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, 2001

[ ]  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 $57,665,888.

     At March 25, 2002, the aggregate  market value of the  Registrant's  common
stock held by non-affiliates of the Registrant was approximately $16,265,269.

     At March 25, 2002,  the number of issued and  outstanding  shares of common
stock of the Registrant was 15,694,185.

     Transitional Small Business Disclosure Format (check one): Yes [ ]  No [X]
<PAGE>
            CAUTIONARY STATEMENT REGARDING 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 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.

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<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 chains,  club
stores  and  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 salty
snacks under license from TGI Friday's Inc. (The Company commenced  shipments of
these products in October 2000), (iii)  manufactures  private label potato chips
for  grocery  chains,   and  (iv)  distributes  snack  food  products  that  are
manufactured  by others.  For the fiscal year ended December 31, 2001,  revenues
totaled $57,665,888. Approximately 92% of revenues were attributable to products
manufactured  by the Company (86% branded snack food products,  6% private label
products) and approximately 8% 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 salty  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 11  flavors,  Bob's  Texas
Style(R) potato chips are currently  offered in six flavors,  and Boulder Potato
Company(TM)  potato chips are currently  offered in seven  flavors.  The Company
also  manufactures  potato  chips  for sale on a  private  label  basis  using a
continuous  frying  process.  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 snacks,  Pizzarias(R) brand
pizza chips, and T.G.I. Friday's(TM) brand salty 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 expire between 2004 and 2006.
Tato Skins(R) brand potato snacks,  Pizzarias(R)  brand pizza chips,  and T.G.I.
Friday's(TM)  brand salty  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 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. A
significant  element of the Company's growth strategy is to develop,  acquire or
license  innovative  salty  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
Company  also  plans  to  increase  sales  of its  existing  products,  increase
distribution  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.

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,

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<PAGE>
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
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. In
consideration for these assets, the Company issued 523,077  unregistered  shares
of Common Stock with a fair value at the time of $450,000 and paid approximately
$1,180,000 in cash.

     On October 7, 1999, the Company  acquired Wabash Foods,  including the Tato
Skins(R), O'Boisies(R), and Pizzarias(R) trademarks. The Company acquired all of
the membership interests of Wabash Foods from Pate Foods Corporation in exchange
for (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(TM),  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  716,420
unregistered shares of Common Stock with a fair value at the time of $1,220,000,
(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  $286,000  in
liabilities.  In  addition,  the Company  may be  required  to issue  additional
unregistered  shares of Common  Stock to the  seller on each of the  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.

     In October 2000, the Company launched its T.G.I.  Friday's(TM)  brand salty
snacks pursuant to a license agreement with TGI Friday's Inc.

     On December 27, 2001,  the Company  completed the sale of 586,855 shares of
Common  Stock  at an  offering  price  of  $2.13  per  share  to BFS US  Special
Opportunities  Trust PLC, a fund managed by  Renaissance  Capital,  in a private
placement  transaction.  Pursuant to the Share Purchase Agreement dated December
27, 2001, by and between the Company and the investor, the Company has agreed to
file a  registration  statement  with the  Securities  and  Exchange  Commission
covering the resale of the newly issued shares of Common Stock. The registration
statement  is required to be filed no later than 120 days after the closing date
and is required to be declared effective within 90 days after the filing date.

BUSINESS STRATEGY

     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. A
significant  element of the Company's growth strategy is to develop,  acquire or
license  innovative  salty  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
Company  also  plans  to  increase  sales  of its  existing  products,  increase
distribution  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  salty 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 salty snacks under a license from TGI Friday's  Inc. The Company will

                                       4
<PAGE>
     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.

          IMPROVE MANUFACTURING CAPACITY UTILIZATION.  The Company's Arizona and
     Indiana facilities are currently operating at approximately seventy percent
     and forty percent of their respective capacities. The Company believes that
     additional  improvements to manufactured products' gross profit margins are
     possible with the achievement of the business  strategies  discussed above.
     Depending  on product  mix, the  existing  manufacturing  facilities  could
     produce, in the aggregate,  up to $125 million in annual revenue volume and
     thereby further reduce manufacturing product costs.

          The Company  currently has  arrangements  with several  California and
     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   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.

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 11 flavors,  Bob's Texas Style(R) potato chips are currently  offered
in six  flavors,  and Boulder  Potato  Company(TM)  potato  chips are  currently
offered in seven flavors.

     The Company  currently has agreements  with several  California and 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 salty 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 salty 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.

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 Arizona  facility.  The
Arizona  facility  has the  capacity to produce  approximately  3,500  pounds of
potato  chips per hour,  including  1,400 pounds of batch fried  branded  potato
chips per hour and 2,100 pounds of  continuous  fried private label potato chips
per hour. The Company owns additional  batch frying  equipment which, if needed,
could be installed  without  significant time or cost, and which would result in
increased capacity to produce the batch fried potato chips. The Arizona facility
is currently operating at approximately seventy 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  currently  operating  at  approximately  forty  percent of
capacity.

     On  October  28,  2000,  the  Company  experienced  a fire  at the  Arizona
facility,  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

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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 resumed full production in March, 2001.

     There can be no assurance that the Company will obtain sufficient  business
to recoup  the  Company's  investments  in its  manufacturing  facilities  or to
increase the utilization  rates of such 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,  Missouri,  Ohio and 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),  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.

     During 2001, the Company retained Crossmark, Inc., a leading national sales
and marketing agency with employees and offices nationwide. Crossmark represents
T.G.I.  Friday's(TM)  brand  salty  snacks on behalf  of Poore  Brothers  in the
grocery and  convenience  store channels.  The Company's own sales  organization
sells T.G.I.  Friday's(TM)  brand salty snacks in the club,  mass, drug and vend
channels.

     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,  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, 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.

     Outside of Arizona,  the Company selects brokers and  distributors  for 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 and oil. 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
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

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<PAGE>
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,  Vending  Services  of America  ("VSA",  a
national  vending  distributor)  and  SAM's  Club  accounted  for 12%  and  16%,
respectively, of the Company's 2001 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 2001.  A
decision  by any of the  Company's  major  customers  to cease or  substantially
reduce their  purchases  could have a material  adverse  effect on the Company's
business.

MARKET OVERVIEW AND COMPETITION

     According to the Snack Food Association  ("SFA"), the U.S. market for salty
snack foods  reached  $20.7 billion at retail in 2000 (the latest year for which
data is  available)  with  potato  chips,  tortilla  chips  and  potato  crisps,
accounting  for  approximately  50% of the  market,  and corn  snacks,  popcorn,
pretzels, nuts, meat snacks and other products accounting for the balance. Total
salty snack sales, in dollar terms, increased every year from 1990 through 2000,
ranging  from an  increase  of 8.5% (in  1997) to 0.3%  (in  1995),  with a 2000
increase of 6.4%.  Potato chip,  tortilla chips and potato crisps combined sales
have  similarly  increased,  with 2000  retail  sales of $10.3  billion,  a 5.1%
increase over 1999 sales of $9.8 billion.

     The Company's  products compete  generally against other salty snack foods,
including  potato chips and  tortilla  chips.  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 believes that it is
complying  in all  material  respects  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 or impose other
obligations  on the Company.  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, 2001, the Company had 250 full-time employees, including
212 in  manufacturing  and  distribution,  16 in sales and  marketing  and 22 in
administration and finance.  The Company's  employees are not represented by any
collective bargaining  organization and the Company has never experienced a work
stoppage. The Company believes that its relations with its employees are good.

PATENTS AND TRADEMARKS

     The Company produces Tato Skins(R) brand potato crisps,  Pizzarias(R) brand
pizza chips, and T.G.I. Friday's(TM) brand salty snacks utilizing a sheeting and
frying process that includes patented  technology that the Company licenses from

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<PAGE>
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  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.

     The Company licenses the T.G.I.  Friday's(TM)  brand salty snacks trademark
from TGI Friday's Inc.  under a license  agreement with a term expiring in 2014.
Pursuant to the  license  agreement,  the  Company is  required to make  royalty
payments  on sales of T.G.I.  Friday's(TM)  brand salty  snack  products  and is
required to achieve  certain  minimum  sales levels by certain  dates during the
contract term.

RISK FACTORS

     BRIEF OPERATING HISTORY; SIGNIFICANT PRIOR NET LOSSES; ACCUMULATED DEFICIT;
SIGNIFICANT FUTURE EXPENSE DUE TO IMPLEMENTATION OF BUSINESS STRATEGY.  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,  as well as risk factors described herein. Although the Company has
been  profitable  since fiscal 1999,  the Company  experienced  significant  net
losses  in prior  fiscal  years.  At  December  31,  2001,  the  Company  had an
accumulated  deficit of $4,486,729 and net working  capital of  $2,014,603.  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.

     NEED FOR  ADDITIONAL  FINANCING.  A  significant  element of the  Company's
business strategy is the development, acquisition and/or licensing of innovative
salty 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 substantial 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, in connection with any additional  acquisitions
completed by the Company,  or to provide working  capital for general  corporate
purposes.  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, and risks associated with unanticipated liabilities or contingencies.

     SUBSTANTIAL  LEVERAGE;  FINANCIAL COVENANTS PURSUANT TO U.S. BANCORP CREDIT
AGREEMENT;  POSSIBLE  ACCELERATION  OF  INDEBTEDNESS.  At December 31, 2001, 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

                                       8
<PAGE>
$7,985,693.  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, 2001, 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).  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."  In addition to the  indebtedness
under the US Bancorp Credit Agreement,  the Company has significant  secured and
unsecured  indebtedness  pursuant  to a number of other  agreements  with  other
lenders.  At December 31, 2001,  the  aggregate  principal  amount of such other
indebtedness  was $3,019,034.  The  acceleration  of the Company's  indebtedness
under any such agreements could have a material adverse effect upon the Company.

     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 2001, 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 $3.99 per share to a low of $2.25
per share.  The last  reported  sales  price of the  Common  Stock on the Nasdaq
SmallCap Market on March 25, 2002 was $2.35 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. If, in the future, the Company's Common Stock
fails to be in compliance with the minimum closing bid price  requirement for at
least thirty  consecutive  trading days or the Company fails to be in compliance
with any other  Nasdaq  continued  listing  requirements,  then the Common Stock
could be de-listed from the Nasdaq SmallCap  Market.  Upon any such  de-listing,
trading,  if any,  in the Common  Stock would  thereafter  be  conducted  in the
over-the-counter  market  on the  so-called  "pink  sheets"  or the  "Electronic
Bulletin  Board"  of  the  National  Association  of  Securities  Dealers,  Inc.
("NASD").  As a consequence  of any such  de-listing,  an investor could find it
more difficult to dispose of, or to obtain  accurate  quotations as to the price
of, the  Company's  Common  Stock.  See  "VOLATILITY  OF MARKET  PRICE OF COMMON
STOCK."

     COMPETITION.  The market for salty snack  foods,  such as those sold by the
Company, including potato chips, tortilla chips, dips, pretzels and meat snacks,
is large and intensely competitive.  Competitive factors in the salty snack food
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 whom offer batch
fried products similar to those of the Company.  Expansion of Company operations
into new markets has and will continue to encounter significant competition from
national,  regional  and  local  competitors  that  may  be  greater  than  that
encountered  by  the  Company  in  its  existing  markets.  In  addition,   such
competitors may challenge the Company's position in its existing markets.  While
the Company believes that its 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

                                       9
<PAGE>
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 generate revenues
in new markets will depend upon customer  acceptance of the Company's  products.
There can be no assurance that the Company's products will achieve a significant
degree of market acceptance, that acceptance, if achieved, will be sustained for
any significant  period or that product life cycles will be sufficient to permit
the Company to recover start-up and other associated  costs. In addition,  there
can be no assurance that the Company will succeed in the  development of any new
products or that any new products  developed by the Company will achieve  market
acceptance or generate meaningful revenue for the Company.

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

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

     LACK OF  PROPRIETARY  MANUFACTURING  METHODS FOR CERTAIN  PRODUCTS;  FUTURE
EXPIRATION OF PATENTED TECHNOLOGY LICENSED BY THE COMPANY. The taste and quality
of Poore Brothers(R), 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 KEY SNACK FOOD BRANDS;  DEPENDENCE UPON T.G.I. FRIDAY'S(TM)
LICENSE AGREEMENT. The Company derives a substantial portion of its revenue from
a limited  number of snack food  brands.  For the year ended  December 31, 2001,
approximately  59% of the  Company's  revenues were  attributable  to the T.G.I.
Friday's(TM) brand products and the Poore Brothers(R) brand products. A decrease
in the popularity of a particular  snack food brand during any year could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations. There can be no assurance that any of the Company's snack
food brands will retain their  historical  levels of  popularity  or increase in
popularity.  Decreased sales from any one of the key snack food brands without a
corresponding increase in sales from other existing or newly introduced products
would have a material  adverse effect on the Company's  financial  condition and
results of operations.

     Furthermore,  the T.G.I.  Friday's(TM)  brand products are manufactured and
sold by the Company  pursuant to a license  agreement by and between the Company
and TGI Friday's Inc. which expires in 2014.  Pursuant to the license agreement,
the  Company  is  subject to various  requirements  and  conditions  (including,
without limitation, minimum sales targets). The failure of the Company to comply
with  certain of such  requirements  and  conditions  could  result in the early
termination  of the  license  agreement  by TGI  Friday's  Inc.  Any such  early
termination  would have a material  adverse  effect on the  Company's  financial
condition and results of operations.

                                       10
<PAGE>
     DEPENDENCE  UPON MAJOR  CUSTOMERS.  Two  customers of the Company,  Vending
Services of America  ("VSA",  a national  vending  distributor)  and SAM's Club,
accounted for 12% and 16%,  respectively,  of the  Company's  2001 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 2001.  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,  and Thomas W.  Freeze,  Senior Vice  President  and Chief
Financial Officer.  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.

     SIGNIFICANT  SHAREHOLDERS;  POSSIBLE CHANGE IN CONTROL.  As a result of the
Wabash Foods acquisition,  Capital Foods, LLC ("Capital Foods") (an affiliate of
the former owner of Wabash Foods) became the single  largest  shareholder of the
Company, currently holding approximately 29% of the outstanding shares of Common
Stock  (without  giving effect to the possible  exercise of warrants to purchase
325,000 shares of Common Stock also held by Capital Foods). Accordingly, Capital
Foods is in a position to exercise  substantial  influence  on the  business and
affairs of the Company.  In addition,  Renaissance  Capital Group,  Inc. manages
three funds,  Renaissance  Capital Growth & Income Fund III,  Inc.,  Renaissance
U.S.  Growth & Income  Trust PLC,  and BFS US Special  Opportunities  Trust PLC,
which are  currently  the  beneficial  owners of  approximately  13%, 6% and 5%,
respectively,  of the outstanding shares of Common Stock of the Company. Capital
Foods,  Renaissance  Capital  Growth & Income Fund III, Inc.,  Renaissance  U.S.
Growth & Income  Trust  PLC,  and BFS US  Special  Opportunities  Trust  PLC are
hereinafter referred to collectively as the "Significant Shareholders". Although
the  Company  is not  aware  of any  plans  or  proposals  on  the  part  of any
Significant  Shareholder  to recommend or undertake  any material  change in the
management or business of the Company,  there is no assurance that a Significant
Shareholder 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 the Significant
Shareholders to transfer any or all of their  respective  shares of Common Stock
at any time. One or more of such transfers could have the effect of transferring
effective control of the Company, including to one or more parties not currently
known to the Company.

     OBLIGATION  TO REGISTER  CERTAIN  ISSUED AND  OUTSTANDING  SHARES OF COMMON
STOCK FOR RESALE;  SHARES  AVAILABLE FOR FUTURE SALE. On December 27, 2001,  the
Company  completed the sale of 586,855 shares of Common Stock,  $0.01 par value,
to BFS US Special Opportunities Trust PLC, a fund managed by Renaissance Capital
Group,  Inc.,  in a  private  placement  transaction.  The net  proceeds  of the
transaction  were  utilized by the Company to reduce the  Company's  outstanding
indebtedness.  Pursuant to the Share Purchase Agreement dated December 27, 2001,
by and between the  Company and the  investor,  the Company has agreed to file a
registration  statement (the "BFS  Registration  Statement") with the Securities
and Exchange Commission covering the resale of the newly issued shares of Common
Stock. The registration statement is required to be filed no later than 120 days
after the closing date and is required to be declared  effective  within 90 days
after the filing date. The Company will be required to pay all expenses relating

                                       11
<PAGE>
to the registration (other than underwriting discounts,  selling commissions and
stock transfer taxes  applicable to the shares,  and any other fees and expenses
incurred by the holder(s) of the shares (including,  without  limitation,  legal
fees and expenses) in connection with the registration).

     Approximately  7,374,156  shares of  outstanding  Common  Stock and 956,156
shares of Common Stock issuable upon exercise of warrants  issued by the Company
are subject to "piggyback" registration rights granted by the Company,  pursuant
to which such shares of Common Stock may be registered  under the Securities Act
and, as a result, become freely tradable in the future. All or a portion of such
shares may,  at the  election  of the  holders  thereof,  be included in the BFS
Registration  Statement and, upon the effectiveness  thereof, may be sold in the
public markets.

     No  prediction  can be made as to the effect,  if any, that future sales of
shares of  Common  Stock  will  have on the  market  price of the  Common  Stock
prevailing from time to time.  Sales of substantial  amounts of Common Stock, or
the perception that these sales could occur,  could adversely affect  prevailing
market  prices for the Common  Stock and could impair the ability of the Company
to raise additional capital through the sale of its equity securities or through
debt financing.

     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.

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 facility was  completed in June 1997. In August 1997,  the
Company  completed  the  transition  of all of its Arizona  operations  into the
facility.  The site will enable the Company to expand the facility in the future
to a total building size of  approximately  120,000 square feet. The facility is
financed  by a mortgage  with  Morgan  Guaranty  Trust  Company of New York that
matures in June 2012.

     The Company  leases a 140,000  square foot  facility  located in  Bluffton,
Indiana,  approximately  20 miles  south  of Ft.  Wayne,  Indiana.  Prior to the
Keebler Company's acquisition of the facility in 1980, the plant contained three
pretzel lines with 40,000 square feet of processing space and 40,000 square feet
of warehousing  space.  In 1985, the Keebler  Company  completed a 60,000 square
foot fryer room  addition and installed the three fryer lines that still operate
in the  facility.  The Company has entered  into a lease  expiring in April 2018
with respect to the facility with two five-year  renewal options.  Current lease
payments  are $20,000  per month.  The lease  payments  are subject to an annual
CPI-based increase.

     The Company is  responsible  for all  insurance  costs,  utilities and real
estate taxes in connection  with its facilities.  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.

                                     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.

                                       12
<PAGE>
                                                        SALES PRICES
                                                     -----------------
              PERIOD OF QUOTATION                     HIGH        LOW
              -------------------                     ----        ---

     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

     Fiscal 2001:
          First Quarter                              $3.19       $2.31
          Second Quarter                             $3.34       $2.54
          Third Quarter                              $3.99       $2.25
          Fourth Quarter                             $3.12       $2.28


     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,  2002,   there  were  15,694,185   shares  of  Common  Stock
outstanding.  As of such date, the shares of Common Stock were held of record by
approximately 3,700 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.

     On December 27, 2001,  the Company  completed the sale of 586,855 shares of
Common  Stock,  at an  offering  price of $2.13  per  share,  to BFS US  Special
Opportunities Trust PLC, a fund managed by Renaissance Capital Group, Inc., in a
private placement transaction.  The offering was made pursuant to Securities and
Exchange  Commission Rule 506  promulgated  under the Securities Act, based upon
certain  representations made by the investor to the Company with respect to the
investor's  qualification as an "accredited investor" as such term is defined in
Securities and Exchange  Commission  Rule 501  promulgated  under the Securities
Act. The net proceeds of the transaction  were utilized by the Company to reduce
the Company's outstanding indebtedness. Pursuant to the Share Purchase Agreement
dated  December  27,  2001,  by and between the  Company and the  investor,  the
Company has agreed to file a  registration  statement  with the  Securities  and
Exchange  Commission  covering the resale of the newly  issued  shares of Common
Stock. The registration statement is required to be filed no later than 120 days
after the closing date and is required to be declared  effective  within 90 days
after the filing date.

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

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

     For fiscal 2001, net revenues reached a record $57,700,000, up 38% compared
to fiscal 2000 net  revenues  of  $41,700,000.  Revenue  growth for the year was
driven by a 45%  increase in  manufactured  products  segment  revenues to $52.9
million, or 92% of total revenues, and was attributable to the rollout of T.G.I.
Friday's(TM)  brand salted  snacks into nearly all  distribution  channels.  The
distributed  products segment revenues  declined 8% to $4.8 million due to lower
promotional activity and the sale of the Company's Texas merchandising operation
in early November.

     Gross profit for the year ended December 31, 2001,  was  $14,707,000 or 26%
of net revenues, as compared to $10,392,000,  or 25% of net revenues, for fiscal
2000.  The  $4,315,000  increase,  or 42%,  in gross  profit  resulted  from the
increased volume of manufactured products.

     Selling,  general and  administrative  expenses increased to $12,578,000 or
22% of net revenues for the year ended December 31, 2001,  from  $8,447,000,  or
20% of net revenues for fiscal 2000. This represents a $4,131,000  increase,  or
49%,  compared to fiscal 2000,  primarily  due to an increase of  $3,052,000  in
sales,  advertising and  promotional  spending in support of the increased sales
volume  primarily  in  connection  with  support  of T.G.I.  Friday's(TM)  brand
products.

     Net interest  expense  decreased to $1,045,000  for the year ended December
31, 2001 from  $1,177,000 for fiscal 2000.  This decrease was principally due to
lower interest rates on certain of the Company's indebtedness.

     The  Company's  net  income  for the  year  ended  December  31,  2001  was
$1,045,000,  and the net  income  for the  year  ended  December  31,  2000  was
$730,000. 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, 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. Sales of products  manufactured
by the Company  accounted for 88% and 80% of the net revenues in fiscal 2000 and
fiscal  1999,  respectively,  while  sales of  products  manufactured  by others
accounted  for  12%  and 20% in  fiscal  2000  and  fiscal  1999,  respectively.
Manufactured products segment revenues increased $18,007,000, or 97%, from sales
of branded and private label product,  including  $13,120,000 in connection with
the Wabash  Foods  acquisition  in October  1999 and the Boulder  Natural  Foods
acquisition in June 2000. 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 revenues,  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.

     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 fiscal 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 fiscal 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.

LIQUIDITY AND CAPITAL RESOURCES

     Net working  capital was $2,015,000 (a current ratio of 1.3:1) and $771,000
(a current ratio of 1.1:1) at December 31, 2001 and 2000, respectively.  For the
fiscal  year  ended  December  31,  2001,  the  Company  generated  cash flow of
$2,093,000 from operating  activities,  principally  from operating  results and
non-cash charges,  invested $1,956,000 in new equipment,  and made $2,404,000 in
payments on long-term debt.

                                       14
<PAGE>
     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 provided
the  Company  with  production  volume to satisfy  nearly  all of the  Company's
customers'  needs  during the  shutdown.  The  Company  continued  to season and
package  the  bulk  product  received  from  third  party  manufacturers.   Full
production at the Arizona facility resumed in March, 2001.

     On October 7, 1999, the Company signed a new $9.15 million Credit Agreement
with U.S.  Bancorp (the "U.S.  Bancorp Credit  Agreement")  consisting of a $3.0
million  working capital line of credit (the "U.S.  Bancorp Line of Credit"),  a
$5.8 million term loan (the "U.S. Bancorp Term Loan A") and a $350,000 term loan
(the "U.S.  Bancorp  Term Loan B").  Borrowings  under the U.S.  Bancorp  Credit
Agreement  were  used to pay off  indebtedness  under the  Company's  previously
existing Wells Fargo Credit Agreement,  to refinance indebtedness assumed by the
Company in connection with the Wabash Foods acquisition,  and for future general
working  capital  needs.  The U.S.  Bancorp Line of Credit bears  interest at an
annual rate of prime plus 1%. The U.S.  Bancorp Term Loan A bears interest at an
annual rate of prime and requires  monthly  principal  payments of approximately
$74,000  commencing  February 1, 2000, plus interest,  until maturity on July 1,
2006.  The U.S.  Bancorp Term Loan B had an annual  interest  rate of prime plus
2.5%,  required  monthly  principal  payments  of  approximately  $29,000,  plus
interest,  and matured in March 2001.  Pursuant to the terms of the U.S. Bancorp
Credit  Agreement,  the  Company  issued to U.S.  Bancorp a warrant  (the  "U.S.
Bancorp  Warrant")  to purchase  50,000  shares of Common  Stock for an exercise
price of $1.00 per share.  The U.S.  Bancorp  Warrant is  exercisable  until its
termination on October 7, 2004 and provides the holder thereof certain piggyback
registration rights.

     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
a $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 in August  2002.  The Company  made a
payment of $200,000 on the $715,000 non-interest bearing note 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 in
June 2002.

     In April 2001, the U.S.  Bancorp  Credit  Agreement was amended to increase
the U.S.  Bancorp Line of Credit from $3.0 million to $5.0 million,  establish a
$0.5 million capital expenditure line of credit (the "CapEx Term Loan"),  extend
the U.S.  Bancorp Line of Credit  maturity date from October 2002 to October 31,
2003, and modify certain  financial  covenants.  The Company  borrowed  $241,430
under the CapEx Term Loan in December  2001.  The CapEx Term Loan bears interest
at an annual rate of prime plus 1% and requires  monthly  principal  payments of
approximately  $10,000,  plus interest,  until maturity on October 31, 2003 when
the balance is due.

     The U.S.  Bancorp  Credit  Agreement  is  secured by  accounts  receivable,
inventories,  equipment and general  intangibles.  Borrowings  under the line of
credit are  limited to 80% of  eligible  receivables  and up to 60% of  eligible
inventories.  At  December  31,  2001,  the  Company  had a  borrowing  base  of
$4,297,000  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,
2001,  the  Company  was in  compliance  with  all of the  financial  covenants.
Management  believes that the  fulfillment of the Company's plans and objectives
will enable the Company to attain a sufficient  level of profitability to remain
in  compliance  with  these  financial  covenants.  There  can be no  assurance,
however,  that the  Company  will  attain any such  profitability  and remain in
compliance.  Any  acceleration  under the U.S. Bancorp Credit Agreement prior to
the scheduled  maturity of the U.S.  Bancorp Line of Credit or the U.S.  Bancorp
Term Loans could have a material adverse effect upon the Company.

     As of December 31, 2001, there was an outstanding  balance of $3,438,269 on
the U.S.  Bancorp Line of Credit,  $4,089,743  on the U.S.  Bancorp Term Loan A,
$128,751 on the U.S.  Bancorp Term Loan C, $87,500 on the U.S. Bancorp Term Loan
D, and $241,430 on the CapEx Term Loan.

     The   Company's   Goodyear,   Arizona   manufacturing,   distribution   and
headquarters  facility is subject to a $1.9  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 three to
seven-year  terms,  bear interest at rates from 8.2% to 11.3%,  require  monthly
payments and expire at various times through 2008 and are  collateralized by the
related equipment.

     At  December  31,  2001,  the  Company  had  outstanding  a 9%  Convertible
Debenture  due July 1, 2002 in the  principal  amount of $427,656  held by Wells
Fargo Small  Business  Investment  Company,  Inc.  ("Wells Fargo SBIC").  The 9%
Convertible  Debenture is secured by land, building,  equipment and intangibles.
Interest  on the 9%  Convertible  Debenture  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 SBIC 9%  Convertible  Debenture  through
June 2002 with the  remaining  balance due on July 1, 2002.  In  November  1999,

                                       15
<PAGE>
Renaissance  Capital  converted 50%  ($859,047)  of its Debenture  holdings into
859,047 shares of Common Stock and agreed unconditionally to convert into Common
Stock the remaining $859,047 not later than December 31, 2000. In December 2000,
Renaissance Capital converted the remaining 859,047 shares of its 9% Convertible
Debentures into 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 SBIC  representing  the right to purchase 25,000 and 7,143 shares of
the Company's  Common  Stock,  respectively,  at an exercise  price of $1.00 per
share.  Each warrant  became  exercisable  upon  issuance and expires on July 1,
2002.  As a result of an event of  default,  the  holders of the 9%  Convertible
Debentures  have the right,  upon written  notice and after a thirty-day  period
during which such default may be cured, to demand immediate  payment of the then
unpaid  principal  and accrued but unpaid  interest  under the  Debentures.  The
Company is currently in compliance  with all the financial  ratios,  including a
minimum working capital,  a minimum  shareholders'  equity and a minimum current
ratio at the end of any fiscal quarter. Management believes that the achievement
of the  Company's  plans and  objectives  will  enable  the  Company to attain a
sufficient  level of  profitability  to remain in compliance  with the financial
ratios.  There can be no  assurance,  however,  that the Company will attain any
such profitability and remain in compliance with the financial ratios.

     On December 27, 2001,  the Company  completed the sale of 586,855 shares of
Common  Stock  at an  offering  price  of  $2.13  per  share  to BFS US  Special
Opportunities  Trust PLC, a fund managed by  Renaissance  Capital,  in a private
placement transaction.  The net proceeds of the transaction were utilized by the
Company for general corporate  purposes and to reduce the Company's  outstanding
indebtedness.  Pursuant to the Share Purchase Agreement dated December 27, 2001,
by and between the  Company and the  investor,  the Company has agreed to file a
registration  statement with the Securities and Exchange Commission covering the
resale of the newly issued shares of Common Stock. The registration statement is
required  to be filed no later  than 120  days  after  the  closing  date and is
required to be declared effective within 90 days after the filing date.

     At December  31, 2001,  the Company had net  operating  loss  carryforwards
available for federal income taxes of  approximately  $4.7 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  Statements  of
Financial  Accounting Standards ("SFAS") No. 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  2002.  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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     In December 2001, the Securities and Exchange Commission issued an advisory
requesting  that all  registrants  describe  their three to five most  "critical
accounting  policies".  The SEC indicated that a "critical accounting policy" is
one  which  is  both  important  to the  portrayal  of the  Company's  financial
condition and results and requires  management's  most difficult,  subjective or

                                       16
<PAGE>
complex  judgments,  often as a result of the need to make  estimates  about the
effect of matters that are inherently  uncertain.  The Company believes that the
following accounting policies fit this definition:

     ALLOWANCE  FOR DOUBTFUL  ACCOUNTS.  The Company  maintains an allowance for
     doubtful  accounts for estimated losses resulting from the inability of its
     customers to make  required  payments.  If the  financial  condition of the
     Company's  customers  were to  deteriorate,  resulting in an  impairment of
     their ability to make payments, additional allowances may be required.

     INVENTORIES.  The  Company's  inventories  are  stated at the lower of cost
     (first-in,  first-out)  or market.  The Company  identifies  slow moving or
     obsolete  inventories and estimates  appropriate  loss  provisions  related
     thereto.  Historically,  these loss provisions  have not been  significant;
     however,  if  actual  market  conditions  are  less  favorable  than  those
     projected by management, additional inventory write-downs may be required.

     GOODWILL AND  TRADEMARKS.  Goodwill is recorded at cost and amortized using
     the straight-line method over a twenty-year period. Goodwill is continually
     reviewed for  impairment.  Trademarks are reviewed for impairment  whenever
     events or  changes  in  circumstances  indicate  that the book value of the
     asset may not be recoverable. The carrying value of goodwill and trademarks
     would be impaired if the best  estimate of future  undiscounted  cash flows
     over their remaining amortization period is less than their carrying value.
     The Company believes at this time that the carrying values and useful lives
     continue to be appropriate.

     INCOME  TAXES.  The Company has been  profitable  since 1999;  however,  it
     experienced significant net losses in prior fiscal years resulting in a net
     operating  loss  ("NOL")  carryforward  for federal  income tax purposes of
     approximately  $4.7  million  at  December  31,  2001.  Generally  accepted
     accounting principles require that the Company record a valuation allowance
     against  the  deferred  tax asset  associated  with this NOL if it is "more
     likely than not" that the Company  will not be able to utilize it to offset
     future taxes. Due to the size of the NOL carryforward,  the Company has not
     recognized  this net deferred tax asset and  currently  provides for income
     taxes only to the extent that it expects to pay cash taxes (primarily state
     taxes) for current income. It is possible,  however, that the Company could
     be  profitable  in the future at levels which cause the Company to conclude
     that  it is  more  likely  than  not  that  all or a  portion  of  the  NOL
     carryforward  would be  realized.  Upon  reaching  such a  conclusion,  the
     Company would immediately  record the estimated net realizable value of the
     deferred  tax asset at that time and would then provide for income taxes at
     a rate equal to the combined federal and state effective rates, which would
     approximate  40%  under  current  tax  rates,  rather  than the  7.5%  rate
     currently being used.  Subsequent revisions to the estimated net realizable
     value of the deferred tax asset could cause the  provision for income taxes
     to vary significantly from period to period, although the cash tax payments
     would remain unaffected until the benefit of the NOL is utilized.

The above  listing  is not  intended  to be a  comprehensive  list of all of the
Company's  accounting  policies.  In many cases the  accounting  treatment  of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. See the
Company's audited financial  statements and notes thereto which begin on page 25
of this Annual Report on Form 10-KSB which contain accounting policies and other
disclosures  required by  auditing  standards  generally  accepted in the United
States.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statements  of  Financial  Accounting  Standards  ("SFAS")  No.  141,  "BUSINESS
COMBINATIONS" and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS". SFAS No.
141  requires  companies  to apply the  purchase  method of  accounting  for all
business combinations initiated after June 30, 2001 and prohibits the use of the
pooling-of-interests  method. SFAS No. 142 changes the method by which companies
recognize  intangible  assets in purchase  business  combinations  and generally
requires  identifiable  intangible  assets  to  be  recognized  separately  from
goodwill.  In addition, it eliminates the amortization of all existing and newly
acquired  goodwill  on a  prospective  basis and  requires  companies  to assess
goodwill  for  impairment,  at least  annually,  based on the fair  value of the
reporting  unit.  Upon adoption on January 1, 2002,  the Company  believes there
will not be any material adverse effect on its financial  position or results of
operations.   Goodwill  amortization  expense  was  approximately  $321,000  and
$299,000 for 2001 and 2000 respectively.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "ACCOUNTING  FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED  ASSETS".  SFAS No. 144 supersedes SFAS No.
121,  "ACCOUNTING  FOR THE  IMPAIRMENT OF LONG-LIVED  ASSETS AND FOR  LONG-LIVED
ASSETS TO BE DISPOSED OF" and the  accounting  and  reporting  provisions of APB
Opinion No. 30,  "REPORTING THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF
DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY
OCCURRING  EVENTS AND  TRANSACTIONS".  SFAS No. 144 modifies the method by which
companies account for certain asset impairment losses.  Upon adoption on January

                                       17
<PAGE>
1, 2002, the Company  believes there will not be any material  adverse effect on
its financial position or results of operations.

         In 2001,  the Emerging  Issues Task Force (EITF)  issued EITF Issue No.
01-09,  "Accounting  for  Consideration  Given by a Vendor  to a  Customer  or a
Reseller of the Vendor's  Products,"  (EITF Issue No. 01-09) which  codified and
expanded its consensus opinions in EITF Issue No. 00-14, "Accounting for Certain
Sales Incentives," and EITF Issue No. 00-25,  "Accounting for Consideration from
a Vendor to a Retailer  in  Connection  with the  Purchase or  Promotion  of the
Vendor's  Products."  EITF Issue No. 01-09 also discusses  aspects of EITF Issue
No. 00-22,  "Accounting for Points and Certain Other  Time-Based Sales Incentive
Offers, and Offers for Free Products or Services to be Delivered in the Future."
EITF Issue No. 01-09 addresses the accounting for certain consideration given by
a vendor to a customer and provides guidance on the recognition, measurement and
income statement  classification for sales incentives.  In general, the guidance
requires  that  consideration  from a vendor  to a  retailer  be  recorded  as a
reduction in revenue unless certain criteria are met. The Company will adopt the
provisions  of the EITF Issue No. 01-09  effective  first  quarter 2002 and as a
result,  costs previously recorded as expense will be reclassified and reflected
as reductions in revenue.  The Company is also required to reclassify amounts in
prior periods in order to conform to the revised  presentation of these costs if
practicable.  Upon adoption on January 1, 2002, the Company  believes there will
not be any  material  adverse  effect on its  financial  position  or results of
operations based on these reclassifications.

                                       18
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS
                                                                            PAGE
                                                                            ----
REPORTS
Report of independent public accountants with respect to financial
  statements for the years ended December 31, 2001 and 2000                   25
FINANCIAL STATEMENTS
Consolidated balance sheets as of December 31, 2001 and 2000                  26
Consolidated statements of operations for the years ended
  December 31, 2001 and 2000                                                  27
Consolidated statements of shareholders' equity for the years
  ended December 31, 2001 and 2000                                            28
Consolidated statements of cash flows for the years ended
  December 31, 2001 and 2000                                                  29
Notes to consolidated financial statements                                    30

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          35     President, Chief Executive Officer, Director
     Glen E. Flook          43     Senior Vice President-Operations
     Thomas W. Freeze       50     Senior Vice President, Chief Financial
                                     Officer, Treasurer, Secretary, and Director
     Mark S. Howells        48     Chairman, Director
     Thomas E. Cain         47     Director
     James W. Myers         67     Director
     Robert C. Pearson      66     Director
     Aaron M. Shenkman      61     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.

                                       19
<PAGE>
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 President and Chairman of
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  MS.Howells & Co., a registered  securities  broker-dealer.  Mr.
Howells is also the  President of Audesi  Capital  Management  LLC, a registered
investment adviser formed in 2001.

THOMAS E. CAIN. Mr. Cain has served as a Director since September 2000. Mr. Cain
has been Chief Executive Officer of Focus Capital Group LLC since December 2001.
From 1999 to 2001, Mr. Cain was Chairman of Frontstep  distribution.com and 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.

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.  Renaissance  Capital Group is the
investment  manager of  Renaissance  Capital Growth & Income Fund III, Inc., the
former owner of a 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 Advance  Power  Technology,  Inc. (a publicly
traded  semiconductor  manufacturer),  and  CaminoSoft  Corp. (a  distributor of
consumables for laser printers).

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  2002 Annual Meeting of  Shareholders  to be filed by the Company with
the Securities and Exchange Commission on or about April 17, 2002.

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

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

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


EXHIBIT
NUMBER                                  DESCRIPTION
------                                  -----------

3.1 --    Certificate of  Incorporation of the  Company filed with the Secretary
          of State of the State of Delaware on February 23, 1995. (1)
3.2 --    Certificate of Amendment to the  Certificate of  Incorporation  of the
          Company  filed with the Secretary of State of the State of Delaware on
          March 3, 1995. (1)
3.3 --    Certificate of Amendment to the  Certificate of  Incorporation  of the
          Company  filed with the Secretary of State of the State of Delaware on
          October  7,  1999.   (Incorporated   by  reference  to  the  Company's
          definitive  Proxy  Statement on Schedule 14A filed with the Securities
          and Exchange Commission on September 15, 1999.)
3.4 --    By-Laws of the Company. (1)
4.1 --    Specimen Certificate for shares of Common Stock. (1)
4.2 --    Convertible  Debenture Loan Agreement  dated May 31, 1995 by and among
          the Company (and certain of its subsidiaries), Renaissance Capital and
          Wells Fargo. (1)
4.3 --    9.00% Convertible  Debenture dated May 31, 1995, issued by the Company
          to Renaissance Capital. (1)
4.4 --    9.00% Convertible  Debenture dated May 31, 1995, issued by the Company
          to Wells Fargo. (1)
4.5 --    Form of Warrant issued as of February 1998 to Renaissance  Capital and
          Wells Fargo. (3)
4.6 --    Warrant  dated  November  4,  1998,  issued by the  Company to Norwest
          Business Credit, Inc. (4)
4.7 --    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.)
4.8 --    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)
4.9 --    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)
4.10 --   Form of Term  Note C and Term  Note D issued  by the  Company  to U.S.
          Bancorp as of June 30, 2000. (6)
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 --   Agreement  dated  August 29,  1996,  by and  between  the  Company and
          Westminster Capital, Inc. ("Westminster"), as amended. (1)
10.6 --   Amendment No. 1 dated October 14, 1996, to Warrant dated September 11,
          1996, issued by the Company to Westminster. (1)
10.7 --   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)
10.8 --   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)
10.9 --   Non-Qualified  Stock Option Agreement dated as of October 22, 1996, by
          and between the Company and Mark S. Howells. (1)
10.10 --  Letter  Agreement  dated as of  November  5, 1996,  by and between the
          Company and Jeffrey J. Puglisi. (1)
10.11 --  Letter  Agreement  dated as of  November  5, 1996,  by and between the
          Company and David J. Brennan. (1)
10.12 --  Stock Option  Agreement  dated  October 22,  1996,  by and between the
          Company and David J. Brennan. (1)
10.13 --  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)

                                       21
<PAGE>
10.14 --  Letter  Agreement  dated  December 4, 1996, by and between the Company
          and Jeffrey J. Puglisi, relating to stock options. (1)
10.15 --  Letter  Agreement  dated  December 4, 1996, by and between the Company
          and Mark S. Howells, relating to stock options. (1)
10.16 --  Letter  Agreement  dated  December 4, 1996, by and between the Company
          and Parris H. Holmes, Jr., relating to stock options. (1)
10.17 --  Letter  Agreement  dated  December 4, 1996, by and between the Company
          and David J. Brennan, relating to stock options. (1)
10.18 --  Employment  Agreement  dated  January  24,  1997,  by and  between the
          Company and Eric J. Kufel. (2)
10.19 --  Employment  Agreement  dated  February  14,  1997,  by and between the
          Company and Glen E. Flook. (2)
10.20 --  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.)
10.21 --  Fixed  Rate  Note  dated  June  4,  1997,  by and  between  La  Cometa
          Properties, Inc. and Morgan Guaranty Trust Company of New York. (3)
10.22 --  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)
10.23 --  Guaranty  Agreement dated June 4, 1997, by and between the Company and
          Morgan Guaranty Trust Company of New York. (3)
10.24 --  Equipment  Lease  Agreement  dated  June 9,  1997,  by and  between PB
          Arizona and FINOVA Capital Corporation. (3)
10.25 --  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.)
10.26 --  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.)
10.27 --  Poore Brothers, Inc. 1995 Stock Option Plan, as amended. (5)
10.28 --  Credit  Agreement,  dated as of October 3, 1999,  by and  between  the
          Company and U.S. Bancorp Republic Commercial Finance, Inc. (5)
10.29 --  Security  Agreement,  dated as of October 3, 1999,  by and between the
          Company and U.S. Bancorp Republic Commercial Finance, Inc. (5)
10.30 --  Commercial Lease,  dated May 1, 1998, by and between Wabash Foods, LLC
          and American Pacific Financial Corporation. (5)
10.31 --  Agreement  for the  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)
10.32 --  Secured  Promissory  Note and Security  Agreement  dated as of June 8,
          2000, by and between Boulder Potato Company and the Company. (6)
10.33 --  Registration Rights Agreement dated as of June 8, 2000, by and between
          Boulder Potato Company and the Company. (6)
10.34 --  Escrow  Agreement  dated as of June 8, 2000, by and among the Company,
          the  shareholders  of  Boulder  Potato  Company,  and  Boulder  Potato
          Company. (6)
10.35 --  Employment Agreement dated June 8, 2000, by and between Mark C. Maggio
          and the Company. (6)
10.36 --  Employment Agreement dated June 8, 2000, by and between John M. Maggio
          and the Company. (6)
10.37 --  Employment  Agreement  dated August 31,  2000,  by and between John M.
          Silvestri and the Company. (6)
10.38 --  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.
          (6)
10.39 --  Second  Amendment to Credit  Agreement  (dated March 2, 2001),  by and
          between the Company and U.S. Bank National Association.  (Incorporated
          by reference to the Company's  Quarterly Report on Form 10-QSB for the
          three-month period ended March 31, 2001.)
10.40 --  License Agreement, dated April 3, 2000, by and between the Company and
          TGI Friday's Inc.  (Certain portions of this exhibit have been omitted
          pursuant to a confidential treatment request filed with the Securities
          and Exchange Commission.)  (Incorporated by reference to the Company's
          Quarterly Report on Form 10-QSB for the three-month period ended March
          31, 2001.)
10.41 --  Third  Amendment to Credit  Agreement  (dated March 30, 2001),  by and
          between the Company and U.S. Bank National Association.  (Incorporated
          by reference to the Company's  Quarterly Report on Form 10-QSB for the
          three-month period ended June 30, 2001.)

                                       22
<PAGE>
10.42 --  First  Amendment to License  Agreement,  dated as of July 11, 2001, by
          and between the Company and TGI  Friday's  Inc.  (certain  portions of
          this exhibit have been omitted pursuant to a confidentiality treatment
          request   filed  with  the   Securities   and  Exchange   Commission).
          (Incorporated  by reference to the Company's  Quarterly Report on Form
          10-QSB for the three-month period ended September 30, 2001.)
10.43 --  Share Purchase Agreement,  dated December 27, 2001, by and between the
          Company and BFS US Special  Opportunities Trust PLC.  (Incorporated by
          reference to the Company's  Current  Report on Form 8-K filed with the
          Securities and Exchange Commission on January 10, 2002.)
21.1 --   List of Subsidiaries of the Company. (7)
23.1 --   Consent of Arthur Andersen, LLP. (7)
99.1 --   Registrant's Letter Regarding Arthur Andersen LLP.

----------
(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  on the  October 28, 2000
               fire at the  Company's  Goodyear,  Arizona  manufacturing  plant,
               including the partial  resumption  of production  (filed with the
               Commission on January 19, 2001).

          (2)  Current  Report on Form 8-K,  reporting a change in the Company's
               fiscal year (filed with the Commission on November 9, 2001).

                                       23
<PAGE>
                                   SIGNATURES

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

Dated: March 28, 2002                  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   March 28, 2002
-------------------------    (Principal Executive Officer)
Eric J. Kufel

/s/ Thomas W. Freeze         Senior Vice President, Chief Financial Officer,    March 28, 2002
-------------------------    Treasurer, Secretary, and Director
Thomas W. Freeze             (Principal Financial Officer and
                             Principal Accounting Officer)

/s/ Mark S. Howells          Chairman, Director                                 March 28, 2002
-------------------------
Mark S. Howells

/s/ Thomas E. Cain           Director                                           March 28, 2002
-------------------------
Thomas E. Cain

/s/ James W. Myers           Director                                           March 28, 2002
-------------------------
James W. Myers

/s/ Robert C. Pearson        Director                                           March 28, 2002
-------------------------
Robert C. Pearson

/s/ Aaron M. Shenkman        Director                                           March 28, 2002
-------------------------
Aaron M. Shenkman
</TABLE>

                                       24
<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, 2001 and 2000,
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,  2001  and  2000,  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States.



ARTHUR ANDERSEN LLP

Phoenix, Arizona,
February 11, 2002

                                       25
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,
                                                                                  ------------------------------
                                                                                      2001              2000
                                                                                  ------------      ------------
<S>                                                                               <C>               <C>
                                    ASSETS
Current assets:
  Cash ......................................................................     $    894,198      $    327,553
  Accounts receivable, net of allowance of $219,000 in 2001
    and $247,000 in 2000 ....................................................        4,982,793         5,196,415
  Inventories ...............................................................        1,887,872         1,782,551
  Other current assets ......................................................          430,914           394,356
                                                                                  ------------      ------------
     Total current assets ...................................................        8,195,777         7,700,875

Property and equipment, net .................................................       13,730,273        12,306,241
Intangible assets, net ......................................................        9,561,933        10,030,631
Other assets, net ...........................................................          200,077           212,737
                                                                                  ------------      ------------
     Total assets ...........................................................     $ 31,688,060      $ 30,250,484
                                                                                  ============      ============

                     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable ..........................................................     $  2,430,857      $  3,031,130
  Accrued liabilities .......................................................        1,406,845         1,583,379
  Current portion of long-term debt .........................................        2,343,472         2,315,391
                                                                                  ------------      ------------
     Total current liabilities ..............................................        6,181,174         6,929,900

Long-term debt, less current portion ........................................        8,661,255         9,025,088
                                                                                  ------------      ------------
     Total liabilities ......................................................       14,842,429        15,954,988
                                                                                  ------------      ------------

Commitments and contingencies

Shareholders' equity:
  Preferred stock, $100 par value; 50,000 shares authorized; no shares issued
    or outstanding at December 31, 2001 and 2000, respectively ..............               --                --
  Common stock, $.01 par value; 50,000,000 shares authorized; 15,687,518
    and 14,994,765 shares issued and outstanding at December 31, 2001
    and 2000, respectively ..................................................          156,875           149,947
  Additional paid-in capital ................................................       21,175,485        19,677,542
  Accumulated deficit .......................................................       (4,486,729)       (5,531,993)
                                                                                  ------------      ------------
     Total shareholders' equity .............................................       16,845,631        14,295,496
                                                                                  ------------      ------------
     Total liabilities and shareholders' equity .............................     $ 31,688,060      $ 30,250,484
                                                                                  ============      ============
</TABLE>

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

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

                                                    YEARS ENDED DECEMBER 31,
                                                 -------------------------------
                                                     2001              2000
                                                 ------------      ------------

Net revenues ..................................  $ 57,665,888      $ 41,743,007

Cost of revenues ..............................    42,958,822        31,350,941
                                                 ------------      ------------

     Gross profit .............................    14,707,066        10,392,066

Selling, general and administrative expenses...    12,577,699         8,446,808
                                                 ------------      ------------

     Operating income .........................     2,129,367         1,945,258
                                                 ------------      ------------

Fire related income, net ......................         4,014                --

Interest expense, net .........................    (1,045,117)       (1,177,467)
                                                 ------------      ------------

     Total interest expense and other .........    (1,041,103)       (1,177,467)
                                                 ------------      ------------

     Income before income tax provision .......     1,088,264           767,791

Income tax provision ..........................       (43,000)          (38,000)
                                                 ------------      ------------

   Net income .................................  $  1,045,264      $    729,791
                                                 ============      ============
Earnings per common share:

    Basic .....................................  $       0.07      $       0.05
                                                 ============      ============
    Diluted ...................................  $       0.06      $       0.05
                                                 ============      ============

Weighted average number of common shares:
    Basic .....................................    15,050,509        13,769,614
                                                 ============      ============
    Diluted ...................................    17,198,648        15,129,593
                                                 ============      ============

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

                                       27
<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, 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
  Exercise of common stock options ...        76,000             760          97,810              --           98,570
  Issuance of warrants ...............            --              --          16,800              --           16,800
  Issuance of common stock ...........       616,753           6,168       1,383,333              --        1,389,501
  Net income .........................            --              --              --       1,045,264        1,045,264
                                         -----------     -----------     -----------     -----------      -----------
Balance, December 31, 2001 ...........    15,687,518     $   156,875     $21,175,485     $(4,486,729)     $16,845,631
                                         ===========     ===========     ===========     ===========      ===========
</TABLE>

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

                                       28
<PAGE>
                      POORE BROTHERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                                       ----------------------------
                                                                           2001             2000
                                                                       -----------      -----------
<S>                                                                    <C>              <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
  Net income .....................................................     $ 1,045,264      $   729,791
  Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation ...............................................       1,237,260        1,089,004
      Amortization ...............................................         694,067          648,938
      Valuation reserves .........................................          53,558          102,325
      Other non-cash charges .....................................         349,723          252,148
      Gain on disposition of fixed assets due to fire ............        (167,450)              --
  Change in operating assets and liabilities, net of effect of
    business acquired:
      Accounts receivable ........................................         240,981       (1,974,013)
      Inventories ................................................        (186,238)        (481,401)
      Other assets and liabilities ...............................        (396,916)        (252,812)
      Accounts payable and accrued liabilities ...................        (776,807)       2,503,632
                                                                       -----------      -----------
               Net cash provided by operating activities .........       2,093,442        2,617,612
                                                                       -----------      -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
  Purchase of equipment ..........................................      (2,655,535)        (635,415)
  Proceeds from disposition of fixed assets due to fire ..........         700,000               --
  Acquisition related expenses ...................................              --         (365,542)
                                                                       -----------      -----------
               Net cash used in investing activities .............      (1,955,535)      (1,000,957)
                                                                       -----------      -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
  Proceeds from issuance of common stock .........................       1,313,571          175,238
  Stock and debt issuance costs ..................................         (10,774)         (11,164)
  Proceeds from issuance of debt .................................              --          610,329
  Payments made on long-term debt ................................      (2,404,470)      (2,053,149)
  Net increase (decrease) in working capital line of credit ......       1,530,410         (114,720)
                                                                       -----------      -----------
               Net cash provided by (used in) financing activities         428,738       (1,393,466)
                                                                       -----------      -----------
Net increase in cash .............................................         566,645          223,189
Cash at beginning of year ........................................         327,553          104,364
                                                                       -----------      -----------
Cash at end of year ..............................................     $   894,198      $   327,553
                                                                       ===========      ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for interest .........................     $ 1,055,248      $ 1,047,380
  Summary of noncash investing and financing activities:
    Common Stock issued for acquisitions .........................         185,274        1,235,321
    Common Stock or warrant issued for sales commissions .........          16,800           50,000
    Conversion of Convertible Debenture into Common Stock ........              --          859,047
    Note payable issued for purchase of equipment ................         538,308               --
    Note payable issued for acquisition ..........................              --          830,000
</TABLE>

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

                                       29
<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  Principles  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. See Note 2.

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

     On June 8, 2000,  the Company  acquired  Boulder  Natural  Foods,  Inc.,  a
Colorado-based  totally  natural  potato chip  marketer,  and the  business  and
certain related assets and  liabilities of Boulder Potato Company  (collectively
referred to as "Boulder"), based in Boulder, Colorado. See Note 2.

     Certain amounts in the prior year  consolidated  financial  statements have
been reclassified to conform to the current year presentation.

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  through
grocery  retail  chains,  club stores 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.,
(c) manufactures  private label potato chips for grocery retail chains,  and (d)
distributes  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.  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 Company also plans
to increase sales of its existing products,  increase  distribution revenues and
continue to improve its manufacturing capacity utilization.

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

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


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

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.

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,  2001 and  2000,  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

     Goodwill is recorded at cost and amortized using the  straight-line  method
over a twenty-year  period.  The Company assesses the recoverability of goodwill
at each balance sheet date by  determining  whether  amortization  of the assets
over their original  estimated  useful life can be recovered  through  estimated
future  undiscounted cash flows. Total goodwill was $6,561,648 and $6,376,374 at
December 31, 2001 and 2000,  respectively,  including $126,702 from the November
1998 Tejas  acquisition  (see Note 2),  $1,327,227  from the October 1999 Wabash
acquisition (see Note 2), and $1,690,539 from the June 2000 Boulder  acquisition
(see Note 2).  Accumulated  amortization was $1,206,747 and $886,108 at December
31, 2001 and 2000, 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  $792,968  and  $459,635 at December 31, 2001 and
2000, respectively.

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


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

REVENUE RECOGNITION

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

ADVERTISING COSTS

     The Company  expenses  production  costs of advertising  the first time the
advertising  takes place,  except for  cooperative  advertising  costs which are
expensed when the related sales are recognized.  Costs associated with obtaining
shelf space (i.e., "slotting fees") are expensed in the year in which such costs
are incurred by the Company.  Advertising  expenses were approximately  $261,000
and $394,000 in 2001 and 2000,  respectively.  Accrued advertising and promotion
was $388,000 and $324,000 in 2001 and 2000, 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 COMMON 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,
                                                              ---------------------------
                                                                 2001            2000
                                                              -----------     -----------
<S>                                                           <C>             <C>
     BASIC EARNINGS PER COMMON SHARE:
        Net income .........................................  $ 1,045,264     $   729,791
                                                              ===========     ===========
        Weighted average number of common shares ...........   15,050,509      13,769,614
                                                              ===========     ===========

        Earnings per common share ..........................  $      0.07     $      0.05
                                                              ===========     ===========

     DILUTED EARNINGS PER COMMON SHARE:
        Net income .........................................  $ 1,045,264     $   729,791
                                                              ===========     ===========
        Weighted average number of common shares ...........   15,050,509      13,769,614
        Incremental shares from assumed conversions -
          Warrants .........................................      690,428         475,943
          Stock options ....................................    1,457,711         884,036
                                                              -----------     -----------
        Adjusted weighted average number of common shares...   17,198,648      15,129,593
                                                              ===========     ===========
        Earnings per common share ..........................  $      0.06     $      0.05
                                                              ===========     ===========
</TABLE>

    Options and warrants to purchase  653,077 and 985,527 shares of Common Stock
were outstanding at December 31, 2001 and December 31, 2000,  respectively,  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.  For the years ended  December 31, 2000 and 2001
conversion of the convertible  debentures was not assumed,  as the effect of the
conversion would be anti-dilutive.

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


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

NEW ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statements  of  Financial  Accounting  Standards  ("SFAS")  No.  141,  "BUSINESS
COMBINATIONS" and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS". SFAS No.
141  requires  companies  to apply the  purchase  method of  accounting  for all
business combinations initiated after June 30, 2001 and prohibits the use of the
pooling-of-interests  method. SFAS No. 142 changes the method by which companies
recognize  intangible  assets in purchase  business  combinations  and generally
requires  identifiable  intangible  assets  to  be  recognized  separately  from
goodwill.  In addition, it eliminates the amortization of all existing and newly
acquired  goodwill  on a  prospective  basis and  requires  companies  to assess
goodwill  for  impairment,  at least  annually,  based on the fair  value of the
reporting  unit.  Upon adoption on January 1, 2002,  the Company  believes there
will not be any material adverse impact on its financial  position or results of
operations.   Goodwill  amortization  expense  was  approximately  $321,000  and
$299,000 for 2001 and 2000  respectively.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "ACCOUNTING  FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED  ASSETS".  SFAS No. 144 supersedes SFAS No.
121,  "ACCOUNTING  FOR THE  IMPAIRMENT OF LONG-LIVED  ASSETS AND FOR  LONG-LIVED
ASSETS TO BE DISPOSED OF" and the  accounting  and  reporting  provisions of APB
Opinion No. 30,  "REPORTING THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF
DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY
OCCURRING  EVENTS AND  TRANSACTIONS".  SFAS No. 144 modifies the method by which
companies account for certain asset impairment losses.  Upon adoption on January
1, 2002, the Company  believes there will not be any material  adverse impact on
its financial position or results of operations.

     In 2001, the Emerging Issues Task Force (EITF) issued EITF Issue No. 01-09,
"Accounting for  Consideration  Given by a Vendor to a Customer or a Reseller of
the Vendor's  Products,"  (EITF Issue No. 01-09) which codified and expanded its
consensus  opinions  in EITF Issue No.  00-14,  "Accounting  for  Certain  Sales
Incentives,"  and EITF Issue No. 00-25,  "Accounting  for  Consideration  from a
Vendor to a  Retailer  in  Connection  with the  Purchase  or  Promotion  of the
Vendor's  Products."  EITF Issue No. 01-09 also discusses  aspects of EITF Issue
No. 00-22,  "Accounting for Points and Certain Other  Time-Based Sales Incentive
Offers, and Offers for Free Products or Services to be Delivered in the Future."
EITF Issue No. 01-09 addresses the accounting for certain consideration given by
a vendor to a customer and provides guidance on the recognition, measurement and
income statement  classification for sales incentives.  In general, the guidance
requires  that  consideration  from a vendor  to a  retailer  be  recorded  as a
reduction in revenue unless certain criteria are met. The Company will adopt the
provisions  of the EITF  Issue  No.  01-09  effective  January  1, 2002 and as a
result,  costs previously recorded as expense will be reclassified and reflected
as reductions in revenue.  The Company is also required to reclassify amounts in
prior periods in order to conform to the revised  presentation of these costs if
practicable.  The Company believes there will not be any material adverse effect
on  its   financial   condition  or  results  of   operations   based  on  these
reclassifications.

2. ACQUISITIONS:

     On June 8, 2000,  the  Company  acquired  Boulder  Natural  Foods,  Inc. (a
Colorado   corporation)   and  the  business  and  certain  related  assets  and
liabilities of Boulder Potato  Company,  a totally  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 at the
time 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  which bears  interest at 6.4%,  is
secured by the Boulder  assets  acquired,  and requires  monthly  principal  and
interest payments of approximately  $37,000 until maturity on June 15, 2002, and
(iv) the assumption by the Company of $271,000 in liabilities,  including a note
to the  seller in the  amount  of  $130,000  which  bears  interest  at 6.0% and
requires monthly principal and interest  payments of approximately  $6,000 until
maturity on June 15, 2002.  The initial  $301,000 cash payment was  subsequently
financed with the U.S.  Bank Term Loan D (see Note 6). 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  anniversaries  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.  In fiscal  2001,  the Company was required to

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

2. ACQUISITIONS: (CONTINUED)

issue 57,898 shares  pursuant to this  provision.  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 has recorded  trademarks of $1,000,000 and goodwill of
$1,690,539,  which are being amortized on a  straight-line  basis over 15 and 20
year periods, respectively.  Boulder had sales 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 at the time 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 at the time 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 became  exercisable  upon
issuance. As a result, the Company acquired all the assets of Wabash,  including
the Tato Skins(R),  O'Boisies(R),  and Pizzarias(R) trademarks.  The acquisition
was accounted for using the purchase method of accounting in accordance with APB
Opinion No. 16.  Accordingly,  only the results of operations  subsequent to the
acquisition date have been included in the Company's results. In connection with
the  acquisition,  the Company recorded  goodwill of $1,327,227,  which is being
amortized on a straight-line basis over a 20-year period.

     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 Wells Fargo Line of Credit  Agreement  to satisfy the cash portion of the
consideration. Tejas had sales of approximately $2.8 million for the nine months
ended  September  30, 1998.  In  connection  with the  acquisition,  the Company
transferred  production  of the Bob's Texas  Style(R)  brand potato chips to its
Arizona facility. The acquisition was accounted for using the purchase method of
accounting in accordance with APB Opinion No. 16. Accordingly,  only the results
of  operations  subsequent  to the  acquisition  date have been  included in the
Company's  results.  In connection with the  acquisition,  the Company  recorded
goodwill of $126,702,  which is being amortized on a straight-line  basis over a
20-year  period.  In 2001,  the Company  cancelled and retired  28,000 shares of
Common Stock issued in connection with the Tejas  acquisition.  The cancellation
was made  pursuant to the terms of the escrow  agreement in  settlement  of post
acquisition liabilities.

3. CONCENTRATIONS OF CREDIT RISK:

     The Company's cash is placed with major banks.  The Company,  in the normal
course of business, maintains balances in excess of Federal insurance limits.

     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 2001 and 2000,  substantially  all of the
Company's customers were distributors or retailers whose sales were concentrated
in the grocery industry,  throughout the United States. The Company investigates
a customer's  credit  worthiness  before extending credit. At December 31, 2001,
one customer  accounted  for  approximately  21% of accounts  receivable  in the
accompanying  Consolidated  Balance Sheets.  The Company acquires trade accounts
receivable of  Arizona-based  retailers from its  distributors  in settlement of
their obligations to the Company.

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

4. INVENTORIES:

     Inventories consisted of the following:
                                                      DECEMBER 31,
                                             ------------------------------
                                                2001                2000
                                             ----------          ----------
     Finished goods ...............          $  588,376          $  468,007
     Raw materials ................           1,299,496           1,314,544
                                             ----------          ----------
                                             $1,887,872          $1,782,551
                                             ==========          ==========

5. PROPERTY AND EQUIPMENT:

     Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                        ------------------------------
                                                            2001              2000
                                                        ------------      ------------
<S>                                                     <C>               <C>
     Buildings and improvements ...................     $  5,137,005      $  3,462,912
     Equipment ....................................       11,085,794        10,731,075
     Land .........................................          272,006           272,006
     Vehicles .....................................           40,178            35,116
     Furniture and office equipment ...............        1,109,325           649,731
                                                        ------------      ------------
                                                          17,644,308        15,150,840
     Less accumulated depreciation and amortization       (3,914,035)       (2,844,599)
                                                        ------------      ------------
                                                        $ 13,730,273      $ 12,306,241
                                                        ============      ============
</TABLE>

     Depreciation  expense  was  $1,237,260  and  $1,089,004  in 2001 and  2000,
respectively.

     Included in equipment are assets held under capital leases with an original
cost of $1,193,110 at December 31, 2001 and 2000, and  accumulated  amortization
of $993,106 and $796,749 at December 31, 2001 and 2000, respectively.

     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 assist the Company in meeting
anticipated  customers'  needs  during the  shutdown.  The Company  continued to
season and package the bulk product received from third party manufacturers.  In
fiscal 2000, 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 revenues"
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  with the
balance due reflected in accounts  receivable in the  accompanying  Consolidated
Balance Sheets.

     The Company  resumed full production of private label potato chips in early
January of 2001 and resumed full production of batch-fried  potato chips in late
March of 2001.  During  fiscal 2001,  the Company  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 revenues" and offset by a $1.4 million  credit  representing  insurance
proceeds.  The Company also incurred  approximately $2.3 million in building and
equipment  reconstruction costs in connection with the fire. During fiscal 2001,
the Company was advanced a total of $3.2 million by the insurance company. "Fire
related income,  net" on the accompanying  Consolidated  Statement of Operations
for fiscal 2001  includes  (i) a gain of  $167,000,  representing  the excess of
insurance  proceeds  over the book  value  for the  building  and  equipment  of
$533,000  damaged by the fire, and (ii) expenses not reimbursed by the insurance
company of  approximately  $163,000.  The Company does not have any  receivables
from the insurance  company reflected in the accompanying  Consolidated  Balance
Sheets as of December 31, 2001.

     In the event that  facts and  circumstances  indicate  that the cost of the
property and equipment may be impaired, an evaluation of recoverability would be
performed.  This evaluation would include the comparison of the future estimated
undiscounted  cash flows  associated  with the assets to the carrying  amount of
these  assets to  determine  if a  writedown  is  required.  There  have been no
impairments realized at either December 31, 2001 or 2000.

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

6.   LONG-TERM DEBT:

     Long-term debt consisted of the following:
<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                        ----------------------------
                                                                                            2001            2000
                                                                                        ------------    ------------
<S>                                                                                     <C>             <C>
     Convertible Debentures due in monthly installments through July 1, 2002;
       interest at 9%; collateralized by land, buildings, equipment and
       intangibles ..................................................................   $    427,656    $    481,115

     Working capital line of credit due October 31, 2003; interest at prime rate
       plus 1% (5.75% at December 31, 2001); collateralized by accounts
       receivable, inventories, equipment and general intangibles ...................      3,438,269       1,907,859

     Term loan due in monthly installments through July 1, 2006; interest at prime
       rate (4.75% at December 31, 2001); collateralized by accounts receivable,
       inventories, equipment and general intangibles ...............................      4,089,743       4,982,051

     Term loan paid in 2001 .........................................................             --          87,500

     Mortgage loan due in monthly installments through July 2012; interest at
       9.03%; collateralized by land and building ...................................      1,882,282       1,912,705

     Term loan due in monthly installments through June 30, 2002; interest at
       prime plus 2% (6.75% at December 31, 2001); collateralized by accounts
       receivable, inventories, equipment and general intangibles ...................        128,751         386,250

     Term loan due in monthly installments through June 15, 2002; interest at
       6.4%; collateralized by certain assets of Boulder ............................        217,499         632,214

     Term loan due in monthly installments through June 15, 2002; interest at 6% ....         33,968          98,928

     Term loan due in monthly installments through August 31, 2002; interest at
       prime plus 2% (6.75% at December 31, 2001); collateralized by accounts
       receivable, inventory, equipment and intangibles .............................         87,500         237,500

     Capital lease obligations due in monthly installments through 2002; interest
       rates ranging from 8.2% to 11.3%; collateralized by equipment ................        457,629         614,357

     Term loan due in monthly installments through October 31, 2003; interest
       at prime plus 1% (5.75% at December 31, 2001); collateralized by
       equipment ....................................................................        241,430              --
                                                                                        ------------    ------------
                                                                                          11,004,727      11,340,479
     Less current portion ...........................................................     (2,343,472)     (2,315,391)
                                                                                        ------------    ------------
                                                                                        $  8,661,255    $  9,025,088
                                                                                        ============    ============
</TABLE>

     Annual maturities of long-term debt at December 31, 2001 are as follows:

     YEAR
     ----
     2002..................................................   $  2,343,472
     2003..................................................      4,543,545
     2004..................................................        932,155
     2005..................................................        935,906
     2006..................................................        568,213
     Thereafter............................................      1,681,436
                                                              ------------
                                                              $ 11,004,727
                                                              ============

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

6. LONG-TERM DEBT: (CONTINUED)

     The   Company's   Goodyear,   Arizona   manufacturing,   distribution   and
headquarters  facility is subject to a $1.9  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 three to
seven year terms,  bear  interest at rates from 8.2% to 11.3%,  require  monthly
payments and expire at various times through 2008 and are  collateralized by the
related equipment.

     At  December  31,  2001,  the  Company  had  outstanding  a 9%  Convertible
Debenture  due July 1, 2002 in the  principal  amount of $427,656  held by Wells
Fargo Small  Business  Investment  Company,  Inc.  ("Wells Fargo SBIC").  The 9%
Convertible  Debenture is secured by land, building,  equipment and intangibles.
Interest  on the 9%  Convertible  Debenture  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 SBIC 9%  Convertible  Debenture  through
June 2002 with the  remaining  balance due on July 1, 2002.  In  November  1999,
Renaissance  Capital  converted 50% ($859,047) of its 9%  Convertible  Debenture
holdings  into  859,047  shares of Common  Stock and agreed  unconditionally  to
convert into Common  Stock the  remaining  $859,047 not later than  December 31,
2000. In December  2000,  Renaissance  Capital  converted the remaining  859,047
shares of its 9%  Convertible  Debentures  into  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 SBIC 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 Convertible  Debentures.  The Company is currently in
compliance with all the financial ratios, including a minimum working capital, a
minimum  shareholders'  equity  and a  minimum  current  ratio at the end of any
fiscal quarter.  Management believes that the achievement of the Company's plans
and  objectives  will  enable  the  Company  to  attain  a  sufficient  level of
profitability to remain in compliance with the financial ratios. There can be no
assurance,  however,  that the Company  will attain any such  profitability  and
remain in compliance with the financial ratios.

    On October 7, 1999, the Company signed a new $9.15 million Credit  Agreement
with U.S.  Bancorp (the "U.S.  Bancorp Credit  Agreement")  consisting of a $3.0
million  working capital line of credit (the "U.S.  Bancorp Line of Credit"),  a
$5.8 million term loan (the "U.S. Bancorp Term Loan A") and a $350,000 term loan
(the "U.S.  Bancorp  Term Loan B").  Borrowings  under the U.S.  Bancorp  Credit
Agreement  were  used to pay off  indebtedness  under the  Company's  previously
existing Wells Fargo Credit Agreement,  to refinance indebtedness assumed by the
Company in connection with the Wabash Foods acquisition,  and for future general
working  capital  needs.  The U.S.  Bancorp Line of Credit bears  interest at an
annual rate of prime plus 1%. The U.S.  Bancorp Term Loan A bears interest at an
annual rate of prime and requires  monthly  principal  payments of approximately
$74,000  commencing  February 1, 2000, plus interest,  until maturity on July 1,
2006.  The U.S.  Bancorp Term Loan B had an annual  interest  rate of prime plus
2.5%,  required  monthly  principal  payments  of  approximately  $29,000,  plus
interest,  and matured in March 2001.  Pursuant to the terms of the U.S. Bancorp
Credit  Agreement,  the  Company  issued to U.S.  Bancorp a warrant  (the  "U.S.
Bancorp  Warrant")  to purchase  50,000  shares of Common  Stock for an exercise
price of $1.00 per share.  The U.S.  Bancorp  Warrant is  exercisable  until its
termination on October 7, 2004 and provides the holder thereof certain piggyback
registration rights.

     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
a $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

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

6. LONG-TERM DEBT: (CONTINUED)

rate of prime plus 2% and requires monthly  principal  payments of approximately
$12,500,  plus  interest,  until  maturity in August  2002.  The Company  made a
payment of $200,000 on the $715,000 non-interest bearing note 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 in
June 2002.

     In April 2001, the U.S.  Bancorp  Credit  Agreement was amended to increase
the U.S.  Bancorp Line of Credit from $3.0 million to $5.0 million,  establish a
$0.5 million capital expenditure line of credit (the "CapEx Term Loan"),  extend
the U.S.  Bancorp Line of Credit  maturity date from October 2002 to October 31,
2003, and modify certain  financial  covenants.  The Company  borrowed  $241,430
under the CapEx Term Loan in December  2001.  The CapEx Term Loan bears interest
at an annual rate of prime plus 1% and requires  monthly  principal  payments of
approximately  $10,000,  plus interest,  until maturity on October 31, 2003 when
the balance is due.

     The U.S.  Bancorp  Credit  Agreement  is  secured by  accounts  receivable,
inventories,  equipment and general  intangibles.  Borrowings  under the line of
credit are  limited to 80% of  eligible  receivables  and up to 60% of  eligible
inventories.  At  December  31,  2001,  the  Company  had a  borrowing  base  of
$4,297,000  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,
2001,  the  Company  was in  compliance  with  all of the  financial  covenants.
Management  believes that the  fulfillment of the Company's plans and objectives
will enable the Company to attain a sufficient  level of profitability to remain
in  compliance  with  these  financial  covenants.  There  can be no  assurance,
however,  that the  Company  will  attain any such  profitability  and remain in
compliance.  Any  acceleration  under the U.S. Bancorp Credit Agreement prior to
the scheduled  maturity of the U.S.  Bancorp Line of Credit or the U.S.  Bancorp
Term Loans could have a material adverse effect upon the Company.

     On  November  4,  1998,  pursuant  to the terms of the Wells  Fargo  Credit
Agreement,  the  Company  issued to Wells  Fargo a  warrant  (the  "Wells  Fargo
Warrant") to purchase  50,000  shares of Common  Stock for an exercise  price of
$0.93375 per share.  The Wells Fargo Warrant is  exercisable  until  November 3,
2003,  the date of  termination  of the Wells Fargo  Warrant,  and  provides the
holder thereof certain demand and piggyback registration rights.

7. COMMITMENTS AND CONTINGENCIES:

     Rental expense under operating leases was $506,900 and $309,000 for each of
fiscal 2001 and 2000,  respectively.  Minimum  future rental  commitments  under
non-cancelable leases as of December 31, 2001 are as follows:

                                           CAPITAL       OPERATING
     YEAR                                  LEASES         LEASES         TOTAL
                                         ----------     ----------    ----------
     2002 ............................   $  437,418     $  940,398    $1,377,816
     2003 ............................       46,484        932,135       978,619
     2004 ............................           --        903,565       903,565
     2005 ............................           --        879,848       879,848
     2006 ............................           --        862,156       862,156
     Thereafter ......................           --      3,906,596     3,906,596
                                         ----------     ----------    ----------
     Total ...........................      483,902     $8,424,698    $8,908,600
                                                        ==========    ==========
     Less amount representing interest      (26,273)
                                         ----------
     Present value ...................   $  457,629
                                         ==========

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


8. SHAREHOLDERS' EQUITY:

COMMON STOCK

     In November 1999,  Renaissance  Capital  converted 50% ($859,047) of its 9%
Convertible  Debenture (see Note 6) holdings into 859,047 shares of Common Stock
and agreed  unconditionally  to convert into Common Stock the remaining $859,047
not later  than  December  31,  2000.  In  December  2000,  Renaissance  Capital
converted the remaining  859,047  shares of its 9% Convertible  Debentures  into
Common  Stock.   The  Company's   outstanding  9%  Convertible   Debentures  are
convertible  into 427,656 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  fiscal  years  2000,  1999,  and  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). In
fiscal 2001, the Company issued an additional  57,898 shares in connection  with
the Boulder acquisition and cancelled 28,000 shares in connection with the Tejas
acquisition (see Note 2).

     On December 27, 2001,  the Company  completed the sale of 586,855 shares of
Common  Stock  at an  offering  price  of  $2.13  per  share  to BFS US  Special
Opportunities Trust PLC, a fund managed by Renaissance Capital Group, Inc., in a
private placement transaction. The net proceeds of the transaction were utilized
by the Company to reduce the Company's outstanding indebtedness. Pursuant to the
Share Purchase Agreement dated December 27, 2001, by and between the Company and
the investor,  the Company has agreed to file a registration  statement with the
Securities  and  Exchange  Commission  covering  the resale of the newly  issued
shares of Common Stock.  The  registration  statement is required to be filed no
later  than 120 days  after the  closing  date and is  required  to be  declared
effective within 90 days after the filing date.

PREFERRED STOCK

     The Company has authorized 50,000 shares of $100 par value Preferred Stock,
none of which was  outstanding  at December  31, 2001 and 2000.  The Company may
issue such shares of Preferred Stock in the future without shareholder approval.

WARRANTS

     During 2000 and 2001 warrant activity was as follows:

                                                                  WEIGHTED
                                                 WARRANTS         AVERAGE
                                               OUTSTANDING     EXERCISE PRICE
                                               -----------     --------------
     Balance, December 31, 1999 .........       1,413,298          $1.62
       Issued ...........................          85,000           1.09
                                               ----------
     Balance, December 31, 2000 .........       1,498,298           1.59
       Issued ...........................          10,000           3.62
       Cancelled ........................        (225,000)          4.38
                                               ----------
     Balance, December 31, 2001 .........       1,283,298           1.11
                                               ==========

     At December 31, 2001, outstanding warrants had exercise prices ranging from
$0.88 to $3.62 and a weighted average remaining term of 2.6 years. Warrants that
were exercisable at December 31, 2001 totaled  1,135,221 with a weighted average
exercise price per share of $1.14.

     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

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


8. SHAREHOLDERS' EQUITY: (CONTINUED)

certain  anti-dilution  and  piggyback  registration  rights.  The  warrant  was
exercisable  as to 50% of the shares when the  Company's  pro forma annual sales
reached  $30  million,  which it did  when  the  Company  completed  the  Wabash
acquisition  in October 1999.  The fair value of the warrant was included in the
cost of the  acquisition.  The remaining 50% of the warrant is exercisable  when
the Company's pro forma annual sales reach $100 million.

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

STOCK OPTIONS

     The Company's 1995 Stock Option Plan (the "Plan"),  as amended in May 2001,
provides  for the  issuance  of options to purchase  2,500,000  shares of Common
Stock.  The options granted  pursuant to the Plan expire over a five-year period
and generally  vest over three years.  In addition to options  granted under the
Plan, the Company also issued non-qualified  options to purchase Common Stock to
certain  Directors and officers  which were  exercisable  on issuance and expire
either  five or ten years  from  date of grant.  All  options  are  issued at an
exercise price of 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, 2001,  outstanding  options had
exercise prices ranging from $.59 to $3.63 per share.

    During 2000 and 2001, stock option activity was as follows:

<TABLE>
<CAPTION>
                                           PLAN OPTIONS                    NON-PLAN OPTIONS
                                  -----------------------------     -------------------------------
                                    OPTIONS    WEIGHTED AVERAGE       OPTIONS      WEIGHTED AVERAGE
                                  OUTSTANDING   EXERCISE PRICE      OUTSTANDING     EXERCISE PRICE
                                  -----------   --------------      -----------     --------------
<S>                                <C>               <C>               <C>              <C>
     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
          Granted .............      480,000          3.03              50,000           3.02
          Canceled ............     (143,333)         1.63                  --             --
          Exercised ...........      (26,000)         1.71             (50,000)          1.08
                                   ---------                         ---------
     Balance, December 31, 2001    2,010,317          1.97           1,645,000           1.54
                                   =========                         =========
</TABLE>

     At December 31, 2001,  outstanding Plan options had exercise prices ranging
from $0.59 to $3.63 and a weighted  average  remaining  term of 2.7 years.  Plan
options that were  exercisable  at December 31, 2001  totaled  1,299,982  with a
weighted average exercise price per share of $1.56. Outstanding Non-Plan options
had exercise prices ranging from $1.18 to $3.50 and a weighted average remaining
term of 3.4 years.  Non-Plan  options that were exercisable at December 31, 2001
totaled 1,044,999 with a weighted average exercise price per share of $1.39.

     In October 1995, the FASB issued SFAS No. 123,  "ACCOUNTING FOR STOCK-BASED
COMPENSATION",  which  defines  a fair  value  based  method of  accounting  for
employee stock options or similar equity instruments. However, it also allows an
entity  to  continue  to  account  for  these  plans  according  to APB  No.  25
"ACCOUNTING  FOR STOCK ISSUED TO EMPLOYEES",  provided pro forma  disclosures of
net income and  earnings per share are made as if the fair value based method of
accounting defined by SFAS No. 123 had been applied.  The Company has elected to
continue  to  measure   compensation  expense  related  to  employee  (including
Directors) stock purchase options using APB No. 25.

     Had compensation cost for the Company's stock options been determined based
on the  fair  value  at the  date of  grant  for  awards  in 1995  through  2001
consistent with the provisions of SFAS No. 123, the Company's net income and net
income per share  would have been  changed  to the pro forma  amounts  indicated
below:

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


8. SHAREHOLDERS' EQUITY: (CONTINUED)

                                                       YEARS ENDED DECEMBER 31,
                                                       -----------------------
                                                          2001          2000
                                                       ----------     --------
     Net income - as reported .......................  $1,045,264     $729,791
     Net income - pro forma .........................     194,963       28,491
     Basic earnings per common share - as reported...        0.07         0.05
     Basic earnings per common share - pro forma.....        0.01         0.00

    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 58%  and  110%;
risk-free interest rate of 3.4% and 6.1%; and expected lives of 3 years for 2001
and 2000,  respectively.  Under this method,  the weighted average fair value of
the  options   granted  was  $1.59  and  $1.23  per  share  in  2001  and  2000,
respectively.

9. INCOME TAXES:

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

     There was no current or  deferred  benefit  for income  taxes for the years
ended December 31, 2001 and 2000. 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,
                                                   ------------------------
                                                     2001           2000
                                                   ---------      ---------
     Provision at statutory rate ................  $ 370,010      $ 261,049
     State income tax, net ......................     56,742         38,390
     Nondeductible expenses .....................     18,722         15,600
     Net operating loss utilized and benefited...   (402,473)      (277,039)
                                                   ---------      ---------
                                                   $  43,000      $  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,
                                                ----------------------------
                                                    2001             2000
                                                -----------      -----------
     Net operating loss carryforward .........  $ 1,855,000      $ 1,880,000
     Bad debt expense ........................       86,000           96,000
     Accrued liabilities .....................       73,000          118,000
     Other ...................................      254,000           33,000
                                                -----------      -----------
                                                  2,268,000        2,127,000
     Depreciation and amortization ...........     (865,000)        (421,000)
     Deferred tax asset valuation allowance...   (1,403,000)      (1,706,000)
                                                -----------      -----------
          Net deferred tax assets ............  $        --      $        --
                                                ===========      ===========

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


9. INCOME TAXES: (CONTINUED)

     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, 2001 and 2000.

     At December 31, 2001,  the Company had a net  operating  loss  carryforward
("NOLC") for federal income tax purposes of approximately $4.7 million.  The use
of the NOLC in future  periods may be limited based on IRS rules.  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, 2001, one national  warehouse club customer
and one national vending  distributor of the Company accounted for $9,353,000 or
16% and  $6,886,000  or 12%,  respectively,  of the Company's  consolidated  net
revenues.  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%, or the Company's  consolidated  net
revenues.

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

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

<TABLE>
<CAPTION>
                                                  MANUFACTURED     DISTRIBUTED
                                                    PRODUCTS        PRODUCTS       CONSOLIDATED
                                                    --------        --------       ------------
<S>                                                <C>             <C>             <C>
     2001
     ----
     Revenues from external customers ........     $52,877,739     $ 4,788,149     $57,665,888
     Depreciation and amortization included in
          segment gross profit ...............         859,776              --         859,776
     Segment gross profit ....................      14,472,941         234,125      14,707,066

     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
</TABLE>

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


10.  BUSINESS SEGMENTS AND SIGNIFICANT CUSTOMERS:  (CONTINUED)

The following table reconciles  reportable segment gross profit to the Company's
consolidated income before income tax provision:

                                                           2001          2000
                                                       -----------   -----------
     Segment gross profit ..........................   $14,707,066   $10,392,066
     Unallocated amounts:
        Selling, general and administrative expenses    12,577,699     8,446,808
        Fire related income, net ...................         4,014            --
        Interest expense, net ......................     1,045,117     1,177,467
                                                       -----------   -----------
     Income before income tax provision ............   $ 1,088,264   $   767,791
                                                       ===========   ===========

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.

                                       43
<PAGE>
                                 EXHIBIT INDEX

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

23.1 -- Consent of Arthur Andersen LLP.

99.1 -- Registrant's Letter Regarding Arthur Andersen LLP.