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PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

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 earnings per share)

(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

As of July 1, 2013, Ignite Restaurant Group, Inc. (referred to herein as the “Company,” “Ignite,” “we,” “us” or “our”) owned and operated three full service, casual dining restaurant brands under the names Joe’s Crab Shack, Brick House Tavern + Tap and Romano’s Macaroni Grill. As of July 1, 2013, we owned and operated 134 Joe’s Crab Shack restaurants, 16 Brick House Tavern + Tap restaurants and 186 Romano’s Macaroni Grill restaurants in 36 states within the United States, and franchised 24 Romano’s Macaroni Grill restaurants within the United States and foreign countries.

On April 9, 2013, we completed our acquisition of Romano’s Macaroni Grill (“Mac Grill”), which owns, operates and franchises Romano’s Macaroni Grill restaurants (the “Acquisition”). The restaurant operations are included in Mac Parent LLC (“Mac Parent”), a Delaware limited liability company, and its wholly owned subsidiaries. The transaction was organized such that we purchased approximately 83% of Mac Parent by acquiring the stock of two holding entities formerly owned by Golden Gate Capital and management. The remaining approximately 17% of the partnership interest of Mac Parent was purchased directly from other investors. See Note 3.

J.H. Whitney VI, L.P., an affiliate of J.H. Whitney Capital Partners, LLC, currently owns approximately 68% 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 consisting of normal recurring adjustments that are, in our opinion, necessary for a 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the Securities and Exchange Commission (“SEC”) on March 20, 2013. The December 31, 2012 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Ignite and its wholly-owned subsidiaries as of July 1, 2013, including the unaudited results of operations of Mac Grill for the period April 9, 2013 (the date of acquisition) to July 1, 2013. 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. Prior to fiscal year 2013, the first three quarters of our fiscal year consisted of 12 weeks and our fourth quarter consisted of 16 weeks for 52-week fiscal years and 17 weeks for 53-week fiscal years. Commencing in fiscal year 2013, we changed our quarterly accounting periods to be comprised of four equal 13-week periods, except for 53-week fiscal years for which the fourth quarter will be comprised of 14 weeks. See Note 2.

Goodwill and Other Intangible Assets

We recognize acquired intangible assets apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset or liability. Intangible assets subject to amortization are amortized on a straight-line basis over their estimated useful lives. We evaluate the recoverability of the carrying amount of intangible assets with definite useful lives whenever events and circumstances indicate that the carrying value of the asset may not be fully recoverable. Impairment losses are recognized if the carrying value of an intangible asset is not recoverable from expected future cash flows and its carrying amount exceeds its estimated fair value.

We recognize goodwill as the excess of the acquisition price over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for

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impairment on an annual basis and between annual tests whenever impairment is indicated. This annual test takes place in December of each year. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value.

Reclassification

We reclassified certain items in the prior period financial statements to conform to the current period financial statement presentation. The reclassifications had no effect on previously reported financial position, results of operations or cash flows.

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. This update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Our adoption of this update effective January 1, 2013 did not have a significant impact on our condensed consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which prescribes that an unrecognized tax benefit or a portion of an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar loss, or a tax credit carryforward, except in certain cases where the unrecognized tax benefit should be presented as a liability and should not be combined with deferred tax assets. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. This update should be applied prospectively to all unrecognized tax benefits that exist at the effective date, with retrospective application permitted. We do not believe that adoption of this update will have a significant impact on our condensed consolidated financial statements.

Note 2 — Change in Quarterly Accounting Periods

In the first quarter of fiscal year 2013, we changed our quarterly accounting periods from 12 weeks for the first three quarters and 16 weeks for the fourth quarter to all 13-week quarters, except for 53-week fiscal years where the fourth quarter changes from 17 weeks to 14 weeks. We believe that a reporting basis comprised of four equal 13-week quarters is a more typical reporting format comparable to most companies in the casual and family dining segment of the restaurant industry, and is easier to understand for our investors.

In addition, Mac Grill historically used four equal 13-week quarterly reporting periods. We believe that the Mac Grill quarterly reporting periods are more appropriate for the post-acquisition consolidated entity.  The financial results for the three and six months ended June 18, 2012 are reflected on a 12-week quarter basis because it was impracticable to recast on a 13-week quarter basis. The only financial information that we were able to recast on a 13-week basis was revenues. If we used our revised quarterly reporting period in the prior year, revenues would have been $132.9 million and $246.0 million during the thirteen weeks and twenty-six weeks ended July 2, 2012, respectively.

Note 3 — Acquisition

On April 9, 2013, we completed our acquisition of Mac Grill from Golden Gate Capital, management and other investors (collectively, the “Sellers”). The aggregate acquisition price paid at closing was approximately $60.8 million, consisting of $54.1 million paid directly to the Sellers and $6.7 million paid to other third parties related to outstanding indebtedness and transaction-related expenses of the Sellers. The final purchase price remains subject to additional working capital and post-closing adjustments. The acquisition includes 186 company-owned and twelve franchised restaurants across 36 states and Puerto Rico as well as twelve additional franchised units throughout nine foreign countries.  This acquisition expands our presence in the polished casual restaurant space.  We believe Mac Grill is an exceptional brand, with a high quality real estate portfolio which provides us with growth and asset optimization opportunities.

We have recognized the assets and liabilities of Mac Grill based on our estimates of their acquisition date fair values. Based on the preliminary allocation of the acquisition price prior to any working capital or post-closing adjustments, the amount of goodwill is estimated to be $11.7 million. Goodwill represents the excess of the acquisition price over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. Goodwill will not be amortized, but will be tested at least annually for impairment. Approximately $2.0 million of the recognized goodwill will be deductible for tax purposes. The following is our preliminary allocation of the acquisition price (in thousands):

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The allocation to acquired identifiable intangible assets is as follows (in thousands):

The trademarks and liquor licenses will not be amortized, but will be tested at least annually for impairment. The franchise agreements will be amortized on a straight-line basis over a weighted average amortization period of 16 years.

In connection with the Acquisition, we incurred acquisition-related expenses of $7.4 million, of which $2.2 million was capitalized as debt issuance costs (see Note 5). We expensed $5.2 million of acquisition-related costs during the twenty-six weeks ended July 1, 2013, of which $4.2 million was expensed in the thirteen weeks ended July 1, 2013. The expensed portion is included in general and administrative expenses in our condensed consolidated statements of operations.

Since the acquisition date, Mac Grill generated revenues of $86.0 million and a loss from operations of $5.8 million that are included in our condensed consolidated statements of operations for the thirteen and twenty-six weeks ended July 1, 2013. The loss from operations does not include acquisition-related expenses of $4.2 million, the incremental interest expense from the borrowings used to finance the Acquisition, or  any incremental general and administrative expenses incurred for corporate shared services that support the business.

The following table presents the unaudited pro forma combined results of operations of Ignite and Mac Grill as though the Acquisition occurred at the beginning of fiscal year 2012 (in thousands, except per share amounts):

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The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Acquisition had taken place at the beginning of fiscal year 2012. The unaudited pro forma financial information reflects all material, nonrecurring adjustments directly attributable to the Acquisition, including acquisition-related expenses, interest expense, and any related tax effects. The unaudited pro forma financial information also includes material, nonrecurring adjustments related to changes in recognized expenses caused by the fair value of assets acquired and liabilities assumed, such as changes in depreciation and amortization, rent expense, and any related tax effects. Pro forma net income (loss) and pro forma net income (loss) per share include nonrecurring management fees paid by Ignite, advisory fees paid by Mac Grill and fees related to the termination of our management agreement amounting to $46 thousand and $358 thousand during the thirteen and twenty-six weeks ended July 1, 2013, respectively, and $1.6 million and $2.2 million during the twelve and twenty-four weeks ended June 18, 2012, respectively. The management fees terminated in connection with our initial public offering (“IPO”) in May 2012, and the advisory fees terminated in connection with the Acquisition. Pro forma net income and pro forma net income per share for the twelve and twenty-four weeks ended June 18, 2012 also includes $1.8 million in nonrecurring IPO-related expenses. The pro forma adjustments reflect acquisition-related expenses incurred by us and Mac Grill of $4.2 million and $1.3 million, respectively, for the thirteen weeks ended July 1, 2013, and $5.2 million and $2.4 million, respectively, for the twenty-six weeks ended July 1, 2013 as if they were incurred as of the first day of fiscal year 2012.

The weighted average shares outstanding for the respective periods reflect the impact of the 6.4 million shares of our common stock issued during our IPO in May 2012.

Note 4 — Selected Balance Sheet Accounts

The components of other current assets are as follows (in thousands):

The components of intangible assets are as follows (in thousands):

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The components of accrued liabilities are as follows (in thousands):

Note 5 — Debt Obligations

Debt obligations consisted of the following (in thousands):

On October 29, 2012, we entered into a $100.0 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”), which included a letter of credit sub-facility of up to $10.0 million and a swing line sub-facility of up to $15.0 million, with a syndicate of commercial banks and other financial institutions.

The interest rate for borrowings under the Revolving Credit Facility was 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 were subject to adjustment based on our leverage ratio as determined on a quarterly basis. In addition, we were required to pay a commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee rate was 0.30% per annum, and was subject to adjustment thereafter on a quarterly basis based on our leverage ratio.

To finance the Acquisition, on April 9, 2013, we entered into an amendment to our Revolving Credit Facility (“New Revolving Credit Facility”), of which $10.0 million was drawn at closing, and added a $50.0 million term loan facility (the “Term Loan” and together with the New Revolving Credit Facility, the “New Credit Facility”). The initial interest rate for borrowings under the New Credit Facility will be at LIBOR plus a margin of 3.5%, or the base rate (as defined in the agreement) plus a margin of 2.5%, as we may elect. Thereafter, the applicable margins are subject to adjustment based on our maximum leverage ratio (as defined in the agreement), as determined on a quarterly basis, with the margins ranging from 1.25% to 4.25% on LIBOR-based loans, and from 0.25% to 3.25% on base rate-based loans. In addition, we are required to pay commitment fees on the unused portion of the New Revolving Credit Facility.  The commitment fee rate is 0.50% per annum, and is subject to adjustment thereafter on a quarterly basis based on our leverage ratio. The principal amount of the Term Loan is payable in consecutive quarterly installments, commencing on September 30, 2013, with the balance thereof payable in full on the fifth anniversary of the closing date.  Total payments of $1.3 million, $3.1 million, $3.8 million, $4.4 million and $5.0 million are due during fiscal 2013, 2014, 2015, 2016 and 2017, respectively, with the balance of $32.4 million due in 2018. The New Revolving Credit Facility will mature and all amounts outstanding thereunder will be due and payable on the fifth anniversary of the closing date. We wrote off $0.5 million of debt issuance costs in connection with our amendment to our Revolving Credit Facility. Additionally, the remaining $1.5 million of unamortized debt issuance costs relating to our Revolving Credit Facility were included as a component of other assets and are being amortized over the term of the amended facility.

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The New Credit 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. The New 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 or loans, merge or otherwise dispose of assets other than in the ordinary course of business, make acquisitions, and pay dividends or make other restricted payments. The New Credit Facility allows for (a) a maximum leverage ratio of (i) 5.50x through December 29, 2013, (ii) 5.25x from December 30, 2013 through June 29, 2014, (iii) 5.0x from June 30, 2014 through December 28, 2014 and (iv) 4.75x thereafter, and (b) a minimum fixed charge ratio of 1.35x through December 29, 2013 and 1.50x thereafter. We are in compliance with these financial covenants as of July 1, 2013.

The weighted average interest rate on the New Credit Facility at July 1, 2013 was 3.74%. As of July 1, 2013, we had outstanding letters of credit of approximately $5.6 million and available borrowing capacity of approximately $39.4 million under the New Revolving Credit Facility. Included in the current portion of debt obligations as of July 1, 2013 is a $10.0 million outstanding balance on the New Revolving Credit Facility, which we expect to pay within the next 12 months.

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, which is classified as a level 2 input within the fair value hierarchy.

Note 6 — Stock-Based Compensation

During the twenty-six weeks ended July 1, 2013, the board of directors granted 769 thousand stock appreciation rights (“SARs”) and 18 thousand shares of restricted stock, with a weighted average grant date fair value of $8.25 and $16.73 per share, respectively. As of July 1, 2013, we had unrecognized stock-based compensation expense of approximately $7.3 million related to stock-based compensation awards granted. That cost is expected to be recognized over a weighted average period of 3.6 years.

The following table provides the significant weighted average assumptions used to determine the fair value of SARs on the grant date using the Black-Scholes option-pricing model for awards granted during the twenty-six weeks ended July 1, 2013 and the twenty-four weeks ended June 18, 2013:

Since we do not have historical exercise experience on SARs, 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 and our current intention to not pay regular dividends in the foreseeable future. The risk-free interest 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. Restricted stock is valued using the closing stock price on the business day prior to the grant date.

On July 23, 2013, our stockholders approved an amendment to our 2012 Omnibus Incentive Plan (the “2012 Plan”) to increase the aggregate number of shares of common stock which may be issued under the 2012 Plan by 1,200,000 shares to 3,180,074 shares.

Note 7 — Net Income (Loss) per Share

Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period, while diluted net income (loss) 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 (loss) per share (in thousands):

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For the thirteen and twenty-six weeks ended July 1, 2013, we excluded 19 thousand shares of restricted stock and 1.2 million SARs from the calculation of diluted earnings per share because the effect was anti-dilutive due to the net loss for the respective periods.

Note 8 — Commitments and Contingencies

In the ordinary course of our business affairs and operations, we are subject to possible loss contingencies arising from third-party litigation and federal, state and local environmental, health and safety laws and regulations.

Minimum Lease Commitments

We lease our restaurants, office facilities and certain equipment under operating lease agreements with remaining terms ranging from 1 to 25 years. As of July 1, 2013, the future minimum rental commitments under these noncancelable operating leases, including those that we assumed in the Acquisition, are as follows (in thousands):

Litigation

We are a defendant or otherwise involved in a number of lawsuits in the ordinary course of business, including personal injury claims, contract claims, claims alleging violation of federal and state law regarding workplace and employment matters, discrimination and similar matters. When the potential liability can be estimated and the loss is considered probable, we record the estimated loss. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. We believe that the ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

On July 18, 2012, we announced our intention to restate our financial statements for the years ended December 28, 2009, January 3, 2011 and January 2, 2012 and the 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 initial public offering (“IPO”). The plaintiffs allege that all the defendants violated Section 11 of the Securities Act of 1933 (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 therein not misleading, and omitted to state material facts required to be stated therein. The plaintiffs seek unspecified compensatory damages and attorneys’ fees.

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We believe this lawsuit is without merit. We have filed a motion to dismiss the case and will continue to vigorously defend the lawsuit. However, we are unable to predict the outcome of this case and any future related cases.

Note 9 — Income Taxes

Our effective tax rate is generally the combined federal and state statutory rate reduced by the effect of tax credits primarily due to the tax benefit of FICA tax credits for employee reported tip income. The effective tax rate for the thirteen and twenty-six weeks ended July 1, 2013 was 44.4% and 78.3%, respectively. The effective tax rate for the twelve and twenty-four weeks ended June 18, 2012 was 20.7% and 22.0%, respectively. The increase in the effective tax rate is primarily due to the change in FICA tax credits added to the tax benefit on pre-tax losses for the current periods.

Note 10 — Segment Information

All of our restaurants compete in the full-service casual dining industry, providing in-restaurant, full service, casual dining food to our guests. Our brands also possess similar production methods, distribution methods, and economic characteristics, resulting in similar long-term expected financial performance characteristics. In connection with the acquisition of Mac Grill and considering the future growth plans of Brick House, we believe reporting information about each of our brands would be useful to readers of our financial statements. While Mac Grill is similar in size to Joe’s, it currently has significantly different operating performance than our other two brands.  We believe that providing this additional financial information for each of our brands will provide a better understanding of our overall operating results. Income (loss) from operations represents revenues less restaurant operating costs and expenses, directly allocable general and administrative expenses, and other restaurant-level expenses directly associated with each brand including depreciation and amortization, pre-opening costs, restaurant impairments and closures, and loss on disposal of property and equipment. Unallocated corporate expenses, capital expenditures, property and equipment, and goodwill and other intangibles assets are presented below as reconciling items to the amounts presented in the condensed consolidated financial statements.

The following tables present information about our reportable segments for the respective periods (in thousands):

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working capital and post-closing adjustments. The acquisition includes 186 company-owned and twelve franchised restaurants across 36 states and Puerto Rico as well as twelve additional franchised units throughout nine foreign countries.

We incurred approximately $7.4 million in acquisition-related costs. Approximately $2.2 million of these costs, related to debt issuance cost, was capitalized. The remaining acquisition-related costs, primarily related to legal, accounting and severance, were expensed as incurred. We expensed $5.2 million of acquisition-related costs during the twenty-six weeks ended July 1, 2013, of which $4.2 million was expensed in the thirteen weeks ended July 1, 2013. We expect to incur an additional $0.6 to $0.8 million in acquisition-related expenses for the remainder of the year.

Outlook

Our near term business strategy focuses on two primary elements: reviving the Mac Grill brand and continuing the growth of our legacy brands through new unit development.

Since the acquisition of Mac Grill in April 2013, we have implemented a comprehensive marketing program that includes national cable television advertising, social media communications and an updated and enhanced menu. In addition, we increased restaurant-level staffing by approximately 22% in order to deliver our expected level of guest services and to help increase revenues. While the Mac Grill business generated negative cash flows for the quarter, we believe these investments, along with continued marketing strategy and menu development evolution, will allow us to improve the operations of the Mac Grill brand and make it a positive contributor to our financial results.  However, there can be no assurance that the actual results will not differ materially from the outlook and assumptions set forth above.

As of August 7, 2013, we have opened seven restaurants in fiscal year 2013 comprised of five Joe’s Crab Shacks, one Joe’s Crab Shack converted from a Brick House and one Brick House converted from a Joe’s. For the remainder of the fiscal year, we expect to open as many as seven more restaurants, four of which will be new Joe’s Crab Shack restaurants, one new Brick House restaurant and converting as many as three existing restaurants to Brick House Tavern + Tap.

Results of Operations

With the change in our fiscal quarters, as noted above, the second quarter of 2013 represents 13 weeks of activity and the second quarter of 2012 represents only 12 weeks of activity.  As such, the two quarters are not comparable. We did not believe it was practicable to recast the prior year quarter to 13 weeks. The only financial information that we were able to recast on a 13-week basis was revenues. We also report restaurant operating weeks and change in comparable restaurant sales for the comparable 13-week period of fiscal year 2012. We believe it is impracticable to recast other financial information because we do not have weekly cutoff procedures that would allow us to distribute expenses or cash flows to the appropriate periods in order to report the prior year on a 13-week basis.

Thirteen Weeks Ended July 1, 2013 Compared to Twelve Weeks Ended June 18, 2012

The following table presents the condensed consolidated statement of operations for the thirteen weeks ended July 1, 2013 and twelve weeks ended June 18, 2012 (dollars in thousands).

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