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, 2000

[ ] 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 Identification No.)
incorporation or organization)


                           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 $41,743,007.

     At March 25, 2001, the aggregate  market value of the  Registrant's  common
stock held by non-affiliates of the Registrant was approximately $35,805,320.

     At March 25, 2001,  the number of issued and  outstanding  shares of common
stock of the Registrant was 15,004,765.

     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
relatively brief operating history,  significant historical operating losses and
the possibility of future  operating  losses,  the possibility  that the Company
will need  additional  financing due to future  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 recently
completed  strategic  acquisitions  and  the  pursuit  of  additional  strategic
acquisitions,  potential difficulties resulting from the integration of acquired
businesses  with  the  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.

                                       2
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS

     Poore Brothers, Inc. and its subsidiaries (collectively, the "Company") are
engaged in the development, production, marketing and distribution of innovative
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 (i)  manufactures  and sells its own brands of salty
snack food products  including  Poore  Brothers(R),  Bob's Texas  Style(R),  and
Boulder Potato  Company(TM) brand batch-fried  potato chips, Tato Skins(R) brand
potato snacks and Pizzarias(R)  brand pizza chips,  (ii)  manufactures and sells
T.G.I.  Friday's(TM)  brand salted  snacks under  license from TGI Friday's Inc.
(shipments by Company  commenced in October 2000),  (iii)  manufactures  private
label  potato  chips  for  grocery  retail  chains,  and  (iv)  distributes  and
merchandises  snack food products that are manufactured by others.  For the year
ended December 31, 2000,  revenues  totaled  $41,743,007.  Approximately  88% of
revenues were attributable to products  manufactured by the Company (74% branded
snack food  products,  14% private  label  products)  and  approximately  12% of
revenues  were  attributable  to the  distribution  by the Company of snack food
products manufactured by other companies. The Company sells most of its products
to retailers and vend operators  through  independent  distributors,  except for
T.G.I.  Friday's(TM)  brand  salted  snacks  which the Company  generally  sells
directly to retailers.

     Poore  Brothers(R),  Bob's Texas  Style(R) and Boulder  Potato  Company(TM)
brand potato chips are manufactured with a batch-frying process that the Company
believes  produces  potato  chips with  enhanced  crispness  and  flavor.  Poore
Brothers(R)  potato  chips are  currently  offered in ten  flavors,  Bob's Texas
Style(R) potato chips are currently offered in seven flavors, and Boulder Potato
Company(TM) potato chips are currently offered in six 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."

     The Company produces Tato Skins(R) brand potato crisps,  Pizzarias(R) brand
pizza chips,  and T.G.I.  Friday's(TM)  brand salted snacks 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,  Pizzarias(R)  brand pizza chips,  and T.G.I.
Friday's(TM)  brand salted snacks are offered in several  different  flavors and
formulations.  These products are  manufactured at the Company's leased facility
in Bluffton,  Indiana. The Company acquired the Bluffton,  Indiana manufacturing
operation  in  October  1999 as part of its  acquisition  of Wabash  Foods,  LLC
("Wabash Foods"). See "PRODUCTS" and "PATENTS AND TRADEMARKS".

     The   Company's   business   objective  is  to  be  a  leading   developer,
manufacturer,  marketer and distributor of innovative branded salted 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 primarily in the market niches not served by
the  dominant  national  competition.  The  Company  plans to achieve  growth in
manufactured  product  revenues by developing,  acquiring and/or licensing 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. 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
characterized   by  a  significant   number  of  market   entrants  and  intense
competition.  The Company had significant operating losses prior to fiscal 1999.
The Company  incurred a net loss of $874,091 for the fiscal year ended  December
31,  1998,  and net income of $74,250 and  $729,791  for the fiscal  years ended
December 31, 1999 and 2000, respectively.  At December 31, 2000, the Company had
an accumulated  deficit of $5,531,993 and net working  capital of $770,975.  See
"ITEM 6.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF RESULTS OF  OPERATIONS  AND
FINANCIAL CONDITION."

     Even if the Company is successful in developing, acquiring and/or licensing
new  brands,  and  increasing  distribution  and sales  volume of the  Company's
existing products, it may be expected to incur substantial  additional expenses,
including advertising and promotional costs, "slotting" expenses (i.e., the cost
of obtaining shelf space in certain grocery  stores),  and integration  costs of
any future acquisitions. 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.

                                       3
<PAGE>
     NEED FOR  ADDITIONAL  FINANCING.  A  significant  element of the  Company's
business strategy is the development, acquisition and/or licensing of innovative
salted snack food brands,  for the purpose of  expanding,  complementing  and/or
diversifying  the Company's  business.  In connection with each of the Company's
previous  brand  acquisitions  (Bob's  Texas  Style(R)  in November  1998,  Tato
Skins(R) and  Pizzarias(R)  in October 1999, and Boulder  Potato  Company(TM) in
June 2000),  the Company  borrowed funds or assumed  additional  indebtedness in
order to  satisfy  a portion  of the  consideration  required  to be paid by the
Company. See "BUSINESS -- COMPANY HISTORY" and "ITEM 6. MANAGEMENT'S  DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS  AND FINANCIAL  CONDITION -- LIQUIDITY AND
CAPITAL  RESOURCES." The Company may, in the future,  require  additional  third
party financing (debt or equity) as a result of any future operating  losses, in
connection with the expansion of the Company's business through  non-acquisition
means,  or in  connection  with any  additional  acquisitions  completed  by the
Company.  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.

     ACQUISITION-RELATED  RISKS.  In recent years, a significant  element of the
Company's   business  strategy  has  been  the  pursuit  of  selected  strategic
acquisition  opportunities  for the purpose of expanding,  complementing  and/or
diversifying  the  Company's  business.  Strategic  acquisitions  are  likely to
continue to  comprise  an element of the  Company's  business  strategy  for the
foreseeable future.  However, no assurance can be given that the Company will be
able  to  continue  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  acquisitions,  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. See "Business - Company History". Moreover,
there  can be no  assurance  that  the  Company  will be  able  to  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 U.S. BANCORP CREDIT AGREEMENT;
POSSIBLE  ACCELERATION  OF  INDEBTEDNESS.  At December 31, 2000, the Company had
outstanding  indebtedness  under a credit agreement with U.S. Bancorp (the "U.S.
Bancorp Credit Agreement") in the aggregate principal amount of $7,601,161.  The
indebtedness under 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 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,  U.S.  Bancorp 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 U.S.  Bancorp Credit
Agreement.  At  December  31,  2000,  the  Company  was in  compliance  with all
financial  covenants under 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),  except the annual capital  expenditures limit for the year 2000,
which  noncompliance  was waived by U.S Bancorp.  There can be no assurance that
the Company will be in compliance  with the  financial  covenants in the future.
Any acceleration of the borrowings under the U.S. Bancorp Credit Agreement prior
to the applicable  maturity dates 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 2000, 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 $3.00 per share to a low of $1.19
per share.  The last  reported  sales  price of the  Common  Stock on the Nasdaq
SmallCap Market on March 23, 2001 was $2.50 per share. There can be no assurance
as to the future market price of the Common Stock.  See "COMPLIANCE  WITH 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

                                       4
<PAGE>
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 salted 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 salted snack food
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 taste and
quality.

     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 who 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 innovative  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  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.

                                       5
<PAGE>
     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), Bob's Texas Style(R), and Boulder Potato Company(TM) 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 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 T.G.I. Friday's(TM)
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 T.G.I. Friday's(TM) brand products by the Company.

     DEPENDENCE UPON MAJOR CUSTOMERS.  Two customers of the Company,  Fry's Food
Stores (a  grocery  chain that is a  subsidiary  of  Kroger,  Inc.) and  Vending
Services of America (a national vending distributor), accounted for 11% and 15%,
respectively,  of the  Company's  2000 net  revenues,  with the remainder of the
Company's  net  revenues  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  revenues for
2000.  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 executive officers,  including
Eric J. Kufel, President and Chief Executive Officer, Glen E. Flook, Senior Vice
President-Operations,   Thomas  W.  Freeze,  Senior  Vice  President  and  Chief
Financial  Officer,  and  John  M.  Silvestri,  Senior  Vice  President-Sales  &
Marketing.  The inability of the Company's  executive  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  executive  officers of the  Company is on an  "at-will"
basis.  The  Company  has  non-compete  agreements  with  all of  its  executive
officers. 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

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Company, currently holding approximately 29% 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. In addition, Renaissance Capital Group, Inc. manages two
funds,  Renaissance  Capital Growth & Income Fund III, Inc. and Renaissance U.S.
Growth & Income Trust PLC,  which  beneficially  own  approximately  14% and 6%,
respectively, of the outstanding shares of Common Stock of 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.

     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,
including 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
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
November  1994, PB Southeast  entered into a Purchase  Agreement  (the "Purchase
Agreement") with PB Foods and its shareholders 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  Poore  Brothers
Distributing;  and (iii) an 80%  equity  interest  in Poore  Brothers  of Texas.
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 Poore  Brothers of Texas.  The
aggregate   purchase  price  paid  by  the  Company  in  connection  with  these
transactions was $4,057,163.

     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
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.  The initial  public  offering  was
underwritten by Paradise Valley Securities,  Inc. (the  "Underwriter").  The net

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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 (a) the sale in June 1997 of an
unprofitable  distribution business in Houston,  Texas and (b) the consolidation
of the Company's operations into a newly constructed manufacturing, distribution
and headquarters facility in Goodyear,  Arizona and, as a result, the closing of
an unprofitable manufacturing facility in LaVergne, Tennessee in September 1997.

     On November 4, 1998,  the Company  acquired the business and certain assets
of Tejas Snacks,  L.P., a Texas-based potato chip manufacturer,  including Bob's
Texas Style(R) potato chips brand, inventories and certain capital equipment for
a total purchase price of $1,700,000, consisting of: (i) the issuance of 523,077
unregistered  shares of Common Stock with a fair value of  $450,000,  and (ii) a
cash payment of approximately $1,250,000.

     On October 7, 1999, the Company  acquired Wabash Foods,  including the Tato
Skins(R) and Pizzarias(R) trademarks. The Company acquired all of the membership
interests of Wabash Foods from Pate Foods Corporation for a total purchase price
of $12,763,000, consisting of: (i) the issuance of 4,400,000 unregistered shares
of Common Stock,  (ii) the issuance of a five-year  warrant to purchase  400,000
unregistered shares of Common Stock at an exercise price of $1.00 per share, and
(iii) the effective assumption of $8,073,000 in liabilities.

     On June 8, 2000, the Company acquired  Boulder Natural Foods,  Inc. and the
business and certain related assets and liabilities of Boulder Potato Company, a
Colorado-based  potato chip marketer and  distributor.  The assets  included the
Boulder Potato Company(TM) potato chip brand, accounts receivable,  inventories,
certain other intangible assets and specified liabilities.  In consideration for
these  assets  and  liabilities,  the  Company  paid a total  purchase  price of
$2,637,000,  consisting of: (i) the issuance of 725,252  unregistered  shares of
Common Stock with a fair value of  $1,235,000,  (ii) a cash payment of $301,000,
(iii) the issuance of a promissory note to the seller in the amount of $830,000,
and (iv) the assumption of $271,000 in liabilities. In addition, the Company may
be  required  to issue  additional  unregistered  shares of Common  Stock to the
seller on each of the first,  second and third anniversary of the closing of the
acquisition.  Any such issuances will be dependent  upon, and will be calculated
based  upon,  increases  in sales of  Boulder  Potato  Company(TM)  products  as
compared to previous periods.

BUSINESS STRATEGY

     The   Company's   business   objective  is  to  be  a  leading   developer,
manufacturer,  marketer and distributor of innovative  branded and private label
salted 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  revenues by developing,  acquiring or licensing
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:

          DEVELOP,   ACQUIRE  OR  LICENSE   INNOVATIVE   SNACK  FOOD  BRANDS.  A
     significant element of the Company's growth strategy is to develop, acquire
     or license  innovative  salted 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.  The  acquisitions  of the Bob's Texas  Style(R),  Tato
     Skins(R) and Boulder Potato  Company(TM)  brands in November 1998,  October
     1999 and June 2000,  respectively,  were three such strategic acquisitions.
     In addition,  in October 2000 the Company launched the T.G.I.  Friday's(TM)
     brand salted snacks under a license from TGI Friday's Inc. The Company will
     continue  to seek to  develop,  acquire or license  additional  brands with
     strong, differentiated snack food product opportunities.

          BUILD  BRANDED  SNACK FOOD  REVENUES.  The Company  plans to build the
     market share of its branded  products through  continued trade  advertising
     and promotion activity in selected markets and channels.  Marketing efforts
     include,   among  other  things,   joint  advertising  with   distributors,
     supermarkets and other manufacturers,  in-store advertisements and in-store
     displays.  The Company also participates 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 Boulder Potato  Company(TM)  brand with new packaging for the
     retail grocery channel.

          IMPROVE MANUFACTURING CAPACITY UTILIZATION.  The Company's Arizona and
     Indiana facilities are currently operating at approximately  eighty percent
     and twenty percent of their respective capacity.  The Company believes that
     additional  improvements to manufactured products' gross profit margins are
     possible with the achievement of the business  strategies  discussed above.

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     Depending  on product  mix, the  existing  manufacturing  facilities  could
     produce, in the aggregate,  up to $125 million in annual revenue 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 grew its private label  revenues
     by 53% in 2000 and 60% in 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),  Bob's Texas Style(R),
and Boulder Potato Company(TM) brand potato chips are marketed by the Company as
premium  products based on their  distinctive  combination of cooking method and
variety of distinctive  flavors.  Poore  Brothers(R)  potato chips are currently
offered in ten flavors,  Bob's Texas Style(R) potato chips are currently offered
in seven  flavors,  and Boulder  Potato  Company(TM)  potato chips are currently
offered in six flavors.

     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 T.G.I. Friday's(TM) brand salted snacks 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,
Pizzarias(R) brand pizza chips, and T.G.I.  Friday's(TM) brand salted snacks are
offered in several different flavors and formulations.

     DISTRIBUTED  SNACK  FOOD  PRODUCTS.   The  Company  purchases  and  resells
throughout  Arizona snack food products  manufactured  by others.  Such products
include  pretzels,   tortilla  chips,   dips,  and  meat  snacks.   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),  Bob's Texas Style(R) and Boulder Potato  Company(TM)  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,  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.  The Company  believes  that  although the batch frying
process  produces less volume,  it 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 and, in connection therewith, discontinued manufacturing
operations at a facility in LaVergne,  Tennessee. In 1999, the Company purchased
and installed  additional batch frying equipment in the Goodyear  facility.  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  Arizona  facility  is  operating  currently  at
approximately eighty percent of capacity.

     The Company's  manufacturing  facility in Bluffton,  Indiana includes three
fryer lines that can produce an aggregate of approximately 9,000 pounds per hour
of Tato Skins(R),  Pizzarias(R)  and T.G.I.  Friday's(TM)  brand  products.  The
Indiana  facility is operating  currently  at  approximately  twenty  percent of
capacity.

     On October  28,  2000,  the  Company  experienced  a fire at the  Goodyear,
Arizona  manufacturing  plant,  causing a temporary  shutdown  of  manufacturing
operations at the facility. There was extensive damage to the roof and equipment
utilities in the potato chip processing area. Third party  manufacturers  agreed
to provide  the  Company  with  production  volume to satisfy  nearly all of the
Company's  anticipated   customers'  needs  during  the  shutdown.  The  Company
continued  to season and  package  the bulk  product  received  from third party
manufacturers.  The Company  estimates full  production  will resume in March of

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2001. The Company believes that its property and business interruption insurance
and the actions  taken by the Company to ensure  product  supply  should help to
mitigate the potential adverse impact from the fire on results of operations.

     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."

MARKETING AND DISTRIBUTION

     The Company's  potato chip products are  distributed  primarily 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,  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 Boulder Potato  Company(TM) brand potato chip
products have achieved  significant  market  presence in Colorado and in natural
food stores across the country.

     The Company's Poore Brothers(R),  Tato Skins(R),  Pizzarias(R),  and T.G.I.
Friday's(TM) brand snack food products have achieved significant market presence
in the vending channel nationwide through an independent  network of brokers and
distributors,  particularly  in the  mid-west 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  has  retained  Marketing  Specialists  Corporation,  a leading
national  sales and  marketing  agency with over 6,000  employees and 65 offices
nationwide.  Marketing Specialists will introduce T.G.I. Friday'sTM brand salted
snacks on behalf of Poore  Brothers in the grocery,  convenience  store and drug
store  channels.  In addition,  the Company has commenced  initial  shipments of
T.G.I.  Friday's(TM)  brand salted  snacks to club stores across the country and
expects to commence  initial  shipments to selected mass  merchandisers'  stores
during 2001.

     The Company's Arizona  distribution  business operates  throughout Arizona,
with 45  independently  operated  service  routes.  Each route is operated by an
independent  distributor who  merchandises as many as 125 items at major grocery
store chains in Arizona, such as Albertson's,  ABCO, Basha's, Fry's, and Safeway
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, and meat snacks.

     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.

     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  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  typifies 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
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

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<PAGE>
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

     Two customers of the Company,  Fry's Food Stores (a grocery chain that is a
subsidiary of Kroger,  Inc.) and Vending Services of America (a national vending
distributor), accounted for 11% and 15%, respectively, of the Company's 2000 net
revenues.  The remainder of the Company's  revenues were derived from sales to a
limited number of additional  customers,  either grocery chains,  club stores or
regional distributors, none of which individually accounted for more than 10% of
the Company's  sales in 2000. 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 salted
snack foods  reached  $19.4 billion at retail in 1999 (the latest year for which
data is  available)  with potato  chips,  tortilla  chips,  pretzels  and potato
crisps,  accounting  for  approximately  62% of the  market,  and  corn  snacks,
popcorn,  nuts, meat snacks and other products accounting for the balance. Total
salted  snack sales,  in dollar  terms,  increased  every year from 1990 through
1999,  ranging from an increase of 8.5% (in 1997) to 0.3% (in 1995), with a 1999
increase of 6.2%.  Potato  chip,  tortilla  chips,  pretzels  and potato  crisps
combined  sales  have  similarly  increased,  with  1999  retail  sales of $12.0
billion, a 2.4% increase over 1998 sales of $11.7 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 innovative  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
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, 2000, the Company had 190 full-time employees, including
155 in  manufacturing  and  distribution,  14 in sales and  marketing  and 21 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.

                                       11
<PAGE>
PATENTS AND TRADEMARKS

     The Company produces Tato Skins(R) brand potato crisps,  Pizzarias(R) brand
pizza chips,  and T.G.I.  Friday's(TM)  brand salted snacks 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), Boulder Potato Company(TM), Tato Skins(R), O'Boisies(R), Pizzarias(R),
Braids(R)  and  Knots(R).  The Company  licenses the T.G.I.  Friday's(TM)  brand
salted snacks  trademark from TGI Friday's Inc. under a multi-year  agreement in
which the  Company  is  required  to make  royalty  payments  on sales of T.G.I.
Friday's(TM)  brand  salted snack  products  and is required to achieve  certain
minimum  sales  levels  during the  contract  term.  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. On October 28, 2000, the Company  experienced a fire at the Goodyear,
Arizona plant,  causing a temporary shutdown of manufacturing  operations at the
facility.  There was extensive damage to the roof and equipment utilities in the
potato chip processing  area.  Third party  manufacturers  agreed to provide the
Company  with  production   volume  to  satisfy  nearly  all  of  the  Company's
anticipated  customers'  needs  during the  shutdown.  The Company  continued to
season and package the bulk product received from third party manufacturers. The
Company  estimates  full  production  will resume in March of 2001.  The Company
believes that its property and business  interruption  insurance and the actions
taken by the  Company to ensure  product  supply  should  help to  mitigate  the
potential  adverse  impact from the fire on results of  operations.

     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  are  $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.

                                       12
<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 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

     Fiscal 2000:
          First Quarter                               $2.06       $1.19
          Second Quarter                              $1.94       $1.31
          Third Quarter                               $3.00       $1.63
          Fourth Quarter                              $2.75       $1.94

     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  25,  2001,   there  were  15,004,765   shares  of  Common  Stock
outstanding.  As of such date, the shares of Common Stock were held of record by
approximately 3,250 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.

                                       13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

     Net revenues  for the year ended  December  31, 2000 were  $41,743,000,  up
$18,468,000,   or  79%,  from  $23,275,000  for  1999.  Revenues  from  products
manufactured  by the Company  accounted  for 88% and 80% of the revenues in 2000
and 1999,  respectively,  while  revenues from products  manufactured  by others
accounted for 12% and 20% in 2000 and 1999, respectively.  Manufactured products
segment  revenues,  from sales of branded and private label  product,  increased
$18,007,000,  or 97%, including  $13,120,000 in connection with the Wabash Foods
acquisition  in October 1999 and the Boulder  Natural Foods  acquisition in June
2000, and the remaining  $4,887,000  (representing a 23% increase) in connection
with increased  sales of the Poore  Brothers(R)  and Bob's Texas Style(R) potato
chip brands and private  label  products.  Revenues  from the  distribution  and
merchandising of products manufactured by others increased $460,000, or 10%, due
to increased sales of distributed product lines.

     Gross profit for the year ended December 31, 2000, was $10,392,000,  or 25%
of net sales,  as compared to  $5,707,000,  or 25% of net sales,  for 1999.  The
$4,685,000 increase,  or 82%, in gross profit resulted from the increased volume
of manufactured products. On October 28, 2000, the Company experienced a fire at
the  Goodyear,  Arizona  manufacturing  plant,  causing a temporary  shutdown of
manufacturing operations at the facility. See "LIQUIDITY AND CAPITAL RESOURCES."

     Selling,  general and administrative  expenses increased to $8,447,000,  or
20% of net revenues for the year ended December 31, 2000,  from  $4,764,000,  or
20% of net revenues for 1999. This  represented a $3,683,000  increase,  or 77%,
compared  to  1999,  primarily  due  to an  increase  of  $2,524,000  in  sales,
advertising  and  promotional  spending in support of the 79%  increase in sales
volume and  $577,000  of  administrative  costs  associated  with the Wabash and
Boulder acquisition operations.

     Net interest  expense  increased to $1,177,000  for the year ended December
31, 2000 from $750,000 for 1999.  This increase was due to lower interest income
of $30,000  on  investments  and  increased  interest  expense  of  $398,000  on
indebtedness related to the Wabash and Boulder 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, 2000 was $730,000,
and the net  income  for the year  ended  December  31,  1999 was  $74,000.  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, 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.

                                       14
<PAGE>
     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.

LIQUIDITY AND CAPITAL RESOURCES

     Net working capital was  approximately  $771,000 (a current ratio of 1.1:1)
and  $780,000  (a  current  ratio of  1.2:1)  at  December  31,  2000 and  1999,
respectively. For the fiscal year ended December 31, 2000, the Company generated
cash flow of $2,618,000 from operating  activities,  principally  from operating
results and  non-cash  charges,  invested  $635,000 in new  equipment,  and made
$2,053,000 in payments on long-term debt.

     On October  28,  2000,  the  Company  experienced  a fire at the  Goodyear,
Arizona  manufacturing  plant,  causing a temporary  shutdown  of  manufacturing
operations at the facility. There was extensive damage to the roof and equipment
utilities in the potato chip processing area. Third party  manufacturers  agreed
to provide  the  Company  with  production  volume to satisfy  nearly all of the
Company's  anticipated   customers'  needs  during  the  shutdown.  The  Company
continued  to season and  package  the bulk  product  received  from third party
manufacturers.  The Company  estimates full  production  will resume in March of
2001. The Company believes that its property and business interruption insurance
and the actions  taken by the Company to ensure  product  supply  should help to
mitigate the potential adverse impact from the fire on results of operations and
capital  resources.  The Company  identified  and  recorded  approximately  $1.4
million of  incremental  expenses  incurred  as a result of the fire,  primarily
associated  with  outsourcing  production.  These extra expenses were charged to
"cost of revenue" and offset by a $1.4  million  credit  representing  estimated
future  insurance  proceeds.  As of  December  31,  2000,  the  Company had been
advanced  $0.5 million of the $1.4 million by its  insurance  company as partial
reimbursement.

     On October 7, 1999,  the Company  signed a $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 a $2.5 million line of credit and a $0.5 million
term loan previously  obtained by the Company from Wells Fargo Business  Credit,
Inc.  ("Wells  Fargo"),  to refinance  indebtedness  effectively  assumed by the
Company in connection  with the acquisition 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,  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,  plus interest,  until maturity on March 31,
2001. In June 2000, the U.S Bancorp  Credit  Agreement was amended to include an
additional  $300,000 term loan (the "U.S. Bancorp Term Loan C") and to refinance
the $715,000  non-interest  bearing  note due to U.S.  Bancorp on June 30, 2000.
Proceeds  from the U.S.  Bancorp  Term Loan C were used in  connection  with the
Boulder  acquisition.  The U.S.  Bancorp Term Loan C bears interest at an annual
rate of prime plus 2% and requires monthly  principal  payments of approximately
$12,500,  plus  interest,  until  maturity on August 1, 2002. The Company made a
payment of $200,000 on the  $715,000 and  refinanced  the balance in a term loan
(the "U.S. Bancorp Term Loan D"). The U.S. Bancorp Term Loan D bears interest at
an annual  rate of prime plus 2% and  requires  monthly  principal  payments  of
approximately $21,500, plus interest,  until maturity on June 30, 2002. The U.S.
Bancorp  Credit  Agreement  is  secured  by  accounts  receivable,  inventories,
equipment and intangibles.  Borrowings under the U.S. Bancorp Line of Credit are
limited to 80% of eligible receivables and 60% of eligible  inventories,  and at
December 31, 2000, the Company had a borrowing base of approximately  $2,934,000
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, 2000, the Company was in
compliance  with all of the  financial  covenants,  except  the  annual  capital
expenditures  limit of $335,000.  U.S. Bancorp has waived the non-compliance for
2000.  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.  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, 2000,  there was an  outstanding  balance of $1,907,859 on the U.S.
Bancorp Line of Credit,  $4,982,051 on the U.S.  Bancorp Term Loan A, $87,500 on
the U.S.  Bancorp  Term Loan B,  $237,500 on the U.S.  Bancorp  Term Loan C, and
$386,250 on the U.S.  Bancorp  Term Loan D. 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

                                       15
<PAGE>
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.

     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 12.4%,  require  monthly  payments,
expire at various  times  through  2007 and are  collateralized  by the  related
equipment.

     At  December  31,  2000,  the  Company had an  outstanding  9%  Convertible
Debentures  due July 1,  2002 ("9%  Convertible  Debentures")  in the  principal
amount of $481,115 held by Wells Fargo.  The 9%  Convertible  Debentures,  which
were issued in 1995 pursuant to a Debenture Loan Agreement (the  "Debenture Loan
Agreement"), 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 9%  Convertible  Debentures  through  June  2002  with  the
remaining balance due on July 1, 2002. In November 1999,  Renaissance Capital, a
former holder of 9% Convertible  Debentures,  converted 50% ($859,047  principal
amount) of its 9% Convertible  Debentures holdings into 859,047 shares of Common
Stock and, in December  2000,  Renaissance  Capital  converted the remaining 50%
($859,047  principal  amount) of its 9%  Convertible  Debentures  holdings  into
859,047 shares of Common Stock. For the period November 1, 1999 through December
31, 2000, Renaissance Capital waived all mandatory principal redemption payments
and accepted  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  (including  the  failure of the Company to comply
with certain financial ratios),  the holder(s) 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 9% Convertible  Debentures.
The Company is currently in compliance with the required financial ratios.

     At December  31, 2000,  the Company had net  operating  loss  carryforwards
available for federal income taxes of  approximately  $4.8 million.  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.
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  2001.  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.

                                       16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----
REPORTS
Report of independent public accountants with respect to financial
  statements for the years ended December 31, 2000 and 1999                   23

FINANCIAL STATEMENTS
Consolidated balance sheets as of December 31, 2000 and 1999                  24
Consolidated statements of operations for the years ended
December 31, 2000 and 1999                                                    25
Consolidated statements of shareholders' equity for the years
ended December 31, 2000 and 1999                                              26
Consolidated statements of cash flows for the years ended
December 31, 2000 and 1999                                                    27
Notes to consolidated financial statements                                    28

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

     None.

                                    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          34     President, Chief Executive Officer, Director
     Glen E. Flook          42     Senior Vice President-Operations
     Thomas W. Freeze       49     Senior Vice President, Chief Financial
                                   Officer, Treasurer, Secretary, and Director
     John M. Silvestri      45     Senior Vice President-Sales & Marketing
     Mark S. Howells        47     Chairman, Director
     Thomas E. Cain         46     Director
     James W. Myers         66     Director
     Robert C. Pearson      65     Director
     Aaron M. Shenkman      60     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 Senior Vice  President-Operations  since
May 2000 and as Vice  President-Manufacturing  from March 1997 to May 2000. 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 Senior Vice President since May 2000,
as Chief Financial  Officer,  Secretary and Treasurer since April 1997, and as a
Director since October 1999. From April 1997 to May 2000, Mr. Freeze served as a
Vice President of the Company.  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.

                                       17
<PAGE>
JOHN M.  SILVESTRI.  Mr.  Silvestri  has  been  Senior  Vice  President-Sales  &
Marketing since  September 2000. From August 1998 to August 2000, Mr.  Silvestri
served as Regional  Vice  President of Brach's  Confections,  Inc.  From 1983 to
August 1998, Mr. Silvestri served in various sales and marketing  capacities for
M&M/Mars  Inc.,  including most recently from July 1996 to July 1998 as National
Sales Manager.  Prior to his positions at M&M/Mars Inc., Mr. Silvestri served in
several sales positions for Procter & Gamble.

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. From 1988 to May 2000, Mr. Howells served as the Chief  Executive  Officer
of Puglisi Howells & Co. (formerly Arizona Securities Group, Inc.), a registered
securities broker-dealer.  Since May 2000, Mr. Howells has devoted a majority of
his time to serving  as the  President  and  Chairman  of M.S.  Howells & Co., a
registered  securities  broker-dealer.  Mr.  Howells  is also  the  founder  and
President of Audesi  Capital  Management  LLC, a registered  investment  adviser
formed in 2001, and founder and Chief  Executive  Officer of  TheHEDGE.COM  LLC,
operator of an internet  web site  devoted to  providing  services to hedge fund
managers and accredited investors.

THOMAS E. CAIN. Mr. Cain has served as a Director since September 2000. Mr. Cain
has been Chairman of Frontstep  distribution.com  since 1999. From 1991 to 1999,
Mr. Cain was President and Chief Executive  Officer of  Distribution  Architects
International,  Inc.,  a  distribution  and  logistics  software  developer  and
marketer. Mr. Cain has extensive experience in software development,  e-commerce
and supply chain management.

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
and Sedona  Worldwide,  Inc. a publicly  traded  distributor  of  personal  care
products.

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 former
owner of 9%  Convertible  Debentures and currently a shareholder of the Company.
See "ITEM 6.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL  Resources".  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  CaminoSoft  Corp.  (a publicly  traded  distributor  of
consumables for laser printers) and Advanced Power Technology,  Inc. (a publicly
traded semiconductor manufacturer).

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  2001 Annual Meeting of  Shareholders  to be filed by the Company with
the Commission on or about April 17, 2001.

                                       18
<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:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                  DESCRIPTION
------                                  -----------
<S>      <C>
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.)
3.4   -- 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 (and
         certain of its subsidiaries), 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)
4.11  -- Form of Term Note C and Term Note D issued by the Company to U.S. Bancorp as of June 30,
         2000. (7)
10.1  -- 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)
10.2  -- 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)
10.3  -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and between the Company and
         Parris H. Holmes, Jr. (1)
10.4  -- Form of Security Agreements dated May 31, 1995, by and among Renaissance Capital, Wells
         Fargo and the Company (and certain of its subsidiaries). (1)
10.5  -- Equipment Lease Agreement dated December 12, 1995, by and between PB Arizona and FINOVA
         Capital Corporation. (1)
10.6  -- Guaranty dated December 12, 1995, issued by the Company to FINOVA Capital Corporation. (1)
10.7  -- Agreement dated August 29, 1996, by and between the Company and Westminster Capital, Inc.
         ("Westminster"), as amended. (1)
10.8  -- Amendment No. 1 dated October 14, 1996, to Warrant dated September 11, 1996, issued by the
         Company to Westminster. (1)
10.9  -- 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)
10.10 -- 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)
10.11 -- Non-Qualified Stock Option Agreement dated as of October 22, 1996, by and between the
         Company and Mark S. Howells. (1)
10.12 -- Letter Agreement dated as of November 5, 1996, by and between the Company and Jeffrey J.
         Puglisi. (1)
10.13 -- Letter Agreement dated as of November 5, 1996, by and between the Company and David J. Brennan. (1)
10.14 -- Stock Option Agreement dated October 22, 1996, by and between the Company and David J. Brennan. (1)
</TABLE>

                                       19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                  DESCRIPTION
------                                  -----------
<S>      <C>
10.15 -- 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)
10.16 -- Letter Agreement dated December 4, 1996, by and between the Company and Jeffrey J. Puglisi,
         relating to stock options. (1)
10.17 -- Letter Agreement dated December 4, 1996, by and between the Company and Mark S. Howells,
         relating to stock options. (1)
10.18 -- Letter  Agreement  dated  December 4, 1996,  by and between  the Company and Parris H.
         Holmes, Jr., relating to stock options. (1)
10.19 -- Letter Agreement dated December 4, 1996, by and between the Company and David J. Brennan,
         relating to stock options. (1)
10.20 -- 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.)
10.21 -- Employment Agreement dated January 24, 1997, by and between the Company and Eric J. Kufel. (2)
10.22 -- First Amendment to Employment Agreement dated February 2, 1997, by and between the Company
         and David J. Brennan. (2)
10.23 -- Employment Agreement dated February 14, 1997, by and between the Company and Glen E. Flook. (2)
10.24 -- 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.)
10.25 -- Fixed Rate Note dated June 4, 1997, by and between La Cometa Properties, Inc. and Morgan
         Guaranty Trust Company of New York. (3)
10.26 -- 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)
10.27 -- Guaranty Agreement dated June 4, 1997, by and between the Company and Morgan Guaranty Trust
         Company of New York. (3)
10.28 -- Equipment Lease Agreement dated June 9, 1997, by and between PB Arizona and FINOVA Capital
         Corporation. (3)
10.29 -- Letter Agreement dated August 18, 1998, by and between the Company and Everen. (4)
10.30 -- 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.)
10.31 -- 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.)
10.32 -- 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.)
10.33 -- Poore Brothers, Inc. 1995 Stock Option Plan, as amended. (5)
10.34 -- Credit Agreement, dated as of October 3, 1999, by and between the Company and U.S. Bancorp
         Republic Commercial Finance, Inc. (5)
10.35 -- Security Agreement, dated as of October 3, 1999, by and between the Company and U.S. Bancorp
         Republic Commercial Finance, Inc. (5)
10.36 -- Commercial Lease, dated May 1, 1998, by and between Wabash Foods, LLC and American Pacific
         Financial Corporation. (5)
10.37 -- Agreement for Purchase and Sale of Assets of Boulder Potato Company dated as of June 8, 2000, by and
         among the Company, the shareholders of Boulder Potato Company, and Boulder Potato Company. (6)
10.38 -- Secured Promissory Note and Security Agreement dated as of June 8, 2000, by and between Boulder
         Potato Company and the Company. (6)
10.39 -- Registration Rights Agreement dated as of June 8, 2000, by and between Boulder Potato Company and
         the Company. (6)
10.40 -- Escrow Agreement dated as of June 8, 2000, by and among the Company, the shareholders of Boulder
         Potato Company, and Boulder Potato Company. (6)
10.41 -- Employment Agreement dated June 8, 2000, by and between Mark C. Maggio and the Company. (6)
10.42 -- Employment Agreement dated June 8, 2000, by and between John F. Maggio and the Company. (6)
10.43 -- Employment Agreement dated August 31, 2000, by and between John M. Silvestri and the Company. (7)
</TABLE>

                                       20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                  DESCRIPTION
------                                  -----------
<S>      <C>
10.44 -- First Amendment, dated as of June 30, 2000, to Credit Agreement, dated as of October 3, 1999, by
         and between the Company and U.S. Bancorp. (7)
21.1 --  List of Subsidiaries of the Company. (7)
23.1 --  Consent of Arthur Andersen LLP. (7)
</TABLE>

----------
(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)  Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended December 31, 1999.
(6)  Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
     for the three-month period ended June 30, 2000.
(7)  Filed herewith.

     (b) Reports on Form 8-K.

         (1)  Current  Report on Form 8-K,  reporting the October 28, 2000 fire
              at the Company's  Goodyear,  Arizona  manufacturing  plant (filed
              with the Commission on October 30, 2000).

         (2)  Current  Report on Form 8-K,  reporting  on the  October 28, 2000
              fire  at the  Company's  Goodyear,  Arizona  manufacturing  plant
              (filed with the Commission on November 6, 2000).

                                       21
<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: April 2, 2001                    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.

<TABLE>
<CAPTION>
      SIGNATURE                                TITLE                                  DATE
      ---------                                -----                                  ----
<S>                         <C>                                                   <C>
/s/ Eric J. Kufel           President, Chief Executive Officer, and Director      April 2, 2001
-----------------------     (Principal Executive Officer)
Eric J. Kufel

/s/ Thomas W. Freeze        Senior Vice President, Chief Financial Officer,       April 2, 2001
-----------------------     Treasurer, Secretary, and Director (Principal
Thomas W. Freeze            Financial Officer and Principal Accounting Officer)

/s/ Mark S. Howells         Chairman, Director                                    April 2, 2001
-----------------------
Mark S. Howells

/s/ Thomas E. Cain          Director                                              April 2, 2001
-----------------------
Thomas E. Cain

/s/ James W. Myers          Director                                              April 2, 2001
-----------------------
James W. Myers

/s/ Robert C. Pearson       Director                                              April 2, 2001
-----------------------
Robert C. Pearson

/s/ Aaron M. Shenkman       Director                                              April 2, 2001
-----------------------
Aaron M. Shenkman
</TABLE>

                                       22
<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, 2000 and 1999,
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,  2000  and  1999,  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.



/s/ ARTHUR ANDERSEN LLP

Phoenix, Arizona
February 14, 2001

                                       23
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                     ------------------------------
                                                                                         2000               1999
                                                                                     -----------        -----------
<S>                                                                                   <C>                 <C>
                                    ASSETS
Current assets:
  Cash ...........................................................................   $   327,553        $   104,364
  Accounts receivable, net of allowance of $247,000 in 2000
    and $206,000 in 1999 .........................................................     4,936,393          3,265,041
  Inventories ....................................................................     1,782,551          1,221,412
  Other current assets ...........................................................       394,356            325,146
                                                                                     -----------        -----------
      Total current assets .......................................................     7,440,853          4,915,963

Property and equipment, net ......................................................    12,306,241         13,678,133
Intangible assets, net ...........................................................    10,030,631          7,198,283
Other assets, net ................................................................       212,737            281,601
                                                                                     -----------        -----------
      Total assets ...............................................................   $29,990,462        $26,073,980
                                                                                     ===========        ===========

                     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable ...............................................................   $ 3,031,130        $ 1,328,720
  Accrued liabilities ............................................................     1,323,357            690,931
  Current portion of long-term debt ..............................................     2,315,391          2,116,226
                                                                                     -----------        -----------
      Total current liabilities ..................................................     6,669,878          4,135,877

Long-term debt, less current portion .............................................     9,025,088         10,680,840
                                                                                     -----------        -----------
      Total liabilities ..........................................................    15,694,966         14,816,717
                                                                                     -----------        -----------

Commitments and contingencies

Shareholders' equity:
  Preferred stock, $100 par value; 50,000 shares authorized; no shares issued
   or outstanding at December 31, 2000 and 1999, respectively.....................            --                 --
  Common stock, $.01 par value; 50,000,000 shares authorized; 14,994,765 and
   13,222,044 shares issued and outstanding at December 31, 2000 and 1999,
   respectively ..................................................................       149,947            132,220
  Additional paid-in capital .....................................................    19,677,542         17,386,827
  Accumulated deficit ............................................................    (5,531,993)        (6,261,784)
                                                                                     -----------        -----------
      Total shareholders' equity .................................................    14,295,496         11,257,263
                                                                                     -----------        -----------
      Total liabilities and shareholders' equity .................................   $29,990,462        $26,073,980
                                                                                     ===========        ===========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       24
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                                     -------------------------------
                                                                         2000               1999
                                                                     ------------       ------------
<S>                                                                  <C>                <C>
Net revenues ..................................................      $ 41,743,007       $ 23,275,543

Cost of revenues ..............................................        31,350,941         17,568,425
                                                                     ------------       ------------

     Gross profit .............................................        10,392,066          5,707,118

Selling, general and administrative expenses ..................         8,446,808          4,763,896
                                                                     ------------       ------------

     Operating income .........................................         1,945,258            943,222
                                                                     ------------       ------------

Interest income ...............................................             1,015             30,866

Interest expense ..............................................        (1,178,482)          (780,616)
                                                                     ------------       ------------

                                                                       (1,177,467)          (749,750)
                                                                     ------------       ------------

     Income before income tax provision .......................           767,791            193,472

Income tax provision ..........................................           (38,000)                --
                                                                     ------------       ------------
  Income before extraordinary loss and cumulative effect
   of a change in accounting principle ........................           729,791            193,472

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

Cumulative effect of a change in accounting principle .........                --            (71,631)
                                                                     ------------       ------------

    Net income ................................................      $    729,791       $     74,240
                                                                     ============       ============
Earnings per common share:
  Basic-
    Income before extraordinary loss and cumulative effect
     of a change in accounting principle ......................      $       0.05       $       0.02
    Extraordinary loss on extinguishment of debt ..............                --              (0.00)
    Cumulative effect of a change in accounting principle .....                --              (0.01)
                                                                     ------------       ------------
    Net income per common share ...............................      $       0.05       $       0.01
                                                                     ============       ============
  Diluted-
    Income before extraordinary loss and cumulative effect
     of a change in accounting principle.......................      $       0.05       $       0.02
    Extraordinary loss on extinguishment of debt ..............                --              (0.00)
    Cumulative effect of a change in accounting principle .....                --              (0.01)
                                                                     ------------       ------------
    Net income per common share ...............................      $       0.05       $       0.01
                                                                     ============       ============
Weighted average number of common shares:
  Basic .......................................................        13,769,614          8,988,110
                                                                     ============       ============
  Diluted .....................................................        15,129,593          9,134,414
                                                                     ============       ============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       25
<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, 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
     Exercise of common stock options......      153,334       1,533        173,705             --         175,238
     Issuance of common stock .............    1,619,387      16,194      2,117,010             --       2,133,204
     Net income ...........................           --          --             --        729,791         729,791
                                              ----------    --------    -----------    -----------     -----------

Balance, December 31, 2000 ................   14,994,765    $149,947    $19,677,542    $(5,531,993)    $14,295,496
                                              ==========    ========    ===========    ===========     ===========
</TABLE>

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

                                       26
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                            ------------------------------
                                                                               2000               1999
                                                                            -----------        -----------
<S>                                                                         <C>                <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
 Net income .........................................................      $   729,791        $    74,240
 Adjustments to reconcile net income to net cash provided
  by operating activities:
   Depreciation .....................................................        1,089,004            725,068
   Amortization .....................................................          648,938            337,430
   Valuation reserves ...............................................          102,325            168,784
   Extraordinary loss on extinguishment of debt .....................               --             47,601
   Cumulative effect of a change in accounting principle ............               --             71,631
   Other non-cash charges ...........................................          252,148            418,247
   Change in operating assets and liabilities, net of effect
    of business acquired:
    Accounts receivable .............................................       (1,713,991)          (803,681)
    Inventories .....................................................         (481,401)           (21,608)
    Other assets and liabilities ....................................         (252,812)          (239,749)
    Accounts payable and accrued liabilities ........................        2,243,610           (542,125)
                                                                           -----------        -----------
        Net cash provided by operating activities ...................        2,617,612            235,838
                                                                           -----------        -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
 Proceeds from sale of equipment and property .......................               --             14,125
 Purchase of equipment ..............................................         (635,415)          (423,008)
 Acquisition and related expenses ...................................         (365,542)          (482,872)
                                                                            -----------        -----------
        Net cash used in investing activities .......................       (1,000,957)          (891,755)
                                                                           -----------        -----------

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
 Proceeds from issuance of common stock .............................          175,238            125,000
 Stock and debt issuance costs ......................................          (11,164)           (97,693)
 Proceeds from issuance of debt .....................................          610,329            350,000
 Payments made on long-term debt ....................................       (2,053,149)          (757,219)
 Net increase (decrease) in working capital line of credit ..........         (114,720)           869,898
                                                                            -----------        -----------
        Net cash provided by (used in) financing activities..........       (1,393,466)           489,986
                                                                            -----------        -----------
Net increase (decrease) in cash .....................................          223,189           (165,931)
Cash at beginning of year ...........................................          104,364            270,295
                                                                           -----------        -----------
Cash at end of year .................................................      $   327,553        $   104,364
                                                                           ===========        ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the year for interest .............................      $ 1,047,380        $   541,096
 Summary of non-cash investing and financing activities:
  Financing warrants issued .........................................               --             36,249
  Common Stock issued for acquisitions ..............................        1,235,321          4,400,000
  Note payable issued for acquisition ...............................          830,000                 --
  Common Stock warrants issued for acquisitions .....................               --            423,566
  Common Stock and warrant issued in lieu of interest paymenmts......               --             90,447
  Common Stock issued for sales commissions .........................           50,000                 --
  Conversion of Convertible Debenture into Common Stock .............          859,047            859,047
</TABLE>

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

                                       27
<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
COMBINATIONS."  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.  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) and Pizzarias(R). On June
8, 2000, the Company  acquired a 100% equity  interest in Boulder Natural Foods,
Inc. and the  business and certain  related  assets and  liabilities  of Boulder
Potato Company ("Boulder"),  a Colorado-based  natural potato chip marketer. See
Note 2.

BUSINESS OBJECTIVES, RISKS AND PLANS

     The  Company is  engaged  in the  development,  production,  marketing  and
distribution  of innovative  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 (a)  manufactures and sells
its own brands of salty snack food products including Poore  Brothers(R),  Bob's
Texas Style(R),  and Boulder Potato  Company(TM) brand batch-fried potato chips,
Tato  Skins(R)  brand potato  snacks and  Pizzarias(R)  brand pizza  chips,  (b)
manufactures  and sells T.G.I.  Friday's(TM)  brand salted  snacks under license
from TGI Friday's Inc.  (shipments by Company  commenced in October  2000),  (c)
manufactures  private  label potato  chips for grocery  retail  chains,  and (d)
distributes  and  merchandises  snack food  products  that are  manufactured  by
others.  The  Company's  business  objective  is  to  be  a  leading  developer,
manufacturer,  marketer and distributor of innovative  branded 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 primarily in the market niches not served by
the  dominant  national  competition.  The  Company  plans to achieve  growth in
manufactured  product  revenues by developing,  acquiring and/or licensing 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.

     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
business in the snack food industry.  The market for salted 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, Wabash, and Boulder, 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 2001,
which, along with its existing working capital and borrowing facilities,  should
enable the Company to meet its operating cash requirements through 2001.

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.

                                       28
<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  accounting
principles  generally accepted in the United States 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,  2000 and  1999,  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  judgment 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 Opinion 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 could be recovered  through estimated
future  undiscounted cash flows. Total goodwill was $6,376,374 and $3,941,009 at
December 31, 2000 and 1999,  respectively,  including $126,702 from the November
1998 Tejas acquisition, $1,327,227 from the October 1999 Wabash acquisition, and
$1,505,265  from the June 2000  Boulder  acquisition  (see Note 2).  Accumulated
amortization   was  $886,108  and  $587,431  at  December  31,  2000  and  1999,
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,  $2,500,000  of the  Wabash  purchase  price to
trademarks,  and  $1,000,000  of  the  Boulder  purchase  price  to  trademarks.
Accumulated  amortization  was  $459,635  and  $155,295 at December 31, 2000 and
1999, respectively.

                                       29
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


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

REVENUE RECOGNITION

     The  Company  recognizes  revenues  and related  cost of revenues  when the
persuasive evidence of an arrangement exists,  delivery has occurred, the fee is
fixed or determinable and  collectability is probable.  Generally,  all of these
conditions are met at the time the Company ships products to customers.

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 revenues are recognized.  Costs associated
with obtaining shelf space (i.e.,  "slotting  fees") are expensed in the year in
which the Company  incurs such costs.  Advertising  expenses were  approximately
$394,000 and $265,000 in 2000 and 1999, 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 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.

<TABLE>
<CAPTION>
                                                                            YEARS ENDED DECEMBER 31,
                                                                          ----------------------------
                                                                             2000              1999
                                                                          -----------       ----------
<S>                                                                       <C>               <C>
     BASIC EARNINGS PER COMMON SHARE:
       Income before extraordinary loss and cumulative effect
         of a change in accounting principle .....................        $   729,791       $  193,472
                                                                          ===========       ==========
       Weighted average number of common shares ..................         13,769,614        8,988,110
                                                                          ===========       ==========
       Earnings per common share .................................        $      0.05       $     0.02
                                                                          ===========       ==========
     DILUTED EARNINGS PER COMMON SHARE:
       Income before extraordinary loss and cumulative effect
         of a change in accounting principle .....................        $   729,791       $  193,472
                                                                          ===========       ==========
       Weighted average number of common shares ..................         13,769,614        8,988,110
       Incremental shares from assumed conversions -
         Warrants ................................................            475,943           95,497
         Stock options ...........................................            884,036           50,807
                                                                          -----------       ----------
       Adjusted weighted average number of common shares .........         15,129,593        9,134,414
                                                                          ===========       ==========
       Earnings per common share .................................        $      0.05       $     0.02
                                                                          ===========       ==========
</TABLE>

     Options  and  warrants  to  purchase  985,527  shares of Common  Stock were
outstanding  at December 31, 2000,  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.

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


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

RECENT ACCOUNTING PRONOUNCEMENTS

     Statement of Financial  Accounting  Standards ("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 as of January 1, 2001,  the Company  expects there will be no impact on
its financial condition or results of operations.

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting   Bulletin  ("SAB")  No.  101,  "REVENUE   RECOGNITION  IN  FINANCIAL
STATEMENTS," which addresses certain criteria for revenue recognition.  SAB 101,
as amended by SAB 101A and SAB 101B,  outlines the criteria  that must be met to
recognize  revenue and  provides  guidance  for  disclosures  related to revenue
recognition  policies.  The Company has implemented the applicable provisions of
SAB 101.  The impact of adopting the  provisions  of SAB 101 was not material to
the accompanying financial statements.

     In July  2000,  the  Emerging  Issues  Task  Force  (EITF)  reached a final
consensus on Issue No.  00-10,  "ACCOUNTING  FOR SHIPPING AND HANDLING  FEES AND
COSTS."  When  adopted,  EITF No.  00-10  requires  that all  amounts  billed to
customers in sale  transactions  related  shipping and handling be classified as
revenue.  The Company  adopted EITF No. 00-10 during the quarter ended September
30, 2000.  The impact of adopting the  provisions of EITF 00-10 was not material
to the accompanying financial statements for any period presented.

2. ACQUISITIONS:

     On June 8, 2000,  the Company  acquired a 100%  equity  interest in Boulder
Natural  Foods,  Inc.  (a Colorado  corporation)  and the  business  and certain
related assets and liabilities of Boulder Potato Company,  a natural potato chip
marketer based in Boulder,  Colorado.  The assets, which were acquired through a
newly formed wholly owned  subsidiary  of the Company,  Boulder  Natural  Foods,
Inc.,  an Arizona  corporation,  included  the Boulder  Potato  Company(TM)  and
Boulder Chips(TM) brands, other intangible assets, receivables,  inventories and
specified  liabilities.  In consideration for these assets and liabilities,  the
Company  paid a total  purchase  price of  $2,637,000,  consisting  of:  (i) the
issuance  of 725,252  unregistered  shares of Common  Stock with a fair value of
$1,235,000, (ii) a cash payment of $301,000, (iii) the issuance of a note to the
seller in the amount of  $830,000,  and (iv) the  assumption  by the  Company of
$271,000  in  liabilities,  including  a note to the  seller  in the  amount  of
$130,000.  In  addition,  the  Company  may  be  required  to  issue  additional
unregistered  shares of Common Stock to the seller on each of the first,  second
and third anniversary of the closing of the acquisition. Any such issuances will
be dependent  upon,  and will be  calculated  based upon,  increases in sales of
Boulder  Potato  Company(TM)  products  as compared  to  previous  periods.  The
acquisition  was  accounted  for using the  purchase  method  of  accounting  in
accordance  with APB Opinion No. 16,  "ACCOUNTING  FOR  BUSINESS  COMBINATIONS."
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  $1,505,265,  which is being  amortized  on a
straight-line basis over twenty years. Boulder had revenue of approximately $0.9
million for the five months ended May 31, 2000.

     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,  including the Tato Skins(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
twenty years.

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


2. ACQUISITIONS: (CONTINUED)

     Unaudited pro forma  information has been provided below for the year ended
December 31, 1999 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 period  presented nor does it project
the Company's results of operations for any future period.


                                                                   1999
                                                                -----------
     Net revenues                                               $32,594,488
     Income (loss) before extraordinary loss and cumulative
       effect of a change in accounting principle               $     2,431

     Earnings (loss) per common share - diluted                 $      0.00
     Weighted average number of common shares - diluted          12,509,756

     On November 5, 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  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  revenues 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.

3. CONCENTRATIONS OF CREDIT RISK:

     The  Company's  cash is held by major  banks.  The  Company,  in the normal
course of  business,  periodically  maintains  balances  in  excess  of  Federal
insurance limits. The Company had no amounts in excess of the insurance limit at
December 31, 2000 or at December 31, 1999.

     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 2000 and 1999,  substantially  all of the
Company's  customers were distributors  whose sales were concentrated to grocery
distributors and retailers in the southwest or to vend operators  throughout the
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,
                                                     --------------------------
                                                         2000           1999
                                                     -----------    -----------
     Finished goods ..............................   $   468,007    $   330,568
     Raw materials ...............................     1,617,599      1,268,987
     Reserve for excess and obsolete inventory....      (303,055)      (378,143)
                                                     -----------    -----------
                                                     $ 1,782,551    $ 1,221,412
                                                     ===========    ===========

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


5. PROPERTY AND EQUIPMENT:

     Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                             -----------------------------
                                                                 2000             1999
                                                             ------------     ------------
<S>                                                          <C>              <C>
     Buildings and improvements ..........................   $  3,462,912     $  3,438,492
     Equipment ...........................................     10,731,075       11,496,139
     Land ................................................        272,006          272,006
     Vehicles ............................................         35,116           79,927
     Furniture and office equipment ......................        649,731          300,282
                                                             ------------     ------------
                                                               15,150,840       15,586,846
     Less accumulated depreciation and amortization ......     (2,844,599)      (1,908,713)
                                                             ------------     ------------
                                                             $ 12,306,241     $ 13,678,133
                                                             ============     ============
</TABLE>

     Depreciation  expense  was  $1,089,004  and  $725,068  in  2000  and  1999,
respectively.

     Included in equipment are assets held under capital leases with an original
cost of $1,193,110 and  $1,295,828 at December 31, 2000 and 1999,  respectively,
and  accumulated  amortization of $796,749 and $617,590 at December 31, 2000 and
1999, 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 write down is required to reduce the  carrying
amount to the assets' net realizable value.

     On October  28,  2000,  the  Company  experienced  a fire at the  Goodyear,
Arizona  manufacturing  plant,  causing a temporary  shutdown  of  manufacturing
operations at the facility. There was extensive damage to the roof and equipment
utilities in the potato chip processing area. Third party  manufacturers  agreed
to provide  the  Company  with  production  volume to satisfy  nearly all of the
Company's  anticipated   customers'  needs  during  the  shutdown.  The  Company
continued  to season and  package  the bulk  product  received  from third party
manufacturers.  The Company  estimates full  production  will resume in March of
2001. The Company believes that its property and business interruption insurance
and the actions  taken by the Company to ensure  product  supply  should help to
mitigate the potential  adverse  impact from the fire on results of  operations.
The Company  identified and recorded  approximately  $1.4 million of incremental
expenses incurred as a result of the fire, primarily associated with outsourcing
production. These extra expenses were charged to "cost of revenue" and offset by
a $1.4 million credit representing  estimated future insurance  proceeds.  As of
December  31,  2000,  the Company  had been  advanced  $0.5  million of the $1.4
million by its insurance company as partial reimbursement.

                                       33
<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,
                                                                                         --------------------------------
                                                                                             2000                1999
                                                                                         ------------        ------------
<S>                                                                                      <C>                 <C>
     Convertible Debentures due in monthly installments through July 1, 2002;
       interest at 9%; collateralized by land, buildings, equipment and
       intangibles ..................................................................    $    481,115        $  1,370,067

     Working capital line of credit due October 4, 2002; interest at prime rate
       plus 1% (10.5% at December 31, 2000); collateralized by accounts
       receivable, inventories, equipment and intangibles ...........................       1,907,859           2,022,579

     Term loan due in monthly installments through July 1, 2006; interest at prime
       rate (9.5% at December 31, 2000); collateralized by accounts receivable,
       inventories, equipment and intangibles .......................................       4,982,051           5,800,000

     Term loan due in monthly installments through March 31, 2001; interest at
       prime rate plus 2.5% (12% at December 31, 2000); collateralized by
       accounts receivable, inventories, equipment and intangibles ..................          87,500             350,000

     Mortgage loan due in monthly installments through July 2012; interest at
       9.03%; collateralized by land and building ...................................       1,912,705           1,940,509

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

     Term loan due in monthly installments through June 30, 2002; interest at
       prime plus 2% (11.5% at December 31, 2000); collateralized by accounts
       receivable, inventories, equipment and intangibles ...........................         386,250                  --

     Term loan due in monthly installments through June 15, 2002; interest at
       6.4%; collateralized by certain assets of Boulder ............................         632,214                  --

     Term loan due in monthly installments through June 15, 2002; interest at 6%.....          98,928                  --

     Term loan due in monthly installments through August 31, 2002; interest at
       prime plus 2% (11.5% at December 31, 2000); collateralized by accounts
       receivable, inventory, equipment and intangibles .............................         237,500                  --

     Capital lease obligations due in monthly installments through 2002; interest
       rates ranging from 8.2% to 12.4%; collateralized by equipment ................         614,357             598,911
                                                                                         ------------        ------------
                                                                                           11,340,479          12,797,066
     Less current portion ...........................................................      (2,315,391)         (2,116,226)
                                                                                         ------------        ------------
                                                                                         $  9,025,088        $ 10,680,840
                                                                                         ============        ============
</TABLE>

Annual maturities of long-term debt are as follows:

     YEAR                                         DECEMBER 31, 2000
     ----                                         -----------------
     2001 .......................................    $ 2,315,391
     2002 .......................................      3,978,655
     2003 .......................................        928,727
     2004 .......................................        932,155
     2005 .......................................        935,906
     Thereafter .................................      2,249,645
                                                     -----------
                                                     $11,340,479
                                                     ===========

     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 12.4%,  require  monthly  payments,
expire at various  times  through  2007 and are  collateralized  by the  related
equipment.

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


6. LONG-TERM DEBT: (CONTINUED)

     At December 31, 2000, the Company had outstanding 9% Convertible Debentures
due July 1, 2002 in the  principal  amount of $481,115 held by Wells Fargo Small
Business   Investment  Company,   Inc.  ("Wells  Fargo").   The  9%  Convertible
Debentures,  which were issued in 1995 pursuant to a Debenture  Loan  Agreement,
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 with the  remaining  balance due on July 1, 2002.  In November
1999,  Renaissance  Capital,  a former holder of the 9% Convertible  Debentures,
converted 50% ($859,047 principal amount) of its Debenture holdings into 859,047
shares of Common Stock and in December 2000,  Renaissance  Capital converted the
remaining  50%  ($859,047  principal  amount) of its 9%  Convertible  Debentures
holdings into 859,047  shares of Common Stock.  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  required
financial ratios.

     On October 7, 1999,  the Company  signed a $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 a $2.5 million line of credit and a $0.5 million
term loan previously  obtained by the Company from Wells Fargo Business  Credit,
Inc., to refinance indebtedness effectively assumed by the Company in connection
with the  acquisition  of Wabash  Foods in  October  1999,  and will 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,  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, plus interest, until maturity on March 31, 2001. In June 2000, the U.S.
Bancorp Credit Agreement was amended to include an additional $300,000 term loan
(the "U.S.  Bancorp  Term Loan C") and to refinance  the  $715,000  non-interest
bearing  note due to U.S.  Bancorp  on June  30,  2000.  Proceeds  from the U.S.
Bancorp Term Loan C were used in connection  with the Boulder  acquisition.  The
U.S.  Bancorp Term Loan C bears  interest at an annual rate of prime plus 2% and
requires monthly  principal  payments of approximately  $12,500,  plus interest,
until  maturity on August 1, 2002. The Company made a payment of $200,000 on the
$715,000 and refinanced the balance in a term loan (the "U.S.  Bancorp Term Loan
D"). The U.S. Bancorp Term Loan D bears interest at an annual rate of prime plus
2% and  requires  monthly  principal  payments of  approximately  $21,500,  plus
interest,  until maturity on June 30, 2002. The U.S. Bancorp Credit Agreement is
secured  by  accounts  receivable,   inventories,   equipment  and  intangibles.
Borrowings  under the line of credit are limited to 80% of eligible  receivables
and 60% of  eligible  inventories.  At  December  31,  2000,  the  Company had a
borrowing  base of $2,934,000  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,
2000, the Company was in compliance with all of the financial covenants,  except
the annual capital  expenditures limit of $335,000.  U.S. Bancorp has waived the
non-compliance  for  2000.  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 in
the future. 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.  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

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


6. LONG-TERM DEBT: (CONTINUED)

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.

     In connection  with the Boulder  acquisition,  the Company issued a note to
the  seller in the  amount of  $830,000.  The note bears  interest  at 6.4%,  is
secured by certain Boulder assets acquired,  and requires monthly  principal and
interest payments of approximately  $37,000  commencing July 2000 until maturity
on June 15,  2002.  The Company  also  assumed a $130,000  note to the  seller's
shareholders  which bears  interest at 6% and  requires  monthly  principal  and
interest payments of approximately $6,000 commencing July 2000 until maturity on
June 15, 2002.

     On November 4, 1998, the Company signed a new $2.5 million Credit Agreement
with Wells Fargo Business Credit, Inc. (hereinafter "WFBCI" and formerly Norwest
Business  Credit,  Inc.) which included a $2.0 million  working  capital line of
credit (the "WFBCI Line of  Credit")  and a $0.5  million  term loan (the "WFBCI
Term Loan").  Borrowings  under the WFBCI Credit  Agreement were used to pay off
borrowings under the Company's  previous line of credit, to finance a portion of
the consideration  paid by the Company in connection with the Tejas acquisition,
and for general  working  capital needs.  The WFBCI Line of Credit had an annual
rate of interest of prime plus 1.5% and a maturity  date of November  2001 while
the WFBCI 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 WFBCI Line of Credit was  secured by  receivables,
inventories, equipment and general intangibles. Borrowings under the Wells Fargo
BCI Line of Credit were based on 85% of eligible receivables and 60% of eligible
inventories. The WFBCI 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. On November 4, 1998, pursuant to
the terms of the WFBCI Credit  Agreement,  the Company issued to WFBCI a warrant
(the "WFBCI  Warrant") to purchase 50,000 shares of Common Stock for an exercise
price of $0.93375 per share. The WFBCI Warrant is exercisable  until November 3,
2003,  the date of  termination  of the WFBCI  Warrant,  and provides the holder
thereof certain demand and piggyback  registration rights. The Company's Line of
Credit  and Term  Loan  with  WFBCI  were  paid in full on  October  7,  1999 in
connection  with the Wabash  Foods,  LLC  acquisition  and related U.S.  Bancorp
financing.

7.   COMMITMENTS AND CONTINGENCIES:

     Rental expense under operating  leases was $309,000 and $97,300 for each of
the years 2000 and 1999. Minimum future rental commitments under  non-cancelable
leases as of December 31, 2000 are as follows:

                                             CAPITAL     OPERATING
     YEAR                                    LEASES       LEASES         TOTAL
     ----                                   ---------   ----------    ----------
     2001 ................................  $ 394,361   $  431,670    $  826,031
     2002 ................................    280,696      424,950       705,646
     2003 ................................         --      420,050       420,050
     2004 ................................         --      414,359       414,359
     2005 ................................         --      403,452       403,452
     Thereafter ..........................         --    3,989,831     3,989,831
                                            ---------   ----------    ----------
     Total ...............................    657,057   $6,084,312    $6,759,369
                                                        ==========    ==========
     Less amount representing interest....    (60,700)
                                            ---------
     Present value .......................  $ 614,357
                                            =========

                                       36
<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 principal)
of its 9%  Convertible  Debentures  (see Note 6) holdings into 859,047 shares of
Common Stock and in December  2000  converted  the  remaining  50%  ($859,047 of
principal) of its 9% Convertible Debentures into 859,047 shares of Common Stock.
The Company's outstanding 9% Convertible Debentures are convertible into 481,115
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 June 2000,  October 1999, and November 1998, the Company issued 725,252,
4,400,000,  and 523,077  unregistered  shares of Common Stock in connection with
the acquisitions of Boulder, 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, 2000 and 1999.  The Company may
issue such shares of Preferred Stock in the future without shareholder approval.

WARRANTS

     During 1999 and 2000, warrant activity was as follows:

                                               WARRANTS         WEIGHTED AVERAGE
                                              OUTSTANDING        EXERCISE PRICE
                                              -----------        --------------
     Balance, December 31, 1998 .........        903,298              $1.93
          Issued ........................        510,000               1.06
                                               ---------
     Balance, December 31, 1999 .........      1,413,298               1.62
          Issued ........................         85,000               1.09
                                               ---------
     Balance, December 31, 2000 .........      1,498,298               1.59
                                               =========

     At December 31, 2000, outstanding warrants had exercise prices ranging from
$0.88 to $4.38 and a weighted average remaining term of 3.2 years. Warrants that
were exercisable at December 31, 2000 totaled  1,350,221 with a weighted average
exercise price per share of $1.66.

     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  occurred  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).

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

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


8. SHAREHOLDERS' EQUITY: (CONTINUED)

to certain  Directors  and  officers,  which have various  vesting terms (0 to 3
years) and various  expiration terms (5 or 10 years).  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, 2000,  outstanding  options have exercise  prices
ranging from $.59 to $3.50 per share.

     During 1999 and 2000, 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, 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
       Granted........................     336,000         2.13         1,050,000        1.64
       Canceled.......................     (91,666)        1.84                --          --
       Exercised......................     (28,334)        1.41          (125,000)       1.08
                                         ---------                      ---------
     Balance, December 31, 2000.......   1,699,650         1.64         1,645,000        1.48
                                         =========                      =========
</TABLE>

     At December 31, 2000,  outstanding Plan options had exercise prices ranging
from $0.59 to $3.50 and a weighted  average  remaining  term of 2.8 years.  Plan
options  that were  exercisable  at December  31, 2000  totaled  975,415  with a
weighted  average  exercise  price per share of $1.60.  At  December  31,  2000,
outstanding Non-Plan options had exercise prices ranging from $1.18 to $2.61 and
a weighted  average  remaining  term of 4.3 years.  Non-Plan  options  that were
exercisable  at  December  31,  2000  totaled  595,000  with a weighted  average
exercise price per share of $1.19.

     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 Opinion 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 Opinion 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  2000
consistent  with the provisions of SFAS No. 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,
                                                                            ------------------------
                                                                              2000          1999
                                                                            ---------    ----------
<S>                                                                         <C>          <C>
     Net income (loss) - as reported.....................................   $ 729,791    $   74,240
     Net income (loss) - pro forma ......................................      28,491      (237,887)
     Basic net income (loss) per share of common stock - as reported ....        0.05          0.01
     Basic net income (loss) per share of common stock - pro forma ......        0.00         (0.03)
</TABLE>

     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  110%  and  90%;
risk-free  interest rate of 6.10% and 5.41%;  and expected  lives of 3 years for
2000 and 1999, respectively.  Under this method, the weighted average fair value
of the  options  granted  was  $1.23  and  $0.79  per  share in 2000  and  1999,
respectively.

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


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, 2000 and 1999. 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,
                                                        ------------------------
                                                           2000          1999
                                                         ---------     --------
     Provision at statutory rate .................       $ 261,049     $ 25,242
     State income tax, net .......................          38,390        3,712
     Nondeductible expenses ......................          15,600       15,600
     Net operating loss utilized and benefited....        (277,039)     (44,554)
                                                         ---------     --------

                                                         $  38,000     $     --
                                                         =========     ========

     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,
                                                    ---------------------------
                                                       2000            1999
                                                    -----------     -----------
     Net operating loss carryforward ............   $ 1,880,000     $ 2,083,000
     Bad debt expense ...........................        96,000          80,000
     Accrued liabilities ........................       118,000          17,000
     Other ......................................        33,000          26,000
                                                    -----------     -----------
                                                      2,127,000       2,206,000
     Depreciation/amortization ..................      (421,000)             --
     Deferred tax asset valuation allowance......    (1,706,000)     (2,206,000)
                                                    -----------     -----------
          Net deferred tax asset ................   $        --     $        --
                                                    ===========     ===========

     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, 2000 and 1999.

     At December 31, 2000,  the Company had a net  operating  loss  carryforward
("NOLC") for federal  income tax purposes of  approximately  $4.8  million.  The
Company's NOLC will begin to expire in varying amounts between 2010 and 2018.

10. BUSINESS SEGMENTS AND SIGNIFICANT CUSTOMERS:

     For the year ended  December 31, 2000,  one Arizona  grocery chain customer
accounted for $4,673,000,  or 11%, and one national vending distributor customer
accounted for $6,376,000,  or 15%, of the Company's  consolidated  net revenues.
For the year ended  December  31,  1999,  one  Arizona  grocery  chain  customer
accounted for $3,284,000, or 14%, of the Company's consolidated net revenues.

     The Company's operations consist of two segments: manufactured products and
distributed  products.  The manufactured products segment produced 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.

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


10.  BUSINESS SEGMENTS AND SIGNIFICANT CUSTOMERS: (CONTINUED)

    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.

<TABLE>
<CAPTION>
                                                    MANUFACTURED    DISTRIBUTED
                                                      PRODUCTS        PRODUCTS     CONSOLIDATED
                                                      --------        --------     ------------
<S>                                                 <C>              <C>            <C>
     YEAR ENDED DECEMBER 31, 2000
     Revenues from external customers ............  $36,543,102      $5,199,905     $41,743,007
     Depreciation and amortization included in
       segment gross profit ......................      953,010              --         953,010
     Segment gross profit ........................   10,193,148         198,918      10,392,066

     YEAR ENDED DECEMBER 31, 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
</TABLE>

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

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                                 ---------------------------
                                                                    2000            1999
                                                                 -----------      ----------
<S>                                                              <C>              <C>
     Segment gross profit ...................................    $10,392,066      $5,707,118
     Unallocated amounts:
        Selling, general and administrative expenses ........      8,446,808       4,763,896
        Interest expense, net ...............................      1,177,467         749,750
                                                                 -----------      ----------
     Income before taxes, extraordinary loss and cumulative
        effect of a change in accounting principle ..........    $   767,791      $  193,472
                                                                 ===========      ==========
</TABLE>

11. LITIGATION:

     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.

                                       40
<PAGE>
                                  EXHIBIT INDEX

4.11  --  Form of Term Note C and Term Note D issued by the Company to U.S.
          Bancorp as of June 30, 2000.

10.43 --  Employment Agreement dated August 31, 2000, by and between John M.
          Silvestri and the Company.

10.44 --  First Amendment, dated as of June 30, 2000, to Credit Agreement, dated
          as of October 3, 1999, by and between the Company and U.S. Bancorp.

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

23.1  --  Consent of Arthur Andersen LLP.

                                       41