POORE BROTHERS INC, 10KSB, 2000-03-30

POORE BROTHERS INC
10KSB, 2000-03-30
MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS

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

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

For the transition period from ________ to ___________

Commission File Number: 1-14556

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

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

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

----------

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

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

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

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

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

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

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

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

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

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ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS

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

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

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

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

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

RISK FACTORS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPANY HISTORY

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY

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

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

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

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

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

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

PRODUCTS

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

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

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

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

MANUFACTURING

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

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

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

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

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MARKETING AND DISTRIBUTION

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

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

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

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

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

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

SUPPLIERS

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

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

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

CUSTOMERS

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

MARKET OVERVIEW AND COMPETITION

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

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

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

GOVERNMENT REGULATION

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

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

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

EMPLOYEES

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

PATENTS AND TRADEMARKS

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

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

ITEM 2. DESCRIPTION OF PROPERTY

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

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

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

ITEM 3. LEGAL PROCEEDINGS

None.

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

None.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

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

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

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

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

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

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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RESULTS OF OPERATIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

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

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

MANAGEMENT'S PLANS

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

INFLATION AND SEASONALITY

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

ITEM 7. FINANCIAL STATEMENTS

Page
----
REPORTS

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

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

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

None.

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PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEMS 9-12. DOCUMENTS INCORPORATED BY REFERENCE

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

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ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(5) Filed herewith.

(b) Reports on Form 8-K.

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

24
<PAGE>
SIGNATURES

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

Dated: March 30, 2000 POORE BROTHERS, INC.

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

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

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

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

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

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

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

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

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

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

25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Poore Brothers, Inc.

We have audited the accompanying consolidated balance sheets of POORE BROTHERS,
INC. (a Delaware corporation) and SUBSIDIARIES as of December 31, 1999 and 1998,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

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

ARTHUR ANDERSEN LLP

Phoenix, Arizona,
February 4, 2000.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS OBJECTIVES, RISKS AND PLANS

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

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

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

PRINCIPLES OF CONSOLIDATION

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

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

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

USE OF ESTIMATES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

INVENTORIES

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

PROPERTY AND EQUIPMENT

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

INTANGIBLE ASSETS

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

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

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

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

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

REVENUE RECOGNITION

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

ADVERTISING COSTS

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

INCOME TAXES

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

EARNINGS PER SHARE

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

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

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

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

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

NEW ACCOUNTING PRONOUNCEMENTS

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

2. ACQUISITIONS:

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

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

PRO FORMA CONDENSED RESULTS OF OPERATIONS (UNAUDITED)

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

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

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

3. CONCENTRATIONS OF CREDIT RISK:

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

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

4. INVENTORIES:

Inventories consisted of the following:

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

5. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following:

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

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

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

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

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

6. LONG-TERM DEBT:

Long-term debt consisted of the following:

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

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

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

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

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

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

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

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

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

Annual maturities of long-term debt are as follows:

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

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

6. LONG-TERM DEBT: (CONTINUED)

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

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

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

6. LONG-TERM DEBT: (CONTINUED)

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

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

7. COMMITMENTS AND CONTINGENCIES:

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

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

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

8. SHAREHOLDERS' EQUITY:

COMMON STOCK

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

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

PREFERRED STOCK

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

WARRANTS

During 1998 and 1999, warrant activity was as follows:

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

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

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

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

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

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

8. SHAREHOLDERS EQUITY: (CONTINUED)

STOCK OPTIONS

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

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

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

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

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

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

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

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

8. SHAREHOLDERS EQUITY: (CONTINUED)

STOCK OPTIONS (CONTINUED)

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

9. INCOME TAXES:

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

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

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

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

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

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

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

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

10. BUSINESS SEGMENTS AND SIGNIFICANT CUSTOMERS:

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

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

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

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

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

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

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

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

11. LITIGATION:

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

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

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

12. RELATED PARTY TRANSACTIONS:

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

43
<PAGE>
EXHIBIT INDEX

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

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

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

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

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

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

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

27.1 -- Financial Data Schedule for 1999

REVOLVING NOTE

$3,000,000 October 3, 1999
Minneapolis, Minnesota

FOR VALUE RECEIVED, POORE BROTHERS, INC., a corporation organized under the
laws of the State of Delaware ("PBI"), POORE BROTHERS ARIZONA, INC., an Arizona
corporation ("PBAI"), POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation
("PBDI"), TEJAS PB DISTRIBUTING, INC., an Arizona corporation ("Tejas") and
WABASH FOODS, LLC, a Delaware limited liability company ("Wabash"), (PBI, PBAI,
PBDI, Tejas and Wabash each a Borrower and collectively the "Borrower" or the
"Borrowers"), hereby jointly and severally promise to pay to the order of U.S.
BANCORP REPUBLIC COMMERCIAL FINANCE, INC. (the "Lender") at its main office in
Minneapolis, Minnesota, in lawful money of the United States of America in
immediately available funds on the Revolving Maturity Date (as such term and
each other capitalized term used herein are defined in the Credit Agreement
hereinafter referred to) the principal amount of THREE MILLION DOLLARS AND NO
CENTS ($3,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender under the Credit Agreement, and to pay
interest (computed on the basis of actual days elapsed and a year of 360 days)
in like funds on the unpaid principal amount hereof from time to time
outstanding at the rates and times set forth in the Credit Agreement.

This note is the Revolving Note referred to in the Credit Agreement dated
as of October 3, 1999 (as the same may be hereafter from time to time amended,
restated or modified, the "Credit Agreement") between the undersigned and the
Lender. This note is secured, it is subject to certain permissive and mandatory
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in said Credit Agreement.

In the event of default hereunder, the undersigned agrees to pay all costs
and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, presentment, notice of nonpayment, protest, notice of
protest and notice of dishonor.
<PAGE>
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF.

POORE BROTHERS, INC.

By
-------------------------------------
Title

POORE BROTHERS ARIZONA, INC.

By
-------------------------------------
Title

POORE BROTHERS DISTRIBUTING, INC.

By
-------------------------------------
Title

TEJAS PB DISTRIBUTING, INC.

By
-------------------------------------
Title

WABASH FOODS, LLC

By
-------------------------------------
Title
<PAGE>
TERM NOTE A

$5,800,000 October 3, 1999
Minneapolis, Minnesota

FOR VALUE RECEIVED, POORE BROTHERS, INC., a corporation organized under the
laws of the State of Delaware ("PBI"), POORE BROTHERS ARIZONA, INC., an Arizona
corporation ("PBAI"), POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation
("PBDI"), TEJAS PB DISTRIBUTING, INC., an Arizona corporation ("Tejas") and
WABASH FOODS, LLC, a Delaware limited liability company ("Wabash"), (PBI, PBAI,
PBDI, Tejas and Wabash each a Borrower and collectively the "Borrower" or the
"Borrowers"), hereby jointly and severally promise to pay to the order of U.S.
BANCORP REPUBLIC COMMERCIAL FINANCE, INC. (the "Lender") at its main office in
Minneapolis, Minnesota, in lawful money of the United States of America in
immediately available funds, the principal amount of FIVE MILLION EIGHT HUNDRED
THOUSAND DOLLARS AND NO CENTS ($5,800,000), and to pay interest (computed on the
basis of actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times set
forth in the Credit Agreement.

The principal hereof is payable in seventy-eight monthly installments, each
payment in the amount of $74,359, commencing on February 1, 2000 and the first
day of each month thereafter until July 1, 2006 when the remaining principal
balance and all accrued interest shall be payable.

This note is the Term Note A referred to in the Credit Agreement dated as
of October 3, 1999 (as the same may hereafter be from time to time amended,
restated or otherwise modified, the "Credit Agreement") between the undersigned
and the Lender. This note is secured and its maturity is subject to
acceleration, in each case upon the terms provided in said Credit Agreement.

POORE BROTHERS, INC.

By
-------------------------------------
Title

POORE BROTHERS ARIZONA, INC.

By
-------------------------------------
Title

POORE BROTHERS DISTRIBUTING, INC.

By
-------------------------------------
Title

TEJAS PB DISTRIBUTING, INC.

By
-------------------------------------
Title

WABASH FOODS, LLC

By
-------------------------------------
Title
<PAGE>
TERM NOTE B

$350,000 October 3, 1999
Minneapolis, Minnesota

FOR VALUE RECEIVED, POORE BROTHERS, INC., a corporation organized under the
laws of the State of Delaware ("PBI"), POORE BROTHERS ARIZONA, INC., an Arizona
corporation ("PBAI"), POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation
("PBDI"), TEJAS PB DISTRIBUTING, INC., an Arizona corporation ("Tejas") and
WABASH FOODS, LLC, a Delaware limited liability company ("Wabash"), (PBI, PBAI,
PBDI, Tejas and Wabash each a Borrower and collectively the "Borrower" or the
"Borrowers"), hereby jointly and severally promise to pay to the order of U.S.
BANCORP REPUBLIC COMMERCIAL FINANCE, INC. (the "Lender") at its main office in
Minneapolis, Minnesota, in lawful money of the United States of America in
immediately available funds, the principal amount of THREE HUNDRED FIFTY
THOUSAND DOLLARS AND NO CENTS ($350,000), and to pay interest (computed on the
basis of actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times set
forth in the Credit Agreement.

The principal hereof is payable in twelve monthly installments, each
payment in the amount of $29,166.67, commencing on April 30, 2000 and the last
day of each month thereafter until March 31, 2001 when the remaining principal
balance and all accrued interest shall be payable.

This note is the Term Note B referred to in the Credit Agreement dated as
of October 3, 1999 (as the same may hereafter be from time to time amended,
restated or otherwise modified, the "Credit Agreement") between the undersigned
and the Lender. This note is secured and its maturity is subject to
acceleration, in each case upon the terms provided in said Credit Agreement.

POORE BROTHERS, INC.

By
-------------------------------------
Title

POORE BROTHERS ARIZONA, INC.

By
-------------------------------------
Title

POORE BROTHERS DISTRIBUTING, INC.

By
-------------------------------------
Title

TEJAS PB DISTRIBUTING, INC.

By
-------------------------------------
Title

WABASH FOODS, LLC

By
-------------------------------------
Title

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE " 1933 ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE 1933 ACT, OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER THE 1933 ACT.

WARRANT TO PURCHASE
COMMON STOCK OF
POORE BROTHERS, INC.

Date of Issuance: October , 1999 Warrant No. ______

This certifies that, for value received, POORE BROTHERS, INC., a Delaware
corporation (the "Company"), grants U.S. BANCORP REPUBLIC COMMERCIAL FINANCE,
INC., a Minnesota corporation, or registered assigns (the "Registered Holder"),
the right to subscribe for and purchase from the Company, at the price of one
dollar ($1.00) per share, as such price may be adjusted from time to time (the
"Exercise Price"), from and after 9:00 a.m. Phoenix time on October ____, 1999
(the "Exercise Commencement Date") and to and including 5:00 p.m., Phoenix time
on June 30, 2004 (the "Expiration Date"), fifty thousand (50,000) shares, as
such number of shares may be adjusted from time to time (the "Warrant Shares"),
of the Company's common stock, par value $.01 per share (the "Common Stock"),
subject to the provisions and upon the terms and conditions herein set forth.
The Exercise Price and the number of Warrant Shares purchasable upon exercise of
this Warrant are subject to adjustment from time to time as provided in Section
7 hereof.

SECTION 1. REGISTRATION. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose in the name of the
Registered Holder. The Company may deem and treat the Registered Holder as the
absolute owner of this Warrant for the purpose of any exercise hereof or any
distribution to the Registered Holder, and for all other purposes, and the
Company shall not be affected by any notice to the contrary.

SECTION 2. REGISTRATION OF TRANSFERS AND EXCHANGES.

(a) Subject to Section 11 hereof, the Company shall register the transfer
of this Warrant, in whole or in part, upon records to be maintained by the
Company for that purpose, upon surrender of this Warrant, with the Form of
Assignment attached hereto completed and duly endorsed by the Registered Holder,
to the Company at the office specified in or pursuant to Section 3(b). Upon any
such registration of transfer, a new Warrant, in substantially the form of this
Warrant, evidencing the Common Stock purchase rights so transferred shall be
issued to the transferee and a new Warrant, in similar form, evidencing the
remaining Common Stock purchase rights not so transferred, if any, shall be
issued to the Registered Holder.

(b) This Warrant is exchangeable, upon the surrender hereof by the
Registered Holder at the office of the Company specified in or pursuant to
Section 3(b) hereof, for new Warrants, in substantially the form of this Warrant
evidencing, in the aggregate, the right to purchase the number of Warrant Shares
which may then be purchased hereunder, each of such new Warrants to be dated the
date of such exchange and to represent the right to purchase such number of
Warrant Shares as shall be designated by the Registered Holder at the time of
such surrender.

SECTION 3. DURATION AND EXERCISE OF THIS WARRANT.

(a) This Warrant shall be exercisable by the Registered Holder, in whole,
or from time to time in part, on any business day before 5:00 p.m., Phoenix
time, during the period beginning on the Exercise Commencement Date and ending
on the Expiration Date. At 5:00 p.m., Phoenix time, on the Expiration Date, this
Warrant, to the extent not previously exercised, shall become void and of no
further force or effect.

(b) Subject to Sections 4, and 11(a) hereof, upon exercise or surrender of
this Warrant, with the Form of Election to Purchase attached hereto completed
and duly endorsed by the Registered Holder, to the Company at its office at 3500
South La Cometa Drive, Goodyear, Arizona 85338, Attention: Chief Financial
Officer, or at such other address as the Company may specify in writing to the
Registered Holder, and upon payment of the Exercise Price multiplied by up to
the number of Warrant Shares then issuable upon exercise of this Warrant in

1
<PAGE>
lawful money of the United States of America (except as otherwise provided for
in Section 3(c) hereof), all as specified by the Registered Holder in the Form
of Election to Purchase, the Company shall promptly issue and cause to be
delivered to or upon the written order of the Registered Holder, and in such
name or names as the Registered Holder may designate, a certificate for the
Warrant Shares issued upon such exercise. Any person so designated in the Form
of Election to Purchase, duly endorsed by the Registered Holder, as the person
to be named on the certificates for the Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares, evidenced by such certificates,
as of the Date of Exercise (as hereinafter defined) of such Warrant.

(c) The Registered Holder may pay the applicable Exercise Price pursuant to
Section 3(b), at the option of the Registered Holder, either (i) in cash or by
cashier's or certified bank check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of Warrant Shares
being purchased upon such exercise (the "Aggregate Exercise Price"), (ii) by
wire transfer of immediately available funds to the account which shall be
indicated in writing by the Company to the Registered Holder, or (iii) by
written notice to the Company that the Registered Holder is exercising this
Warrant and is authorizing the Company to withhold from the issuance to such
Registered Holder that number of Warrant Shares which when multiplied by the
Market Price (as hereinafter defined) for the Date of Exercise is equal to the
Aggregate Exercise Price. Any Warrant Shares withheld by the Company in
connection with an exercise of this Warrant pursuant to clause (iii) of this
Section 3(c) shall no longer be issuable under this Warrant and this Warrant
shall be deemed to be automatically amended to reduce the number of Warrant
Shares issuable hereunder by an amount equal to the amount of such withheld
Warrant Shares.

(d) The "Date of Exercise" of any Warrant means the date on which the
Company shall have received (i) this Warrant, with the Form of Election to
Purchase attached hereto appropriately completed and duly endorsed, and (ii)
payment of the Aggregate Exercise Price as provided herein.

(e) This Warrant shall be exercisable either as an entirety or, from time
to time, for part only of the number of Warrant Shares which are issuable
hereunder; provided, however, that no partial exercise of this Warrant shall
involve less than 25,000 Warrant Shares unless the aggregate remaining Warrant
Shares available for purchase pursuant to this Warrant is less than 25,000, in
which case this Warrant shall be exercisable for only all such remaining Warrant
Shares. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificates for the Warrant Shares issued
pursuant to such exercise, deliver to the Registered Holder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which Warrant
shall be substantially in the form of this Warrant.

(f) Definition of Market Price. As used in this Warrant, the term "Market
Price" shall mean the average of the daily closing prices per share of the
Common Stock for the ten (10) consecutive trading days immediately preceding the
day as of which Market Price is being determined. The closing price for each day
shall be the last reported sale price or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices, in either
case on the New York Stock Exchange, or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which the shares are listed or admitted to trading, or,
if the shares are not so listed or admitted to trading, the average of the
highest reported bid and lowest reported asked prices as furnished by the
National Association of Securities Dealers, Inc. (the "NASD") through NASDAQ or
through a similar organization if NASDAQ is no longer reporting such information
or as reported on the NASD's OTC Electronic Bulletin Board ("OTC"). If shares of
Common Stock are not listed or admitted to trading on any exchange or quoted
through NASDAQ or any similar organization or reported on OTC, the Market Price
shall be deemed to be the fair value thereof determined in good faith by the
Company's Board of Directors as expressed by a resolution of such board as of a
date which is within fifteen (15) days of the date as of which the determination
is to be made.

SECTION 4. PAYMENT OF TAXES AND EXPENSES.

(a) The Company will pay all expenses and taxes (other than any federal or
state income tax or similar obligations of the Registered Holder) and other
governmental charges attributable to the preparation, execution, issuance and
delivery of this Warrant, any new Warrant and the Warrant Shares; provided,
however, that the Company shall not be required to pay any tax in respect of the
transfer of this Warrant or the Warrant Shares, or the issuance or delivery of
certificates for Warrant Shares upon the exercise of this Warrant, to a person
or entity other than a Registered Holder or an Affiliate (as hereinafter
defined) of such Registered Holder; and further provided, that this paragraph
shall not obligate the Company to pay any expenses incurred by the Registered
Holder in connection with any registration of the Warrant, any new Warrant or
the Warrant Shares pursuant to the 1933 Act.

2
<PAGE>
(b) An "Affiliate" of any person or entity means any other person or entity
directly or indirectly controlling, controlled by or under direct or indirect
common control with such person or entity.

SECTION 5. MUTILATED OR MISSING WARRANT CERTIFICATE. If this Warrant shall
be mutilated, lost, stolen or destroyed, upon request by the Registered Holder,
the Company will issue, in exchange for and upon cancellation of the mutilated
Warrant, or in substitution for the lost, stolen or destroyed Warrant, a new
Warrant, in substantially the form of this Warrant, of like tenor, but, in the
case of loss, theft or destruction, only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of this Warrant
and, if requested by the Company, indemnity also reasonably satisfactory to it.

SECTION 6. RESERVATION AND ISSUANCE OF WARRANT SHARES.

(a) The Company will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon the exercise of the rights
represented by this Warrant, the number of Warrant Shares deliverable upon
exercise of this Warrant.

(b) Before taking any action which could cause an adjustment pursuant to
Section 7 hereof reducing the Exercise Price below the par value of the Warrant
Shares, the Company will take any corporate action which may be necessary in
order that the Company may validly and legally issue at the Exercise Price, as
so adjusted, Warrant Shares that are fully paid and non-assessable.

(c) The Company covenants that all Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be (i) duly authorized, fully paid
and nonassessable, and (ii) free from all taxes with respect to the issuance
thereof and from all liens, charges and security interests.

SECTION 7. CERTAIN ADJUSTMENTS

(a) Subdivisions or Combinations of Stock. In case the Company shall at any
time subdivide the outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. Upon each such adjustment of the Exercise Price, the holder of this
Warrant shall thereafter prior to the Expiration Date thereof be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
Warrant Shares obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Shares issuable upon exercise
of such Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.

(b) CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION, ETC. IN CASE THE
COMPANY (I) CONSOLIDATES WITH OR MERGES INTO ANY OTHER CORPORATION AND IS NOT
THE CONTINUING OR SURVIVING CORPORATION OF SUCH CONSOLIDATION OR MERGER, OR (II)
PERMITS ANY OTHER CORPORATION TO CONSOLIDATE WITH OR MERGE INTO THE COMPANY AND
THE COMPANY IS THE CONTINUING OR SURVIVING CORPORATION BUT, IN CONNECTION WITH
SUCH CONSOLIDATION OR MERGER, THE COMMON STOCK IS CHANGED INTO OR EXCHANGED FOR
STOCK OR OTHER SECURITIES OF ANY OTHER CORPORATION OR CASH OR ANY OTHER ASSETS,
OR (III) TRANSFERS ALL OR SUBSTANTIALLY ALL OF ITS PROPERTIES AND ASSETS TO ANY
OTHER CORPORATION, OR (IV) EFFECTS A CAPITAL REORGANIZATION OR RECLASSIFICATION
OF THE CAPITAL STOCK OF THE COMPANY IN SUCH A WAY THAT HOLDERS OF THE COMMON
STOCK SHALL BE ENTITLED TO RECEIVE STOCK, SECURITIES, CASH AND/OR ASSETS WITH
RESPECT TO OR IN EXCHANGE FOR THE COMMON STOCK, THEN, AND IN EACH SUCH CASE,
PROPER PROVISION SHALL BE MADE SO THAT THE HOLDER OF THIS WARRANT, UPON THE
EXERCISE OF THIS WARRANT AT ANY TIME AFTER THE CONSUMMATION OF SUCH
CONSOLIDATION, MERGER, TRANSFER, REORGANIZATION OR RECLASSIFICATION, SHALL BE
ENTITLED TO RECEIVE (AT THE AGGREGATE EXERCISE PRICE IN EFFECT FOR ALL WARRANT
SHARES ISSUABLE UPON SUCH EXERCISE IMMEDIATELY PRIOR TO SUCH CONSUMMATION AS
ADJUSTED TO THE TIME OF SUCH TRANSACTION), IN LIEU OF SHARES OF COMMON STOCK
ISSUABLE UPON SUCH EXERCISE PRIOR TO SUCH CONSUMMATION, THE STOCK AND OTHER
SECURITIES, CASH AND/OR ASSETS TO WHICH SUCH HOLDER WOULD HAVE BEEN ENTITLED
UPON SUCH CONSUMMATION IF SUCH HOLDER HAD SO EXERCISED SUCH WARRANT IMMEDIATELY
PRIOR THERETO (SUBJECT TO ADJUSTMENTS SUBSEQUENT TO SUCH CORPORATE ACTION AS
NEARLY EQUIVALENT AS POSSIBLE TO THE ADJUSTMENTS PROVIDED FOR IN THIS SECTION
7).

SECTION 8. CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event that the
Company shall at any time prior to the exercise of this Warrant declare a
dividend (other than a dividend consisting solely of shares of Common Stock or a
cash dividend or distribution payable out of current or retained earnings) or
otherwise distribute to its stockholders any monies, assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another person or entity, or any other thing
of value, the Registered Holder shall thereafter be entitled, in addition to the

3
<PAGE>
shares of Common Stock receivable upon the exercise of the Warrant, to receive,
upon the exercise of the Warrant, the same monies, property, assets, rights,
evidences of indebtedness, securities or any other thing of value that the
Registered Holder would have been entitled to receive at the time of such
dividend or distribution had the Registered Holder been an owner of record of
the shares of Common Stock into which the Warrant is then being exercised as of
the record date or other date of determination for such dividend or distribution
and an appropriate provision shall be made a part of any such dividend or
distribution. Notwithstanding any provision herein to the contrary, no
adjustment under this Section 8 shall be made with respect to any cash dividend
or distribution payable solely out of current or retained earnings of the
Company.

SECTION 9. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. The Registered Holder
shall not be entitled to vote or be deemed the holder of Common Stock or any
other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained herein be construed to confer upon
the holder of this Warrant, as such, the rights of a stockholder of the Company
or the right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or give or withhold consent to any
corporate action or to receive notice of meetings or other actions affecting
stockholders (except as provided herein), or to receive dividends or
subscription rights or otherwise, until the Date of Exercise shall have
occurred. No provision of this Warrant, in the absence of affirmative action by
the Registered Holder hereof to purchase shares of Common Stock, and no mere
enumeration herein of the rights and privileges of the Registered Holder, shall
give rise to any liability of such holder for the Exercise Price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.

SECTION 10. FRACTIONAL WARRANT SHARES. The Company shall not be required to
issue fractions of Warrant Shares upon exercise of the Warrant or to distribute
certificates which evidence fractional Warrant Shares. If any fraction of a
Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant (or specified portion thereof), the Company
shall pay to the Registered Holder an amount in cash equal to the Market Price
as of the Exercise Date, multiplied by such fraction.

SECTION 11. TRANSFER RESTRICTIONS; REGISTRATION OF THE WARRANT AND WARRANT
SHARES.

(a) Neither the Warrant nor the Warrant Shares have been registered under
the Act. The Registered Holder, by acceptance hereof, represents that it is
acquiring this Warrant to be issued to it for its own account and not with a
view to the distribution thereof, and agrees not to sell, transfer, pledge or
hypothecate this Warrant, any purchase rights evidenced hereby or any Warrant
Shares unless a registration statement is effective for this Warrant or the
Warrant Shares under the Act or in the opinion of such Registered Holder's
counsel reasonably satisfactory to the Company, a copy of which opinion shall be
delivered to the Company, such transaction is exempt from the registration
requirements of the Act.

(b) Subject to the provisions of the following paragraph of this Section
11, each Certificate for Warrant Shares shall be stamped or otherwise imprinted
with a legend in substantially the following form:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE 1933
ACT, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER HEREOF, TO
THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT.

(c) The restrictions and requirements set forth in the foregoing paragraph
shall apply with respect to Warrant Shares unless and until such Warrant Shares
are sold or otherwise transferred pursuant to an effective registration
statement under the Act or are otherwise no longer subject to the restrictions
of the Act, at which time the Company agrees to promptly cause such restrictive
legends to be removed and stop transfer restrictions applicable to such Warrant
Shares to be rescinded.

SECTION 12. REGISTRATION RIGHTS. The Registered Holder is entitled to
certain registration rights with respect to the Warrant Shares pursuant to a
Registration Rights Agreement dated as of October ___, 1999, by and between the
Company and U.S. Bancorp Republic Commercial Finance, Inc. (the "Registration
Rights Agreement"). Upon any transfer of this Warrant or the Warrant Shares by
the Registered Holder, such registration rights may be transferred to the
transferee of the Warrant or the Warrant Shares only in accordance with the
terms of the Registration Rights Agreement.

SECTION 13. NOTICES. All notices, requests, demands and other
communications relating to this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or sent by United States
certified or registered first-class mail, postage prepaid, return receipt

4
<PAGE>
requested, to the parties hereto at the following addresses or at such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:

(a) If to the Registered Holder of this Warrant or the holder of the
Warrant Shares, addressed to the address of such Registered Holder or holder as
set forth on books of the Company or otherwise furnished by the Registered
Holder or holder to the Company.

(b) If to the Company, addressed to:

Poore Brothers, Inc.
3500 South La Cometa Drive
Goodyear, Arizona 85338
Attn: Chief Financial Officer

SECTION 14. BINDING EFFECT. This Warrant shall be binding upon and inure to
the sole and exclusive benefit of the Company, its successors and assigns, and
the holder or holders from time to time of this Warrant and the Warrant Shares.

SECTION 15. SURVIVAL OF RIGHTS AND DUTIES. This Warrant shall terminate and
be of no further force and effect on the earlier of (i) 5:00 p.m., Phoenix time,
on the Expiration Date and (ii) the date on which this Warrant and all purchase
rights evidenced hereby have been exercised, except that the provisions of
Sections 4, 6(c), 11 and 12 hereof shall continue in full force and effect after
such termination date.

SECTION 16. GOVERNING LAW. This Warrant shall be construed in accordance
with and governed by the laws of the State of Arizona.

SECTION 17. AMENDMENT; WAIVER. This Warrant and any term hereof may be
amended, waived, discharged or terminated only by and with the written consent
of the Company and the holder of this Warrant.

SECTION 18. SECTION HEADINGS. The Section headings in this Warrant are for
purposes of convenience only and shall not constitute a part hereof.

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
under its corporate seal by its officers thereunto duly authorized as of the
date hereof.

POORE BROTHERS, INC.

By:
------------------------------------
Name:
Title:

ATTEST:

----------------------------------------
Name:
Title:

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<PAGE>
FORM OF ELECTION TO PURCHASE

(To Be Executed Upon Exercise of this Warrant)

To Poore Brothers, Inc.:

The undersigned, the record holder of this Warrant, hereby irrevocably
elects to exercise the right, represented by this Warrant (Warrant No. ___), to
purchase ___________ of the Warrant Shares and herewith tenders payment for such
Warrant Shares to the order Poore Brothers, Inc. of $_________ representing the
full purchase price for such shares at the price per share provided for in such
Warrant and the delivery of any applicable taxes payable by the undersigned
pursuant to such Warrant.

In lieu of paying the purchase price as provided in the preceding
paragraph, the undersigned will/will not (circle appropriate word(s)) make a
cashless exercise pursuant to Section 3(c) of the attached Warrant.

The undersigned requests that certificates for such shares be issued in the
name of

- ------------------------------- PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
- -------------------------------

- -------------------------------

- ------------------------------- ----------------------------------
(Please print name and address)

In the event that not all of the purchase rights represented by the Warrant
are exercised, a new Warrant, substantially identical to the attached Warrant,
representing the rights formerly represented by the attached Warrant which have
not been exercised, shall be issued in the name of and delivered to

- --------------------------------------------------------------------------------
(Please print name)

- --------------------------------------------------------------------------------
(Please print address)

Dated: ________________ Name of Holder (Print):

By: ________________________________
(Name): ____________________________
(Title): ___________________________

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FORM OF ASSIGNMENT

FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the undersigned
under the attached Warrant (Warrant No. _____) with respect to the number of
shares of Common Stock covered thereby set forth opposite the name of such
assignee unto:

Number of Shares of
Name of Assignee Address Common Stock
---------------- ------- -------------------

If the total of said purchase rights represented by the Warrant shall not
be assigned, the undersigned requests that a new Warrant Certificate evidencing
the purchase rights not so assigned be issued in the name of and delivered to
the undersigned.

Dated: _______________ Name of Holder (Print):

By: ________________________________
(Name): ____________________________
(Title): ___________________________

POORE BROTHERS, INC. 1995 STOCK OPTION PLAN
(AS AMENDED THROUGH OCTOBER 6, 1999)

1. PURPOSE. The Poore Brothers, Inc. 1995 Stock Option Plan (the "Plan") is
intended to provide incentives which will attract and retain highly competent
persons as directors, officers and key employees of Poore Brothers, Inc. (the
"Company") and its subsidiaries by providing them opportunities to acquire
shares of Common Stock, par value $.01 per share ("Common Stock"), of the
Company.

2. ADMINISTRATION. The Plan will be administered by a committee of the
Board of Directors (the "Committee") which shall be comprised of one or more
directors who shall be ineligible to receive options while serving as a member
of the Committee; PROVIDED, HOWEVER, that if the Common Stock of the Company
becomes registered under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), members of the Committee must qualify as disinterested persons
within the meaning of Rule 16b-3 under the 1934 Act; and PROVIDED FURTHER,
HOWEVER, that, in the absence of a Committee, all of the authority and powers
granted to the Committee under the Plan may be exercised by the then-serving
members of the Board of Directors of the Company. The Committee is authorized,
subject to the provisions of the Plan, to establish such rules and regulations
as it deems necessary for proper administration of the Plan and to make such
determinations and interpretations and to take such action in connection with
the Plan as it deems necessary or advisable. All determinations and
interpretations made by the Committee shall be binding and conclusive on all
participants and their legal representatives. No member of the Board, no member
of the Committee and no employee of the Company or its subsidiaries shall be
liable for any act or failure to act hereunder, by any other member or employee
or by an agent to whom duties in connection with the administration of this Plan
have been delegated or, except in circumstances involving his bad faith, gross
negligence or fraud, for any act or failure to act by the member or employee.

3. PARTICIPANTS. Participants will consist of such directors, officers and
key employees of the Company or its subsidiaries as the Committee in its sole
discretion determines to be significantly responsible for the success and future
growth and profitability of the Company and whom the Committee may designate
from time to time to receive Stock Options under the Plan. Designation of a
participant in any year shall not require the Committee to designate such person
to receive a Stock Option in any other year or, once designated, to receive the
same type or amount of Stock Option as granted to the participant in any year.
The Committee shall consider such factors as it deems pertinent in selecting
participants and in determining the type and amount of their respective Stock
Options.

4. SHARES RESERVED UNDER THE PLAN. Two Million (2,000,000) shares of
authorized but unissued shares of Common Stock are reserved for issue and may be
issued in connection with Stock Options granted under the Plan. Any shares
subject to Stock Options or issued under such options may thereafter be subject
to new options under this Plan if there is a lapse, expiration or termination of
any such options prior to issuance of the shares or if shares are issued under
such options and thereafter are reacquired by the Company pursuant to rights
reserved by the Company upon issuance thereof, subject to any Securities and
Exchange Commission rules regarding the availability of such shares, if
applicable.

5. STOCK OPTIONS. Stock Options will consist of awards from the Company, in
the form of agreements, which will enable the holder to purchase a specific
number of shares of Common Stock, at set terms and at a fixed purchase price,
subject to adjustment as hereinafter provided. Stock Options may be "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code
("Incentive Stock Options") or Stock Options which do not constitute Incentive
Stock Options ("Nonqualified Stock Options"). The Committee will have the
authority to grant to any participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both types of Stock Options. Each Stock Option
shall be subject to such terms and conditions consistent with the Plan as the
Committee may impose from time to time, subject to the following limitations:

a) EXERCISE PRICE. Each Stock Option granted hereunder shall have such
per-share exercise price as the Committee may determine at the date of grant;
PROVIDED, HOWEVER, that the per-share exercise price for Incentive Stock Options
shall not be less than 100% of the Fair Market Value of the Common Stock on the
date the option is granted; and PROVIDED, FURTHER, that the per-share exercise
price for Nonqualified Stock Options shall not be less than 85% of the Fair
Market Value of the Common Stock on the date the option is granted.

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b) PAYMENT OF EXERCISE PRICE. The option exercise price may be paid by
check or, in the discretion of the Committee, by the delivery of shares of
Common Stock, or a combination thereof, or such other consideration as the
Committee may deem appropriate.

c) EXERCISE PERIOD. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee; PROVIDED, however, that no Stock Options
shall be exercisable earlier than six months after the date they are granted. In
addition, Stock Options shall not be exercisable later than ten years after the
date they are granted. All Stock Options shall terminate at such earlier times
and upon such conditions or circumstances as the Committee shall in its
discretion set forth in such Stock Option at the date of grant.

d) LIMITATIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock Options may
be granted only to participants who are employees of the Company or one of its
subsidiaries (within the meaning of Section 424(f) of the Internal Revenue Code)
at the date of grant. The aggregate Fair Market Value (determined as of the time
the option is granted) of the Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by a participant during any calendar
year (under all option plans of the Company) shall not exceed $100,000.00.
Incentive Stock Options may not be granted to any participant who, at the time
of grant, owns stock possessing (after the application of the attribution rules
of Section 424(d) of the Code) more than 10% of the total combined voting power
of all classes of stock of the Company, unless the option price is fixed at not
less than 110% of the Fair Market Value of the Common Stock on the date of grant
and the exercise of such option is prohibited by its terms after the expiration
of five years from the date of grant of such option.

6. ADJUSTMENT PROVISIONS.

a) If the Company shall at any time change the number of issued shares
of Common Stock without new consideration to the Company (such as by stock
dividend, stock split, recapitalization, reorganization, exchange of shares,
liquidation, combination or other change in corporate structure affecting the
Common Stock), the total number of shares available for Stock Options under this
Plan shall be appropriately adjusted and the number of shares covered by each
outstanding Stock Option and the reference price shall be adjusted so that the
net value of such Stock Option shall not be changed.

(1) In the case of any sale of assets, merger, consolidation,
combination or other corporate reorganization or restructuring of the
Company with or into another corporation which results in the
outstanding Common Stock being converted into or exchanged for
different securities, cash or other property, or any combination
thereof (an "Acquisition"), subject to the provisions of this Plan and
any limitation applicable to the Stock Option, any participant to whom
a Stock Option has been granted shall have the right thereafter and
during the term of the Stock Option, to receive upon exercise thereof
in whole or in part the Acquisition Consideration (as defined below)
receivable upon the Acquisition by a holder of the number of shares of
Common Stock which might have been obtained upon exercise of the Stock
Option or portion thereof, as the case may be, immediately prior to
the Acquisition.

The term "Acquisition Consideration" shall mean the kind and amount of
securities, cash or other property or any combination thereof receivable in
respect of one share of Common Stock upon consummation of an Acquisition.

(b) Notwithstanding any other provision of this Plan, the Committee
may authorize the issuance, continuation or assumption of Stock Options or
provide for other equitable adjustments after changes in the Common Stock
resulting from any other merger, consolidation, sale of assets, acquisition of
property or stock, recapitalization reorganization or similar occurrence upon
such terms and conditions as it may deem equitable and appropriate.

7. NONTRANSFERABILITY.

a) Each Stock Option granted under the Plan to a participant shall not
be transferable and shall be exercisable, during the participant's lifetime,
only by the participant.

b) If the participant shall cease to be either a director or a regular
full-time employee of the Company or its subsidiaries for any reason other than
a termination for cause or a termination by reason of death, any unexercised
portion of said Stock Option shall terminate sixty (60) days after the date of
the termination of employment, or upon the expiration of the Stock Option,
whichever shall first occur.

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<PAGE>
c) If the event that the participant's employment is terminated for
cause, the unexercised portion of the Stock Option shall terminate immediately
upon the giving of the notice of such termination. For purposes of this
paragraph, "for cause" shall mean incompetence, gross negligence,
insubordination, conviction of a felony or willful misconduct by the participant
as determined in good faith by the Board of Directors of the Company, the
Committee or the Board of Directors of the subsidiary of the Company by which
the participant is employed. Nothing in this Plan or in any Stock Option granted
pursuant to this Plan shall confer on any participant the right to continue in
the employ of the Company or any of its subsidiaries, or interfere in any way
with the right of the Company or any of its subsidiaries to terminate the
participant's employment at any time.

d) In the event of the death of the participant, the participant's
estate shall have the privilege of exercising any Stock Options not theretofore
exercised by the participant, to the extent that the participant was entitled to
exercise such rights on the date of the participant's death; but in such event,
the period of time within which the purchase or exercise may be made shall be
the earlier of (a) 180 days next succeeding the death of the participant or (b)
the expiration of the term of the Stock Option.

8. OTHER PROVISIONS. The award of any Stock Option under the Plan may also
be subject to such other provisions (whether or not applicable to any Stock
Option awarded to any other participant) as the Committee determines
appropriate, including without limitation, provisions for the installment
purchase of Common Stock under Stock Options, provisions to assist the
participant in financing the acquisition of Common Stock, provisions for the
forfeiture of, or restrictions on resale or other disposition of shares acquired
under any form of Stock Option, provisions for the acceleration of
exercisability or vesting of Stock Options in the event of a change of control
of the Company, provisions for the payment of the value of Stock Options to
participants in the event of a change of control of the Company, provisions for
the forfeiture of, or provisions to comply with federal and state securities
laws, or understandings or conditions as to the participant's employment in
addition to those specifically provided for under the Plan.

9. FAIR MARKET VALUE. For purposes of this Plan and any Stock Options
awarded hereunder, "Fair Market Value" shall be the average of the highest and
lowest sale prices for the Company's Common Stock on the date of calculation (or
on the last preceding trading date if the Company's Common Stock was not traded
on the date of calculation) if the Company's Common Stock is readily tradable on
a national securities exchange or other market system, and if the Company's
Common Stock is not readily tradable, Fair Market Value shall mean the amount
determined in good faith by the Committee as the fair market value of the Common
Stock of the Company.

10. WITHHOLDING. All payments or distributions made pursuant to the Plan
shall be net of any amounts required to be withheld pursuant to applicable
federal, state and local tax withholding requirements. If the Company proposes
or is required to distribute Common Stock pursuant to the Plan, it may require
the recipient to remit to it an amount sufficient to satisfy such tax
withholding requirements prior to the delivery of any certificates for such
Common Stock. The Committee may, in its discretion and subject to such rules as
it may adopt, permit a participant to pay all or a portion of the federal, state
and local withholding taxes arising in connection with the exercise of a
Nonqualified Stock Option by election to have the Company withhold shares of
Common Stock having a Fair Market Value equal to the amount to be withheld.

11. TENURE. A participant's right, if any, to continue to serve the Company
or a subsidiary of the Company as an officer, director, employee, or otherwise,
shall not be enlarged or otherwise affected by his designation as a participant
under the Plan.

12. DURATION, AMENDMENT AND TERMINATION. No Stock Option shall be granted
more than ten years after the date of the approval of the Plan by the
stockholders of the Company, PROVIDED, HOWEVER, that the terms and conditions
applicable to any Stock Option granted prior to such date may thereafter be
amended or modified by mutual agreement between the Company and the participant
or such other persons as may then have an interest therein. Also, by mutual
agreement between the Company and a participant hereunder or under any other
present or future plan of the Company, Stock Options may be granted to such
participant in substitution and exchange for, and in cancellation of, any Stock
Options previously granted such participant under the Plan, or any other present
or future plan of the Company. The Board of Directors may amend the Plan from
time to time or terminate the Plan at any time. However, no action authorized by
this paragraph shall reduce the amount of any existing Stock Option or change
the terms and conditions thereof without the participant's consent. No amendment
of the Plan shall, without approval of the stockholders of the Company, (i)
materially increase the total number of shares which may be issued under the
Plan; (ii) materially increase the amount or type of Stock Options that may be
granted under the Plan; (iii) materially modify the requirements as to
eligibility for Stock Options under the Plan; (iv) result in any member of the
Committee losing his or her status as a disinterested person under Rule 16b-3
under the 1934 Act; or (vi) extend the term of this Plan.

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<PAGE>
13. GOVERNING LAW. The Plan, Stock Options granted hereunder and action
taken in connection herewith shall be governed and construed in accordance with
the laws of the State of Delaware (regardless of the law that might otherwise
govern under applicable Delaware principles of conflict of laws).

14. GOVERNMENT REGULATIONS. The Plan and the grant and exercise of Stock
Options hereunder, and the obligation of the Company to sell and deliver shares
under such Benefits, shall be subject to all applicable laws, rules and
regulations, including without limitation all applicable federal and state
securities laws.

15. STOCKHOLDER APPROVAL. The Plan was adopted by the Board of Directors of
the Company on May 25, 1995. The Plan and any Stock Options granted thereunder
shall be null and void if stockholder approval is not obtained within twelve
(12) months of the adoption of the Plan by the Board of Directors.

CREDIT AGREEMENT

THIS CREDIT AGREEMENT, dated as of October 3, 1999, is by and between POORE
BROTHERS, INC., a corporation organized under the laws of the State of Delaware,
("PBI"), POORE BROTHERS ARIZONA, INC., an Arizona corporation ("PBAI"), POORE
BROTHERS DISTRIBUTING, INC., an Arizona corporation ("PBDI"), TEJAS PB
DISTRIBUTING, INC., an Arizona corporation ("Tejas") and WABASH FOODS, LLC, a
Delaware limited liability company ("Wabash"), (PBI, PBAI, PBDI, Tejas and
Wabash each a Borrower and collectively the "Borrower" or the "Borrowers"), and
U.S. BANCORP REPUBLIC COMMERCIAL FINANCE, INC., a Minnesota corporation (the
"Lender").

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION I.1 DEFINED TERMS. As used in this Agreement the following terms
shall have the following respective meanings:

"ACCOUNTS": Each and every right to payment of Borrower, whether such
right to payment arises out of a sale or lease of goods by Borrower, or other
disposition of goods or other property of Borrower, out of a rendering of
services by Borrower, out of a loan by Borrower, out of damage to or loss of
goods in the possession of a railroad or other carrier or any other bailee, out
of overpayment of taxes or other liabilities of Borrower, or which otherwise
arises under any contract or agreement, or from any other cause, whether such
right to payment now exists or hereafter arises and whether such right to
payment is or is not yet earned by performance and howsoever such right to
payment may be evidenced, together with all other rights and interest (including
all liens and security interests) which Borrower may at any time have by law or
agreement against any account debtor (as defined in the Uniform Commercial Code
in effect in the State of Minnesota) or other obligor obligated to make any such
payment or against any of the property of such account debtor or other obligor;
specifically (but without limitation), the term includes all present and future
instruments, documents, chattel papers, accounts and contract rights of
Borrower.

"ADVANCE": As defined in Section 2.1.

"ANNIVERSARY DATE": shall mean October 3, 2000 and each October 3rd
thereafter.

"ANNUAL NET PROFIT": The after tax net income or net loss as
determined in accordance with GAAP.

"BORROWING BASE": As defined in Section 2.5.

"BORROWING BASE CERTIFICATE": As defined in Section 2.5.

"BUSINESS DAY": Any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which banks are permitted to be open at
the location of the Lender.

"CAPITAL EXPENDITURES": For any period, the sum of all amounts that
would, in accordance with GAAP, be included as additions to property, plant and
equipment on a consolidated statement of cash flows for the Borrower during such
period, in respect of (a) the acquisition, construction, improvement,
replacement or betterment of land, buildings, machinery, equipment or of any
other fixed assets or leaseholds, (b) to the extent related to and not included
in (a) above, materials, contract labor (excluding expenditures properly
chargeable to repairs or maintenance in accordance with GAAP), and (c) other
capital expenditures and other uses recorded as capital expenditures or similar
terms having substantially the same effect.

"CASH FLOW COVERAGE RATIO": For the period of determination with
respect to the Borrowers the ratio of EBITDA to consolidated interest expense.

"CLOSING DATE": Any Business Day between the date of this Agreement
and October 15, 1999 selected by the Borrower for the making of the initial
Advance on the Revolving Loan hereunder; provided that all the conditions
precedent to the obligation of the Lender to make the initial Advance on the
Revolving Loan, as set forth in Article III, have been, or, on such Closing
Date, will be, satisfied. The Borrower shall give the Lender not less than one
Business Day's prior notice of the day selected as the Closing Date.

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"COMMITMENTS": The Revolving Commitment, the Term Loan A Commitment
and the Term Loan B Commitment.

"DEBT SERVICE COVERAGE RATIO": For any period of determination with
respect to the Borrowers, the ratio of

(a) EBITDA,

(b) all required principal payments with respect to total Indebtedness
(including all payments with respect to capitalized lease obligations
of the Borrower) plus interest payments,

in each case determined for said period in accordance with GAAP.

"DEFAULT": Any event which, with the giving of notice (whether such
notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.

"EBITDA": For any period of determination, the consolidated Annual Net
Profit of the Borrower before deductions for income taxes, interest expense,
depreciation and amortization, all as determined in accordance with GAAP.

"ELIGIBLE ACCOUNTS": Accounts owned by the Borrower which the Lender,
in its sole and absolute discretion, deems eligible for Advances, but which, at
a minimum, are subject to a first priority perfected security interest in favor
of the Lender and not subject to any assignment, claim or Lien other than the
Lien in favor of the Lender and other Liens consented to by the Lender in
writing, but specifically excluding (a) Accounts which are not earned; (b)
Accounts which are unpaid more than ninety (90) days after the original invoice
date or 60 days past the due date, whichever is less; (c) Accounts owed by
debtors 15% or more of whose Accounts owed are otherwise ineligible; (d)
Accounts representing progress billings, or retainages, or for work covered by
any payment or performance bond; (e) Accounts owed by any of the Borrower's
Affiliates; (f) Accounts owed by debtors not located in the United States,
unless supported by a letter of credit issued by a U.S. bank in favor of the
Borrower which has been delivered to the Lender; (g) Accounts as to which any
warranty or representation contained in any security agreement or other
agreement of the Borrower with or given to the Lender with respect to any such
Account is untrue in any material respect; (h) Accounts as to which the account
debtor has disputed liability, or made any claim with respect to any other
Account due from such account debtor to the Borrower; (i) Accounts subject to
setoff; (j) Accounts as to which the account debtor has filed a petition for
bankruptcy or any other petition for relief under the Bankruptcy Code, assigned
any assets for the benefit of creditors, or if any petition or other application
for relief under the Bankruptcy Code has been filed against the account debtor,
or if the account debtor has failed, suspended business, become insolvent, or
has had or suffered a receiver or a trustee to be appointed for all or a
significant portion of its assets or affairs; (k) Accounts owed by any
government or government agency; (l) Accounts evidenced by a promissory note or
other instrument; and (m) Accounts as to which the Lender reasonably believes
that collection of any such Account is insecure or that any such Account may not
be paid by reason of the account debtor's financial inability to pay.

"ELIGIBLE INVENTORY": Inventory of the Borrower which the Lender, in
its sole and absolute discretion, deems eligible for Advances, but which meets
the following minimum requirements: (a) it is owned by the Borrower, is subject
to a first priority perfected security interest in favor of the Lender, and is
not subject to any assignment, claim or Lien other than (i) a Lien in favor of
the Lender and (ii) Liens consented to by the Lender in writing; (b) it consists
of raw materials or finished product (not including work in process and
supplies); (c) if held for sale or lease or furnishing under contracts of
service, it is (except as the Lender may otherwise consent in writing) new and
unused; (d) except as the Lender may otherwise consent, it is not stored with a
bailee, warehouseman or similar party; if so stored with the Lender's consent,
such bailee, warehouseman or similar party has issued and delivered to the
Lender, in form and substance acceptable to the Lender, such documents and
agreements as the Lender may require, including, without limitation, warehouse
receipts therefor in the Lender's name; (e) the Lender has determined, in its
reasonable discretion, that it is not unacceptable due to age, type, category,
quality and/or quantity; (f) it is not held by the Borrower on consignment and
is not subject to any other repurchase or return agreement; (g) it is not held
by a customer of the Borrower or any other Person on consignment; (h) it
materially complies with all standards imposed by any governmental agency having
regulatory authority over such goods and/or their use, manufacture or sale; (i)
it is not raw potatoes, seasonings, film bags, apparel or advertising displays;
and (j) the warranties, representations and covenants contained in any security

2
<PAGE>
agreement or other agreement of the Borrower with or given to the Lender
relating directly or indirectly to the Borrower's Inventory are applicable to it
without exception.

"EVENT OF DEFAULT": Any event described in Section 7.1.

"FIXED CHARGE COVERAGE RATIO": For any period of determination with
respect to the Borrower, the ratio of

(a) EBITDA,

(b) all required principal payments with respect to total Indebtedness
(including all payments with respect to capitalized lease obligations
of the Borrower) plus interest payments, plus unfinanced Capital
Expenditures,

in each case determined for said period in accordance with GAAP.

"GAAP": Generally accepted accounting principles set forth in the
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of any date of determination.

"INDEBTEDNESS": Any indebtedness for borrowed money.

"INTANGIBLE ASSETS": All of Borrowers' right, title, and interest in
and to any bank deposit accounts, customer deposit accounts, deposits, rights
related to prepaid expenses, negotiable or nonnegotiable instruments or
securities, chattel paper, choses in action, causes of action and all other
intangible personal property of every kind and nature (other than Accounts),
including without limitation, corporate or other business records, inventions,
designs, patents, patent applications, trademarks, trade names, trade secrets,
goodwill, registrations, copyrights, licenses, franchises, customer lists, tax
refunds, tax refund claims, customs claims, guarantee claims, cooperative
memberships or patronage benefits, notes payable to Borrowers for capital stock,
leasehold interests in real and personal property and any security interests or
other security held by or granted to Borrowers to secure payment by any account
debtor of any of the Accounts, and any other "general intangibles" (as defined
in the Uniform Commercial Code).

"INVENTORY": Any and all of the Borrower's goods, including, without
limitation, goods in transit, wherever located which are or may at any time be
leased by the Borrower to a lessee, held for sale or lease, furnished under any
contract of service or held as raw materials, work in process, or supplies or
materials used or consumed in the Borrower's business, or which are held for use
in connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, and all goods, the sale or other disposition of which
has given rise to an Account, which are returned to and/or repossessed and/or
stopped in transit by the Borrower or the Lender, or at any time hereafter in
the possession or under the control of the Borrower or the Lender, or any agent
or bailee of either thereof, and all documents of title or other documents
representing the same.

"LANDLORD WAIVERS": Those waivers to be executed by La Cometa
Properties, Inc. and American Pacific Financial Corporation in form and
substance satisfactory to the Lender.

"LIEN": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.

"LOAN DOCUMENTS": This Agreement, the Notes, and any documents
described in Section 3.1(a)(vii), (a)(ix), (a)(x), (a)(xi) and (a)(xii).

"NOTES": The Revolving Note and the Term Notes.

"PERSON": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.

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"PRODUCER PAYABLES": All amounts at any time payable by Borrower for
the purchase of Inventory or other products from producers of agricultural
products and which are subject to PACA laws.

"REFERENCE RATE": The rate of interest from time to time publicly
announced by U.S. Bank National Association as its "reference rate." The Lender
may lend to its customers at rates that are at, above or below the Reference
Rate. For purposes of determining any interest rate hereunder or under the Notes
which is based on the Reference Rate, such interest rate shall change as and
when the Reference Rate changes.

"REVOLVING COMMITMENT": The obligation of the Lender to make Advances
to the Borrower on the Revolving Loan in an aggregate principal amount
outstanding at any time not to exceed the Revolving Commitment Amount upon the
terms and subject to the conditions and limitations of this Agreement.

"REVOLVING COMMITMENT AMOUNT": As defined in Section 2.1.

"REVOLVING LOAN": As defined in Section 2.1(a).

"REVOLVING MATURITY DATE": As defined in Section 2.1(a).

"REVOLVING NOTE": As defined in Section 2.3.

"SECURITY AGREEMENT": That Security Agreement executed by each of the
Borrowers in form and substance satisfactory to the Lender.

"SUBORDINATION AGREEMENTS": Those Subordination Agreements to be
executed by Renaissance Capital Growth & Income Fund III, Inc. and the Borrowers
and by Wells Fargo Small Business Investment Company, Inc. and the Borrowers in
form and substance satisfactory to the Lender.

"SUBSIDIARY": Any corporation or other entity of which securities or
other ownership interests having ordinary voting power for the election of a
majority of the board of directors or other Persons performing similar functions
are owned by the Borrower either directly or through one or more Subsidiaries.

"TANGIBLE CAPITAL BASE": As defined in Section 6.9.

"TERM LOAN A": As defined in Section 2.1(b).

"TERM LOAN B": As defined in Section 2.1(c).

"TERM LOAN A COMMITMENT": The obligation of the Lender to make a term
loan to the Borrower in the Term Loan A Commitment Amount upon the terms and
subject to the conditions and limitations of this Agreement.

"TERM LOAN B COMMITMENT": The obligation of the Lender to make a term
loan to the Borrower in the Term Loan B Commitment Amount upon the terms and
subject to the conditions and limitations of this Agreement.

"TERM LOAN A COMMITMENT AMOUNT": As defined in Section 2.1(b).

"TERM LOAN B COMMITMENT AMOUNT": As defined in Section 2.1(c).

"TERM NOTE A": As defined in Section 2.3.

"TERM NOTE B": As defined in Section 2.3.

"TERM NOTES": Term Note A and Term Note B.

SECTION I.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP.

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SECTION I.3 OTHER DEFINITIONAL TERMS, TERMS OF CONSTRUCTION. The words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to Sections, Exhibits, Schedules and the
like references are to Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise expressly provided. The words "include," "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation." Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or." All
incorporations by reference of covenants, terms, definitions or other provisions
from other agreements are incorporated into this Agreement as if such provisions
were fully set forth herein, and include all necessary definitions and related
provisions from such other agreements. All covenants, terms, definitions and
other provisions from other agreements incorporated into this Agreement by
reference shall survive any termination of such other agreements until the
obligations of the Borrower under this Agreement and the Notes are irrevocably
paid in full and the Revolving Commitment is terminated.

ARTICLE II

TERMS OF LENDING

SECTION II.1 THE COMMITMENTS. On the terms and subject to the conditions
hereof, the Lender agrees to make the following lending facilities available to
the Borrower:

II.1 (a) Revolving Credit. A revolving loan (the "Revolving
Loan") to the Borrower available as advances ("Advances") at any time and
from time to time from the Closing Date to October 3, 2002 (the "Revolving
Maturity Date"), during which period the Borrower may borrow, repay and
reborrow in accordance with the provisions hereof, provided, that the
unpaid principal amount of revolving Advances shall not at any time exceed
$3,000,000 (the "Revolving Commitment Amount"); and provided, further, that
no revolving Advance will be made if, after giving effect thereto, the
unpaid principal amount of the Revolving Note would exceed the Borrowing
Base.

II.1 (b) Term Loan A. A term loan ("Term Loan A") from the Lender
to the Borrower on the Closing Date in the amount of $5,800,000 (the "Term
Loan A Commitment Amount"). Term Loan A is a replacement of debt previously
owed to the Lender by Wabash. The membership interests of Wabash was
acquired by PBI.

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II.1 (c) Term Loan B. A term loan ("Term Loan B") from the Lender
to the Borrower on the Closing Date in the amount of $350,000 (the "Term
Loan B Commitment Amount").

The total amount available under the Revolving Loan and the Term Loans is
the "Facility Amount".

Notwithstanding any provision hereof, this Agreement and the Revolving
Commitment shall terminate and the Lender shall have no obligation hereunder if
the Term Loans hereunder have not been made by October 15, 1999, provided,
however, that the obligations of the Borrower under Section 8.2 shall survive
any such termination.

SECTION II.2 PROCEDURE FOR ADVANCES AND THE TERM LOAN. Any request by the
Borrower for an Advance on the Revolving Loan shall be in writing or by
telephone and must be given so as to be received by the Lender not later than
10:30 (local time of the Lender) on the requested Advance date. Each request for
an Advance shall be irrevocable and shall be deemed a representation by the
Borrower that on the requested Advance date and after giving effect to such
Advance the applicable conditions specified in Article III have been and will
continue to be satisfied. Each request for an Advance shall specify (i) the
requested Advance date (which must be a Business Day) and (ii) the amount of
such Advance. Unless the Lender determines that any applicable condition
specified in Article III has not been satisfied, the Lender will make available
to the Borrower at the Lender's principal office in immediately available funds
not later than 2:00 PM (local time of the Lender) on the requested Advance date
the amount of the requested Advance. Notice of intention to borrow the Term
Loans shall be subject to the same time limits and other requirements of this
Section.

SECTION II.3 THE NOTES. The Advances on the Revolving Loan shall be
evidenced by a single promissory note of the Borrower (the "Revolving Note"),
substantially in the form of Exhibit 2.3 (a) hereto, in the amount of the
Revolving Commitment Amount originally in effect. Term Loan A shall be evidenced
by a promissory note ("Term Note A"), substantially in the form of Exhibit 2.3
(b) hereto, in an amount equal to the Term Loan A Commitment Amount. Term Loan B
shall be evidenced by a promissory note ("Term Note B"), substantially in the
form of Exhibit 2.3 (c) hereto, in an amount equal to the Term Loan B Commitment
Amount. The Lender shall enter in its ledgers and records the payments made on
the Revolving Note, Term Loan A and Term Loan B and the amount of each Advance
made and the payments made thereon, and the Lender is authorized by the Borrower
to enter on a schedule attached to the Notes a record of such Advances and
payments.

SECTION II.4 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST.
Interest shall accrue and be payable on the unpaid balance of the Revolving Note
at a floating rate per annum equal to the sum of the Reference Rate plus 1% (the
latter being the "Applicable Revolving Margin"); provided, however, that upon
the happening of any Event of Default, then, at the option of the Lender, the
Revolving Note shall thereafter bear interest at a floating rate equal to the
sum of (a) the Reference Rate, plus (b) the Applicable Revolving Margin, plus
(c) 2%. Interest shall accrue and be payable on the unpaid balance of Term Note
A at a floating rate per annum equal to the Reference Rate; provided, however,
that upon the happening of any Event of Default, then, at the option of the
Lender, Term Note A shall thereafter bear interest at a floating rate equal to
the sum of (a) the Reference Rate, plus (b) 2%. Interest shall accrue and be
payable on the unpaid balance of Term Note B at a floating rate equal to the
Reference Rate plus 2.5% (the latter being the "Applicable Term B Margin");
provided, however, that upon the happening of any Event of Default, then, at the
option of the Lender, Term Note B shall thereafter bear interest at a floating
rate equal to the sum of (a) the Reference Rate, plus (b) the Applicable Term B
Margin, plus (c) 2%. Interest shall be payable monthly in arrears on the last
day of each month and upon final payment of the respective Notes.

SECTION II.5 BORROWING BASE AND MANDATORY PREPAYMENT. The Borrowing Base
shall be equal to the sum of (1) the lesser of (x) 60% of the lower of cost
(determined on a first-in, first-out basis) or market value of Eligible
Inventory that consists of finished goods and 50% of the lower of cost
(determined on a first-in, first-out basis) or market value of Eligible
Inventory that consists of raw materials, or (y) $1,500,000, plus (2) 80% of the
face value of Eligible Accounts, minus, 100% of all Producer Payables and the
total of all outstanding checks issued in full or partial payment of any
Producer Payables which have not been mailed or otherwise delivered, provided
however, that in the event that dilution of Accounts increases above 7.0% as
determined by the Lender in its absolute and sole discretion and/or turndays
decrease by greater than 25%, the Lender may, in its absolute and sole
discretion reduce the Accounts Advance Rate. The Borrower shall deliver
borrowing base certificates in the form attached hereto (a "Borrowing Base
Certificate") to the Lender. Each such certificate shall state the amount of
Eligible Inventory, Eligible Accounts. Any limitations on advances or required
prepayments relating to the Borrowing Base shall be based on the latest
borrowing base certificate the Borrower shall have delivered to the Lender.

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SECTION II.6 REPAYMENT AND PREPAYMENT.

II.6 (a) REPAYMENT OF THE REVOLVING NOTE. Principal of the
Revolving Note shall be payable in full on the Revolving Maturity Date. The
Borrower may repay the Revolving Note, in whole or in part, at any time,
without premium or penalty. Amounts prepaid on the Revolving Note under
this Section may be reborrowed upon the terms and subject to the conditions
and limitations of this Agreement.

II.6 (b) REPAYMENT OF TERM NOTE A. Principal of Term Note A is
payable as provided in Term Note A. Any prepayment must be accompanied by
accrued and unpaid interest on the amount prepaid. Amounts so prepaid
cannot be reborrowed.

II.6 (c) REPAYMENT OF TERM NOTE B. Principal of Term Note B is
payable as provided in Term Note B. Any prepayment must be accompanied by
accrued and unpaid interest on the amount prepaid. Amounts so prepaid
cannot be reborrowed.

SECTION II.7 ANNUAL FEE. The Borrower shall pay to the Lender an annual fee
in an amount equal to $15,000 (the "Annual Fee"). The Annual Fee shall be
payable in advance on the Closing Date and on each Anniversary Date of this
Agreement and all Annual Fees are fully earned when due and are non-refundable.

SECTION II.8 WABASH SALE FEE. The Borrowers shall pay to the Lender a
success fee in an amount equal to $715,000 (the "Wabash Sale Fee"). The Wabash
Sale Fee shall be payable on June 30, 2000. If payment of the Wabash Sale Fee is
not made on or before June 30, 2000, the amount of the Wabash Sale Fee shall
increase by $200 per day until such time as the Wabash Sale Fee is paid. The
Wabash Sale Fee is fully earned upon execution of this Agreement and is
non-refundable.

SECTION II.9 WIRE TRANSFER FEE. Borrower shall pay a wire transfer charge
of $20 per wire transfer of any Advance.

SECTION II.10 TERMINATION FEE. In the event that the Revolving Loan, Term
Loan A or Term Loan B is prepaid prior to the third Anniversary Date of this
Agreement, the Borrower will pay to the Lender a prepayment charge, as
additional compensation for the Lender's costs of entering into this Agreement,
in the amount of (i) 3% of the Facility Amount if the notice of termination
occurs prior to the first Anniversary Date of this Agreement; (ii) 2% of the
Facility Amount if the notice of termination occurs after the first Anniversary
Date, but prior to the second Anniversary Date of this Agreement; and (iii) 1%
of the maximum aggregate amount of the Facility Amount if the notice of
termination occurs after the second Anniversary Date, but before the third
Anniversary Date of this Agreement.

SECTION II.11 EQUIPMENT LOAN ASSUMPTION FEE. The Borrower shall pay to the
Lender an equipment loan assumption fee in the amount of $43,500 (the "Equipment
Loan Assumption Fee"). The Equipment Loan Assumption Fee shall be payable on the
Closing Date. The Equipment Loan Assumption Fee is fully earned when due and is
non-refundable.

SECTION II.12 COMPUTATION. Interest on the Notes shall be computed on the
basis of actual days elapsed and a year of 360 days.

ARTICLE III

CONDITIONS PRECEDENT

SECTION III.1 CONDITIONS OF INITIAL REVOLVING ADVANCE AND TERM LOAN. The
obligation of the Lender to make the initial Advance on the Revolving Loan and
the Term Loan hereunder shall be subject to the prior or simultaneous
fulfillment of each of the following conditions:

III.1 (a) DOCUMENTS. The Lender shall have received the
following:

(i) The Notes executed by duly authorized officers of each
of the Borrowers and dated the Closing Date.

(ii) A copy of the corporate resolutions of each of the
Borrowers authorizing the execution, delivery and performance of this
Agreement and the Notes and containing an incumbency certificate
showing the names and titles, and bearing the signatures of, the
officers of each Borrower authorized to execute this Agreement and the
Notes, certified as of the Closing Date by the Secretary or an
Assistant Secretary of each of the Borrower.

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(iii) A copy of the Articles of Incorporation of each of the
Borrowers or Articles of Organization in the case of Wabash with all
amendments thereto, certified by the appropriate governmental official
of the jurisdiction of its incorporation as of a recent date
acceptable to Lender and its counsel.

(iv) A certificate of good standing for each Borrower in the
jurisdiction of its incorporation, certified by the appropriate
governmental officials as of a recent date acceptable to Lender and
its counsel.

(v) A copy of the bylaws of the Borrowers, or the Operating
Agreement in the case of Wabash, certified as of the Closing Date by
the Secretary or an Assistant Secretary of the Borrower, or a Manager
in the case of Wabash.

(vi) The opinion of counsel to each of the Borrowers
covering such matters as the Lender may request.

(vii) The Security Agreement duly executed by each of the
Borrowers.

(viii) The initial Borrowing Base Certificate required under
Section 2.5.

(ix) A Warrant Agreement for 50,000 shares of PBI stock with
customary piggy-back registration rights exercisable on or before July
1, 2004.

(x) The Landlord's Waivers duly executed by La Cometa
Properties, Inc. and American Pacific Financial Corporation and the
Borrower.

(xi) The Subordination Agreements duly executed by
Renaissance Capital Growth and Income Fund III, Inc. and Wells Fargo
Small Business Investment Company, Inc.

(xii) Assignment of Accounts Agreements duly executed by
each of the Borrowers and U.S. Bank National Association.

(xiii) Evidence of insurance required to be maintained under
Section 5.3 naming the Lender as lender loss payee in form and
substance satisfactory to the Lender.

III.1 (b) OTHER MATTERS. All organizational and legal
proceedings relating to the Borrower and all instruments and agreements in
connection with the transactions contemplated by this Agreement shall be
satisfactory in scope, form and substance to the Lender and its counsel, and the
Lender shall have received all information and copies of all documents,
including records of corporate proceedings, which it may reasonably have
requested in connection therewith, such documents where appropriate to be
certified by proper Borrower or governmental authorities.

III.1 (c) FEES AND EXPENSES. The Lender shall have received
all fees and other amounts due and payable by the Borrower on or prior to the
Closing Date, including the reasonable fees and expenses of counsel to the
Lender payable pursuant to Section 8.2.

III.1 (d) PERFECTION. The Security Agreement (or financing
statements with respect thereto) shall have been appropriately filed to the
satisfaction of the Lender and the priority and perfection of the Lien created
thereby shall have been established to the satisfaction of the Lender.

SECTION III.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender shall not
have any obligation to make the Term Loans or any Advance on the Revolving Loan
(including Advances after the initial Advance) hereunder unless all
representations and warranties of the Borrower made in this Agreement remain
true and correct and no Default or Event of Default exists.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lender:

SECTION IV.1 ORGANIZATION, STANDING, ETC. The Borrowers are corporations
(except Wabash which is a limited liability company) duly incorporated and
validly existing and in good standing under the laws of the jurisdiction of
their incorporation and have all requisite corporate power and authority to
carry on their business as now conducted, to enter into this Agreement and to
issue the Notes and to perform their obligations hereunder and thereunder. This
Agreement and the Notes have been duly authorized by all necessary corporate
action and when executed and delivered will be the legal and binding obligations
of each of the Borrowers. The execution and delivery of this Agreement and the
Notes will not violate the Borrowers' Articles of Incorporation or bylaws or any
law applicable to the Borrower. No governmental consent or exemption is required
in connection with the Borrowers' execution and delivery of this Agreement and
the Notes.

SECTION IV.2 FINANCIAL STATEMENTS AND NO MATERIAL ADVERSE CHANGE. The
Borrowers' audited financial statements as at December 31, 1998 and its
unaudited financial statements as at June 30, 1999, as heretofore furnished to
the Lender, have been prepared in accordance with GAAP. The Borrower has no
material obligation or liability not disclosed in such financial statements, and
there has been no material adverse change in the condition of the Borrower since
the dates of such financial statements.

SECTION IV.3 LITIGATION. There are no actions, suits or proceedings pending
or, to the knowledge of the Borrower, threatened against or affecting the
Borrower which, if determined adversely to the Borrower, would have, a material
adverse effect on the condition of the Borrower. The Borrower is not in
violation of any law or regulation (including environmental laws and regulations
and laws relating to employee benefit plans) where such violation could
reasonably be expected to impose a material liability on the Borrower.

SECTION IV.4 TAXES. The Borrower has filed all federal, state and local tax
returns required to be filed and has paid or made provision for the payment of
all taxes due and payable pursuant to such returns and pursuant to any
assessments made against it or any of its property (other than taxes, fees or
charges the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower).

SECTION IV.5 SUBSIDIARIES. All Borrowers except PBI are Subsidiaries of
PBI. No Borrower has any other subsidiary, except for Poore Brothers Texas which
is being liquidated, no other Borrower has any subsidiary.

SECTION IV.6 YEAR 2000 The Borrower has reviewed and assessed its business
operations and computer systems and applications to address the "year 2000
problem" (that is, that computer applications and equipment used by the
Borrower, directly or indirectly through third parties, may be unable to
properly perform date-sensitive functions before, during and after January 1,
2000). The Borrower reasonably believes that the year 2000 problem will not
result in a material adverse change in the Borrower's business condition
(financial or otherwise), operations, properties or prospects or ability to
repay the Lender. The Borrower is in the process of implementing a plan to
remediate year 2000 problems and will complete implementation of such plan with
respect to any material year 2000 problems, and testing thereof, by September
30, 1999. The Borrower agrees that this representation will be true and correct
on and shall be deemed made by the Borrower on each date the Borrower requests
any Advance under this Agreement or the Notes or delivers any information to the
Lender. The Borrower will promptly deliver to the Lender such information
relating to this representation and covenant as the Lender requests from time to
time.

ARTICLE V

AFFIRMATIVE COVENANTS

Until the Revolving Commitment shall have expired or been terminated and
the Notes and all of the Borrower's other obligations to the Lender under this
Agreement shall have been paid in full, unless the Lender shall otherwise
consent in writing:

SECTION V.1 FINANCIAL STATEMENTS AND REPORTS. The Borrower will furnish to
the Lender:

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V.1 (a) As soon as available and in any event within 120
days after the end of each fiscal year of the Borrower, consolidated financial
statements of the Borrower, prepared in accordance with GAAP, consisting of at
least statements of income, cash flow and changes in stockholders' equity, and a
balance sheet as at the end of such year, setting forth in each case in
comparative form corresponding figures from the previous annual audit, certified
without qualification by independent certified public accountants selected by
the Borrower and acceptable to the Lender. The Lender acknowledges that any of
the "Big Five" certified public accounting firms are acceptable to it.

V.1 (b) As soon as available and in any event within 30 days
after the end of each month, unaudited consolidated financial statements for the
Borrower, prepared in accordance with GAAP, for such month and for the period
from the beginning of such fiscal year to the end of such month, substantially
similar to the annual audited statements.

V.1 (c) As soon as practicable and in any event within 30
days after the end of each fiscal quarter, a compliance certificate
substantially in the form of Exhibit 5.1(c) hereto and a statement signed by the
chief financial officer of the Borrower stating that as at the end of such
fiscal quarter there did not exist any Default or Event of Default or, if such
Default or Event of Default existed, specifying the nature and period of
existence thereof and what action the Borrower proposes to take with respect
thereto.

V.1 (d) Immediately upon any officer of the Borrower
becoming aware of any Default or Event of Default, a notice describing the
nature thereof and what action the Borrower proposes to take with respect
thereto.

V.1 (e) Concurrently with each request for an Advance, and
in any event not less than weekly, a Borrowing Base Certificate.

V.1 (f) As soon as practicable and in any event within
fifteen days of the end of each month, (i) a listing of all accounts, together
with an aging of all accounts and a reconciliation of such accounts against the
listing submitted pursuant hereto for the immediately preceding month, (ii) a
list of all inventory, setting forth the fair market value and cost of such
inventory and (iii) a listing of all accounts payable, together with an aging of
all accounts payable all in form and substance reasonably satisfactory to the
Lender; and (iv) a listing of all Producer Payables and a listing of all checks
outstanding in full or partial payment of any Producer Payable which have not
been mailed or otherwise delivered.

V.1 (g) As soon as practicable and in any event within
fifteen days of the end of each quarter, a customer listing including the
contact person, addresses and phone numbers of each account debtor.

V.1 (h) Within five days after the due date, proof of
payment or deposit, when due, of all withholding and F.I.C.A. taxes owing by the
Borrower from time to time, in form and substance reasonably satisfactory to the
Lender by a payroll service reasonably satisfactory to the Lender and whose
services the Borrower shall at all times retain.

V.1 (i) From time to time, such other information regarding
the business, operation and financial condition of the Borrower as the Lender
may reasonably request.

SECTION V.2 CORPORATE EXISTENCE. The Borrower will maintain its
corporate existence in good standing under the laws of its jurisdiction of
incorporation and its qualification to transact business in each jurisdiction
where failure so to qualify would permanently preclude the Borrower from
enforcing its rights with respect to any material asset or would expose the
Borrower to any material liability.

SECTION V.3 INSURANCE. The Borrower will maintain with financially
sound and reputable insurance companies such insurance as may be required by law
and such other insurance in such amounts and against such hazards as is
customary in the case of reputable corporations engaged in the same or similar
business and similarly situated.

SECTION V.4 PAYMENT OF TAXES AND CLAIMS. The Borrower will file all tax
returns and reports which are required by law to be filed by it and will pay
before they become delinquent, all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including those of suppliers, mechanics, carriers, warehousemen, landlords and
other like Persons) which, if unpaid, might result in the creation of a Lien
upon its property.

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SECTION V.5 INSPECTION. The Borrower will permit any Person designated
by the Lender to visit and inspect any of the properties, books and financial
records of the Borrower, to examine and to make copies of the books of accounts
and other financial records of the Borrower, and to discuss the affairs,
finances and accounts of the Borrower with its officers at such reasonable times
and intervals as the Lender may designate. The Borrower shall also allow the
Lender and its agents to conduct periodic collateral audits of the Borrower's
assets at such intervals as the Lender may choose, and the Borrower shall pay to
Lender a fee in the amount of $750 per day per collateral audit, plus
out-of-pocket costs and expenses incurred in connection with such collateral
audits, (provided that so long as no Event of Default has occurred and is
continuing, the Borrower shall not be required to pay for more than 4 collateral
audits in any calendar year).

SECTION V.6 MAINTENANCE OF PROPERTIES. The Borrower will maintain its
properties in good condition, repair and working order, and supplied with all
necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.

SECTION V.7 BOOKS AND RECORDS. The Borrower will keep adequate and
proper records and books of account in which full and correct entries will be
made of its dealings, business and affairs.

SECTION V.8 COMPLIANCE. The Borrower will comply in all material
respects with all laws, rules and regulations to which it may be subject.

SECTION V.9 NOTICE OF LITIGATION. The Borrower will give prompt written
notice to the Lender of the commencement of any action, suit or proceeding
affecting the Borrower alleging a claim for damages in excess of $50,000.

SECTION V.10 PLANS. The Borrower will maintain any employee benefit
plans in compliance with all material requirements of applicable laws and
regulations.

SECTION V.11 SPECIAL AGREEMENTS REGARDING ACCOUNTS.

5.11(a) Collection of Accounts and all other amounts due to
the Borrower shall be subject to the provisions of sections 5 and 6 of the
Security Agreements concerning the Lockbox and Collateral Account (as those
terms are defined in the Security Agreements). The Borrower shall provide to the
Lender, not less than weekly, a Collection Report of all Accounts collected. All
collections received in the Collateral Account and reported to Lender on a
Collection Report on a form furnished by Lender before 10:00 a.m. (CST/CDT) on
any Business Day that is a Monday through Thursday and 2:00 p.m. Fridays
(CST/CDT), shall be applied to the payment of the Advances (in such order of
application as the Lender may determine) on the day so received; provided
however, that for purposes of determining the interest due and payable on the
unpaid balance of the Advances and Term Loans under Section 2.3, all collections
received in the Collateral Account shall be applied to the unpaid balance of the
Advances upon receipt of the daily Collection Report from Borrowers evidencing
deposits actually made and after allowing two (2) Business Days for collection.

5.11(b) Subject to the rights granted to the Lender in
section 5 of the Security Agreements, all ledger sheets or cards, invoices,
shipping records, correspondence, and other writings relating to accounts shall,
until delivered to the Lender or removed by the Lender from the Borrower's
premises, be kept on the Borrower's premises without cost to the Lender in
appropriate containers in safe places. Borrower has the right to be provided
with copies of all removed materials after a reasonable time.

5.11(c) Upon the Lender's demand for payment or the
occurrence of an Event of Default, the Lender may remove from the Borrower's
premises all books and records, correspondence, documents and files relating to
accounts; and the Lender may without cost or expense to the Lender use such of
the Borrower's personnel, supplies, space and equipment at the Borrowers' place
of business as the Lender may desire for the handling of collections. The
Borrowers will pay any and all out of pocket expenses and cost of collection
(including reasonable attorney fees) incurred by the Lender in the Lender's
handling of or effort to enforce collections.

5.11(d) The Borrower warrants that, except as may be
disclosed in the lists of Accounts furnished to the Lender: each customer
billing statement correctly states the subject matter and terms of sale; the
merchandise conforms thereto and is in all respects acceptable to the customer;
the date of the billing statement is not prior to the date of shipment; the
Account is not subject to any dispute, defense, offset or counterclaim; the
account debtor is not a subsidiary or affiliated company; and the Borrowers have
no reason to believe the Account will not be paid in the regular course of
business. The Borrowers will notify the Lender promptly of any event,
circumstance or communication with respect to any Account that is inconsistent
with the foregoing representation.

11
<PAGE>
ARTICLE VI

NEGATIVE COVENANTS

SECTION VI.1 MERGER. Unless prior consent of the Lender is obtained, the
Borrower will not merge or consolidate or enter into any analogous
reorganization or transaction with any Person or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution) or permit any Subsidiary to do
any of the foregoing; provided, however, any Subsidiary may be merged with or
liquidated into the Borrower or any wholly-owned Subsidiary (if the Borrower or
such wholly-owned Subsidiary is the surviving corporation).

SECTION VI.2 SALE OF ASSETS. The Borrower will not, and will not permit any
Subsidiary to, sell, transfer, lease or otherwise convey all or any substantial
part of its assets except for sales and leases of inventory in the ordinary
course of business, and except for sales of equipment having a fair market value
not to exceed $50,000 in the aggregate per calendar year where the proceeds of
such equipment are used to reduce the amount of the Advances.

SECTION VI.3 DIVIDENDS. The Borrower will not pay any dividends or
otherwise make any distributions on, or redemptions of, any of its outstanding
stock.

SECTION VI.4 CAPITAL EXPENDITURES. The Borrowers will not make expenditures
for fixed or capital assets in an amount exceeding $335,000 on a consolidated
basis in any fiscal year.

SECTION VI.5 INVESTMENTS. The Borrower will not, and will not permit any
Subsidiary to, make any loans, advances or extensions of credit to any other
Person (except for trade and customer accounts receivable for inventory sold or
services rendered in the ordinary course of business and payable in accordance
with customary trade terms) or purchase or acquire any stock or other debt or
equity securities of or any interest in any other Person or any integral part of
any business or the assets comprising such business or part thereof, except for:

VI.5 (a) Investments in readily marketable direct
obligations issued or unconditionally guaranteed by the United States government
or any agency thereof and supported by the full faith and credit of the United
States.

VI.5 (b) Certificates of deposit or bankers' acceptances
issued by any commercial Bank organized under the laws of the United States or
any State thereof which has (i) combined capital and surplus of at least
$100,000,000, and (ii) a credit rating with respect to its unsecured
indebtedness from a nationally recognized rating service that is satisfactory to
the Lender.

VI.5 (c) Commercial paper given the highest rating by a
nationally recognized rating service.

VI.5 (d) Repurchase agreements relating to securities of the
kind described in subsection (a) of this Section.

VI.5 (e) Other readily marketable investments in debt
securities which are reasonably acceptable to the Lender.

VI.5 (f) Advances to officers and employees or investments
by the Borrower at any time to any affiliated corporation or partnership who are
not a party to this Agreement, not in excess of $50,000 in the aggregate.

Any investments under clauses (a), (b), (c) or (d) above must mature within one
year of the acquisition thereof by the Borrower.

12
<PAGE>
SECTION VI.6 INDEBTEDNESS. The Borrower will not, and will not permit any
Subsidiary to, borrow any money or issue any bonds, debentures or other debt
securities or otherwise become obligated on any interest-bearing indebtedness
except for the Term Loan and Advances under this Agreement.

SECTION VI.7 LIENS. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or suffer to exist any Lien, or enter into
any arrangement for the acquisition of any property through conditional sale,
lease-purchase or other title retention agreements except:

VI.7 (a) Liens granted to the Lender.

VI.7 (b) Liens existing on the date of this Agreement and
disclosed on Exhibit 6.7 hereto.

VI.7 (c) Deposits or pledges to secure payment of workers'
compensation, unemployment insurance, old age pensions or other social security
obligations arising in the ordinary course of business of the Borrower.

VI.7 (d) Liens for taxes, fees, assessments and governmental
charges not delinquent.

VI.7 (e) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens arising in the ordinary course of business,
for sums not due.

VI.7 (f) Liens incurred or deposits or pledges made or given
in connection with, or to secure payment of, indemnity, performance or other
similar bonds.

VI.7 (g) Encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property and
landlord's Liens under leases on the premises rented, which do not materially
detract from the value of such property or impair the use thereof in the
business of the Borrower.

SECTION VI.8 CONTINGENT OBLIGATIONS. The Borrower will not, and will not
permit any Subsidiary to, guarantee or otherwise become liable on the
indebtedness of any other Person.

SECTION VI.9 TANGIBLE CAPITAL BASE. The Borrower will not permit its
Tangible Capital Base (the excess of its assets, excluding intangible assets
plus subordinated debt (including debt subordinated pursuant to the
Subordination Agreements), over its liabilities, on a consolidated basis) at any
time to be less than (i) $3,000,000 at fiscal year end 1999 and thereafter; (ii)
$3,500,000 at fiscal year end 2000 and (iii) $4,000,000 at fiscal year end 2001.

SECTION VI.10 CASH FLOW COVERAGE RATIO. The Borrower will not permit the
ratio of its EBITDA to its consolidated interest expense, as of (i) the fiscal
quarter ending March 31, 2000 to be less than 2.25 to 1 for fiscal quarter
ending on that date; (ii) the fiscal quarter ending June 30, 2000 to be less
than 2.25 to 1 for the two consecutive fiscal quarters ending on that date;
(iii) the fiscal quarter ending September 20, 2000 to be less than 2.25 to 1 for
the three consecutive fiscal quarters ending on that date; and (iv) the fiscal
quarter ending on December 31, 2000 and as of the last day of every fiscal
quarter thereafter to be less than 2.25 to 1.0 for the four consecutive fiscal
quarters ending on that date.

SECTION VI.11 FIXED CHARGE COVERAGE RATIO. The Borrower will not permit the
Fixed Charge Coverage Ratio, as of (i) the fiscal quarter ending March 31, 2000
to be less than 1.0 to 1.0 for the fiscal quarter ending on that date; (ii) the
fiscal quarter ending June 30, 2000 to be less than 1.0 to 1.0 for the two
consecutive fiscal quarters ending on that date; (iii) the fiscal quarter ending
September 30, 2000 to be less than 1.0 to 1.0 for the three consecutive fiscal
quarters ending on that date; and (iv) the fiscal quarter ending on December 31,
2000 and as of the last day of every fiscal quarter thereafter to be less than
1.0 to 1.0 for the four consecutive fiscal quarters ending on that date.

SECTION VI.12 DEBT SERVICE COVERAGE RATIO. The Borrower will not permit the
Debt Service Coverage Ratio, as of the (i) the fiscal quarter ending March 31,
2000 to be less than 1.0 to 1.0 for the fiscal quarter ending on that date; (ii)
the fiscal quarter ending June 30, 2000 to be less than 1.0 to 1.0 for the two
consecutive quarters ending on that date; (iii) the fiscal quarter ending

13
<PAGE>
September 30, 2000 to be less than 1.0 to 1.0 for the three consecutive fiscal
quarters ending on that date; and (iv) the fiscal quarter ending on December 31,
2000 and as of the last day of every fiscal quarter thereafter to be less than
1.0 to 1.0 for the four consecutive fiscal quarters ending on that date. This
ratio shall exclude the Wabash Sale Fee.

SECTION VI.13 ANNUAL NET PROFIT. The Borrower will not allow its net profit
to be less than $25,000 for the fourth quarter ending December 31, 1999; and
will not allow its Annual Net Profit to be less than $500,000 for each of fiscal
year end 2000 and 2001.

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

SECTION VII.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default:

VII.1 (a) The Borrower shall fail to make when due, whether
by acceleration or otherwise, any payment of principal of or interest on the
Notes or any other obligations of the Borrower to the Lender pursuant to this
Agreement.

VII.1 (b) The principal balance of the Revolving Note at any
time exceeds the Borrowing Base.

VII.1 (c) Any representation or warranty made by or on
behalf of the Borrower in this Agreement or by or on behalf of the Borrower in
any certificate, statement, report or document herewith or hereafter furnished
to the Lender pursuant to this Agreement shall prove to have been false or
misleading in any material respect on the date as of which the facts set forth
are stated or certified.

VII.1 (d) The Borrower shall fail to comply with Sections
5.2 or 5.3 or any Section of Article VI.

VII.1 (e) The Borrower shall fail to comply with any other
agreement, covenant, condition, provision or term contained in this Agreement
(other than those hereinabove set forth in this Section 7.1) and such failure to
comply shall continue for 5 calendar days after whichever of the following dates
is the earliest: (i) the date the Borrower gives notice of such failure to the
Lender, (ii) the date the Borrower should have given notice of such failure to
the Lender pursuant to Section 5.1, or (iii) the date the Lender gives notice of
such failure to the Borrower.

VII.1 (f) The Borrower or any Subsidiary shall become
insolvent or shall generally not pay its debts as they mature or shall apply
for, shall consent to, or shall acquiesce in the appointment of a custodian,
trustee or receiver of the Borrower or such Subsidiary or for a substantial part
of the property thereof or, in the absence of such application, consent or
acquiescence, a custodian, trustee or receiver shall be appointed for the
Borrower or such Subsidiary or for a substantial part of the property thereof
and shall not be discharged within 45 days, or the Borrower shall make an
assignment for the benefit of creditors.

VII.1 (g) Any bankruptcy, reorganization, debt arrangement
or other proceedings under any bankruptcy or insolvency law shall be instituted
by or against the Borrower or any Subsidiary and, if instituted against the
Borrower or any Subsidiary, shall have been consented to or acquiesced in by the
Borrower or such Subsidiary or shall remain undismissed for 60 days, or an order
for relief shall have been entered against the Borrower or such Subsidiary.

VII.1 (h) Any dissolution or liquidation proceeding shall be
instituted by or against the Borrower or any Subsidiary and, if instituted
against the Borrower or such Subsidiary, shall be consented to or acquiesced in
by the Borrower or such Subsidiary or shall remain for 45 days undismissed.

VII.1 (i) A judgment or judgments for the payment of the
uninsured portion of money in excess of the sum of $50,000 in the aggregate
shall be rendered against the Borrower or any Subsidiary and either (i) the
judgment creditor executes on such judgment or (ii) such judgment remains unpaid
or undischarged for more than 60 days from the date of entry thereof or such
longer period during which execution of such judgment shall be stayed during an
appeal from such judgment.

VII.1 (j) The maturity of any material Indebtedness of the
Borrower or any Subsidiary (other than indebtedness under this Agreement) shall
be accelerated, or the Borrower or any Subsidiary shall fail to pay any such
material indebtedness when due (after the lapse of any applicable grace period)

14
<PAGE>
or any event shall occur or condition shall exist and shall continue for more
than the period of grace, if any, applicable thereto and shall have the effect
of causing, or permitting the holder of any such indebtedness to cause, such
material indebtedness to become due prior to its stated maturity or to realize
upon any collateral given as security therefor. For purposes of this Section,
indebtedness of the Borrower shall be deemed "material" if it exceeds $50,000 as
to any item of indebtedness or in the aggregate for all items of indebtedness
with respect to which any of the events described in this Section has occurred.

VII.1 (k) Any execution or attachment shall be issued
whereby any substantial part of the property of the Borrower or any Subsidiary
shall be taken or attempted to be taken and the same shall not have been vacated
or stayed within 30 days after the issuance thereof.

VII.1 (l) Any default shall occur under any other Loan
Document.

SECTION VII.2 REMEDIES. If (a) any Event of Default described in Sections
7.1 (f), (g) or (h) shall occur with respect to the Borrower, the Revolving
Commitment shall automatically terminate and the Notes and all other obligations
of the Borrower to the Lender under this Agreement shall automatically become
immediately due and payable, or (b) any other Event of Default shall occur and
be continuing, then the Lender may (i) declare the Revolving Commitment
terminated, whereupon the Commitment shall terminate, and (ii) declare the Notes
and all other obligations of the Borrower to the Lender under this Agreement to
be forthwith due and payable, whereupon the same shall immediately become due
and payable, in each case without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived, anything in this
Agreement or in the Notes to the contrary notwithstanding. Upon the occurrence
of any of the events described in clauses (a) or (b) of the preceding sentence
the Lender may exercise all rights and remedies under this Agreement, the Notes
and any related agreements and under any applicable law.

SECTION VII.3 OFFSET. In addition to the remedies set forth in Section 7.2,
upon the occurrence of any Event of Default and thereafter while the same be
continuing, the Borrower hereby irrevocably authorizes the Lender to set off all
sums owing by the Borrower to the Lender against all deposits and credits of the
Borrower with, and any and all claims of the Borrower against, the Lender.

ARTICLE VIII

MISCELLANEOUS

SECTION VIII.1 MODIFICATIONS. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower; provided that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modifications, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.

SECTION VIII.2 COSTS AND EXPENSES. Whether or not the transactions
contemplated hereby are consummated, the Borrower agrees to reimburse the Lender
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Lender (including filing and recording costs and fees and expenses of Dorsey &
Whitney LLP, counsel to the Lender) in connection with the negotiation,
preparation, approval, review, execution, delivery, amendment, modification,
interpretation, collection and enforcement of this Agreement and the Notes. The
obligations of the Borrower under this Section shall survive any termination of
this Agreement.

SECTION VIII.3 WAIVERS, ETC. No failure on the part of the Lender or the
holder of either Note to exercise and no delay in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof or
the exercise of any other power or right. The rights and remedies of the Lender
hereunder are cumulative and not exclusive of any right or remedy the Lender
otherwise has.

SECTION VIII.4 NOTICES. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,

15
<PAGE>
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Lender under Article II hereof shall be deemed to have been
given only when received by the Lender.

SECTION 8.5 CONFIDENTIALITY OF INFORMATION. The Lender shall use reasonable
efforts to assure that information about the Borrower and its operations,
affairs and financial condition, not generally disclosed to the public or to
trade and other creditors, which is furnished to the Lender pursuant to the
provisions hereof is used only for the purposes of this Agreement and any other
relationship between Lender and the Borrower and shall be divulged to any Person
other than the Affiliates of the Lender and their respective officers, directors
employees and agents, except: (a) to their attorneys and accountants, (b) in
connection with the enforcement of the rights of the Lender hereunder and under
the Loan Documents or otherwise in connection with applicable litigation, (c) in
connection with assignments and participations and the solicitation of
prospective assignees and participants referred to in Section 8.6, and (d) as
may otherwise be required or requested by any regulatory authority having
jurisdiction over Lender or by any applicable law, rule, regulation or judicial
process, the opinion of Lender's counsel concerning the making of such
disclosure to be binding on the parties hereto.

SECTION 8.6 SUCCESSORS AND ASSIGNS; DISPOSITION OF LOANS. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign its
rights or delegate its obligations hereunder without the prior written consent
of the Lender. The Lender may at any time sell, assign, transfer, grant
participations in, or otherwise dispose of any portion of the Revolving
Commitment and the Term Loan and/or Advances to banks or other financial
institutions. The Lender may disclose any information regarding the Borrower in
the Lender's possession to any prospective buyer or participant.

SECTION 8.7 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF.

SECTION 8.8 CONSENT TO JURISDICTION. AT THE OPTION OF THE LENDER, THIS
AGREEMENT AND THE NOTES MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE BORROWER CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.

SECTION 8.9 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE AND ANY OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

SECTION 8.10 CAPTIONS. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.

SECTION 8.11 ENTIRE AGREEMENT. This Agreement and the other Loan Documents
embody the entire agreement and understanding between the Borrower and the
Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.

SECTION 8.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.

[The remainder of this page is left intentionally blank]

16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

POORE BROTHERS, INC.

By
------------------------------------
Print Name
Title
Borrower's Address:
3500 South La Cometa Drive
Goodyear, Arizona 85338
POORE BROTHERS ARIZONA, INC.

By
------------------------------------
Print Name
Title
Borrower's Address:
3500 South La Cometa Drive
Goodyear, Arizona 85338
POORE BROTHERS DISTRIBUTING, INC.

By
------------------------------------
Print Name
Title
Borrower's Address:
3500 South La Cometa Drive
Goodyear, Arizona 85338
TEJAS PB DISTRIBUTING, INC.

By
------------------------------------
Print Name
Title
Borrower's Address:
3500 South La Cometa Drive
Goodyear, Arizona 85338
WABASH FOODS, LLC

By
------------------------------------
Print Name
Title
Borrower's Address:
705 West Dustman Road
Bluffton, IN 46714
U.S. BANCORP REPUBLIC COMMERCIAL
FINANCE, INC.

By
------------------------------------
Print Name
Title
Lender's Address:
U.S. Bancorp Republic Commercial Finance, Inc.
2338 Central Avenue, N.E. Suite 200
Minneapolis, Minnesota 55438
Fax (612) 782-1801

17
<PAGE>
EXHIBIT 2.3 (a) TO
CREDIT AGREEMENT

REVOLVING NOTE

$3,000,000 October 3, 1999
Minneapolis, Minnesota

1
<PAGE>
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF.

POORE BROTHERS, INC.

By
------------------------------------
Title

POORE BROTHERS ARIZONA, INC.

By
------------------------------------
Title

POORE BROTHERS DISTRIBUTING, INC.

By
------------------------------------
Title

TEJAS PB DISTRIBUTING, INC.

By
------------------------------------
Title

WABASH FOODS, LLC

By
------------------------------------
Title

2
<PAGE>
EXHIBIT 2.3 (b) TO
CREDIT AGREEMENT

TERM NOTE A

$5,800,000 October 3, 1999
Minneapolis, Minnesota

FOR VALUE RECEIVED, POORE BROTHERS, INC., a corporation organized under the
laws of the State of Delaware ("PBI"), POORE BROTHERS ARIZONA, INC., an Arizona
corporation ("PBAI"), POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation
("PBDI"), TEJAS PB DISTRIBUTING, INC., an Arizona corporation ("Tejas") and
WABASH FOODS, LLC, a Delaware limited liability company ("Wabash"), (PBI, PBAI,
PBDI, Tejas and Wabash each a Borrower and collectively the "Borrower" or the
"Borrowers"), hereby jointly and severally promise to pay to the order of U.S.
BANCORP REPUBLIC COMMERCIAL FINANCE, INC. (the "Lender") at its main office in
Minneapolis, Minnesota, in lawful money of the United States of America in
immediately available funds, the principal amount of FIVE MILLION EIGHT HUNDRED
THOUSAND DOLLARS AND NO CENTS ($5,800,000), and to pay interest (computed on the
basis of actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times set
forth in the Credit Agreement.

1
<PAGE>
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF.

POORE BROTHERS, INC.

By
------------------------------------
Title

POORE BROTHERS ARIZONA, INC.

By
------------------------------------
Title

POORE BROTHERS DISTRIBUTING, INC.

By
------------------------------------
Title

TEJAS PB DISTRIBUTING, INC.

By
------------------------------------
Title

WABASH FOODS, LLC

By
------------------------------------
Title
<PAGE>
EXHIBIT 2.3 (c) TO
CREDIT AGREEMENT

TERM NOTE B

$350,000 October 3, 1999
Minneapolis, Minnesota

FOR VALUE RECEIVED, POORE BROTHERS, INC., a corporation organized under the
laws of the State of Delaware ("PBI"), POORE BROTHERS ARIZONA, INC., an Arizona
corporation ("PBAI"), POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation
("PBDI"), TEJAS PB DISTRIBUTING, INC., an Arizona corporation ("Tejas") and
WABASH FOODS, LLC, a Delaware limited liability company ("Wabash"), (PBI, PBAI,
PBDI, Tejas and Wabash each a Borrower and collectively the "Borrower" or the
"Borrowers"), hereby jointly and severally promise to pay to the order of U.S.
BANCORP REPUBLIC COMMERCIAL FINANCE, INC. (the "Lender") at its main office in
Minneapolis, Minnesota, in lawful money of the United States of America in
immediately available funds, the principal amount of THREE HUNDRED FIFTY
THOUSAND DOLLARS AND NO CENTS ($350,000), and to pay interest (computed on the
basis of actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times set
forth in the Credit Agreement.

1
<PAGE>
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF.

POORE BROTHERS, INC.

By
------------------------------------
Title

POORE BROTHERS ARIZONA, INC.

By
------------------------------------
Title

POORE BROTHERS DISTRIBUTING, INC.

By
------------------------------------
Title

TEJAS PB DISTRIBUTING, INC.

By
------------------------------------
Title

WABASH FOODS, LLC

By
------------------------------------
Title

SECURITY AGREEMENT

THIS SECURITY AGREEMENT, dated as of October 3, 1999, is made and
given by POORE BROTHERS, INC., a Delaware corporation ("PBI") POORE BROTHERS
ARIZONA, INC., an Arizona corporation ("PBAI"), POORE BROTHERS DISTRIBUTING,
INC., an Arizona corporation ("PBDI"), TEJAS PB DISTRIBUTING, INC., an Arizona
corporation ("Tejas"), and WABASH FOODS, LLC, a Delaware limited liability
company ("Wabash") (PBI, PBAI, PBDI, Tejas and Wabash each a "Grantor" and
collectively, the "Grantors") to U.S. BANCORP REPUBLIC COMMERCIAL FINANCE, INC.
a Minnesota corporation (the "Secured Party").

RECITALS

A. The Grantors and the Secured Party have entered into a Credit
Agreement dated as of the date of this Agreement (as the same may hereafter be
amended, supplemented, extended, restated, or otherwise modified from time to
time, the "Credit Agreement") pursuant to which the Secured Party has agreed to
extend to the Grantors certain credit accommodations on the terms and conditions
set forth in the Credit Agreement.

B. It is a condition precedent to the extension of any credit
accommodations pursuant to the terms of the Credit Agreement that this Agreement
be executed and delivered by the Grantors.

C. The Grantors find it advantageous, desirable and in their best
interests to comply with the requirement that it execute and deliver this
Security Agreement to the Secured Party.

NOW, THEREFORE, in consideration of the premises and in order to
induce the Secured Party to enter into the Credit Agreement and to extend credit
accommodations to the Grantors thereunder, the Grantors hereby agree with the
Secured Party for the Secured Party's benefit as follows:

SECTION 1. DEFINED TERMS.

1(a) As used in this Agreement, the following terms shall have
the meanings indicated:

"ACCOUNTS" shall mean each and every right to payment of Grantors,
whether such right to payment arises out of a sale or lease of goods by
Grantors, or other disposition of goods or other property of Grantors, out
of a rendering of services by Grantors, out of a loan by Grantors, out of
damage to or loss of goods in the possession of a railroad or other carrier

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or any other bailee, out of overpayment of taxes or other liabilities of
Grantors, or which otherwise arises under any contract or agreement, or
from any other cause, whether such right to payment now exists or hereafter
arises and whether such right to payment is or is not yet earned by
performance and howsoever such right to payment may be evidenced, together
with all other rights and interest (including all liens and security
interests) which Grantors may at any time have by law or agreement against
any account debtor (as defined in the Uniform Commercial Code in effect in
the State of Minnesota) or other obligor obligated to make any such payment
or against any of the property of such account debtor or other obligor;
specifically (but without limitation), the term includes all present and
future instruments, documents, chattel papers, accounts and contract rights
of Grantors.

"ACCOUNT DEBTOR" shall mean a Person who is obligated on or under any
Account, Chattel Paper, Instrument or General Intangible.

"CHATTEL PAPER" shall mean a writing or writings which evidence both a
monetary obligation and a security interest in or lease of specific goods;
when a transaction is evidenced by both a security agreement or a lease and
by an Instrument or a series of Instruments, the group of writings taken
together constitutes Chattel Paper.

"COLLATERAL" shall mean all personal property and rights in personal
property now owned or hereafter at any time acquired by the Grantors in or
upon which a Security Interest is granted to the Secured Party by the
Grantors under this Agreement.

"DOCUMENT" shall mean any bill of lading, dock warrant, dock receipt,
warehouse receipt or order for the delivery of goods, together with any
other document or receipt which in the regular course of business or
financing is treated as adequately evidencing that the Person in possession
of it is entitled to receive, hold and dispose of the document and the
goods it covers.

"EQUIPMENT" shall mean all machinery, equipment, furniture,
furnishings and fixtures, including all accessions, accessories and
attachments thereto, and any guaranties, warranties, indemnities and other
agreements of manufacturers, vendors and others with respect to such
Equipment.

"EVENT OF DEFAULT" shall have the meaning given to such term in
Section 20 hereof.

"FINANCING STATEMENT" shall have the meaning given to such term in
Section 4 hereof.

"GENERAL INTANGIBLES" shall mean any personal property (other than
goods, Accounts, Chattel Paper, Documents, Instruments and money) including
choses in action, causes of action, contract rights, corporate and other
business records, inventions, designs, patents, patent applications,
service marks, trademarks, trademark applications, tradenames, trade
secrets, engineering drawings, good will, registrations, copyrights,

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licenses, franchises, customer lists, tax refund claims, royalties,
licensing and product rights, rights to the retrieval from third parties of
electronically processed and recorded data and all rights to payment
resulting from an order of any court.

"INSTRUMENT" shall mean a draft, check, certificate of deposit, note,
bill of exchange, security or any other writing which evidences a right to
the payment of money and is not itself a security agreement or lease and is
of a type which is transferred in the ordinary course of business by
delivery with any necessary endorsement or assignment.

"INVENTORY" shall mean any and all of the Grantors' goods, including,
without limitation, goods in transit, wherever located which are or may at
any time be leased by the Grantors to a lessee, held for sale or lease,
furnished under any contract of service or held as raw materials, work in
process, or supplies or materials used or consumed in the Grantors'
business, or which are held for use in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, and all
goods, the sale or other disposition of which has given rise to a
Receivable, which are returned to and/or repossessed and/or stopped in
transit by the Grantors or the Secured Party, or at any time hereafter in
the possession or under the control of the Grantors or the Secured Party,
or any agent or bailee of either thereof, and all documents of title or
other documents representing the same.

"LIEN" shall mean any security interest, mortgage, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or
device (including the interest of the lessors under capitalized leases),
in, of or on any assets or properties of the Person referred to.

"OBLIGATIONS" shall mean (a) all indebtedness, liabilities and
obligations of the Grantors to the Secured Party of every kind, nature or
description under the Credit Agreement, including the Grantors' obligation
on any promissory note or notes under the Credit Agreement and any note or
notes hereafter issued in substitution or replacement thereof, (b) all
liabilities of the Grantors under this Agreement, and (c) any and all other
liabilities and obligations of the Grantors to the Secured Party of every
kind, nature and description, whether direct or indirect or hereafter
acquired by the Secured Party from any Person, absolute or contingent,
regardless of how such liabilities arise or by what agreement or instrument
they may be evidenced, and in all of the foregoing cases whether due or to
become due, and whether now existing or hereafter arising or incurred.

"PERSON" shall mean any individual, corporation, partnership, limited
partnership, limited liability company, joint venture, firm, association,
trust, unincorporated organization, government or governmental agency or
political subdivision or any other entity, whether acting in an individual,
fiduciary or other capacity.

"SECURITY INTEREST" shall have the meaning given such term in Section
2 hereof.

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1(b) All other terms used in this Agreement which are not
specifically defined herein shall have the meaning assigned to such terms
in the Uniform Commercial Code in effect in the State of Minnesota as of
the date of this Agreement to the extent such other terms are defined
therein.

1(c) Unless the context of this Agreement otherwise clearly
requires, references to the plural include the singular, the singular, the
plural and "or" has the inclusive meaning represented by the phrase
"and/or." The words "include", "includes" and "including" shall be deemed
to be followed by the phrase "without limitation." The words "hereof,"
"herein," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
References to Sections are references to Sections in this Security
Agreement unless otherwise provided.

SECTION 2. GRANT OF SECURITY INTEREST. As security for the payment and
performance of all of the Obligations, the Grantors hereby grant to the Secured
Party a security interest (the "Security Interest") in all of the Grantors'
right, title, and interest in and to the following, whether now or hereafter
owned, existing, arising or acquired and wherever located:

2(a) All Accounts.

2(b) All Chattel Paper.

2(c) All Documents.

2(d) All Equipment.

2(e) All General Intangibles.

2(f) All Instruments.

2(g) All Inventory.

2(h) To the extent not otherwise included in the foregoing, (i)
all other rights to the payment of money, including rents and other sums
payable to the Grantors under leases, rental agreements and other Chattel
Paper and insurance proceeds; (ii) all books, correspondence, credit files,
records, invoices, bills of lading, and other documents relating to any of
the foregoing, including, without limitation, all tapes, cards, disks,
computer software, computer runs, and other papers and documents in the
possession or control of the Grantors or any computer bureau from time to
time acting for the Grantors; (iii) all rights in, to and under all
policies insuring the life of any officer, director, stockholder or
employee of the Grantors, the proceeds of which are payable to the
Grantors; and (iv) all accessions and additions to, parts and appurtenances
of, substitutions for and replacements of any of the foregoing.

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2(i) To the extent not otherwise included, all proceeds and
products of any and all of the foregoing.

SECTION 3. GRANTORS REMAIN LIABLE. Anything herein to the contrary
notwithstanding, (a) the Grantors shall remain liable under the Accounts,
Chattel Paper, General Intangibles and other items included in the Collateral to
the extent set forth therein to perform all of their duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by the Secured Party of any of the rights hereunder shall not
release the Grantors from any of their duties or obligations under any items
included in the Collateral, and (c) the Secured Party shall have no obligation
or liability under Accounts, Chattel Paper, General Intangibles and other items
included in the Collateral by reason of this Agreement, nor shall the Secured
Party be obligated to perform any of the obligations or duties of the Grantors
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.

SECTION 4. TITLE TO COLLATERAL. The Grantors have (or will have at the
time it acquires rights in Collateral hereafter acquired or arising) and will
maintain so long as the Security Interest may remain outstanding, title to each
item of Collateral (including the proceeds and products thereof), free and clear
of all Liens except the Security Interest and except Liens permitted by the
Credit Agreement. The Grantors will defend the Collateral against all claims or
demands of all Persons (other than the Secured Party) claiming the Collateral or
any interest therein. As of the date of execution of this Security Agreement, no
effective financing statement or other similar document used to perfect and
preserve a security interest under the laws of any jurisdiction (a "Financing
Statement") covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed (a) in favor of the Secured
Party relating to this Agreement, or (b) to perfect Liens permitted by the
Credit Agreement.

SECTION 5. LOCK BOX, COLLATERAL ACCOUNT. Each Grantor will direct each
of its Account Debtors or other obligors to make payments due under any
Collateral directly to a special lock box to be established and maintained by
Secured Party (the "Lockbox"). The Grantors hereby authorize and direct Secured
Party to deposit into a special collateral account to be established and
maintained by Secured Party (the "Collateral Account") all checks, drafts and
cash payments received in said Lockbox. All deposits from the Lockbox to the
Collateral Account shall constitute proceeds of Collateral and shall not
constitute payment of any Obligation. The Grantors agree that it will promptly
deliver to Secured Party, for deposit into said Collateral Account, all payments
on Accounts and Chattel Paper received by it. All such payments shall be
delivered to Secured Party in the form received (except for the Grantors'
endorsement where necessary). Until so delivered, all payments on Accounts and
Chattel Paper received by the Grantors shall be held in trust by the Grantors
for and as the property of Secured Party and shall not be commingled with any
funds or property of the Grantors.

SECTION 6. COLLECTION RIGHTS OF SECURED PARTY. Notwithstanding Secured
Party's rights under Section 5 with respect to any and all Instruments, Chattel
Paper, Accounts and other rights to payment constituting Collateral (including
proceeds), Secured Party may, at any time (after the occurrence of an Event of
Default) notify any Account Debtor, or any other person obligated to pay any

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amount due, that such Chattel Paper, Account, or other right to payment has been
assigned or transferred to Secured Party for security and shall be paid directly
to Secured Party. If Secured Party so requests at any time, the Grantors will so
notify such Account Debtors and other obligors in writing and will indicate on
all invoices to such Account Debtors or other obligors that the amount due is
payable directly to Secured Party. At any time after Secured Party or the
Grantors give such notice to an account debtor or other obligor, Secured Party
may (but need not), in its own name or in the Grantors' name, demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of, or securing, any such chattel paper, account, or other right to
payment, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, notify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor. The
Grantors hereby irrevocably make, constitute and appoint the Secured Party or
any person whom the Secured Party may designate, the Grantors' true and lawful
attorney with power to receive, open and dispose of all mail addressed to the
Grantors; to endorse the Grantors' name on any notes, acceptances, checks,
drafts, money orders or other means of payment that may come into the Secured
Party's possession as payment of or upon Accounts, Chattel Paper or other
Collateral; to endorse the Grantors' name on any invoice, freight or express
bill or bill of lading relating to any Collateral; to sign the Borrower's name
to drafts against Account Debtors, to assignments and verification of accounts
and notices thereof to Account Debtors, and to documents of title covering any
Collateral, and to do all other things necessary or proper to carry out the
intent of this Agreement.

SECTION 7. DISPOSITION OF COLLATERAL. The Grantors will not sell,
transfer, lease or otherwise dispose of, or discount or factor with or without
recourse, any Collateral, except for sales and leases of items of Inventory in
the ordinary course of business, and except for sales of Equipment having a fair
market value not to exceed $50,000 in the aggregate per calendar year where the
proceeds of such Equipment are used to reduce the amount of the obligations.

SECTION 8. NAMES, OFFICES, LOCATIONS. The Grantors does business
solely under their own name and the trade names and styles, if any, set forth on
Schedule II hereto. Except as noted on said Schedule, no such trade names or
styles and no trademarks or other similar marks owned by the Grantors are
registered with any governmental unit. The chief place of business and chief
executive office and the office where they keep their books and records
concerning the Accounts and General Intangibles and the originals of all Chattel
Paper, Documents and Instruments are located at their addresses set forth on the
signature page hereof. All items of Equipment and Inventory existing on the date
of this Agreement are located at the places specified on Schedule I hereto. The
Grantors will immediately notify the Secured Party of any additional state in
which any item of Inventory or Equipment is hereafter located. The Grantors will
from time to time at the request of the Secured Party provide the Secured Party
with current lists as to the locations of the Equipment and Inventory. The
Grantors will not permit any Inventory, Equipment, Chattel Paper or Documents or
any records pertaining to Accounts and General Intangibles to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Grantors will not change
their name or the location of their chief place of business and chief executive
office unless the Secured Party has been given at least 30 days' prior written

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notice thereof and the Grantors have executed and delivered to the Secured Party
such Financing Statements and other instruments required or appropriate to
continue the perfection of the Security Interest.

SECTION 9. RIGHTS TO PAYMENT. Except as the Grantors may otherwise
advise the Secured Party in writing, each Account, Chattel Paper, Document,
General Intangible and Instrument constituting or evidencing Collateral is (or,
in the case of all future Collateral, will be when arising or issued) the valid,
genuine and legally enforceable obligation of the Account Debtor or other
obligor named therein or in the Grantors' records pertaining thereto as being
obligated to pay or perform such obligation. The Grantors will perform and
comply in all material respects with all their obligations under any items
included in the Collateral and exercise promptly and diligently their rights
thereunder.

SECTION 10. FURTHER ASSURANCES.

10(a) The Grantors agree that from time to time, at their
expense, it will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or that the
Secured Party may reasonably request, in order to perfect and protect the
Security Interest granted or purported to be granted hereby or to enable
the Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral (but any failure to request or assure that
the Grantors execute and deliver such instrument or documents or to take
such action shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interest, regardless of
whether any such item was or was not executed and delivered or action taken
in a similar context or on a prior occasion). Without limiting the
generality of the foregoing, the Grantors will, promptly and from time to
time at the request of the Secured Party: (i) mark, or permit the Secured
Party to mark, conspicuously its books, records, and accounts showing or
dealing with the Collateral, and each item of Chattel Paper included in the
Collateral, with a legend, in form and substance satisfactory to the
Secured Party, indicating that each such item of Collateral and each such
item of Chattel Paper is subject to the Security Interest granted hereby;
(ii) deliver and pledge to the Secured Party, all Instruments and
Documents, duly indorsed or accompanied by duly executed instruments of
transfer or assignment, with full recourse to the Grantors, all in form and
substance satisfactory to the Secured Party; (iii) execute and file such
Financing Statements or continuation statements in respect thereof, or
amendments thereto, and such other instruments or notices (including
fixture filings with any necessary legal descriptions as to any goods
included in the Collateral which the Secured Party determines might be
deemed to be fixtures, and instruments and notices with respect to vehicle
titles), as may be necessary or desirable, or as the Secured Party may
request, in order to perfect, preserve, and enhance the Security Interest
granted or purported to be granted hereby; and (iv) obtain waivers, in form
satisfactory to the Secured Party, of any claim to any Collateral from any
landlords or mortgagees of any property where any Inventory or Equipment is
located.

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10(b) The Grantors hereby authorize the Secured Party to file one
or more Financing Statements or continuation statements in respect thereof,
and amendments thereto, relating to all or any part of the Collateral
without the signature of the Grantors where permitted by law. A photocopy
or other reproduction of this Agreement or any Financing Statement covering
the Collateral or any part thereof shall be sufficient as a Financing
Statement where permitted by law.

10(c) The Grantors will furnish to the Secured Party from time to
time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably request, all in reasonable detail and in form
and substance reasonably satisfactory to the Secured Party.

SECTION 11. TAXES AND CLAIMS. The Grantors will promptly pay all taxes
and other governmental charges levied or assessed upon or against any Collateral
or upon or against the creation, perfection or continuance of the Security
Interest, as well as all other claims of any kind (including claims for labor,
material and supplies) against or with respect to the Collateral, except to the
extent (a) such taxes, charges or claims are being contested in good faith by
appropriate proceedings, (b) such proceedings do not involve any material danger
of the sale, forfeiture or loss of any of the Collateral or any interest therein
and (c) such taxes, charges or claims are adequately reserved against on the
Grantors' books in accordance with generally accepted accounting principles.

SECTION 12. BOOKS AND RECORDS. The Grantors will keep and maintain at
their own cost and expense satisfactory and complete records of the Collateral,
including a record of all payments received and credits granted with respect to
all Accounts, Chattel Paper and other items included in the Collateral.

SECTION 13. INSPECTION, REPORTS, VERIFICATIONS. The Grantors will at
all reasonable times permit the Secured Party or its representatives to examine
or inspect any Collateral, any evidence of Collateral and the Grantors' books
and records concerning the Collateral, wherever located. The Grantors will from
time to time when requested by the Secured Party furnish to the Secured Party a
report on its Accounts, Chattel Paper, General Intangibles and Instruments,
naming the Account Debtors or other obligors thereon, the amount due and the
aging thereof. The Secured Party or its designee is authorized to contact
Account Debtors and other Persons obligated on any such Collateral from time to
time to verify the existence, amount and/or terms of such Collateral.

SECTION 14. NOTICE OF LOSS. The Grantors will promptly notify the
Secured Party of any loss of or material damage to any material item of
Collateral or of any substantial adverse change, known to Grantors, in any
material item of Collateral or the prospect of payment or performance thereof.

SECTION 15. INSURANCE. The Grantors will keep the Equipment and
Inventory insured against "all risks" for the full replacement cost thereof
subject to a deductible in an amount, and with an insurance company or

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companies, satisfactory to the Secured Party, the policies to protect the
Secured Party as its interests may appear with Lender to be named as Loss Payee
("Accord 27"), with such policies or certificates with respect thereto to be
delivered to the Secured Party at its request. Each such policy or the
certificate with respect thereto shall provide that such policy shall not be
cancelled or allowed to lapse unless at least 30 days prior written notice is
given to the Secured Party.

SECTION 16. LAWFUL USE; FAIR LABOR STANDARDS ACT. The Grantors will
use and keep the Collateral, and will require that others use and keep the
Collateral, only for lawful purposes, without material violation of any federal,
state or local law, statute or ordinance. All Inventory of the Grantors as of
the date of this Agreement that was produced by the Grantors or with respect to
which the Grantors performed any manufacturing or assembly process was produced
by the Grantors (or such manufacturing or assembly process was conducted) in
compliance in all material respects with all requirements of the Fair Labor
Standards Act, and all Inventory produced, manufactured or assembled by the
Grantors after the date of this Agreement will be so produced, manufactured or
assembled, as the case may be.

SECTION 17. ACTION BY THE SECURED PARTY. If the Grantors at any time
fail to perform or observe any of the foregoing agreements, the Secured Party
shall have (and the Grantors hereby grant to the Secured Party) the right, power
and authority (but not the duty) to perform or observe such agreement on behalf
and in the name, place and stead of the Grantors (or, at the Secured Party's
option, in the Secured Party's name) and to take any and all other actions which
the Secured Party may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of Liens,
the procurement and maintenance of insurance, the execution of assignments,
security agreements and Financing Statements, and the indorsement of
Instruments); and the Grantors shall thereupon pay to the Secured Party on
demand the amount of all monies expended and all costs and expenses (including
reasonable attorneys' fees and legal expenses) incurred by the Secured Party in
connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Secured Party, together with
interest thereon from the date expended or incurred at the highest lawful rate
then applicable to any of the Obligations, and all such monies expended, costs
and expenses and interest thereon shall be part of the Obligations secured by
the Security Interest.

SECTION 18. INSURANCE CLAIMS. As additional security for the payment
and performance of the Obligations, the Grantors hereby assign to the Secured
Party any and all monies (including proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Grantors with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto. At any time, whether before or
after the occurrence of any Event of Default, the Secured Party may (but need
not), in the Secured Party's name or in Grantors' name, execute and deliver

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proofs of claim, receive all such monies, indorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy, except for amounts in the
aggregate of less than $50,000 which the Secured Party may (but need not), in
the Secured Party's name or in Grantor's name, execute and deliver proofs of
claim, receive all such monies, indorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy, only after the occurrence of an
Event of Default. Notwithstanding any of the foregoing, so long as no Event of
Default exists the Grantors shall be entitled to all insurance proceeds with
respect to Equipment or Inventory provided that such proceeds are applied to the
cost of replacement Equipment or Inventory.

SECTION 19. THE SECURED PARTY'S DUTIES. The powers conferred on the
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Secured Party
shall be deemed to have exercised reasonable care in the safekeeping of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to the safekeeping which the Secured Party accords its own
property of like kind. Except for the safekeeping of any Collateral in its
possession and the accounting for monies and for other properties actually
received by it hereunder, the Secured Party shall have no duty, as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Secured Party has or is deemed to have knowledge
of such matters, or as to the taking of any necessary steps to preserve rights
against any Persons or any other rights pertaining to any Collateral. The
Secured Party will take action in the nature of exchanges, conversions,
redemptions, tenders and the like requested in writing by the Grantors with
respect to the Collateral in the Secured Party's possession if the Secured Party
in its reasonable judgment determines that such action will not impair the
Security Interest or the value of the Collateral, but a failure of the Secured
Party to comply with any such request shall not of itself be deemed a failure to
exercise reasonable care.

SECTION 20. EVENTS OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an Event of Default under this Agreement:

20(a) The Grantors shall fail to make payment when due, whether
upon demand, or at a scheduled due date, or otherwise, any principal of or
interest on their obligations under the Credit Agreement or any other
obligations of any Grantor to the Secured Party.

20(b) Any representation or warranty made by or on behalf of any
Grantor in this Agreement or the Credit Agreement or by or on behalf of any
Grantor in any certificate, statement, report or document herewith or
hereafter furnished to the Secured Party pursuant to this Agreement or the
Credit Agreement shall prove to have been false or misleading in any
material respect on the date as of which the facts set forth are stated or
certified.

20(c) The Grantors shall fail to comply with Sections 5.2 or 5.3
or any Section of Article VI of the Credit Agreement.

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20(d) The Grantors shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement or the
Credit Agreement (other than those hereinabove set forth in this Section
20) and such failure to comply shall continue for 30 calendar days after
whichever of the following dates is the earliest: (i) the date any Grantor
gives notice of such failure to the Secured Party, or (ii) the date the
Secured Party gives notice of such failure to the Grantors.

20(e) Any Grantor shall apply for or consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver of any
Grantor or for a substantial part of the property thereof or, in the
absence of such application, consent or acquiescence, a custodian, trustee
or receiver shall be appointed for any Grantor or for a substantial part of
the property thereof and shall not be discharged within 45 days, or any
Grantor shall make an assignment for the benefit of creditors.

20(f) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by
or against any Grantor and, if instituted against any Grantor, shall have
been consented to or acquiesced in by the Grantors or shall remain
undismissed for 60 days, or an order for relief shall have been entered
against any Grantor.

20(g) Any dissolution or liquidation proceeding shall be
instituted by or against any Grantor and, if instituted against any
Grantor, shall be consented to or acquiesced in by any Grantor or shall
remain for 45 days undismissed.

20(h) A judgment or judgments for the payment of money in excess
of the sum of $50,000 in the aggregate shall be rendered against any
Grantor and either (i) the judgment creditor executes on such judgment or
(ii) such judgment remains unpaid or undischarged for more than 60 days
from the date of entry thereof or such longer period during which execution
of such judgment shall be stayed during an appeal from such judgment.

20(i) Any execution or attachment shall be issued whereby any
substantial part of the property of any Grantor shall be taken or attempted
to be taken and the same shall not have been vacated or stayed within 30
days after the issuance thereof.

20(j) Any default or event of default (however denominated or
defined) shall occur with respect to any indebtedness of the Grantors
(other than the Obligations) permitted under the Credit Agreement.

THE FOREGOING EVENTS OF DEFAULT, AND THE REMEDIES UPON EVENT OF DEFAULT AS SET
FORTH BELOW IN SECTION 21, ARE IN ADDITION TO AND SUPPLEMENT THE RIGHTS OF THE
SECURED PARTY UNDER THE CREDIT AGREEMENT.

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SECTION 21. REMEDIES ON DEFAULT. Upon the occurrence of an Event of
Default and at any time thereafter:

21(a) The Secured Party may exercise and enforce any and all
rights and remedies available upon default to a secured party under the
Uniform Commercial Code.

21(b) The Secured Party shall have the right to enter upon and
into and take possession of all or such part or parts of the properties of
the Grantors, including lands, plants, buildings, Equipment, Inventory and
other property as may be necessary or appropriate in the judgment of the
Secured Party to permit or enable the Secured Party to manufacture,
produce, process, store or sell or complete the manufacture, production,
processing, storing or sale of all or any part of the Collateral, as the
Secured Party may elect, and to use and operate said properties for said
purposes and for such length of time as the Secured Party may deem
necessary or appropriate for said purposes without the payment of any
compensation to Grantors therefor. The Secured Party may require the
Grantors to, and the Grantors hereby agree that they will, at their expense
and upon request of the Secured Party forthwith, assemble all or part of
the Collateral as directed by the Secured Party and make it available to
the Secured Party at a place or places to be designated by the Secured
Party.

21(c) Any sale of Collateral may be in one or more parcels at
public or private sale, at any of the Secured Party's offices or elsewhere,
for cash, on credit, or for future delivery, and upon such other terms as
the Secured Party may reasonably believe are commercially reasonable. The
Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given, and the Secured Party may
adjourn any public or private sale from time to time by announcement made
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.

21(d) The Secured Party is hereby granted a license or other
right to use, without charge, all of the Grantors' property, including,
without limitation, all of the Grantors' labels, trademarks, copyrights,
patents and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for
sale and selling any Collateral, and the Grantors' rights under all
licenses and all franchise agreements shall inure to the Secured Party's
benefit until the Obligations are paid in full.

21(e) If notice to the Grantors of any intended disposition of
Collateral or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given in
the manner specified for the giving of notice in Section 25 hereof at least
ten calendar days prior to the date of intended disposition or other
action, and the Secured Party may exercise or enforce any and all other
rights or remedies available by law or agreement against the Collateral,
against the Grantors, or against any other Person or property.

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SECTION 22. APPLICATION OF PROCEEDS. All cash proceeds received by the
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral may, in the discretion of the Secured
Party, be held by the Secured Party as collateral for, or then or at any time
thereafter be applied in whole or in part by the Secured Party against, all or
any part of the Obligations (including, without limitation, any expenses of the
Secured Party payable pursuant to Section 23 hereof).

SECTION 23. COSTS AND EXPENSES; INDEMNITY. The Grantors will pay or
reimburse the Secured Party on demand for all out-of-pocket expenses (including
in each case all filing and recording fees and taxes and all reasonable fees and
expenses of counsel and of any experts and agents) incurred by the Secured Party
in connection with the creation, perfection, protection, satisfaction,
foreclosure or enforcement of the Security Interest and the preparation,
administration, continuance, amendment or enforcement of this Agreement, and all
such costs and expenses shall be part of the Obligations secured by the Security
Interest. The Grantors shall indemnify and hold the Secured Party harmless from
and against any and all claims, losses and liabilities (including reasonable
attorneys' fees) growing out of or resulting from this Agreement and the
Security Interest hereby created (including enforcement of this Agreement) or
the Secured Party's actions pursuant hereto, except claims, losses or
liabilities resulting from the Secured Party's gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction. Any liability of the Grantors to indemnify and hold the Secured
Party harmless pursuant to the preceding sentence shall be part of the
Obligations secured by the Security Interest. The obligations of the Grantors
under this Section shall survive any termination of this Agreement.

SECTION 24. WAIVERS; REMEDIES; MARSHALLING. This Agreement can be
waived, modified, amended, terminated or discharged, and the Security Interest
can be released, only explicitly in a writing signed by the Secured Party. A
waiver so signed shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any rights and remedies available to the Secured
Party. All rights and remedies of the Secured Party shall be cumulative and may
be exercised singly in any order or sequence, or concurrently, at the Secured
Party's option, and the exercise or enforcement of any such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. The Grantors hereby waive all requirements of law, if any, relating to
the marshalling of assets which would be applicable in connection with the
enforcement by the Secured Party of its remedies hereunder, absent this waiver.

SECTION 25. NOTICES. Any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first business day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed.

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SECTION 26. GRANTORS' ACKNOWLEDGMENTS. The Grantors hereby acknowledge
that (a) they has been advised by (or has had full opportunity to avail
themselves of the advice of) counsel in the negotiation, execution and delivery
of this Agreement, (b) the Secured Party has no fiduciary relationship to the
Grantors, the relationship being solely that of debtor and creditor, and (c) no
joint venture exists between the Grantors and the Secured Party.

SECTION 27. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER CREDIT
AGREEMENT. This Agreement shall (a) create a continuing security interest in the
Collateral and shall remain in full force and effect until payment in full of
the Obligations, (b) be binding upon the Grantors, their successors and assigns,
and (c) inure to the benefit of, and be enforceable by, the Secured Party and
its successors, transferees, and assigns. Without limiting the generality of the
foregoing clause (c), the Secured Party may assign or otherwise transfer all or
any portion of its rights and obligations under the Credit Agreement to any
other Persons to the extent and in the manner provided in the Credit Agreement
and may similarly transfer all or any portion of its rights under this Security
Agreement to such Persons.

SECTION 28. TERMINATION OF SECURITY INTEREST. Upon payment in full of
the Obligations, the Security Interest granted hereby shall terminate. Upon any
such termination, the Secured Party will return to the Grantors such of the
Collateral then in the possession of the Secured Party as shall not have been
sold or otherwise applied pursuant to the terms hereof and execute and deliver
to the Grantors such documents as the Grantors shall reasonably request to
evidence such termination. Any reversion or return of Collateral upon
termination of this Agreement and any instruments of transfer or termination
shall be at the expense of the Grantors and shall be without warranty by, or
recourse on, the Secured Party. As used in this Section, "Grantors" includes any
assigns of Grantors, any Person holding a subordinate security interest in any
of the Collateral or whoever else may be lawfully entitled to any part of the
Collateral.

SECTION 29. CONFIDENTIALITY OF INFORMATION. The Secured Party shall
use reasonable efforts to assure that information about the Grantor and its
operations, affairs and financial condition, not generally disclosed to the
public or to trade and other creditors, which is furnished to the Secured Party
pursuant to the provisions hereof is used only for the purposes of this
Agreement and any other relationship between Secured Party and the Grantor and
shall be divulged to any Person other than the Affiliates of the Secured Party
and their respective officers, directors employees and agents, except: (a) to
their attorneys and accountants, (b) in connection with the enforcement of the
rights of the Secured Party hereunder and under the Loan Documents or otherwise
in connection with applicable litigation, (c) in connection with assignments and
participations and the solicitation of prospective assignees and participants
referred to in Section 8.6 of the Credit Agreement, and (d) as may otherwise be
required or requested by any regulatory authority having jurisdiction over
Secured Party or by any applicable law, rule, regulation or judicial process,
the opinion of Secured Party's counsel concerning the making of such disclosure
to be binding on the parties hereto.

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<PAGE>
SECTION 30. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY, CONSTRUCTION
AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF,
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
MINNESOTA. Whenever possible, each provision of this Agreement and any other
statement, instrument or transaction contemplated hereby or relating hereto
shall be interpreted in such manner as to be effective and valid under such
applicable law, but, if any provision of this Agreement or any other statement,
instrument or transaction contemplated hereby or relating hereto shall be held
to be prohibited or invalid under such applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement or any other statement, instrument or transaction contemplated hereby
or relating hereto.

SECTION 31. CONSENT TO JURISDICTION. AT THE OPTION OF THE SECURED
PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY; AND THE GRANTOR CONSENTS TO THE JURISDICTION
AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS
NOT CONVENIENT. IN THE EVENT THE GRANTOR COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR
INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE SECURED PARTY AT
ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.

SECTION 32. WAIVER OF NOTICE AND HEARING. THE GRANTOR HEREBY WAIVES
ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL
PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT
PRIOR NOTICE OR HEARING. THE GRANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY
COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.

SECTION 33. WAIVER OF JURY TRIAL. EACH OF THE GRANTOR AND THE SECURED
PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

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SECTION 34. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.

SECTION 35. GENERAL. All representations and warranties contained in
this Agreement or in any other agreement between the Grantors and the Secured
Party shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations. The Grantors waive notice of
the acceptance of this Agreement by the Secured Party. Captions in this
Agreement are for reference and convenience only and shall not affect the
interpretation or meaning of any provision of this Agreement.

[The remainder of this page is left intentionally blank]

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IN WITNESS WHEREOF, the Grantors have caused this Security Agreement
to be duly executed and delivered by their officer thereunto duly authorized as
of the date first above written.

POORE BROTHERS, INC.

By
------------------------------------
Title
3500 South La Cometa Drive
Goodyear, AZ 85338
POORE BROTHERS ARIZONA, INC.

By
------------------------------------
Title
3500 South La Cometa Drive
Goodyear, AZ 85338
POORE BROTHERS DISTRIBUTING, INC.

By
------------------------------------
Title
3500 South La Cometa Drive
Goodyear, AZ 85338
TEJAS PB DISTRIBUTING, INC.

By
------------------------------------
Title
3500 South La Cometa Drive
Goodyear, AZ 85338
WABASH FOODS, LLC

By
------------------------------------
Title
3500 South La Cometa Drive
Goodyear, AZ 85338

Grantors' Tax ID # 86-0786101

Address for Secured Party :
U.S. Bancorp Republic Commercial Finance, Inc.
2338 Central Avenue NE, Suite 200
Minneapolis, MN 55418
Fax: (612) 782-1801

COMMERCIAL LEASE
WABASH FOODS, LLC

1. PARTIES. This Lease, dated, for reference purposes only, is made by and
between American Pacific Financial Corporation, (herein called "Landlord" and,
Wabash Foods, LLC, a Delaware Limited Liability Company, (herein called
"Tenant").

2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord that certain space (herein called "Premises", containing approximately
135,000 square feet of floor area and non-exclusive use of all common areas. The
location and dimensions of said Premises is 705 W. Dustman Road. Said Premises
are located in the City of Bluffton, County of Wells, State of Indiana.

3. USE. Tenant shall use the Premises for a snack food manufacturing and shall
not use or permit the Premises to be used for any other purpose without the
prior written consent of Landlord.

4. TERM. The term of this Lease shall be for twenty years, commencing on May 1,
1998 (the "Commencement Date") and, unless sooner terminated as hereinafter
provided, ending on April 30, 2018, (the Expiration Date"). Tenant shall have
the option to extend this lease for two additional five (5) year periods. The
lease rate for the first year shall be fifteen thousand and no/100 dollars
($15,000.00) per month. The lease rate for the second year shall be seventeen
thousand five hundred and no/100 dollars ($17,500.00 plus the percentage
difference between the CPI (consumer price index) for Indiana, adjusted annually
from the Commencement date. The lease rate for the third year and extended
period shall be twenty thousand and no/100 dollars ($20,000.00) per month plus
the percentage difference between the CPI (consumer price index) for Indiana,
adjusted annually from the Commencement date to the extension date and annually
thereafter.

5. MINIMUM RENT. 5.A. For the first year, Tenant agrees to pay to Landlord as
Minimum Rent, without notice or demand, the monthly sum of fifteen thousand and
no/100 dollars ($15,000.00). For the second year, Tenant agrees to pay to
Landlord as Minimum Rent, without notice or demand, the monthly sum of seventeen
thousand five hundred and no/100 dollars ($17,500.00) plus the percentage
difference between the CPI (consumer price index) for Indiana, adjusted annually
from the Commencement. For the remainder of the lease, Tenant agrees to pay to
Landlord as Minimum Rent, without notice or demand, the monthly sum of twenty
thousand and no/100 dollars ($20,000.00) plus the percentage difference between
the CPI (consumer price index) for Indiana, adjusted annually from the
Commencement date to the extension date and annually thereafter.

The appropriate sum for each month, shall be paid, in advance, on or before the
first day of each and every successive calendar month thereafter during the term
hereof. Rent for any period during the term hereof which is for less than one
(1) month shall be a prorated portion of the monthly installment herein, based
upon a thirty (30) day month. Said rental shall be paid to Landlord, without
deduction or offset, in lawful money of the United States of America, at such
place as Landlord may from time to time designate in writing.

6. ADDITIONAL CHARGES.

6.A. In addition to the Minimum Rent provided in Article 5, and commencing upon
Landlord's delivery to Tenant of the Premises, Tenant shall pay to Landlord
Tenant's Share of Operating Expenses. "Tenant's Share of Operating Expenses"
shall be the proportion derived by dividing the rentable floor area of the
Premises by the total rentable floor area.

6.B. As used in this Lease, "Operating Expenses" shall mean any and all costs,
charges, expenses and disbursements of every kind and nature which Landlord
shall pay or become obligated to pay because of or in connection with the
ownership, operating, management, maintenance and repair of the Snack Plant,
computed on the cash basis (except as to taxes, as to which the accrual basis
shall be used), including, but not limited to, the cost or charges for the
following items: electricity, water, fuel, trash removal, sweeping, snow
removal, premiums for fire, extended coverage liability, rental value and any
other insurance that Landlord deems necessary, interior and exterior maintenance
and repairs (ordinary and extraordinary, structural and nonstructural),
including repairs, replacements, resurfacing and restriping as may be
applicable, of sidewalks, driveways, parking areas, landscaping, and other areas
used in common by tenants of the Snack Plant, management fees (if Landlord
manages the Snack Plant itself, an amount shall be included for management fees
not exceeding the amount typically charged by independent management companies
in the Bluffton area for buildings of comparable size and quality), and all
general and special real estate taxes, special assessments, special district of
improvement district assessments, water taxes, sewer taxes, gross rents taxes
and all other taxes, charges, rates, levies and assessments of whatever mature
levied, assessed or collected by any governmental or quasi-governmental

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authority (whether now existing or hereafter created) upon or with respect to
the Snack Plant or landlord's ownership or operation thereof, and all taxes or
charges imposed in lieu of (or in lieu of any increases in) any such taxes.

6.C. Landlord shall, prior to the beginning of each calendar year (or upon
Landlord's delivery of the Premises to Tenant as to the year in which such
delivery occurs, furnish Tenant with a bona fide estimate of the Operating
Expenses for such calendar year and Tenant's Share of Operating Expenses for
such year; provided, however, that such estimate shall not constitute any
representation or assurance by Landlord of the amount that the actual Operating
Expenses for such year will be. Thereafter, Tenant shall pay to Landlord, on the
first day of each month, together with payments of Minimum Rent, one- twelfth
(1/12th) of Landlord's estimate of Tenant's Share of Operating Expenses for that
calendar year. Landlord may revise such estimate at any time to more accurately
reflect estimated Operating Expenses and an appropriate adjustment of payments
thereafter due from Tenant shall be made. Landlord shall each year provide
Tenant's a statement of the actual Operating Expenses for the prior calendar
year and a calculation of Tenant's Share of Operating Expenses for such year,
but Landlord's failure to provide such statement by any particular date shall
not constitute a waiver by Landlord of its right to receive payment for Tenant's
Share of Operating Expenses for such year or for any succeeding year. If
Tenant's Share of Operating Expenses for such year is greater than the estimated
amounts previously paid by Tenant for such year, Tenant shall pay to Landlord
the full amount of such excess within ten (10) days after Landlord's rendering
of the statement of such amount. If Tenant's Share of Operating Expenses for
such year is less than the estimated amounts previously paid by Tenant for such
year, Tenant shall receive a refund of the overpayment.

6.D. Tenant shall give Landlord written notice of any dispute or disagreement
(with Tenant's reason therefore state) concerning Operating Expenses or Tenant's
share thereof for any calendar year, within thirty (30) days after receipt of
notice from Landlord of the matter giving rise to the dispute, failing which
Tenant shall have waived its right to dispute such matter. If tenant timely
disputes any determination or calculation concerning Operating Expenses or
Tenant's share thereof, a certified public accounting firm acceptable to
Landlord and Tenant shall be final and conclusive. Tenant shall pay the fees and
expenses of the accountants unless the final determination discloses an error
which favors Landlord by more than five percent of the amount previously
determined by Landlord. If such determination reveals that the amount previously
determined by Landlord was incorrect, a correction shall be made and either
Landlord shall promptly return to Tenant any overpayment or Tenant shall
promptly pay to Landlord any underpayment which was based on such incorrect
amount. Notwithstanding the tendency of any dispute hereunder, Tenant shall make
payments based upon Landlord's determination or calculation until such
determination or calculation has been established hereunder to be incorrect.

7. USES PROHIBITED. Tenant shall not do or permit anything to be done in or
about the premises nor bring or keep anything therein which will in any way
increase the existing rate of or affect any fire or other insurance upon the
Building or any of its contents, or cause a cancellation of any insurance policy
covering said Building or as, part thereof or any of its contents. Tenant shall
not do or permit anything to be done in or about the Premises which will in any
way obstruct or interfere with the rights or other tenants or occupants of the
Building or injure or annoy them or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, or about the Premises. Tenant shall not
commit or allow to be committed any waste in or upon the Premises.

8. COMPLIANCE WITH LAW. Tenant shall not use the Premises, or permit anything to
be done in or about the Premises, which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may hereafter be in force and
with the requirements of any board of fire underwriters or other similar bodies
now or hereafter constituted relating to or affecting the condition, use or
occupancy of the Premises, excluding structural changes not reacted to or
affected by Tenant's improvements or, acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord be a party thereto or not, that Tenant has violated any law,
statute, ordinance or governmental rule, regulation or requirement, shall be
conclusive of that fact as between the Landlord and Tenant.

9. ALTERATIONS AND ADDITIONS. Tenant shall not make or allow to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without the written consent of Landlord first having been obtained, and any
alterations, additions or improvements to or of said Premises, including, but
not limited to, wall covering, paneling and built-in cabinet work, but excepting
movable furniture and trade fixtures, shall at once become a part of the realty
and belong to the Landlord and shall be surrendered with the Premises. In the
event Landlord consents to the making of any alterations, additions or
improvements to the premises by Tenant, the same shall be made by Tenant at
Tenant's sole cost and expense. Upon the expiration or sooner termination of the
term hereof, Tenant shall, upon written demand by Landlord, given at least
thirty (30) days prior to the end of the term, at Tenant's sole cost and
expense, forthwith and with all due diligence, remove any alterations,

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additions, or improvements made by Tenant, designated by Landlord to be removed,
and Tenant shall, forthwith and with all due diligence at its sole cost and
expense, repair and damage to the Premises caused by such removal.

10. REPAIRS.

10.A. By entry hereunder, Tenant shall be deemed to have accepted the Premises
as being in good, sanitary order, condition and repair. Tenant shall, at
Tenant's sole cost and expense, keep the Premises and every part thereof in good
condition and repair (except as hereinafter provided with respect to Landlord's
obligations) including without limitation, the maintenance, replacement and
repair of any storefront, doors, window casements, glazing, plumbing, pipes,
electrical wiring and conduits. Tenant shall, upon the expiration or sooner
termination of this Lease hereof, surrender the Premises to the Landlord in good
condition, broom clean, ordinary wear and tear and damage from causes beyond the
reasonable control of the Tenant excepted. Any damage to adjacent premises
caused by Tenant's use of the Premises shall be repaired at the sole cost and
expense of Tenant.

10.B. Notwithstanding the provisions of Article ll.A hereinabove, Landlord shall
repair and maintain the structural portions of the Building, including the
exterior walls and roof, unless such maintenance and repairs are caused in part
or in whole by the act, neglect, fault or omission of any duty by the Tenant,
its agents, servants, employees, invitees, or any damage caused by breaking and
entering, in which case Tenant shall pay to Landlord the reasonable cost of such
maintenance and repairs. Landlord shall, at Tenant's expense, provide routine
maintenance, including periodic cleaning and changing of filters for the air
conditioning/heating unit for the Premises and Landlord may enter into a
maintenance service agreement for such unit, Landlord also shall, at Tenant's
expense, provide any repairs required for such unit, within a reasonable time
after Landlord has received written notice from Tenant of the need for such
repairs. Tenant shall pay Landlord, promptly upon billing, for all costs of
maintenance and repair of such unit. No failure of such unit shall entitle
Tenant to any damages or abatement of rent or in any way modify any of Tenant's
obligations under this lease. Landlord shall not be liable for any failure to
make any repairs or to perform any maintenance required by this Article ll.B.
unless such failure shall persist for an unreasonable time after written notice
of the need of such repairs or maintenance is given to Landlord by Tenant.
Except as provided in Article 25 hereof, there shall be no abatement of rent and
no liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or to
fixtures, appurtenances and equipment therein. Tenant waives the right to make
repairs at Landlord's expense under any law, judicial decision, statute or
ordinance now or hereinafter in effect.

11. LIENS. Tenant shall keep the Premises and the property in which the Premises
are situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by Tenant. Landlord may require, at Landlord's
sole option, that Tenant shall provide to Landlord, at Tenant's sole cost and
expense, a lien and completion bond in an amount equal to one and one-half (1
1/2) times the estimated cost of any improvements, additions, or alterations in
the Premises which the Tenant desires to make, to insure Landlord against any
liability for mechanics' and material men's liens and to insure completion of
the work.

12. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily, or by
operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber
this Lease or any interest therein, and shall not sublet the Premises or any
part thereof, or any right or privilege appurtent thereto, or allow any other
person (the employees, agents, servants and invitees of Tenant excepted) to
occupy or use the Premises, or any portion thereof, without the written consent
of Landlord first had and obtained, which consent shall not be unreasonably
withheld. In no event shall any subtenant, assignee, or other transferee use, or
be allowed to use, the Premises for any purpose other than the specific purpose
set forth in Article 3 above, and Landlord shall be deemed to have acted
reasonably in refusing to consent to any sublease, assignment or transfer
involving any change in the purpose for which the Premises are or will be used.
A consent to one assignment, subletting, occupation or use by any other person
shall not be deemed to be a consent to any subsequent assignment, subletting,
occupation or use by another person. Consent to any assignment, subletting,
occupation or use shall in no way relieve Tenant of any liability under this
Lease and Tenant shall remain fully liable for the payment of the rent under
this Lease and the performance of the terms and provisions of this Lease and
Landlord shall not be required to pursue first any remedies for default it may
have against any subtenant, assignee or other transferee. Any assignment or
subletting without such consent shall be void, and shall constitute a default
under the terms of this lease. If Landlord Shall consent to a sublease or
assignment, Tenant shall pay Landlord reasonable fees, not to exceed, incurred
in connection with the processing of documents necessary to giving of such
consent.

13. HOLD HARMLESS. Tenant Shall indemnify and hold harmless Landlord against and
from any and all claims arising from Tenant's use of the Premises or from the
conduct of its business or from an activity, work, or other things done,
permitted or suffered by the Tenant in or about the Premises, and shall further
indemnify and hold harmless Landlord against and from any and all claims arising
from any breach or default in the performance of any obligation of Tenant's part
to be performed under the terms of this Lease, or arising from any act or
negligence of the Tenant, or any officer, agent, employee, guest, or invitee of

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Tenant, and from all costs, attorney's fees, and liabilities incurred in or
about the defense of Any such claim or any action or proceeding brought thereon
and in case any action or proceeding be brought against Landlord by reason of
such claim, Tenant upon notice from Landlord shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord. Tenant as a material
part of the consideration to Landlord hereby assumes all risk of damage to
property or injury to persons in, upon or about the Premises, from any cause
other than Landlord's negligence, and Tenant hereby waives all claims in respect
thereof against Landlord. Landlord or its agents shall not be liable for any
loss or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak from any part of
the Building or from the pipes, appliances or plumbing works therein or from the
roof, street or subsurface or from any other place resulting from dampness or
any other cause whatsoever, unless caused by or due to the negligence of
Landlord, its agents servants or employees. Landlord or its agents shall not be
liable for interference with the light, air, or for any latent defect in the
Premises. Tenant shall give prompt notice to Landlord in case of casualty or
accidents in the Premises.

14. SUBROGATION. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against each
other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective parties. Each
party shall apply to their insurers to obtain said waivers. Each party shall
obtain any special endorsements, if required by their insurer to evidence
compliance with the aforementioned waiver.

15. LIABILITY INSURANCE. Tenant shall, Tenant's expense, obtain and keep in
force during the term of this Lease a policy of comprehensive public liability
insurance insuring Landlord and Tenant against any liability arising out of the
ownership, use occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be in the amount of not less than
$500,000 combined single limit for death, personal injury and property damage.
The limit of any such insurance shall not, however, limit the liability of the
Tenant hereunder. Tenant may provide this insurance under a blanket policy,
provided that said insurance shall have a Landlord's protective liability
endorsement attached thereto. If Tenant shall fail to procure and maintain said
insurance, Landlord may, but shall not be required to, procure and maintain
same, but at the expense of Tenant. Insurance required hereunder shall be in
companies rated A+AAA or better in "Best's Insurance Guide". Tenant shall
deliver to Landlord, prior to right of entry, copies of policies of liability
insurance required herein or certificates evidencing the existence and amounts
of such insurance with loss payable clauses satisfactory to Landlord. No policy
shall be cancelable or subject to reduction of coverage. All such policies shall
be written as primary policies not contributing with and not in excess of
coverage which Landlord may carry.

16. UTILITIES. Tenant shall pay for all water, gas, heat, light, power, sewer
charges, telephone service and all other services and utilities supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Tenant, Tenant shall pay a reasonable proportion to be
determined by Landlord of all charges jointly metered with other Premises. If
separately metered, all utility meters for the Premises shall be placed in
Tenant's name on the Commencement date .

17. PERSONAL PROPERTY TAXES. Tenant shall pay or cause to be paid, before
delinquency any and all taxes levied or assessed and which become payable during
the term hereof upon all Tenant's leasehold improvements, equipment, furniture,
fixtures and other personal property located in the Premises. In the event any
or all of the Tenant's leasehold improvements, equipment, furniture, fixtures
and other personal property shall be assessed and taxed with the real property,
Tenant shall pay to Landlord its share of such taxes within ten (10) days after
delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's property.

18. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the
rules and regulations that Landlord shall from time to time promulgate and/or
modify. The rules and regulations shall be binding upon the Tenant upon delivery
of a copy of them to Tenant. Landlord shall not be responsible to Tenant for the
nonperformance of any said rules and regulations by any other tenants or
occupants.

19. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof with the express written consent
of Landlord, such occupancy shall be a tenancy from month to month at a rental
in, the amount of one and one-half (1 1/2) times the last Monthly Minimum Rent,
plus all other charges payable hereunder, and upon all the terms hereof
applicable to a month to month tenancy .

20. ENTRY BY LANDLORD. Landlord reserves, and shall at any and all times have
the right to enter the Premises to inspect the same, to submit said Premises to
prospective purchasers or tenants, to post notices of non-responsibility, to
repair the Premises and any portion of the Building of which the Premises are a
part that Landlord may deem necessary or desirable, without abatement of rent,
and may for that purpose erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, always
providing that the entrance to the Premises shall not be blocked thereby, and

4
<PAGE>
further providing that the business of the Tenant shall not be interfered with
unreasonably. Tenant hereby waives any claim for damages or for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, excluding Tenant's vaults, safes and files,
and Landlord shall have the right to use any and all means which Landlord may
deem proper to open said doors in an emergency, in order to obtain entry to the
Premises without liability to Tenant except for any failure to exercise due care
for Tenant's property and entry to the Premises obtained by Landlord by any of
said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction of Tenant from the Premises or any portion thereof.

21. TENANT'S DEFAULT. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant.

21.A. The vacating or abandonment of the Premises by Tenant.

21.B. The failure by Tenant to make any payment of rent or any other payment
required to be made by Tenant hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof by
Landlord to Tenant.

21.C. The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in Article 22.B. above, where such failure shall
continue for a period of thirty (30) days after written notice hereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion.

21.D. The making by Tenant of any general assignment or general arrangement for
the benefit of creditors; or the filing by or against Tenant of a petition to
have Tenant judged as bankrupt, or petition or reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within sixty (60) days); or the
appointment of a trustee or a receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days.

22. REMEDIES. If Tenant shall default under this Lease, Landlord shall have the
following rights and remedies, in addition to all other remedies at law or
equity, and none of the following, whether or not exercised by Landlord, still
preclude the exercise of any other right or remedy whether herein set forth or
existing at law or equity:

22.A. Landlord shall have the right to terminate this Lease by giving Tenant
written notice at any time, whereupon this Lease shall terminate on the date
specified in such notice and Tenant shall immediately surrender possession of
the Premises to Landlord. No act by or on behalf of Landlord, such as entry of
the Premises to perform maintenance and repairs are efforts to relet the
Premises, other than giving Tenant written notice of termination, shall
terminate this lease. If this Lease is terminated, Landlord shall be entitled to
recover forthwith from Tenant as damages an amount equal to the total of: (1)
all rent and other sums due and unpaid at the time of termination, plus interest
hereon at the rate specified in Article 23.D; and (2) the amount of rent and all
other sums that would have been payable hereunder if the Lease had not been
terminated, less the net proceeds, if any, of any reletting of the Premises,
after deducting all Landlord's expenses in connection with such reletting,
including, but not limited to, all repossession costs, brokerage commissions,
tenant inducements, legal expenses, attorney's fees, and alteration, remodeling
and repair costs, which damages Tenant shall pay to Landlord on the days on
which the rent and other sums would have been payable if the Lease had not
terminated, or, alternatively, at Landlord's option, an amount equal to the
present value (discounted at the rate of 6% per annum) of the amount by which
the rent and other sums payable for the remainder of the stated Lease term after
the termination date exceeds the amount of such loss for the same period that
Tenant proves could be all of Landlord's expenses incurred in reletting (or
attempting to relet) the Premises; including, but without limitation, the
expenses enumerated above; and (3) all of Landlord's expenses incurred in
repossessing the Premises and all other amounts necessary to compensate Landlord
fully for- all damage caused by Tenant's default.

22.B. Landlord may, without demand or notice, re-enter and take possession of
the Premises or any part thereof, and repossess the same as of Landlord's former
estate and expel Tenant and those claiming through or under Tenant, and remove
the effects of any and all such persons (forcibly, if necessary) without being
deemed guilty of any manner of trespass and without prejudice to any remedies
for arrears of rent or preceding breach of covenants. If Landlord elects to so
re-enter or if Landlord takes possession pursuant to legal proceedings or
pursuant to any notice provided for by law, Landlord may, from time to time,
without terminating this Lease, relet the Premises or any part thereof for such
term or terms and at such rental or rentals, and upon such other conditions as

5
<PAGE>
Landlord may in its absolute discretion deem advisable, with the right to make
alterations and repairs to the Premises. No such re-entry, repossession or
reletting of the Premises by Landlord shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of termination
is given to Tenant by Landlord. No such re-entry, repossession or reletting of
the Premises shall relieve Tenant of its liability and obligation under this
Lease, all of which shall survive such re-entry, repossession or reletting. Upon
the occurrence of such re-enters or repossession, Landlord shall be entitled to
the amount of the monthly rent, and all other sums, which would be payable
hereunder if such re-entry or repossession had not occurred, less the net
proceeds, if any, of any reletting of the Premises after deducting all of
Landlord's expenses in connection with such reletting, including, but not
limited to, the expenses enumerated in 23.A. above. Tenant shall pay such
amounts to Landlord on the days on which the rent and other sums due hereunder
would have been payable hereunder if possession had not been retaken. If this
Lease is terminated as a result of Landlord's actions in retaking possession of
the Premises or otherwise, Landlord shall be entitled to recover damages from
Tenant as provided in 23.A. above.

22.C. Landlord shall have the right to recover from Tenant the rents and damages
provided for above by suit or suits brought from time to time without Landlord
being required to wait until the expiration of the lease term, or if this Lease
is terminated, the date on which such expiration would hove occurred. Landlord
may, but shall not be obligated to, cure, at any time, without notice, any
default by Tenant under this Lease; whenever Landlord so elects, all costs and
expenses incurred by Landlord in curing a default, including, without
limitation, reasonable attorney's fees, together with interest on the amount of
costs and expenses so incurred at the rate specified in Article 23.D. shall be
paid by Tenant to Landlord on demand, and shall be recoverable as additional
rent. No such payment or expenditure by Landlord shall be deemed a waiver of
Tenant's default nor shall it affect any other remedy of Landlord by reason of
such default. As used in this Lease, the term "re-enter", "take possession",
"repossess" and "repossession" are not restricted to their technical legal
meaning. In no event shall Tenant be entitled to receive the excess, if any, of
net rent collected by Landlord as a result of any reletting of the Premises over
the sums payable by Tenant hereunder.

22.D. If any rent or other sums due from Tenant are not received by Landlord
within ten (10) days after due, such sums shall bear interest at the rate of 2%
per month from the due date until paid. In addition, if any rent or other sums
due from Tenant is not received by Landlord within ten (10) days after due,
Tenant shall pay to Landlord a late charge equal to 10% of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs that Landlord will incur by reason of late payment by
Tenant, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting costs, and late
charges which may be imposed upon Landlord under any mortgage or deed of trust
covered the Premises, Acceptance of any late charge by Landlord shall in no
event constitute a waiver of Tenant's default with respect to such overdue
amount, nor prevent Landlord from exercising any other rights and remedies.

22.E. If it should be unnecessary for Landlord to employ an attorney to enforce
any of the provisions of this Lease, to collect any unpaid sum, or to recover
possession of the Premises, Tenant agrees to pay all of Landlord's attorney's
fees and costs reasonably incurred, whether or not suit is filed. If Landlord
shall prevail in any action or proceeding brought as either party against the
other under this Lease, Tenant agrees to pay all of Landlord's attorney fees and
costs reasonably incurred.

23. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event later than thirty (30) days after written notice by Tenant to Landlord and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Tenant in writing,
specifying wherein Landlord has failed to perform such obligation; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion. In no event shall
Tenant have the right to terminate this Lease as a result of Landlord's default
and Tenant's remedies shall be limited to damages and/or an injunction.

24. RECONSTRUCTION. In the event the Premises are damaged by fire or other
perils covered by extended coverage insurance, Landlord agrees to forthwith
repair same, and this Lease shall remain in full force and effect, except that
Tenant shall be entitled to a proportionate reduction of the Minimum Rent from
the date of damage and while such repairs are being made, such proportionate
reduction to be based upon the extent to which the damage and making of such
repairs shall reasonably interfere with the business carried on by the Tenant in
the Premises. If the damage is due to the fault or neglect of Tenant or its
employees, there shall be no abatement of rent. In the event the Premises are
damaged as a result of any cause other than the perils covered by fire and
extended coverage insurance, then Landlord shall forthwith repair same, provided
the extent of the destruction be less than ten (10%) percent of the then full
replacement cost of the Premises. In the event the destruction of the Premises
is to an extent of ten (10%) percent or more of the replacement cost then
Landlord shall have the option: (1) to repair or restore such damage, this Lease
continuing in full force and effect, but the Minimum Rent to be proportionately
reduced as hereinabove in this Article provided; or (2) give notice to Tenant at

6
<PAGE>
any time within sixty (60) days after such damage, terminating this Lease as of
the date specified in such notice, which date shall be no more than thirty (30)
days after giving of such notice. In the event of giving such notice, this lease
shall expire and all interest of the Tenant in the Premises shall terminate on
the date so specified in such notice and the Minimum Rent, reduced by a
proportionate reduction, based upon the extent, if any, to which such damage
interfered with the business carried on by the Tenant in the Premises, shall be
paid up to date of said such termination.

Notwithstanding anything to the contrary contained in this Article, Landlord
shall not have any obligation whatsoever to repair, reconstruct or restore the
Premises when the damage resulting from any casualty covered under this article
occurs during the last twenty-four months of the term of this Lease or any
extension thereof.

Landlord shall not be required to repair any injury or damage by fire or other
cause, or to make any repairs or replacements of any leasehold improvements,
fixtures, or other personal property of Tenant.

25. EMINENT DOMAIN. If more than twenty-five (25%) percent of the Premises shall
be taken or appropriated by the public or qwasi-public authority under the power
of eminent domain, either party hereto shall have the right, at its option,
within sixty (60) days after said taking, to terminate this lease upon thirty
(30) days written notice. If either less than or more than twenty-five (25%)
percent of the Premises are taken (and neither party elects to terminate as
herein provided), the Minimum Rent thereafter to be paid shall be equitably
reduced. If any part of the Snack Plant other than the Premises may be so taken
or appropriated, Landlord shall within 60 days of said taking have the right at
its option to terminate this Lease upon written notice to Tenant. In the event
of any taking or appropriation whatsoever, Landlord shall be entitled to any and
all awards and/or settlements which may be given and Tenant shall have no claim
against Landlord for the value of any unexpired term of this Lease.

26. TENANT 'S STATEMENT. Tenant shall at any time and from time to time upon no
less than three days prior written notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing (R) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease us so modified is in full force
and effect), and the date to which the rental and other charges are paid in
advance, if any, and (b) acknowledging that there are not, to Tenant's
knowledge, may incurred defaults on the part of the Landlord hereunder, or
specifying such defaults if any are claimed, and (c) setting forth the date of
commencement of rents and expiration of the term hereof. Any such statement may
be relied upon by any prospective purchaser or encumbrances of all or any
portion of the real property of which the Premises are a part.

27. PARKING AND COMMON AREAS. Landlord covenants that upon completion of the
Snack Plant an area approximately equal to the common and parking areas as shown
on the attached Exhibit "A" shall be at all times available for the
non-exclusive use of Tenant during the full term of this Lease or any extension
of the term hereof, provided that the condemnation of other taking by any public
authority, or sale in lieu of condemnation, of any or all such common and
parking areas shall not constitute a violation of this covenant. Landlord
reserves the right to change the entrances, exits, traffic lanes and boundaries
and locations of such parking area or areas, provided, however, that anything to
the contrary notwithstanding contained in the Article 28, said parking area or
areas shall at all times be substantially equal or equivalent to that shown on
attached Exhibit "A".

27.A. Prior to the date of Tenant's opening for business in the Premises,
Landlord shall cause said common and parking area or areas to be graded,
surfaced, marked and landscaped at no expense to Tenant.

27.B. The Landlord shall keep said automobile perking and common areas in a
neat, clean and orderly condition, and shall repair any damage to the facilities
thereof, but all expenses in connection with said automobile parking and common
areas shall be charged and prorated in the manner as set forth in Article 7
hereof.

27.C. Tenant, for the use and benefit of Tenant, its agents employees,
customers, licensees and subtenants, shall have the non-exclusive right in
common with Landlord, and other present and future owners, tenants and their
agents, employees, customers, licensees and subtenants, to use said common and
parking areas during the entire term of this Lease, and any extension thereof,
for ingress and egress, and automobile parking.

27.D. The Tenant, in the use of said common and parking areas, agrees to comply
with such reasonable rules, regulations and charges for parking as the Landlord
may adopt from time to time for the orderly and proper operations of said common
and parking area. Such rules may include but shall not be limited to the
following: (1) The restricting of employee parking to a limited, designated area
or areas; and (2) The regulations of the removal, storage and disposal of
Tenant's refuse and other rubbish at the sole cost and expense of Tenant.

7
<PAGE>
28. AUTHORITY OF PARTIES.

28.A. Corporate Authority. If Tenant is a corporation, each individual executing
this Lease on behalf of said corporation represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said corporation, in
accordance with a duly adopted resolution of the board of directors of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.

28.B. Limited Partnerships. If the Landlord herein is a limited partnership, it
is understood and agreed that any claims by Tenant on Landlord shall be limited
to the assets of the limited partnership and furthermore, Tenant expressly
waives any and all rights to proceed against the individual partners, or the
officers, directors or shareholders of any corporate partner, except to the
extent of their interest in said limited partnership.

29. SIGNS. On or before the date Tenant opens the Premises for business, Tenant
shall erect one sign on the front of the Premises, such sign to be in accordance
with a design to be prepared by Tenant and approved in writing by Landlord. Such
sign must conform to the sign criteria attached hereto and incorporated herein.
Except for such sign, Tenant shall not affix, attach, install, paint or
otherwise place any signs, advertising placards, names, insignia, trademarks or
other material upon the exterior walls of the Premises without the express prior
written approval of Landlord in each instance. Anything in this Lease to the
contrary notwithstanding, Tenant shall never affix any sign or other material to
the roof. Landlord may, at any time and at Tenant's expense, remove any
unapproved or unauthorized sign or other material, and Landlord's failure to do
so at any particular time shall never constitute a waiver of Landlord's right to
do so at a later time.

30. HOURS OF BUSINESS. Subject to the provisions of Article 25 hereof, Tenant
shall continuously during the entire term hereof conduct and carry on Tenant's
business in the premises and shall keep the Premises open for business and cause
Tenant's business to be conducted therein during the usual business hours of
each and every business day as is customary for business of like character in
the city in which the Premises are located to be open for business; provided,
however, that this provision shall not apply if the Premises should be closed
and the business of Tenant temporarily discontinued therein on account of
strikes, lockouts or similar causes beyond the reasonable control of Tenant or
closed for not more than three (3) days out of respect to the memory of any
deceased officer or employee of Tenant, or the relative or any such officer or
employee. Tenant shall keep the Premises adequately stocked with merchandise,
and with sufficient sales personnel to care for the patronage, and to conduct
said business in accordance with solid business practice.

31. GENERAL PROVISIONS.

(i) Plats and Riders. Clauses, plats, riders and addendums, if any, affixed to
this Lease are a part hereof.

(ii) Waiver. The Waiver by Landlord of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant or
conditions or any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding default by Tenant
or any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding default at the time of the acceptance of such rent.

(iii) Joint Obligation. If there be more than one Tenant the obligations
hereunder imposed shall be joint and several.

(iv) Marginal Headings. The Marginal headings and article titles to the articles
of this Lease are not a part of this Lease and shall have no effect upon the
construction of interpretation of any part hereof.

(v) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.

(vi) Successors and Assignees. The covenants and conditions herein contained,
subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of the parties hereto.

(vii) Recordation. Tenant shall not record this Lease. Tenant shall execute a
short form memorandum hereof at the request of Landlord.

(viii) Quiet Possession. Upon Tenant paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions of
Tenant shall have quiet possession of the Premises for the entire term hereof,
subject to all the provisions of this Lease.

8
<PAGE>
(ix) Lender's Approval. This Lease is subject to the approval of the lender
furnishing the loan for the Snack Plant. If such lender disapproves this Lease
within ten (10) days after the execution hereof, Landlord may cancel this Lease,
without any liability whatsoever, by written notice of cancellation given to
Tenant within five (5) days thereafter.

(x) Prior Agreements. This lease contains all of the agreements of the parties
hereto with respect to any matter covered or mentioned in the Lease, and no
prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.

(xi) Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because the Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of God,
or any other cause beyond the reasonable control of the Landlord.

(xii) Partial Invalidity. Any provision of this Lease which shall prove to be
invalid, void, or illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and effect.

(xiii) Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.

(xiv) Choice of Law. This Lease shall be governed by the laws of the State in
which the Premises are located.

(xv) Sale of Premises by Landlord. In the event of any sale of the Premises by
Landlord, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence or omission occurring
after the consummation of such sale; and the purchaser, at such sale or any
subsequent sale of the Premises shall be deemed, without any further agreement
between the parties and any such purchaser to have assumed and agreed to carry
out any and all of the covenants and obligations of the Landlord under this
Lease.

(xvi) Subordination; Attornment. This Lease, including the covenant of quiet
enjoyment, is and shall be subject and subordinate to all ground and underlying
leases, all mortgages, deeds of trust or other encumbrances, and any and all
conditions, renewals, extensions, modifications, consolidations and replacements
of any or all of the foregoing, now or hereafter affecting such leases or
Premises of the real property of which the Premises are a part (except to the
extent any such instrument shall expressly provide that this Lease is superior
thereto). This clause shall be self-operative and no further instrument of
subordination shall be required in order to effectuate it. Nevertheless, Tenant
shall, within five (5) days after request therefore, execute and deliver any
certificate or other assurance in confirmation of such subordination requested
by any lessor, mortgagee or by Landlord. In the event any proceedings are
brought for default under any ground or underlying lease or for the foreclosure
of, or in the event of the exercise of the power of sale under, any mortgage,
deed of trust or other encumbrance to which this Lease is subject and
subordinate, Tenant shall, upon request of the party succeeding to the interest
of Landlord as a result of such proceedings, automatically attorn to and become
the Tenant of such successor in interest without change in the terms of this
Lease. Tenant shall, within five (5) days after request therefore, execute and
deliver any instruments confirming such attornment requested by Landlord or such
successor in interest. Tenant hereby irrevocably appoints Landlord, its
successors and assigns as Tenant's attorney-in-fact to execute and deliver any
certificates or other assurances of subordination and/or attornment required by
this Article, for and on behalf of Tenant, if Tenant fails to do so as provided
herein. The provisions of this Article to the contrary notwithstanding, and so
long as Tenant is not in default hereunder, this Lease shall remain in full
force and effect for the full term thereof.

(xvii) Notices. All notices and demands which may or are to be required or
permitted to be given by either party on the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage prepaid, addressed to the Tenant at the Premises,
and to the address hereinbelow, or to such other place as Tenant may from time
to time designate in a notice to the Landlord. All notices and demands by the
Tenant to the Landlord shall be sent by United States Mail postage prepaid,
addressed to the Landlord at the address set forth herein, and to such other
person or place as the Landlord may from time to time designate in a notice to
the Tenant.

To LANDLORD at: 225 W. Hospitality, San Bernardino, CA 92408

To TENANT at: 705 W. Dustman Road, Bluffton, Indiana

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<PAGE>
31. BROKERS. Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this Lease.

LANDLORD: American Pacific Financial Corporation

BY:
-------------------------------------
Bradley J. Crandall, Vice President

TENANT: Wabash Foods, LLC

BY:
-------------------------------------
Larry R. Polhill, Manager

LIST OF SUBSIDIARIES OF POORE BROTHERS, INC.

Name of Subsidiary State of Incorporation/Formation
------------------ --------------------------------
Poore Brothers of Arizona, Inc. Arizona
Poore Brothers Distributing, Inc. Arizona
Poore Brothers of Texas, Inc. Texas
La Cometa Properties, Inc. Arizona
Tejas PB Distributing, Inc. Arizona
Wabash Foods, LLC Delaware

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE RELATED CONSOLIDATED
STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 104,364
<SECURITIES> 0
<RECEIVABLES> 3,471,394
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<DEPRECIATION> 1,908,713
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<BONDS> 10,680,840
0
0
<COMMON> 132,220
<OTHER-SE> 11,125,043
<TOTAL-LIABILITY-AND-EQUITY> 26,073,980
<SALES> 23,275,543
<TOTAL-REVENUES> 23,275,543
<CGS> 17,568,425
<TOTAL-COSTS> 17,568,425
<OTHER-EXPENSES> 4,763,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 749,750
<INCOME-PRETAX> 193,472
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<INCOME-CONTINUING> 193,472
<DISCONTINUED> 0
<EXTRAORDINARY> (47,601)
<CHANGES> (71,631)
<NET-INCOME> 74,240
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</TABLE>