U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the transition period from ________ to ___________

                         Commission File Number: 1-14556


                              POORE BROTHERS, INC.
                 (Name of Small Business issuer in its charter)

            Delaware                                             86-0786101
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                           3500 South La Cometa Drive
                             Goodyear, Arizona 85338
                                 (623) 932-6200
     (Address, zip code and telephone number of principal executive offices)

                                   ----------

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
                                (Title of class)

     Check whether the Registrant (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  Registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     The Registrant's revenues for the most recent fiscal year were $23,275,543.

     At March 24, 2000, the aggregate  market value of the  Registrant's  common
stock held by non-affiliates of the Registrant was approximately $22,065,085.

     At March 24, 2000,  the number of issued and  outstanding  shares of common
stock of the Registrant was 13,347,044.

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
                           FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 10-KSB,  including all documents incorporated by
reference,  includes "forward-looking"  statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
12E of the  Securities  Exchange  Act of  1934,  as  amended,  and  the  Private
Securities  Litigation  Reform  Act of  1995,  and  Poore  Brothers,  Inc.  (the
"Company")  desires to take advantage of the "safe harbor"  provisions  thereof.
Therefore,  the Company is including this  statement for the express  purpose of
availing  itself of the  protections  of the safe harbor with  respect to all of
such forward-looking statements. In this Annual Report on Form 10-KSB, the words
"anticipates,"  "believes," "expects," "intends," "estimates," "projects," "will
likely  result,"  "will  continue,"  "future" and similar terms and  expressions
identify  forward-looking  statements.  The  forward-looking  statements in this
Annual Report on Form 10-KSB reflect the Company's current views with respect to
future events and financial  performance.  These forward-looking  statements are
subject to certain risks and uncertainties, including specifically the Company's
brief  operating   history  and  significant   operating  losses  to  date,  the
probability  that the Company will need  additional  financing  due to continued
operating losses or in order to implement the Company's business  strategy,  the
possible diversion of management resources from the day-to-day operations of the
Company  as a  result  of  the  Company's  pursuit  of  strategic  acquisitions;
potential  difficulties  resulting from the  integration of acquired  businesses
with  Company's   business,   other   acquisition-related   risks,   significant
competition,  risks  related to the food  products  industry,  volatility of the
market  price of the  Company's  common  stock,  par value  $.01 per share  (the
"Common  Stock"),  the possible  de-listing  of the Common Stock from the Nasdaq
SmallCap Market and those other risks and uncertainties  discussed herein,  that
could cause actual results to differ materially from historical results or those
anticipated.  In  light  of  these  risks  and  uncertainties,  there  can be no
assurance that the forward-looking  information  contained in this Annual Report
on Form  10-KSB  will in fact  transpire  or prove to be  accurate.  Readers are
cautioned to consider the specific  risk factors  described  herein and in "Risk
Factors,"  and not to place  undue  reliance on the  forward-looking  statements
contained herein, which speak only as of the date hereof. The Company undertakes
no obligation  to publicly  revise these  forward-looking  statements to reflect
events or  circumstances  that may arise after the date hereof.  All  subsequent
written  or oral  forward-looking  statements  attributable  to the  Company  or
persons  acting on its behalf are expressly  qualified in their entirety by this
section.

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ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS

     Poore Brothers, Inc. and its subsidiaries (collectively, the "Company") are
engaged in the  production,  marketing and  distribution  of premium salty snack
food  products  that are sold  primarily  through  grocery  retail chains in the
southwestern  United  States and  through  vend  distributors  across the United
States.  The Company  manufactures  and sells its own brands of salty snack food
products  including Poore Brothers(R) and Bob's Texas Style(R) brand batch-fried
potato chips, Tato Skins(R) brand potato snacks, Pizzarias(R) brand pizza chips,
and O'Boisies(R)  brand potato crisps,  manufactures  private label potato chips
for grocery store chains,  and distributes and merchandises  snack food products
that are manufactured by others. For the year ended December 31, 1999,  revenues
totaled  $23,275,543.  Approximately  80% of sales were attributable to products
manufactured by the Company (65% branded snack food products,  15% private label
sales) and  approximately  20% of sales were attributable to the distribution by
the Company of snack food products manufactured by other companies.  The Company
generally sells its products to retailers and vend operators through independent
distributors.

     Poore  Brothers(R) and Bob's Texas Style(R)  potato chips are  manufactured
with a batch-frying process that the Company believes produces potato chips with
enhanced  crispness  and flavor.  They are  currently  produced in ten  flavors:
Original,  Salt & Vinegar,  Jalapeno,  Barbecue,  Parmesan & Garlic, Cajun, Dill
Pickle,  Grilled Steak & Onion, Habanero and Unsalted.  Poore Brothers(R) potato
chips are currently offered in all flavors and Bob's Texas Style(R) potato chips
are currently  offered in seven of such flavors.  The Company also  manufactures
potato  chips  for sale on a  private  label  basis  using a  continuous  frying
process.  The Company  currently has three  California and three Arizona grocery
chains as customers  for its private label potato  chips.  The Company's  potato
chips are  manufactured at a Company-owned  facility in Goodyear,  Arizona.  See
"PRODUCTS" and "MARKETING AND DISTRIBUTION."

     Since the Company's  October 1999 acquisition of Wabash Foods, LLC ("Wabash
Foods"),   the  Company  has  produced  Tato  Skins(R)   brand  potato   crisps,
Pizzarias(R) brand pizza chips, and O'Boisies(R) brand potato crisps utilizing a
sheeting  and frying  process that  includes  patented  technology.  The Company
licenses the patented  technology  from a third party and has an exclusive right
to use the  technology  within North America until the patents  expires  between
2004 and 2006.  Tato Skins(R)  brand potato crisps are offered in three flavors:
Baked Potato, Cheese n'Bacon and Sour Cream n' Onion flavors. Pizzarias(R) brand
pizza  chips are  offered  in three  flavors:  Supreme,  Pepperoni  and  Cheddar
flavors.  These products are manufactured at the Wabash Foods plant in Bluffton,
Indiana,  which is leased by the  Company.  The  Company  also  produces  at the
Indiana  plant  pretzels and tortilla  chips on a private  label basis for snack
food manufacturers. See "PRODUCTS" and "PATENTS AND TRADEMARKS".

     The Company's business objective is to be a leading regional  manufacturer,
marketer and  distributor of premium branded and private label salty snack foods
by providing high quality  products at  competitive  prices that are superior in
taste, texture, flavor variety and brand personality to comparable products. The
Company's  philosophy  is to  compete  in the  market  niches  not served by the
dominant  national  competition.  A significant  element of the Company's growth
strategy  is to  pursue  additional  strategic  acquisition  opportunities.  The
Company  plans to acquire  snack food  brands  that  provide  strategic  fit and
possess strong brand equity in a geographic region or channel of distribution in
order to expand,  complement or diversify the Company's  existing  business.  To
assist in this strategy,  the Company has retained  Stifel,  Nicolaus & Company,
Incorporated  ("Stifel"),  a regional  investment banking and brokerage firm, as
the  Company's  financial  advisor to assist  the  Company  in  connection  with
strategic acquisitions. The Company also plans to increase sales of its existing
products,  increase  distribution  and  merchandising  revenues  and continue to
improve its manufacturing capacity utilization. See "BUSINESS STRATEGY."

     The Company's  executive offices are located at 3500 South La Cometa Drive,
Goodyear, Arizona 85338, and its telephone number is (623) 932-6200.

RISK FACTORS

     BRIEF OPERATING HISTORY;  SIGNIFICANT LOSSES TO DATE;  ACCUMULATED DEFICIT.
Although certain of the Company's  subsidiaries have operated for several years,
the Company as a whole has a relatively  brief  operating  history upon which an
evaluation  of its  prospects  can be made.  Such  prospects  are subject to the
substantial  risks,  expenses and  difficulties  frequently  encountered  in the
establishment and growth of a new business in the snack food industry,  which is

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characterized   by  a  significant   number  of  market   entrants  and  intense
competition.  The Company had significant operating losses prior to fiscal 1999.
The Company  incurred net losses of $3,034,097 and $874,091 for the fiscal years
ended  December 31, 1997 and 1998,  respectively,  and net income for the fiscal
year ended  December 31, 1999 of $74,240.  At December 31, 1999, the Company had
an accumulated  deficit of $6,261,784 and net working  capital of $780,086.  See
"ITEM 6.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF RESULTS OF  OPERATIONS  AND
FINANCIAL CONDITION."

     Even  if  the  Company  is  successful  in  making   additional   strategic
acquisitions, increasing distribution and sales volume of the Company's existing
products and  developing new products,  it may be expected to incur  substantial
additional  expenses,  including  integration  costs of recently  completed  and
future acquisitions,  advertising and promotional costs, and "slotting" expenses
(i.e.,   the  cost  of  obtaining  shelf  space  in  certain  grocery   stores).
Accordingly,  the Company may incur additional  losses in the future as a result
of the  implementation  of the  Company's  business  strategy,  even if revenues
increase  significantly.  There can be no assurance that the Company's  business
strategy  will prove  successful  or that the Company will be  profitable in the
future.

     NEED FOR  ADDITIONAL  FINANCING.  A  significant  element of the  Company's
business strategy is the pursuit of selected strategic acquisition opportunities
for the purpose of expanding,  complementing  and/or  diversifying the Company's
business.  In connection with the acquisition of the business and certain assets
of Tejas Snacks,  L.P.  ("Tejas") in November 1998, the Company needed to borrow
funds from Wells Fargo  Business  Credit,  Inc.  (hereinafter  "Wells Fargo" and
formerly  Norwest  Business  Credit,  Inc.)  pursuant  to a Credit and  Security
Agreement (the "Wells Fargo Credit Agreement"), in order to satisfy a portion of
the cash  consideration  payable to Tejas.  The Wells Fargo Credit Agreement was
paid in full on October 7, 1999 in connection with the Wabash Foods  acquisition
and related U.S.  Bancorp Republic  Commercial  Finance,  Inc. ("U.S.  Bancorp")
financing.   See  "BUSINESS  --  COMPANY  HISTORY"  and  "ITEM  6.  MANAGEMENT'S
DISCUSSION  AND ANALYSIS OF RESULTS OF  OPERATIONS  AND  FINANCIAL  CONDITION --
LIQUIDITY  AND CAPITAL  RESOURCES."  It is likely that in the future the Company
will require funds in excess of cash flow generated from  operations in order to
consummate  any additional  acquisitions  involving  cash  consideration  to the
sellers.  Any such funds  would most  likely be  obtained  through  third  party
financing (debt or equity). In addition, the Company may, in the future, require
third party financing (debt or equity) as a result of continued operating losses
or expansion of the Company's business through  non-acquisition means. There can
be no  assurance  that any such  required  financing  will be  available  or, if
available,  on terms  attractive  to the  Company.  Any  third  party  financing
obtained by the Company  may result in dilution of the equity  interests  of the
Company's shareholders.

     RISKS ASSOCIATED WITH ACQUISITIONS.  A significant element of the Company's
business strategy is the pursuit of selected strategic acquisition opportunities
for the purpose of expanding,  complementing  and/or  diversifying the Company's
business;  however,  no assurance  can be given that the Company will be able to
identify,  finance and complete additional  suitable  acquisitions on acceptable
terms,  or that future  acquisitions,  if  completed,  will be  successful.  The
Company's recently completed  acquisition of Wabash Foods, as well as any future
acquisitions,  could divert management's  attention from the daily operations of
the  Company  and  otherwise  require  additional  management,  operational  and
financial  resources.  Moreover,  there is no assurance  that the Company  would
successfully  integrate  acquired  companies or their  management teams into the
Company's operating structure,  retain management teams of acquired companies on
a long-term basis, or operate acquired  companies  profitably.  Acquisitions may
also involve a number of other risks,  including adverse  short-term  effects on
the  Company's  operating  results,  dependence  on retaining  key personnel and
customers, amortization of acquired intangible assets, and risks associated with
unanticipated liabilities or contingencies.

     LEVERAGE;  FINANCIAL  COVENANTS  PURSUANT TO 9% CONVERTIBLE  DEBENTURES AND
PURSUANT  TO  U.S.  BANCORP  CREDIT  AGREEMENT;  NON-COMPLIANCE  WITH  FINANCIAL
COVENANTS AND POSSIBLE  ACCELERATION OF INDEBTEDNESS.  At December 31, 1999, the
Company had  outstanding  9%  Convertible  Debentures  due July 1, 2002 (the "9%
Convertible  Debentures")  in the aggregate  principal  amount of $1,370,067 and
outstanding  indebtedness  under  the  U.S.  Bancorp  Credit  Agreement  in  the
aggregate  principal  amount  of  $8,172,579.  The  indebtedness  under  the  9%
Convertible  Debentures  and the U.S.  Bancorp  Credit  Agreement  is secured by
substantially  all of the  Company's  assets.  The Company is required to comply
with certain  financial  covenants  pursuant to the loan  agreement  pursuant to
which the 9% Convertible Debentures were issued (the "Debenture Loan Agreement")
so long as the 9%  Convertible  Debentures are  outstanding  and pursuant to the
U.S. Bancorp Credit Agreement so long as borrowings from U.S. Bancorp thereunder
remain  outstanding.  Should  the  Company  be in  default  under  any  of  such
covenants,  the holders of the 9% Convertible  Debentures and U.S.  Bancorp,  as
applicable,  shall have the right,  upon written notice and after the expiration
of any  applicable  period  during  which such  default may be cured,  to demand
immediate  payment of all of the then  unpaid  principal  and accrued but unpaid
interest  under the 9%  Convertible  Debentures or pursuant to the U.S.  Bancorp

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<PAGE>
Credit  Agreement,  respectively.  At  December  31,  1999,  the  Company was in
compliance  with all  financial  covenants  under the Debenture  Loan  Agreement
(including  working capital,  minimum  shareholders'  equity,  current ratio and
interest coverage requirements) and the U.S. Bancorp Credit Agreement (including
minimum  annual  operating  results,  minimum  fixed  charge  coverage,  minimum
tangible  capital  basis,  minimum  cash flow  coverage and minimum debt service
coverage  requirements).  There can be no assurance  that the Company will be in
compliance with the financial  covenants in the future.  Any acceleration of the
9%  Convertible  Debentures  or the  borrowings  under the U.S.  Bancorp  Credit
Agreement prior to their  respective  maturities  could have a material  adverse
effect upon the Company.  See "ITEM 6.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION--LIQUIDITY AND CAPITAL RESOURCES."

     VOLATILITY OF MARKET PRICE OF COMMON STOCK.  The market price of the Common
Stock has  experienced  a high level of volatility  since the  completion of the
Company's initial public offering in December 1996.  Commencing with an offering
price of $3.50 per share in the initial public offering, the market price of the
Common Stock  experienced  a  substantial  decline,  reaching a low of $0.50 per
share  (based on last  reported  sale  price of the  Common  Stock on the NASDAQ
SmallCap  Market) on December 22, 1998.  During fiscal 1999, the market price of
the Common Stock (based on last  reported  sale price of the Common Stock on the
Nasdaq SmallCap  Market) ranged from a high of $1.69 per share to a low of $0.56
per share.  The last  reported  sales  price of the  Common  Stock on the Nasdaq
SmallCap Market on March 24, 2000 was $1.78 per share. There can be no assurance
as to the  future  market  price  of  the  Common  Stock.  See  "NASDAQ  LISTING
MAINTENANCE REQUIREMENTS."

     COMPLIANCE WITH NASDAQ LISTING MAINTENANCE  REQUIREMENTS.  In order for the
Company's  Common Stock to continue to be listed on the Nasdaq SmallCap  Market,
the Company is required  to be in  compliance  with  certain  continued  listing
standards.  One of such  requirements is that the bid price of listed securities
be equal to or greater than $1.00. As of November 9, 1998, the closing bid price
of the  Company's  Common  Stock had  remained  below $1.00 per share for thirty
consecutive  trading days. As a result,  the Company  received a notice from the
Nasdaq Stock Market, Inc. ("Nasdaq") that the Company was not in compliance with
the closing bid price  requirements for continued listing of the Common Stock on
the Nasdaq  SmallCap  Market and that such Common Stock would be de-listed after
February  15,  1999 if the  closing  bid price was not equal to or greater  than
$1.00 per share for a period of at least ten consecutive trading days during the
ninety-day  period ending  February 15, 1999.  On February 9, 1999,  the Company
submitted  to Nasdaq a request  for a hearing  to  discuss  the  possibility  of
obtaining an extension of such ninety-day  period. The Company's hearing request
was granted by Nasdaq and a hearing was held on April 16, 1999.  The  de-listing
of the  Common  Stock was stayed  pending a  determination  by Nasdaq  after the
hearing.  On October  19,  1999,  the  Company  was  notified  by Nasdaq  that a
determination  had been made to permit the Company's Common Stock to continue to
be listed on the Nasdaq SmallCap Market.  The  determination  was based upon the
Company's  compliance with the Nasdaq closing bid price requirement of $1.00 per
share and the satisfaction by the Company of various information  requests.  If,
in the future,  the Company's  Common Stock fails to be in  compliance  with the
minimum closing bid price  requirement for at least thirty  consecutive  trading
days or the Company  fails to be in compliance  with any other Nasdaq  continued
listing  requirements,  then the Common Stock could be de-listed from the Nasdaq
SmallCap Market. Upon any such de-listing,  trading, if any, in the Common Stock
would  thereafter be conducted in the  over-the-counter  market on the so-called
"pink sheets" or the "Electronic  Bulletin Board" of the National Association of
Securities Dealers, Inc. ("NASD").  As a consequence of any such de-listing,  an
investor  could  find it more  difficult  to dispose  of, or to obtain  accurate
quotations as to the price of, the Company's  Common Stock.  See  "VOLATILITY OF
MARKET PRICE OF COMMON STOCK".

     COMPETITION.  The market for salty snack  foods,  such as those sold by the
Company, including potato chips, tortilla chips, dips, pretzels and meat snacks,
is large and intensely competitive.  Competitive factors in the salty snack food

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industry  include  product quality and taste,  brand awareness among  consumers,
access to supermarket shelf space, price, advertising and promotion,  variety of
snacks offered,  nutritional content,  product packaging and package design. The
Company competes in that market  principally on the basis of product quality and
taste.

     The snack food industry is primarily  dominated by Frito-Lay,  Inc.,  which
has  substantially  greater  financial and other  resources than the Company and
sells brands that are more widely  recognized  than are the Company's  products.
Numerous  other  companies  that are  actual  or  potential  competitors  of the
Company,  many with  greater  financial  and  other  resources  (including  more
employees  and more  extensive  facilities)  than the  Company,  offer  products
similar to those of the Company.  In addition,  many of such competitors offer a
wider  range of products  than that  offered by the  Company.  Local or regional
markets often have  significant  smaller  competitors,  many of whom offer batch
fried products similar to those of the Company.  Expansion of Company operations
into new markets has and will continue to encounter significant competition from
national,  regional  and  local  competitors  that  may  be  greater  than  that
encountered  by  the  Company  in  its  existing  markets.  In  addition,   such
competitors may challenge the Company's position in its existing markets.  While
the Company  believes that its products and methods of operation  will enable it
to compete successfully, there can be no assurance of its ability to do so.

     PROMOTIONAL  AND SHELF SPACE COSTS.  Successful  marketing of food products
generally  depends  upon  obtaining  adequate  retail  shelf  space for  product
display,  particularly  in  supermarkets.  Frequently,  food  manufacturers  and
distributors,  such as the Company,  incur  additional  costs in order to obtain
additional  shelf  space.  Whether  or not the  Company  incurs  such costs in a
particular  market is  dependent  upon a number of factors,  including  existing
demand for the  Company's  products,  relative  availability  of shelf space and
general competitive conditions. The Company may incur significant shelf space or
other promotional costs as a necessary condition of entering into competition in
particular markets or stores. If incurred,  such costs may materially affect the
Company's financial performance.

     NO  ASSURANCE  OF CONSUMER  ACCEPTANCE  OF  COMPANY'S  EXISTING  AND FUTURE
PRODUCTS.  Consumer preferences for snack foods are continually changing and are
extremely difficult to predict. The ability of the Company to develop successful
operations  in new  markets  will depend upon  customer  acceptance  of, and the
Company's ability to manufacture,  its products.  There can be no assurance that
the Company's  products will achieve a significant  degree of market acceptance,
that acceptance,  if achieved,  will be sustained for any significant  period or
that  product  life cycles will be  sufficient  to permit the Company to recover
start-up and other associated costs. In addition, there can be no assurance that
the Company will succeed in the  development of any new products or that any new
products  developed by the Company will achieve  market  acceptance  or generate
meaningful revenue for the Company.

     UNCERTAINTIES AND RISKS OF FOOD PRODUCT INDUSTRY. The food product industry
in which the Company is engaged is subject to numerous  uncertainties  and risks
outside of the Company's control.  Profitability in the food product industry is
subject  to  adverse  changes  in  general  business  and  economic  conditions,
oversupply  of  certain  food  products  at the  wholesale  and  retail  levels,
seasonality,  the risk that a food  product  may be banned or its use limited or
declared unhealthful, the risk that product tampering may occur that may require
a recall of one or more of the Company's products,  and the risk that sales of a
food product may decline due to perceived health  concerns,  changes in consumer
tastes or other reasons beyond the control of the Company.

     FLUCTUATIONS  IN  PRICES  OF  SUPPLIES;  DEPENDENCE  UPON  AVAILABILITY  OF
SUPPLIES AND  PERFORMANCE OF SUPPLIERS.  The Company's  manufacturing  costs are
subject to fluctuations in the prices of potatoes,  potato flakes,  wheat flour,
corn and oil, as well as other ingredients of the Company's products.  Potatoes,
potato flakes, wheat flour and corn are widely available year-round. The Company
uses a  variety  of oils in the  production  of its  products.  The  Company  is
dependent on its suppliers to provide the Company with products and  ingredients
in adequate supply and on a timely basis. Although the Company believes that its
requirements  for products and ingredients are readily  available,  and that its
business success is not dependent on any single supplier, the failure of certain
suppliers to meet the Company's performance specifications, quality standards or
delivery  schedules  could  have a  material  adverse  effect  on the  Company's
operations.  In particular,  a sudden scarcity, a substantial price increase, or
an unavailability of product  ingredients could materially  adversely affect the
Company's  operations.  There can be no assurance that  alternative  ingredients
would be available when needed and on commercially attractive terms, if at all.

     LACK OF  PROPRIETARY  MANUFACTURING  METHODS FOR CERTAIN  PRODUCTS;  FUTURE
EXPIRATION OF PATENTED TECHNOLOGY LICENSED BY THE COMPANY. The taste and quality
of Poore  Brothers(R) and Bob's Texas Style(R) brand potato chips is largely due
to two elements of the Company's  manufacturing process: its use of batch frying
and its use of  distinctive  seasonings  to  produce a variety of  flavors.  The

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Company  does  not  have  exclusive   rights  to  the  use  of  either  element;
consequently,   competitors  may  incorporate   such  elements  into  their  own
processes.

     The Company licenses  patented  technology from a third party in connection
with the manufacture of its Tato Skins(R),  Pizzarias(R) and O'Boisies(R)  brand
products, and has an exclusive right to use such technology within North America
until the patents  expire  between  2004 and 2006.  Upon the  expiration  of the
patents,  competitors  of the Company,  certain of which may have  significantly
greater resources than the Company,  may utilize the patented  technology in the
manufacture of products that are similar to those currently  manufactured by the
Company with such patented  technology.  The entry of any such products into the
marketplace  could have a  material  adverse  effect on sales of Tato  Skins(R),
Pizzarias(R) and O'Boisies(R) brand products by the Company.

     DEPENDENCE UPON MAJOR  CUSTOMERS.  One customer of the Company,  Fry's Food
Stores (a subsidiary of Kroger,  Inc.),  accounted for 14% of the Company's 1999
net sales,  with the  remainder of the  Company's  net sales being  derived from
sales to a limited  number of additional  customers,  either  grocery  chains or
regional distributors, none of which individually accounted for more than 10% of
the  Company's  sales for 1999.  A decision  by any major  customer  to cease or
substantially  reduce its purchases could have a material  adverse effect on the
Company's business.

     RELIANCE ON KEY EMPLOYEES; NON-COMPETE AGREEMENTS. The Company's success is
dependent in large part upon the  abilities of its officers,  including  Eric J.
Kufel,   President   and  Chief   Executive   Officer,   Glen  E.  Flook,   Vice
President-Manufacturing,   and  Thomas  W.  Freeze,  Vice  President  and  Chief
Financial Officer.  The inability of the officers to perform their duties or the
inability of the Company to attract and retain other highly qualified  personnel
could have a material adverse effect upon the Company's  business and prospects.
The Company does not maintain, nor does it currently contemplate obtaining, "key
man" life  insurance  with  respect to such  employees.  The  employment  of the
officers of the Company is on an "at-will"  basis.  The Company has  non-compete
agreements with all of its officers,  except Wendell T. Jones, Vice President of
Sales-Arizona. See "ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY."

     GOVERNMENTAL REGULATION.  The packaged food industry is subject to numerous
federal, state and local governmental  regulations,  including those relating to
the  preparation,  labeling  and  marketing  of food  products.  The  Company is
particularly  affected  by the  Nutrition  Labeling  and  Education  Act of 1990
("NLEA"),  which requires specified  nutritional  information to be disclosed on
all  packaged  foods.  The Company  believes  that the  labeling on its products
currently meets these requirements.  The Company does not believe that complying
with the NLEA  regulations  materially  increases  the  Company's  manufacturing
costs. There can be no assurance, however, that new laws or regulations will not
be passed that could  require the Company to alter the taste or  composition  of
its products. Such changes could affect sales of the Company's products and have
a material adverse effect on the Company.

     PRODUCT  LIABILITY CLAIMS. As a manufacturer and marketer of food products,
the Company may be subjected to various product liability  claims.  There can be
no assurance that the product liability insurance maintained by the Company will
be adequate to cover any loss or exposure  for product  liability,  or that such
insurance will continue to be available on terms acceptable to the Company.  Any
product  liability claim not fully covered by insurance,  as well as any adverse
publicity from a product  liability claim,  could have a material adverse effect
on the financial condition or results of operations of the Company.

     MAJOR  SHAREHOLDER;  POSSIBLE CHANGE IN CONTROL.  As a result of the Wabash
Foods  acquisition,  Capital Foods,  LLC ("Capital  Foods") (an affiliate of the
former  owner of Wabash  Foods)  became the single  largest  shareholder  of the
Company,  with  approximately  33% of the  outstanding  shares of  Common  Stock
(without giving effect to the possible exercise of a warrant to purchase 400,000
shares of Common Stock also held by Capital Foods).  Accordingly,  Capital Foods
is in a position to exercise a substantial influence on the business and affairs
of the  Company  and may be  deemed  (either  alone  or  together  with  Company
management)  to control the  Company.  Although  the Company is not aware of any
plans or  proposals on the part of Capital  Foods to recommend or undertake  any
material  change in the  management  or  business  of the  Company,  there is no
assurance  that  Capital  Foods  will not  adopt or  support  any such  plans or
proposals in the future.

                                       6
<PAGE>
     Apart from transfer restrictions arising under applicable provisions of the
securities  laws,  there are no  restrictions on the ability of Capital Foods to
transfer  any or all of its shares of Common  Stock at any time.  One or more of
such transfers could have the effect of  transferring  control of the Company to
one or more parties not currently known to the Company.

     Following  expiration of the required holding period (one year, in the case
of reliance upon the exemption  provided by Rule 144 under the  Securities  Act)
for the shares of Common Stock held by Capital  Foods,  Capital  Foods (or other
holder(s) of such  shares)  will be generally  free to resell any or all of such
shares without registration under the Securities Act. Such sales will be subject
to volume  limitations under Rule 144 only if Capital Foods or such other holder
is  deemed  an  "affiliate"  of the  Company  at or about  the time of resale or
resells shares prior to completion of a two-year  holding  period.  In addition,
Capital Foods or its transferees have certain  "piggyback"  registration  rights
which will permit such resales pursuant to an effective  registration  statement
under the  Securities  Act.  Depending  upon their  timing,  magnitude and other
factors,  such resales, or the possibility  thereof,  could adversely affect the
market price of the Common Stock.

     CERTAIN   ANTI-TAKEOVER   PROVISIONS.    The   Company's   Certificate   of
Incorporation  authorizes  the issuance of up to 50,000  shares of "blank check"
Preferred  Stock  with  such  designations,  rights  and  preferences  as may be
determined  from  time to time by the Board of  Directors  of the  Company.  The
Company  may  issue  such  shares  of  Preferred  Stock  in the  future  without
shareholder approval.  The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future.  The issuance of Preferred Stock,  while
providing  desirable  flexibility in connection with possible  acquisitions  and
other corporate  purposes,  could have the effect of  discouraging,  delaying or
preventing a change of control of the Company,  and preventing holders of Common
Stock from realizing a premium on their shares.  In addition,  under Section 203
of the Delaware General Corporation Law (the "DGCL"),  the Company is prohibited
from  engaging  in any  business  combination  (as defined in the DGCL) with any
interested  shareholder  (as defined in the DGCL) unless certain  conditions are
met. This statutory provision could also have an anti-takeover effect.

COMPANY HISTORY

     Messrs.  Donald  and James  Poore  (the  "Poore  Brothers")  founded  Poore
Brothers Foods,  Inc. ("PB Foods") in 1986 after  substantial  experience in the
potato  chip   industry.   The  Poore   Brothers  also  founded  Poore  Brothers
Distributing  in 1990 and  Poore  Brothers  of Texas  in  1991,  which  provided
distribution capabilities for the Company's Poore Brothers(R) brand products. In
1983, prior to the formation of PB Foods, the Poore Brothers  co-founded Groff's
of Texas,  Inc. (a  predecessor  business to Tejas,  previous owner of the Bob's
Texas  Style(R)  potato chip brand  acquired  by the Company in November  1998),
which also manufactured batch-fried potato chips.

     In May 1993,  Mark S.  Howells,  the  Company's  Chairman,  and  associated
individuals formed Poore Brothers  Southeast ("PB Southeast"),  which acquired a
license from PB Foods to manufacture  and  distribute  Poore  Brothers(R)  brand
products.  In 1994,  PB  Southeast  opened a  manufacturing  plant in  LaVergne,
Tennessee.

     In November  1994,  PB  Southeast  entered into a Purchase  Agreement  (the
"Purchase  Agreement")  with PB Foods,  the Poore  Brothers and Amelia E. Poore,
that provided for the  acquisition by PB Southeast of (i)  substantially  all of
the  assets,  subject to certain  liabilities,  of PB Foods;  (ii) a 100% equity
interest in PB Distributing; and (iii) an 80% equity interest in PB Texas, after
giving effect to a 32% equity  interest to be purchased from other  shareholders
of PB Texas not parties to the Purchase Agreement.  Thereafter,  the Company was
formed as a holding company and the rights and obligations of PB Southeast under
the  Purchase   Agreement  were  assigned  to  the  Company.   The  transactions
contemplated  by the  Purchase  Agreement  were  consummated  on May  31,  1995.
Subsequent  to the  acquisition  date,  the Company  acquired the  remaining 20%
equity interest in PB Texas. The aggregate purchase price paid by the Company in
connection with these transactions was $4,057,163,  $3,232,593 of which was paid
in cash,  $500,000 of which was payable pursuant to a five-year  promissory note
(that was repaid in January  1997) and the  remainder of which was  satisfied by
the issuance of 300,000 shares of the Company's Common Stock to the seller.  The
Purchase Agreement contains a non-compete covenant pursuant to which each of the
Poore  Brothers  agreed  not  to  compete  against  the  Company,   directly  or
indirectly, in various states for a five-year period expiring on May 31, 2000.

     Also in May 1995,  the  Company  entered  into an exchange  agreement  with
certain  shareholders of PB Southeast,  including Mark S. Howells and Jeffrey J.
Puglisi, a former director of the Company,  pursuant to which the Company agreed

                                       7
<PAGE>
to  acquire  from them more than 99% of the  outstanding  shares of the  capital
stock of PB Southeast,  in exchange for the issuance to them of 1,560,000 shares
of Common  Stock,  concurrently  with and  subject  to the  consummation  of the
closing under the Purchase  Agreement.  Such exchange was consummated on May 31,
1995.  The  remaining  shares of PB Southeast  were  purchased by the Company in
November 1998.

     In December 1996, the Company  completed an initial public  offering of its
Common Stock,  pursuant to which  2,250,000  shares of Common Stock were offered
and sold to the public at an offering price of $3.50 per share.  Of such shares,
1,882,652  shares were sold by the  Company and 367,348  shares were sold by the
holders of the 9% Convertible  Debentures  (Renaissance  Capital Growth & Equity
Income Fund III, Inc.  ("Renaissance  Capital")  and Wells Fargo Small  Business
Investment Company,  Inc. ("Wells Fargo"),  formerly Wells Fargo Equity Capital,
Inc.),  which  acquired such shares upon the  conversion  of $400,409  principal
amount  of the 9%  Convertible  Debentures.  The  initial  public  offering  was
underwritten by Paradise Valley Securities,  Inc. (the  "Underwriter").  The net
proceeds to the Company from the sale of the  1,882,652  shares of Common Stock,
after deducting  underwriting  discounts and commissions and the expenses of the
offering payable by the Company,  were approximately  $5,300,000.  On January 6,
1997,  337,500  additional  shares of Common Stock were sold by the Company upon
the exercise by the  Underwriter  of an  over-allotment  option granted to it in
connection  with  the  initial  public  offering.   After  deducting  applicable
underwriting  discounts  and  expenses,  the Company  received  net  proceeds of
approximately $1,000,000 from the sale of such additional shares.

     In 1997, the Company implemented a restructuring  program pursuant to which
a number of actions were taken in order to improve the Company's  cost structure
and provide greater strategic focus, including:

          (i)  On June 4, 1997, the Company sold the Houston, Texas distribution
               business  of PB Texas  (which  was  unprofitable  and  which  the
               Company viewed as having little  prospects for generating  future
               sales growth or profits) to Mr. David Hecht ("Hecht") pursuant to
               an Asset Purchase, Licensing and Distribution Agreement effective
               June 1, 1997. Under the agreement,  Hecht was sold certain assets
               of PB Texas (including inventory, vehicles and capital equipment)
               and  became  the  Company's  distributor  in the  Houston,  Texas
               market.

          (ii) In  September   1997,   the  Company   consolidated   its  entire
               manufacturing  operations into a newly constructed  60,000 square
               foot  manufacturing,  distribution and  headquarters  facility in
               Goodyear,  Arizona  and,  as a result,  the  Company  closed  its
               unprofitable  PB  Southeast  manufacturing  facility in LaVergne,
               Tennessee  on  September  30,  1997.  In  addition,  the  Company
               purchased new processing and packaging  equipment.  These actions
               were   taken  in  order  to   improve   the   Company's   overall
               manufacturing efficiency.

     On November 4, 1998,  the Company  acquired the business and certain assets
of Tejas,  a  Texas-based  potato  chip  manufacturer.  The  assets,  which were
acquired through a newly formed wholly owned subsidiary of the Company, Tejas PB
Distributing,  Inc.,  included  the Bob's Texas  Style(R)  potato  chips  brand,
inventories and certain capital  equipment.  In consideration  for these assets,
the Company issued 523,077 unregistered shares of Common Stock with a fair value
of $450,000 and paid  approximately  $1,180,000  in cash.  The Company  utilized
available  cash  as well as  funds  available  pursuant  to the  Norwest  Credit
Agreement to satisfy the cash portion of the  consideration.  In connection with
the  acquisition,  production  of Bob's Texas  Style(R)  brand  potato chips was
transferred to the Company's Goodyear, Arizona facility.

     On October 7, 1999, the Company  acquired Wabash Foods,  including the Tato
Skins(R),  O'Boisies(R),  and Pizzarias(R) trademarks, and assumed all of Wabash
Foods'  liabilities.  The Company  acquired all of the  membership  interests of
Wabash  Foods from Pate Foods  Corporation  in exchange  for the issuance by the
Company to Pate Foods Corporation of (i) 4,400,000 unregistered shares of Common
Stock,  and (ii) a warrant to  purchase  400,000  unregistered  shares of Common
Stock at an exercise price of $1.00 per share.  The warrant has a five-year term
and  is  immediately   exercisable.   Wabash  Foods'  products  continue  to  be
manufactured by the Company at its leased Bluffton, Indiana facility.

BUSINESS STRATEGY

     The Company's business objective is to be a leading regional  manufacturer,
marketer and  distributor of premium branded and private label salty snack foods
by providing high quality  products at  competitive  prices that are superior in

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<PAGE>
taste, texture, flavor variety and brand personality to comparable products. The
Company's  philosophy  is to  compete  in the  market  niches  not served by the
dominant  national   competition.   The  Company  plans  to  achieve  growth  in
manufactured  product  sales by  acquiring  other  snack food brands and growing
existing products.  In addition,  the Company plans to increase distribution and
merchandising  revenues,  and  continue  to improve its  manufacturing  capacity
utilization.  The primary  elements of the  Company's  business  strategy are as
follows:

          PURSUE  STRATEGIC  ACQUISITIONS IN THE BRANDED SNACK FOOD CATEGORY.  A
     significant   element  of  the  Company's  growth  strategy  is  to  pursue
     additional strategic  acquisition  opportunities.  The Company's plan is to
     acquire unique snack food brands or distribution that provide strategic fit
     and  possess  strong  brand  equity in a  geographic  region or  channel of
     distribution  in order to expand,  complement  or diversify  the  Company's
     business.  The  acquisitions  of the Tejas and Wabash Foods  businesses  in
     November  1998 and  October  1999,  respectively,  were two such  strategic
     acquisitions.  The Company is continuing to search for other companies with
     strong, differentiated snack food brands and distribution.  The Company has
     retained Stifel,  Nicolaus & Company,  Incorporated,  a regional investment
     banking and brokerage  firm, as the Company's  financial  advisor to assist
     the Company in the pursuit of strategic acquisitions.

          BUILD BRANDED AND PRIVATE LABEL SNACK FOOD SALES. The Company plans to
     build the market share of its products through  continued trade advertising
     and promotion activity in selected markets and channels,  as well as by new
     product innovations.  Marketing efforts include,  among other things, joint
     advertising  with  distributors,   supermarkets  and  other  manufacturers,
     in-store   advertisements  and  in-store  displays.  The  Company  is  also
     participating in selected event  sponsorships  and marketing  relationships
     with the Arizona  Diamondbacks  baseball team and other professional sports
     franchises.  The Company believes that these events offer  opportunities to
     conduct mass  sampling to motivate  consumers to try its branded  products.
     Opportunities  to  achieve  new  or  expanded   distribution  in  alternate
     channels,  such as airlines and the national vend channel, will continue to
     be targeted.  In addition,  the Company plans to re-launch the Wabash Foods
     brands with new packaging for the retail grocery and club channel products.

          In 1999,  the Company  expanded its Arizona  batch-frying  capacity by
     40%, and its Indiana facility is operating at approximately fifteen percent
     of its capacity.  The Company  believes  that  additional  improvements  to
     manufactured   products'   gross  profit  margins  are  possible  with  the
     achievement  of the  business  strategies  discussed  above.  Depending  on
     product mix, the existing  manufacturing  facilities could produce,  in the
     aggregate,  up to three times the current volume and thereby further reduce
     manufacturing product costs.

          The Company currently has arrangements with three California and three
     Arizona grocery chains for the manufacture and  distribution by the Company
     of their  respective  private  label  potato  chips,  in various  types and
     flavors as  specified  by them.  The  Company  also has  arrangements  with
     several  snack  food  manufacturers  to  produce  products  for them at its
     Indiana  facility.  The Company grew its private  label  revenues by 60% in
     both 1998 and 1999 and believes that contract  manufacturing  opportunities
     exist.  While  they are  extremely  price  competitive  and can be short in
     duration,  the Company believes that they provide a profitable  opportunity
     for the Company to improve the capacity utilization of its facilities.  The
     Company intends to seek additional private label customers located near its
     facilities who demand superior product quality at a reasonable price.

          INCREASE DISTRIBUTION AND MERCHANDISING REVENUES. The Company believes
     that its Arizona distribution  operation provides it with a key competitive
     advantage in its home market.  The Company  plans to grow its Arizona snack
     food  distribution  business  by  growing  its stable of core  brands.  The
     Company  believes  that an  opportunity  also exists to grow the  Company's
     Texas   merchandising   business  through  additional  product  lines.  The
     merchandising  operation offers retailers and manufacturers  cost effective
     merchandising support for their products in south/central Texas.

PRODUCTS

     MANUFACTURED SNACK FOOD PRODUCTS. Poore Brothers(R) brand potato chips were
first introduced by the Poore Brothers in 1986 and in November 1998, the Company
acquired the Bob's Texas  Style(R)  potato  chips  brand.  Both brands of potato
chips  are  marketed  by  the  Company  as a  premium  product  based  on  their
distinctive  combination of cooking  method and variety of distinctive  flavors.
The  potato  chips  are  produced  in ten  flavors:  Original,  Salt &  Vinegar,
Jalapeno,  Barbecue,  Parmesan & Garlic,  Cajun,  Dill Pickle,  Grilled  Steak &
Onion,  Habanero and  Unsalted.  Poore  Brothers(R)  potato chips are  currently
offered in all flavors  and Bob's  Texas  Style(R)  potato  chips are  currently
offered in seven of such flavors.

                                       9
<PAGE>
     The  Company  currently  has  agreements  with three  California  and three
Arizona grocery chains pursuant to which the Company  produces their  respective
private  label potato chips in the styles and flavors  specified by such grocery
chains.

     The Company produces Tato Skins(R) brand potato crisps,  Pizzarias(R) brand
pizza chips and O'Boisies(R) brand potato crisps utilizing a sheeting and frying
process that includes patented technology  utilized by the Company.  The Company
licenses the technology from a third party and has an exclusive right to use the
technology  within North America until the patents expire between 2004 and 2006.
See "PATENTS AND  TRADEMARKS."  Tato Skins(R) brand potato crisps are offered in
three  flavors:  Baked Potato,  Cheese n' Bacon and Sour Cream n' Onion flavors.
Pizzarias(R) brand pizza chips are offered in three flavors: Supreme,  Pepperoni
and Cheese  flavors.  O'Boisies  (R) brand  potato  crisps are  offered in three
flavors:  Original,  Sour Cream and Onion and Cheddar flavors.  The Company also
produces  pretzels  and tortilla  chips on a private  label basis for snack food
manufacturers.

     DISTRIBUTED   SNACK  FOOD  PRODUCTS.   Through  its  Arizona   distribution
subsidiary,  Poore  Brothers  Distributing,  the Company  purchases  and resells
throughout  Arizona snack food products  manufactured  by others.  Such products
include pretzels,  tortilla chips, dips,  crackers and meat snacks.  Through its
Texas  subsidiary,  Tejas PB  Distributing,  Inc.  ("Tejas  Distributing"),  the
Company merchandises,  but does not purchase and resell, snack food products for
a major grocery  retailer in  south/central  Texas. In addition to the Company's
Bob's Texas  Style(R)  brand  products,  Tejas  Distributing  merchandises  such
products as private  label potato  chips,  tortilla  chips,  pretzels and cheese
puffs manufactured by other companies.

MANUFACTURING

     The Company believes that a key element of the success to date of the Poore
Brothers(R)  and Bob's Texas  Style(R) brand potato chips has been the Company's
use of certain  cooking  techniques  and key  ingredients  in the  manufacturing
process to produce potato chips with improved flavor. These techniques currently
involve two elements:  the Company's use of a batch-frying process for its brand
name products,  as opposed to the  conventional  continuous line cooking method,
and the Company's  use of  distinctive  seasonings to produce  potato chips in a
variety of flavors.  Although it produces less volume, the Company believes that
its  batch-frying  process is superior to  conventional  continuous line cooking
methods  because it enhances  crispness and flavor through  greater control over
temperature and other cooking conditions.

     In  September  1997,  the  Company  consolidated  all of its  manufacturing
operations  into its present  facility  in  Goodyear,  Arizona,  which was newly
constructed at the time. In 1999, the Company purchased and installed additional
batch-frying  equipment.  The  Goodyear  facility  has the  capacity  to produce
approximately  3,500 pounds of potato chips per hour, with  approximately  1,400
pounds of such  capacity used to batch fry the  Company's  branded  products and
2,100 pounds of such capacity used to continuous fry the Company's private label
products.  The Company owns additional  batch-frying equipment which, if needed,
could be installed without significant time or cost.

     The Company  believes that a key element of the success to date of the Tato
Skins(R),  Pizzarias(R)  and  O'Boisies(R)  brand  products  has been its use of
manufacturing  techniques and key  ingredients in the  manufacturing  process to
produce  snacks  with  unique  shapes,  texture  and  flavor.  These  techniques
currently involve two elements: the Company's use of sheeting and frying and the
Company's use of  distinctive  seasonings to produce snack chips in a variety of
flavors. In April 1998, Wabash Foods began operations utilizing the facility and
equipment  formerly owned and operated by the O'Boisie  Corporation in Bluffton,
Indiana. In connection therewith, Wabash Foods negotiated a 20-year lease on the
manufacturing facility that was utilized by O'Boisie Corporation.  The Bluffton,
Indiana  facility has the capacity to produce over 11,000  pounds of product per
hour. Such capacity  includes three fryer lines that can produce an aggregate of
approximately  7,800  pounds  per  hour  of  Tato  Skins(R),   O'Boisies(R)  and
Pizzarias(R),   and  four  pretzel  ovens  that  can  produce  an  aggregate  of
approximately 3,520 pounds of pretzels per hour. Currently, the Indiana facility
is operating at approximately 15% of capacity.

     There can be no assurance that the Company will obtain sufficient  business
to recoup the costs of its investment in its manufacturing facilities. See "ITEM
2. DESCRIPTION OF PROPERTY."

                                       10
<PAGE>
MARKETING AND DISTRIBUTION

     The Company's  products are  distributed  by a select group of  independent
distributors.  Poore  Brothers(R)  brand  potato  chip  products  have  achieved
significant market presence in Arizona, New Mexico, Southern California, Hawaii,
Denver,  Colorado, St. Louis, Missouri and Grand Rapids, Michigan. The Company's
Bob's Texas Style(R) brand potato chip products have achieved significant market
presence in south/central Texas,  including Houston, San Antonio and Austin. The
Company's Tato Skins(R),  Pizzarias(R) and O'Boisies(R) snack food products have
achieved  significant  market presence in the vending channel nationwide through
an independent network of brokers and distributors,  particularly in the midwest
and eastern regions. The Company attributes the success of its products in these
markets to consumer loyalty.  The Company believes this loyalty results from the
products' differentiated taste, texture and flavor variety which result from its
manufacturing  processes. The Company sells its Poore Brothers(R) brand products
primarily  in the  southwest,  but also in  targeted  markets in the western and
midwest United States.  Substantially  all of the Company's Bob's Texas Style(R)
products are sold in south/central Texas.

     The Company's Arizona  distribution  business operates  throughout Arizona,
with 35  independently  operated  service  routes.  Each route is operated by an
independent  distributor who  merchandises as many as 100 items at major grocery
store chains in Arizona, such as Albertson's, ABCO, Basha's, Fry's, Safeway, and
Fred Myers  stores.  In addition to  servicing  major  supermarket  chains,  the
Company's  distributors  service many  independent  grocery stores,  club stores
(including  Price/Costco  and SAM's Club),  and military  facilities  throughout
Arizona.   In  addition  to  Poore  Brothers(R)  brand  products,   the  Company
distributes  throughout  Arizona a wide variety of snack food items manufactured
by other companies,  including  pretzels,  tortilla chips,  cheese puffs,  dips,
crackers and meat snacks.

     Through  its  Texas  subsidiary,   Tejas  PB  Distributing,   Inc.  ("Tejas
Distributing"),  the Company  merchandises,  but does not  purchase  and resell,
snack food  products for a major grocery  retailer in  south/central  Texas.  In
addition  to  the  Company's   Bob's  Texas  Style(R)  brand   products,   Tejas
Distributing  merchandises such products as private label potato chips, tortilla
chips, pretzels and cheese puffs manufactured by other companies.

     Outside of Arizona and  south/central  Texas,  the Company  selects vending
brokers and retail  distributors to distribute its branded products primarily on
the  basis of  quality  of  service,  call  frequency  on  customers,  financial
capability  and   relationships   they  have  with   supermarkets   and  vending
distributors,  including  access to "shelf space" for snack food. As of December
31, 1999, the Company had  arrangements  with over 50  distributors  and brokers
covering a number of major cities,  including Honolulu,  San Diego, Los Angeles,
Las Vegas, Denver,  Albuquerque, El Paso, San Antonio, Houston, Dallas, Wichita,
Kansas City, St. Louis, Cincinnati, Chicago, Philadelphia and Grand Rapids.

     Successful  marketing of the  Company's  products  depends,  in part,  upon
obtaining  adequate shelf space for such products,  particularly in supermarkets
and vending machines.  Frequently, the Company incurs additional marketing costs
in order to obtain  additional  shelf  space.  Whether or not the  Company  will
continue to incur such costs in the future will depend upon a number of factors,
including existing demand for the Company's products,  relative  availability of
shelf  space  and  general  competitive   conditions.   The  Company  may  incur
significant shelf space or other  promotional costs as a necessary  condition of
entering into  competition in particular  markets or stores.  Any such costs may
materially affect the Company's financial performance.

     The Company's marketing programs are designed to increase product trial and
build brand awareness in core markets.  Most of the Company's marketing spending
is focused on trade  advertising  and trade  promotions  designed to attract new
consumers to the products at a reduced  retail price.  The  Company's  marketing
programs also include  selective  event  sponsorship  designed to increase brand
awareness  and  to  provide  opportunities  to  mass  sample  branded  products.
Sponsorship of the Arizona Diamondbacks and Phoenix Coyotes typify the Company's
efforts  to reach  targeted  consumers  and  provide  them  with a sample of the
Company's products to encourage new and repeat purchases.

SUPPLIERS

     The  principal  raw  materials  used by the  Company are  potatoes,  potato
flakes, wheat flour, corn, oil and packaging material. The Company believes that
the raw  materials it needs to produce its products are readily  available  from
numerous suppliers on commercially  reasonable terms.  Potatoes,  potato flakes,
wheat flour and corn are widely available year-round. The Company uses a variety
of  oils  in the  production  of its  products  and the  Company  believes  that

                                       11
<PAGE>
alternative  sources for such oils,  as well as  alternative  oils,  are readily
abundant and available. The Company also uses seasonings and packaging materials
in its manufacturing process.

     The Company chooses its suppliers  based  primarily on price,  availability
and  quality and does not have any  long-term  arrangements  with any  supplier.
Although the Company  believes that its required  products and  ingredients  are
readily available,  and that its business success is not dependent on any single
supplier,  the failure of certain  suppliers to meet the  Company's  performance
specifications,  quality  standards or delivery  schedules could have a material
adverse effect on the Company's operations.  In particular, a sudden scarcity, a
substantial price increase,  or an  unavailability of product  ingredients could
materially adversely affect the Company's operations.  There can be no assurance
that alternative  ingredients would be available when needed and on commercially
attractive terms, if at all.

CUSTOMERS

     One customer of the  Company,  Fry's Food Stores (a  subsidiary  of Kroger,
Inc.),  accounted for 14% of the Company's 1999 net sales.  The remainder of the
Company's  revenues  were derived from sales to a limited  number of  additional
customers,  either  grocery  chains  or  regional  distributors,  none of  which
individually  accounted  for more  than 10% of the  Company's  sales in 1999.  A
decision  by any of the  Company's  major  customers  to cease or  substantially
reduce their  purchases  could have a material  adverse  effect on the Company's
business.

MARKET OVERVIEW AND COMPETITION

     According to the Snack Food Association  ("SFA"), the U.S. market for salty
snack foods  reached  $18.2 billion at retail in 1998 (the latest year for which
data is available) with potato chips, tortilla chips and pretzels accounting for
approximately  52% of the  market,  and  popcorn,  nuts,  meat  snacks and other
products accounting for the balance.  Total salted snack sales, in dollar terms,
increased every year during the from 1990 through 1998, ranging from an increase
of 8.5% (in 1997) to 0.3% (in 1995),  with a 1998 increase of 7.3%. Potato chip,
tortilla chips and pretzel  combined sales have similarly  increased,  with 1998
retail sales of $9.4 billion, an 8.1% increase over 1997 sales of $8.7 billion.

     The Company's  products compete  generally against other salty snack foods,
including  potato  chips,  tortilla  chips and  pretzels.  The salty  snack food
industry  is  large  and  highly  competitive  and  is  dominated  primarily  by
Frito-Lay,  Inc.,  a  subsidiary  of PepsiCo,  Inc.  Frito-Lay,  Inc.  possesses
substantially greater financial, production,  marketing,  distribution and other
resources than the Company and brands that are more widely  recognized  than the
Company's  products.  Numerous  other  companies  that are  actual or  potential
competitors  of the Company,  many with greater  financial  and other  resources
(including more employees and more extensive facilities) than the Company, offer
products similar to those of the Company. In addition,  many of such competitors
offer a wider range of products  than offered by the Company.  Local or regional
markets often have significant smaller competitors,  many of whom offer products
similar to those of the Company.  Expansion of the Company's operations into new
markets  has  and  will  continue  to  encounter  significant  competition  from
national,  regional  and  local  competitors  that  may  be  greater  than  that
encountered  by  the  Company  in  its  existing  markets.  In  addition,   such
competitors may challenge the Company's position in its existing markets.  While
the Company believes that its specialized products and methods of operation will
enable it to compete  successfully,  there can be no assurance of its ability to
do so.

     The  principal  competitive  factors  affecting the market of the Company's
products  include  product quality and taste,  brand awareness among  consumers,
access to shelf  space,  price,  advertising  and  promotion,  variety of snacks
offered,  nutritional content, product packaging and package design. The Company
competes in the market principally on the basis of product quality and taste.

GOVERNMENT REGULATION

     The manufacture,  labeling and  distribution of the Company's  products are
subject to the rules and regulations of various federal,  state and local health
agencies,  including the FDA. In May 1994, regulations under the NLEA concerning
labeling of food products,  including permissible use of nutritional claims such
as "fat-free" and "low-fat," became effective. The Company is complying with the
NLEA  regulations and closely  monitors the fat content of its products  through
various  testing and quality  control  procedures.  The Company does not believe
that compliance  with the NLEA  regulations  materially  increases the Company's
manufacturing costs. There can be no assurance that new laws or regulations will

                                       12
<PAGE>
not be passed that could  require the Company to alter the taste or  composition
of its products.  Such changes could affect sales of the Company's  products and
have a material adverse effect on the Company.

     In addition to laws relating to food products, the Company's operations are
governed by laws relating to environmental matters,  workplace safety and worker
health, principally the Occupational Safety and Health Act. The Company believes
that  it  presently  complies  in all  material  respects  with  such  laws  and
regulations.

EMPLOYEES

     As of December 31, 1999, the Company had 224 full-time employees, including
203 in  manufacturing  and  distribution,  6 in sales  and  marketing  and 15 in
administration and finance.  The Company's  employees are not represented by any
collective bargaining  organization and the Company has never experienced a work
stoppage. The Company believes that its relations with its employees are good.

PATENTS AND TRADEMARKS

     The Company produces Tato Skins(R) brand potato crisps,  Pizzarias(R) brand
pizza  chips,  and  O'Boisies(R)  brand potato  crisps  utilizing a sheeting and
frying process that includes patented  technology that the Company licenses from
Miles Willard  Technologies,  LLC, an Idaho limited  liability  company  ("Miles
Willard").  Pursuant  to the  license  agreement  between  the Company and Miles
Willard,  the  Company has an  exclusive  right to use the  patented  technology
within  North  America  until the  patents  expire  between  2004 and  2006.  In
consideration  for the use of these  patents,  the  Company is  required to make
royalty  payments to Miles Willard on sales of products  manufactured  utilizing
the patented technology.

     The Company owns the  following  trademarks,  which are  registered  in the
United  States:  Poore  Brothers(R),  An  Intensely  Different  Taste(R),  Texas
Style(R), Tato Skins(R), O'Boisies(R), Pizzarias(R), Braids(R) and Knots(R). The
Company  considers  its  trademarks  to  be of  significant  importance  in  the
Company's  business.  The Company is not aware of any  circumstances  that would
have a material adverse effect on the Company's ability to use its trademarks.

ITEM 2. DESCRIPTION OF PROPERTY

     The Company owns a 60,000 square foot facility located on 7.7 acres of land
in  Goodyear,  Arizona,   approximately  15  miles  west  of  Phoenix,  Arizona.
Construction  of this new facility was  completed in June 1997.  In August 1997,
the Company  completed the transition of all of its Arizona  operations into the
new facility.  The site will enable the Company to expand its  facilities in the
future to a total building size of 120,000 square feet. The facility is financed
by a mortgage  with Morgan  Guaranty  Trust  Company of New York that matures in
June 2012.

     The Company  leases a 140,000  square foot  facility  located in  Bluffton,
Indiana,  approximately  20 miles  south  of Ft.  Wayne,  Indiana.  Prior to the
Keebler Company's acquisition of the facility in 1980, the plant contained three
pretzel lines with 40,000 square feet of processing space and 40,000 square feet
of warehousing  space.  In 1985, the Keebler  Company  completed a 60,000 square
foot fryer room  addition and installed the three fryer lines that still operate
in the  facility.  The Company has entered  into a lease  expiring in April 2018
with respect to the facility with two five-year  renewal options.  Monthly lease
payments  through  April 2000 are $17,500 and then increase to $20,000 per month
for the remainder of the lease term with an annual CPI  adjustment.  The Company
is responsible for all insurance costs, utilities and real estate taxes.

     The  Company  believes  that  its  facilities  are  adequately  covered  by
insurance.

ITEM 3. LEGAL PROCEEDINGS

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                       13
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The common stock, $.01 par value, of the Company (the "Common Stock") began
trading  on the  Nasdaq  SmallCap  Market  tier of the  Nasdaq  Stock  Market on
December 6, 1996 under the symbol "POOR", following the Company's initial public
offering.  On October 11, 1999,  the Company  changed its symbol to "SNAK".  The
following table sets forth, for the periods indicated, the high and low reported
sales prices for the Common  Stock on the Nasdaq  SmallCap  Market.  The trading
market in the Company's  securities  may at times be relatively  illiquid due to
low trading volume.

                                                       Sales Prices
                                                     -----------------
          Period of Quotation                        High         Low
          -------------------                        -----       -----
          Fiscal 1998:
            First Quarter                            $1.44       $0.97
            Second Quarter                           $1.63       $1.09
            Third Quarter                            $1.44       $0.75
            Fourth Quarter                           $1.06       $0.41

          Fiscal 1999:
            First Quarter                            $0.94       $0.53
            Second Quarter                           $1.88       $0.66
            Third Quarter                            $1.39       $1.00
            Fourth Quarter                           $1.75       $1.25

     In order for the  Company's  Common  Stock to  continue to be listed on the
Nasdaq SmallCap Market, the Company is required to be in compliance with certain
continued listing  standards.  One of such requirements is that the bid price of
listed securities be equal to or greater than $1.00. As of November 9, 1998, the
closing bid price of the  Company's  Common Stock had  remained  below $1.00 per
share for thirty  consecutive  trading days. As a result, the Company received a
notice from Nasdaq that the Company was not in  compliance  with the closing bid
price  requirements  for  continued  listing of the  Common  Stock on the Nasdaq
SmallCap Market and that such Common Stock would be de-listed after February 15,
1999 if the closing  bid price was not equal to or greater  than $1.00 per share
for a period of at least ten  consecutive  trading  days  during the  ninety-day
period ending  February 15, 1999. On February 9, 1999, the Company  submitted to
Nasdaq a request  for a hearing to  discuss  the  possibility  of  obtaining  an
extension of such ninety-day  period.  The Company's hearing request was granted
by Nasdaq and a hearing was held on April 16, 1999. The de-listing of the Common
Stock was stayed pending a determination by Nasdaq after the hearing. On October
19, 1999, the Company was notified by Nasdaq that a determination  had been made
to permit the  Company's  Common  Stock to  continue  to be listed on the Nasdaq
SmallCap Market. The determination was based upon the Company's  compliance with
the Nasdaq closing bid price requirement of $1.00 per share and the satisfaction
by the Company of various information requests. If, in the future, the Company's
Common  Stock  fails to be in  compliance  with the  minimum  closing  bid price
requirement for at least thirty consecutive trading days or the Company fails to
be in compliance with any other Nasdaq continued listing requirements,  then the
Common Stock could be de-listed from the Nasdaq SmallCap  Market.  Upon any such
de-listing,  trading,  if any, in the Common Stock would thereafter be conducted
in the over-the-counter market on the so-called "pink sheets" or the "Electronic
Bulletin  Board"  of  the  National  Association  of  Securities  Dealers,  Inc.
("NASD").  As a consequence  of any such  de-listing,  an investor could find it
more difficult to dispose of, or to obtain  accurate  quotations as to the price
of the Company's Common Stock.

     On  March  24,  2000,   there  were  13,347,044   shares  of  Common  Stock
outstanding.  As of such date, the shares of Common Stock were held of record by
approximately 2,600 shareholders.

     The  Company  has never  declared  or paid any  dividends  on the shares of
Common Stock. Management intends to retain any future earnings for the operation
and  expansion  of the  Company's  business and does not  anticipate  paying any
dividends  at any time in the  foreseeable  future.  In any event,  certain debt
agreements  of the  Company  limit the  Company's  ability  to  declare  and pay
dividends.

                                       14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998

     Net  sales for the year  ended  December  31,  1999  were  $23,275,000,  up
$10,107,000,  or 77%, from $13,168,000 for 1998. Sales of products  manufactured
by the  Company  accounted  for 80% and 78% of the total sales in 1999 and 1998,
respectively,  while sales of products  manufactured by others accounted for 20%
and 22% in 1999 and 1998,  respectively.  Manufactured products segment revenues
increased  $8,250,000,  or 82%, from sales of branded and private label product,
including $2,290,000 from the Bob's Texas Style(R) brand acquired by the Company
in November 1998 and $3,449,000 in connection with the Wabash Foods  acquisition
in October 1999. The remaining $2,511,000 increase,  or 25%, was attributable to
the Poore  Brothers(R)  brand and  private  label  products.  Revenues  from the
distribution  and  merchandising  of products  manufactured by others  increased
$1,858,000,  or 64%. The  majority of this  increase,  $1,158,000,  was from the
Texas  merchandising  operation,  acquired by the  Company in  November  1998 in
connection with the Tejas acquisition.  The remaining $700,000 increase, or 26%,
was due to increased sales of distributed product lines.

     Gross profit for the year ended December 31, 1999, was  $5,707,000,  or 25%
of net sales,  as compared to  $3,244,000,  or 25% of net sales,  for 1998.  The
$2,463,000 increase,  or 76%, in gross profit resulted from the increased volume
of manufactured products.

     Selling,  general and administrative  expenses increased to $4,764,000,  or
just 20% of net sales for the year ended December 31, 1999, from $3,603,000,  or
27% of net sales for 1998.  This  represented  a  $1,161,000  increase,  or 32%,
compared to 1998,  primarily due to an $838,000,  or 55%, increase in marketing,
advertising  and  promotional  spending  and  $210,000  of  other  sales-related
expenses associated with the 77% increase in sales volume.

     Net interest expense  increased to $750,000 for the year ended December 31,
1999 from $515,000 for 1998.  This increase was due to lower interest  income of
$15,000  on  investments   and  increased   interest   expense  of  $220,000  on
indebtedness related to the Tejas and Wabash acquisitions.

     An  extraordinary  loss of $47,000 was recorded in October 1999  associated
with debt  extinguishment  charges in connection  with the acquisition of Wabash
Foods.

     The  cumulative  effect of a change in accounting  principle  resulted in a
$72,000  charge in the first  quarter of 1999 and was  related to the  Company's
expensing of previously capitalized  organization costs as required by Statement
of Position  98-5,  "REPORTING ON THE COSTS OF START-UP  ACTIVITIES,"  which was
effective for the Company's fiscal year beginning January 1, 1999.

     The Company's net income for the year ended  December 31, 1999 was $74,000,
and the net loss for the year ended December 31, 1998 was $874,000. The increase
in net income was attributable primarily to the increased gross profit offset by
higher selling, general and administrative expenses.

     YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

     Net sales for the year  ended  December  31,  1998 were  $13,168,000,  down
$2,564,000, or 16%, from $15,732,000 for 1997. Sales of products manufactured by
the  Company  accounted  for 78% and 71% of the  total  sales in 1998 and  1997,
respectively,  while sales of products  manufactured by others accounted for 22%
and 29% in 1998  and  1997,  respectively.  The sale of the  Texas  distribution
business in June 1997  represented  approximately  $1,452,000 of the total sales
decline,  consisting of $1,213,000 in sales of products  manufactured  by others
and $239,000 in sales of Poore Brothers manufactured potato chips. An additional
$697,000  decrease  occurred in sales of products  manufactured by others due to
the elimination of several  unprofitable product lines during the second quarter
of 1997. These decreases were partially  offset by increased  revenue from other
product lines of $282,000,  or 11%.  Manufactured potato chip sales for the year
ended December 31, 1998 were $10,286,000, down $696,000, or 6%, from $10,982,000
(excluding  PB Texas) for the year ended  December 31, 1997.  This  decrease was
driven  principally by lower volume as a result of the Company's  discontinuance
of unprofitable  promotion  programs with certain  customers and the shutdown of
the  Tennessee  manufacturing  facility in the third  quarter of 1997.  Sales of

                                       15
<PAGE>
private label potato chips increased $649,000,  or 60%, to $1,728,000  primarily
as a result of sales to a new customer beginning in late 1997, helping to offset
the overall decrease in manufactured potato chips.

     Gross profit for the year ended December 31, 1998, was  $3,244,000,  or 25%
of net sales,  as compared to  $2,022,000,  or 13% of net sales,  for 1997.  The
$1,222,000  increase in gross profit,  or 60%, occurred despite 16% lower sales.
This  increase is a result of the  restructuring  actions  implemented  in 1997,
benefits from  negotiated raw material cost savings and a continued  improvement
in manufacturing and operating  efficiencies at the Company's Goodyear,  Arizona
facility.

     Operating  expenses  decreased to  $3,603,000,  or 27% of net sales for the
year ended  December 31, 1998,  from  $4,728,000,  or 30% of net sales for 1997.
This represented a $1,125,000  decrease,  or 24%, compared to 1997. The decrease
was  primarily  attributable  to $164,000 in charges  recorded by the Company in
1997 related to severance,  equipment write-downs and lease termination costs in
connection  with the sale of the Company's Texas  distribution  business in June
1997; $581,000 in charges recorded by the Company in 1997 in connection with the
closure of the LaVergne, Tennessee manufacturing facility in September 1997; and
a decrease in selling, general and administrative expenses. Selling, general and
administrative  expenses decreased $380,000,  or 10%, to $3,603,000 for the year
ended December 31, 1998 from  $3,982,000 for 1997 despite a $29,000  increase in
depreciation  and amortization  and a $169,000,  or 13%,  increase in marketing,
advertising  and  promotional  spending.  Offsetting  these increases were a 21%
decrease in payroll costs and $344,000 in lower sales-related  expenses,  office
expenses and occupancy costs resulting from 1997's restructuring actions.

     Net interest expense  increased to $515,000 for the year ended December 31,
1998 from  $328,000 for 1997.  This was due primarily to an increase in interest
expense of $105,000  related to a full year of interest expense on the permanent
financing  of  the  Company's  Arizona  manufacturing  facility  and  production
equipment in 1998,  and an $82,000  decrease in interest  income  generated from
investment of the remaining proceeds of the initial public offering.

     The  Company's  net losses for the years ended  December  31, 1998 and 1997
were  $874,000  and  $3,034,000,  respectively.  The  reduction  in net loss was
attributable  primarily  to the  increased  gross  profit  and  lower  operating
expenses, offset by higher net interest expense.

LIQUIDITY AND CAPITAL RESOURCES

     Net working capital was $780,086 (a current ratio of 1.2:1) and $768,155 (a
current  ratio of 1.4:1) at December  31, 1999 and 1998,  respectively.  For the
fiscal year ended December 31, 1999, the Company generated cash flow of $235,838
from operating  activities,  principally  from operating  results,  and invested
$423,008 in new equipment.

     On October 7, 1999, the Company signed a new $9.15 million Credit Agreement
with U.S.  Bancorp (the "U.S.  Bancorp Credit  Agreement")  consisting of a $3.0
million  working capital line of credit (the "U.S.  Bancorp Line of Credit"),  a
$5.8 million term loan (the "U.S. Bancorp Term Loan A") and a $350,000 term loan
(the "U.S.  Bancorp  Term Loan B").  Borrowings  under the U.S.  Bancorp  Credit
Agreement were used to pay off the Wells Fargo Line of Credit (as defined below)
and the Wells Fargo Term Loan (as defined below) and to refinance  existing debt
of Wabash  Foods in October  1999,  and will be used in the  future for  general
working  capital  needs.  The U.S.  Bancorp Line of Credit bears  interest at an
annual rate of prime plus 1% and matures in October 2002. The U.S.  Bancorp Term
Loan A bears interest at an annual rate of prime and requires monthly  principal
payments of  approximately  $74,000  which  commenced in February 1, 2000,  plus
interest,  until  maturity on July 1, 2006.  The U.S.  Bancorp Term Loan B bears
interest at an annual  rate of prime plus 2.5% and  requires  monthly  principal
payments of  approximately  $29,000  commencing  April 30, 2000,  plus interest,
until maturity on March 31, 2001. The U.S.  Bancorp Credit  Agreement is secured
by  accounts  receivable,   inventories,   equipment  and  general  intangibles.
Borrowings  under the line of credit are limited to 80% of eligible  receivables
and 60% of eligible  inventories  and at December  31,  1999,  the Company had a
borrowing  base of  approximately  $2,360,000  under  the U.S.  Bancorp  Line of
Credit.  The  U.S.  Bancorp  Credit  Agreement  requires  the  Company  to be in
compliance  with  certain  financial  covenants,  including a minimum  cash flow
coverage ratio, a minimum debt service coverage ratio,  minimum annual operating
results,  a minimum  tangible  capital base and a minimum fixed charge  coverage
ratio.  At December  31,  1999,  the Company was in  compliance  with all of the
financial  covenants.  Management believes that the fulfillment of the Company's
plans and  objectives  will enable the Company to attain a  sufficient  level of
profitability to remain in compliance with these financial performance criteria.

                                       16
<PAGE>
There can be no  assurance,  however,  that the  Company  will  attain  any such
profitability and remain in compliance.  Any acceleration under the U.S. Bancorp
Credit  Agreement  prior to the scheduled  maturity of the U.S.  Bancorp Line of
Credit or the U.S.  Bancorp Term Loans could have a material adverse effect upon
the  Company.  As of December  31,  1999,  there was an  outstanding  balance of
$2,022,579 on the U.S.  Bancorp Line of Credit,  $5,800,000 on the U.S.  Bancorp
Term Loan A and  $350,000  on the U.S.  Bancorp  Term Loan B. In  addition,  the
Company assumed from Wabash Foods a $715,000  non-interest  bearing note payable
to U.S.  Bancorp  which is due in full on June 30,  2000.  On  October  7, 1999,
pursuant to the terms of the U.S. Bancorp Credit  Agreement,  the Company issued
to U.S. Bancorp a warrant (the "U.S. Bancorp Warrant") to purchase 50,000 shares
of Common  Stock for an  exercise  price of $1.00 per  share.  The U.S.  Bancorp
warrant is  exercisable  until October 7, 2004,  the date of  termination of the
U.S.  Bancorp  Warrant,  and  provides  the  holder  thereof  certain  piggyback
registration rights.

     On November 4, 1998, the Company signed a new $2.5 million Credit Agreement
with Wells Fargo which  included a $2.0 million  working  capital line of credit
(the "Wells  Fargo Line of  Credit")  and a $0.5  million  term loan (the "Wells
Fargo Term Loan"). The outstanding balance on the Wells Fargo Line of Credit was
$847,013 at December 31, 1998. The Wells Fargo Line of Credit had an annual rate
of  interest  of prime plus 1.5% and  matured in  November  2001 while the Wells
Fargo Term Loan had an annual  rate of  interest  of prime plus 3% and  required
monthly  principal  payments of  approximately  $28,000,  plus  interest,  until
maturity  on May 1,  2000.  The Wells  Fargo  Credit  Agreement  was  secured by
accounts receivable,  inventories,  equipment and general intangibles. The Wells
Fargo  Line of Credit  and Term Loan  were  paid in full on  October  7, 1999 in
connection with the  above-described  Wabash Foods  acquisition and related U.S.
Bancorp financing.

     The   Company's   Goodyear,   Arizona   manufacturing,   distribution   and
headquarters  facility is subject to a $2.0  million  mortgage  loan from Morgan
Guaranty  Trust  Company of New York,  bears  interest at 9.03% per annum and is
secured by the building and the land on which it is located. The loan matures on
July 1, 2012; however monthly principal and interest installments of $18,425 are
determined based on a twenty-year amortization period.

     The Company has entered into a variety of capital and operating  leases for
the acquisition of equipment and vehicles.  The leases  generally have five-year
terms,  bear interest at rates from 8.2% to 11.3%,  require monthly payments and
expire at various  times  through  2002 and are  collateralized  by the  related
equipment.

     At December 31, 1999, the Company had outstanding 9% Convertible Debentures
due July 1, 2002 in the principal  amount of $1,370,067  ($511,020 held by Wells
Fargo and $859,047 held by Renaissance Capital).  The 9% Convertible  Debentures
are secured by land,  building,  equipment and  intangibles.  Interest on the 9%
Convertible  Debentures  is paid by the  Company  on a  monthly  basis.  Monthly
principal  payments  of  approximately  $5,000  are  required  to be made by the
Company  on the Wells  Fargo 9%  Convertible  Debenture  beginning  in July 2000
through  June  2002.  In  November  1999,   Renaissance  Capital  converted  50%
($859,047)  of its 9%  Convertible  Debenture  holdings  into 859,047  shares of
Common  Stock and  agreed  unconditionally  to  convert  into  Common  Stock the
remaining  $859,047  principal not later than December 31, 2000.  For the period
November 1, 1999 through December 31, 2000,  Renaissance Capital agreed to waive
all mandatory  principal  redemption  payments and to accept 30,000 unregistered
shares of the Company's  Common Stock and a warrant to purchase 60,000 shares of
common stock at $1.50 per share in lieu of cash interest  payments.  The holders
of the 9%  Convertible  Debentures  previously  granted the Company a waiver for
noncompliance  with a  financial  ratio  effective  through  June 30,  1999.  As
consideration  for the  granting of such waiver in  February  1998,  the Company
issued warrants to Renaissance  Capital and Wells Fargo,  representing the right
to purchase 25,000 and 7,143 shares of the Company's Common Stock, respectively,
at an exercise price of $1.00 per share.  Each warrant became  exercisable  upon
issuance  and expires on July 1, 2002.  As a result of an event of default,  the
holders of the 9% Convertible Debentures have the right, upon written notice and
after a thirty-day  period  during  which such  default may be cured,  to demand
immediate  payment of the then unpaid  principal and accrued but unpaid interest
under the  Debentures.  The  Company is  currently  in  compliance  with all the
financial ratios,  including working capital of at least $500,000;  a minimum of
$4,500,000  shareholders'  equity;  and a current ratio at the end of any fiscal
quarter of at least  1.1:1.  Management  believes  that the  achievement  of the
Company's  plans and  objectives  will enable the Company to attain a sufficient
level of profitability to remain in compliance with the financial ratios.  There
can  be  no  assurance,   however,   that  the  Company  will  attain  any  such
profitability  and  remain  in  compliance  with  the  financial   ratios.   Any
acceleration under the 9% Convertible Debentures prior to their maturity on July
1, 2002 could have a material adverse effect upon the Company.

                                       17
<PAGE>
     At December  31, 1999,  the Company had net  operating  loss  carryforwards
available for federal income taxes of approximately $5.3 million.  The Company's
ability to utilize its net operating loss carryforwards to offset future taxable
income may be limited  under the  Internal  Revenue  Code  Section 382 change in
ownership rules. A valuation  allowance has been provided for the full amount of
the net operating loss carryforward since the Company believes the realizability
of the deferred tax asset does not meet the more likely than not criteria  under
SFAS 109, "Accounting for Income Taxes." The Company's accumulated net operating
loss  carryforwards  will begin to expire in varying  amounts  between  2010 and
2018.

MANAGEMENT'S PLANS

     In connection with the  implementation of the Company's  business strategy,
the Company may incur additional operating losses in the future and is likely to
require future debt or equity financings (particularly in connection with future
strategic   acquisitions).    Expenditures   relating   to   acquisition-related
integration costs,  market and territory  expansion and new product  development
may  adversely  affect  selling,   general  and   administrative   expenses  and
consequently  may  adversely  affect  operating  and net income.  These types of
expenditures  are expensed for  accounting  purposes as incurred,  while revenue
generated  from the result of such expansion may benefit  future  periods.  As a
result of the 1997 restructuring  actions,  the November 1998 Tejas acquisition,
and the October 1999 Wabash  acquisition,  management  believes that the Company
will generate positive cash flow from operations, during the next twelve months,
which along with its existing working capital and borrowing  facilities,  should
enable the Company to meet its operating  cash  requirements  through 2000.  The
belief is based on current  operating plans and certain  assumptions,  including
those relating to the Company's future revenue levels and expenditures, industry
and general economic  conditions and other  conditions.  If any of these factors
change,  the Company may require  future debt or equity  financings  to meet its
business  requirements.  There can be no assurance that any required  financings
will be available or, if available, on terms attractive to the Company.

INFLATION AND SEASONALITY

     While inflation has not had a significant  effect on operations in the last
year,  management  recognizes  that  inflationary  pressures may have an adverse
effect on the Company as a result of higher asset  replacement costs and related
depreciation and higher material costs. Additionally, the Company may be subject
to seasonal price increases for raw materials.  The Company attempts to minimize
the  fluctuation  in seasonal  costs by entering  into purchase  commitments  in
advance,  which have the effect of smoothing out price  volatility.  The Company
will attempt to minimize  overall price  inflation,  if any,  through  increased
sales prices and productivity improvements.

ITEM 7. FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
REPORTS

Report of independent public accountants with respect to financial
  statements for the years ended December 31, 1999 and 1998
                                                                              26
FINANCIAL STATEMENTS

Consolidated balance sheets as of December 31, 1999 and 1998                  27
Consolidated statements of operations for the years ended
  December 31, 1999 and 1998                                                  28
Consolidated statements of shareholders' equity for the years ended
  December 31, 1999 and 1998                                                  29
Consolidated statements of cash flows for the years ended
  December 31, 1999 and 1998                                                  30
Notes to consolidated financial statements                                    31

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                       18
<PAGE>
                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The executive officers and Directors of the Company, and their ages, are as
follows:

     Name                    Age                     Position
     ----                    ---                     --------
     Eric J. Kufel           33     President, Chief Executive Officer, Director
     Glen E. Flook           41     Vice President-Manufacturing
     Thomas W. Freeze        48     Vice President, Chief Financial Officer,
                                      Treasurer, Secretary, and Director
     Thomas G. Bigham        46     Vice President of Sales-Texas
     Wendell T. Jones        59     Vice President of Sales-Arizona
     Kevin M. Kohl           44     Vice President, National Sales Manager
     James M. Poore          53     Vice President
     Mark S. Howells         46     Chairman, Director
     Richard E. Goodspeed    62     Director
     James W. Myers          65     Director
     Robert C. Pearson       64     Director
     Aaron M. Shenkman       59     Director

ERIC J. KUFEL. Mr. Kufel has served as President,  Chief Executive Officer and a
Director of the Company since February 1997. From November 1995 to January 1997,
Mr. Kufel was Senior Brand Manager at The Dial  Corporation  and was responsible
for the operating results of Purex Laundry Detergent. From June 1995 to November
1995, Mr. Kufel was Senior Brand Manager for The Coca-Cola  Company where he was
responsible  for the marketing and  development  of Minute Maid  products.  From
November  1994 to June  1995 Mr.  Kufel  was  Brand  Manager  for The  Coca-Cola
Company,  and from June 1994 to November  1994,  Mr. Kufel was  Assistant  Brand
Manager for The Coca-Cola Company. From January 1993 to June 1994, Mr. Kufel was
employed  by  The  Kellogg  Company  in  various   capacities   including  being
responsible  for introducing the Healthy Choice line of cereal and executing the
marketing plan for Kellogg's  Frosted Flakes cereal.  Mr. Kufel earned a Masters
of International  Management from the American  Graduate School of International
Management in December 1992.

GLEN E. FLOOK. Mr. Flook has served as Vice President-Manufacturing  since March
1997.  From  January 1994 to February  1997,  Mr. Flook was employed by The Dial
Corporation as a Plant Manager for a manufacturing  operation that generated $40
million in annual revenues.  From January 1983 to January 1994, Mr. Flook served
in  various  capacities  with  Frito-Lay,  Inc.,  including  Plant  Manager  and
Production Manager.

THOMAS W.  FREEZE.  Mr.  Freeze has served as Vice  President,  Chief  Financial
Officer,  Secretary  and  Treasurer  of the  Company  since  April 1997 and as a
Director since October 1999. From April 1994 to April 1997, Mr. Freeze served as
Vice President,  Finance and  Administration  -- Retail of New England  Business
Service,  Inc.  From  October  1989 to April  1994,  Mr.  Freeze  served as Vice
President, Treasurer and Secretary of New England Business Service, Inc.

THOMAS G.  BIGHAM.  Mr.  Bigham has been Vice  President  of Sales - Texas since
November 1998.  From December 1996 to November 1998, Mr. Bigham was President of
Tejas,  whose  business  and  certain  assets were  purchased  by the Company in
November  1998.  From 1994 to December  1996,  Mr. Bigham was President of Eagle
Brands of Houston, Inc.

WENDELL T. JONES. Mr. Jones has been the Vice President of  Sales-Arizona  since
August 1998.  From February 1997 to August 1998, Mr. Jones served as Director of
Sales-Arizona.  Previously,  Mr. Jones was National Sales Manager of the Company
from  January  1996 to February  1997.  From 1969 to 1996,  Mr.  Jones served in
various capacities at Frito-Lay,  Inc., including Director of Sales,  Operations
Manager and Manager-Trade Development.

KEVIN M. KOHL.  Mr. Kohl has been Vice  President,  National Sales Manager since
May 1999. From November 1998 to April 1999, Mr. Kohl served as Vice President of
Sales - Texas of the  Company.  From July 1996 to  November  1998,  Mr. Kohl was
Executive  Vice  President  of Tejas,  whose  business  and certain  assets were
purchased by the Company in November 1998. From July 1994 to June 1996, Mr. Kohl
was President of Mighty Eagle,  Inc. d/b/a Atlanta Eagle. From June 1992 to July
1994, Mr. Kohl was a Regional Director of Eagle Snacks, Inc.

                                       19
<PAGE>
JAMES M. POORE.  Mr. Poore has served as a Vice  President of the Company  since
June  1995.  Mr.  Poore  co-founded  PB  Foods in 1986  and  served  as its Vice
President,  Secretary,  Treasurer and Director until May 1995. In addition,  Mr.
Poore served as the Secretary and a Director of PB Distributing, a subsidiary of
the Company,  from January 1990 to May 1995,  and as Chairman of the Board and a
Director of PB Texas, a subsidiary of the Company, from May 1991 to May 1995. In
1983,  he  co-founded  Groff's of Texas,  Inc.,  a potato chip  manufacturer  in
Brookshire, Texas, and served as its President until January 1986.

MARK S. HOWELLS.  Mr. Howells has served as Chairman of the Board of the Company
since March 1995.  For the period from March 1995 to August  1995,  Mr.  Howells
also served as President and Chief Executive  Officer of the Company.  He served
as the  Chairman  of the  Board  of PB  Southeast,  a former  subsidiary  of the
Company,  from its  inception  in May 1993  until it was  dissolved  in 1999 and
served as its  President  and Chief  Executive  Officer  from May 1993 to August
1994.  Since 1988,  Mr. Howells has devoted a majority of his time to serving as
the  President  and Chairman of Arizona  Securities  Group,  Inc.  d/b/a Puglisi
Howells & Co., a registered securities broker-dealer.

RICHARD E. GOODSPEED.  Mr. Goodspeed currently serves as a management consultant
to several companies, primarily in the food (manufacturing and retail) industry.
Mr.  Goodspeed  served as  President  and Chief  Operating  Officer  of The Vons
Companies, Inc. from 1994 to 1998 and as a Director from 1994 to 1997. From 1989
to 1994,  he served as President  and Chief  Operating  Officer of Lucky Stores,
Inc., a subsidiary of American  Stores  Company,  and from 1992 to 1994, he also
served as Executive Vice President of American Stores Company.

JAMES W. MYERS. Mr. Myers has served as a Director since January 1999. Mr. Myers
has been President of Myers Management & Capital Group,  Inc., a consulting firm
specializing in strategic,  organizational  and financial  advisory  services to
CEO's, since January 1996. From December 1989 to December 1995, Mr. Myers served
as  President  of Myers,  Craig,  Vallone & Francois,  Inc.,  a  management  and
corporate finance consulting firm. Previously, Mr. Myers was an executive with a
variety of consumer  goods  companies.  Mr. Myers is currently a director of ILX
Resorts, Inc., a publicly traded time-share sales and resort property company.

ROBERT C.  PEARSON.  Mr.  Pearson has served as a Director of the Company  since
March 1996.  Mr.  Pearson has been Senior Vice  President-Corporate  Finance for
Renaissance  Capital Group, Inc. since April 1997.  Previously,  Mr. Pearson had
been  an  independent  financial  and  management  consultant   specializing  in
investments  with  emerging  growth  companies.  He has  performed  services for
Renaissance  Capital  Partners  ("RCP") in connection with the Company and other
RCP investments.  RCP is the operating manager of Renaissance Capital, the owner
of a 9%  Convertible  Debenture.  From  1990 to  1994,  Mr.  Pearson  served  as
Executive Vice President and Chief  Financial  Officer of Thomas Group,  Inc., a
publicly  traded   consulting   firm.  Prior  to  1990,  Mr.  Pearson  was  Vice
President-Finance of Texas Instruments, Incorporated. Mr. Pearson is currently a
director of Tava Technologies,  Inc. (a publicly traded  information  technology
services  company),   Dexterity  Surgical,  Inc.  (a  publicly  traded  surgical
instruments  manufacturer and distributor),  and Interscience Computer,  Inc. (a
distributor of consumables for laser printers).

     Pursuant to the Debenture  Loan  Agreement,  so long as the 9%  Convertible
Debentures have not been fully converted into shares of Common Stock or redeemed
or paid by the  Company,  Renaissance  Capital  shall be entitled to designate a
nominee to the Company's Board of Directors subject to election by the Company's
stockholders.  Renaissance  Capital  designated  Mr. Pearson as a nominee to the
Board of Directors.

     AARON M.  SHENKMAN.  Mr.  Shenkman  has served as a Director of the Company
since June 1997. He has served as the General Partner of Managed Funds LLC since
October  1997.  He  served  as the  Vice-Chairman  of  Helen  of Troy  Corp.,  a
distributor  of personal care  products,  from March 1997 to October 1997.  From
February 1984 to February 1997, Mr.  Shenkman was the President of Helen of Troy
Corp.  From 1993 to 1996,  Mr.  Shenkman  also served as a Director of Craftmade
International, a distributor of ceiling fans.

ITEMS 9-12. DOCUMENTS INCORPORATED BY REFERENCE

     Information  with respect to a portion of Item 9 and Items 10, 11 and 12 of
Form 10-KSB is hereby incorporated by reference into this Part III of the Annual
Report  of Form  10-KSB  from the  Company's  Proxy  Statement  relating  to the
Company's  2000 Annual Meeting of  Shareholders  to be filed by the Company with
the Commission on or about April 17, 2000.

                                       20
<PAGE>
ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K

     The  following  documents  are filed as part of this Annual  Report on Form
10-KSB:

     (a)  The following exhibits as required by Item 601 of Regulation S-B:

EXHIBIT
NUMBER                             DESCRIPTION
------                             -----------
3.1   --  Certificate of  Incorporation  of the Company filed with the Secretary
          of State of the State of Delaware on February 23, 1995. (1)

3.2   --  Certificate of Amendment to the  Certificate of  Incorporation  of the
          Company  filed with the Secretary of State of the State of Delaware on
          March 3, 1995. (1)

3.3   --  Certificate of Amendment to the  Certificate of  Incorporation  of the
          Company  filed with the Secretary of State of the State of Delaware on
          October 7,1999. (Incorporated by reference to the Company's definitive
          Proxy Statement on Schedule 14A filed with the Securities and Exchange
          Commission on September 15, 1999.)

3.3   --  By-Laws of the Company. (1)

4.1   --  Specimen Certificate for shares of Common Stock. (1)

4.2   --  Form of Underwriter's Warrant issued by the Company to Paradise Valley
          Securities, Inc. on December 11, 1996. (1)

4.3   --  Convertible  Debenture Loan Agreement  dated May 31, 1995 by and among
          the  Company,   Poore  Brothers  Arizona,  Inc.  ("PB  Arizona"),   PB
          Distributing,  PB Texas, PB Southeast,  Renaissance  Capital and Wells
          Fargo. (1)

4.4   --  9.00% Convertible  Debenture dated May 31, 1995, issued by the Company
          to Renaissance Capital. (1)

4.5   --  9.00% Convertible  Debenture dated May 31, 1995, issued by the Company
          to Wells Fargo. (1)

4.6   --  Form of Warrant issued as of February 1998 to Renaissance  Capital and
          Wells Fargo. (3)

4.7   --  Warrant dated November 4, 1998, issued by the Company to Norwest. (4)

4.8   --  Warrant to  purchase  400,000  shares of Common  Stock,  issued by the
          Company to Wabash Foods on October 7, 1999. (Incorporated by reference
          to the Company's definitive Proxy Statement on Schedule 14A filed with
          the Securities and Exchange Commission on September 15, 1999.)

4.9   --  Form of  Revolving  Note,  Term  Note A and Term  Note B issued by the
          Company to U.S. Bancorp Republic Commercial  Finance,  Inc. on October
          7, 1999. (5)

4.10  --  Warrant  to  purchase  50,000  shares of Common  Stock,  issued by the
          Company to U.S. Bancorp Republic Commercial  Finance,  Inc. on October
          7, 1999. (5)

10.1  --  Employment Agreement dated May 31, 1995, by and between PB Arizona and
          James M. Poore. (1)

10.2  --  Non-Qualified Stock Option Agreements dated August 1, 1995, August 31,
          1995 and  February  29,  1996,  by and between the Company and Mark S.
          Howells. (1)

                                       21
<PAGE>
10.3  --  Non-Qualified Stock Option Agreements dated August 1, 1995, August 31,
          1995 and February 29, 1996,  by and between the Company and Jeffrey J.
          Puglisi. (1)

10.4  --  Non-Qualified  Stock Option  Agreement  dated  August 1, 1995,  by and
          between the Company and Parris H. Holmes, Jr. (1)

10.5  --  Form  of  Security  Agreements  dated  May  31,  1995,  by  and  among
          Renaissance Capital,  Wells Fargo and each of the Company, PB Arizona,
          PB Southeast, PB Texas and PB Distributing. (1)

10.6  --  Master  Equipment  Lease  Agreement  dated  September 22, 1995, by and
          between Banc One Arizona Leasing Corporation and PB Arizona ("Banc One
          Lease Agreement"), with equipment schedules. (1)

10.7  --  Corporate Guaranty dated September 25, 1995, issued by PB Distributing
          to Banc One Arizona  Leasing  Corporation in connection  with the Banc
          One Lease Agreement. (1)

10.8  --  Equipment  Lease  Agreement dated December 12, 1995, by and between PB
          Arizona and FINOVA Capital Corporation. (1)

10.9  --  Guaranty  dated  December  12,  1995,  issued by the Company to FINOVA
          Capital Corporation. (1)

10.10 --  Master Lease Agreement (the "LCA Lease  Agreement")  dated February 1,
          1996, by and between PB Arizona and LCA Capital  Corp.  (also known as
          LCA, a Division of Associates Commercial Corporation) ("LCA"). (1)

10.11 --  Purchase  Agreement  dated February 1, 1996, by and between PB Arizona
          and LCA in connection with the LCA Lease Agreement. (1)

10.12 --  Corporate Guaranty dated as of February 1, 1996, issued by the Company
          to LCA in connection with LCA Lease Agreement. (1)

10.13 --  Agreement  dated  August 29,  1996,  by and  between  the  Company and
          Westminster Capital, Inc. ("Westminster"), as amended. (1)

10.14 --  Form  of   Independent   Distributor   Agreement  by  and  between  PB
          Distributing and independent distributors. (1)

10.15 --  Amendment No. 1 dated October 14, 1996, to Warrant dated September 11,
          1996, issued by the Company to Westminster. (1)

10.16 --  Letter  Agreement dated November 5, 1996,  amending the  Non-Qualified
          Stock Option  Agreement  dated  February 29, 1996,  by and between the
          Company and Mark S. Howells. (1)

10.17 --  Letter  Agreement dated November 5, 1996,  amending the  Non-Qualified
          Stock Option  Agreement  dated  February 29, 1996,  by and between the
          Company and Jeffrey J. Puglisi. (1)

10.18 --  Non-Qualified  Stock Option Agreement dated as of October 22, 1996, by
          and between the Company and Mark S. Howells. (1)

10.19 --  Letter  Agreement  dated as of  November  5, 1996,  by and between the
          Company and Jeffrey J. Puglisi. (1)

10.20 --  Letter  Agreement  dated as of  November  5, 1996,  by and between the
          Company and David J. Brennan. (1)

10.21 --  Stock Option  Agreement  dated  October 22,  1996,  by and between the
          Company and David J. Brennan. (1)

10.22 --  Letter  Agreement  dated  November 1, 1996,  by and among the Company,
          Mark S. Howells,  Jeffrey J.  Puglisi,  David J. Brennan and Parris H.
          Holmes, Jr. (1)

                                       22
<PAGE>
10.23 --  Letter  Agreement  dated  December 4, 1996, by and between the Company
          and Jeffrey J. Puglisi, relating to stock options. (1)

10.24 --  Letter  Agreement  dated  December 4, 1996, by and between the Company
          and Mark S. Howells, relating to stock options. (1)

10.25 --  Letter  Agreement  dated  December 4, 1996, by and between the Company
          and Parris H. Holmes, Jr., relating to stock options. (1)

10.26 --  Letter  Agreement  dated  December 4, 1996, by and between the Company
          and David J. Brennan, relating to stock options. (1)

10.27 --  Form of  Underwriting  Agreement  entered into on December 6, 1996, by
          and between the Company, Paradise Valley Securities, Inc., Renaissance
          Capital and Wells Fargo. (Incorporated by reference to Amendment No. 4
          to the Company's Registration Statement on Form SB-2, Registration No.
          333-5594-LA.)

10.28 --  Employment  Agreement  dated  January  24,  1997,  by and  between the
          Company and Eric J. Kufel. (2)

10.29 --  First Amendment to Employment Agreement dated February 2, 1997, by and
          between the Company and David J. Brennan. (2)

10.30 --  Employment  Agreement  dated  February  14,  1997,  by and between the
          Company and Glen E. Flook. (2)

10.31 --  Commercial Real Estate Purchase Contract and Receipt for Deposit dated
          January 22, 1997, by and between the Company and D.F. Properties, Inc.
          (2)

10.32 --  Employment  Agreement dated April 10, 1997, by and between the Company
          and Thomas W. Freeze.  (Incorporated  by  reference  to the  Company's
          Quarterly Report on Form 10-QSB for the three-month period ended March
          31, 1997.)

10.33 --  Asset Purchase,  Licensing and Distribution Agreement dated as of June
          1, 1997,  by and between PB Texas and David  Hecht.  (Incorporated  by
          reference to the  Company's  Current  Report on Form 8-K dated June 4,
          1997.)

10.34 --  Fixed  Rate  Note  dated  June  4,  1997,  by and  between  La  Cometa
          Properties, Inc. and Morgan Guaranty Trust Company of New York. (3)

10.35 --  Deed of Trust  and  Security  Agreement  dated  June 4,  1997,  by and
          between La Cometa  Properties,  Inc. and Morgan Guaranty Trust Company
          of New York. (3)

10.36 --  Guaranty  Agreement dated June 4, 1997, by and between the Company and
          Morgan Guaranty Trust Company of New York. (3)

10.37 --  Equipment  Lease  Agreement  dated  June 9,  1997,  by and  between PB
          Arizona and FINOVA Capital Corporation. (3)

10.38 --  Separation  Agreement and Release of All Claims dated August 14, 1998,
          by and between the Company and Scott D. Fullmer. (4)

10.39 --  Letter Agreement dated August 18, 1998, by and between the Company and
          Everen. (4)

10.40 --  Credit and Security  Agreement  dated October 23, 1998, by and between
          the Company (and certain of its subsidiaries) and Norwest. (4)

                                       23
<PAGE>
10.41 --  Patent and Trademark Security Agreement dated October 23, 1998, by and
          between the Company (and certain of its subsidiaries) and Norwest. (4)

10.42 --  Agreement  for Purchase and Sale of Assets dated  October 29, 1998, by
          and among the Company, Tejas, Kevin M. Kohl and Thomas G. Bigham. (4)

10.43 --  Employment  Agreement dated November 12, 1998, by and between Tejas PB
          Distributing, Inc. and Thomas G. Bigham. (4)

10.44 --  Employment  Agreement dated November 12, 1998, by and between Tejas PB
          Distributing, Inc. and Kevin M. Kohl. (4)

10.45 --  Management  Agreement  effective  April  1,  1999 by and  between  the
          Company and Wabash Foods.  (Incorporated by reference to the Company's
          Quarterly Report on Form 10-QSB for the three-month period ended March
          31, 1999.)

10.46 --  Agreement  for  Purchase  and  Sale  of  Limited   Liability   Company
          Membership  Interests dated as of August 16, 1999, by and between Pate
          Foods  Corporation,  Wabash  Foods and the Company.  (Incorporated  by
          reference to the Company's  definitive Proxy Statement on Schedule 14A
          filed with the  Securities  and Exchange  Commission  on September 15,
          1999.)

10.47 --  Letter  Agreement  dated July 30,  1999 by and between the Company and
          Stifel, Nicolaus & Company,  Incorporated.  (Incorporated by reference
          to the Company's  Quarterly  Report on Form 10-QSB for the three-month
          period ended September 30, 1999.)

10.48 --  Poore Brothers, Inc. 1995 Stock Option Plan, as amended. (5)

10.49 --  Credit  Agreement,  dated as of October 3, 1999,  by and  between  the
          Company and U.S. Bancorp Republic Commercial Finance, Inc. (5)

10.50 --  Security  Agreement,  dated as of October 3, 1999,  by and between the
          Company and U.S. Bancorp Republic Commercial Finance, Inc. (5)

10.51 --  Commercial Lease,  dated May 1, 1998, by and between Wabash Foods, LLC
          and American Pacific Financial Corporation. (5)

21.1  --  List of Subsidiaries of the Company. (5)

27.1  --  Financial Data Schedule for 1999. (5)

(1)  Incorporated by reference to the Company's  Registration  Statement on Form
     SB-2, Registration No. 333-5594-LA.

(2)  Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended December 31, 1996.

(3)  Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
     for the three-month period ended June 30, 1997.

(4)  Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
     for the three-month period ended September 30, 1998.

(5)  Filed herewith.

     (b)  Reports on Form 8-K.

          (1)  Current  Report  on Form 8-K,  reporting  the  completion  of the
          acquisition  of Wabash Foods by the Company (filed with the Commission
          on October 21, 1999).

                                       24
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: March 30, 2000                  POORE BROTHERS, INC.

                                       By: /s/ Eric J. Kufel
                                           ------------------------------------
                                           Eric J. Kufel
                                           President and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant, in the capacities and on the dates indicated.

        Signature                      Title                           Date
        ---------                      -----                           ----

/s/ Eric J. Kufel           President, Chief Executive Officer,   March 30, 2000
-------------------------   and Director (Principal Executive
    Eric J. Kufel           Officer)


/s/ Thomas W. Freeze        Vice President, Chief Financial       March 30, 2000
-------------------------   Officer, Treasurer, Secretary,
    Thomas W. Freeze        and Director (Principal Financial
                            Officer and Principal Accounting
                            Officer)


/s/ Mark S. Howells         Chairman, Director                    March 30, 2000
-------------------------
    Mark S. Howells


/s/ Richard E. Goodspeed    Director                              March 30, 2000
-------------------------
    Richard E. Goodspeed


/s/ James W. Myers          Director                              March 30, 2000
-------------------------
    James W. Myers


/s/ Robert C. Pearson       Director                              March 30, 2000
-------------------------
    Robert C. Pearson


/s/ Aaron M. Shenkman       Director                              March 30, 2000
-------------------------
    Aaron M. Shenkman

                                       25
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Poore Brothers, Inc.

We have audited the accompanying  consolidated balance sheets of POORE BROTHERS,
INC. (a Delaware corporation) and SUBSIDIARIES as of December 31, 1999 and 1998,
and the related consolidated statements of operations, shareholders' equity, and
cash  flows  for the  years  then  ended.  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 in accordance with auditing standards generally accepted
in the United States. Those standards 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.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of Poore  Brothers,  Inc. and
subsidiaries  as of  December  31,  1999  and  1998,  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States.


ARTHUR ANDERSEN LLP

Phoenix, Arizona,
February 4, 2000.

                                       26
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                         -----------------------------
                                                             1999             1998
                                                         ------------     ------------
                                     ASSETS
<S>                                                       <C>              <C>
Current assets:
  Cash ...............................................    $    104,364     $    270,295
  Accounts receivable, net of allowance of
    $206,000 in 1999 and $24,000 in 1998 .............       3,265,041        1,712,955
  Inventories ........................................       1,221,412          465,038
  Other current assets ...............................         325,146          281,994
                                                          ------------     ------------
      Total current assets ...........................       4,915,963        2,730,282

Property and equipment, net ..........................      13,678,133        6,270,374
Intangible assets, net ...............................       7,198,283        3,723,906
Other assets, net ....................................         281,601          214,327
                                                          ------------     ------------
  Total assets .......................................    $ 26,073,980     $ 12,938,889
                                                          ============     ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable ...................................    $  1,328,720     $    870,204
  Accrued liabilities ................................         690,931          439,404
  Current portion of long-term debt ..................       2,116,226          652,519
                                                          ------------     ------------
      Total current liabilities ......................       4,135,877        1,962,127

Long-term debt, less current portion .................      10,680,840        5,720,247
                                                          ------------     ------------
  Total liabilities ..................................      14,816,717        7,682,374
                                                          ------------     ------------
Commitments and contingencies

Shareholders' equity:
  Preferred stock, $100 par value; 50,000 shares
    authorized; no shares issued or outstanding
    at December 31, 1999 and 1998, respectively ......              --               --
  Common stock, $.01 par value; 50,000,000 shares
    authorized; 13,222,044 and 7,832,997 shares
    issued and outstanding at December 31, 1999
    and 1998, respectively ...........................         132,220           78,329
  Additional paid-in capital .........................      17,386,827       11,514,210
  Accumulated deficit ................................      (6,261,784)      (6,336,024)
                                                          ------------     ------------
      Total shareholders' equity .....................      11,257,263        5,256,515
                                                          ------------     ------------
      Total liabilities and shareholders' equity .....    $ 26,073,980     $ 12,938,889
                                                          ============     ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       27
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                                 -------------------------------
                                                                     1999               1998
                                                                 ------------       ------------
<S>                                                              <C>                <C>
Net revenues ...............................................     $ 23,275,543       $ 13,167,993

Cost of revenues ...........................................       17,568,425          9,923,890
                                                                 ------------       ------------
  Gross profit .............................................        5,707,118          3,244,103

Selling, general and administrative expenses ...............        4,763,896          3,603,156
                                                                 ------------       ------------
  Operating income (loss) ..................................          943,222           (359,053)
                                                                 ------------       ------------
Interest income ............................................           30,866             46,371

Interest expense ...........................................         (780,616)          (561,409)
                                                                 ------------       ------------
                                                                     (749,750)          (515,038)
                                                                 ------------       ------------
Income (loss) before extraordinary loss and cumulative
  effect of a change in accounting principle ...............          193,472           (874,091)

Extraordinary loss on extinguishment of debt ...............          (47,601)                --

Cumulative effect of a change in accounting principle ......          (71,631)                --
                                                                 ------------       ------------
  Net income (loss) ........................................     $     74,240       $   (874,091)
                                                                 ============       ============
Earnings (loss) per common share:
  Basic-
  Income (loss) before extraordinary loss and cumulative
    effect of a change in accounting principle .............     $       0.02       $      (0.12)
  Extraordinary loss on extinguishment of debt .............               --                 --
  Cumulative effect of a change in accounting principle.....            (0.01)                --
                                                                 ------------       ------------
        Net income (loss) per common share .................     $       0.01       $      (0.12)
                                                                 ============       ============
Diluted-
  Income (loss) before extraordinary loss and cumulative
    effect of a change in accounting principle .............     $       0.02       $      (0.12)
  Extraordinary loss on extinguishment of debt .............               --                 --
  Cumulative effect of a change in accounting principle ....            (0.01)                --
                                                                 ------------       ------------
      Net income (loss) per common share ...................     $       0.01       $      (0.12)
                                                                 ============       ============
Weighted average number of common shares:
  Basic ....................................................        8,988,110          7,210,810
                                                                 ============       ============
  Diluted ..................................................        9,134,414          7,210,810
                                                                 ============       ============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       28
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                              Common Stock           Additional
                                       ---------------------------    Paid-in      Accumulated
                                          Shares         Amount       Capital        Deficit         Total
                                       ------------   ------------  ------------   ------------   ------------
<S>                                    <C>            <C>           <C>            <C>            <C>
Balance, December 31, 1997 ...........   7,051,657     $  70,516    $ 10,794,768   $ (5,461,933)  $  5,403,351
  Exercise of common stock options ...      75,000           750          80,366             --         81,116
  Issuance of warrants ...............          --            --          48,703             --         48,703
  Issuance of common stock ...........     706,340         7,063         590,373             --        597,436
  Net loss ...........................          --            --              --       (874,091)      (874,091)
                                        ----------     ---------    ------------   ------------   ------------
Balance, December 31, 1998 ...........   7,832,997        78,329      11,514,210     (6,336,024)     5,256,515
  Exercise of common stock options....     100,000         1,000         124,000             --        125,000
  Issuance of warrants ...............          --            --         505,261             --        505,261
  Issuance of common stock ...........   5,289,047        52,891       5,243,356             --      5,296,247
  Net income .........................          --            --              --         74,240         74,240
                                        ----------     ---------    ------------   ------------   ------------
Balance, December 31, 1999 ...........  13,222,044     $ 132,220    $ 17,386,827   $ (6,261,784)  $ 11,257,263
                                        ==========     =========    ============   ============   ============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       29
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                                       -----------------------------
                                                                          1999              1998
                                                                       -----------       -----------
<S>                                                                    <C>               <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
  Net income (loss) ..............................................     $    74,240       $  (874,091)
  Adjustments to reconcile net income (loss) to
   net cash used in operating activities:
   Depreciation ..................................................         725,068           580,674
   Amortization ..................................................         337,430           248,490
   Valuation reserves ............................................         168,784            79,000
   Extraordinary loss on extinguishment of debt ..................          47,601                --
   Cumulative effect of a change in accounting principle .........          71,631                --
   Other non-cash charges ........................................         418,247           160,343
   Change in operating assets and liabilities,
     net of effect of business acquired:
     Accounts receivable .........................................        (803,681)         (263,637)
     Note receivable .............................................              --            78,414
     Inventories .................................................         (21,608)           37,790
     Other assets and liabilities ................................        (239,749)         (138,276)
     Accounts payable and accrued liabilities ....................        (542,125)          (17,314)
                                                                       -----------       -----------
            Net cash used in operating activities ................         235,838          (108,607)
                                                                       -----------       -----------
CASH FLOWS USED IN  INVESTING ACTIVITIES:
  Proceeds from sale of equipment and property ...................          14,125            27,267
  Purchase of equipment ..........................................        (423,008)         (225,780)
  Acquisition related expenses ...................................        (482,872)       (1,251,564)
                                                                       -----------       -----------
            Net cash used in investing activities ................        (891,755)       (1,450,077)
                                                                       -----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock .........................         125,000            81,116
  Stock and debt issuance costs ..................................         (97,693)         (102,713)
  Proceeds from issuance of debt .................................         350,000           500,000
  Payments made on long-term debt ................................        (757,219)         (533,091)
  Net increase in working capital line of credit .................         869,898           260,916
                                                                       -----------       -----------
            Net cash provided by financing activities ............         489,986           206,228
                                                                       -----------       -----------
Net decrease in cash and cash equivalents ........................        (165,931)       (1,352,456)
Cash and cash equivalents at beginning of year ...................         270,295         1,622,751
                                                                       -----------       -----------
Cash at end of year ..............................................     $   104,364       $   270,295
                                                                       ===========       ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for interest .........................     $   541,096       $   539,843
  Summary of noncash investing and financing activities:
      Financing warrants issued ..................................          36,249            48,703
      Common Stock issued for acquisitions .......................       4,400,000           450,000
      Common Stock warrants issued for acquisitions ..............         423,566                --
      Common Stock and warrant issued in lieu of
        interest payments.........................................          90,447           154,629
      Conversion of Convertible debenture into Common Stock ......         859,047                --
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       30
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Poore Brothers, Inc. (the "Company"), a Delaware corporation, was organized
in February 1995 as a holding company and on May 31, 1995 acquired substantially
all of the equity of Poore  Brothers  Southeast,  Inc.  ("PB  Southeast")  in an
exchange  transaction.  The exchange transaction with PB Southeast was accounted
for similar to a  pooling-of-interests  since both entities had common ownership
and control  immediately prior to the transaction.  On May 31, 1995, the Company
also  acquired  (i)  substantially  all  of  the  assets,   subject  to  certain
liabilities, of Poore Brothers Foods, Inc.; (ii) a 100% equity interest in Poore
Brothers Distributing,  Inc.; and (iii) an 80% equity interest in Poore Brothers
of Texas,  Inc. ("PB Texas").  Subsequently,  the Company acquired the remaining
20% equity interest in PB Texas.  These  businesses had no common ownership with
the Company and therefore these  acquisitions were accounted for as purchases in
accordance with Accounting  Principals  Board ("APB") Opinion No. 16,  "Business
Combination".  Accordingly,  only the results of their operations  subsequent to
acquisition have been included in the Company's  results.  In 1997, PB Texas was
sold and PB Southeast was closed.

     On November 5, 1998,  the Company  acquired the business and certain assets
(including  the Bob's Texas Style(R)  potato chips brand) of Tejas Snacks,  L.P.
("Tejas"), a Texas-based potato chip manufacturer. See Note 2.

     On October 7, 1999, the Company  acquired a 100% equity  interest in Wabash
Foods,  LLC  ("Wabash"),  an  Indiana  based  snack  food  manufacturer  of Tato
Skins(R), O'Boisies(R), and Pizzarias(R). See Note 2.

BUSINESS OBJECTIVES, RISKS AND PLANS

     The Company is engaged in the  production,  marketing and  distribution  of
premium salty snack food products that are sold through grocery retail chains in
the southwestern  United States and through vend distributors  across the United
States.  The Company  manufactures  and sells its own brands of salty snack food
products, including Poore Brothers(R) and Bob's Texas Style(R) brand batch-fried
potato chips, Tato Skins(R) brand potato snacks, Pizzarias(R) brand pizza chips,
and O'Boisies(R)  brand potato crisps,  manufactures  private label potato chips
for grocery store chains,  and distributes and merchandises  snack food products
that are  manufactured by others.  The Company's  business  objective is to be a
leading regional  manufacturer,  marketer and distributor of premium branded and
private  label  salty  snack  foods  by  providing  high  quality   products  at
competitive prices that are superior in taste, texture, flavor variety and brand
personality to comparable  products.  The Company's  philosophy is to compete in
the market niches not served by the dominant national  competition.  The Company
plans to achieve growth in  manufactured  product sales by acquiring other snack
food brands and increasing sales of existing products. In addition,  the Company
plans to increase  distribution  and  merchandising  revenues,  and  continue to
improve its manufacturing capacity utilization.

     Although  certain of the Company's  subsidiaries  have operated for several
years,  the Company as a whole has a relatively  brief  operating  history.  The
Company had significant operating losses prior to fiscal 1999. Successful future
operations   are  subject  to  certain   risks,   uncertainties,   expenses  and
difficulties  frequently  encountered in the  establishment  and growth of a new
business in the snack food industry.  The market for salty snack foods,  such as
potato  chips,  tortilla  chips,  popcorn and  pretzels,  is large and intensely
competitive.  The  industry  is  dominated  by one  significant  competitor  and
includes many other  competitors with greater financial and other resources than
the Company.

     The Company's  acquisition of Tejas and Wabash, and the growth in volume of
manufactured  products  have  assisted in lowering  unit costs of the  Company's
manufactured  products.  As a result,  management believes that the Company will
continue to generate  positive cash flow from operations in 2000,  which,  along
with its existing  working capital and borrowing  facilities,  should enable the
Company to meet its operating cash requirements through 2000.

PRINCIPLES OF CONSOLIDATION

     The  consolidated  financial  statements  include  the  accounts  of  Poore
Brothers,  Inc.  and  all of its  wholly  owned  subsidiaries.  All  significant
intercompany amounts and transactions have been eliminated.

                                       31
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
   (CONTINUED)

USE OF ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amounts  of  assets  and  liabilities,
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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     At  December  31,  1999 and  1998,  the  carrying  value of cash,  accounts
receivable,  accounts payable,  and accrued liabilities  approximate fair values
since they are  short-term in nature.  The carrying  value of the long-term debt
approximates  fair-value based on the borrowing rates currently available to the
Company for long-term  borrowings with similar terms. The Company estimates fair
values  of  financial   instruments  by  using  available  market   information.
Considerable  judgement is required in  interpreting  market data to develop the
estimates of fair value. Accordingly, the estimates may not be indicative of the
amounts that the Company could realize in a current market exchange.  The use of
different market  assumptions or valuation  methodologies  could have a material
effect on the estimated fair value amounts.

INVENTORIES

     Inventories  are  stated  at the  lower of cost  (first-in,  first-out)  or
market.

PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost. Cost includes expenditures for
major  improvements  and  replacements.  Maintenance  and repairs are charged to
operations when incurred.  When assets are retired or otherwise disposed of, the
related  costs and  accumulated  depreciation  are removed from the  appropriate
accounts, and the resulting gain or loss is recognized.  Depreciation expense is
computed using the  straight-line  method over the estimated useful lives of the
assets, ranging from 2 to 30 years.

INTANGIBLE ASSETS

     In accordance  with Statement of Position 98-5,  "REPORTING ON THE COSTS OF
START-UP  ACTIVITIES",  effective  January 1, 1999,  the Company was required to
change its accounting principle for organization costs. Previously,  the Company
capitalized  such costs and amortized them using the  straight-line  method over
five  years.  At  December  31,  1998,  such  costs  totaled  $257,051  and  the
accumulated  amortization  totaled  $185,420.  In the first quarter of 1999, the
Company  wrote-off the remaining $71,631 and will expense as incurred any future
organization  costs.  The  write-off  has  been  reflected  in the  Consolidated
Statement of Operations for the year ended December 31, 1999 as the  "Cumulative
effect of a change in  accounting  principle"  in  accordance  with APB No.  20,
"Accounting Changes".

     Goodwill is recorded at cost and amortized using the  straight-line  method
over a twenty-year  period.  The Company assesses the recoverability of goodwill
at each balance sheet date by  determining  whether  amortization  of the assets
over their original  estimated  useful life can be recovered  through  estimated
future  undiscounted cash flows. Total goodwill was $3,941,009 and $2,608,742 at
December 31, 1999 and 1998,  respectively,  including $126,702 from the November
1998 Tejas  acquisition (see Note 2) and $1,327,227 from the October 1999 Wabash
acquisition (see Note 2). Accumulated  amortization was $587,431 and $445,356 at
December 31, 1999 and 1998, respectively.

     Trademarks are recorded at cost and are amortized  using the  straight-line
method over a fifteen-year period. The Company allocated $1,500,000 of the Tejas
purchase  price to trademarks  and  $2,500,000 of the Wabash  purchase  price to
trademarks.  Accumulated  amortization  was $155,295 and $11,111 at December 31,
1999 and 1998, respectively.

                                       32
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
   (CONTINUED)

REVENUE RECOGNITION

     Revenues  and related  cost of revenues  are  recognized  upon  shipment of
products.

ADVERTISING COSTS

     The Company  expenses  production  costs of advertising  the first time the
advertising  takes place,  except for  cooperative  advertising  costs which are
accrued and expensed when the related  sales are  recognized.  Costs  associated
with obtaining shelf space (i.e.,  "slotting  fees") are expensed in the year in
which  such  costs  are  incurred  by the  Company.  Advertising  expenses  were
approximately $265,000 and $469,000 in 1999 and 1998, respectively.

INCOME TAXES

     Deferred tax assets and  liabilities are recognized for the expected future
tax  consequences of events that have been included in the financial  statements
or income tax returns.  Deferred tax assets and liabilities are determined based
on the  difference  between the financial  statement and tax bases of assets and
liabilities using enacted rates expected to apply to taxable income in the years
in which those  differences are expected to be recovered or settled.  The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date.

EARNINGS PER SHARE

     Basic  earnings per common share is computed by dividing net income  (loss)
by the weighted average number of shares of common stock outstanding  during the
period.  Exercises of  outstanding  stock options or warrants and  conversion of
convertible  debentures are assumed to occur for purposes of calculating diluted
earnings per share for periods in which their effect would not be anti-dilutive.

                                                       Years Ended December 31,
                                                      -------------------------
                                                         1999          1998
                                                      -----------   -----------
BASIC EARNINGS (LOSS) PER SHARE:
  Income (loss) before extraordinary loss
    and cumulative effect of a change in
    accounting principle                              $   193,472   $  (874,091)
                                                      ===========   ===========
  Weighted average number of common shares              8,988,110     7,210,810
                                                      ===========   ===========
  Earnings (loss) per common share                    $      0.02   $     (0.12)
                                                      ===========   ===========
DILUTED EARNINGS (LOSS) PER SHARE:
  Income (loss) before extraordinary loss
    and cumulative effect of a change in
    accounting principle                              $   193,472   $  (874,091)
                                                      ===========   ===========
  Weighted average number of common shares              8,988,110     7,210,810
  Incremental shares from assumed conversions -
       Warrants                                            95,497            --
       Stock options                                       50,807            --
                                                      -----------   -----------
  Adjusted weighted average number of common shares     9,134,414     7,210,810
                                                      ===========   ===========
  Earnings (loss) per common share                    $      0.02   $     (0.12)
                                                      ===========   ===========

     Options  and  warrants to purchase  2,104,227  shares of Common  Stock were
outstanding  at December 31, 1999,  but were not included in the  computation of
diluted  earnings per share because the option and warrant  exercise prices were
greater than the average market price per share of the Common Stock.  Conversion
of the  convertible  debentures  was not assumed as the effect of its conversion
would be anti-dilutive.

                                       33
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
   (CONTINUED)

NEW ACCOUNTING PRONOUNCEMENTS

     SFAS No.  133,  "Accounting  for  Derivative  Instruments  and for  Hedging
Activities",  was issued in July 1998 and is effective for years beginning after
June 15, 2000,  as amended by SFAS No. 137. SFAS No. 133 requires that a company
must formally  document,  designate and assess the effectiveness of transactions
that receive hedge  accounting.  Upon adoption in the first quarter of 2001, the
Company expects there will be no impact on its financial condition or results of
operations.

2. ACQUISITIONS:

     On October 7, 1999, the Company acquired all of the membership interests of
Wabash from Pate Foods  Corporation  in exchange for (i) 4,400,000  unregistered
shares  of Common  Stock  with a fair  value of  $4,400,000,  (ii) a warrant  to
purchase  400,000  unregistered  shares of Common Stock at an exercise  price of
$1.00 per share  with a fair  value of  $290,000,  and (iii) the  assumption  of
$8,073,000 in liabilities, or a total purchase price of $12,763,000. The warrant
has a five-year term and is immediately  exercisable.  As a result,  the Company
acquired  all the assets of Wabash  Foods,  LLC,  including  the Tato  Skins(R),
O'Boisies(R),  and  Pizzarias(R)  trademarks.  The acquisition was accounted for
using the purchase  method of accounting in accordance  with APB Opinion No. 16.
Accordingly,  only the results of operations  subsequent to the acquisition date
have been included in the Company's results. In connection with the acquisition,
the Company  recorded  goodwill of  $1,327,227,  which is being  amortized  on a
straight-line basis over a twenty-year period.

     Unaudited pro forma information has been provided below for the years ended
December 31, 1999 and 1998 assuming the  acquisition of Wabash took place at the
beginning of the period presented.  The unaudited pro forma condensed results of
operations  include  adjustments to reflect  amortization  on intangible  assets
(e.g.  goodwill and  trademarks)  and the  elimination of $299,307 in management
fees earned by the Company  prior to the  acquisition.  The  unaudited pro forma
data does not  purport  to be  indicative  of the  results  that would have been
obtained  had these  events  actually  occurred at the  beginning of the periods
presented nor does it project the Company's results of operations for any future
period.

              PRO FORMA CONDENSED RESULTS OF OPERATIONS (UNAUDITED)

                                                     Years Ended December 31,
                                                    ---------------------------
                                                        1999           1998
                                                    ------------   ------------
Net revenues                                        $ 32,594,488   $ 19,729,112
Income (loss) before extraordinary loss
  and cumulative effect of change in
  accounting principle                              $      2,431   $ (1,049,416)
Earnings (loss) per common share - diluted          $       0.00   $      (0.09)
Weighted average number of common shares - diluted    12,509,756     11,607,158

     On November 5, 1998,  the Company  acquired the business and certain assets
of Tejas Snacks,  L. P., a  Texas-based  potato chip  manufacturer.  The assets,
which were  acquired  through a newly  formed  wholly  owned  subsidiary  of the
Company,  Tejas PB Distributing,  Inc., included the Bob's Texas Style(R) potato
chips  trademark,  inventories  and certain capital  equipment.  In exchange for
these assets,  the Company  issued 523,077  unregistered  shares of Common Stock
with a fair  value  of  $450,000  and paid  $1.25  million  in cash,  or a total
purchase price of $1.7 million.  The Company utilized  available cash as well as
funds  available  pursuant to the Norwest  Credit  Agreement to satisfy the cash
portion of the consideration.  Tejas had sales of approximately $2.8 million for
the nine months ended  September 30, 1998. In connection  with the  acquisition,
the Company  transferred  production  of the Bob's Texas  Style(R)  brand potato
chips to its Arizona  facility.  The  acquisition  was  accounted  for using the
purchase   method  of  accounting  in  accordance   with  APB  Opinion  No.  16.
Accordingly,  only the results of operations  subsequent to the acquisition date
have been included in the Company's results. In connection with the acquisition,
the  Company  recorded  goodwill  of  $126,702,  which is being  amortized  on a
straight-line basis over twenty years.

                                       34
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


3. CONCENTRATIONS OF CREDIT RISK:

     The Company's cash is placed with major banks.  The Company,  in the normal
course of business,  maintains  balances in excess of Federal  insurance limits.
The Company had no amount in excess of the insurance  limit at December 31, 1999
and $106,165 in excess of the insurance limit at December 31, 1998.

     Financial  instruments  subject to credit risk  consist  primarily of trade
accounts  receivable.  In the normal  course of  business,  the Company  extends
unsecured credit to its customers.  In 1999 and 1998,  substantially  all of the
Company's customers were distributors whose sales were concentrated to retailers
in the grocery industry,  primarily in the southwest United States.  The Company
investigates a customer's credit worthiness before extending credit. The Company
buys  back  trade  accounts  receivable  of  Arizona-based  retailers  from  its
distributors in settlement of their obligations to the Company.

4. INVENTORIES:

     Inventories consisted of the following:

                                                            December 31,
                                                     --------------------------
                                                        1999           1998
                                                     -----------    -----------
     Finished goods ..............................   $   330,568    $   193,624
     Raw materials ...............................     1,268,987        285,348
     Reserve for excess and obsolete inventory....      (378,143)       (13,934)
                                                     -----------    -----------
                                                     $ 1,221,412    $   465,038
                                                     ===========    ===========

5. PROPERTY AND EQUIPMENT:

     Property and equipment consisted of the following:

                                                            December 31,
                                                     --------------------------
                                                         1999          1998
                                                     ------------  ------------
     Buildings and improvements ...................  $  3,438,492  $  3,430,572
     Equipment ....................................    11,496,139     3,490,140
     Land .........................................       272,006       272,006
     Vehicles .....................................        79,927        75,376
     Furniture and office equipment ...............       300,282       204,432
                                                     ------------  ------------
                                                       15,586,846     7,472,526
     Less accumulated depreciation and
      amortization ................................    (1,908,713)   (1,202,152)
                                                     ------------  ------------
                                                     $ 13,678,133  $  6,270,374
                                                     ============  ============

     Depreciation   expense  was   $725,068  and  $580,674  in  1999  and  1998,
respectively.

     Included in equipment are assets held under capital leases with an original
cost of $1,295,828  and  $1,315,657 at December 31, 1999 and 1998,  respectively
and  accumulated  amortization of $617,590 and $407,756 at December 31, 1999 and
1998, respectively.

     In the event that  facts and  circumstances  indicate  that the cost of the
property and equipment may be impaired, an evaluation of recoverability would be
performed.  This evaluation would include the comparison of the future estimated
undiscounted  cash flows  associated  with the assets to the carrying  amount of
these assets to determine if a writedown is required.

                                       35
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


6.   LONG-TERM DEBT:

     Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                    -----------------------------
                                                                        1999             1998
                                                                    ------------     ------------
<S>                                                                 <C>              <C>
     Convertible Debentures due in monthly installments
     through July 1, 2002; interest at 9%; collateralized
     by land, buildings, equipment and intangibles .............    $  1,370,067     $  2,229,114

     Term loan due in monthly installments through May
     1, 2000; interest at prime rate plus 3% (10.75%
     at December 31, 1998); collateralized by accounts
     receivable, inventories, equipment and general
     intangibles paid in full in 1999 ..........................              --          472,222

     Working capital line of credit due October 4,
     2002; interest at prime rate plus 1% (9.5% at
     December 31, 1999); collateralized by accounts
     receivable, inventories, equipment and general
     intangibles ...............................................       2,022,579               --

     Term loan due in monthly installments beginning
     February 1, 2000 through July 1, 2006; interest
     at prime rate (8.5% at December 31,1999);
     collateralized by accounts receivable,
     inventories, equipment and general intangibles ............       5,800,000               --

     Working capital line of credit; paid in
     full in 1999 ..............................................              --          847,013

     Term loan due in monthly installments beginning
     April 30, 2000 through March 31, 2001; interest
     at prime rate plus 2.5% (11% at December
     31,1999); collateralized by accounts receivable,
     inventories, equipment and general intangibles.............         350,000               --

     Mortgage loan due in monthly installments through
     July 2012; interest at 9.03%; collateralized by
     land and building .........................................       1,940,509        1,965,921

     Non-interest bearing note payable due in full on
     June 30, 2000 .............................................         715,000               --

     Capital lease obligations due in monthly installments
     through 2002; interest rates ranging from 8.2% to 11.3%;
     collateralized by equipment................................         598,911          858,496
                                                                    ------------     ------------
                                                                      12,797,066        6,372,766
     Less current portion ......................................      (2,116,226)        (652,519)
                                                                    ------------     ------------
                                                                    $ 10,680,840     $  5,720,247
                                                                    ============     ============
</TABLE>

     Annual maturities of long-term debt are as follows:

                                                               December 31,
          Year                                                    1999
          ----                                                 -----------
          2000..............................................   $ 2,116,226
          2001..............................................     1,371,290
          2002..............................................     4,263,117
          2003..............................................       928,727
          2004..............................................       932,155
          Thereafter........................................     3,185,551
                                                               -----------
                                                               $12,797,066
                                                               ===========

     The   Company's   Goodyear,   Arizona   manufacturing,   distribution   and
headquarters  facility is subject to a $2.0  million  mortgage  loan from Morgan
Guaranty  Trust  Company of New York,  bears  interest at 9.03% per annum and is
secured by the building and the land on which it is located. The loan matures on
July 1, 2012; however monthly principal and interest installments of $18,425 are
determined based on a twenty-year amortization period.

                                       36
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


6. LONG-TERM DEBT: (CONTINUED)

     The Company has entered into a variety of capital and operating  leases for
the acquisition of equipment and vehicles.  The leases  generally have five-year
terms,  bear interest at rates from 8.2% to 11.3%,  require monthly payments and
expire at various  times  through  2002 and are  collateralized  by the  related
equipment.

     At December 31, 1999, the Company had outstanding 9% Convertible Debentures
due July 1, 2002 in the principal  amount of $1,370,067  ($511,020 held by Wells
Fargo and $859,047 held by Renaissance Capital).  The 9% Convertible  Debentures
are secured by land,  building,  equipment and  intangibles.  Interest on the 9%
Convertible  Debentures  is paid by the  Company  on a  monthly  basis.  Monthly
principal  payments  of  approximately  $5,000  are  required  to be made by the
Company  on the Wells  Fargo 9%  Convertible  Debenture  beginning  in July 2000
through  June  2002.  In  November  1999,   Renaissance  Capital  converted  50%
($859,047)  of its Debenture  holdings  into 859,047  shares of Common Stock and
agreed  unconditionally  to convert into Common Stock the remaining $859,047 not
later than December 31, 2000. For the period  November 1, 1999 through  December
31, 2000, Renaissance Capital agreed to waive all mandatory principal redemption
payments and to accept 30,000  unregistered shares of the Company's Common Stock
and a warrant to purchase  60,000  shares of common  stock at $1.50 per share in
lieu of cash interest payments.  For the period November 1, 1998 through October
31, 1999, Renaissance Capital agreed to waive all mandatory principal redemption
payments and to accept 183,263 unregistered shares of the Company's Common Stock
in lieu of cash interest payments.  The holders of the 9% Convertible Debentures
previously granted the Company a waiver for noncompliance with a financial ratio
effective  through  June 30,  1999.  As  consideration  for the granting of such
waiver in February 1998, the Company issued warrants to Renaissance  Capital and
Wells Fargo  representing  the right to purchase  25,000 and 7,143 shares of the
Company's Common Stock,  respectively,  at an exercise price of $1.00 per share.
Each warrant became  exercisable upon issuance and expires on July 1, 2002. As a
result of an event of default, the holders of the 9% Convertible Debentures have
the right,  upon written notice and after a thirty-day  period during which such
default may be cured, to demand  immediate  payment of the then unpaid principal
and accrued but unpaid interest under the  Debentures.  The Company is currently
in compliance  with all the financial  ratios,  including  working capital of at
least  $500,000;  a minimum of $4,500,000  shareholders'  equity;  and a current
ratio at the end of any fiscal  quarter of at least 1.1:1.  Management  believes
that the  achievement  of the  Company's  plans and  objectives  will enable the
Company to attain a sufficient  level of  profitability  to remain in compliance
with the financial ratios. There can be no assurance,  however, that the Company
will attain any such  profitability  and remain in compliance with the financial
ratios.  Any  acceleration  under the 9% Convertible  Debentures  prior to their
maturity on July 1, 2002 could have a material adverse effect upon the Company.

     On October 7, 1999, the Company signed a new $9.15 million Credit Agreement
with U.S.  Bancorp (the "U.S.  Bancorp Credit  Agreement")  consisting of a $3.0
million  working capital line of credit (the "U.S.  Bancorp Line of Credit"),  a
$5.8 million term loan (the "U.S. Bancorp Term Loan A") and a $350,000 term loan
(the "U.S.  Bancorp  Term Loan B").  Borrowings  under the U.S.  Bancorp  Credit
Agreement  were used to pay off the  previously  existing  Wells  Fargo  Line of
Credit and Wells Fargo Term Loan and to refinance existing debt of Wabash Foods,
LLC in October 1999,  and will also be used for general  working  capital needs.
The U.S.  Bancorp Line of Credit bears  interest at an annual rate of prime plus
1% and matures on October 4, 2002.  The U.S.  Bancorp Term Loan A bears interest
at  an  annual  rate  of  prime  and  requires  monthly  principal  payments  of
approximately $74,000 commencing February 1, 2000, plus interest, until maturity
on July 1, 2006.  The U.S.  Bancorp Term Loan B bears interest at an annual rate
of prime plus 2.5% and  requires  monthly  principal  payments of  approximately
$29,000  commencing  April 30, 2000, plus interest,  until maturity on March 31,
2001.  The U.S.  Bancorp  Credit  Agreement  is secured by accounts  receivable,
inventories,  equipment and general  intangibles.  Borrowings  under the line of
credit  are  limited  to  80%  of  eligible  receivables  and  60%  of  eligible
inventories.  At  December  31,  1999,  the  Company  had a  borrowing  base  of
$2,360,000  under the U.S.  Bancorp  Line of  Credit.  The U.S.  Bancorp  Credit
Agreement  requires  the  Company to be in  compliance  with  certain  financial
performance  criteria,  including a minimum cash flow coverage  ratio, a minimum
debt  service  coverage  ratio,  minimum  annual  operating  results,  a minimum
tangible capital base and a minimum fixed charge coverage ratio. At December 31,
1999,  the  Company  was in  compliance  with  all of the  financial  covenants.
Management  believes that the  fulfillment of the Company's plans and objectives
will enable the Company to attain a sufficient  level of profitability to remain
in  compliance  with  these  financial  covenants.  There  can be no  assurance,
however,  that the  Company  will  attain any such  profitability  and remain in
compliance.  Any  acceleration  under the U.S. Bancorp Credit Agreement prior to
the scheduled  maturity of the U.S.  Bancorp Line of Credit or the U.S.  Bancorp
Term Loans could have a material  adverse  effect upon the Company.  The Company
also assumed from Wabash Foods a $715,000  non-interest  bearing note payable to

                                       37
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


6. LONG-TERM DEBT: (CONTINUED)

U.S. Bancorp which is due in full on June 30, 2000. On October 7, 1999, pursuant
to the terms of the U.S.  Bancorp Credit  Agreement,  the Company issued to U.S.
Bancorp a warrant  (the "U.S.  Bancorp  Warrant") to purchase  50,000  shares of
Common Stock for an exercise price of $1.00 per share.  The U.S. Bancorp Warrant
is  exercisable  until  October 7,  2004,  the date of  termination  of the U.S.
Bancorp Warrant, and provides the holder thereof certain piggyback  registration
rights.

     On November 4, 1998, the Company signed a new $2.5 million Credit Agreement
with Wells Fargo Business Credit,  Inc.  (hereinafter "Wells Fargo" and formerly
Norwest  Business  Credit,  Inc.) which included a $2.0 million  working capital
line of credit (the "Wells  Fargo Line of Credit")  and a $0.5 million term loan
(the "Wells Fargo Term Loan"). Borrowings under the Wells Fargo Credit Agreement
were used to pay off borrowings under the Company's previous  $1,000,000 Line of
Credit with First Community Financial  Corporation,  to finance a portion of the
consideration paid by the Company in connection with the Tejas acquisition,  and
for general working capital needs.  The Wells Fargo Line of Credit had an annual
rate of interest of prime plus 1.5% and matures in November 2001 while the Wells
Fargo Term Loan had an annual  rate of  interest  of prime plus 3% and  required
monthly  principal  payments of  approximately  $28,000,  plus  interest,  until
maturity  on May 1,  2000.  The  Wells  Fargo  Line of  Credit  was  secured  by
receivables,  inventories,  equipment and general intangibles.  Borrowings under
the Wells Fargo Line of Credit were based on 85% of eligible receivables and 60%
of eligible  inventories.  As of December 31, 1998,  the Company had a borrowing
base of approximately $1,374,000 under the Wells Fargo Line of Credit. The Wells
Fargo Credit  Agreement  required the Company to be in  compliance  with certain
financial performance  criteria,  including minimum debt service coverage ratio,
minimum quarterly and annual operating results, and minimum quarterly and annual
changes  in book net  worth.  At  December  31,  1998,  the  Company  was not in
compliance  with a maximum  quarterly net loss limitation of $50,000 (actual net
loss of $146,366) and a minimum debt service  coverage ratio  requirement of not
less  than  0.50 to 1  (actual  of 0.30  to 1)  under  the  Wells  Fargo  Credit
Agreement.  Wells  Fargo  granted  the  Company a waiver  for the  period  ended
December  31, 1998 and agreed to modify the  financial  ratio  requirements  for
future  periods.  As of December 31, 1998,  there was an outstanding  balance of
$847,013 on the Wells Fargo Line of Credit and  $472,222 on the Wells Fargo Term
Loan.  On  November 4, 1998,  pursuant  to the terms of the Wells  Fargo  Credit
Agreement,  the  Company  issued to Wells  Fargo a  warrant  (the  "Wells  Fargo
Warrant") to purchase  50,000  shares of Common  Stock for an exercise  price of
$0.93375 per share.  The Wells Fargo Warrant is  exercisable  until  November 3,
2003,  the date of  termination  of the Wells Fargo  Warrant,  and  provides the
holder thereof certain demand and piggyback  registration  rights. The Company's
Line of Credit  and Term Loan with  Wells  Fargo were paid in full on October 7,
1999 in  connection  with the Wabash  Foods,  LLC  acquisition  and related U.S.
Bancorp Republic Commercial Finance, Inc. financing.

7. COMMITMENTS AND CONTINGENCIES:

     Rental expense under  operating  leases was $97,300 and $34,632 for each of
the years 1999 and 1998. Minimum future rental commitments under  non-cancelable
leases as of December 31, 1999 are as follows:

                                           Capital     Operating
     Year                                  Leases        Leases        Total
     ----                                ----------    ----------    ----------
     2000 ............................   $  306,667    $  287,863    $  594,530
     2001 ............................      228,682       260,635       489,317
     2002 ............................      133,242       253,915       387,157
     2003 ............................           --       249,015       249,015
     2004 ............................           --       244,507       244,507
     Thereafter ......................           --     4,080,000     4,080,000
                                         ----------    ----------    ----------
     Total ...........................      668,591    $5,375,935    $6,044,526
                                                       ==========    ==========
     Less amount representing interest      (69,680)
                                         ----------
     Present value ...................   $  598,911
                                         ==========

                                       38
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


8. SHAREHOLDERS' EQUITY:

COMMON STOCK

     In November 1999,  Renaissance  Capital  converted 50% ($859,047) of its 9%
Convertible  Debenture (see Note 6) holdings into 859,047 shares of Common Stock
and agreed  unconditionally  to convert into Common Stock the remaining $859,047
not later than  December 31, 2000.  The  Company's  outstanding  9%  Convertible
Debentures are convertible into 1,370,067 shares of Common Stock at a conversion
price  of  $1.00  per  share,  subject  to  anti-dilution  adjustments.  Certain
additional shares of Common Stock have been issued in connection with financings
(see Note 6).

     In October 1999 and November 1998, the Company issued 4,400,000 and 523,077
unregistered  shares of Common  Stock in  connection  with the  acquisitions  of
Wabash and Tejas, respectively (see Note 2).

PREFERRED STOCK

     The Company has authorized 50,000 shares of $100 par value Preferred Stock,
none of which was  outstanding  at December  31, 1999 and 1998.  The Company may
issue such shares of Preferred Stock in the future without shareholder approval.

WARRANTS

     During 1998 and 1999, warrant activity was as follows:

                                                   Warrants     Weighted Average
                                                  Outstanding    Exercise Price
                                                   ---------     --------------
     Balance, December 31, 1997 .............        525,000         $ 2.68
       Granted ..............................        378,298           0.89
                                                   ---------
     Balance, December 31, 1998 .............        903,298           1.93
       Granted ..............................        510,000           1.06
                                                   ---------
     Balance, December 31, 1999 .............      1,413,298         $ 1.62
                                                   =========

     At December 31, 1999, outstanding warrants had exercise prices ranging from
$0.88 to $4.38 and a weighted average remaining term of 4.3 years. Warrants that
were exercisable at December 31, 1999 totaled  1,265,221 with a weighted average
exercise price per share of $1.70.

     In  October  1999,  the  Company  issued  a  warrant  to  purchase  400,000
unregistered  shares of Common Stock at an exercise  price of $1.00 per share in
connection with the acquisition of Wabash.  The warrant has a five-year term and
is immediately exercisable (see Note 2).

     As of July 30, 1999, the Company agreed to the assignment of a warrant from
Everen  Securities,  Inc.  to  Stifel,  Nicolaus  &  Company  Incorporated,  the
Company's acquisitions and financial advisor, representing the right to purchase
296,155  unregistered  shares of Common Stock at an exercise  price of $.875 per
share and  expiring in August  2003.  The warrant  provides  the holder  thereof
certain  anti-dilution  and  piggyback  registration  rights.  The  warrant  was
exercisable  as to 50% of the shares when the  Company's  pro forma annual sales
reached  $30  million,  which it did  when  the  Company  completed  the  Wabash
acquisition  in October 1999.  The fair value of the warrant was included in the
cost of the  acquisition.  The remaining 50% of the warrant is exercisable  when
the Company's pro forma annual sales reach $100 million.

     Certain other warrants have been issued in connection  with financings (see
Note 6).

                                       39
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


8. SHAREHOLDERS EQUITY: (CONTINUED)

STOCK OPTIONS

     The Company's  1995 Stock Option Plan (the  "Plan"),  as amended in October
1999,  provides  for the  issuance  of options to purchase  2,000,000  shares of
Common Stock.  The options granted  pursuant to the Plan expire over a five-year
period and generally vest over three years. In addition to options granted under
the Plan, the Company also issued non-qualified options to purchase Common Stock
to certain  Directors  which were  exercisable  on issuance and expire ten years
from  date of  grant.  All  options  are  issued  at fair  market  value and are
noncompensatory.  Fair market value is determined based on the price of sales of
Common Stock  occurring at or near the time of the option award. At December 31,
1999,  outstanding  options have exercise  prices ranging from $.59 to $3.50 per
share.

     During 1998 and 1999, stock option activity was as follows:

<TABLE>
<CAPTION>
                                     Plan Options               Non-Plan Options
                              ---------------------------  ---------------------------
                                             Weighted                     Weighted
                                Options       Average        Options       Average
                              Outstanding  Exercise Price  Outstanding  Exercise Price
                              -----------  --------------  -----------  --------------
<S>                           <C>          <C>             <C>          <C>
Balance, December 31, 1997     1,067,618       $2.90          820,000       $1.18
  Granted .................      855,400        1.18               --          --
  Canceled ................     (625,334)       3.20               --          --
  Exercised ...............      (75,000)       1.08               --          --
                              ----------                   ----------
Balance, December 31, 1998     1,222,684        1.66          820,000        1.18
  Granted .................      357,500        1.46               --          --
  Canceled ................      (96,534)       2.77               --          --
  Exercised ...............           --          --          100,000        1.25
                              ----------                   ----------
Balance, December 31, 1999     1,483,650       $1.54          720,000       $1.17
                              ==========                   ==========
</TABLE>

     At December 31, 1999,  outstanding Plan options had exercise prices ranging
from $0.59 to $3.50 and a weighted  average  remaining  term of 3.5 years.  Plan
options  that were  exercisable  at December  31, 1999  totaled  604,034  with a
weighted  average  exercise price per share of $1.76.  All Non-Plan options were
exercisable at December 31, 1999 and had an average remaining term of 5.6 years.

     In October 1995, the Financial  Accounting  Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation", which defines a fair value based
method of accounting for employee  stock options or similar equity  instruments.
However,  it also  allows an entity  to  continue  to  account  for these  plans
according to APB No. 25, provided pro forma disclosures of net income (loss) and
earnings  (loss)  per  share  are  made as if the fair  value  based  method  of
accounting defined by SFAS No. 123 had been applied.  The Company has elected to
continue  to  measure   compensation  expense  related  to  employee  (including
directors) stock purchase options using APB No. 25.

     Had compensation cost for the Company's stock options been determined based
on the  fair  value  at the  date of  grant  for  awards  in 1995  through  1999
consistent  with the provisions of SFAS 123, the Company's net income (loss) and
net income  (loss) per share  would have been  changed to the pro forma  amounts
indicated below:

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                                       --------------------------
                                                                          1999           1998
                                                                       ----------     -----------
<S>                                                                    <C>            <C>
Net income (loss) - as reported ....................................   $   74,240     $  (874,091)
Net loss - pro forma ...............................................     (237,887)     (1,163,000)
Basic net income (loss) per share of common stock - as reported.....         0.01           (0.12)
Basic net loss per share of common stock - pro forma ...............        (0.03)          (0.16)
</TABLE>

                                       40
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


8. SHAREHOLDERS EQUITY: (CONTINUED)

STOCK OPTIONS (CONTINUED)

     The fair value of options  granted  prior to the Company's  initial  public
offering were computed using the minimum value calculation method. For all other
options,  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:  dividend  yield  of  0%;  expected  volatility  of 90%  and  121%;
risk-free  interest rate of 5.41% and 4.93%;  and expected  lives of 3 years for
1999 and 1998, respectively.  Under this method, the weighted average fair value
of the  options  granted  was  $1.06  and  $.72  per  share  in 1999  and  1998,
respectively.

9. INCOME TAXES:

     The  Company  accounts  for income  taxes  using a balance  sheet  approach
whereby  deferred  tax  assets  and  liabilities  are  determined  based  on the
differences  in  financial   reporting  and  income  tax  basis  of  assets  and
liabilities.  The  differences  are measured using the income tax rate in effect
during the year of measurement.

     There was no current or  deferred  benefit  for income  taxes for the years
ended December 31, 1999 and 1998. The following table provides a  reconciliation
between the amount  determined by applying the statutory federal income tax rate
to the pretax loss and benefit for income taxes:

                                                    Years Ended December 31,
                                                    ----------------------
                                                      1999         1998
                                                    ---------    ---------
     Provision / (benefit) at statutory rate ....   $  25,242    $(297,191)
     State income tax, net ......................       3,712      (47,809)
     Nondeductible expenses .....................      15,600        5,250
     Net operating loss utilized and benefited ..     (44,554)           0
     Net operating loss not recognized ..........           0      339,750
                                                    ---------    ---------
                                                    $       0    $       0
                                                    =========    =========

     The income tax  effects of loss  carryforwards  and  temporary  differences
between financial and income tax reporting that give rise to the deferred income
tax assets and liabilities are as follows:

                                                   Years Ended December 31,
                                                  --------------------------
                                                     1999           1998
                                                  -----------    -----------
     Net operating loss carryforward ..........   $ 2,083,000    $ 2,215,000
     Bad debt expense .........................        80,000         10,000
     Accrued liabilities ......................        17,000         30,000
     Other ....................................        26,000              0
                                                  -----------    -----------
                                                    2,206,000      2,255,000
     Deferred tax asset valuation allowance....    (2,206,000)    (2,255,000)
                                                  -----------    -----------
          Net deferred tax assets .............   $         0    $         0
                                                  ===========    ===========

     In assessing  the  realizability  of its  deferred tax assets,  the Company
considers  whether it is more likely than not some or all of such assets will be
realized.  As a result of  historical  operating  losses,  the Company has fully
reserved  its net  deferred  tax assets as of December 31, 1999 and December 31,
1998.

     At December 31, 1999,  the Company had a net  operating  loss  carryforward
("NOLC") for federal  income tax purposes of  approximately  $5.3  million.  The
Company's  ability to utilize its NOLC to offset  future  taxable  income may be
limited under the Internal  Revenue Code Section 382 change in ownership  rules.
The  Company's  NOLC will begin to expire in varying  amounts  between  2010 and
2018.

                                       41
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


10. BUSINESS SEGMENTS AND SIGNIFICANT CUSTOMERS:

     For the year ended  December 31, 1999 and 1998,  one Arizona  grocery chain
customer of the Company accounted for $3,284,000,  or 14% and $2,067,000 or 16%,
respectively, of the Company's consolidated net revenues.

     The Company's operations consist of two segments: manufactured products and
distributed  products.  The manufactured products segment produces potato chips,
potato  crisps,  pretzels  and tortilla  chips for sale  primarily to snack food
distributors.  The  distributed  products  segment  sells  snack  food  products
manufactured by other companies to the Company's Arizona snack food distributors
and also  merchandises  in Texas for a fee,  but does not  purchase  and resell,
snack food products for manufacturers.  The Company's  reportable segments offer
different products and services.  All of the Company's revenues are attributable
to external  customers in the United States and all of its assets are located in
the United States.  The Company does not allocate assets based on its reportable
segments.

     The accounting  policies of the segments are the same as those described in
the Summary of  Significant  Accounting  Policies (Note 1). The Company does not
allocate selling, general and administrative  expenses,  income taxes or unusual
items to segments and has no significant  non-cash items other than depreciation
and amortization.

                                        Manufactured  Distributed
                                          Products     Products     Consolidated
                                        -----------   -----------   -----------
1999
Revenues from external customers        $18,535,760   $ 4,739,783   $23,275,543
Depreciation and amortization included
  in segment gross profit                   712,216            --       712,216
Segment gross profit                      5,315,253       391,865     5,707,118

1998
Revenues from external customers        $10,285,805   $ 2,882,188   $13,167,993
Depreciation and amortization included
  in segment gross profit                   577,413            --       577,413
Segment gross profit                      2,975,108       268,995     3,244,103

     The  following  table  reconciles  reportable  segment  gross profit to the
Company's  consolidated  income (loss) before  extraordinary loss and cumulative
effect of a change in accounting principle:

                                                         1999          1998
                                                      -----------   -----------
Segment gross profit                                  $ 5,707,118   $ 3,244,103
Unallocated amounts:
  Selling, general and administrative expenses          4,763,896     3,603,156
  Interest expense, net                                   749,750       515,038
                                                      -----------   -----------
Income (loss) before extraordinary loss and
  cumulative effect of a change in accounting
  principle                                           $   193,472   $  (874,091)
                                                      ===========   ===========

                                       42
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


11. LITIGATION:

     In June 1996, a lawsuit was commenced in an Arizona state court against two
directors  of the  Company,  Mark S.  Howells  and  Jeffrey J.  Puglisi,  and PB
Southeast  which  alleged,  among other  things,  that James Gossett had an oral
agreement with Mr. Howells to receive a 49% ownership  interest in PB Southeast,
that Messrs. Howells and Puglisi breached fiduciary duties and other obligations
to Mr.  Gossett and that he was entitled to exchange such alleged stock interest
for shares in the Company.  Messrs. Howells and Puglisi and PB Southeast filed a
counterclaim  against Mr. Gossett  alleging various acts of  nonperformance  and
breaches of fiduciary  duty on the part of Mr.  Gossett.  In November  1998, the
lawsuits were settled and all claims  dismissed  with  prejudice.  The Company's
only expense in the settlement was its own legal fees.

     In September 1997, a lawsuit was commenced against PB Distributing by Chris
Ivey  and  his  company,  Shelby  and  Associates  (collectively,  "Ivey").  The
complaint alleged,  among other things,  that PB Distributing  defrauded Ivey as
part of Ivey's  purchase of a  distributing  company  from  Walter  Distributing
Company and James Walter and that as a result, Ivey suffered damages of at least
$390,000.  In July 1998,  the Company  settled  the  litigation  with Ivey.  The
$13,000  settlement  included the release of all claims and the dismissal of the
lawsuit.

     The  Company is  periodically  a party to various  lawsuits  arising in the
ordinary  course of business.  Management  believes,  based on discussions  with
legal counsel, that the resolution of any such lawsuits will not have a material
effect on the financial statements taken as a whole.

12. RELATED PARTY TRANSACTIONS:

     The land and  building  (140,000  square  feet)  occupied by the Company in
Bluffton,  Indiana is leased  pursuant  to a twenty year lease dated May 1, 1998
with  American  Pacific  Financial  Corporation,  an  affiliate  of  Pate  Foods
Corporation  from whom the Company  purchased  Wabash in October 1999. The lease
extends  through April 2018 and contains two additional  five-year lease renewal
periods at the option of the Company.  Lease payments are approximately  $20,000
per month,  plus CPI  adjustments,  and the Company is responsible  for all real
estate taxes, utilities and insurance.

                                       43
<PAGE>
                                  EXHIBIT INDEX

4.9   --  Form of  Revolving  Note,  Term  Note A and Term  Note B issued by the
          Company to U.S. Bancorp Republic Commercial  Finance,  Inc. on October
          7, 1999.

4.10  --  Warrant  to  purchase  50,000  shares of Common  Stock,  issued by the
          Company to U.S. Bancorp Republic Commercial  Finance,  Inc. on October
          7, 1999.

10.48 --  Poore Brothers, Inc. 1995 Stock Option Plan, as amended.

10.49 --  Credit  Agreement,  dated as of October 3, 1999,  by and  between  the
          Company and U.S. Bancorp Republic Commercial Finance, Inc.

10.50 --  Security  Agreement,  dated as of October 3, 1999,  by and between the
          Company and U.S. Bancorp Republic Commercial Finance, Inc.

10.51 --  Commercial Lease,  dated May 1, 1998, by and between Wabash Foods, LLC
          and American Pacific Financial Corporation.

21.1  --  List of subsidiaries of Poore Brothers, Inc.

27.1  --  Financial Data Schedule for 1999