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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 10, 2012

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

For the transition period from               to             

Commission File Number 001-35549

IGNITE RESTAURANT GROUP, INC.

(Exact name of registrant as specified in its charter)

9900 Westpark Drive, Suite 300, Houston, Texas 77063

(Address of principal executive offices and zip code)

(713) 366-7500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes: x No: o

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

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

The number of shares of the issuer’s common stock, par value $0.01, outstanding as of October 26, 2012 was 25,635,602.

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PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

IGNITE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

See accompanying notes to condensed consolidated financial statements.

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IGNITE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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IGNITE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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IGNITE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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IGNITE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 — Basis of Presentation

Ignite Restaurant Group, Inc. (referred to herein as the “Company,” “Ignite,” “we,” “us” or “our”) owns and operates two full service, casual dining restaurant brands under the names Joe’s Crab Shack and Brick House Tavern + Tap. As of September 10, 2012, we owned and operated 129 Joe’s Crab Shack restaurants and 16 Brick House Tavern + Tap restaurants in 33 states within the United States.

Prior to our initial public offering (“IPO”), as further discussed in Note 2, J.H. Whitney VI, L.P. (“J.H. Whitney VI”), an affiliate of J.H. Whitney Capital Partners, LLC, owned 100% of the Series A preferred units of JCS Holdings, LLC, our parent. Immediately after completion of the IPO, JCS Holdings, LLC distributed substantially all of the shares of our common stock then held by it to J.H. Whitney VI and to the holders of its common units. J.H. Whitney VI currently owns approximately 67.7% of our total outstanding common stock.

We prepared the accompanying unaudited condensed consolidated financial statements in accordance with Rule 10-01 of Regulation S-X, and hence, the financial statements do not contain certain information included in our annual financial statements and notes thereto. We have made adjustments that are, in our opinion, necessary for the fair presentation of the results of the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results of operations for a full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the restated audited consolidated financial statements for the fiscal years ended January 2, 2012, January 3, 2011, and December 28, 2009 included in our current report on Form 8-K dated October 30, 2012.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Ignite and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Fiscal Year

Our fiscal year ends on the Monday nearest to December 31 of each year. The first three quarters of our fiscal year consist of 12 weeks and our fourth quarter consists of 16 weeks for 52-week fiscal years and 17 weeks for 53-week fiscal years.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRS, which clarifies Topic 820 and provides guidance on changes to certain principles or requirements for measuring fair value. The amendment is effective during interim and annual periods beginning after December 15, 2011. We adopted ASU 2011-04 as of January 3, 2012, which did not have a significant impact on our consolidated financial statements.

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and other reclassifications presented in the financial statements. The update is effective for fiscal years and interim periods beginning after December 15, 2011. Certain provisions of ASU 2011-05 have been amended by ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, to effectively defer only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. We adopted ASU 2011-05 as of January 3, 2012 by including a separate statement of comprehensive income for all periods presented.

In July 2012, the FASB issued ASU No. 2012-02, Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, which allows an entity the option to first assess qualitatively whether it is more likely than not that the indefinite-lived intangible asset is impaired, thus necessitating a quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative test unless it determines that it is more likely than not that the asset is impaired. The update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. We do not believe that adoption of this update will have a significant impact on our consolidated financial statements.

Note 2 — Stockholders’ Equity

Initial Public Offering

On May 10, 2012, we completed our initial public offering of 5,769,231 shares of our common stock at an offering price of $14.00 per share. Of the 5,769,231 shares offered, 5,572,703 shares were sold by us, and 196,528 were sold by the selling stockholders. We granted the underwriters an option to purchase up to an additional 865,384 shares of common stock at the IPO price, which the underwriters exercised in full on May 10, 2012. Our common stock began trading on the NASDAQ National Market under the symbol “IRG” on May 11, 2012.

Including the underwriters’ exercise of the over-allotment option, we received net proceeds from the offering of approximately $81.1 million, after deducting underwriter discounts and commissions of $6.3 million and other fees and expenses of $2.7 million. We did not receive any proceeds from the shares sold by the selling stockholders. A portion of the net proceeds was used to prepay $42.5 million of our outstanding Term Loan and to pay J.H. Whitney a $1.0 million fee in connection with the termination of our management agreement.

Stock Split

Immediately prior to the completion of the offering, we effected a 19,178.226-to-1 stock split.  We also reduced the par value of our common stock from $1.00 per share to $0.01 per share. The share and per share information included in these unaudited condensed financial statements have been retroactively adjusted to reflect the stock split for all periods presented.

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Authorized Capital Stock

In connection with our initial public offering, we amended and restated the Company’s Certificate of Incorporation.  The amended and restated Certificate of Incorporation provides that we are authorized to issue 500,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share.

Note 3 — Restatement of Previously Issued Financial Statements

Overview

We initiated and completed an internal assessment of our lease accounting policies and the review of our historical accounting for fixed assets and related depreciation and certain other accounting areas and identified errors in our previously issued financial statements. Accordingly, we have restated our previously issued financial statements for the twelve and thirty-six week periods ended September 12, 2011.

Lease Accounting

When accounting for leases that included stated fixed rent increases, we historically recognized rent expense on a straight line basis over the current lease term with the term primarily commencing when actual rent payments began. Additionally, we did not record straight line rent on leases which contained CPI adjustments that also were subject to stated minimum rent increases. Following an internal assessment, we deemed it necessary to correct errors related to our accounting treatment of certain leases. We have corrected the treatment of these leases to recognize rent expense on a straight line basis over the effective lease term, including cancelable option periods where failure to exercise the options would result in an economic penalty. The effective lease term commences on the date when we establish effective control over the property. Furthermore, we now calculate straight line rent on properties with CPI adjustments that are subject to a stated minimum required rent increase.

The lease accounting errors date back to 2006, the year of our origination. The non-cash charges impact deferred rent expense, which is primarily included in occupancy expenses, and pre-opening expense (the deferred rent portion only). The lease accounting related restatement items reduced income before income taxes by $327 thousand for the twelve weeks ended September 12, 2011 and $868 thousand for the thirty-six weeks ended September 12, 2011, respectively. The increases in rent expense and preopening expense resulted in a corresponding increase in deferred rent liability.

The lease accounting related restatement items do not impact our historical cash flows, revenues or comparable restaurant sales.

Fixed Asset Review

Also as a follow-up to the lease accounting review, we undertook a detailed review of our historical accounting for fixed assets and related depreciation expense, including a review of fixed asset additions from our inception, a restaurant-level inventory of fixed assets at all 144 restaurant locations at the time of the review, a detailed roll-forward of fixed assets to identify appropriate disposals, a reassessment of useful lives for all assets and the recalculation of depreciation as necessary. As a result, we deemed it necessary to correct our accounting related to fixed asset capitalization, useful lives and disposals, including demolition expenses in certain locations unrelated to new store development.

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Capitalization. During the review we identified that we had incorrectly capitalized certain asset additions rather than expensing them as repairs and maintenance. Through an extensive review and reassessment of fixed asset additions, we have identified items that were incorrectly capitalized and expensed them as repairs and maintenance to the appropriate period and corrected the associated asset balance, historical depreciation expense and accumulated depreciation.

Lease lives. Additionally, during the review of asset additions and the initial work performed around the proper determination of effective lease lives, we identified that we had not consistently considered the impact of the economic life or the effective lease term on the depreciable life of certain assets. As a result, we reassessed the depreciable lives of our assets, made changes where necessary and recalculated depreciation accordingly.

Disposals. Finally, during the course of the fixed asset review, we concluded that we had not appropriately recognized loss on disposal for the undepreciated balance of assets that had been disposed or for existing store demolition costs not related to new store development, including remodels or catastrophic loss. We also determined that we had not removed certain assets and the related accumulated depreciation from the balance sheet upon disposal. Through an extensive asset roll-forward process, we identified the items that were retired through replacement, sale, or demolition, recognized the loss on disposal in the appropriate period and corrected the associated asset balance, historical depreciation expense and accumulated depreciation.

The fixed asset accounting related restatement items include increases in the loss on disposal of assets and other operating expenses and reductions in depreciation expense on our statements of operations and reductions of property and equipment, net and accumulated depreciation on our balance sheet. The fixed asset accounting restatement adjustments reduced income before income taxes by $244 thousand for the twelve weeks ended September 12, 2011 and $836 thousand for the thirty-six weeks ended September 12, 2011.

Other Items

In conjunction with the lease accounting and fixed asset accounting review, we undertook a broader review of our existing accounting policies and concluded it was necessary to make additional adjustments to our historical financial statements.

Sale-leaseback. During the course of the fixed asset review, we determined that we incorrectly accounted for certain deferred costs associated with a sale-leaseback transaction in 2008. The correction resulted in a $9 thousand reduction to amortization expense for the twelve weeks ended September 12, 2011 and $27 thousand for the thirty-six weeks ended September 12, 2011, respectively.

Advertising production costs. We incorrectly recognized production costs related to television commercials in 2011 and 2012 over the time the commercials had run as opposed to expensing them when the commercials first aired. The correction to reflect this change resulted in a decrease in advertising expense of $32 thousand for the twelve weeks ended September 12, 2011 and an increase of $191 thousand for the thirty-six weeks ended September 12, 2011, but will have no effect on total expenses for the full year in either annual period. Going forward, our policy is to expense advertising media costs as incurred, while production costs will be expensed in the period the related advertising first takes place.

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Vacation accrual. We determined that we had not appropriately recognized an accrual for earned but unpaid vacation in 2011. The correction to reflect this change resulted in a $169 thousand and $567 thousand increase in labor and benefits and general and administrative expense for the twelve and thirty-six weeks ended September 12, 2011, but will have no effect on total expense for the full year.

Liquor licenses. Historically we have capitalized the purchase of transferable liquor licenses for certain restaurant properties and shown the use of cash as a component of operating activities in the consolidated statement of cash flows. During the accounting review we determined that this would more appropriately be classified as a use of cash from investing activities. This amounted to an increase in net cash provided by operating activities of $21 thousand for the twelve and thirty-six weeks ended September 12, 2011, with a corresponding increase in net cash used in investing activities for the same period. This reclassification has no impact on the consolidated balance sheet or the consolidated statement of operations.

Professional fees. As previously reported, we also adjusted $175 thousand of general and administrative expense from the twelve weeks ended March 26, 2012 into 2011, of which $74 thousand was for the twelve weeks ended September 12, 2011 and $164 thousand for the thirty-six weeks ended September 12, 2011.  The error correction relates to professional fees for quarterly reviews completed by our independent registered public accounting firm in 2011 that were previously recorded in the first quarter of 2012.

Income tax provision. We identified errors in our accounting for uncertain tax positions which dated back to the beginning of fiscal year 2009.  We performed a comprehensive recalculation of our uncertain tax positions to ensure that the appropriate amounts were recognized in each period.  This correction resulted in an increase in income tax expense and other long-term liabilities of $88 thousand and $235 thousand for the twelve and thirty-six weeks ended September 12, 2011, respectively.  We also identified errors in the accounting related to the changes in the valuation allowance recorded on our net deferred tax assets during the fiscal quarters of 2011. Prior to the fourth quarter of 2011, we maintained a full valuation allowance.  We did not appropriately account for changes to the valuation allowance in quarterly periods prior to that time.  The correction in the accounting for the valuation allowance resulted in a $1.3 million and $2.4 million decrease to income tax expense and a corresponding increase in deferred tax assets for the twelve and thirty-six weeks ended September 12, 2011, but had no effect on income tax benefit for the full year.

Income tax effect of restatement adjustments. The restatement adjustments were analyzed to determine which amounts had a corresponding impact on our income tax expense and the result is reflected as the income tax effect of restatement adjustments.

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A summary of the nature of the restatement adjustments and their impact on previously reported net income is as follows (in thousands):

The impact of these restatements on selected statement of operations data are summarized below (in thousands, except per share data):

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 4 — Debt Obligations

Debt obligations consisted of the following for the periods presented below (in thousands):

In March 2011, we entered into a $145.0 million senior secured credit facility with a syndicate of financial institutions. The credit facility is scheduled to mature in March 2016.  The credit facility consisted of (a) a $120.0 million term loan (“Term Loan”) and (b) a revolving credit facility of up to $25.0 million (“Revolving Credit Facility”) which includes a letter of credit subfacility for up to $6.0 million and a swing line subfacility of up to $5.0 million.

Borrowings under the senior secured credit facility bear interest at a fluctuating rate equal to, at our option, either (a) a base rate plus three and one-half percent (3.50%) per annum, or (b) LIBOR (subject to a floor of 1.5%) plus four and three-quarter percent (4.75%) per annum. The base rate is the higher of (1) the federal funds rate plus 0.50%, (2) the U.S. prime rate last quoted by The Wall Street Journal, and (3) the sum of the three-month LIBOR (subject to a floor of 1.5%) plus the excess of the LIBOR applicable margin over the base rate applicable margin. The Revolving Credit Facility provides for a commitment fee of 0.5% per year on the unused portion.

The weighted average interest rate (including margin) on the Term Loan and the Revolving Credit Facility at September 10, 2012 was 6.25% and 6.75%, respectively. As of September 10, 2012, we had outstanding letters of credit of approximately $1.8 million and available borrowing capacity of approximately $23.2 million under the Revolving Credit Facility. During the thirty-six weeks ended September 10, 2012, the Revolving Credit Facility had average daily borrowings of $1.8 million. As of September 10, 2012 and January 2, 2012, the Revolving Credit Facility had no outstanding balance.

In addition to regularly scheduled payments of principal, mandatory prepayments are also required to be made upon the occurrence of certain events including, without limitation, (i) sales of certain assets, subject to reinvestment provisions, (ii) receipt of certain casualty and condemnation awards proceeds, subject to reinvestment provisions, (iii) the incurrence of certain additional indebtedness, (iv) issuance of equity in some cases, and (v) excess cash flow on an annual basis (as defined in the credit agreement). The senior secured credit facility contains a number of covenants that restrict our ability to incur additional indebtedness, create liens on assets, sell assets, make investments, and pay dividends and distributions. In addition, we are required to comply with certain financial covenants, including maximum consolidated effective leverage ratio, maximum capital expenditures, and a minimum consolidated fixed charge ratio. As of September 10, 2012, we were in compliance with these covenants. In relation to the restatement of our financial statements (see Note 3), we received waivers through October 19, 2012 from our lenders whereby our lenders agreed to waive the rights and remedies under

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

our credit agreement arising from the delay in filing our quarterly report on Form 10-Q for the quarter ended June 18, 2012. Most recently, on October 19, 2012 we received an extension to the original waiver that effectively extended the prior waivers through November 15, 2012 and that also waived the rights and remedies of our lenders under the credit agreement arising from any delay in filing our Form 10-Q for the quarter ended September 10, 2012.

We used the proceeds from the Term Loan to repay prior indebtedness, make an $80.0 million distribution to our stockholder, pay certain fees and expenses associated with the closing of the credit facility, and terminate our interest rate swap contract. Deferred financing fees of $4.6 million relating to the Term Loan were capitalized as deferred charges in the consolidated balance sheets. The termination of the interest rate swap was paid in March 2011 and was recorded as a $0.4 million increase in interest expense, net. The $1.4 million balance of deferred financing costs related to our prior indebtedness was written off to interest expense in our accompanying consolidated statements of operations for the thirty-six weeks ended September 12, 2011.

On April 23, 2012, we entered into an amendment to our senior secured credit agreement that became effective on the date we received proceeds from our IPO. As required by the amendment, we used $42.5 million of our net proceeds to prepay a portion of our Term Loan. The prepayment was applied to the next six regularly scheduled quarterly term loan principal payments and reduced the remaining principal payments on a pro rata basis. We also wrote-off $1.1 million of debt issuance costs associated with the repayment, which has been included as a component of interest expense, net in the accompanying condensed consolidated statement of operations for the thirty-six weeks ended September 10, 2012.

The amendment included other revisions to the credit agreement, the most significant of which were modifications to our financial covenants that increased the amount that we can spend annually on growth related capital expenditures, lowered the principal component of the fixed charge ratio calculation proportionally to the pay down, and reduced our effective leverage ratio by 25 basis points for substantially all remaining quarterly periods. The amendment also eliminated the annual mandatory prepayment requirement related to excess cash flow.

On October 29, 2012, we entered into a new senior secured credit agreement. See Note 10.

The carrying value of our long-term debt approximates fair value. The estimate of the fair value of our debt is based on observable market information from a third party pricing source and is classified in level 2 of the fair value hierarchy.

Note 5 — Stock-Based Compensation

In May 2012, the Company’s stockholders approved the adoption of our 2012 Omnibus Incentive Plan (“2012 Plan”). Under the 2012 Plan, we are authorized to grant stock-based awards in the form of stock options, restricted stock, restricted stock units, stock appreciation rights (“SARs”), and other stock-based awards. The maximum number of common shares reserved for the grant of awards under the 2012 Plan is 1,980,074, subject to adjustment as provided by the 2012 Plan. Stock options and SARs granted under the 2012 Plan generally vest over four years from the date of grant with 25% vesting generally on June 30th of each of the first four years following the date of grant. Stock options and SARs may not have a term exceeding ten years from the date of grant. Restricted stock, which converts one for one at the end of the vesting period, has been granted to independent directors. Restricted stock generally vests after one year from the date of grant. Other specific terms for awards granted under the 2012 Plan shall be determined by our board of directors (or a committee of its members).

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

During the thirty-six weeks ended September 10, 2012, the board of directors granted 503,500 SARs and 19,289 shares of restricted stock. The weighted average grant date fair value of the SARs and the restricted stock granted was $6.63 and $14.00 per share, respectively. As of September 10, 2012, 501,500 SARs and 12,000 shares of restricted stock are outstanding. The weighted average exercise price of the outstanding and expected to vest SARs was $14.01 and $14.02, respectively. As of September 10, 2012, the weighted average remaining contractual term was 9.7 years for both outstanding SARs, while the aggregate intrinsic value was $0.4 million and $0.3 million for outstanding and expected to vest SARs, respectively.

Stock-based compensation expense was $191 thousand and $431 thousand for the twelve and thirty-six weeks ended September 10, 2012, respectively, and is included in general and administrative expenses. As of September 10, 2012, we had unrecognized equity compensation expense of approximately $2.7 million related to stock-based compensation awards granted. That cost is expected to be recognized over a weighted average period of 3.7 years.

The following table provides the significant weighted average assumptions used to determine the fair value of stock appreciation rights on the grant date using the Black-Scholes option-pricing model for awards granted during the twelve and thirty-six weeks ended September 10, 2012:

Since we do not have historical exercise experience on stock appreciation rights, we used the simplified method of estimating expected term. As a newly public company, we estimated expected volatility using the volatility of a peer group over a recent historical period equal to the same expected term of the award. The expected dividend yield is based on our history of not paying regular dividends in the past or our current intention to not pay regular dividends in the foreseeable future.  Risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant using the term equal to our expected term.

Note 6 — Net Income per Share

Basic net income per share is computed using the weighted average number of common shares outstanding during the period, while diluted net income per share is computed using the weighted average number of common shares outstanding plus all potentially dilutive common share equivalents outstanding during the period. The following table summarizes the components to determine the numerator and denominators of basic and diluted net income per share (in thousands):

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The effect of dilutive securities above relates to 12,000 shares of restricted stock outstanding as of September 10, 2012. For the twelve and thirty-six weeks ended September 10, 2012, we excluded 501,500 SARs from the computation of diluted net income per share because their effect was anti-dilutive.

Note 7 — Contingencies

On July 18, 2012, we announced that we intended to restate our financial statements for the years ended December 28, 2009, January 3, 2011 and January 2, 2012 and related interim periods.  On July 20, 2012, a putative class action complaint was filed in the U.S. District Court for the Southern District of Texas against us, certain of our current directors and officers and the underwriters in the IPO.  The plaintiffs allege that all the defendants violated Section 11 of the Securities Act of 1933 (the “Securities Act”), the underwriters violated Section 12 of the Securities Act and certain of our directors and officers have control person liability under Section 15 of the Securities Act, based on allegations that in light of the July 18, 2012 restatement announcement, our IPO registration statement and prospectus contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and omitted to state material facts required to be stated therein.  Plaintiffs seek unspecified compensatory damages and attorneys’ fees and costs.

We believe this lawsuit is without merit, and we are vigorously defending the lawsuit.  However, we are unable to predict the outcome of this case and any future related cases.

We are also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters.  Whether a claim brought against us in the future is valid or whether we are liable, such a claim would be expensive to defend and may divert time, money and other valuable resources away from our operations and, thereby, hurt our business.

Note 8 — Income Taxes

Our effective tax rate is generally less than the combined federal and state statutory rate primarily due to the interaction of FICA tax credits for employee reported tip income. Additionally, in 2011 we recognized a partial release of the valuation allowance of $1.3 million and $2.4 million in the twelve and thirty-six weeks ended September 12, 2011. The effective tax rate for the twelve and thirty-six weeks ended September 10, 2012 was 21.8% and 21.9%, respectively. The effective tax rate for the twelve and thirty-six weeks ended September 12, 2011 was 6.0% and 7.5%, respectively.  The increase in the

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IGNITE RESTAURANT GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

effective tax rate is primarily due to the partial release of the valuation allowance in 2011 partially offset by an increase in the FICA tax credits in 2012.

Note 9 — Supplemental Disclosure of Cash Flow Information

The following table sets forth certain noncash investing activities as follows (in thousands):

Note 10 — Subsequent Event

On October 29, 2012, we entered into a new $100 million five-year senior secured revolving credit facility (the “New Revolving Credit Facility”), which includes a letter of credit sub-facility of up to $10 million and a swing line sub-facility of up to $15 million, with a syndicate of commercial banks and other financial institutions.  We used borrowings under the facility along with cash on hand to repay our Term Loan and expect to use the facility for working capital and other general corporate purposes.

The initial interest rate for borrowings under the facility will be equal to, at our option, either (a) LIBOR plus a margin of 2.00%, or (b) the Base Rate (as defined in the agreement) plus a margin of 1.00%.  Thereafter, the applicable margins are subject to adjustment based on our leverage ratio as determined on a quarterly basis.  In addition, we are required to pay a commitment fee on the unused portion of the New Revolving Credit Facility.  The commitment fee rate is initially 0.30% per annum, and is also subject to adjustment thereafter on a quarterly basis based on our leverage ratio.

The New Revolving Credit Facility contains financial covenants including a leverage ratio and a minimum fixed charge coverage ratio, as described in the agreement. The facility also contains other covenants which, among other things limit our ability to incur additional indebtedness, create liens on our assets, make certain investments, guarantees or loans, merge, consolidate or otherwise dispose of assets other than in the ordinary course of business, make acquisitions, and pay dividends or make other restricted payments.  The facility is guaranteed by each of our subsidiaries and secured by substantially all of our present and future assets and a lien on the capital stock or other equity interests of our direct and indirect subsidiaries.

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

You should read the following discussion together with “Selected Historical Consolidated Financial and Operating Data” and the historical financial statements and related notes included in our Current Report on Form 8-K dated October 30, 2012. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Our fiscal year ends on the Monday nearest to December 31 of each year. Fiscal years 2012 and 2011 are 52-week years. The first three quarters of our fiscal year consist of 12 weeks and our fourth quarter consists of 16 weeks for 52-week fiscal years and 17 weeks for 53-week fiscal years.

Overview

Ignite Restaurant Group, Inc. operates two restaurant businesses, Joe’s Crab Shack and Brick House Tavern + Tap. Each of our restaurant businesses offers a variety of high-quality food in a distinctive, casual, high-energy atmosphere. Joe’s Crab Shack and Brick House Tavern + Tap operate in a diverse set of markets across the United States. As of September 10, 2012, we owned and operated 129 Joe’s Crab Shack and 16 Brick House restaurants in 33 states.

Joe’s Crab Shack is an established, national chain of casual seafood restaurants. Joe’s serves a variety of high-quality seafood items, with an emphasis on crab. Joe’s is a high-energy, family-friendly restaurant that encourages guests to “roll up your sleeves and crack into some crab.”

Brick House Tavern + Tap is a casual restaurant business that provides guests a differentiated “gastro pub” experience by offering a distinctive blend of menu items in a polished setting. Brick House seeks to strike a balance between providing guests with an elevated experience while also appealing to “every-man, every-day.”

Restatement

We have completed our previously reported internal assessment of our lease accounting policies and a review of our historical accounting for fixed assets and related depreciation and certain other accounting areas. Accordingly, we have restated our previously issued financial statements for the twelve and thirty-six week periods ended September 12, 2011.

Lease Accounting

When accounting for leases that included stated fixed rent increases, we historically recognized rent expense on a straight line basis over the current lease term with the term primarily commencing when actual rent payments began. Additionally, we did not record straight line rent on leases which contained CPI adjustments that also were subject to stated minimum rent increases. Following an internal assessment, we deemed it necessary to correct errors related to its accounting treatment of certain leases. We have corrected the treatment of these leases to recognize rent expense on a straight line basis over the effective lease term, including cancelable option periods where failure to exercise the options would result in an economic penalty. The effective lease term commences on the date when we establish effective control over the property. Furthermore, we now calculate straight line rent on properties with CPI adjustments that are subject to a stated minimum required rent increase. The changes to the

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recognition of rent expense are timing in nature and do not change the total cash payments or aggregate rent expense over the effective life of the lease term. The total amount of the increases to historical rent expense will be offset by the same aggregate amount of the adjustments in the form of lower rent expense in the future years of the effective lives of the impacted leases.

The lease accounting errors date back to 2006, the year of our origination. The non-cash charges impact deferred rent expense, which is primarily included in occupancy expenses, and pre-opening expense (the deferred rent portion only). The lease accounting related restatement items reduced income before income taxes by $327 thousand for the twelve weeks ended September 12, 2011, and $868 thousand for the thirty-six weeks ended September 12, 2011. The increases in rent expense and preopening expense resulted in a corresponding increase in deferred rent liability.

The lease accounting related restatement items do not impact our historical cash flows, revenues or comparable restaurant sales. Additionally, these lease accounting restatement items do not impact historical restaurant-level profit or Adjusted EBITDA.

Fixed Asset Review

Also as a follow-up to the lease accounting review, we undertook a detailed review of our historical accounting for fixed assets and related depreciation expense, including a review of fixed asset additions from our inception, a restaurant-level inventory of fixed assets at all 144 restaurant locations at the time of the review, a detailed roll-forward of fixed assets to identify appropriate disposals, a reassessment of useful lives for all assets and the recalculation of depreciation as necessary. As a result, we deemed it necessary to correct our accounting related to fixed asset capitalization, useful lives and disposals, including demolition expenses in certain locations unrelated to new store development.

Capitalization. During the review we identified that we had incorrectly capitalized certain asset additions rather than expensing them as repairs and maintenance. Through an extensive review and reassessment of fixed asset additions, we have identified items that were incorrectly capitalized and expensed them as repairs and maintenance to the appropriate period and corrected the associated asset balance, historical depreciation expense and accumulated depreciation.

Lease lives. Additionally, during the review of asset additions and the initial work performed around the proper determination of effective lease lives, we identified that we had not consistently considered the impact of the economic life or the effective lease term on the depreciable life of certain assets. As a result, we reassessed the depreciable lives of our assets, made changes where necessary and recalculated depreciation accordingly.

Disposals. Finally, during the course of the fixed asset review, we concluded that we had not appropriately recognized loss on disposal for the undepreciated balance of assets that had been disposed or for existing store demolition costs not related to new store development, including remodels or catastrophic loss. We also determined that we had not removed certain assets and the related accumulated depreciation from the balance sheet upon disposal. Through an extensive asset roll-forward process, we identified the items that were retired through replacement, sale, or demolition, recognized the loss on disposal in the appropriate period and corrected the associated asset balance, historical depreciation expense and accumulated depreciation.

The fixed asset accounting related restatement items include increases in the loss on disposal of assets and other operating expenses and reductions in depreciation expense on our statements of operations and reductions of property and equipment, net and accumulated depreciation on our balance sheet. The fixed asset accounting restatement adjustments reduced income before income taxes by $244 thousand for the

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twelve weeks ended September 12, 2011 and $836 thousand for the thirty-six weeks ended September 10, 2011.

Other Items

In conjunction with the lease accounting and fixed asset accounting review, we undertook a broader review of our existing accounting policies and concluded it was necessary to make additional adjustments to our historical financial statements.

Sale-leaseback. During the course of the fixed asset review, we determined that we incorrectly accounted for certain deferred costs associated with a sale-leaseback transaction in 2008. The correction resulted in a $9 thousand reduction to amortization expense for the twelve weeks ended September 12, 2011 and $27 thousand for the thirty-six weeks ended September 12, 2011.

Advertising production costs. We incorrectly recognized production costs related to television commercials in 2011 and 2012 over the time the commercials had run as opposed to expensing them when the commercials first aired. The correction to reflect this change resulted in a decrease in advertising expense of $32 thousand for the twelve weeks ended September 12, 2011 and an increase of $191 thousand for the thirty-six weeks ended September 12, 2011, but will have no effect on total expenses for the full year in 2011 or 2012. Going forward, our policy is to expense advertising media costs as incurred, while production costs will be expensed in the period the advertising first takes place.

Vacation accrual. We determined that we had not appropriately recognized an accrual for earned but unpaid vacation in 2011. The correction to reflect this change resulted in a $169 thousand and $567 thousand increase in labor and benefits and general and administrative expense for the twelve and thirty-six weeks ended September 12, 2011, but had no effect on income tax benefit for the full year.

Liquor licenses. Historically we have capitalized the purchase of transferable liquor licenses for certain restaurant properties and shown the use of cash as a component of operating activities in the consolidated statement of cash flows. During the accounting review we determined that this would more appropriately be classified as a use of cash from investing activities. This amounted to an increase in net cash provided by operating activities of $21 thousand for the twelve and thirty-six weeks ended September 12, 2011, with a corresponding increase in net cash used in investing activities for the same period. This reclassification has no impact on the consolidated balance sheet or the consolidated statement of operations.

Professional fees. As previously reported, we also adjusted $175 thousand of general and administrative expense from the twelve weeks ended March 26, 2012 into 2011, of which $74 thousand was for the twelve weeks ended September 12, 2011 and $164 thousand for the thirty-six weeks ended September 12, 2011.  The error correction relates to professional fees for quarterly reviews completed by our independent registered public accounting firm in 2011 that were previously recorded in the first quarter of 2012.

Income tax provision. We identified errors in our accounting for uncertain tax positions which dated back to the beginning of fiscal year 2009.  We performed a comprehensive recalculation of our uncertain tax positions to ensure that the appropriate amounts were recognized in each period.  This correction resulted in an increase in income tax expense and other long-term liabilities of $88 thousand and $235 thousand for the twelve and thirty-six weeks ended September 12, 2011, respectively.  We also identified errors in the accounting related to the changes in the valuation allowance recorded on our net deferred tax assets during the fiscal quarters of 2011. Prior to the fourth quarter of 2011, we maintained a full valuation allowance.  We did not appropriately account for changes to the valuation allowance in quarterly periods prior to that time.  The correction in the accounting for the valuation allowance resulted

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in a $1.3 million and $2.4 million decrease to income tax expense and a corresponding increase in deferred tax assets for the twelve and thirty-six weeks ended September 12, 2011, but had no effect on income tax benefit for the full year.

Income tax effect of restatement adjustments. The restatement adjustments were analyzed to determine which amounts had a corresponding impact on our income tax expense and the result is reflected as the income tax effect of restatement adjustments.

The adjustments do not impact our revenues, comparable restaurant sales or free cash flows. The impacts of these restatements on our Statements of Operations, Adjusted EBITDA and restaurant-level profit are summarized below (in thousands, except per share amounts):

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(1)         Adjusted EBITDA is a non-GAAP financial measure. See “Results of Operations” for a discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income.

(2)         Restaurant-level profit is a non-GAAP financial measure. See “Results of Operations” for a discussion of restaurant-level profit and a reconciliation of restaurant-level profit to revenues.

Outlook

We believe that a significant portion of the casual dining industry, particularly the traditional bar & grill segment, has become undifferentiated and the competitive landscape presents a significant growth opportunity for distinctive casual dining restaurants. Similar to the way the bar & grill segment emerged as an alternative to traditional family dining restaurants in the 1990s, we believe that distinctive casual dining restaurants like ours are now positioned to capture market share from conventional bar & grill restaurants. We intend to continue to position our restaurants to capitalize on that trend by constantly refining our brands, elevating food and service, and offering an aspirational experience to our guests. We expect that the casual dining segment will follow broader macroeconomic trends. However, we expect the factors above will continue to position our restaurant businesses favorably against our casual dining competitors.

The financial results provided herein partially reflect the fact that we had been a private company until our initial public offering in May 2012, and as such had not incurred costs typically found in publicly traded companies. We expect that those costs will increase our general and administrative expenses annually similar to other public companies now that we have completed our initial public offering.

Results of Operations

The following table presents the consolidated statement of operations for the twelve and thirty-six weeks ended September 10, 2012 and September 12, 2011 expressed as a percentage of revenues.

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*                 The percentages reflected have been subject to rounding adjustments. Accordingly, figures expressed as percentages when aggregated may not be the arithmetic aggregation of the percentages that precede them.

The following table sets forth additional operating information that we use in assessing our performance as of the periods indicated:

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