximately 3.9%, and included non-alcoholic beverages, certain wines by the glass and craft cocktails, as well as certain entrees and other menu items. The Company also implemented a packaging fee of 6% of carry-out sales placed online or via phone commencing in October 2020. Management estimates that weekly average guest counts decreased by approximately 28.4% and 28.6% in 2020 compared to 2019 within the same store base of restaurants and on a consolidated basis, respectively. Each of the guest count decreases noted above can be primarily attributed to limited restaurant operations during March through December of fiscal 2020 caused by the COVID-19 pandemic.

At Stoney River, the average check per guest, including alcoholic beverage sales, decreased by 0.7% to $42.05 in 2020 from $42.35 in 2019.  Within the same store base of restaurants, the average check per guest in 2020 totaled $41.86 compared to $42.49 in 2019, a decrease of 1.5%. Management estimates the impact of a price increase that was taken in August 2020 at Stoney River restaurants was approximately 4.7%, and included non-alcoholic beverages, certain wines by the glass and craft cocktails, as well as certain entrees and other menu items. The Company also implemented a packaging fee of 6% of carry-out sales placed online or via phone commencing in October 2020. Further, management estimates that weekly average guest counts within the same store base of restaurants decreased by approximately 27.3% in 2020 compared to 2019. For all locations, weekly average guest counts decreased by 28.1% in 2020 compared to 2019. Similar to the J. Alexander’s / Grill restaurants, the guest count decreases noted above can be primarily attributed to limited restaurant operations during March through December of fiscal 2020 caused by the COVID-19 pandemic.

Restaurant Costs and Expenses

Total restaurant operating expenses increased to 97.5% of net sales in 2020 from 88.0% in 2019.

Food and beverage costs increased to 32.4% of net sales in 2020 compared to 32.1% of net sales in 2019. The increase in 2020 was largely due to the effect of lower same store sales during the year. In addition, selected offerings under the Company’s carry-out program at the onset of the pandemic were marketed at a price point intended to quickly move fresh product and, as such, did not reflect margins typical of the Company’s historical menu offerings. Further, supply constraints experienced throughout the country as a result of COVID-19 created upward pressure on certain input costs, particularly for beef, during the second quarter of 2020. Management also believes that inventory waste related to the COVID-19 dining room closures caused food and beverage costs to be somewhat higher during fiscal 2020. We experienced relief from this upward pressure in costs during the latter portion of the year as prior constraints relaxed and guest demand became more predictable.

Beef purchases represent the largest component of consolidated food and beverage costs and generally comprise approximately 30% of this expense category. However, during 2020, beef costs represented 35% of consolidated food and beverage costs due to the factors discussed above. We purchase fresh beef at weekly market prices. We expect that beef prices in 2021 will be consistent with or perhaps experience modest increases relative to fiscal year 2020.

Restaurant labor and related costs totaled 35.0% and 31.1% of net sales in 2020 and 2019, respectively.  The increase noted during 2020 was primarily due to the effect of lower same store sales during fiscal 2020 compared to 2019 and additional labor costs associated with the ESLP, which provided for up to two weeks of paid leave for team members who were either infected by COVID-19 or employed at a restaurant that closed its dining room in response to the COVID-19 pandemic. Under the terms of the ESLP,

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hourly employees were paid the higher of their normal hourly rate or the federal minimum wage for the average hours worked over the previous eight-week period.  This resulted in certain employees receiving the higher federal minimum wage rate who otherwise would have been paid at the tipped minimum wage rate effective within their respective state. During fiscal year 2020, the Company incurred approximately $3,320 in costs related to continuing benefits, ESLP payments, vacation and other sick leave payments made to its staff members as a result of the COVID-19 pandemic. The majority of these costs were incurred during the first half of the fiscal year with expenses of approximately $170 being incurred during the last half of 2020. Conversely, the Company recorded a $1,082 credit partially offsetting the increase noted above related to the employee retention credit provided by the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) enacted on March 27, 2020. The Company determined that it met the criteria to be considered an eligible employer with qualified wages as defined in the CARES Act, and therefore, recorded this credit offsetting “Restaurant labor and related costs” in the Company’s Consolidated Statement of Operations and Comprehensive (Loss) Income in accordance with available accounting guidance. Refer to Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements – Note 1 – Organization and Business under the heading “Effects of COVID-19” for more information.

Depreciation and amortization of restaurant property and equipment increased by $220, or 1.9%, in 2020 compared to 2019. This increase was partially due to the Merus Grill restaurant that opened in Houston, Texas during the fourth quarter of 2019. Further, we recorded additional depreciation expense associated with fixed asset additions for restaurant remodels which occurred during the latter part of 2019.

Other operating expenses, which include restaurant level expenses such as china and supplies, laundry and linen costs, repairs and maintenance, utilities, credit card fees, rent, property taxes and selected insurance premiums, increased to 23.5% as a percentage of net sales in fiscal year 2020 compared to 20.0% as a percentage of net sales in fiscal year 2019. The increased expense as a percentage of net sales was a result of lower same store sales compared to 2019 as well as additional packaging costs for our carry-out program and personal protective equipment costs for our restaurant employees.  The increase was partially offset by decreased expense due to cost cutting initiatives during the year and certain expenses that fluctuate based on guest counts or net sales. We recorded decreased expense associated with credit card fees, contracted services and maintenance, china and smallwares, utilities, laundry and linens, repairs and maintenance and various other restaurant supplies used in the ordinary course of operations.

Transaction, Contested Proxy and Other Related Expenses

Transaction, contested proxy and other related expenses totaled $645 and $1,178 during fiscal years 2020 and 2019, respectively. Transaction expenses recorded during 2020 included those associated with the ongoing evaluation of strategic alternatives. However, during the first quarter of 2020, the Company announced that given the uncertainties in the business community, the restaurant industry and the financial markets due to the COVID-19 pandemic, the ongoing review of strategic alternatives by the Board was not expected to be completed until the uncertainties are resolved.  As a result, minimal transaction expenses were incurred during the latter part of fiscal 2020. Expense related to 2019 included legal, proxy solicitor, and other professional and consulting fees along with printing and postage costs and other miscellaneous costs associated with both soliciting shareholder proxies for the Company’s 2019 annual meeting of shareholders and the ongoing evaluation of strategic alternatives.

General and Administrative Expenses

Total general and administrative expenses, which include all supervisory costs and expenses, management training and relocation costs, and other costs incurred above the restaurant level, decreased by $1,792, or 9.6%, in 2020 compared to 2019. The decrease during 2020 was due to lower incentive compensation, travel, restaurant management training salaries, employee relocation costs, other professional services and various other miscellaneous costs, virtually all of which were based on initiatives in response to the COVID-19 pandemic in an effort to conserve cash. These expense reductions were partially offset by increased expense related to payroll processing fees associated with a more robust system implemented in 2019, non‑cash share-based compensation for restricted share awards and performance share awards granted during the third quarters of 2019 and 2020, general insurance, severance, other employee benefits and 401(k) contributions.

Goodwill Impairment and Long-lived Asset Impairment Charges and Restaurant Closing Costs

In response to the decline in the market price of the Company’s common stock in March 2020, the impact of mandated dining room closures on financial results, the expected reduction in economic activity in the near term, and the general economic and market volatility, the Company determined that these factors constituted an interim triggering event at the end of the Company’s first quarter of 2020 and performed impairment analyses with regard to its indefinite-lived intangible assets, property and equipment (including its right-of-use assets for operating leases) and goodwill during the first quarter of 2020. As a result, the Company recorded asset impairment charges totaling $16,426 in fiscal 2020.

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The Company performed a quantitative goodwill impairment test as of March 29, 2020 utilizing a market approach which included observable market prices associated with the Company’s common stock price in determining a fair value for the Company and its reporting units. As a result of this test, the Company determined that the J. Alexander’s / Grill reporting unit’s carrying value exceeded its fair value to such an extent that the full write-off of goodwill in the first quarter of 2020 in the amount of $15,737 was appropriate.

Additionally, the Company recorded a long-lived asset impairment charge of $689 to state the assets at our Lyndhurst Grill location in Cleveland, Ohio, at their fair value as of the end of the first quarter. As mentioned above, during the second quarter of 2020, management made the decision to permanently close this location after a review of its projected and historical financial performance. This location was also required to be temporarily closed in mid-March due to COVID-19-related traffic limitations unique to that specific restaurant which further impacted operating results. Restaurant closing costs recorded during 2020 totaled $358, and included labor expenses incurred after closure, severance, the loss on sale of fixed assets at this location and other miscellaneous costs. The Company assessed its other restaurant locations for indicators of impairment as of the quarter ended January 3, 2021 and assessed recoverability of certain fixed assets as warranted. No additional impairment was identified for the year ended January 3, 2021.  

In connection with its annual and interim impairment assessments, the Company also performed a quantitative impairment analysis relative to its indefinite-lived intangible assets and determined that the fair value of these assets substantially exceeded their carrying values and no impairment existed.

Pre-opening Expenses

During fiscal years 2020 and 2019, pre-opening expenses of $238 and $859, respectively, were recorded.  During fiscal year 2020, pre-opening expense was primarily associated with a new Redlands Grill in San Antonio, Texas, for which we began incurring rent expense as we took possession of the property in March 2020 as well as limited other pre-opening expenses. For fiscal year 2019, the Company incurred pre-opening expense as a result of the new Merus Grill restaurant in Houston, Texas, which commenced operations in November 2019.

Other Income (Expense)

Interest expense increased by $244, or 42.1%, in 2020 compared to 2019. Interest expense increased in fiscal year 2020 compared to the prior year due to an increased debt balance for the majority of fiscal year 2020 compared to 2019. During March 2020, the Company drew down the remaining $17,000 of available capacity (at the time of the draw, with $10,000 of this amount subsequently repaid during the fourth quarter) under its credit facility as well as negotiated deferral of debt principal payments with its lender, resulting in additional interest expense.

Income Taxes

We reported an income tax benefit of $8,449 in 2020 compared to an income tax benefit of $568 in 2019, reflecting the Company’s federal, state and local income tax liability or benefit, as applicable, for its allocable share of income or loss of J. Alexander’s Holdings, LLC. The increase in the income tax benefit of $7,881 in fiscal year 2020 compared to fiscal year 2019 was primarily due to the loss from continuing operations before income taxes of $30,717 compared to income from continuing operations before taxes of $8,485 recorded during fiscal 2019. The net effective tax rate for 2020 was also impacted by the nondeductible book goodwill impairment charge recorded during the year, partially offset by the Federal Insurance Contribution Act tip credit, state income taxes, the rate differential for the anticipated carryback of the NOLs generated during the current year to prior years and the impact of the revised qualified improvement property regulations on the anticipated carryback and other items.

Discontinued Operations

Losses from discontinued operations totaling $203 and $236 for fiscal years 2020 and 2019, respectively, and consist solely of exit and disposal costs which are primarily related to a continuing obligation under one lease agreement for a closed location to which the Company remains a party.

Liquidity and Capital Resources

Liquidity

The Company is a holding company and the sole managing member of J. Alexander’s Holdings, LLC.  As such, we control the business and affairs of J. Alexander’s Holdings, LLC and its subsidiaries and consolidate J. Alexander’s Holdings, LLC and

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subsidiaries into our financial statements. Our principal sources of cash are cash and cash equivalents on hand, cash flow from operations and available borrowings under our credit facility. As of January 3, 2021, cash and cash equivalents totaled $12,363.

Our liquidity has been impacted by the government mandated closure of dining rooms in response to the COVID-19 pandemic and capacity restrictions after opening. The most immediate impact was to cash flows from operations for the first three quarters of 2020 which were significantly reduced as all our restaurants were operating under a carry-out only model for a period of time. By June 9, 2020, all of our restaurants were permitted to resume in-person dining, subject to varying capacity restrictions.  However, in the fourth quarter of 2020, certain states and local jurisdictions again closed dining rooms to in-restaurant dining which impacted the Company’s operations in those restaurants as they reverted back to carry-out only or continued limited service in outdoor tents as allowed.  While those restrictions have been lessened during the first quarter of 2021, as of the date of this report, the majority of our restaurants continue to have some level of capacity limits. While optimism is growing with the increasing availability of vaccines as well as current positive trends with respect to the prevalence of the virus, there can be no assurance that state or local authorities will allow dining rooms to remain open even at reduced capacity if there is a surge in cases or variants of COVID‑19 in their respective areas.  

While the Company quickly pivoted to a carry-out model to generate sales when dining room closures began, this approach inherently limits our guest traffic relative to historical levels. To supplement our cash on hand, in March 2020, the Company drew down the remaining $17,000 of available capacity (at the time of the draw) under the line of credit facility discussed in detail below. This was undertaken as a precautionary measure to provide increased liquidity and preserve financial flexibility in light of the disruption in operations and uncertainty resulting from the COVID‑19 pandemic. In the second quarter of 2020, management was able to negotiate with the Company’s lender a modification to the payment terms of its existing debt delaying principal payments otherwise due in the months of April through September 2020 and interest payments otherwise payable in the months of April through June 2020 to September 2021 and modified financial covenants, as well as the expansion of its Revolving Line of Credit (as defined below) which occurred in June 2020 and is discussed in detail below.  In October 2020, the Company was also able to extend the maturity date of its credit facility among other modifications to its debt also discussed below. Further, in October 2020, the Company was able to repay $10,000 of outstanding borrowings on its development line of credit as cash flow during the third and fourth quarters improved beyond original expectations. Such funds are available for reborrowing if needed. As of March 17, 2021, the Company has a total of $25,000 available for borrowing under its lines of credit.

The Company has made targeted reductions in spending at its restaurants and within its corporate office, which has been discussed throughout this report. Further, the Company executed deferral and abatement agreements for lease payments at certain of its restaurant locations with the respective landlords as well as for its corporate office. Any significant non-essential capital expenditures have been deferred as well as certain scheduled payments to conserve cash on hand as uncertainty remains as to when government restrictions will be fully lifted, when restaurants will fully reopen and future business levels. Based on actions taken to date and projected future cash flows, we believe our cash on hand, expected cash flows from operations and available borrowings under the loan agreements with our lender will be sufficient to finance our capital expenditures and other operating activities for the next 12 months from our filing date. As of March 12, 2021, the Company had cash on hand of approximately $14,900.

Consistent with many other restaurant companies, we use operating lease arrangements for many of our restaurants. We believe that these operating lease arrangements provide appropriate leverage for our capital structure in a financially efficient manner.

Our liquidity may also be adversely affected by a number of factors not specifically addressed above, but which are described in detail in this Annual Report, under the heading Item 1A. Risk Factors.

Cash Flows

The table below shows our net cash flows from operating, investing and financing activities for the periods indicated:

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Operating Activities. Net cash flows provided by operating activities decreased to $6,064 for fiscal year 2020 from $17,255 for fiscal year 2019, a decrease of $11,191. Our operations generate receipts from guests in the form of cash and cash equivalents, with receivables related to credit card payments considered cash equivalents due to their relatively short settlement period, and the majority of our expenses are paid within a 30-day pay period. In fiscal year 2020, net sales decreased by $63,875, which excludes the impact of the comparative decrease in gift card breakage of $21, compared to 2019, and total restaurant operating expenses also decreased by $38,767 compared to fiscal year 2019, resulting in a net decrease to cash flow from operations of approximately $25,108 due to limited restaurant operations caused by COVID-19.  This decrease was offset by tenant incentive payments received in 2020 from our lessors at the Merus Grill restaurant in Houston, Texas, and at our Stoney River restaurant in Annapolis, Maryland, pursuant to the terms of the lease agreements, which totaled $790 and $527, respectively. Additionally, transaction cost payments were approximately $4,404 lower in 2020 compared to 2019, which was primarily related to the Black Knight Advisory Services, LLC (“Black Knight”) termination fee paid in 2019 of $4,560. Further, in 2019, the Company paid approximately $705 to Black Knight which represented the pro-rata portion of its consulting fees earned during 2018.  No such payment occurred in 2020. Pursuant to relief granted under the CARES Act, we have deferred $3,593 in social security tax payments as of January 3, 2021.  In 2020, the Company deferred $1,059 in rent payments to 2021 for COVID-19 related rent concessions granted by its landlords in an effort to conserve cash.  Finally, the Company received a refund from the Ohio Bureau of Workers Compensation as a part of its A Billion Back program in the amount of $483 in 2020 compared to $115 in 2019.

Investing Activities. Net cash used in investing activities for 2020 totaled $6,729 compared to $12,192 in 2019, a decrease of $5,463, with the 2020 use of cash being attributed primarily to the construction of the Redlands Grill slated to open in March 2021 as well as one restaurant remodel and routine additions at other locations.  The Company also sold the land and building associated with its Lyndhurst Grill in Cleveland, Ohio, resulting in proceeds of $1,070 partially offsetting its use of cash during 2020. Cash used in investing activities in 2019 was attributed primarily to capital expenditures related to the construction of the Merus Grill location in Houston, Texas, opened in November 2019, restaurant remodels that occurred at certain locations and routine additions at other locations.

Financing Activities. Net cash provided by and used in financing activities for 2020 and 2019 totaled $4,225 and $5,043, respectively, a difference of $9,268. Net cash provided by financing activities in 2020 included a $17,000 draw down of the Company’s lines of credit which represented all remaining available balances at the time. The circumstances surrounding this draw down are discussed in detail below. This amount was partially offset by the repayment of $10,000 during the fourth quarter of 2020 mentioned above as well as routine debt payments made during the first and fourth quarters of the year prior and subsequent to the deferral of principal payments that were negotiated with the Company’s lender for such payments due April through September of 2020. The Company also paid $532 of financing fees associated with modifications and amendments to its loan agreements which occurred during 2020 discussed in detail below under “Capital Resources—Credit Facility.” Further, the Company received $15,100 in loans under the Paycheck Protection Program of the CARES Act during the second quarter of 2020. The Company subsequently repaid those loans in full during the second quarter of 2020. Net cash used in financing activities in 2019 included debt service payments as well as a $43 payment for deferred financing fees related to the modification of our loan agreement in 2019.

Capital Resources

Long-term Capital Requirements

Our capital requirements are primarily dependent upon the pace of our growth plan and resulting new restaurants.  Our growth plan is dependent on many factors, including the impact of the ongoing COVID-19 pandemic, current and future economic conditions, real estate markets, restaurant locations and the nature of lease agreements. Our capital expenditure outlays are also dependent on costs for maintenance in our existing restaurants as well as information technology and other general corporate capital expenditures.

The capital resources required for a new restaurant depend on the concept, the size of the building, the day parts the restaurant will offer and whether the restaurant is a ground-up build-out or a conversion. We estimate development costs, net of landlord contributions and excluding pre-opening costs, will range from $5,000 to $6,000 for a new J. Alexander’s / Grill restaurant or Stoney River location, and anticipate that all new Stoney River restaurants will serve both lunch and dinner. In addition, we expect to spend approximately $700 per restaurant for pre-opening expenses and pre-opening rent expense, and expect that such expenses will approximate $1,100 in fiscal year 2021 related to the new locations in San Antonio, Texas, and Madison, Alabama.

In addition to new store development, we plan to perform remodels of one J. Alexander’s / Grill restaurant and one Stoney River restaurant during fiscal year 2021 at an average cost of $525.

For 2021, we currently estimate capital expenditure outlays will range between $10,000 and $12,000, net of any tenant incentives and excluding pre-opening costs.  These estimates include the planned opening of two J. Alexander’s / Grill restaurants

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during 2021 (with the majority of the capital expenditures related to the new San Antonio location incurred during fiscal 2020) as well as capital expenditures incurred in connection with the remodels discussed above, to maintain our existing restaurants and for general corporate purposes.

We believe that we can fund our growth plan with cash on hand, cash flows from operations and, if necessary, by the use of our credit facility, depending upon the timing of expenditures.

Additional long-term capital requirements include the funding of the Amended and Restated Salary Continuation Agreements (the “Salary Continuation Agreements”) in place with certain current and former officers of the Company.  J. Alexander’s, LLC, the operating subsidiary of J. Alexander’s Holdings, LLC, is obligated to establish and fund a “rabbi trust” (previously defined as the “Trust”) under the Salary Continuation Agreements.  The Trust currently holds $81, $2,517 and $2,329 in cash and cash equivalents, trading securities and aggregate cash surrender value of whole life insurance policies, respectively.  These assets are classified as noncurrent within the Company’s consolidated financial statements.  The Company made additional contributions of $75 and $95 to the Trust in fiscal years 2019 and 2018, respectively, and will continue to make additional contributions to the Trust in the future in order to maintain the level of funding required by the Salary Continuation Agreements.

On November 1, 2018, the Company’s Board of Directors authorized a share repurchase program which replaced the previous share repurchase program that expired on October 29, 2018, and allows for the repurchase of shares up to an aggregate purchase price of $15,000 over the three-year period ending November 1, 2021.  Any share repurchases under the program are expected to be made solely from cash on hand and available operating cash flow.  Repurchases will be made in accordance with applicable securities laws and may be made from time to time in the open market.  The timing, prices and amount of repurchases will depend upon prevailing market prices, general economic and market conditions and other considerations.  The repurchase program does not obligate the Company to acquire any particular amount of stock.  There was no common stock repurchase activity under the program during fiscal year 2020.

As of January 3, 2021, we have deferred the payment of $3,593 in employer-related social security taxes as permitted by a provision in the CARES Act. Employers taking advantage of this provision are required to pay 50% of these funds by December 31, 2021 with the remaining portion payable by December 31, 2022.

Short-term Capital Requirements

Our operations have historically not required significant working capital.  Many companies in the restaurant industry operate with a working capital deficit.  Guests pay for their purchases with cash or by credit card at the time of the sale while restaurant operations do not require significant inventories or receivables.  In addition, trade payables for food and beverage purchases and other obligations related to restaurant operations are not typically due for approximately 30 days after the sale takes place.  Since requirements for funding accounts receivable and inventories are relatively insignificant, virtually all cash generated by operations is available to meet current obligations. As noted previously, COVID-19 has negatively affected our ability to generate cash flow from operations due to government mandated dining room closures and subsequent seating capacity restrictions and the resulting impact on guest traffic. While the Company has taken, and will continue to take, measures to curtail its spending in step with the reduced cash flow, uncertainty remains as to whether dining rooms will be required to close once again in future periods, for how long and to what extent capacity will be limited going forward and the level of guest traffic the restaurant will be able to generate once government mandated restrictions are fully lifted. These factors may negatively impact the Company’s working capital for an extended period of time. Our current obligations are to fund purchases of inventory and to make required payroll payments, tax payments, rental payments and to fund other required operating payments such as for insurance, building maintenance, utilities and other items necessary to operate our restaurants. We had a working capital surplus of $337 at January 3, 2021 compared to a deficit of $13,134 at December 29, 2019.

Credit Facility

The Company is party to the Fourth Amended and Restated Loan Agreement (the “Fourth Loan Agreement”) with Pinnacle Bank, dated October 28, 2020. The Fourth Loan Agreement amended and restated the Company’s Third Amended and Restated Loan Agreement (the “Third Loan Agreement”) entered into on June 5, 2020, and the Third Loan Agreement amended and restated in its entirety the Company’s Second Amended and Restated Loan Agreement (the “Second Loan Agreement”), dated May 20, 2015. The borrower under the Fourth Loan Agreement is J. Alexander’s, LLC, and it is guaranteed by J. Alexander’s Holdings, LLC and all of its significant subsidiaries. The indebtedness outstanding under this Fourth Loan Agreement is secured by liens on certain personal property of the Company and its subsidiaries, subsidiary guarantees, and a mortgage lien on certain real property. The Fourth Loan Agreement, among other things, permits payments of tax dividends to members, restricts liens and encumbrances, restricts dividends, and contains certain other provisions customarily included in such agreements.

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The Fourth Loan Agreement consists of the following:

Interest Rates

Prior to the amendments discussed above, at December 29, 2019, all of the notes under the Second Loan Agreement bore interest at 30-day LIBOR plus a sliding interest rate scale determined by the maximum adjusted debt to EBITDAR ratio.  For the year ended December 29, 2019, the interest rate was set at 3.57% for the Second Loan Agreement, which is 30-day LIBOR plus 1.85%.  Additionally, the non-use fee payable quarterly on the Development Line of Credit and Revolving Line of Credit was based on a sliding rate determined by a maximum adjusted debt to EBITDAR ratio which equaled 0.20% as of December 29, 2019.

The Third Loan Agreement amended the interest rate with respect to only the Revolving Line of Credit, and under the Third Loan Agreement any borrowings under that note bore interest at a rate of 30-day LIBOR plus 2.5%, with a floor for LIBOR of 1.5%, while the Company’s other notes continued to bear interest based on the same sliding scale methodology as under the Second Loan Agreement. The Fourth Loan Agreement made the same rates apply to each of the Company’s notes and removed the maximum adjusted debt to EBITDAR ratio financial covenant which previously determined interest rates. Under the Fourth Loan Agreement, each of the Company’s notes bear interest at a rate of 30-day LIBOR plus 2.5%, with a floor for LIBOR of 1.5%, which was set at 4.0% as of January 3, 2021.

COVID-19 Response and Loan Modifications and Amendments

During the first quarter of 2020, the Company announced it drew down the remaining $17,000 of available capacity (at the time of the draw) under the Development Line of Credit and the Revolving Line of Credit (the “Credit Draw”). The Credit Draw was undertaken as a precautionary measure to provide increased liquidity and preserve financial flexibility in light of the disruption and uncertainty resulting from the COVID-19 pandemic. Following the Credit Draw, debt outstanding under the Development Line of Credit and the Revolving Line of Credit totaled $21,000. In October 2020, the Company paid $10,000 of the $20,000 outstanding Development Line of Credit balance.

On April 15, 2020, the Company entered into a modification of the Second Loan Agreement impacting the Term Loan, which deferred the two remaining principal payments totaling $556 until the Term Loan’s new maturity date which was modified to be September 3, 2021. As noted below, the Fourth Loan Agreement further modified the maturity date of the Term Loan to December 10, 2020. With respect to interest payments in the interim, the Term Loan was modified to defer such payments until July 3, 2020 at which point monthly interest payments resumed and continued through its maturity date of December 10, 2020.  Similar to the Term Loan, the Company also negotiated for the deferral of principal and interest payments related to the Mortgage Loan and executed deferral letters in both April 2020 and June 2020 related to such deferrals. The principal payments otherwise due in April through September 2020 totaling $834 will now be payable when the loan matures on January 1, 2023 and interest payments resumed on July 3, 2020. The Company also reached an agreement with its lender in April 2020 to defer interest payments on its Development Line of Credit and Revolving Line of Credit for the months of April, May and June 2020, and interest payments resumed on July 3, 2020.

On June 5, 2020, the Company entered into the Third Loan Agreement with Pinnacle Bank which amended its Revolving Line of Credit to expand its capacity from $1,000 to a total of $16,000 by adding an accordion feature for the additional $15,000, with the additional capacity available for general corporate purposes, including working capital and letters of credit. This amendment also required the Company to pledge five previously unencumbered fee-owned properties as collateral to the lender. The additional capacity is available for borrowing by the Company in amounts up to and including $5,000 per fiscal month beginning in the eighth fiscal month of 2020, with any amounts not borrowed during any particular period to be available for borrowing in subsequent periods. Any advances on the expanded Revolving Line of Credit are contingent on the Company achieving certain levels of net sales on a trailing three-fiscal-month basis. The Third Loan Agreement also modified the interest rate with respect to the Revolving Line of Credit as discussed above.

Additionally, the Third Loan Agreement included certain terms agreed upon in a May 2020 waiver, which waived financial covenant compliance for then existing financial covenants under the Second Loan Agreement beginning May 7, 2020 through the period ending July 4, 2021, and implemented two new financial covenants included in the Third Loan Agreement.  These financial covenants are now incorporated in the Fourth Loan Agreement, which also extended the Company’s obligation to maintain these

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financial covenants through the new maturity date at the end of fiscal 2022. The details of the new financial covenants are detailed below.

The Company entered into the Fourth Loan Agreement with Pinnacle Bank on October 28, 2020, which extended the maturity dates of the Revolving Line of Credit, the Development Line of Credit, and the Mortgage Loan to January 1, 2023 and modified the maturity date of the Term Loan to December 10, 2020. The Fourth Loan Agreement also modified interest rates for the Mortgage Loan, the Term Loan and the Development Line of Credit to align such rates with the interest rate for the Revolving Line of Credit as discussed above. Lastly, as discussed below, the Fourth Loan Agreement modified our loan covenants.

Financial Covenants

The Fourth Loan Agreement incorporates the financial covenants previously in effect under the Third Loan Agreement and adds a fixed charge coverage ratio covenant (originally in the Second Loan Agreement with our lender). Further, a previously applicable financial covenant referred to as the maximum adjusted debt to EBITDAR ratio in the Company’s previous filings was eliminated in the Fourth Loan Agreement as mentioned above. The financial covenants under the Fourth Loan Agreement require (i) minimum revenue of (a) at least $99,800 for the Company’s fiscal year ended January 3, 2021, (b) at least $118,400 on a four quarter trailing basis by April 4, 2021, and (c) at least $166,800 on a four quarter trailing basis by July 4, 2021 through the maturity date, and (ii) a maximum adjusted debt to tangible net worth ratio of 0.80 or less, measured quarterly beginning September 27, 2020, and (iii) a fixed coverage charge of not less than 1.00 to 1.00 for the period commencing July 5, 2021 through January 2, 2022, and not less than 1.05 to 1.00 beginning on January 3, 2022 through January 1, 2023, or the maturity date.  The fixed charge coverage ratio is defined in the Fourth Loan Agreement as the ratio of (a) the sum of net (loss) income for the applicable period (excluding the effect on such period of any extraordinary or nonrecurring gains or losses, including any asset impairment charges, restaurant closing expenses, changes in valuation allowance for deferred tax assets, and non-cash deferred income tax benefits and expenses and up to $1,000 (in the aggregate for the remaining term of the loans) in uninsured losses) plus depreciation and amortization plus interest expense plus rent payments plus non-cash share-based compensation expense plus other non-cash expenses or charges plus expenses associated with a public offering, spin-off, strategic evaluation, or acquisition/merger process regardless of whether such events occur or are delayed minus the greater of either actual store maintenance capital expenditures (excluding major remodeling or image enhancements) or the total number of stores in operation for at least 18 months multiplied by $40 to (b) the sum of interest expense during such period plus rent payments made during such period plus payments of long-term debt and finance lease obligations made during such period, all determined in accordance with U.S. GAAP. Additionally, the Fourth Loan Agreement specifically states that for purposes of the financial covenant calculations, operating leases are not considered indebtedness.

If an event of default shall occur and be continuing under the Fourth Loan Agreement, the commitment under the Fourth Loan Agreement may be terminated and any principal amount outstanding, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable. As discussed above, J. Alexander’s, LLC received a waiver of the then existing financial covenants during certain reporting periods in 2020, and it was in compliance with all applicable financial covenants during each of the non-waived reporting periods during fiscal 2020.

The Company projects to be in compliance with each of these financial covenants through the next 12 months.

Paycheck Protection Program

On April 10, 2020 and April 15, 2020, respectively, J. Alexander’s, LLC and Stoney River Management Company, LLC each an indirect subsidiary of the Company, were each granted loans from Pinnacle Bank in the aggregate amounts of $10,000 and $5,100 pursuant to the Paycheck Protection Program under the CARES Act. The Company believed its subsidiary operating companies were eligible for the loans in accordance with the special eligibility provisions for larger companies under provisions included in the CARES Act and the applicable implementing guidance issued by the U.S. Small Business Administration under the Paycheck Protection Program that was available at the time loan applications were submitted. The loans had been obtained to support the goal in the legislation of providing financial assistance to restaurant-level employees, including approximately 3,400 furloughed hourly employees that were not assisting with the Company’s carry-out programs at the time, and to restore the Company’s workforce as quickly as possible once dine-in operations could be safely resumed in accordance with applicable state and local government guidelines. However, as a result of additional guidance issued by the United States Treasury Department and the U.S. Small Business Administration on April 23, 2020, the Company repaid both the $10,000 and $5,100 loans in full on April 29, 2020.

Debt Status and Related Information

At January 3, 2021, the amounts outstanding under the Development Line of Credit and Revolving Line of Credit were $10,000 and $1,000, respectively, and a total of $25,000 was available to us for borrowing under these lines of credit on this date. At January 3, 2021, $3,750 was outstanding under the Mortgage Loan. The Loan Agreement is secured by the real estate, equipment and

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other personal property of 17 restaurant locations with an aggregate net book value of $38,379 at January 3, 2021. The Company also capitalizes lender and legal fees as deferred loan costs and amortizes such costs over the respective lives of the loans under the Loan Agreement.  A total of $337 is currently classified as a reduction of long-term debt on the Company’s Consolidated Balance Sheet at January 3, 2021.

As of January 3, 2021, the aggregate principal amounts of long-term debt maturing for the five fiscal years succeeding January 3, 2021 are as follows:

Off Balance Sheet Arrangements

As of January 3, 2021, we had no financing transactions, arrangements or other relationships with any unconsolidated affiliated entities. Additionally, we are not a party to any financing arrangements involving synthetic leases or trading activities involving commodity contracts.

Contingent Obligations

From 1975 through 1996, JAC operated restaurants in the quick-service restaurant industry.  The discontinuation of these quick-service restaurant operations included disposals of restaurants that were subject to lease agreements which typically contained initial lease terms of 20 years plus two additional option periods of five years each. In connection with certain of these dispositions, the Company through its subsidiaries may remain secondarily liable for ensuring financial performance as set forth in the original lease agreements. We can only estimate our contingent liability relative to these leases, as any changes to the contractual arrangements between the current tenant and the landlord subsequent to the assignment are not required to be disclosed to us. A summary of our estimated contingent liability as of January 3, 2021 is as follows:

Critical Accounting Policies and Estimates

The preparation of our Consolidated Financial Statements, which have been prepared in accordance with GAAP, requires 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 net sales and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to its accounting for gift card revenue, property and equipment, investments, leases, impairment of long-lived and indefinite-lived assets, income taxes, share-based compensation, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are defined as those (a) where the nature of the estimate is material due to the levels of subjectivity and judgement necessary to account for highly uncertain matters or the susceptibility of such matters to change, and (b) the impact of the estimate on financial condition or operating performance is material. Management believes the following critical accounting policies and estimates are those which involve the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

Goodwill and Other Intangible Assets

Goodwill, prior to its impairment, and intangible assets, primarily trade names, which have indefinite useful lives, are not being amortized. However, both goodwill and trade names are subject to annual impairment testing in accordance with ASC Topic 350.

The impairment evaluation for goodwill is conducted annually as of the fiscal year-end date, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. In light of the decline in the market price of the Company’s

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common stock, the impact of mandated dining room closures on financial results, the expected reduction in economic activity in the near term, and the general economic and market volatility, the Company determined that these factors constituted an interim triggering event, and goodwill was tested for impairment as of the end of the first quarter of 2020. The quantitative goodwill impairment test was performed utilizing a market approach which included observable market prices associated with the Company’s common stock price in determining a fair value for the Company and its reporting units. As a result of this test, the Company determined that the J. Alexander’s reporting unit’s carrying value exceeded its fair value to such an extent that the full impairment of goodwill in the first quarter of 2020 in the amount of $15,737 was appropriate.

The evaluation of the carrying amount of other intangible assets with indefinite lives is made annually, or more frequently, if events or changes in circumstances indicate that the assets might be impaired. For the purpose of this analysis, the estimated fair value is generally determined on the basis of discounted future cash flows of the restaurant concepts. We make assumptions regarding future net sales and cash flows, expected growth rates, terminal value, and other factors, including royalty rates used to value our trade names and discount rates, which could significantly impact the fair value calculations. The assumptions used in the estimate of fair value are generally consistent with the past performance of other intangible assets and are also consistent with the projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions.

If the estimated fair value is less than the carrying amount of the other intangible assets with indefinite lives, then an impairment charge is recorded to reduce the asset to its estimated fair value.

We performed a quantitative impairment test of our indefinite-lived intangible assets at the end of each quarter in 2020, and it was determined that fair value of these assets significantly exceeded their carrying value and no impairment of these intangible assets existed in fiscal 2020.

Lease Accounting

The Company through its subsidiaries has land only, building only, and land and building leases for a number of its restaurants and its corporate office that are recorded as operating leases.  We determine if an arrangement meets the definition of a lease at inception, at which time we also perform an analysis to determine whether the lease qualifies as operating or financing. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease current and long-term liabilities on the Company’s Consolidated Balance Sheets. Lease expense for operating leases is generally recognized on a straight-line basis over the lease term, and is included in other operating expenses (for restaurant properties) or general and administrative expense (for corporate office space) on the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income.  The Company presents both the change in ROU assets and lease liabilities as a single line item in the Company’s Consolidated Statement of Cash Flows as the change in “Lease right-of-use assets and liabilities.” The Company does not currently have any arrangements that are classified as financing leases.

Most of our leases have rent escalation clauses and some have rent holiday and contingent rent provisions.  Terms for these leases are generally for 15 to 20 years and, in many cases, the leases provide for one or more five‑year renewal options. The rent expense under these leases is recognized on a straight‑line basis over an expected lease term, including cancelable option periods when it is reasonably assured that such option periods will be exercised because failure to do so would result in a significant economic penalty, and these periods are recognized as a part of the ROU asset and related lease liability. Contingent rent expense is generally based upon sales levels and is typically accrued when it is deemed probable that it will be payable.  These costs are disclosed as variable lease costs. Any tenant improvement allowances received from landlords under operating leases are recorded as a reduction to the related ROU asset and liability.  The same lease term that is used to calculate the lease liabilities is also used for assessing leases for finance or operating lease accounting.  Many of our leases require payments for property taxes, insurance, maintenance and certain other costs.  The variable portion of these payments is not included as a component of the Company’s ROU assets and lease liabilities.  Rather, variable payments, other than those dependent on an index or rate, are expensed as incurred and are disclosed as variable lease costs.

We will use an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. The incremental borrowing rates used are estimated based on what the Company would be required to pay for a collateralized loan over a similar term. Additionally, based on the applicable lease terms and the current economic environment, the Company applies a portfolio approach for determining the incremental borrowing rate for its real estate leases.  

Leasehold improvements for each leased restaurant facility are amortized on the straight-line method over the shorter of the estimated life of the asset or the expected lease term used for lease accounting purposes.

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Judgments made by management about the probable term for each restaurant facility lease affect the payments that are taken into consideration when calculating the ROU asset and lease liability and the term over which leasehold improvements are amortized. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.

Impairment of Long-Lived Assets

Long-lived assets, such as property, equipment and ROU operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or changes generally include, but are not necessarily limited to, a current period operating loss or cash flow deficit. Our assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds the estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

The impairment assessment process requires the use of estimates and assumptions regarding future cash flows, operating incomes, and other factors, which are subject to a significant degree of judgment. These include, among other factors, assumptions made regarding a restaurant’s future period of operation, sales and operating costs and local market expectations. These estimates can be significantly impacted by changes in the economic environment and overall operating performance. Additional impairment charges could be triggered in the future if expected restaurant performance does not support the carrying amounts of the underlying long-lived restaurant assets or if management decides to close a restaurant location.

Share-based Compensation

We follow the provisions of ASC Topic 718, Compensation-Stock Compensation, which requires that we measure and recognize compensation expense for all stock-based payment awards made to employees and directors based on their estimated fair values.

With respect to the management profits interest granted in 2015 and stock option awards granted during fiscal years 2015, 2016, 2018 and 2020, the grant date fair value was determined using the Black-Scholes-Merton pricing model, and the calculated compensation expense is being recognized on a straight-line basis over the requisite service period under each grant due to their graded vesting schedule. The Black-Scholes-Merton pricing model requires assumptions to be made regarding stock price volatility, expected life of the awards and expected dividend rates.  Using different assumptions in the pricing model could result in a significantly different valuation of awards and affect stock-based compensation as well as results of operations.  

Income Taxes

The Company recognizes deferred tax assets and liabilities for the future consequences of events that have been recognized in its Consolidated Financial Statements or tax returns. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Any effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date.  In establishing deferred tax assets and liabilities, judgements and interpretations are made based on enacted tax laws and published tax guidance applicable to our operations.

In the event the future consequences of differences between financial reporting bases and tax bases of the Company’s assets and liabilities result in a net deferred tax asset, an evaluation is made of the probability of the Company’s ability to realize the future benefits of such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that all or some portion of the deferred tax asset will not be realized. Management assesses the likelihood of realization of our net deferred tax assets and the need for a valuation allowance with respect to those assets based on the weight of available positive and negative evidence. Such evidence includes future projected taxable income, the expiration dates of operating loss carryforwards and any pre-tax losses.

In addition, certain other components of the Company’s provision for income taxes must be estimated. These include, but are not limited to, uncertain tax positions, effective state tax rates, and estimates related to depreciation expense allowable for tax purposes. These estimates are made based on the best available information at the time the tax provision is prepared. Income tax returns are generally not filed, however, until several months after year-end. All tax returns are subject to audit by federal and state governments, usually years after the returns are filed, and could be subject to differing interpretations of the tax laws.

The above listing is not intended to be a comprehensive listing of all of the Company’s accounting policies and estimates. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s

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judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. For further information, refer to the Consolidated Financial Statements and notes thereto included elsewhere in this filing which contain accounting policies and other disclosures required by GAAP.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements may be found in Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements, Note 2 – Summary of Significant Accounting Policies in this Annual Report.

Impact of Inflation and Other Factors

Over the past three years, inflation has not significantly impacted our operations. However, the impact of inflation on labor, food, energy and occupancy costs could, in the future, significantly impact our operations. We pay many of our employees hourly rates related to the applicable federal or state minimum wage including tipped minimum wage. Should minimum wage rates increase or tipped minimum wages be eliminated, our labor costs could increase significantly. Food costs as a percentage of net sales have been somewhat stable due to our continued focus on procurement efficiencies and menu price adjustments, although no assurance can be made that we can continue to improve our procurement or that we will be able to raise menu prices in the future. Utilities account for a sizeable portion of operating expense at the restaurant level, a component of which is impacted by fluctuations in energy costs. As a result, utilities impact operating income.  By owning a number of our properties, we avoid certain increases in occupancy costs. Costs for construction, taxes, repairs, maintenance and insurance all impact our occupancy costs. We believe our current strategy, which seeks to maintain operating margins through a combination of menu price increases, strategic lunch and dinner features, cost controls, careful evaluation of property and equipment needs, and efficient purchasing practices has been an effective tool for dealing with inflation. There can be no assurances that future inflation or other cost pressures will be offset by this strategy. With respect to beef, prices have fluctuated over the past year due to supply disruptions resulting from the COVID-19 pandemic. While the Company experienced some disruptions to its supply chain, procurement in general has become more dependable than it was during the end of the second quarter of 2020. We expect that beef prices in 2021 will be consistent with or perhaps experience modest increases relative to fiscal year 2020. Our beef purchases currently remain subject to variable market conditions.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

This Item is not applicable to smaller reporting companies.

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Item 8. Financial Statements and Supplementary Data

INDEX OF FINANCIAL STATEMENTS

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

J. Alexander’s Holdings, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of J. Alexander’s Holdings, Inc. and subsidiaries (the Company) as of January 3, 2021 and December 29, 2019, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for each of the years in the three-year period ended January 3, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 3, 2021 and December 29, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended January 3, 2021, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 13 to the consolidated financial statements, the Company has changed its method of accounting for leases as of December 31, 2018 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Long-Lived Asset Impairment

As discussed in Note 2 to the consolidated financial statements, the Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.  As of January 3, 2021, the Company had $174,703 thousand of long-lived assets related to restaurants held and used in the business, including $102,188 thousand of property and equipment, net and $72,515 thousand of right-of-use lease assets, net.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge will be recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group based on the future highest and best use of the impaired asset or asset group. The Company recognized pre-tax impairment charges for long-lived assets of $689 thousand in fiscal year 2020.

We identified the evaluation of the Company’s assessment of long-lived assets for impairment related to restaurants held and used in the business as a critical audit matter. Subjective auditor judgment was required to evaluate the undiscounted future cash flows expected to be generated by the restaurants. In particular, the revenue growth rate and operating margin used to estimate the undiscounted future cash flows of the restaurants were challenging to evaluate as minor changes to those assumptions had a potential significant effect on the Company’s assessment of the carrying value of the restaurants.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls over the Company’s long-lived asset impairment assessment process, including controls related to the Company’s assessment of the assumptions listed above. We performed sensitivity analyses over the revenue growth rate and operating margin assumptions to assess their impact on the Company’s determination of the undiscounted future cash flows of certain restaurants. We compared the Company’s historical revenue growth rate and historical operating margin forecasts to actual results to assess the Company’s ability to accurately forecast. We evaluated the Company’s revenue growth rate and operating margin assumptions for certain restaurants by comparing the assumptions to the restaurants’ historical performance and peer company data.

We have served as the Company’s auditor since 2004.

Nashville, Tennessee
March 18, 2021

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J. Alexander’s Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

January 3, 2021 and December 29, 2019

(In thousands, except share and per share amounts)

See accompanying Notes to Consolidated Financial Statements.

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J. Alexander’s Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive (Loss) Income

Years ended January 3, 2021, December 29, 2019 and December 30, 2018

(In thousands, except per share amounts)

See accompanying Notes to Consolidated Financial Statements.

Per share amounts may not sum due to rounding.

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J. Alexander’s Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

Years ended January 3, 2021, December 29, 2019 and December 30, 2018

(In thousands, except share amounts)