Changes in sales for existing restaurants are generally measured in the restaurant industry by computing the change in same store sales, which represents the change in sales for the same group of restaurants from the same period in the prior year. Same store sales changes can be the result of changes in guest counts, which the Company estimates based on a count of entrée items sold, and changes in the average check per guest. The average check per guest can be affected by menu price changes and the mix of menu items sold. Management regularly analyzes guest count, average check and product mix trends for each restaurant in order to improve menu pricing and product offering strategies. Management believes it is important to maintain or increase guest counts and average guest checks over time in order to improve the Company's profitability.
Other key indicators which can be used to evaluate and understand the Company's restaurant operations include cost of sales, restaurant labor and related costs and other operating expenses, with a focus on these expenses as a percentage of net sales. Since the Company uses primarily fresh ingredients for food preparation, the cost of food commodities can vary significantly from time to time due to a number of factors. The Company generally expects to increase menu prices in order to offset the increase in the cost of food products as well as increases which the Company experiences in labor and related costs and other operating expenses, but attempts to balance these increases with the goals of providing reasonable value to the Company's guests. Management believes that restaurant operating margin, which is net sales less total restaurant operating expenses expressed as a percentage of net sales, is an important indicator of the Company's success in managing its restaurant operations because it is affected by the level of sales achieved, menu offering and pricing strategies, and the management and control of restaurant operating expenses in relation to net sales.
Because large capital investments are required for J. Alexander's restaurants and because a significant portion of labor costs and other operating expenses are fixed or semi-variable in nature, management believes the sales required for a J. Alexander's restaurant to break even are relatively high compared to many other casual dining concepts and that it is necessary for the Company to achieve relatively high sales volumes in its restaurants in order to achieve desired financial returns. The Company's criteria for new restaurant development target locations with high population densities and high household incomes which management believes provide the best prospects for achieving attractive financial returns on the Company's investments in new restaurants.
The opening of new restaurants by the Company can have a significant impact on the Company's financial performance because pre-opening expense for new restaurants is significant and most new restaurants incur operating losses during their early months of operation. The Company opened three new restaurants in the last half of 2008. No new restaurants are planned for 2009.

The following table sets forth, for the periods indicated, (i) the items in the Company's Condensed Consolidated Statements of Income expressed as a percentage of net sales, and (ii) other selected operating data:

                                                                        Quarter Ended
                                                                  March 29         March 30
                                                                    2009             2008
Net sales                                                             100.0 %          100.0 %
Costs and expenses:
Cost of sales                                                          31.4             32.1
Restaurant labor and related costs                                     33.5             31.2
Depreciation and amortization of restaurant property and
equipment                                                               4.4              3.9
Other operating expenses                                               22.2             19.8

Total restaurant operating expenses                                    91.4             87.0
General and administrative expenses                                     6.2              6.8
Pre-opening expense                                                       -              0.1

Operating income                                                        2.4              6.1
Other income (expense):
Interest expense                                                       (1.3 )           (1.2 )
Interest income                                                           -              0.2
Other, net                                                                -                -

Total other expense                                                    (1.2 )           (1.0 )

Income before income taxes                                              1.2              5.2
Income tax benefit (provision)                                            -             (0.9 )

Net income                                                              1.2 %            4.2 %


Note: Certain percentage totals do not sum due to rounding.

Restaurants open at end of period                                        33               30

Average weekly sales per restaurant (1):
All restaurants                                                   $  88,800        $  96,600
Percent change                                                         -8.1 %

Same store restaurants (2)                                        $  91,900        $  97,800
Percent change                                                         -6.0 %

(1) The Company computes average weekly sales per restaurant by dividing total restaurant sales for the period by the total number of days all restaurants were open for the period to obtain a daily sales average, with the daily sales average then multiplied by seven to arrive at weekly average sales per restaurant. Days on which restaurants are closed for business for any reason other than the scheduled closure of all J. Alexander's restaurants on Thanksgiving day and Christmas day are excluded from this calculation. Average weekly same store sales per restaurant are computed in the same manner as described above except that sales and sales days used in the calculation include only those for restaurants open for more than 18 months. Revenue associated with reductions in liabilities for gift cards which are considered to be only remotely likely to be redeemed is not included in the calculation of average weekly sales per restaurant or average weekly same store sales per restaurant.

(2) Includes the twenty-eight restaurants open for more than eighteen months.

Net Sales
Net sales increased by $579,000, or 1.5%, in the first quarter of 2009 compared to the first quarter of 2008. This increase was due primarily to net sales generated by three new restaurants opened in the last half of 2008 which more than offset a decrease in net sales in the same store restaurant base. Estimated net sales of $215,000 were lost in the first quarter of 2008 when certain of the Company's restaurants were closed for a total of 15 sales days due to a fire at the Company's Denver restaurant and severe winter weather conditions in the Ohio market.
Management estimates the average check per guest, including alcoholic beverage sales, was approximately $25.00 in the first quarter of 2009 and increased by less than one percent compared to the first quarter of 2008. Management estimates that average menu prices increased by approximately 0.7% in the first quarter of 2009 compared to the same quarter of 2008. This estimate reflects nominal amounts of menu price changes, prior to any change in product mix because of price increases, and may not reflect amounts effectively paid by customers. Management estimates that weekly average guest counts decreased on a same store basis, as adjusted for the days restaurants were closed in 2008, by approximately 6.0% in the first quarter of 2009 compared to the first quarter of 2008.
The Company's same store sales have decreased for six consecutive quarters, with a downturn first noted in mid-September of 2007. Management believes these decreases are due to a significant slowdown in discretionary consumer spending caused by recessionary economic conditions, the tightening of consumer credit, and general concerns about unemployment, lower home values and turmoil in the financial markets.
Restaurant Costs and Expenses
Total restaurant operating expenses increased to 91.4% of net sales in the first quarter of 2009 from 87.0% in the first quarter of 2008 due primarily to the adverse effects of lower same store sales and the effect of three new restaurants opened in the last half of 2008, with the effects of these factors being partially offset by lower cost of sales for 2009. Restaurant operating margins decreased to 8.6% in the first quarter of 2009 from 13.0% in the first quarter of 2008.
Cost of sales, which includes the cost of food and beverages, for the first quarter of 2009 was 31.4% of net sales, down from 32.1% of net sales in the first quarter of 2008. This decrease was due primarily to the effect of significantly lower prices paid for beef in the first quarter of 2009 compared to those paid in the first quarter of 2008 which more than offset increases in certain other food products.
Beef purchases represent the largest component of the Company's cost of sales and comprise approximately 25% to 30% of this expense category. In recent years, the Company entered into fixed price beef purchase agreements for most of its beef in an effort to minimize the impact of significant increases in the market price of beef. Because of uncertainty in the beef market and the high prices at which beef was quoted to the Company on a forward fixed price basis relative to market prices, the Company did not enter into a fixed price beef purchase agreement to replace the fixed price agreement which expired in March of 2008. Since that time, the Company has purchased beef based on weekly market prices which have generally been lower than the prices paid by the Company for beef under the previous contract. The effect of lower prices paid for beef in the first quarter of 2009 compared to the prices paid in the first quarter of 2008 reduced cost of sales by an estimated 1.7% of net sales in the first quarter of 2009.

While management believes that purchasing beef at weekly market prices has been beneficial to the Company, this strategy exposes the Company to variable market conditions. Because the Company purchased beef at weekly market prices for the last three quarters of 2008, management does not believe that input costs for beef for the remainder of 2009 will be as favorable compared to the prices paid for the comparable periods of the previous year as were prices for the first quarter of 2009, and there can be no assurance that beef prices will not increase significantly. Management will continue to monitor the beef market in 2009 and if there are significant changes in market conditions or attractive opportunities to contract later in the year, will consider entering into a fixed price purchasing agreement.
Restaurant labor and related costs increased to 33.5% of net sales in the first quarter of 2009 from 31.2% in the first quarter of 2008. The increase was due primarily to the effects of higher labor costs incurred in the three new restaurants opened in the last half of 2008 and lower same store sales.
The Company estimates that the impact of increases in minimum wage rates will be approximately $300,000 in 2009. Most of these increases relate to increases in minimum cash rates required by certain states to be paid to tipped employees. The increase in the federal minimum wage rate in 2008 has not had a significant impact on the Company because most of the Company's non-tipped employees were already paid more than the federal minimum wage.
Depreciation and amortization of restaurant property and equipment increased by $223,000 in the first quarter of 2009 compared to the first quarter of 2008 primarily because of the effect of the new restaurants opened during the last half of 2008. The effect of the new restaurants as well as the effect of lower same store sales resulted in an increase in 2009 in this expense category as a percentage of net sales.
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 insurance, were 22.2% of net sales in the first quarter of 2009 compared to 19.8% of net sales in the first quarter of 2008. This increase was also due primarily to the effects of the new restaurants opened in the last half of 2008 and lower sales in the same store restaurant base.
General and Administrative Expenses
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 $185,000 in the first quarter of 2009 versus the first quarter of 2008 due primarily to lower management training costs. The reduction in management training costs is due to lower restaurant management turnover and because no additional staffing is required for new restaurants since no new restaurant openings are planned in 2009. 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 the Company taking control of the property and the opening of the restaurant.

Pre-opening expense of $44,000 was incurred in the first quarter of 2008 in connection with restaurants under development during that time. The Company does not expect to incur any pre-opening expense during 2009 because no new restaurant development is planned for the year. Other Income (Expense)
Interest income decreased in the first quarter of 2009 compared to the first quarter of 2008 due to lower average balances of surplus funds invested in money market funds and lower interest rates earned on those funds. Interest expense did not change significantly in the first quarter of 2009 compared to the first quarter of 2008.
Income Taxes
In accordance with Accounting Principles Board Opinion No. 28, "Interim Financial Reporting" ("APB 28") and Financial Accounting Standards Board ("FASB") Interpretation No. 18, "Accounting for Income Taxes in Interim Periods
- an interpretation of APB Opinion No. 28" ("FIN 18"), at the end of each interim period, the Company is required to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on an interim period. However, in certain circumstances where it is difficult to make an estimate of the annual effective tax rate, FIN 18 allows the actual effective tax rate for the interim period to be used in the interim period. For the quarter ended March 29, 2009, the Company calculated its effective rate on the interim period results because it was unable to reasonably estimate its annual effective rate primarily because of the significant impact of FICA tip tax credits on the effective rate within the range of pre-tax results estimated by the Company for the full year. The Company's estimated effective income tax rate was 18.4% for the first quarter of 2008. This rate was lower than the statutory federal rate of 34% due primarily to the effect of FICA tip tax credits, with the effect of those credits being partially offset by the effect of state income taxes. Outlook
Management expects that 2009 will continue to be a very challenging year. Because, as previously discussed, a significant portion of the Company's labor and other operating expenses are fixed or semi-variable in nature, management expects that continued decreases in same store sales, which management expects will persist for several more months or more and which could worsen, and the effect of three new restaurants opened in the last half of 2008 will have a significant negative effect on the Company's restaurant operating margins and profitability in 2009. Management believes, however, that the effects of these factors will be mitigated somewhat by the effect of menu price increases of approximately 2.0% implemented in the first quarter of 2009, lower commodity prices paid for certain food products, and other cost reduction programs being implemented by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital needs are currently primarily for maintenance of and improvements to its existing restaurants and for meeting debt service requirements and operating lease obligations. The Company has met its needs and maintained liquidity in recent years primarily through use of cash and cash equivalents on hand, cash flow from operations and the availability of a bank line of credit.

Cash and cash equivalents at March 29, 2009 totaled $2,838,000. The Company's net cash provided by operating activities totaled $2,020,000 and $2,797,000 for the first quarters of 2009 and 2008, respectively. Management expects that future cash flows from operating activities will vary primarily as a result of future operating results. In addition, the Company received in May of 2009 payment of a $1,145,000 contribution receivable from a landlord for improvements made by the Company for a new restaurant developed on leased property in 2008, which will have a positive impact on cash provided by operating activities for the second quarter of 2009.
The Company had a working capital deficit of $894,000 at March 29, 2009, down from $2,576,000 at December 28, 2008. Management does not believe this working capital deficit impairs the overall financial condition of the Company. Many companies in the restaurant industry operate with a working capital deficit because guests pay for their purchases with cash or by credit card at the time of the sale while trade payables for food and beverage purchases and other obligations related to restaurant operations are not typically due for some time after the sale takes place. Since requirements for funding accounts receivable and inventories are relatively small, virtually all cash generated by operations is available to meet current obligations.
Management estimates that cash expenditures for capital assets in 2009 will be approximately $3.3 million, with most of these funds being used for improvements and asset replacements in existing restaurants. Management does not plan to open any new restaurants in 2009 and is opting to be cautious and conserve the Company's capital until there is a clearer picture of the future of the economy before making any additional commitments for new restaurants. Additionally, new restaurant development could be constrained due to lack of capital resources depending on the amount of cash flow generated by future operations of the Company or the availability to the Company of additional financing on terms acceptable to the Company, if at all, especially considering recent tightening in the credit markets.
A mortgage loan obtained in 2002 represents the most significant portion of the Company's outstanding long-term debt. The loan, which was originally for $25 million, had an outstanding balance of $20.9 million at March 29, 2009. It has an effective annual interest rate, including the effect of the amortization of deferred issue costs, of 8.6% and is payable in equal monthly installments of principal and interest of approximately $212,000 through November 2022. Provisions of the mortgage loan and related agreements require that a minimum fixed charge coverage ratio of 1.25 to 1 be maintained for the businesses operated at the properties included under the mortgage and that a funded debt to EBITDA (as defined in the loan agreement) ratio of 6 to 1 be maintained for the Company and its subsidiaries. The loan is secured by the real estate, equipment and other personal property of nine of the Company's restaurant locations with an aggregate book value of $22.4 million at March 29, 2009. The real property at these locations is owned by JAX Real Estate, LLC, the borrower under the loan agreement, which leases them to a wholly-owned subsidiary of the Company as lessee. The Company has guaranteed the obligations of the lessee subsidiary to pay rents under the lease. JAX Real Estate, LLC, is an indirect wholly-owned subsidiary of the Company which is included in the Company's Condensed Consolidated Financial Statements. However, JAX Real Estate, LLC was established as a special purpose, bankruptcy remote entity and maintains its own legal existence, ownership of its assets and responsibility for its liabilities separate from the Company and its other affiliates.
The Company maintains a secured bank line of credit agreement which provides up to $10 million of credit availability for financing capital expenditures related to the development of new restaurants and for general operating purposes. The line of credit is currently secured by

mortgages on the real estate of two of the Company's restaurant locations with an aggregate book value of $7.0 million at March 29, 2009, and the Company has also agreed not to encumber, sell or transfer four other fee-owned properties. On October 31, 2008, the Company entered into an amendment to the credit agreement which changed the maximum adjusted debt to EBITDAR ratio (as defined in the amendment) from 3.5 to 1 to 4.5 to 1 through March 29, 2009, after which time the ratio reverted to 3.5 to 1. Provisions of the loan agreement also require that the Company maintain a fixed charge coverage ratio (also as defined in the amendment) of at least 1.5 to 1. As of March 29, 2009, the Company did not meet the debt to EBITDAR and fixed charge coverage ratios specified in the loan agreement, and the Company has obtained a waiver of these covenants for the first quarter of 2009. Management believes the Company will be able in the near future to amend and extend the loan agreement or obtain replacement financing on terms satisfactory to the Company. The loan agreement also provides that defaults which permit acceleration of debt under other loan agreements constitute a default under the bank agreement and restricts the Company's ability to incur additional debt outside of the agreement. Any amounts outstanding under the line of credit, as amended, bear interest at the LIBOR rate as defined in the loan agreement plus a spread of 2.25% to 3.75%, depending on the Company's adjusted debt to EBITDAR ratio. The Company also pays a commitment fee of 0.25% to 0.75% per annum on the unused portion of the credit line, also depending on the Company's adjusted debt to EBITDAR ratio. The maturity date of this credit facility is July 1, 2009. There were no borrowings outstanding under the line as of March 29, 2009, or subsequent to that time.
The Company believes that cash and cash equivalents on hand at March 29, 2009 and cash flow generated by future operations will be adequate to meet the Company's operating and capital needs at least through 2009. However, depending on the Company's future operating results, cash flow generated from operations . . .