<PAGE>   1


                               ABOUT THE COMPANY                    EXHIBIT 13

         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 2000 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.
Our primary operating strategy includes serving great-tasting food and
providing the guest with a truly "ENJOYABLE" dining experience. We plan to
creatively communicate our points of differentiation-charbroiled 1/3 pound
hamburgers, charbroiled chicken sandwiches and a variety of other "Back Yard"
favorites.

<TABLE>
<CAPTION>

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

                                                                        January 1,            January 2,            January 3,
FOR THE YEAR ENDED:                                                        2000                  1999                  1998
                                                                        ----------            ----------            ----------

<S>                                                                     <C>                   <C>                   <C>
Restaurant sales                                                        $   26,480            $   25,082            $   24,150
Total revenues                                                              29,295                27,364                26,034
Net income (loss)                                                             (558)                1,171                   162
Net income (loss) per share:
   Basic                                                                      (.12)                  .26                   .04
   Diluted                                                                    (.12)                  .25                   .04
Weighted average shares outstanding:
   Basic                                                                     4,609                 4,533                 4,261
   Diluted                                                                   4,609                 4,654                 4,587

System-wide sales                                                       $   65,119            $   59,564            $   55,798
Units in operation:
   Company-owned                                                                35                    33                    32
   Franchised                                                                   51                    48                    45
                                                                        ----------            ----------            ----------
   Total                                                                        86                    81                    77
                                                                        ==========            ==========            ==========
</TABLE>

                                  {BAR GRAPHS]

*    The years ended January 1, 2000, and January 2, 1999, contained 52 weeks
     while the year ended January 3, 1998, contained 53 weeks.
**   Excludes non-cash charge for impairment of long-lived assets of $1,362,000
     in fiscal year 1999 and $377,000 in fiscal year 1997.
***  Depicts percentage increase or decrease over previous year's same-store
     sales.


<PAGE>   2


To Our Shareholders:

         Welcome to our Back Yard! Quite frankly, 1999 was a year filled with
mixed results. We solidified our position as a leading regional "premium" fast
food provider. We hired Michael Myers, a former regional vice president with
Whataburger, as our new chief operating officer. His leadership and enthusiasm
are in place. He has created a stronger team of supervisors and unit level
managers, a more disciplined approach to accomplish our goals, and a relentless
approach to building sales. Our study to enhance our throughput and make our
restaurants more efficient is nearing completion. Our entire team of senior
management is refocused and totally committed to building sales and profits.
However, we saw a decline in sales during the latter part of 1999. Non-food
promotions targeted at children, as well as heavy discounting by some of our
competitors had a negative impact on our sales. Even though the marketplace is
crowded, we believe we can compete successfully by serving our great tasting
Back Yard products. Our mission to make the "best burger" better has resulted
in the addition of Eric Arthur as director of purchasing and research and
development. Eric brings a wealth of knowledge and experience to our
organization.

         Late last year we implemented a strategic plan to position ourselves
as the leader of "premium" fast food. This positioning should allow 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.

         We have been pleased that the Memphis Zoo continues to be a tremendous
venue to market our concept and serve our products to a wide variety of guests.
We signed a ten year contract to assure us of a long-term presence. This "world
class" facility has enormous upside potential with the addition of White Tigers
on display in 2000, the "real" probability of a pair of Pandas coming in 2001
for ten years, and the completion of the Northwest Passage in 2002.

Our 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 franchised locations. Many of our current dedicated
     franchise owners will be adding restaurants in 2000.

-    RESTAURANT OPERATIONS - We have virtually completed the conversion of our
     double drive-thru restaurants to traditional single drive-thru's 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 and what makes us better
     than the rest. We believe our price/value relationship is extremely
     competitive. We are increasing our media budget 1% for the last 3 quarters
     of 2000 to help drive sales.

     I am very proud of our achievements, but I also realize we have 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 in our favor with 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 Chief Executive Officer


<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 January 1, 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
                                                ------------------------------------------------------------------------------
                                                JANUARY 1,        JANUARY 2,       JANUARY 3,      DECEMBER 28,     DECEMBER 30,
                                                   2000              1999             1998             1996             1995
                                                ----------        ----------       ----------      ------------     ------------

OPERATIONS
<S>                                             <C>               <C>              <C>              <C>              <C>
Restaurant sales                                $   26,480        $   25,082       $   24,150       $   22,281       $   21,196
Total revenues                                      29,295            27,364           26,034           24,041           22,743
Income (loss) before income taxes                     (930)              820              162              357           (3,060)
Net income (loss)                                     (558)            1,171              162              357           (2,953)


FINANCIAL POSITION
Total assets                                    $   18,340        $   16,948       $   13,155       $   11,572       $   11,149
Property and equipment, net                         13,211            13,365            9,451            8,131            8,128
Long-term obligations                                6,178             5,458            3,081            2,159            2,298
Shareholders' equity                                 9,058             9,586            8,298            8,110            7,728


OTHER DATA
Systemwide sales                                $   65,119        $   59,564       $   55,798       $   49,515       $   43,665
Capital expenditures                                 2,679             4,983            2,758              863            1,980


PER SHARE DATA
Net income (loss) - basic                       $    (0.12)       $     0.26       $     0.04       $     0.08       $    (0.65)
Net income (loss) - diluted                          (0.12)             0.25             0.04             0.08            (0.65)
Dividends                                             0.00              0.00             0.00             0.00             0.00
Market price at year end                              1.50              1.94             3.00             2.06             1.50
</TABLE>


                                       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. Because Back Yard Burgers' fiscal year ends on
the Saturday closest to December 31, fiscal 1999 and 1998 contain 52 weeks
versus 53 weeks for 1997. As a result, operating results for fiscal 1999 are
not directly comparable with those of the prior 53-week period.

     The Back Yard Burgers system included 86 restaurants, of which 35 were
company-operated and 51 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
                                                                        ------------------------------------------------------
                                                                        JANUARY 1,            JANUARY 2,            JANUARY 3,
                                                                           2000                  1999                  1998
                                                                        ----------            ----------            ----------
<S>                                                                     <C>                   <C>                   <C>
REVENUES
 Restaurant sales                                                             90.4%                 91.7%                 92.8%
 Franchise and area development fees                                            .5                    .5                    .3
 Royalty fees                                                                  5.1                   4.8                   4.5
 Advertising fees                                                              1.9                   1.7                   1.2
 Other operating revenue                                                       2.1                   1.3                   1.2
                                                                        ----------            ----------            ----------
  Total revenue                                                              100.0%                100.0%                100.0%
                                                                        ==========            ==========            ==========
</TABLE>

<TABLE>
<CAPTION>


                                                                                         FOR THE YEARS ENDED
                                                                        ------------------------------------------------------
                                                                        JANUARY 1,            JANUARY 2,            JANUARY 3,
                                                                           2000                  1999                  1998
                                                                        ----------            ----------            ----------
<S>                                                                     <C>                   <C>                   <C>
COSTS AND EXPENSES
  Cost of restaurant sales (1)                                                33.8%                 32.7%                 32.8%
  Restaurant operating expenses (1)                                           48.0                  47.2                  48.3
  General and administrative                                                  12.4                  11.9                  12.3
  Advertising                                                                  5.8                   5.5                   5.1
  Depreciation and amortization                                                4.6                   4.6                   4.4
  Impairment of long-lived assets                                              4.6                    --                   1.4
  Operating income                                                            (1.3)                  4.7                   1.5
  Interest income                                                              0.1                   0.1                   0.1
  Interest expense                                                            (1.9)                 (1.8)                 (0.9)
  Other, net                                                                    --                    --                    --
  Income before taxes                                                         (3.2)                  3.0                   0.6
  Income tax benefit (2)                                                     (40.0)                 42.8                    --
  Net income                                                                  (1.9)                  4.3                   0.6
</TABLE>

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


                                       3
<PAGE>   5


<TABLE>
<CAPTION>
                                                                                        FOR THE YEARS ENDED
                                                                        ------------------------------------------------------
                                                                        JANUARY 1,            JANUARY 2,            JANUARY 3,
                                                                           2000                  1999                  1998
                                                                        ----------            ----------            ----------
<S>                                                                     <C>                   <C>                   <C>
OPERATING DATA
  Restaurant sales (000's)
    Company-operated                                                    $   26,480            $   25,082            $   24,150
    Franchised                                                              38,639                34,482                31,648
                                                                        ----------            ----------            ----------
     Total                                                              $   65,119            $   59,564            $   55,798
                                                                        ==========            ==========            ==========

AVERAGE ANNUAL SALES PER RESTAURANT OPEN
 FOR A FULL YEAR (1)
    Company-operated                                                    $  769,000            $  797,000            $  731,000
    Franchised                                                          $  779,000            $  759,000            $  703,000
    System-wide                                                         $  775,000            $  774,000            $  716,000

NUMBER OF RESTAURANTS (2)
    Company-operated                                                            35                    33                    32
    Franchised                                                                  51                    48                    45
                                                                        ----------            ----------            ----------

      Total                                                                     86                    81                    77
                                                                        ==========            ==========            ==========
</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 January 1, 2000, three franchised restaurants were opened
     and one franchised restaurant was closed.


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


                                       4
<PAGE>   6
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.

     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.


COMPARISON OF FISCAL YEAR 1998
TO FISCAL YEAR 1997

BACK YARD BURGERS' FISCAL YEAR ENDS ON THE SATURDAY CLOSEST TO DECEMBER 31. AS
A RESULT, FISCAL 1998 CONTAINS 52 WEEKS VERSUS 53 WEEKS FOR THE PRIOR YEAR.
THEREFORE, ALL REFERENCES TO FISCAL 1998 ARE FOR THE 52-WEEK PERIOD ENDED
JANUARY 2, 1999 AND ALL REFERENCES TO FISCAL 1997 ARE FOR THE 53-WEEK PERIOD
ENDED JANUARY 3, 1998.

     RESTAURANT SALES increased 3.9% to $25,082,000 during 1998 compared to
$24,150,000 during 1997. This increase is primarily the result of an increase
in same-store sales at restaurants open for more than one year of 6.3%, which
includes a menu price increase of approximately 3.0% effective at the beginning
of September, 1997. The increase in same-store sales, coupled with new stores
not included in the same-store sales calculation, accounted for approximately
$2,650,000 in additional sales. This increase was partially offset by the loss
of sales from one restaurant which was closed and one restaurant which was
converted to a franchised restaurant, as well as one less week of sales as
noted above. Company management believes that the increases in same-store sales
are the results of improved customer service; the retrofit of three double
drive-thrus to dine-in facilities with single drive-thrus during 1998; and the
menu price increase noted above.

     FRANCHISE AND AREA DEVELOPMENT FEES were $142,000 during 1998, an increase
of 49% from $95,000 in 1997. Seven new franchised restaurants were opened in
1998, as compared to four new franchised units opened in 1997. This increase in
franchised restaurant openings was offset by a decrease of $15,000 in 1998
compared to 1997, in fees recognized from area development agreements, which
expired.

     ROYALTY FEES increased 11.5% to $1,313,000 during 1998 compared to
$1,178,000 during 1997. 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 5.8%, representing
an increase in royalty fees of


                                       5


<PAGE>   7
approximately $55,000. Additionally, seven franchised restaurants were opened,
one company-operated restaurant was converted to a franchised unit and five
franchised restaurants were closed during 1998.

     ADVERTISING FEES increased 55.7% to $478,000 for 1998 compared to $307,000
during 1997. The increase is primarily due to a voluntary increase of 50% in
the national advertising fee by 40 of the 47 franchised restaurants to be used
for a direct mail program. The increase is also related to the increase in
franchised restaurant sales as noted above.

     COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$8,206,000 during 1998 and $7,923,000 during 1997, decreasing to 32.7% as a
percentage of restaurant sales during 1998 from 32.8% for 1997. The cost of
beef, the largest single component of cost of restaurant sales, decreased
approximately 2.4% and there were decreases in certain condiment and paper
costs. These decreases were partially offset by increases in the cost of
chicken and certain produce and dairy products.

     RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, increased to $11,839,000
for 1998 from $11,672,000 during 1997. The increase of $167,000 is due
primarily to operating expenses from a net increase of two new company
operated-restaurants which opened since the beginning of the 1997 third
quarter, as well as the expenses associated with the expanded operations from
the retrofit of three double drive-thru restaurants to single drive-thrus with
dining room facilities. As a percentage of restaurant sales, restaurant
operating expenses decreased to 47.2% from 48.3% for 1997. As a percentage of
restaurant sales, this decrease relates primarily to a decrease of
approximately 0.5% in promotional activities, as well as an increase in
same-store sales at existing restaurants of 6.3%. A same-store sales increase
results in expenses of a fixed and semi-variable nature, such as management
payroll, rent, utilities, taxes and insurance, representing a smaller
percentage of sales. These decreases were partially offset by increases in
repairs and maintenance, operating supplies and equipment rental expense.

     GENERAL AND ADMINISTRATIVE COSTS increased to $3,261,000 during 1998 from
$3,202,000 in 1997. This represents a decrease as a percentage of total revenue
to 11.9% from 12.3% for 1997. The increase of $59,000 is primarily the result
of (1) adding two new positions: one in the training department and one in
company operations management, the goal of both positions being to facilitate
superior customer service; and (2) annual raises which became effective at the
beginning of the second quarter of 1998.

     ADVERTISING EXPENSE, which increased to $1,513,000 for 1998 from
$1,323,000 during 1997, increased as a percentage of total revenues to 5.5%
from 5.1%. This is the result of an increase in advertising fees, as described
above, which, in addition to the direct mail program noted above, are used for
the development and production of marketing campaigns and collateral material.

     INTEREST EXPENSE increased 100% to $485,000 for 1998 from $242,000 in
1997. This is due to a net increase in long-term debt of $2,377,000, or 77%,
during 1998. 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 increased to $351,000 in 1998 from 1997. This benefit
results from the 1998 reversal of valuation allowances established in prior
years for the company's deferred tax assets. The 1998 reversal results from a
change in estimate with respect to the ultimate realization of such assets.

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 closed locations were utilized by other stores, certain
assets were fixed to the site and were unrecoverable. Based on these facts and
an analysis of projected undiscounted cash flows for the underperforming
locations, the company determined in 1999 that the carrying value of certain
long-lived assets necessitated a write-down of $1,114,000. Also, a related
accrual for future lease payments, net of estimated sub-lease income, of
$248,000 was recorded.

     Two additional stores were previously assessed by company management as
impaired during 1997. One store closed in 1997 and the other closed in 1998.
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 these
facts and an analysis of projected undiscounted cash flows for these locations,
the company determined in 1997 that the carrying value of certain long-


                                       6


<PAGE>   8
lived assets necessitated a write-down of $275,000. Also, a related accrual for
future lease payments of $102,000 was recorded. In 1999, $29,000 of lease
payments were incurred for these closed stores and charged against this reserve.

     As of January 1, 2000, the company's remaining accrual for all future
lease obligations discussed above was $270,000 for the remaining lease payments
due, net of estimated sub-lease income.

LIQUIDITY AND CAPITAL RESOURCES

     Capital expenditures totaled $2,679,000 for 1999, $4,983,000 for 1998 and
$2,758,000 for 1997. Generally, the company constructs its restaurant buildings
on leased properties for its company-operated restaurants. The average monthly
lease cost for the 15 company-operated restaurants on leased sites is
approximately $3,230 per month. For the 11 restaurants where the company leases
the building as well as the site, the average monthly cost is approximately
$4,400 per month.

     Cash from operations for the company is primarily affected by net earnings
adjusted for deferred franchise fees and non-cash expenses, which consist
primarily of depreciation and amortization, and, in 1999 and 1997, a charge for
impaired assets. Depreciation and amortization totaled $1,355,000 for 1999,
$1,271,000 for 1998 and $1,143,000 for 1997. Year to year increases relate to
the addition of buildings, equipment and other depreciable items. The increases
from 1998 to 1999 resulted from the addition of five company-operated
restaurants and one dining room addition to an existing company-operated
restaurant during the year. The increases from 1997 to 1998 resulted from the
addition of two company-operated restaurants and three dining room additions to
existing company-operated restaurants during the year.

     Cash from operations totaled $2,537,000, $1,978,000 and $2,003,000 for
1999, 1998 and 1997, respectively. Since January 1, 1996, cash from operations
and debt have been used for the addition of dining rooms to certain existing
double drive-thru restaurants, new restaurants and equipment.

     As of January 1, 2000, the company had total long-term debt of $6,178,000
and unused lines of credit and loan commitments of potential additional
borrowings of $1,461,000. On October 4, 1996, the company received a 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%. At
January 1, 2000, borrowings under the commitment were $931,000. On January 23,
1997, the company received a loan commitment from a financial institution,
which provided the company with potential borrowings of up to $765,000 bearing
interest at prime rate plus 1%. On December 15, 1997, the company entered into a
loan agreement with a financial institution which provided the company with
$460,000 bearing interest at 9.75%. On October 27, 1998, the company received a
loan commitment from a financial institution, which provided the company with
potential borrowings of $788,000 bearing interest at 9% for which the company
completed borrowings under the commitment during 1999. On November 10, 1998, the
company received a loan commitment from a financial institution, which provided
the company with potential borrowings of $703,936 bearing interest at 9% for
which the company completed borrowings under the commitment during 1999. Each of
the above agreements are secured by real and personal property constructed
and/or acquired with the proceeds of the agreement. The company also guarantees
certain debt of joint ventures of which it is a party. See Note 4 to
Consolidated Financial Statements. The company believes that it currently has
sufficient resources to fund anticipated capital expenditures of approximately
$2,500,000 during 2000. These resources include the borrowing commitments
described above in addition to the company's internally generated cash flow.
Additional growth in 2000 may require the company to obtain additional debt or
equity financing.

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 January 1, 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 tool 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 1999. 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.
                                       7
<PAGE>   9


CONVERSION OF PREFERRED STOCK

In accordance with the provisions of the company's 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
January 1, 2000, only 19,763 shares have yet to be converted.

YEAR 2000

     The company has substantially completed its year 2000 plan as scheduled.
As of March 24, 2000, the company's cash register, computer and other systems
with imbedded microchips have operated without year 2000 related problems and
appear to be year 2000 compliant. The company is not aware that any of its
software and hardware vendors, financial institutions or product vendors with
which the company interacts have experienced material year 2000 related
problems.

     While the company believes all of its critical systems are year 2000
compliant, there can be no guarantee the company has detected all possible
failure points related to its own systems, non-ready third parties whose system
failures could impact the company, or other uncertainties.

     The company's aggregate expenses incurred with respect to becoming year
2000 ready were approximately $30,000, all of which were recorded by January 1,
2000. The company does not project any additional material costs relating to
the year 2000 issue.

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 1999, the price of beef, the largest single component of the cost
of restaurant sales, increased approximately 10% from January to July before
returning to beginning of the year pricing levels by the end of the year.
Management of the company expects beef and chicken prices to rise at some point
in the future, and that it will 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 increase in difficulty as the number of businesses vying for
locations with similar characteristics increases. This will likely result in
higher occupancy costs for prime locations.

     Same-store sales increased 0.4% during 1999 compared with a 6.3% increase
in 1998. The company directed a balanced marketing strategy focused on
increasing guest awareness and increasing the frequency of guest visits. The
company will continue this strategy in 2000, however, there are no assurances
that the increases in same-store sales will continue.

     The future success of the company will be determined, to a great extent,
by the ability to positively address these issues.


                                       8
<PAGE>   10


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


<TABLE>
<CAPTION>
                                                                                January 1,    January 2,
                                      ASSETS                                       2000          1999
                                                                                ----------    ----------

<S>                                                                             <C>           <C>
Cash and cash equivalents                                                       $    1,697    $      815
Receivables, less allowance for doubtful accounts of
 $103 ($121 in 1998)                                                                   284           200
Inventories                                                                            177           202
Current deferred tax asset                                                              65           104
Prepaid expenses and other current assets                                               79            96
                                                                                ----------    ----------
Total current assets                                                                 2,302         1,417
Property and equipment, at depreciated  cost                                        13,211        13,365
Intangible assets                                                                    1,204         1,352
Noncurrent deferred tax asset                                                        1,020           452
Notes receivable                                                                       350            98
Other assets                                                                           253           264
                                                                                ----------    ----------
                                                                                $   18,340    $   16,948
                                                                                ==========    ==========
                     LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable                                                                $      744    $      467
Accrued expenses                                                                       901           799
Reserve for closed stores                                                              270            51
Income taxes payable                                                                    89           205
Current installments of long-term debt                                                 489           361
                                                                                ----------    ----------
Total current liabilities                                                            2,493         1,883
Long-term debt, less current installments                                            5,689         5,097
Deferred franchise and area development fees                                           392           254
Other deferred income                                                                  633
Other deferred liabilities                                                              75           128
                                                                                ----------    ----------
Total liabilities                                                                    9,282         7,362
                                                                                ----------    ----------

Commitments and contingencies (Note 13)

Stockholders' equity
 Preferred stock, $.01 par value; 2,000,000 shares authorized;
  19,763 shares issued and outstanding (23,123 in 1998)                                 --            --
 Common stock, $.01 par value; 12,000,000 shares authorized;
  4,618,377 shares issued and outstanding (4,596,471 in 1998)                           46            46
 Paid-in capital                                                                    10,128        10,098
 Deficit                                                                            (1,116)         (558)
                                                                                ----------    ----------
Total stockholders' equity                                                           9,058         9,586
                                                                                ----------    ----------
Total liabilities and stockholders' equity                                      $   18,340    $   16,948
                                                                                ==========    ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       9
<PAGE>   11


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

<TABLE>
<CAPTION>

                                                                                            Years Ended
                                                                        ------------------------------------------------------
                                                                        January 1,            January 2,            January 3,
                                                                           2000                  1999                  1998
                                                                        ----------            ----------            ----------

Revenues:
<S>                                                                     <C>                   <C>                   <C>
Restaurant sales                                                        $   26,480            $   25,082            $   24,150
Franchise and area development fees                                            132                   142                    95
Royalty fees                                                                 1,508                 1,313                 1,178
Advertising fees                                                               568                   478                   307
Other                                                                          607                   349                   304
                                                                        ----------            ----------            ----------
  Total revenues                                                            29,295                27,364                26,034
                                                                        ----------            ----------            ----------

Expenses:
Cost of restaurant sales                                                     8,943                 8,206                 7,923
Restaurant operating expenses                                               12,709                11,839                11,672
General and administrative                                                   3,619                 3,261                 3,202
Advertising                                                                  1,701                 1,513                 1,323
Depreciation and amortization                                                1,355                 1,271                 1,143
Impairment of long-lived assets                                              1,362                    --                   377
                                                                        ----------            ----------            ----------
  Total expenses                                                            29,689                26,090                25,640
                                                                        ----------            ----------            ----------
  Operating income                                                            (394)                1,274                   394

Interest income                                                                 30                    24                    14
Interest expense                                                              (566)                 (485)                 (242)
Other, net                                                                      --                     7                    (4)
                                                                        ----------            ----------            ----------
  Income before income taxes                                                  (930)                  820                   162

Income tax benefit                                                             372                   351                    --
                                                                        ----------            ----------            ----------
Net income (loss)                                                       $     (558)           $    1,171            $      162
                                                                        ==========            ==========            ==========

Income per share:
  Basic                                                                 $     (.12)           $      .26            $      .04
                                                                        ==========            ==========            ==========
  Diluted                                                               $     (.12)           $      .25            $      .04
                                                                        ==========            ==========            ==========

Weighted average number of common shares and common equivalent shares
  outstanding:
  Basic                                                                      4,609                 4,533                 4,261
                                                                        ==========            ==========            ==========
  Diluted                                                                    4,609                 4,654                 4,587
                                                                        ==========            ==========            ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      10
<PAGE>   12


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
                                        Shares       Amount        Shares       Amount    Capital       Deficit       Total
                                       --------     ---------     ---------    ---------  ---------     --------     -------

<S>                                    <C>          <C>           <C>          <C>        <C>           <C>          <C>
Balance at December 28, 1996            309,506     $       3     4,240,766    $      42  $   9,956     $ (1,891)    $ 8,110

Conversion of preferred stock           (19,906)                     19,906
Employee stock purchases                                             16,051                      26                       26
Net income                                                                                                   162         162
                                       --------     ---------     ---------    ---------  ---------     --------     -------
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
                                       ========     =========     =========    =========  =========     ========     =======
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      11
<PAGE>   13


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


<TABLE>
<CAPTION>
                                                                                             Years Ended
                                                                        ------------------------------------------------------
                                                                        January 1,            January 2,            January 3,
                                                                           2000                  1999                  1998
                                                                        ----------            ----------            ----------
<S>                                                                     <C>                   <C>                   <C>
Cash flows from operating activities:
Net income (loss)                                                       $     (558)           $    1,171            $      162
Adjustments to reconcile net income to net cash
  provided by operating activities:
Depreciation and amortization of property and equipment                      1,251                 1,063                 1,022
Impairment of long-lived assets                                              1,362                    --                   377
Deferred income taxes                                                         (529)                 (556)                   --
Amortization of intangible assets                                              104                   112                   104
Amortization/write off of preopening costs                                      --                    95                    17
Provision for losses on receivables                                            154                   216                   163
Gain on sale of assets                                                          (2)                  (42)                   --
(Increase) decrease in assets:
Receivables                                                                   (199)                  (62)                 (184)
Inventories                                                                     16                   (26)                  (26)
Prepaid expenses and other current assets                                       17                  (118)                  (59)
Other assets                                                                    (3)                   (3)                   56
Increase (decrease) in liabilities:
Accounts payable and accrued expenses                                          250                   (71)                  266
Reserve for closed stores                                                      (29)                  (51)                   --
Income taxes payable                                                          (116)                  205                    --
Other deferred income                                                          633                    --                    --
Other deferred liabilities                                                      14                     6                    12
Deferred franchise and area development fees                                   138                    39                    93
                                                                        ----------            ----------            ----------
Net cash provided by operating activities                                    2,503                 1,978                 2,003
                                                                        ----------            ----------            ----------
Cash flows from investing activities:
Additions to property and equipment                                         (2,679)               (4,983)               (2,758)
Proceeds from sale of property and equipment                                   274                    48                    34
Proceeds on notes receivable                                                    34                    --                    --
Investment in joint ventures                                                    --                   (50)                   --
                                                                        ----------            ----------            ----------
Net cash used in investing activities                                       (2,371)               (4,985)               (2,724)
                                                                        ----------            ----------            ----------
Cash flows from financing activities:
Issuance of stock                                                               30                    28                    26
Principal payments on long-term debt                                          (498)                 (543)                 (353)
Proceeds from issuance of long-term debt                                     1,218                 2,920                 1,275
Proceeds from exercise of stock options                                         --                    89                    --
                                                                        ----------            ----------            ----------
Net cash provided by financing activities                                      750                 2,494                   948
                                                                        ----------            ----------            ----------
Net increase (decrease) in cash and cash equivalents                           882                  (513)                  227
Cash and cash equivalents:
Beginning of year                                                              815                 1,328                 1,101
                                                                        ==========            ==========            ==========
End of year                                                             $    1,697            $      815            $    1,328
                                                                        ==========            ==========            ==========

Supplemental disclosure of cash flow information:
Income taxes paid                                                       $      273            $       --                   $--
                                                                        ==========            ==========            ==========
Interest paid                                                           $      566            $      462            $      232
                                                                        ==========            ==========            ==========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      12
<PAGE>   14


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 January 1, 2000, the Company operated 35 restaurants in
three states (Mississippi, Arkansas and Tennessee) and franchised 51
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 year ended January 1,
2000 contains 52 weeks while the years ended January 2, 1999 and January 3,
1998 contained 52 and 53 weeks, respectively.

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.


                                      13
<PAGE>   15


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 $809,000 at January 1, 2000 and
$710,000 at January 2, 1999.

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 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.

Two stores were assessed by company management as impaired during 1997. One
store closed in 1997 and the other closed in 1998. 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 1997 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 value in the
amount of $275,000 and a related accrual for future lease payments of $102,000
was recorded.

In 1999, $29,000 of lease payments were incurred for these closed stores and
charged against this reserve. As of January 1, 2000, the company's remaining
accrual for future lease obligations was $270,000 for the remaining lease
payments due net of estimated sub-lese income.

PREFERRED STOCK. In accordance with the provisions of the Company's 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
January 1, 2000, all but 19,763 shares of preferred stock had been converted to
common stock.


                                      14
<PAGE>   16


BACK YARD BURGERS, INC.
Notes to Consolidated Financial Statements


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 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 January 1, 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 January 1, 2000, the fair value
was approximately $6,092,000 versus a fair value of $5,369,000 at January 2,
1999.

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>
                                                                        January 1,                January 2,
                                                                          2000                       1999
                                                                        ----------                ----------
                                                                                   (in thousands)
<S>                                                                     <C>                       <C>
Corporate receivables                                                   $      171                $      170
National Advertising Fund receivables                                           91                        68
Other                                                                          125                        83
                                                                        ----------                ----------
                                                                               387                       321
Allowance for doubtful receivables                                            (103)                     (121)
                                                                        ----------                ----------
                                                                        $      284                $      200
                                                                        ==========                ==========
</TABLE>

NOTE 3 - PROPERTY AND EQUIPMENT

Summaries of property and equipment follow:

<TABLE>
<CAPTION>

                                                                        January 1,                January 2,
                                                                           2000                      1999
                                                                        ----------                ----------
                                                                                   (in thousands)
<S>                                                                     <C>                       <C>
Land                                                                    $    3,452                $    3,417
Buildings                                                                    6,626                     6,263
Building and site improvements                                               2,954                     3,351
Fixtures and equipment                                                       5,620                     5,234
Transportation vehicles                                                        244                       240
                                                                        ----------                ----------
                                                                            18,896                    18,505
Accumulated depreciation and amortization                                   (5,685)                   (5,140)
                                                                        ----------                ----------
                                                                        $   13,211                $   13,365
                                                                        ==========                ==========
</TABLE>


                                      15
<PAGE>   17


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 January 1, 2000,
$305,000 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 January 1, 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>
         1999                                 $     219
         Previous years                             173
                                              ---------
                                              $     392
                                              ---------
</TABLE>

NOTE 6 - INDEBTEDNESS

Long-term debt is collateralized by property and equipment with a net book
value aggregating $8,142,000 and a portion guaranteed by the personal
endorsements of certain stockholders. The balances consist of the following:

<TABLE>
<CAPTION>
<S>                                                                             <C>           <C>
                                                                                January 1,    January 2,
                                                                                   2000          1999
                                                                                ----------    ----------
                                                                                     (in thousands)
Notes payable to financial institutions, payable in monthly
installments ranging from $2,640 to $8,788, including
interest ranging from 7.0% to 9.8%                                              $    3,648    $    3,083

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%                                           1,434         1,341

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%                                                                      931         1,034
                                                                                ----------    ----------
                                                                                     6,178         5,458
Less current installments                                                             (489)         (361)
                                                                                ----------    ----------
Total                                                                           $    5,689    $    5,097
                                                                                ==========    ==========
</TABLE>


                                      16
<PAGE>   18


BACK YARD BURGERS, INC.
Notes to Consolidated Financial Statements


The principal maturities of all long-term debt subsequent to 1999 are as
follows: $489,000 in 2000; $722,000 in 2001, $537,000 in 2002, $573,000 in
2003, $1,404,000 in 2004 and $2,453,000 thereafter.

The Company has a line of credit with a financial institution for $150,000. The
line of credit is collateralized by a $50,000 certificate of deposit. There
were no borrowings outstanding under the agreement at January 1, 2000 and
January 2, 1999.

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 January 1, 2000, borrowings
outstanding under the commitment are $931,000, 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
January 1, 2000, are as follows (in thousands):

<TABLE>
         <S>                             <C>
         2000                            $   1,279
         2001                                1,152
         2002                                  984
         2003                                  818
         2004                                  612
         Thereafter                          1,927
                                         ---------

                                         $   6,772
                                         ---------

</TABLE>

Rent expense was $1,128,000, $1,058,000 and $1,187,000 in 1999, 1998 and 1997,
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.

Also in 1999,  the Company  sold the net assets of an  additional  restaurant
for cash and a note of $315,000 to a new franchisee.


NOTE 9 - INCOME TAXES

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


                                      17
<PAGE>   19
BACKYARD BURGERS, INC.

Notes to Consolidated Financial Statements

The deferred tax assets (liabilities) comprise the following:


<TABLE>
<CAPTION>
                                                  January 1,    January 2,
                                                    2000          1999
                                                 -----------   -----------
                                                      (in thousands)
<S>                                              <C>           <C>
Current

Current deferred tax assets:
Allowance for doubtful receivable                $        35   $        41
Accrued expenses                                          52            59
Reserve for store closings                                --            15
                                                 -----------   -----------
                                                          87           115
Current deferred tax liabilities                         (22)          (11)
                                                 -----------   -----------
Net current deferred tax asset                            65           104
Deferred tax asset valuation allowance                    --            --
                                                 -----------   -----------
                                                 $        65   $       104
                                                 ===========   ===========

Noncurrent

Noncurrent deferred tax assets:
Franchise fees                                   $        84   $        47
Net operating loss carryforwards                         193           531
Alternative minimum tax credit carryforwards             356           145
Goodwill amortization                                    263           349
Other deferred income                                    215            --
Other                                                    109            30
                                                 -----------   -----------
Gross noncurrent deferred tax assets                   1,220         1,102
                                                 -----------   -----------
Noncurrent deferred tax liabilities:
Depreciation                                             (70)         (520)
                                                 -----------   -----------

Gross noncurrent deferred tax liabilities                (70)         (520)
                                                 -----------   -----------

Net noncurrent deferred tax assets                     1,150           582
Deferred tax asset valuation allowance                  (130)         (130)
                                                 -----------   -----------
                                                 $     1,020   $       452
                                                 ===========   ===========
</TABLE>

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. During 1999 and 1998
the Company evaluated 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 in 1999 and 1998 is based on management's conclusion that it is more
likely than not that certain state tax carryforward items will expire unused.


                                       18

<PAGE>   20

BACKYARD BURGERS, INC.

Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                 1999                        1998                          1997
                                        ---------------------       -----------------------       -----------------------
                                         Amount         %            Amount           %            Amount            %
                                        --------     --------       --------       --------       --------       --------
<S>                                     <C>          <C>            <C>            <C>            <C>            <C>
Computed "expected" tax                 $   (325)       (35.0)%     $    287           35.0%      $     57           35.0
State income taxes, net of federal
income tax effect                                                         --            0.0              9            5.3
Goodwill amortization                          7          1.0             15            1.8             14            8.9
Valuation allowance release                                             (656)         (79.6)           (78)         (48.0)
Other                                        (54)        (6.0)             3            0.0             (2)          (1.2)
                                        --------     --------       --------       --------       --------       --------
                                        $   (372)       (40.0)%     $   (351)         (42.8)%     $     --            0.0%
                                        --------     --------       --------       --------       --------       --------
</TABLE>

As of January 1, 2000, the Company has net operating loss carryforwards
available for federal and state income tax reporting purposes on a consolidated
basis of approximately $184,000 and $3,157,000, respectively. 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 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


                                       19

<PAGE>   21

BACKYARD BURGERS, INC.

Notes to Consolidated Financial Statements

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 1999, the Company granted options for an aggregate of
100,281 shares of common stock at exercise prices to $1.72 and $1.94 per share,
which equaled fair market value at grant date.

A summary of activity in the above two option plans for the years ended January
1, 2000, January 2, 1999 and January 3, 1998 follows:


<TABLE>
<CAPTION>
                                            1999                   1998                  1997
                                    --------------------   --------------------   --------------------
                                                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    297,127    $   3.03    303,637    $   3.25    226,568    $   3.72

Granted                              100,281        1.77     81,864        2.35     84,922        1.87

Exercised                                 --          --    (40,071)       2.11         --          --

Canceled                            (129,050)       2.47    (48,303)       4.00     (7,853)       2.04
                                    --------               --------               --------

Outstanding at end of year           268,358        2.82    297,127        3.03    303,637        3.25
                                    ========               ========               ========

Exercisable at end of year           227,439        3.01    271,966        3.12    269,226        3.41
                                    ========               ========               ========
</TABLE>


A summary of information about the Company's stock options outstanding at
January 1, 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>
$1.50-$2.00       135,483           8.4   $      1.76        97,004           8.1   $   1.77
 2.00- 2.50        44,228           8.1          2.26        41,788           8.1       2.26
 3.00- 3.50        34,553           5.5          3.09        34,553           5.5       3.09
 5.50- 6.00        54,094           3.7          5.78        54,094           3.7       5.78
-----------   -----------   -----------   -----------   -----------   -----------   --------
$1.50-$6.00       268,358           7.0   $      2.90       227,439           6.6   $   3.01
-----------   -----------   -----------   -----------   -----------   -----------   --------
</TABLE>


                                       20

<PAGE>   22

BACKYARD BURGERS, INC.

Notes to Consolidated Financial Statements

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
1999, 1998 and 1997 under the plan consistent with the method prescribed by SFAS
No. 123, Accounting for Stock-Based Compensation, the Company's operating
results for 1999, 1998 and 1997 would have been reduced to the pro forma amounts
indicated below (in thousands, except per share data):

<TABLE>
<CAPTION>
                                  1999          1998         1997
<S>                            <C>           <C>          <C>
Net income:
As reported                    $   (558)     $  1,171     $    162
Pro forma                          (623)        1,053           69

Basic earnings per share:
As reported                       (0.12)         0.26         0.04
Pro forma                         (0.14)         0.23         0.02

Diluted earnings per share:
As reported                       (0.12)         0.25         0.04
Pro forma                         (0.14)         0.23         0.02
</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 1999, 1998 and 1997, respectively:

<TABLE>
<CAPTION>
                                      1999        1998         1997
<S>                                   <C>         <C>          <C>
Average expected life (years)         7.0          7.0          7.0
Average expected volatility          63.3%        64.4%        66.5%
Risk-free interest rates              5.6%         6.1%         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 1999, 1998 and 1997, 18,546,
12,314 and 15,743 shares were purchased, respectively, under the ESPP.


                                       21

<PAGE>   23

BACKYARD BURGERS, INC.

Notes to Consolidated Financial Statements

NOTE 12 - EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                    Year Ended
                                 January 1, 2000                 January 2, 1999                   January 3, 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     $   (558)   4,609     (0.12)      $   1,171    4,533    $     .26    $   162   4,261     $    .04

EFFECT OF DILUTIVE
 SECURITIES
Convertible preferred
 stock                                 --                                 69                             298
Stock options                          --                                 52                              28
                        --------   ------    ------       ---------   ------    ---------    -------   -----     --------
DILUTED EPS
Income available to
 common stockholders
 plus assumed
 conversions            $   (558)   4,609     (0.12)      $   1,171    4,654    $     .25    $  162    4,587     $    .04
                        ========   ======    ======       =========   ======    =========    ======    =====     ========
</TABLE>

Options to purchase shares of the Company's common stock were outstanding during
the years 1999, 1998 and 1997 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 January 1, 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.
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 January 1, 2000, the Company's uninsured cash balance totaled
$1,195,000.

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.


                                       22

<PAGE>   24



REPORT OF INDEPENDENT ACCOUNTANTS

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 January 1, 2000, and January 2,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended January 1, 2000, in conformity with accounting
principles generally accepted in the United States. 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, 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 the opinion expressed
above.


/s/ PricewaterhouseCoopers, LLP

Memphis, Tennessee
February 10, 2000


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 1999 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


                                       23

<PAGE>   25





                             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                                      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

Stephen J. King
  CPA, Consultant

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>


                                       24

<PAGE>   26


                              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
Giroir, Gregory, Holmes & Hoover, PLC
Little Rock, Arkansas

ANNUAL MEETING OF STOCKHOLDERS

The company's 1999 annual meeting of stockholders will be held at 10:00 a.m.
local time on Thursday, May 18, 2000, at the Holiday Inn, 6101 N. Shelby Oaks
Drive, in Memphis, Tennessee. Stockholders of record as of March 24, 2000, 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 January 1,
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 24, 2000, 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 stock bid prices for the two-year period ended January 1, 2000:

<TABLE>
<CAPTION>
QUARTER ENDED:                           HIGH                        LOW
<S>                                     <C>                       <C>
April 4, 1998                           $   3.63                  $    2.25
July 4, 1998                            $   3.63                  $    2.63
October 3, 1998                         $   2.81                  $    2.25
January 2, 1999                         $   2.38                  $    1.88

April 3, 1999                           $   2.44                  $    1.50
July 3, 1999                            $   2.00                  $    1.56
October 2, 1999                         $   2.50                  $    1.75
January 1, 2000                         $   2.00                  $    1.44
</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, and other factors that the board may consider relevant.