<PAGE>   1
                                                                      EXHIBIT 13


                               ABOUT THE COMPANY

     Back Yard Burgers operates and franchises quick-service restaurants that
specialize in charbroiled, freshly prepared, great-tasting food. As our name
implies, Back Yard Burgers strives to offer the same high-quality ingredients
and special care typified by outdoor grilling in the back yard. Our menu
features made-to-order gourmet hamburgers and chicken sandwiches charbroiled
over an open flame, fresh salads, chili and other special entrees, as well as
hand-dipped milkshakes, fresh-made lemonade and fresh-baked cobblers.

     Our goal for 2001 is to continue to position Back Yard Burgers as a
favored regional premium fast-food restaurant chain. We intend to add more
restaurants to our family and further enhance our existing dine-in facilities.
We will strive to live our vision - "As a team, provide the ultimate restaurant
experience to our guests." We plan to continue to creatively communicate our
points of differentiation - charbroiled 1/3 pound 100% Black Angus beef
hamburgers, charbroiled chicken sandwiches and our unique "Back Yard" favorites.

                              FINANCIAL HIGHLIGHTS
               (in thousands, except per share amounts and units)

<TABLE>
<CAPTION>
                                        DECEMBER 30,    JANUARY 1,    JANUARY 2,
FOR THE YEAR ENDED:                         2000           2000         1999
<S>                                     <C>             <C>           <C>
Restaurant sales                          $26,182        $29,480     $ 25,082
Total revenues                             29,260         29,295       27,364
Net income (loss)                             466           (558)       1,171
Net income (loss) per share:
  Basic                                      0.10          (0.12)        0.26
  Diluted                                    0.10          (0.12)        0.25
Weighted average shares outstanding:
  Basic                                     4,632          4,609        4,533
  Diluted                                   4,653          4,609        4,654

System-wide sales                         $68,439        $65,119      $59,564
Units in operation:
  Company-owned                                35             35           33
  Franchised                                   58             51           48
                                          -------        -------      -------
  Total                                        93             86           81
                                          =======        =======      =======
</TABLE>


   Revenues                Operating Income*          Systemwide Same-Store
   ($000's)                     ($000's)                     Sales %**
  [BAR GRAPH]                 [BAR GRAPH]                   [BAR GRAPH]
1998    $27,364            1998      $1,274               1998      6.3 %
1999    $29,295            1999      $  968               1999      0.4 %
2000    $29,260            2000      $1,102               2000     (5.0)%


 * Excludes non-cash charge for impairment of long-lived assets of $1,362,000 in
   fiscal year 1999.
** Depicts percentage increase or decrease over previous year's same-store
   sales.
<PAGE>   2
To Our Shareholders:

Welcome to our Back Yard! We continue to solidify our position as a leading
regional "premium" fast food provider, and our company made significant progress
toward achieving our goals in 2000. The changes we made in 1999 began to show
steady, positive results in 2000. The quality of our team continues to improve
and they are extremely focused on our strategic plan. Our senior management team
continues to focus on building sales and profits. Michael Myers, our Chief
Operating Officer and recently elected President, continues his disciplined
approach to enhancing shareholder value. Even though the marketplace is crowded,
we believe we can compete successfully by serving our great tasting Back Yard
products. The switch to Black Angus beef for our company-operated stores
produced significant positive results in 2000. It is the "gold" standard of
beef. It demonstrates our commitment to "be the best." We implemented Black
Angus system-wide on March 1, 2001.

Our plan to position ourselves as the leader of "premium" fast food allows us to
exploit what makes Back Yard Burgers better than the rest. BETTER GREAT TASTING
PRODUCTS, HIGHER QUALITY INGREDIENTS, CHARBROIL COOKING AND SERVICE WITH A
CARING ATTITUDE.

The Memphis Zoo continues to be a tremendous venue to market our concept and
serve our products to a wide variety of guests. This "world class" facility has
enormous upside potential with the addition of the China Exhibit, expected to
open in early 2002. The probability of becoming home to a pair of Pandas for the
exhibit is solid, and traffic is expected to increase dramatically.

Our on-going strategies for success are as follows:

-        FRANCHISING - We will continue to actively promote expansion by
         awarding more franchise territories. We believe our strongest growth
         vehicle is through adding franchise locations. Many of our current
         dedicated franchise owners will be adding restaurants in 2001.

-        RESTAURANT OPERATIONS - We have virtually completed the conversion of
         our double drive-thru restaurants to traditional single drive-thru
         restaurants with dine-in facilities. Our future model will include the
         single drive-thru, dining room, and a focus on delivering a "hassle
         free" dining experience.

-        PRODUCTS - We will focus on making our great tasting products even
         better. We are the leader in taste and quality in the quick-service
         restaurant industry. We WILL NOT sacrifice quality for price.

-        MARKETING - Our award winning marketing programs will continue to
         creatively promote our points of differentiation emphasizing what makes
         us better than the rest. We believe our price/value relationship is
         extremely competitive.

I am very proud of our achievements in 2000, but I also realize we must continue
to successfully implement our strategies in order to take advantage of our
tremendous growth opportunities. Our team is committed, experienced, and
passionately working to build a successful restaurant company. The demographic
trends are favorable given the desire for more flavorful, higher quality dining
options. Our points of differentiation deliver a positive opportunity for our
company, our guests, and our shareholders. ENJOY!

Sincerely,

Lattimore M. Michael
Founder, Chairman, and CEO


<PAGE>   3

                           FORWARD-LOOKING INFORMATION

         Certain information included herein may contain statements that are
forward-looking, such as statements related to financial items and results,
plans for future expansion and other business development activities, capital
spending or financing sources, capital structure and the effects of regulation
and competition. Forward-looking statements made by the company are based upon
estimates, projections, beliefs and assumptions of management at the time of
such statements and should not be viewed as guarantees of future performance.
Such forward-looking information involves important risks and uncertainties that
could significantly impact anticipated results in the future and, accordingly,
such results may differ materially from those expressed in any forward-looking
statements by or on behalf of the company. These risks and uncertainties
include, but are not limited to, increased competition within the industry for
customers, qualified labor and desirable locations, increased costs for beef,
chicken or other food products and management decisions relating to restaurant
growth, financing, franchising and new product development, as well as items
described under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" below.

                      SELECTED CONSOLIDATED FINANCIAL DATA
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

         The selected consolidated financial data presented below for each of
the years in the five-year period ended December 30, 2000 was derived from the
company's audited Consolidated Financial Statements. The selected consolidated
financial data should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated
Financial Statements and Notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
                                                                                      YEARS ENDED
                                                        --------------------------------------------------------------------------
                                                        DECEMBER 30,  JANUARY 1,       JANUARY 2,      JANUARY 3,     DECEMBER 28,
                                                            2000         2000             1999            1998            1996
<S>                                                     <C>           <C>              <C>             <C>            <C>
OPERATIONS
Restaurant sales                                          $26,182      $26,480          $25,082         $24,150         $22,281
Total revenues                                             29,260       29,295           27,364          26,034          24,041
Income (loss) before income taxes                             728         (930)(1)          820             162(3)          357
Net income (loss)                                             466         (558)           1,171(2)          162             357

FINANCIAL POSITION
Total assets                                              $17,779      $18,340          $16,948         $13,155         $11,572
Property and equipment, net                                12,569       13,211           13,365           9,451           8,131
Debt                                                        5,403        6,178            5,458           3,081           2,159
Shareholders' equity                                        9,555        9,058            9,586           8,298           8,110

OTHER DATA
Systemwide sales                                          $68,439      $65,119          $59,564         $55,798         $49,515
Capital expenditures                                        1,063        2,679            4,983           2,758             863

PER SHARE DATA
Net income (loss) - basic                                 $  0.10      $ (0.12)         $  0.26         $  0.04         $  0.08
Net income (loss) - diluted                                  0.10        (0.12)            0.25            0.04            0.08
Dividends                                                    0.00         0.00             0.00            0.00            0.00
Market price at year end                                     0.66         1.50             1.94            3.00            2.06
</TABLE>

(1) The company incurred a non-cash charge for impairment of long lived assets
of $1,362,000 during fiscal year 1999.

(2) During 1998, the company released a valuation allowance of $351,000
established for deferred income tax benefits established during 1995. The
release of this valuation allowance was based on management's conclusion that
sufficient positive evidence, as defined by SFAS 109, existed regarding the
realization of certain tax carryforward items.

(3) The company incurred a non-cash charge for impairment of long lived assets
of $377,000 during fiscal year 1997.


                                       2
<PAGE>   4

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION
     The following discussion and analysis should be read in conjunction with
the company's consolidated financial statements and notes thereto, included
elsewhere in this annual report.
     The Back Yard Burgers system included 93 restaurants, of which 35 were
company-operated and 58 were franchised. The company's revenues are derived
primarily from company-operated restaurant sales, franchise and area development
fees and royalty fees. Certain expenses (cost of restaurant sales, restaurant
operating expenses, depreciation, amortization and advertising) relate directly
to company-operated restaurants, while general and administrative expenses
relate to both company-operated restaurants and franchise operations. The
company's revenues and expenses are affected by the number and timing of the
opening of additional restaurants. Sales for new restaurants in the period
immediately following their opening tend to be high because of trial by public
and promotional activities. As a result, the timing of openings can affect the
average volume and other period-to-period comparisons.

RESULTS OF OPERATIONS
     The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain items included in the company's
historical operations and operating data for the periods indicated.

<TABLE>
<CAPTION>
                                                                      FOR THE YEARS ENDED
                                                          ------------------------------------------
                                                          DECEMBER 30,     JANUARY 1,     JANUARY 2,
                                                             2000            2000            1999
<S>                                                       <C>              <C>            <C>
Revenues
 Restaurant sales                                            89.5%           90.4%           91.7%
 Franchise and area development fees                          0.7             0.5             0.5
 Royalty fees                                                 5.6             5.1             4.8
 Advertising fees                                             1.6             1.9             1.7
 Other operating revenue                                      2.6             2.1             1.3
    Total revenue                                           100.0%          100.0%          100.0%
</TABLE>

<TABLE>
<CAPTION>
                                                                      FOR THE YEARS ENDED
                                                          ------------------------------------------
                                                          DECEMBER 30,     JANUARY 1,     JANUARY 2,
                                                             2000            2000            1999
<S>                                                       <C>              <C>            <C>
Costs and Expenses
Cost of restaurant sales(1)                                  32.4%           33.8%           32.7%
Restaurant operating expenses(1)                             49.7            48.0            47.2
General and administrative                                   12.1            12.4            11.9
Advertising                                                   6.0             5.8             5.5
Depreciation and amortization                                 4.7             4.6             4.6
Impairment of long-lived assets                                --             4.6              --
Operating income                                              3.8            (1.3)            4.7
Interest income                                               0.1             0.1             0.1
Interest expense                                             (2.0)           (1.9)           (1.8)
Other, net                                                    0.6              --              --
Income before taxes                                           2.5            (3.2)            3.0
Income tax expense/(benefit) (2)                             36.0           (40.0)          (42.8)
Net Income                                                    1.6            (1.9)            4.3
</TABLE>

(1) As a percentage or restaurant sales.
(2) As a percentage of income before taxes.


                                       3
<PAGE>   5

<TABLE>
<CAPTION>
                                                                                  FOR THE YEARS ENDED
                                                                    -----------------------------------------------
                                                                    DECEMBER 30,       JANUARY 1,        JANUARY 2,
                                                                        2000              2000              1999
                                                                    ------------       ----------        ----------
<S>                                                                 <C>                <C>               <C>
OPERATING DATA
 Restaurant sales (000's)
  Company-operated                                                    $ 26,182          $ 26,480          $ 25,082
  Franchised                                                            42,257            38,639            34,482
                                                                      --------          --------          --------
   Total                                                              $ 68,439          $ 65,119          $ 59,564
                                                                      ========          ========          ========

AVERAGE ANNUAL SALES PER RESTAURANT OPEN
 for a full year(1)
 Company-operated                                                     $740,117          $769,000          $797,000
 Franchised                                                           $753,524          $779,000          $759,000
 System-wide                                                          $747,778          $775,000          $774,000

NUMBER OR RESTAURANTS(2)
 Company-operated                                                           35                35                33
 Franchised                                                                 58                51                48
  Total                                                                     93                86                81
                                                                      ========          ========          ========
</TABLE>

(1)      Includes sales for restaurants open for entire trailing twelve-month
         period. Restaurants are included in the calculation after the
         completion of six months of operations, as sales during the period
         immediately after opening tend to be higher due to promotions and trial
         by public.

(2)      Subsequent to December 30, 2000, five franchised restaurants were
         opened and three were closed.

COMPARISON OF FISCAL YEAR 2000
TO FISCAL YEAR 1999

     RESTAURANT SALES decreased 1.1% to $26,182,000 during 2000 compared with
$26,480,000 during 1999. This decrease is primarily the result of a decrease in
same-store sales at restaurants open for more than one year of 5.6%. The
decrease in same-store sales was partially offset by the acquisition of three
higher volume units and the sale of one and closing of two lower volume units.

      FRANCHISE AND AREA DEVELOPMENT FEES were $202,000 during 2000, an increase
of 53.0% from $132,000 in 1999. Ten new franchised restaurants were opened in
2000, compared to six new franchised units opened in 1999.

     ROYALTY FEES increased 9.9% to $1,658,000 during 2000 compared with
$1,508,000 during 1999. The increase is the result of an increase in franchised
sales upon which the fees are based. The increase in franchised restaurant sales
was due to a net unit growth of seven new franchised stores, offset by a
decrease of 4.5% in same-store sales for franchised units.

     ADVERTISING FEES decreased 17.8% to $467,000 for 2000 compared with
$568,000 during 1999. The decrease is primarily due to a change in the number of
franchisee direct mail program participants from forty in 1999 to twelve in
2000. Direct mail program fees represent a portion of the overall advertising
fees. This decrease was partially offset by the increase in franchised
restaurant sales, upon which the fees are based.

     OTHER REVENUES increased 23.7% to $751,000 for 2000 compared with $607,000
during 1999. The increase is due to increases in vendor rebates as well as
revenues generated from sub-contractor vending sales, which began in March of
1999.

     COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$8,476,000 during 2000 compared to $8,943,000 during 1999, decreasing to 32.4%
as a percentage of restaurant sales during 2000 from 33.8% for 1999. This
percentage decrease is partially the result of a decrease in coupons and
discounts. The decrease is also attributable to the testing of the company's new
100% Black Angus beef hamburgers that began in August of 2000, which resulted in
improved margins on hamburger sales.

     RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, increased to $13,007,000
for 2000 from $12,709,000 during 1999, increasing as a percentage of restaurant
sales to 49.7% from 48.0% in 1999. The increase is primarily due to a 2.1%
increase in labor as a percentage of sales over the year-earlier period due to
management's efforts to increase staffing at certain locations


                                       4
<PAGE>   6

to improve customer service and enhance the overall guest experience. The
remainder of the increase, due to increases in property taxes, was partially
offset by a decrease in repair and maintenance costs.

     GENERAL AND ADMINISTRATIVE COSTS decreased $88,000 to $3,531,000 during
2000 from $3,619,000 in 1999. The company incurred $165,000 in consulting
expenditures for a strategic study of system operations and facility design
during 1999, for which there are no comparable costs in 2000. The decrease was
partially offset by increased travel spending due to the opening of more new
franchised restaurants than the year-earlier period, and an increased effort to
support those openings as well as the existing franchisees through training and
marketing.

     ADVERTISING EXPENSE, which increased to $1,760,000 for 2000 from $1,701,000
during 1999, increased as a percentage of total revenues to 6.0% from 5.8%. This
is the result of an increase in company-operated local store advertising of 1.0%
beginning in the second quarter of 2000. This increase is partially offset by a
decrease in company-operated same-store sales of 5.6% for the year ended
December 30, 2000.

     INTEREST EXPENSE increased 4.9% to $594,000 for the year ended December 30,
2000 from $566,000 in the year-earlier period. While debt outstanding as of
December 30, 2000 was $5,403,000, which is 12.5% less debt than the $6,178,000
outstanding as of January 1, 2000, the company had approximately 6.0% more debt
outstanding during the first nine months of 2000 compared with the year-earlier
period.

     OTHER, NET was $186,000 for the year ended December 30, 2000. This is
primarily due to the recognition of $256,000 in net gains on the sale of assets
during fiscal year 2000. Also included in this category is other miscellaneous
income and expenses, including franchise tax expense. During 1999, gains on
asset sales and miscellaneous income were entirely offset by franchise tax
expense.

     INCOME TAX EXPENSE was $262,000 in 2000 compared with an income tax benefit
of $372,000 in 1999. The company earned $728,000 in pre-tax income during 2000,
resulting in the $262,000 income tax expense. The 1999 benefit was related to
the company's pre-tax loss of $930,000 after impairment charges of $1,362,000
taken during the year.

COMPARISON OF FISCAL YEAR 1999
TO FISCAL YEAR 1998

     RESTAURANT SALES increased 5.6% to $26,480,000 during 1999 compared to
$25,082,000 during 1998. This increase is primarily the result of an increase in
same-store sales at restaurants open for more than one year of 0.4%. The
increase in same-store sales, coupled with new stores not included in the
same-store sales calculation, accounted for approximately $2,024,000 in
additional sales. This increase was partially offset by the loss of sales from
two restaurants which were closed and one restaurant which was converted to a
franchised restaurant. Company management believes that the increases in
same-store sales are the results of improved customer service and the retrofit
of three double drive-thrus to dine-in facilities with single drive-thrus during
1999.

     FRANCHISE AND AREA DEVELOPMENT FEES were $132,000 during 1999, a decrease
of 7.0% from $142,000 in 1998. Six new franchised restaurants were opened in
1999, as compared to seven new franchised units opened in 1998.

     ROYALTY FEES increased 14.9% to $1,508,000 during 1999 compared to
$1,313,000 during 1998. The increase is due to an increase in franchised
restaurant sales upon which the fees are based. Comparable same-store sales at
franchised restaurants open for more than one year increased 2.0%, representing
an increase in royalty fees of approximately $26,000. The remaining increase is
due to the opening of six franchised restaurants, the conversion of one
company-operated restaurant to a franchised unit, offset by the closing of four
franchised restaurants during 1999.

     ADVERTISING FEES increased 18.8% to $568,000 for 1999 compared to $478,000
during 1998. The increase in advertising fees is related to the increase in
franchised restaurant sales as noted above, upon which the fees are based.

     OTHER REVENUES increased 73.9% to $607,000 for 1999 compared to $349,000
during 1998. The increase is due to increases in vendor rebates as well as
revenues generated from sub-contractor vending sales which began in March of
1999.

     COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$8,943,000 during 1999 compared to $8,206,000 during 1998, increasing to 33.8%
as a percentage of restaurant sales during 1999 from 32.7% for 1998. This
percentage increase is primarily the result of an increase in coupons and
discounts, increases in the cost of beef as well as an increase in waste,
consisting of prepared food items not sold due to product hold time requirements
of the company and spoilage. The coupon and discount program resulted in an
increase in cost of sales as a percentage of restaurant sales of 1.6%. These
increases were partially offset by minor decreases in the cost of certain
produce and dairy products.


                                       5
<PAGE>   7

     RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, increased to $12,709,000
for 1999 from $11,839,000 during 1998. The increase of $870,000 is due primarily
to operating expenses from a net increase of two new company
operated-restaurants since the prior year. As a percentage of restaurant sales,
restaurant operating expenses increased to 48.0% from 47.2% for 1998. Labor
costs as a percentage of sales increased by 0.4% over the year-earlier period.
The remainder of the increase was due to increases in repairs and maintenance
costs, increases in property taxes in the Memphis area, and other miscellaneous
operating costs incurred during the period.

     GENERAL AND ADMINISTRATIVE COSTS increased $358,000 to $3,619,000 during
1999 from $3,261,000 in 1998. This represents an increase as a percentage of
total revenue to 12.4% from 11.9% for 1998. $165,000 of the increase related to
consulting expenditures for a strategic study of system operations and facility
design. Preopening expenses also represented $82,000 of the increase. The
remaining increase is primarily the result of increased spending in the areas of
recruiting and training in efforts to attract quality employees as well as
continuing efforts to enhance customer service.

     ADVERTISING EXPENSE, which increased to $1,701,000 for 1999 from $1,513,000
during 1998, increased as a percentage of total revenues to 5.8% from 5.5%. This
is the result of an increase in the number of company-operated restaurants
creating the need for additional local advertising, as well as an increase in
advertising fees, as described above, which are used for the development and
production of marketing campaigns and collateral material.

     INTEREST EXPENSE increased 16.7% to $566,000 for 1999 from $485,000 in
1998. This is due to a net increase in long-term debt of $720,000, or 13.2%,
during 1999. The borrowings from this increase in long-term debt were used to
add new restaurants and retrofit existing restaurants to include dine-in
facilities.

     INCOME TAX BENEFIT was $372,000 in 1999 compared with $351,000 in 1998. The
1999 benefit was related to the company's pre-tax loss of $930,000 after
impairment charges of $1,362,000 taken during the year. During 1998, the company
released a valuation allowance of $351,000 established for deferred income tax
benefits established during 1995. The release of this valuation allowance was
based on management's conclusion that sufficient positive evidence, as defined
by SFAS 109, existed regarding the realization of certain tax carryforward
items.

IMPAIRMENT OF LONG-LIVED ASSETS
     At each balance sheet date, the company assesses whether there has been an
impairment in the value of all long-lived assets (including intangibles) by
determining whether projected undiscounted future cash flows from operations for
each restaurant, as defined in Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To be Disposed Of, exceed its net book value as of the
assessment date. A new cost basis is established for impaired assets based on
the fair value of these assets as of the date the assets are determined to be
impaired.
     In the past, the company incurred non-cash charges for the effect of
company-operated restaurant closings and impaired assets at company-operated
restaurants. Also, related accruals for future lease payments of closed stores,
net of estimated sub-lease income, were previously recorded.
     Lease payments of $49,000 in 2000 and $29,000 in 1999 were incurred for
these closed stores and charged against this reserve. Also, $175,000 of the
reserve was reversed during 2000 as a result of the transfer or subleasing of
two of the properties and the sale of related assets at those properties for
which the reserve was established. The resultant gain on these transactions was
approximately $181,000. As of December 30, 2000, the company's remaining accrual
for future lease obligations was $46,000, net of estimated sub-lease income.

LIQUIDITY AND CAPITAL RESOURCES
     During fiscal year 2000, the company acquired three franchised restaurants
and financed a portion of the acquisition with a $600,000 short-term note. The
company funded the total capital additions for fiscal year 2000 of $1.1 million,
which included a portion of the cost of the acquired stores, new equipment for
existing restaurants, and other capital expenditures from cash generated by
operating activities. The company also paid approximately $1.4 million in
principal debt payments during the year, funded by a combination of the use of
cash on hand, cash generated by operating activities as well as $565,000 in
proceeds on the sale of assets by the company during the year.
     As of December 30, 2000, the company's total cash balance of $1.0 million
reflected the impact of the cash generated from operating activities, borrowing
activity, and capital expenditures mentioned above.
     The company entered an agreement with a bank in November of 2000 which
provides the company with a $750,000 line of credit expiring in April of 2002.
The company will use the line of credit for short-term financing of newly
constructed restaurants, retrofit of existing restaurants, and for other general
corporate purposes. As of December 30, 2000, the company had no outstanding
borrowings under the line of credit.


                                       6
<PAGE>   8

     On January 2, 2001, the company's board of directors adopted a stock
repurchase plan that allows the company to repurchase up to 500,000 shares of
its outstanding common stock. The company expects to finance the cost to
repurchase shares under the stock buyback program with existing cash on hand as
well as internally generated funds.
     The company plans capital expenditures of approximately $2 million in
fiscal year 2001, excluding potential acquisitions and share repurchases. These
capital expenditures primarily relate to the development of additional
company-operated restaurants, store equipment upgrades, and enhancements to
existing financial and operating information systems, including enhancements to
our point-of-sale system. The company expects to fund these capital expenditures
through borrowings under its existing line of credit and cash flow from
operations. The company believes that existing cash and funds generated from
internal operations, as well as borrowings under the line of credit, will meet
the company's needs for the foreseeable future.

QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
     The company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates on variable rate debt and the
repricing of fixed rate debt at maturity. Management monitors interest rate
fluctuations as an integral part of the company's overall risk management
program, which recognizes the unpredictability of financial markets and seeks to
reduce the potential adverse effect of our results. The effect of interest rate
fluctuations historically has been small relative to other factors affecting
operating results, such as food, labor and occupancy costs.
     Less than 25% of the company's debt portfolio as of December 30, 2000, had
variable rates or had maturity dates of less than two years. With every 25 basis
point increase in interest rates, the company could be subject to additional
interest expense of approximately $4,000 annually, depending on the timing of
the rate changes and debt maturities.
     The company has considered the use of hedging instruments to minimize
interest rate fluctuation risk, but based on the debt portfolio structure
described above, no hedging program has been deemed necessary for the company at
this time.

SEASONALITY AND INFLATION
     While the company does not believe that seasonality affects its operations
in a materially adverse manner, first quarter results will generally be lower
than other quarters due to seasonal climate conditions in the locations of many
of its restaurants. Management does not believe that inflation has had a
material effect on income during 2000. Increases in food, labor or other
operating costs could adversely affect the company's operations. In the past,
however, the company generally has been able to increase menu prices or modify
its operating procedures to substantially offset increases in its operating
costs.

CONVERSION OF PREFERRED STOCK
     In accordance with the provisions of the company's Restated Certificate of
Incorporation regarding preferred stock, as a result of the company's having
attained after-tax net income in excess of $600,000 during 1994, each share of
preferred stock is convertible into one share of common stock, at the option of
the holder. The company has notified preferred stockholders of their right to
convert preferred stock to common stock and anticipates that all shares of
preferred stock will be converted. Such conversion began on April 5, 1995, at
which time there were 1,199,979 shares of preferred stock outstanding. As of
December 30, 2000, only 19,763 shares have yet to be converted.

KNOWN TRENDS AND UNCERTAINTIES
     Labor will continue to be a critical factor in the foreseeable future. In
most areas where the company operates restaurants, there is a shortage of
suitable labor. This, in itself, could result in higher wages as the competition
for employees intensifies, not only in the restaurant industry, but in
practically all retail and service industries. It is crucial for the company to
develop and maintain programs to attract and retain quality employees.
      During 2000, the price of beef, the largest single component of the cost
of restaurant sales was relatively stable, although there were minor price
adjustments throughout the year. Management of the company expects beef prices
to potentially increase in the long term and that it could be difficult to raise
menu prices to fully cover these anticipated increases due to the competitive
state of the quick-service restaurant industry. Additional margin improvements
would have to be made through operational improvements, equipment advances and
increased volumes to help offset these potential increases.
     Due to the competitive nature of the restaurant industry, site selection
continues to be challenging as the number of businesses vying for locations with
similar characteristics increases. This will likely result in higher occupancy
costs for prime locations.
     Company-operated same-store sales decreased 5.6% during 2000 compared with
a 0.4% increase in 1999. Management attributes this decline to a strategic
change during the last half of 1999 of removing the company from fast-food
"discount wars" and to further position the company as a premium fast-food
chain. Although the company sacrificed a portion of its customer base and sales
as a result, the change yielded improvements in margins and overall
profitability. In additional efforts of enhancing product quality, the company
introduced 100% Black Angus beef products in all of its company-operated stores
during the fourth quarter of 2000. Same-store sales through the first three
quarters of 2000 deceased 7.1%; however, subsequent to the introduction of
Black Angus beef in company-operated stores, same-store sales trends improved
to a decrease of 1.1% for the fourth quarter. Management will continue its
strategy of further positioning the company as a premium fast-food chain in
2001.
     The future success of the company will be determined, to a great extent, by
the ability to positively address these issues.


                                       7
<PAGE>   9

BACK YARD BURGERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                               DECEMBER 30,         JANUARY
                                  ASSETS                                          2000               2000

<S>                                                                            <C>                 <C>
Cash and cash equivalents                                                       $  1,041           $  1,697
Receivables, less allowance for doubtful accounts of
 $218 ($103 in 1999)                                                                 402                284
Inventories                                                                          208                177
Current deferred tax asset                                                           140                 65
Prepaid expenses and other current assets                                             58                 79
                                                                                --------           --------
  Total current assets                                                             1,849              2,302
Property and equipment, at depreciated cost                                       12,569             13,211
Intangible assets                                                                  1,901              1,204
Noncurrent deferred tax asset                                                        824              1,020
Notes receivable                                                                     359                350
Other assets                                                                         277                253
                                                                                --------           --------
                                                                                $ 17,779           $ 18,340
                                                                                ========           ========
                   LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable                                                                $    775           $    744
Accrued expenses                                                                     987                901
Reserve for closed stores                                                             46                270
Income taxes payable                                                                  29                 89
Current installments of long-term debt                                               747                489
                                                                                --------           --------
  Total current liabilities                                                        2,584              2,493
Long-term debt, less current installments                                          4,656              5,689
Deferred franchise and area development fees                                         459                392
Other deferred income                                                                457                633
Other deferred liabilities                                                            68                 75
                                                                                --------           --------
  Total liabilities                                                                8,224              9,282
                                                                                --------           --------
Commitments and contingencies (Note 13)

Stockholders' equity
 Preferred stock, $.01 par value; 2,000,000 shares authorized;
 19,763 shares issued and outstanding (19,763 in 1999)                              --                 --
 Common stock, $.01 par value; 12,000,000 shares authorized;
 4,646,103 shares issued and outstanding (4,618,377 in 1999)                          47                 46
 Paid-in capital                                                                  10,158             10,128
 Deficit                                                                            (650)            (1,116)
  Total stockholders' equity                                                       9,555              9,058
  Total liabilities and stockholders' equity                                    $ 17,779           $ 18,340
                                                                                ========           ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       8
<PAGE>   10

BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                      YEARS ENDED
                                                                    -----------------------------------------------
                                                                    DECEMBER 30,       JANUARY 1,        JANUARY 2,
                                                                        2000              2000               1999
                                                                    ------------       ----------        ----------
<S>                                                                 <C>                <C>               <C>
Revenues:
 Restaurant sales                                                     $ 26,182          $ 26,480          $ 25,082
 Franchise and area development fees                                       202               132               142
 Royalty fees                                                            1,658             1,508             1,313
 Advertising fees                                                          467               568               478
 Other                                                                     751               607               349
                                                                      --------          --------          --------
  Total revenues                                                        29,260            29,295            27,364
                                                                      --------          --------          --------

Expenses:
 Cost of restaurant sales                                                8,476             8,943             8,206
 Restaurant operating expenses                                          13,007            12,709            11,839
 General and administrative                                              3,531             3,619             3,261
 Advertising                                                             1,760             1,701             1,513
 Depreciation and amortization                                           1,384             1,355             1,271
 Impairment of long-lived assets                                          --               1,362              --
                                                                      --------          --------          --------
  Total expenses                                                        28,158            29,689            26,090
                                                                      --------          --------          --------
  Operating income (loss)                                                1,102              (394)            1,274

Interest income                                                             34                30                24
Interest expense                                                          (594)             (566)             (485)
Other, net                                                                 186              --                   7
                                                                      --------          --------          --------
  Income before income taxes                                               728              (930)              820

Income tax benefit/(expense)                                              (262)              372               351
                                                                      --------          --------          --------
Net income (loss)                                                     $    466          $   (558)         $  1,171
                                                                      ========          ========          ========

Income per share:
 Basic                                                                $    .10          $   (.12)         $    .26
                                                                      ========          ========          ========
 Diluted                                                              $    .10          $   (.12)         $    .25
                                                                      ========          ========          ========

Weighted average number of common shares and
 common equivalent shares outstanding:
 Basic                                                                   4,632             4,609             4,533
                                                                      ========          ========          ========
 Diluted                                                                 4,653             4,609             4,654
                                                                      ========          ========          ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       9
<PAGE>   11

BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                          PREFERRED STOCK                COMMON STOCK
                                      ----------------------        ---------------------     PAID-IN      RETAINED
                                       SHARES         AMOUNT         SHARES        AMOUNT     CAPITAL       DEFICIT         TOTAL
                                      --------        ------        ---------      ------     -------       -------         -----
<S>                                   <C>             <C>           <C>            <C>        <C>           <C>             <C>
Balance at January 3, 1998             289,600            3         4,276,723        42         9,982        (1,729)        8,298

Conversion of preferred stock         (266,477)          (3)          266,477         3
Exercise of stock options                                              40,071         1            88                          89
Employee stock purchases                                               13,200        --            28                          28
Net income                                                                                                    1,171         1,171
                                      --------         ----         ---------        --        ------        ------         -----
Balance at January 2, 1999              23,123           --         4,596,471        46        10,098          (558)        9,586

Conversion of preferred stock           (3,360)          --             3,360        --                                        --
Employee stock purchases                                               18,546        --            30                          30
Net loss                                                                                                       (558)         (558)
                                      --------         ----         ---------        --        ------        ------         -----
Balance at January 1, 2000              19,763           --         4,618,377        46        10,128        (1,116)        9,058

Employee stock purchases                                               27,726         1            30                          31
Net income                                                                                                      466           466
                                      --------         ----         ---------        --        ------        ------         -----
Balance at December 30, 2000            19,763           --         4,646,103        47        10,158          (650)        9,555
                                      ========           ==         =========        =-        ======        ======         =====
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       10
<PAGE>   12

BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                 YEARS ENDED
                                                                              -----------------------------------------------
                                                                              DECEMBER 30,       JANUARY 1,        JANUARY 2,
                                                                                  2000              2000              1999
                                                                              ------------       ----------        ----------
<S>                                                                           <C>                <C>                <C>
Cash flows from operating activities:
 Net income (loss)                                                              $   466           $  (558)          $ 1,171
 Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization of property and equipment                         1,245             1,251             1,063
  Impairment of long-lived assets                                                    --             1,362                --
  Deferred income taxes                                                             121              (529)             (556)
  Amortization of intangible assets                                                 139               104               112
  Amortization/write off of preopening costs                                         --                --                95
  Provision for losses on receivables                                               147               154               216
  Gain on sale of assets                                                           (256)               (2)              (42)
  Other deferred income                                                            (176)              633                --
  (Increase) decrease in assets:
  Receivables                                                                      (289)             (199)              (62)
  Inventories                                                                       (44)               16               (26)
  Prepaid expenses and other current assets                                          21                17              (118)
  Other assets                                                                      (31)               (3)               (3)
  Increase (decrease) in liabilities:
  Accounts payable and accrued expenses                                             121               250               (71)
  Reserve for closed stores                                                         (49)              (29)              (51)
  Income taxes payable                                                              (60)             (116)              205
  Other deferred liabilities                                                         (7)               14                 6
  Deferred franchise and area development fees                                       67               138                39
                                                                                -------           -------           -------
   Net cash provided by operating activities                                      1,415             2,503             1,978
                                                                                -------           -------           -------
Cash flows from investing activities:
 Additions to property and equipment                                             (1,063)           (2,679)           (4,983)
 Proceeds from sale of property and equipment                                       565               274                48
 Goodwill acquisition cost                                                         (229)               --                --
 Proceeds on notes receivable                                                        --                34                --
 Investment in joint ventures                                                        --                --               (50)
                                                                                -------           -------           -------
   Net cash used in investing activities                                           (727)           (2,371)           (4,985)
                                                                                -------           -------           -------
Cash flows from financing activities:
 Issuance of stock                                                                   31                30                28
 Principal payments on long-term debt                                            (1,375)             (498)             (543)
 Proceeds from issuance of long-term debt                                            --             1,218             2,920
 Proceeds from exercise of stock options                                             --                --                89
                                                                                -------           -------           -------
   Net cash provided (used) by financing activities                              (1,344)              750             2,494
                                                                                -------           -------           -------
   Net increase (decrease) in cash and cash equivalents                            (656)              882              (513)
Cash and cash equivalents:
 Beginning of year                                                                1,697               815             1,328
                                                                                -------           -------           -------
 End of year                                                                    $ 1,041           $ 1,697           $   815
                                                                                =======           =======           =======

Supplemental disclosure of cash flow information:
 Income taxes paid                                                              $   201           $    273          $    --
                                                                                =======           =======           =======
 Interest paid                                                                  $   577           $    566          $   462
                                                                                =======           =======           =======
Noncash investing and financing activities
 Property and equipment sold for a note receivable                              $   119           $    --           $    --
                                                                                =======           =======           =======
 Goodwill acquired with note payable                                            $   600           $    --           $    --
                                                                                =======           =======           =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       11
<PAGE>   13

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS ACTIVITY. Back Yard Burgers, Inc. (the "Company") owns and operates
quick-service and fast-casual restaurants and is engaged in the sale of
franchises in Back Yard Burgers and the collection of royalties based upon
related franchise sales. The Company grants franchise rights for the use of
"Back Yard Burgers," "BYB" or "BY Burgers" trade names and other associated
trademarks, signs, emblems, logos, slogans and service marks which have been or
may be developed. At December 30, 2000, the Company operated 35 restaurants in
three states (Mississippi, Arkansas and Tennessee) and franchised 58 restaurants
in 16 states.

CONSOLIDATION POLICY. The financial statements include the accounts of Back Yard
Burgers, Inc. and its wholly owned subsidiaries, Little Rock Back Yard Burgers,
Inc., BYB Properties, Inc. and Atlanta Burgers BYB Corporation, as well as Back
Yard Burgers National Advertising Fund. All significant intercompany
transactions have been eliminated.

FISCAL YEAR. The Company maintains its financial records on a 52-53 week fiscal
year ending on the Saturday closest to December 31. The years ended December 30,
2000, January 1, 2000 and January 2, 1999 were all 52 week years.

USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS. The Company considers cash on hand, deposits in banks
and short-term investments with an original maturity of less than three months
when purchased as cash and cash equivalents.

INVENTORIES. Inventories primarily consist of food and beverage products and are
valued at the lower of cost or market; cost is determined by the first-in,
first-out ("FIFO") method.

INCOME TAXES. Deferred income taxes are provided for the tax effects of
temporary differences between the financial reporting basis and the income tax
basis of the Company's assets and liabilities.

OTHER DEFERRED INCOME. During 1999, the Company received $800,750 from certain
vendors relating to future purchases by the Company. The Company deferred this
amount as other deferred income. These funds are recorded as income in a
proportionate manner with respective future purchases. Under the terms of signed
contracts, the Company is required to purchase specific volumes in future years.
If these purchase volumes are not met, the funds related to the volume shortages
will be refunded to the vendors.

FRANCHISE AND AREA DEVELOPMENT FEE INCOME. Franchise fees are recognized as
revenue when substantially all of the initial services required of the Company
have been performed, which generally coincides with the opening of the
franchises. Such services include training and assistance with site location,
equipment vendors, structural design and operation policies. Area development
fees arise when franchisees are awarded the right to develop, own and operate
additional Back Yard Burgers restaurants in specific geographical areas pursuant
to the terms of an Area Development Agreement. Such fees are based on the number
of restaurants the franchisee expects to develop. These fees are included as
revenue in accordance with the franchise fee recognition policy as each
additional restaurant is opened.

Under the terms of the franchise and area development agreements, the fees are
non-refundable and may be recognized as revenue should the franchisee fail to
perform as agreed. Commission costs associated with the sales of franchise and
area development rights are expensed when related revenues are recognized.

ROYALTY AND ADVERTISING FEE INCOME. As part of its franchise agreements, the
Company receives a percentage of each unit's gross sales (generally 4%). The
franchise agreements also provide that franchisees are required to pay an
additional 1% of gross sales to the National Advertising Fund (see Note 10).
These fees are recorded on the accrual basis of accounting.


                                       12
<PAGE>   14

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

RESTAURANT OPERATING EXPENSES. Restaurant operating expenses include all costs
associated with the operation of the restaurant except corporate overhead,
advertising, depreciation and amortization.

PROPERTY AND EQUIPMENT. Property and equipment is recorded at cost. Depreciation
is computed using the straight-line method over the estimated useful lives of
the respective assets. Leasehold costs and improvements are amortized over the
lesser of their estimated useful lives or the remaining lease term. The average
depreciable lives are as follows: buildings and building and site improvements -
15 to 25 years; fixtures and equipment - 3 to 7 years; and transportation
vehicles - 3 to 5 years.

PREOPENING COSTS. Effective October 4, 1998, the Company recorded a charge of
approximately $11,000 to reflect the decision to write off all existing
preopening costs and to thereafter expense such costs as incurred. The Company
did not separately state this change as a cumulative effect of a change in
accounting principle due to the immaterial effect of the change. Previously, the
Company capitalized certain operating costs incurred prior to the opening of a
new restaurant and amortized such costs over a one-year period.

ADVERTISING COSTS. Advertising costs, including production costs, are charged to
expense as incurred on the first date of the advertising period.

INTANGIBLE ASSETS. Intangible assets consist of the excess of the cost of
acquired companies and assets over the values assigned to net tangible assets.
These intangibles are being amortized by the straight-line method over an 18
year period. Accumulated amortization totaled $941,000 at December 30, 2000 and
$809,000 at January 1, 2000.

IMPAIRMENT OF LONG-LIVED ASSETS. At each balance sheet date, the Company
assesses whether there has been an impairment in the value of all long-lived
assets (including intangibles) by determining whether projected undiscounted
future cash flows from operations for each restaurant, as defined in Statement
of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
exceed its net book value as of the assessment date. A new cost basis is
established for impaired assets based on the fair value of these assets as of
the date the assets are determined to be impaired.

During the fourth quarter of 1999, the company incurred a non-cash charge for
the effect of three company-operated restaurant closings and impaired assets at
three underperforming company-operated restaurants. While some of the fixed
assets at the locations were utilized by other stores, certain assets were fixed
to the site and were unrecoverable. Based on an analysis of projected
undiscounted cash flows for these locations, the company determined in 1999 that
the carrying value of certain long-lived assets necessitated a write-down. The
Company recorded a charge to write these assets down to their fair value in the
amount of $1,114,000 and a related accrual for future lease payments net of
estimated sub-lease income of $248,000 was recorded.

Lease payments of $49,000 in 2000 and $29,000 in 1999 were incurred for these
closed stores and charged against this reserve. Also, $175,000 of the reserve
was reversed during 2000 as a result of the transfer or subleasing of two of the
properties and the sale of related assets at those properties for which the
reserve was established. The resultant gain on these transactions was
approximately $181,000. As of December 30, 2000, the company's remaining accrual
for future lease obligations was $46,000, net of estimated sub-lease income.

PREFERRED STOCK. In accordance with the provisions of the Company's Restated
Certificate of Incorporation regarding preferred stock, each share of preferred
stock is convertible into one share of common stock, at the option of the
holder. As of December 30, 2000, all but 19,763 shares of preferred stock had
been converted to common stock.

EARNINGS PER SHARE. The Company calculates earnings per share in accordance with
Statement of Financial Accounting Standards No. 128, Earnings per Share, which
requires the presentation of basic and diluted earnings per share. Basic
earnings per share excludes dilution and is computed by dividing income
available to common


                                       13
<PAGE>   15

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity (Note 12).

FAIR VALUE OF FINANCIAL INSTRUMENTS. At December 30, 2000, the Company did not
have outstanding any financial derivative instruments. The carrying amounts of
cash and receivables approximate fair value because of the short maturity of
those instruments. The fair value of the Company's long-term debt is estimated
based on the current borrowing rates available to the Company for bank loans
with similar terms and average maturities. At December 30, 2000, the fair value
was approximately $5,443,000.

NOTE 2 - ACCOUNTS RECEIVABLE

Corporate receivables and National Advertising Fund receivables represent
amounts due from franchisees for contractual obligations and for product
purchases. A summary of accounts receivable follows:


<TABLE>
<CAPTION>
                                                         DECEMBER 30,        JANUARY 1,
                                                             2000               2000
                                                         ------------        ----------
                                                                  (in thousands)
<S>                                                      <C>                 <C>
Corporate receivables                                       $ 303              $ 171
National Advertising Fund receivables                         163                 91
Other                                                         154                125
                                                            -----              -----
                                                              620                387
Allowance for doubtful receivables                           (218)              (103)
                                                            -----              -----
                                                            $ 402              $ 284
                                                            =====              =====
</TABLE>

NOTE 3 - PROPERTY AND EQUIPMENT
Summaries of property and equipment follow:

<TABLE>
<CAPTION>
                                                          DECEMBER 30,        JANUARY 1,
                                                              2000               2000
                                                          ------------        ----------
                                                                   (in thousands)
<S>                                                       <C>                 <C>
Land                                                        $  3,452           $  3,452
Buildings                                                      6,552              6,626
Building and site improvements                                 2,926              2,954
Fixtures and equipment                                         6,026              5,620
Transportation Vehicles                                          229                244
                                                            --------           --------
                                                              19,185             18,896
Accumulated depreciation and amortization                     (6,616)            (5,685)
                                                            --------           --------
                                                            $ 12,569           $ 13,211
                                                            ========           ========
</TABLE>


                                       14
<PAGE>   16

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 4 - INVESTMENT IN JOINT VENTURES

The Company has invested a total of $200,000 for 23%-25% interests in four joint
ventures for the purpose of operating Back Yard Burgers restaurants. Two of the
joint ventures purchased the building and land from the Company. No gain or loss
was recorded by the Company in connection with these sales. Two joint ventures
purchased land from a third party and built a building. The Company then entered
into a long-term lease with each joint venture. Three of the leases are
accounted for as financing leases and the fixed assets are recorded on the
Company's balance sheet along with the present value of the future lease
commitments. The remaining lease is accounted for as an operating lease. The
Company has guaranteed 23%-25% of the long-term debt obtained by the joint
ventures to finance the construction of the restaurants. At December 30, 2000,
$299,000 of such debt is guaranteed by the Company.

Each of the above investments is recorded at cost as there is no material
difference between the cost and equity method of accounting for any of these
investments.

NOTE 5 - DEFERRED FRANCHISE AND AREA DEVELOPMENT FEES

At December 30, 2000, deferred fees received for certain franchise and area
development rights, net of commissions paid, include amounts sold during the
following years (in thousands):


<TABLE>
         <S>                                                     <C>
         2000                                                    $239
         Previous years                                           220
                                                                 ----
                                                                 $459
                                                                 ----
</TABLE>

NOTE 6 - INDEBTEDNESS

Long-term debt is collateralized by property and equipment with a net book value
aggregating $7,206,000 and a portion guaranteed by the personal endorsements of
certain stockholders. The balances consist of the following:

<TABLE>
<CAPTION>
                                                                                                  DECEMBER 30,        JANUARY 1,
                                                                                                      2000               2000
                                                                                                  ------------        ----------
                                                                                                           (in thousands)
<S>                                                                                               <C>                 <C>
Notes payable to financial institutions, payable in monthly installments
 ranging from $3,250 to $9,788, including interest ranging from 8.3% to 9.6%                        $  2,926           $  3,648
Note payable to franchisee related to 2000 acquisition, payable
 in quarterly installments of $150,000 plus interest of prime plus 1.0%                                  300               --
Financing lease transactions to Lester's Back Yard Burgers Joint Venture I, II and IV
 (See Note 4), payable in monthly installments ranging from $5,450 to $7,900
 and effective interest rates ranging from 12.0% to 12.5%                                              1,376              1,434
Financing lease with Amplican Financial                                                                 --                  165
Notes payable to a leasing company, payable in monthly installments ranging
 from $1,122 to $5,643 including interest of 14.1%                                                       801                931
                                                                                                    --------           --------
                                                                                                       5,403              6,178
Less current installments                                                                               (747)              (489)
                                                                                                    --------           --------
  Total                                                                                             $  4,656           $  5,689
                                                                                                    ========           ========
</TABLE>

The principal maturities of all long-term debt subsequent to 2000 are as
follows: $747,000 in 2001, $699,000 in 2002, $851,000 in 2003, $1,806,000 in
2004, $150,000 in 2005 and $1,150,000 thereafter.


                                       15
<PAGE>   17

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Certain of the Company's indebtedness contains various affirmative and negative
covenants including requiring the Company to maintain certain financial ratios
and levels of minimum net worth. The Company did not meet certain of its
covenant requirements for the year ending December 30, 2000. Waivers have been
obtained from the bank.

The Company has a line of credit with a financial institution for $750,000. The
line of credit is collateralized by real property. There were no borrowings
outstanding under the agreement at December 30, 2000 and January 1, 2000.

On October 4, 1996, the Company received a commitment (the "Commitment") from a
leasing company for a loan transaction. The Commitment provides the Company with
up to $2,000,000 and bears interest of approximately 14.1%. The Commitment is
secured by certain real and personal property to be constructed and/or acquired
with the commitment proceeds. As of December 30, 2000, borrowings outstanding
under the commitment are $801,000, and $876,000 is available under the note
payable.

NOTE 7 - OPERATING LEASES

Operating leases relate to leased land sites for company-operated restaurants
and office space for corporate operations. All leases contain renewal options.
The future minimum rental payments under operating lease agreements as of
December 30, 2000, are as follows (in thousands):



<TABLE>
         <S>                                                    <C>
         2001                                                   $1,305
         2002                                                    1,174
         2003                                                    1,010
         2004                                                      828
         2005                                                      743
         Thereafter                                              2,689
                                                                ------
                                                                $7,749
                                                                ======
</TABLE>

Rent expense was $1,202,000, $1,128,000 and $1,058,000 in 2000, 1999 and 1998,
respectively.

NOTE 8 - RELATED PARTY TRANSACTIONS

On October 3, 1999, the Company sold a company-operated restaurant, along with
future development rights for a specified area contiguous to the restaurant, to
a former officer of the company and a current member of the board of directors
of the Company. The restaurant was sold at book value and will continue to be
operated as a franchised restaurant.


                                       16
<PAGE>   18

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 9 - INCOME TAXES

Income tax expense for the following tax years is comprised of:

<TABLE>
<CAPTION>
                                        2000            1999            1998
                                       AMOUNT          AMOUNT          AMOUNT
                                       ------          ------          ------
<S>                                    <C>             <C>             <C>
Federal, Current                        $ 141           $ 157           $ 205
Federal, Deferred                         121            (529)           (556)
State, Current                             --              --              --
State, Deferred                            --              --              --
                                        $ 262           $(372)          $(351)
                                        =====           =====           =====
</TABLE>

Deferred income taxes are provided in recognition of temporary differences in
reporting certain revenues and expenses for financial statement and income tax
purposes.

The deferred tax assets (liabilities) comprise the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 30,       JANUARY 1,
                                                                        2000             2000
                                                                    ------------       ----------
                                                                            (IN THOUSANDS)
<S>                                                                 <C>                <C>
Current

 Current deferred tax assets:
 Allowance for doubtful receivable                                    $   112           $    35
 Accrued expenses                                                          31                52
 Reserve for store closings                                                --                --
                                                                      -------           -------
                                                                          143                87
 Current deferred tax liabilities                                          (3)              (22)
                                                                      -------           -------
 Net current deferred tax asset                                       $   140           $    65
                                                                      =======           =======

Noncurrent

 Noncurrent deferred tax assets:
 Franchise fees                                                       $    88           $    84
 Net operating loss carryforwards                                         130               193
 Alternative minimum tax credit carryforwards                             283               356
 Goodwill amortization                                                    228               263
 Other deferred income                                                    155               215
 Other                                                                    145               109
                                                                      -------           -------
  Gross noncurrent deferred tax assets                                  1,029             1,220
                                                                      -------           -------

 Noncurrent deferred tax liabilities:
 Depreciation                                                             (75)              (70)
  Gross noncurrent deferred tax liabilities                               (75)              (70)

 Net noncurrent deferred tax assets                                       954             1,150
 Deferred tax asset valuation allowance                                  (130)             (130)
                                                                      -------           -------
                                                                      $   824           $ 1,020
                                                                      =======           =======
</TABLE>


                                       17
<PAGE>   19

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

The ultimate realization of these assets is dependent upon the generation of
future taxable income sufficient to offset the related deductions and loss
carryforwards within the applicable carryforward period. The Company evaluates
the need for a valuation allowance and, based on the weight of available
evidence, has determined that it is more likely than not that certain deferred
tax assets will eventually be realized. The valuation allowance reflected above
is based on management's conclusion that it is more likely than not that certain
state tax carryforward items will expire unused.

A reconciliation of the statutory Federal income tax rate to the income tax
provision is as follows:

<TABLE>
<CAPTION>
                                                       2000                         1999                          1998
                                               --------------------        ---------------------         ---------------------
                                               AMOUNT            %         AMOUNT            %           AMOUNT            %
                                               ------          ----        ------          -----         ------          -----
<S>                                             <C>           <C>           <C>            <C>            <C>             <C>
Computed "expected" tax                         $ 255         35.0 %        $(325)         (35.0)%        $ 287           35.0%
State income taxes, net of federal
income tax effect                                  --            --            --             --             --             --
Goodwill amortization                              15           2.0             7            1.0             15            1.8
Valuation allowance release                        --            --            --             --           (656)         (79.6)
Other                                              (8)         (1.0)          (54)          (6.0)             3            0.0
                                                -----          ----         -----          -----          -----          -----
                                                $ 262          36.0%        $(372)         (40.0)%        $(351)         (42.8)%
                                                =====          ====         =====          =====          =====          =====
</TABLE>

As of December 30, 2000, the Company has net operating loss carryforwards
available for federal and state income tax reporting purposes on a consolidated
basis of approximately $3,157,000. These net operating loss carryforwards expire
between 2004 and 2011. Approximately $20,000 of these net operating loss
carryforwards were acquired in certain purchase transactions and are subject to
annual limitations on their usage. These carryforwards expire during the period
2004 through 2008.

NOTE 10 - NATIONAL ADVERTISING FUND

As part of the standard franchise agreement, each operating unit contributes 1%
of its sales to a National Advertising Fund. Under the terms of the agreement,
at least 50% of these funds must be spent on the creation of marketing tools,
such as advertising copy for use on local radio and television and other
collateral material for the operating units. As a general rule, the funds are
not used for the purchase and placement of media advertising. The remaining
funds are available for use by the Company on such items as testing and
development of new products, investigating improvements in operating methods, or
other purposes that the Company shall deem to be in the interest of improving
operations and earnings of the Company and its franchisees.

NOTE 11 - STOCK OPTION AND BENEFIT PLANS

In 1992, the Board of Directors of the Company and the shareholders authorized
the adoption of an Incentive Stock Option Plan ("ISOP") for the Company's
employees. As amended in 1993, an aggregate of 176,969 shares of common stock
may be granted under the ISOP. Options granted under the ISOP may not be granted
at a price less than the fair market value of the common stock on the date of
grant (or 110% of fair market value in the case of persons holding 10% or more
of the voting stock of the Company). The aggregate fair market value of shares
for which options are granted to any employee during any calendar year may not
exceed $100,000. The options expire ten years from the date of grant.

In May 1995, the Board of Directors of the Company and the shareholders
authorized the adoption of an Incentive Award Plan ("IAP") for the Company's
employees. An aggregate of 450,000 shares of common stock may be granted under
the IAP, as amended in May 1997. Options granted under the IAP may be designated
by the Compensation Committee of the Board of Directors as Incentive Stock
Options or Non-Qualified Stock Options. Non-Qualified Stock Options granted
under the IAP may not be granted at a price less than par value of the common
stock. Incentive Stock Options granted under the IAP may not be granted at a
price less than the fair market value


                                       18
<PAGE>   20

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

of the common stock on the date of grant (or 110% of fair market value in the
case of persons holding 10% or more of the voting stock of the Company). The
aggregate fair market value of shares for which options are granted to any
employee during any calendar year may not exceed $100,000. The term of the
options shall be set by the Compensation Committee of the Board of Directors and
no term shall exceed a reasonable time period. In the case of Incentive Stock
Options, the term shall not be more than ten years from the date of grant.
During 2000, the Company granted options for an aggregate of 142,400 shares of
common stock at exercise prices to $1.25 and $1.50 per share, which equaled fair
market value at grant date.

A summary of activity in the above two option plans for the years ended December
30, 2000, January 1, 2000 and January 2, 1999 follows:

<TABLE>
<CAPTION>
                                                   2000                          1999                          1998
                                         ------------------------      ------------------------      ------------------------
                                                         WEIGHTED                      WEIGHTED                      WEIGHTED
                                                         AVERAGE                        AVERAGE                       AVERAGE
                                                         EXERCISE                      EXERCISE                      EXERCISE
                                         OPTIONS          PRICE        OPTIONS          PRICE        OPTIONS          PRICE
                                         -------         --------      -------         --------      -------         --------
<S>                                      <C>             <C>           <C>             <C>           <C>             <C>
Outstanding at beginning of year         268,358         $   2.82      297,127         $   3.03      303,637         $   3.25

Granted                                  142,400             1.34      100,281             1.77       81,864             2.35

Exercised                                     --               --           --               --      (40,071)            2.11
Canceled                                 (64,123)            2.28     (129,050)            2.47      (48,303)            4.00
                                         -------         --------      -------         --------      -------         --------

Outstanding at end of year               346,635             2.32      268,358             2.82      297,127             3.03
                                         =======         ========      =======         ========      =======         ========

Exercisable at end of year               274,243             2.56      227,439             3.01      271,966             3.12
                                         =======         ========      =======         ========      =======         ========
</TABLE>

A summary of information about the Company's stock options outstanding at
December 30, 2000 follows:

<TABLE>
<CAPTION>
                                                  WEIGHTED                                             WEIGHTED
                                                   AVERAGE        WEIGHTED                              AVERAGE        WEIGHTED
RANGE OF                                          REMAINING        AVERAGE                             REMAINING        AVERAGE
EXERCISE                        OPTIONS          CONTRACTUAL       EXERCISE          OPTIONS          CONTRACTUAL      EXERCISE
PRICES                        OUTSTANDING           LIFE            PRICE          EXERCISABLE           LIFE            PRICE
--------                      -----------        -----------      ---------        -----------        -----------      --------
<S>                           <C>                <C>              <C>              <C>                <C>              <C>
$1.00- $1.50                    129,600              9.2            $1.35             70,464              9.2            $1.37
$1.50- $2.00                    108,522              7.4             1.76             95,861              7.3             1.77
 2.00- 2.50                      31,321              7.1             2.26             30,726              7.1             2.26
 3.00- 3.50                      29,570              4.6             3.10             29,570              4.6             3.10
 5.50- 6.00                      47,622              2.7             5.78             47,622              2.7             5.78

$1.50-$6.00                     346,635              7.2            $2.32            274,243              6.7            $2.56
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date for awards in
2000, 1999 and 1998 under the plan consistent with the method prescribed by SFAS
No. 123, Accounting for Stock-Based Compensation, the Company's operating
results for 2000, 1999 and 1998 would have been reduced to the pro forma amounts
indicated below (in thousands, except per share data):


                                       19
<PAGE>   21

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                      2000           1999          1998
<S>                                   <C>         <C>           <C>
Net income:
 As reported                          $ 466       $ (558)       $ 1,171
 Pro forma                              380         (623)         1,053

Basic earnings per share:
 As reported                           0.10        (0.12)          0.26
 Pro forma                             0.08        (0.14)          0.23
 Diluted earnings per share:
 As reported                           0.10        (0.12)          0.25
 Pro forma                             0.08        (0.14)          0.23
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions using grants in 2000, 1999 and 1998, respectively:

<TABLE>
<CAPTION>
                                        2000         1999        1998
<S>                                    <C>          <C>          <C>
Average expected life (years)           4.4          7.0          7.0
Average expected volatility            63.0%        63.3%        64.4%
Risk-free interest rates                6.5%         5.6%         6.1%
Dividend yield                          0.0%         0.0%         0.0%
</TABLE>

The pro forma results reported above will not be representative of the effect on
operating results for future years because it does not take into consideration
pro forma compensation expense related to grants made prior to 1995.

Additionally, under the IAP, the Compensation Committee of the Board of
Directors may award Restricted Stock and/or a Performance Award to selected
employees. A Performance Award shall mean cash bonus, stock bonus or other
performance or incentive award that is paid in cash, stock or a combination of
both. The Company has not issued any Restricted Stock or Performance Awards.

In May 1995, the Board of Directors of the Company and the shareholders
authorized the adoption of an Employee Stock Purchase Plan ("ESPP") for the
Company's employees. An aggregate of 225,000 shares of common stock may be
issued under the ESPP. Shares purchased under the ESPP shall be sold to
participants at 85% of the reported price and the maximum number of shares that
can be purchased by a participant is 1,000 shares per quarter. The ESPP shall
continue in effect through May 31, 2005. During 2000, 1999 and 1998, 27,726,
18,546 and 12,314 shares were purchased, respectively, under the ESPP.


NOTE 12 - EARNINGS PER SHARE

A reconciliation of basic earnings per share to diluted earnings per share
follows (in thousands, except per share data):


                                       20
<PAGE>   22

BACK YARD BURGERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                     2000                                1999                                  1998
                         ------------------------------    --------------------------------      -------------------------------
                                              PER-SHARE                           PER-SHARE                            PER-SHARE
                         INCOME     SHARES      AMOUNT     INCOME       SHARES      AMOUNT       INCOME      SHARES      AMOUNT
                         ------     ------    ---------    ------       ------    ---------      ------      ------    ---------
<S>                      <C>        <C>       <C>          <C>          <C>       <C>            <C>         <C>       <C>
Basic EPS
Income available to
common stockholders       $466       4,632       0.10       $(558)       4,609       (0.12)      $1,171       4,533       $.26

Effect of Dilutive
Securities
Convertible preferred
stock                                   20                                  --                                   69
Stock options                            1                                  --                                   52
                          ----       -----       ----       -----        -----       -----       ------       -----       ----

Diluted EPS
Income available to
common stockholders
plus assumed
conversions               $466       4,653       0.10       $(558)       4,609       (0.12)      $1,171       4,654       $.25
                          ====       =====       ====       =====        =====       =====       ======       =====       ====
</TABLE>

Options to purchase shares of the Company's common stock were outstanding during
the years 2000, 1999 and 1998, but were not included in the computation of
diluted EPS because the exercise price was greater than the average market price
of common shares. The options were still outstanding as of December 30, 2000.
Income available to common stockholders for each year presented above has not
been affected by preferred dividends because the Company has not declared any
dividends on its preferred shares. The convertible preferred stock and stock
options are anti-dilutive and thus are not considered in the calculation of
diluted earnings per share in 1999.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

CONCENTRATION OF RISK. Financial instruments which potentially subject the
Company to concentration of credit risk are primarily cash and cash equivalents
and receivables. The Company places its cash and cash equivalents in insured
depository institutions and attempts to limit the amount of credit exposure to
any one institution. At December 30, 2000, the Company's uninsured cash balance
totaled $894,000. The Company performs ongoing credit evaluations of its
customers and when necessary maintains reserves for potential credit losses on
receivables, which are not collateralized.

LITIGATION. The Company is party to certain pending legal proceedings and claims
in the normal course of business. Although the outcome of the proceedings and
claims cannot be determined with certainty, management of the Company is of the
opinion that it is unlikely that these proceedings and claims will have a
material effect on the results of operations or the financial condition of the
Company.

NOTE 14 - SUBSEQUENT EVENTS

On January 2, 2001, the company's board of directors adopted a stock repurchase
plan that allows the company to repurchase up to 500,000 shares of its
outstanding common stock. The company expects to finance the cost to repurchase
shares under the stock buyback program with existing cash on hand as well as
internally generated funds.


                                       21
<PAGE>   23

To the Board of Directors and Stockholders of
Back Yard Burgers, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Back Yard Burgers, Inc. and its subsidiaries at December 30, 2000, and January
1, 2000, and the results of their operations and their cash flows for each of
the three years in the period ended December 30, 2000, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

Memphis, Tennessee
February 9, 2001

MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS

     The management of Back Yard Burgers, Inc. has the primary responsibility
for the preparation and integrity of the consolidated financial statements and
other financial information contained in the Annual Report. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied in all material respects and reflect
estimates and judgments by management where necessary. Financial information
included throughout this annual report is consistent with the consolidated
financial statements.
     The company maintains a system of internal accounting control that is
adequate to provide reasonable assurance that assets are safeguarded and
transactions are executed and recorded in accordance with management's
authorization. The adequacy of the company's internal accounting controls are
under the general oversight of the audit committee of the board of directors,
consisting of two outside directors and one director who is an employee of the
company. The committee reviews with the independent auditors the scope and
results of the annual audit.
     The 2000 consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants, in accordance with
generally accepted auditing standards. PricewaterhouseCoopers LLP was
recommended by the audit committee of the board of directors, selected by the
board of directors and ratified by the company's stockholders. The independent
accountants develop and maintain an understanding of the company's systems and
procedures and perform such tests and other procedures, including tests of the
internal accounting controls, as they deem necessary to enable them to express
an opinion on the fairness of the consolidated financial statements. Such
opinion, based upon their audits of the consolidated financial statements, is
contained in this Annual Report.

Lattimore M. Michael                                     Michael G. Webb
Founder, Chairman and Chief Executive Officer            Chief Financial Officer


                                       22
<PAGE>   24

                             DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
BOARD OF DIRECTORS                                            OFFICERS

<S>                                                           <C>
Lattimore M. Michael                                          Lattimore M. Michael
  Chairman and Chief Executive Officer                          Chairman and Chief Executive Officer

William N. Griffith                                           Michael W. Myers
  Executive Vice President                                      President and Chief Operating Officer
    And Secretary-Treasurer
                                                              William N. Griffith
W. Kurt Henke                                                   Executive Vice President and Secretary-Treasurer
  Partner
  Henke-Bufkin                                                Michael G. Webb
  (attorneys-at-law)                                            Chief Financial Officer

Jim L. Peterson
   President and Chief Executive Officer
  Hospitality Solutions, Inc.
  (restaurant industry technology)

William B. Raiford, III
  Of Counsel
   Merkel & Cocke
  (attorneys-at-law)

Joseph L. Weiss
  President, A. Weiss Company
  (franchisee)
</TABLE>


                                       23
<PAGE>   25

                              CORPORATE INFORMATION

CORPORATE OFFICES
1657 N. Shelby Oaks Dr., Suite 105
Memphis, TN 38134
901-367-0888

TRANSFER AGENT
Union Planters Bank
7650 Magna Dr.
Belleville, IL 62223
618-239-4451

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Memphis, Tennessee

GENERAL COUNSEL
Henke-Bufkin
Professional Corporation
Clarksdale, Mississippi

SECURITIES COUNSEL
Kutak Rock, LLP
Little Rock, Arkansas

ANNUAL MEETING OF STOCKHOLDERS
The company's 2000 annual meeting of stockholders will be held at 10:00 a.m.
local time on Thursday, May 17, 2001, at The Ridgeway Inn, 5679 Poplar Avenue,
in Memphis, Tennessee. Stockholders of record as of March 23, 2001, are invited
to attend this meeting.

ANNUAL REPORT ON FORM 10-K
A copy of the company's Annual Report on Form 10-K for the year ended December
30, 2000, as filed with the Securities and Exchange Commission, may be obtained
by stockholders of record without charge upon request to the company.

STOCKHOLDER ACCOUNT ASSISTANCE
For address changes, registration changes, lost stock certificates, or if you
are receiving duplicate copies of the Annual Report, please contact Union
Planters Bank at the address or number listed above.

STOCK MARKET INFORMATION
The company's common stock trades on the Nasdaq SmallCap Market tier of The
Nasdaq Stock Market under the symbol BYBI. At March 23, 2001, the company had
approximately 2,500 stockholders, including beneficial owners holding shares in
nominee or "street" name.

Back Yard Burgers completed its initial public offering of common stock in June
1993 and began public trading on June 25, 1993. The table below sets forth the
high and low closing bid prices for the two-year period ended December 30, 2000:

<TABLE>
<CAPTION>
QUARTER ENDED:                              HIGH                  LOW
<S>                                        <C>                   <C>
April 3, 1999                              $2.13                 $1.50
July 3, 1999                               $1.88                 $1.69
October 2, 1999                            $2.31                 $1.81
January 1, 2000                            $1.94                 $1.44

April 1, 2000                              $1.56                 $1.19
July 1, 2000                               $1.44                 $1.06
September 30, 2000                         $1.38                 $1.13
December 30, 2000                          $1.25                 $0.59
</TABLE>

The company currently anticipates that it will retain all of its earnings to
support its operations and the development of its business. Therefore, the
company does not pay any cash dividends on its outstanding common stock. Future
cash dividends, if any, will be at the discretion of the company's board of
directors and will depend upon, among other things, future operations and
earnings, capital requirements, general financial conditions, contractual
restrictions, stock repurchases and other factors that the board may consider
relevant.


                                       24