UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  ------------
                                    FORM 10-K

  {X} Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
             Act of 1934 For the fiscal year ended December 29, 2002

                                       or

    { } Transition Report Pursuant to Section 13 or 15 (d) of the Securities
     Exchange Act of 1934 For the transition period from ______ to ______.

                        Commission file number 333-57931
                                    ---------

                                TUMBLEWEED, INC.
           ----------------------------------------------------------
             (Exact name of registrant as specified in its charter)


Delaware                                                 61-1327945
----------------------------------------    ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)
2301 River Road
Louisville, Kentucky                                       40206
----------------------------------------    ------------------------------------
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code: (502) 893-0323

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

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

Indicated  by check  mark  whether  the  registrant:  (1) has filed all  reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  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____

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes         No   X
                                      --------    -------

Indicated by check mark if disclosure of delinquent  filers pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. {X}

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant on March 3, 2003, was approximately $2,333,000.  For purposes of this
calculation,   shares  held  by   non-affiliates   excludes  only  those  shares
beneficially owned by officers,  directors and shareholders  beneficially owning
10% or more of the outstanding  Common Stock.  The market value  calculation was
determined  using the closing  sale price of the  registrant's  common  stock on
March 3, 2003 ($1.12) as reported on The Nasdaq Small Cap Market.

The number of shares of common stock,  par value of $.01 per share,  outstanding
on March 3, 2003, was 5,916,153.

                       DOCUMENTS INCORPORATED BY REFERENCE


                                   Documents from which portions are
Part of Form 10-K                  incorporated by reference
----------------------             ------------------------------------------
        Part III                   Proxy statement relating to the registrant's
Exhibit Index: Page 54-55          Annual Meeting of Shareholders to be held
                                   June 25, 2003

<PAGE>

                                TUMBLEWEED, INC.

                                     PART I



ITEM 1. BUSINESS

At December 29, 2002,  Tumbleweed,  Inc. (the  "Company")  owned,  franchised or
licensed  56  Tumbleweed   Southwest   Mesquite   Grill  &  Bar   ("Tumbleweed")
restaurants.  We owned and  operated  31  Tumbleweed  restaurants  in  Kentucky,
Indiana and Ohio.  There were 19 franchised  Tumbleweed  restaurants  located in
Indiana, Illinois,  Kentucky and Wisconsin, and six licensed restaurants located
outside  the United  States in  Germany,  Jordan,  Egypt,  England  and  Turkey.
Tumbleweed restaurants feature sophisticated Southwest and mesquite grilled food
served in a casual dining atmosphere evoking the American Southwest.  Tumbleweed
restaurants  are open seven days a week (excluding  certain  holidays) for lunch
and dinner and generally offer a full service bar.

The    Company    makes    available     through    its    internet     website,
www.tumbleweedrestaurants.net  , its  annual  report  on  Form  10-K,  quarterly
reports  on Form  10-Q,  current  reports  on Form 8-K and  amendments  to those
reports filed or furnished  pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as soon as  reasonably  practicable  after  electronically
filing such material with the Securities and Exchange Commission.  The reference
to the Company's website address does not constitute  incorporation by reference
of the information contained on the website and should not be considered part of
this document.

THE TUMBLEWEED CONCEPT

The Tumbleweed  menu offers both  distinctively  seasoned,  spicier  versions of
popular Mexican dishes,  as well as an assortment of grilled steaks,  ribs, pork
chops,  chicken and seafood  selections.  The Tumbleweed  concept is designed to
appeal to a broad range of customers by offering a wide selection of distinctive
items at a broad range of price points while, in management's view,  providing a
consistent level of food quality and friendly and efficient  service  comparable
or superior to that of other casual  dining  restaurants.  Use of a  centralized
commissary system enhances  Tumbleweed's  ability to maintain  consistently high
food quality, minimizes restaurant kitchen space and equipment, reduces the need
for skilled cooking personnel,  and simplifies  restaurant  operations.  The key
elements of the Tumbleweed concept include the following:

ONE CONCEPT  OFFERING  AMERICAN  SOUTHWEST  GRILLED ITEMS AND MEXICAN FOOD.  The
Tumbleweed menu is intended to distinguish Tumbleweed from competing Mexican and
casual dining concepts by offering both distinctively seasoned, spicier versions
of burritos,  enchiladas,  tacos,  salads,  and other popular Mexican dishes, as
well as an assortment of grilled steaks,  ribs, pork chops,  chicken and seafood
selections.  Management  believes this approach  appeals to a broader segment of
the population and encourages customers to visit the restaurants more often.

The Tumbleweed menu features  distinctively seasoned versions of popular Mexican
dishes and mesquite grilled  selections.  Customers receive  complementary chips
and  salsa,  and can  choose  from a  selection  of  appetizers  including  such
Tumbleweed  specialties  as  chile  con  queso  and  chili,  as well as  nachos,
quesadillas,  buffalo chicken strips,  Southwest  eggrolls and turkey wings. The
Mexican menu offers burritos,  enchiladas,  tacos,  chimichangas and other items
served both individually and in various  combination dinners accompanied by rice
and refried or baked  beans.  Customers  may also choose from an  assortment  of
fajitas,  ribs,  chicken,  steak,  pork chops, and seafood prepared over an open
gas- fired mesquite wood grill and served with Texas Toast,  salad, and a choice
of baked potato,  baked sweet potato,  southwest fries,  smashed taters, corn on
the cob,  grilled veggies,  Santa Fe rice, and refried or baked beans.  Mesquite
grilled  items are  available  as  sandwiches  as well as entrees.  A variety of
salads  featuring  refried  beans,  seasoned  beef,  shredded or fried strips of
chicken,  mesquite grilled chicken or seafood, and other traditional ingredients
rounds out the menu. In an effort to increase the frequency of guest visits, the
Company  introduces new items which complement  present menu selections  through
seasonal  menus.  The Company  also has a lunch menu which is  available  during
lunch hours as a complement to the complete menu.

Tumbleweed  restaurants  typically  contain  full-service  bars  offering a wide
assortment of mixed drinks, wines, domestic and imported beers and featuring the
Tumbleweed   margarita  and  Texas  Tea.  Alcoholic   beverages   accounted  for
approximately 10.4% of restaurant sales during 2002.

                                      - 2 -

<PAGE>



Tumbleweed's  menu pricing is designed to create a strong perception of value by
consumers.  Prices for Mexican  dishes  range from $4.39 for two tacos to $11.99
for the "Need the 'Weed" sampler dinner. Mesquite grilled items range from $6.29
for a  hamburger  to  $19.99  for a 22  oz.  USDA-choice  ribeye  steak  dinner.
Tumbleweed also offers several daily lunch specials for less than $6.00.

TARGETED  ATMOSPHERE.  Tumbleweed  restaurants  offer  relaxed  and  comfortable
surroundings  where  guests can enjoy a quality  dining  experience.  Decorative
features  such  as  American  Indian  artifacts,  cowboy  memorabilia,  wildlife
replicas,  rough-hewn  timber and a creek stone  fireplace in larger  stores are
used to evoke the feeling of the Great Southwest.

MAINTAINING  A  FAVORABLE  PRICE-TO-VALUE  RELATIONSHIP.   Tumbleweed's  pricing
strategy is intended to appeal to value- driven customers as well as traditional
casual dining customers. Tumbleweed offers a wide selection of distinctive items
at a broad range of price points while, in management's view,  providing a level
of food  quality and  service  comparable  or  superior to that of other  casual
dining  restaurants.  For 2002, the average check at a  full-service  Tumbleweed
restaurant,  including  beverages,  was $9.48 for lunch and $12.61  for  dinner.
Management  believes  that this pricing  approach,  together  with  Tumbleweed's
emphasis on variety and quality, creates a favorable  price-to-value  perception
that can increase customer volume and generate more frequent repeat visits.

ACHIEVING  TOTAL GUEST  SATISFACTION.  We are  committed  to  providing  prompt,
friendly and attentive service and consistent food quality to our customers.  We
use a "mystery shopper" program to compare actual  performance of restaurants to
Tumbleweed  standards and solicit  comment  cards from  customers to monitor and
modify restaurant operations.

OPERATING STRATEGY

We use the following key operating strategies to make certain that we exceed the
expectations of our customers:

TARGET FOR TOTAL GUEST SATISFACTION.  Tumbleweed's organizational and management
philosophy  is  based on five  core  values  and a  commitment  to  Total  Guest
Satisfaction  ("TGS").  Our training  procedures  are intended to instill in all
managers  and  employees an  appreciation  of the core values and to encourage a
shared commitment to TGS and teamwork.

COMMITMENT TO ATTRACTING AND RETAINING QUALITY EMPLOYEES. By providing extensive
training  and  attractive  compensation,  and  by  emphasizing  clearly  defined
organizational  values,  we foster a strong  corporate  culture and  encourage a
sense of personal  commitment  from our employees.  We have a monthly cash bonus
program  based on  attaining  sales  growth and related  performance  goals on a
restaurant-by-restaurant basis for each restaurant's management team.

CONSISTENT  HIGH  QUALITY  FOOD  PREPARATION.   We  are  committed  to  offering
distinctive Mexican and mesquite grilled foods to customers at reasonable prices
through the use of a commissary-based  system.  Management believes that the use
of a  central  commissary  provides  a  significant  strategic  and  competitive
advantage by enhancing our ability to maintain  consistently  high food quality,
minimizing  restaurant  kitchen space and equipment,  and reducing the number of
skilled  cooking  positions.  The system also  enables  restaurant  managers and
kitchen  staff to focus on the final  preparation  of menu  items to  Tumbleweed
standards.

Whenever  feasible,  the cooked  ingredients used in Tumbleweed menu selections,
such as ground beef, chile con queso, and Mexican beans, are prepared in advance
at the commissary  according to procedures designed to extend shelf life without
the  addition  of  preservatives.  The  kitchen  staff at each  restaurant  uses
commissary-supplied  and other fresh  ingredients  for the final  preparation of
individual  orders.  Management  believes  this system  enhances  our ability to
maintain  rigorous  operational  and food  preparation  procedures and stringent
product shelf life  standards.  The commissary  operates  according to stringent
quality  control  standards  and is  subject  to a  daily  inspection  by a USDA
inspector  on  the  premises.   We  maintain  a  contingency  plan  under  which
centralized  food  preparation  could be quickly  resumed  at another  company's
facility  should the  commissary  be  rendered  inoperative  by weather or other
disaster.

GROWTH STRATEGY

Our  strategy  for  growth  will  focus on the  further  development  of new and
existing  markets by both the  Company  and  franchisees.  Since  acquiring  the
Tumbleweed  concept in 1995,  we have  added new  Company-owned  and  franchised
restaurants, while developing the infrastructure necessary to support our growth
strategy. This approach has given

                                      - 3 -

<PAGE>



management an opportunity to validate the Tumbleweed  concept,  refine operating
systems,  design and develop prototype  restaurant  buildings of different sizes
and build a team of  experienced  corporate  managers  needed to support  future
internal and franchise  growth.  The following are key elements of our expansion
strategy:

OPENING RESTAURANTS IN TARGET MARKETS. We target mid-sized metropolitan markets,
initially  concentrating in the Midwest and Mid-Atlantic  regions,  where income
levels and the presence of shopping and  entertainment  centers,  offices and/or
colleges  and  universities  indicate  that  a  significant  base  of  potential
customers  exists.  Management  considers the  feasibility  of opening  multiple
restaurants in a target market,  which offers greater  operating and advertising
efficiency.  As we add additional  restaurants in a target market,  there may be
short-term  decreases in same store sales.  However,  management  believes  this
clustering strategy can enhance long-term performance through economies of scale
and shared  advertising  expenses.  Management  also views smaller  markets with
fewer competing casual dining restaurants as presenting growth opportunities for
the Company.  Management  believes that its target markets are less  competitive
than  major  metropolitan  markets in terms of both site  acquisition  costs and
number of casual  dining  restaurant  options.  On January 1, 2002,  the Company
purchased  from its joint  venture  partner  the  remaining  50%  interest  in a
restaurant  location.  During the first quarter of 2002, the Company closed four
restaurant  locations.  The  restaurants  were located in Cincinnati,  Ohio (2),
Columbus,  Ohio (1), and Evansville,  Indiana (1). The restaurant  closings were
part  of a  strategic  management  decision  to  eliminate  lower  sales  volume
restaurants  that were  unprofitable  in 2001 and to focus its  energies  on the
continued  improvement  of per-store  average sales  volumes.  During the second
quarter  of  2002,  the  Company  sold  one of  its  restaurant  locations  to a
franchisee  in  accordance  with the Company's  plan  established  in the fourth
quarter of 2001. In the next 12 months,  the Company expects to construct one or
two additional restaurant facilities.

SELECTING  AND  DEVELOPING  QUALITY  RESTAURANT  SITES.  In selecting  potential
restaurant sites, management analyzes a variety of factors,  including,  but not
limited to, local  market  demographics,  site  visibility,  competition  in the
vicinity, and accessibility and proximity of significant generators of potential
customers such as major retail  centers,  hotels,  universities,  and sports and
entertainment   facilities.   The  acquisition  of  sites  may  involve  leases,
purchases,  and  joint  venture  arrangements,   and  will  require  either  the
construction of new buildings or the conversion of existing buildings.  The site
selection process is conducted by our management and other employees, as well as
with the assistance of consultants  when deemed  advisable.  We believe that our
site  selection  strategy  and  procedures,  together  with our menu and pricing
strategies,  our commitment to quality food products and excellent service,  and
our advertising,  marketing and promotional efforts, will enhance our ability to
generate our anticipated customer volumes.

FRANCHISING.  We  expect  that  continued  growth  will  come  from the  further
development of new and existing  markets by us and by franchisees.  We intend to
pursue an active  franchising  program  with current and new  franchisees  under
controlled  guidelines.  We offer franchisees both rights to develop  individual
restaurants as well as area  development  rights for the  establishment  of more
than  one  new  restaurant  over a  defined  period  of  time  and in a  defined
geographic  area. The specific  locations of the  restaurants  are  subsequently
designated by us and the franchisee in separate franchise agreements.  Under the
standard area development  agreement  currently in use, a franchisee is required
to pay at the time the  agreement is signed a  non-refundable  fee of $5,000 per
potential  restaurant in the defined  geographic area, to be applied against the
initial franchise fee payable for each restaurant.  Our current area development
agreement also provides for a franchise fee of $40,000 for each restaurant.  The
franchise  fee is due when the  franchise  agreement for a restaurant is signed.
Each  franchise  agreement  generally  provides  for  royalties of three to five
percent of restaurant  sales,  minimum  marketing  expenditures of 2.0% of gross
sales,  and a twenty-year  term. All  franchisees  are required to operate their
Tumbleweed   restaurants  in  compliance   with  our  policies,   standards  and
specifications,  including matters such as menu items,  ingredients,  materials,
supplies, services, fixtures,  furnishings,  decor and signs. Under our criteria
for selecting new franchisees,  Tumbleweed  requires that potential  franchisees
have adequate  capital,  experience in the  restaurant  industry,  and access to
locations suitable for development.  We generally require that a franchisee have
a principal  operator  with at least a ten percent  ownership  interest who must
devote  full time to the  restaurant  operation.  In  addition,  we may  acquire
restaurants from our franchisees from time to time.

During 2002, there were no franchise  restaurant  openings,  and two franchisees
elected to close their Tumbleweed restaurant locations (a total of 3 locations).

MATCHING  INVESTMENT  TO  SALES  POTENTIAL.  When  developing  a new  Tumbleweed
restaurant, we generally use one of two prototype designs management believes is
best suited to a particular  site. Our Buffalo  Hunter and Gunslinger  prototype
restaurants  accommodate  approximately 250 and 200 guests,  respectively.  Each
size  restaurant  offers full service casual dining and a menu containing a wide
assortment of Mexican and mesquite grilled selections. Management believes that

                                      - 4 -

<PAGE>



the use of multiple  prototypes  permits us to more closely match the investment
in a restaurant site with the site's  estimated sales  potential.  These factors
allow  for more  efficient  utilization  of  financial  resources  by us and our
franchisees.

INTERNATIONAL. In 2002, the Company purchased Tumbleweed International, LLC. See
below for a detail  discussion of this  transaction.  The acquisition  gives the
Company  direct  control  and  benefit  of the  international  licensing  of the
Tumbleweed concept.

RESTAURANT DESIGN

USING PROTOTYPE  RESTAURANT  DESIGNS.  Tumbleweed full service  restaurants have
historically  proven  successful in several  different  formats and sizes. It is
anticipated that new units will be full service restaurants employing one of two
basic prototype  designs.  Management  believes using multiple prototype designs
allows greater flexibility to match the investment by us or our franchisees with
the revenue potential of a particular  restaurant site. Each prototype generally
contains a  full-service  bar and utilizes the  distinctive  "Old West" logo and
motif that has characterized Tumbleweed restaurants for several years.

Management  believes  our  prototype  designs  can  be  adapted  for  developing
Tumbleweed  restaurants  in existing  structures.  This  capability  may give us
access to  quality  sites not  otherwise  available  and may  reduce the time or
expense of development in certain circumstances.

RESTAURANT OPERATIONS

RESTAURANT  MANAGEMENT.  We  employ  area  directors  who  are  responsible  for
supervising  the operations of Tumbleweed  restaurants  within their  geographic
region  and  the  continuing  development  of  each  restaurant's  managers  and
employees.  Through regular visits to the restaurants, the area directors ensure
that the Tumbleweed  concept,  strategies,  core values and standards of quality
are being observed in all aspects of restaurant  operations.  Area directors are
chiefly responsible for the implementation of the TGS program.

Each of our  restaurants has one general  manager,  one kitchen manager and from
one to three assistant managers, based on restaurant volume. The general manager
of each restaurant has primary  responsibility for the day-to-day  operations of
the entire restaurant,  including sales, physical plant,  financial controls and
training,  and is  responsible  for  maintaining  the  standards  of quality and
performance  established by us. In selecting managers, we generally seek persons
who have  significant  prior  experience in the  restaurant  industry as well as
employees  who have  demonstrated  managerial  potential and a commitment to the
Tumbleweed  concept and  philosophy.  We seek to attract and retain high caliber
managers  and hourly  employees  by providing  them with  competitive  salaries,
monthly bonuses and a casual, entertaining and challenging working environment.

COMPREHENSIVE  TRAINING  AND  DEVELOPMENT.  We have  developed  a  comprehensive
training  program for  managers and hourly  employees.  Managers are required to
complete a ten-week initial training course and regular training  programs.  The
course  emphasizes  our culture,  commitment to TGS,  operating  procedures  and
standards, and internal controls.

The general  managers and the area directors are  responsible  for selecting and
training hourly employees at each restaurant. We employ training coordinators to
assist with training and  development  of employees.  Before the opening of each
new  restaurant,  one of our  training  managers  leads  a team  of  experienced
employees to train and educate the new  employees.  The training  period for new
employees  includes 10 days of general training prior to opening and one week of
on-the-job  supervision  at the  new  Tumbleweed  restaurant.  Ongoing  employee
training  remains  the  responsibility  of  the  general  manager  and  training
coordinator of each restaurant under the supervision of the area director.

RESTAURANT REPORTING. We closely monitor sales, costs of food and beverages, and
labor  at  each  of  our  restaurants.  Management  analyzes  daily  and  weekly
restaurant  operating  results to  identify  trends at each  location,  and acts
promptly to remedy  negative  trends where  possible.  We use an accounting  and
management  information  system that operates at the restaurant  level to ensure
the  maintenance  of financial  controls and  operations.  Administrative  staff
prepare daily  reports of sales,  labor and customer  counts.  Cost of sales and
condensed  profit and loss statements  compiled weekly by store-level  personnel
and at the  end of  each  reporting  period  by our  accounting  department  are
provided to  management  for analysis and  comparison  to past  performance  and
budgets. We use a specialized  software system to measure theoretical food costs
against actual costs.


                                      - 5 -

<PAGE>



SEASONALITY. We consider restaurant operations to be somewhat seasonal in nature
with late first quarter and second quarter being the peak sales periods.

SUPPORT OPERATIONS

COMMISSARY   OPERATIONS.   Use  of  a  centralized  commissary  system  enhances
Tumbleweed's ability to maintain  consistently high food quality,  minimizes the
kitchen  space and  equipment  needed at each  restaurant,  reduces the need for
highly skilled cooking personnel, and simplifies restaurant operations. Managers
and kitchen  staff at each  restaurant  focus on the final  preparation  of menu
items to Tumbleweed standards.  We currently operate our commissary  principally
to  enhance  food  quality  and  operational  efficiency  of  Company-owned  and
franchised restaurants. Management believes this approach increases Tumbleweed's
ability to offer its  customers a  consistently  high level of food quality at a
moderate price.

The commissary charges an amount  approximately  equal to its cost for the items
it  supplies  to  Company-owned  and  franchised  restaurants.   The  Commissary
sometimes contracts for the production of food products for other companies, and
has  granted  the right to an outside  food  producer  to produce  and market in
grocery  stores a chili con queso product  utilizing the  "Tumbleweed"  name and
recipe for which we receive a royalty based upon production and sales.

DEVELOPMENT AND CONSTRUCTION.  The President, Vice President and Chief Financial
Officer,  Vice President of Company  Operations and the Director of Construction
oversee the construction  process utilizing outside  architectural  services and
construction services.  Individual site selection analysis is handled by Company
management, with final approval by the President of the Company.

ADVERTISING  AND  MARKETING.  We use radio,  print,  billboard,  and direct mail
advertising in our various markets, as well as television advertising in certain
larger  markets.  We also engage in a variety of other  promotional  activities,
such as  contributing  goods,  time and money to charitable,  civic and cultural
programs,  in order to increase public  awareness of our  restaurants.  The cost
associated with these promotional  activities in 2002 was approximately  3.3% of
restaurant sales.

RESTAURANT  LOCATIONS

As of December 29, 2002,  we owned and operated 31 Tumbleweed  restaurants.  The
following  table sets forth the markets  (including the number of restaurants in
each market) of these 31 restaurants:


                                                                 NO. OF
STATE                LOCATION                                 RESTAURANTS
-----                --------                                 -----------
Indiana              Evansville                                     3
Indiana              Ft. Wayne                                      2
Indiana              Terre Haute                                    1
Kentucky             Bowling Green                                  1
Kentucky             Louisville                                     9
Ohio                 Cincinnati                                     5
Ohio                 Columbus                                       5
Ohio                 Dayton                                         3
Ohio                 Cleveland                                      2
                                                                   --
                     TOTAL                                         31
                                                                   ==



                                      - 6 -

<PAGE>



FRANCHISED RESTAURANTS

As of December  29,  2002,  we had six  franchisees  that owned and  operated 19
Tumbleweed  restaurants.  The following  table sets forth the franchisee and the
location  (including  the number of  restaurants  at each  location) of these 19
restaurants:

<TABLE>
<CAPTION>

                                                                                    No. of               Total By
Franchisee                   State                    Location                    Restaurants            Franchisee
----------                   -----                    --------                    -----------            ----------
<S>                          
                      
                              <C>                  <c>
TW-Indiana, LLC              Indiana                  Floyd Knobs                      1
                             Indiana                  New Albany                       2
                             Indiana                  Salem                            1
                             Indiana                  Jeffersonville                   1
                             Kentucky                 Shelbyville                      1
                             Kentucky                 Frankfort                        1
                             Kentucky                 Lexington                        1
                                                                                      --
                                                                                                             8
Diamondback
Management Corp.             Illinois                 Rockford                         1
                             Wisconsin                Appleton                         1
                             Wisconsin                Franklin                         1
                             Wisconsin                Madison                          1
                             Wisconsin                Milwaukee                        1
                             Wisconsin                New Berlin                       1
                             Wisconsin                Park Place                       1
                                                                                      --
                                                                                                             7

TW-Seymour, LLC              Indiana                  Seymour                          1
                                                                                      --
                                                                                                             1

TW-Glasgow, Inc.             Kentucky                 Glasgow                          1
                                                                                      --
                                                                                                             1

TW-Bullitt, Inc.             Kentucky                 Hillview                         1
                                                                                      --
                                                                                                             1

TW-Somerset, LLC             Kentucky                 Somerset                         1
                                                                                      --
                                                                                                             1
                                                                                                            --
                                                                                                            19
                                                                                                            ==
</TABLE>
LICENSED RESTAURANTS

As of December 29, 2002,  we had six licensed  restaurants  located  outside the
United States. The following table sets forth the location by country (including
the number of restaurants in each country) of these six restaurants:


                                                 No. of
                                 Country       Restaurants
                                 -------       -----------

                                 England            2
                                 Turkey             1
                                 Egypt              1
                                 Germany            1
                                 Jordan             1
                   -
                   6





                                      - 7 -

<PAGE>



INTERNATIONAL LICENSING AGREEMENT

Prior  to  January  1,  2002,   the  Company  had  a  license   agreement   (the
"International Agreement") with Tumbleweed International, LLC ("International"),
a  restaurant   developer  based  in  Hanau,   Germany,  to  develop  Tumbleweed
restaurants outside of the Western  Hemisphere.  On January 1, 2002, the Company
purchased  the  ownership  interest  in  International  for  $1.5  million  from
TW-International  Investors, Inc. and Chi-Chi's International  Operations,  Inc.
("CCIO").  CCIO owned 40% of  International.  The President and Chief  Executive
Officer  of  the  Company  is  the  sole   shareholder   of  CCIO.   Members  of
TW-International Investors, Inc. include three current directors of the Company.
The   acquisition   gives  the  Company   direct  control  and  benefit  of  the
international  licensing  of the  Tumbleweed  concept.  In  connection  with the
acquisition,  the  Company  assumed  an  existing  $1.4  million  bank  loan  of
TW-International Investors, Inc. and issued 76,923 shares of its common stock to
CCIO.  The  Company  has  entered  into a  commission  agreement  with  CCIO  in
connection with the sale of international regional licenses by International.

SERVICE MARKS

A  wholly-owned  subsidiary  of the  Company  owns and  licenses  to the Company
various  service  marks and  trademarks  that are  registered  on the  Principal
Register of the United States Patent and Trademark Office. We regard our service
marks and trademarks as having  significant  value and being an important factor
in the  development  of the  Tumbleweed  concept.  Our  policy is to pursue  and
maintain  registration of our service marks and trademarks whenever possible and
to oppose  vigorously  any  infringement  or dilution  of our service  marks and
trademarks.

GOVERNMENT REGULATION

We are subject to a variety of federal,  state and local laws. Our commissary is
licensed  and subject to  regulation  by the USDA.  Each of our  restaurants  is
subject  to  permitting,  licensing  and  regulation  by a number of  government
authorities,  including alcoholic beverage control, health, safety,  sanitation,
building and fire agencies in the state or  municipality in which the restaurant
is located.  Difficulties in obtaining or failure to obtain required licenses or
approvals  could  delay or prevent  the  development  of a new  restaurant  in a
particular area.

Approximately  10.4% of our restaurant  sales were  attributable  to the sale of
alcoholic  beverages  for the fiscal year ended  December  29,  2002.  Alcoholic
beverage control regulations require each of our restaurants to apply to a state
authority  and, in certain  locations,  county or  municipal  authorities  for a
license  or permit  to sell  alcoholic  beverages  on the  premises.  Typically,
licenses  must be renewed  annually and may be revoked or suspended for cause at
any time.  Alcoholic beverage control  regulations relate to numerous aspects of
restaurant operations,  including minimum age of patrons and employees, hours of
operation,  advertising,  wholesale purchasing,  inventory control and handling,
storage and dispensing of alcoholic beverages.

The failure of a restaurant to obtain or retain liquor or food service  licences
would have a material adverse effect on the restaurant's  operations.  To reduce
this risk,  each of our  restaurants  are operated in accordance with procedures
intended to assure compliance with applicable codes and regulations.

The Federal Americans With Disabilities Act (The "ADA") prohibits discrimination
on the basis of  disability in public  accommodations  and  employment.  The ADA
became  effective  as  to  public  accommodations  in  January  1992  and  as to
employment  in  July  1992.  We  currently  design  our  new  restaurants  to be
accessible to the disabled,  and believe that we are in  substantial  compliance
with all current applicable  regulations  relating to restaurant  accommodations
for the  disabled.  We intend to comply  with  future  regulations  relating  to
accommodating the needs of the disabled, and we do not currently anticipate that
such compliance will require us to expend substantial funds.

We are  subject in  certain  states to "dram  shop"  statutes,  which  generally
provide a person injured by an intoxicated  person the right to recover  damages
from  an  establishment  that  wrongfully  served  alcoholic  beverages  to  the
intoxicated  person. We carry liquor liability  coverage as part of our existing
comprehensive general liability insurance, as well as excess liability coverage.
We have never been  named as a  defendant  in a lawsuit  involving  "dram  shop"
liability.

Our  restaurant  operations are also subject to federal and state laws governing
such matters as the minimum hourly wage,  unemployment tax rates,  sales tax and
similar  matters,  over  which we have no  control.  Significant  numbers of our
service,  food  preparation and other personnel are paid at rates related to the
federal minimum wage, and increases in the minimum wage could increase our labor
costs.

                                      - 8 -

<PAGE>



The  development  and  construction  of  additional  restaurants  are subject to
compliance  with  applicable  zoning,   land  use  and  environmental  laws  and
regulations.

EMPLOYEES

As of December 29, 2002, we had  approximately  1,800 employees,  of whom 35 are
executive and administrative personnel, 117 are restaurant management personnel,
and the remainder are hourly  restaurant and commissary  personnel.  Many of our
hourly restaurant employees work part-time. None of our employees are covered by
a collective  bargaining  agreement.  We consider  our employee  relations to be
good.

FORWARD-LOOKING STATEMENTS/RISK FACTORS

We make various  forward-looking  statements  about our business in this report.
When  making  these  forward-looking  statements,  we use words such as expects,
believes,  estimates,  anticipates,  plans and similar  expressions  to identify
them. We also identify important  cautionary factors that could cause our actual
results to differ materially from those projected in forward-looking  statements
made by us. Factors that realistically  could cause results to differ materially
from those projected in the forward-looking  statements include the availability
and cost of  financing  and other  events that affect our  restaurant  expansion
program, changes in food and other costs, changes in national, regional or local
economic  conditions,  changes in consumer tastes,  competitive  factors such as
changes in the number and location of competing restaurants, the availability of
experienced management and hourly employees,  and other factors set forth below.
We do not have any obligation to revise any of these forward-looking  statements
for events occurring after the date of this report or for unanticipated events.

EXPANSION  RISKS.  Since 1995, we have grown while  developing  the  operational
systems,  internal controls,  and management  personnel that management believed
was  necessary to support our plans for  continued  expansion.  In the course of
expanding our business,  we may enter new geographic regions in which we have no
previous  operating  experience.  There can be no assurance  that the Tumbleweed
concept will be viable in new geographic regions or particular local markets. In
addition,  when  feasible,  we intend to open multiple  restaurants  in a target
market  to  achieve  operating  and  advertising  efficiencies.   Although  such
"clustering" of restaurants in a market may adversely affect same store sales in
the   short-term,   management   believes   clustering  can  enhance   long-term
performance.

The  continued  growth of our business  will depend upon our ability to open and
operate  additional  restaurants  profitably,  which in turn  will  depend  upon
several  factors,  many of which are beyond our control.  These factors include,
among other  things,  the  selection  and  availability  of suitable  locations,
negotiations of acceptable  lease,  purchase and/or  financing terms, the timely
construction of restaurants,  the securing of required  governmental permits and
approvals,  the  employment  and  training of qualified  personnel,  and general
economic  and  business  conditions.  Our ability to expand into new  geographic
regions is also  dependent  upon our ability to expand our  existing  commissary
facilities or open and successfully operate additional  commissaries,  as may be
necessary to support additional  restaurants.  There can be no assurance that we
will be  successful  in achieving  our growth  plans or managing  our  expanding
operations  effectively,  nor can there be any assurance that new restaurants we
open will be operated profitably.

RESTAURANT BASE. As of December 29, 2002, we operated 31 Tumbleweed restaurants.
Because  of the number of  restaurants  we  currently  operate,  poor  operating
results  at  a  small  number  of  restaurants   could  negatively   affect  the
profitability  of  the  entire  Company.   An  unsuccessful  new  restaurant  or
unexpected  difficulties  encountered  during  expansion  could  have a  greater
adverse  effect  on our  results  of  operations  than  would  be the  case in a
restaurant company with more restaurants.  In addition,  we lease certain of our
restaurants.  Each lease  agreement  provides  that the lessor may terminate the
lease for a number of reasons, including if we default in payment of any rent or
taxes or breach any covenants or agreements contained in the lease.  Termination
of any of our leases pursuant to such terms could  adversely  affect our results
of operations.

CHANGES  IN  FOOD  AND  OTHER  COSTS;   SUPPLY  RISKS.   Our   profitability  is
significantly  dependent  on our ability to  anticipate  and react to changes in
food, labor,  employee benefits and similar costs over which we have no control.
Specifically, we are dependent on frequent deliveries of produce and fresh beef,
pork,  chicken and seafood.  As a result, we are subject to the risk of possible
shortages  or  interruptions  in  supply  caused  by  adverse  weather  or other
conditions  which could adversely affect the  availability,  quality and cost of
such  items.  While in the past we have  been  able to  anticipate  and react to
changing  costs  through  our  purchasing  practices  or menu price  adjustments
without a material  adverse effect on  profitability,  there can be no assurance
that we will be able to do so in the future.

                                      - 9 -

<PAGE>



Industry  Risks.  The  restaurant  business  is  affected by changes in consumer
tastes,  national,  regional and local economic conditions,  demographic trends,
traffic patterns and the type, number and location of competing restaurants.  In
addition, factors such as inflation,  increased food, labor, energy and employee
benefit  costs,  fluctuating  insurance  rates,  national,  regional  and  local
regulations,  regional weather  conditions,  and the availability of experienced
management  and  hourly  employees  also may  adversely  affect  the  restaurant
industry in general and our restaurants in particular.

Competition.  The restaurant  industry is intensely  competitive with respect to
price,  service,  location and food  quality.  We will compete with a variety of
other casual full-service dine-in restaurants,  fast food restaurants,  take-out
food service companies,  delicatessens,  cafeteria-style buffets, and other food
service establishments. The number of value-oriented,  casual dining restaurants
has  increased  in the past few years,  and  competitors  include  national  and
regional   chains,   franchisees   of  other   restaurant   chains,   and  local
owner-operated restaurants. Many competitors have been in existence longer, have
a  more  established  market  presence,  and  substantially  greater  financial,
marketing, and other resources than us. A significant change in pricing or other
business strategies by one or more of our competitors,  including an increase in
the number of restaurants in our  territories,  could have a materially  adverse
impact on our sales, earnings and growth.

Government Regulation. The restaurant business is subject to extensive national,
state, and local laws and regulations  relating to the development and operation
of  restaurants,  including  those  regarding  the sale of alcoholic  beverages,
building  and  zoning  requirements,  the  preparation  and  sale  of  food  and
employer-employee  relationships,  such as minimum wage requirements,  overtime,
working and safety requirements,  and citizenship requirements.  In addition, we
are subject to regulation by the Federal Trade  Commission  and must comply with
certain state laws that govern the offer,  sale, and  termination of franchises,
the refusal to renew franchises, and the scope of noncompetition provisions. The
failure to obtain or retain  food or  beverage  licenses  or  approvals  to sell
franchises,  or an increase in the minimum wage rate,  employee  benefits  costs
(including costs associated with mandated health insurance  coverage),  or other
costs associated with employees, could adversely affect us.

EXECUTIVE OFFICERS

The following  table lists the executive  officers of the Company as of December
29,  2002,  who serve at the  pleasure of the Board of  Directors.  There are no
family relationships among any officers of the Company.


Name                   Age    Position
----                   ---    --------
Terrance A. Smith. ...  57    President, Chief Executive Officer, and Director
Glennon F. Mattingly .  51    Vice President and Chief Financial Officer
Gary T. Snyder........  48    Vice President of Company Operations
Lynda J. Wilbourn.....  40    Vice President and Controller


Terrance A. Smith has served as  President  and Chief  Executive  Officer of the
Company  since  August  2000,  and is a Director of the  Company.  Mr. Smith was
elected as a director of the Company in September  1997.  From 1997 to 2002, Mr.
Smith also served as the President of Tumbleweed  International,  LLC. From 1987
to  1997,  Mr.  Smith  was  the  President  and CEO of  Chi-Chi's  International
Operations, Inc.

Glennon F.  Mattingly  joined  Tumbleweed,  LLC, the Company's  predecessor,  as
Controller in March 1995 and was named Vice  President-Controller  in April 1998
and Chief Financial Officer in August 2001. Mr. Mattingly continues to serve the
Company in that  capacity.  Before  coming to  Tumbleweed,  Mr.  Mattingly  held
various  positions  with Chi-  Chi's,  Inc.  including  six years as Director of
Budgeting and Financial Analysis.

Gary T. Snyder joined Tumbleweed, LLC, the Company's predecessor, as Director of
Training and Human  Resources in June 1996 and was appointed  Vice  President of
Company  Operations in April 1998. Mr. Snyder  continues to serve the Company in
that capacity. He previously served for 17 years with Bob Evans Farms, Inc.

Lynda  J.  Wilbourn  joined  Tumbleweed,  Inc.  in  March  1999 as  Director  of
Accounting  and was named Vice  President and  Controller in November  2001. Ms.
Wilbourn continues to serve the Company in that capacity. From 1987 to 1999,

                                      - 10 -

<PAGE>



Ms. Wilbourn held various positions with NTS Corporation, a regional real estate
development firm headquartered in Louisville,  Kentucky, including five years as
Vice President of Accounting.

SEGMENT INFORMATION

Segment  information  for the fiscal years ended  December 29, 2002 and December
31,  2001  and  2000  are  presented  in Note 19 to our  Consolidated  Financial
Statements contained in Item 8.

ITEM 2.  PROPERTIES

Of the 31  Company-owned  restaurants  in operation at December 29, 2002, 15 are
owned by us in fee simple  while the  remainder  are  leased.  Two of the leased
locations  are  owned by  entities  whose  principals  are  affiliated  with us.
Restaurant lease  expirations  range from 2007 to 2018, with the majority of the
leases  providing for an option to renew for additional  terms ranging from five
to twenty years.  All of our leases provide for a specified  annual rental,  and
some leases call for  additional  rental based on sales volume at the particular
location over specified  minimum  levels.  Generally,  the leases are net leases
which require us to pay the cost of insurance and taxes.  Our executive  offices
are located in Louisville,  Kentucky in leased space.  The lease expires in 2007
and has two 5-year renewal options. We own the commissary and warehouse space in
fee simple.

ITEM 3.  LEGAL PROCEEDINGS

The Company  guaranteed  certain  equipment leases with a bank for TW-Tennessee,
LLC, a former franchisee (TW- Tennessee) of the Company in which the Company and
David M. Roth, a Director of the Company, were formerly members. The Company has
agreed to assume  and pay one of the  equipment  leases  totaling  approximately
$125,000  and remains  contingently  liable on two other  equipment  leases that
currently have a remaining  balance of  approximately  $36,000 which the Company
believes will be assumed and paid by other guarantors.  In the fourth quarter of
2001, the Company reserved  $125,000 to cover its portion of the equipment lease
it assumed.  As of December  29,  2002,  the  reserve  balance is  approximately
$74,000 which  management  believes is sufficient to satisfy the remaining lease
obligation.  The  Company's  management  believes it will not incur  significant
additional losses in connection with this matter.

On December  16,  2002,  the  Company  filed a Complaint  in  Jefferson  County,
Kentucky  Circuit  Court  against  American  Federal,  Inc.  ("AFI")  seeking  a
declaratory  judgment  that the Company had no  contractual  obligation to pay a
$270,000 commission to AFI, in connection with a Conditional  Commitment entered
into   between  AFI  and  the   Company  and  seeking   damages  for  fraud  and
misrepresentation.  In response,  AFI filed suit in the United  States  District
Court for the  Eastern  District  of  Missouri  seeking  payment  of a  $405,000
commitment  fee plus  additional  charges,  fees and costs all in the  excess of
$500,000 relating to the Conditional  Commitment,  as well as damages for breach
of contract,  unjust enrichment and  misrepresentation/fraud.  This matter is in
the early  discover  stage.  Management  believes  that AFI's claims are without
merit,  but it is too early to  predict  an  outcome.  The  Company  intends  to
vigorously  defend  itself in  connection  with this matter.  As of December 29,
2002,  the  Company  has not  made  an  accrual  for a  potential  liability  in
connection with this matter.

We are also subject to claims and legal  actions in the  ordinary  course of our
business.  Certain of these claims and actions may involve related  parties.  We
believe  that all such  claims  and  actions  are either  adequately  covered by
insurance  or would not have a  material  adverse  effect on us if  decided in a
manner unfavorable to us.

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

No  matters  were  submitted  to a vote of the  shareholders  during  the fourth
quarter ended December 29, 2002.



                                     - 11 -

<PAGE>



                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of  March  3,  2003,  5,916,153  shares  of  Common  Stock  were  issued  and
outstanding.  There were approximately 1,400 stockholders,  including beneficial
owners of shares held in nominee name.

On January 11, 1999,  Tumbleweed,  Inc. completed its initial public offering of
common stock. We sold 776,630 shares at the offering price of $10 per share in a
direct  offering  of our  common  stock  to  the  public,  raising  a  total  of
$7,766,300.

On January 1, 1999, the merger of Tumbleweed,  LLC into Tumbleweed,  Inc. became
effective.  The merger reorganized Tumbleweed,  LLC, which had owned, franchised
or licensed 43 Tumbleweed  Southwest  Mesquite Grill & Bar  restaurants,  into a
corporation  for  purposes of the stock  offering.  In the  reorganization,  the
membership  interests of the approximately 80 former members of Tumbleweed,  LLC
were  converted  into a total of 5,105,000  shares of Company  common stock.  As
required by the Tumbleweed,  LLC operating agreement, the former Class B members
made  additional  cash   contributions   of  $747,500  in  connection  with  the
reorganization.

The Company  received net proceeds of  approximately  $6,800,000  from the stock
offering.  The Company  used the offering  proceeds,  plus the  additional  cash
contributions  of  $747,500 we  received  in the  reorganization,  to repay bank
indebtedness  totaling  $7,043,366  and  to  pay  offering  expenses.  The  bank
indebtedness was an obligation of the former Class A members of Tumbleweed, LLC,
including certain directors and officers of the Company,  and had been accounted
for as redeemable  members'  equity.  Offering  expenses  totaled  approximately
$1,000,000, none of which were commissions or other underwriting expenses.

The  registration  statement for the stock  offering also included the 5,105,000
shares issued in the reorganization,  which may be sold from time to time in the
future by the former members of Tumbleweed, LLC for their own accounts.

Our common stock trades on the Nasdaq Small Cap Market under the symbol  "TWED."
The following  table shows  quarterly high and low closing prices for the Common
Stock during 2002 and 2001 for the periods indicated,  as reported by the Nasdaq
Small Cap Market.


                                 2002                            2001
                                 ----                            ----
                         High             Low             High            Low
                         ----             ---             ----            ---
First Quarter           $ 1.65          $ 1.10          $ 3.13          $ 1.81
Second Quarter           1.75             0.81            2.99            2.17
Third Quarter            1.60             1.22            2.30            1.30
Fourth Quarter           1.38             0.50            1.50            0.92


We have never paid a dividend on our Common Stock nor do we expect to pay a cash
dividend in the  foreseeable  future.  We currently  intend to retain any future
earnings to finance the development of additional  restaurants and the growth of
our business  generally.  We are also prohibited from paying dividends under the
terms of our two mortgage revolving lines of credit.









                                     - 12 -

<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

Effective January 1, 1999, Tumbleweed, LLC was merged into Tumbleweed, Inc. as a
result of the sale of common stock in an initial  public  offering.  Tumbleweed,
Inc. had not  conducted  any  operations  prior to the merger.  In the following
table, the income  statement and balance sheet data of Tumbleweed,  Inc. for the
fiscal years ended  December  29, 2002 and December 31, 2001,  2000 and 1999 and
Tumbleweed,  LLC for the year ended  December  31, 1998 have been  derived  from
financial  statements which have been audited by Ernst & Young LLP,  independent
auditors,  whose  report  thereon is  included  elsewhere  in this  filing.  The
information set forth on the following page should be read in conjunction  with,
and are qualified in their entirety by the financial  statements  (and the notes
thereto) and other financial  information appearing elsewhere in this filing and
the information contained in "Management's  Discussion and Analysis of Financial
Condition and Results of Operations."












                                     - 13 -

<PAGE>

<TABLE>
<CAPTION>



                                                                                                      Tumbleweed,
                                                                  Tumbleweed, Inc.                        LLC
                                         --------------------------------------------------------- ------------------
                                           Fiscal Year
                                              Ended                      Fiscal Year Ended December 31
                                          December 29,    -----------------------------------------------------------
                                              2002               2001          2000          1999            1998
                                         --------------   -----------------------------------------------------------

Statement of Operations Data:
  Revenues:
<S>                                     <C>               <C>            <C>           <C>            <C>
    Restaurant sales                    $     54,076,024  $   56,025,886 $  51,820,600 $  48,578,123  $   40,490,933
    Commissary sales                           1,664,591       1,781,252     1,663,208     1,168,836       1,041,266
    Franchise fees and royalties               1,223,664       1,227,300     1,271,251     1,064,952         770,806
    Other revenues                               661,990         418,744       990,843       532,976         504,639
                                         ---------------   -------------  ------------  ------------   -------------
  Total revenues                              57,626,269      59,453,182    55,745,902    51,344,887      42,807,644
  Operating expenses:
    Restaurant cost of sales                  16,231,146      17,426,315    15,275,817    14,232,564      11,788,578
    Commissary cost of sales                   1,496,587       1,562,049     1,460,704     1,053,083         905,814
    Operating expenses                        29,940,255      30,567,705    27,456,791    24,377,631      20,881,212
    Selling, general and administrative
      expenses                                 5,983,857       6,107,159     6,598,299     4,981,721       4,150,303
    Preopening expenses                         -                -             490,394       395,768         816,604
    Depreciation and amortization              1,947,610       2,285,452     2,147,408     1,804,757       1,442,011
    Special charges                              103,773       4,294,539        -             -              -
    Loss on guarantees of indebtedness          -                565,000       725,000       -               -
                                         ---------------   -------------  ------------  ------------   --------------
  Total operating expenses                    55,703,228      62,808,219    54,154,413    46,845,524      39,984,522
                                         ---------------   -------------  ------------  ------------   --------------
  Income (loss) from operations                1,923,041      (3,355,037)    1,591,489     4,499,363       2,823,122
  Interest expense, net                       (1,007,126)     (1,276,903)   (1,458,650)   (1,128,906)       (869,712)
  Gain on sale of property                       338,482         -             -             -               -
  Gain from insurance proceeds due to
     involuntary conversion of non-
     monetary assets                              91,693         -             554,864       -               -
  Equity in income (loss) of TW-
    Springhurst                                 -                 81,318       (58,903)      -               -
                                         ---------------   -------------  ------------  ------------   --------------
  Income (loss) before income taxes,
     extraordinary item and cumulative
     effect of a change in
    accounting principle                       1,346,090      (4,550,622)      628,800     3,370,457       1,953,410
  Provision (benefit) for income taxes:
    Current and deferred                         730,234      (1,178,144)       65,439     1,179,659         -
    Deferred taxes related to change in
     tax status (3)                             -                -              -            639,623         -
                                         ---------------   -------------  ------------  ------------   --------------
  Total provision (benefit) for income
      taxes                                      730,234      (1,178,144)       65,439     1,819,282         -
                                         ---------------   -------------  ------------  ------------   --------------
   Income (loss) before extraordinary
     item and cumulative effect of a
     change in accounting principle              615,856      (3,372,478)      563,361     1,551,175       1,953,410
  Extraordinary item - write-off of
     unamortized loan costs, net of tax          (76,743)        -             -             -               -
   Cumulative effect of a change in
     accounting principle, net of tax         (1,503,776)        -             -            (341,035)        -
                                         ---------------   -------------  ------------  ------------   --------------
  Net income (loss)                     $       (964,663)$    (3,372,478)$     563,361 $   1,210,140  $    1,953,410
                                         ===============   =============  ============  ============   ==============
  Basic and diluted earnings (loss)
   per share:
  Income (loss) before extraordinary
    item and cumulative effect of a
    change in accounting principle      $           0.10  $        (0.58)$        0.10 $        0.27
  Extraordinary item - write-off of
    unamortized loan costs                         (0.01)              -             -             -
  Cumulative effect of a change in
    accounting principle, net of tax               (0.25)        -             -               (0.06)
                                         ---------------   -------------  ------------  ------------
  Net income (loss)                     $          (0.16 )$        (0.58)$        0.10 $        0.21
                                         ===============   =============  ============  ============

</TABLE>

                                     - 14 -

<PAGE>

<TABLE>
<CAPTION>



                                                                                                        Tumbleweed,
                                                              Tumbleweed, Inc.                              LLC
                                         ---------------------------------------------------------   ---------------
                                           Fiscal Year
                                              Ended                      Fiscal Year Ended December 31
                                          December 29,     ---------------------------------------------------------
                                             2002                2001           2000          1999           1998
                                          ------------     ---------------------------------------------------------
Pro forma income data (unaudited):
   Income before income taxes
     and cumulative effect of a change
<S>                                                                                    <C>            <C>
     in accounting principle as reported                                               $   3,370,457  $    1,953,410
   Pro forma income taxes (1)                                                              1,179,659         683,693
                                                                                        ------------   --------------
   Pro forma income before cumulative
     effect of a change in accounting
     principle                                                                             2,190,798       1,269,717
   Cumulative effect of a change in
     accounting principle, net of tax                                                       (341,035)        -
                                                                                        ------------   --------------
   Pro forma net income                                                                $   1,849,763  $    1,269,717
                                                                                        ============   ==============
Pro forma basic and diluted earnings per
  share (2):
   Pro forma income before cumulative
     effect of a change in accounting
     principle                                                                         $        0.37  $         0.25
   Cumulative effect of a change in
     accounting principle, net of tax                                                          (0.06)        -
                                                                                        ------------   --------------
   Pro forma net income                                                                $        0.31  $         0.25
                                                                                        ============   ==============
</TABLE>
<TABLE>
<CAPTION>


                                                       Tumbleweed, Inc.                         Tumbleweed, LLC
                                    ------------------------------------------------------   ---------------------
                                                                            As of December 31
                                                        ----------------------------------------------------------

                                           As of                                             Pro
                                                                                             ---
                                        December 29,                                        Forma
                                                                                            -----
                                            2002         2001        2000        1999     1998 (3)       1998
                                            ----         ----        ----        ----     --------       ----
                                                                                        (unaudited)
                                                                    (In thousands)
Balance Sheet Data:
<S>                                    <C>             <C>        <C>          <C>       <C>          <C>
Total assets                           $         33,97 $  34,897  $   39,453   $ 36,597  $   33,681   $  33,681
Long-term debt and capital lease
  obligations, including current
  maturities                                   15,881     15,435      16,998     15,145      13,363      13,363
Total liabilities                              20,343     20,398      21,581     19,035      24,743      24,103
Redeemable members' equity                    -            -           -           -          -          18,925
Members' equity                               -            -           -           -          -             354
Members' retained earnings (deficit)          -            -           -           -          -          (9,701)
Stockholders' equity                           13,634     14,499      17,872     17,563       -           -
Pro forma stockholders' equity                -            -           -           -          8,938       -
<FN>

(1) Prior to Reorganization, the Company operated as a limited liability company
and was not subject to corporate  income taxes  through  December 31, 1998.  Pro
forma adjustment has been made to net income to give effect to federal and state
income taxes as though the Company had been  subject to  corporate  income taxes
for the periods presented with an effective tax rate of 35%.

(2) Shares  outstanding gives effect to the Reorganization as if it had occurred
as of January 1, 1997.

(3) Reflects the  establishment  of a deferred tax liability of $639,623 related
to the termination of Tumbleweed, LLC's limited liability company status and the
conversion of  Tumbleweed,  LLC's members'  interests  into 5,105,000  shares of
Company common stock effective January 1, 1999.
</FN>
</TABLE>


                                     - 15 -

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

We make various  forward-looking  statements about our business in the following
discussion.  When making these forward-looking  statements, we use words such as
expects,  believes,  estimates,  anticipates,  plans and similar  expressions to
identify them. We also identify  important  cautionary  factors that could cause
our actual results to differ materially from those projected in  forward-looking
statements made by us. Factors that realistically  could cause results to differ
materially from those projected in the  forward-looking  statements  include the
availability  and cost of financing and other events that affect our  restaurant
expansion  program,  changes  in food and  other  costs,  changes  in  national,
regional or local economic conditions,  changes in consumer tastes,  competitive
factors such as changes in the number and location of competing restaurants, the
availability of experienced  management and hourly employees,  and other factors
set forth  below and in  "Forward-Looking  Statements/Risk  Factors"  in Item 1.
Business.

As of  December  29,  2002,  we owned,  franchised  or  licensed  56  Tumbleweed
restaurants. We owned and operated 31 restaurants in Kentucky, Indiana and Ohio.
There were 19 franchised restaurants located in Indiana, Illinois, Kentucky, and
Wisconsin  and six licensed  restaurants  located  outside the United  States in
Germany, Jordan, Egypt, England and Turkey. The following table reflects changes
in the number of  Company-owned,  franchised  and licensed  restaurants  for the
years presented.

   Company-owned Restaurants                            2002    2001    2000
   -------------------------                            ----    ----    ----

             In operation, beginning of fiscal year      36      36      29
             Restaurants opened                           -       -       4
             Restaurant sold to franchisee               (1)      -       -
             Restaurants closed                          (4)      -       -
             Joint venture restaurant opened              -       -       1
             Restaurants purchased from franchisee        -       -       2
                                                         --      --      --
             In operation, end of fiscal year            31      36      36
                                                         --      --      --


   Franchise and Licensed Restaurants
   ----------------------------------

             In operation, beginning of fiscal year      29      27      22
             Restaurants opened                           -       3      10
             Restaurants closed                          (5)     (1)     (3)
             Restaurant purchased from Tumbleweed,
                Inc.                                      1       -       -
             Restaurants sold to Tumbleweed, Inc.         -       -      (2)
                                                         --      --     ---
             In operation, end of fiscal year            25      29      27
                                                         --      --      --
                     System total                        56      65      63
                                                         ==      ==      ==

On January 1, 2002,  the Company  purchased  from its joint venture  partner the
remaining 50% interest in a restaurant location. See Note 10 to the accompanying
consolidated  financial statements for a further discussion of this transaction.
During  the  first  quarter  of 2002,  the  Company  closed  four  Company-owned
restaurant  locations.  The  restaurants  were located in Cincinnati,  Ohio (2),
Columbus,  Ohio (1), and Evansville,  Indiana (1). The restaurant  closings were
part  of a  strategic  management  decision  to  eliminate  lower  sales  volume
restaurants  that were  unprofitable in 2001 and to focus its energies on the on
the continued improvement of per-store average sales volumes.  During the second
quarter  of  2002,  the  Company  sold  one of  its  restaurant  locations  to a
franchisee  in  accordance  with the Company's  plan  established  in the fourth
quarter of 2001. See below for a discussion  regarding a special  charge,  which
was recorded in 2001 as a result of the store closings and sale.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General

The Company's  discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted

                                     - 16 -

<PAGE>



in the United States. The preparation of these financial statements requires the
Company to make estimates and  assumptions  that affect the amounts  reported in
the  consolidated   financial  statements  and  accompanying  notes  of  assets,
liabilities,  revenues and expenses, and related disclosure of contingent assets
and liabilities.  On an on-going basis,  the Company  evaluates these estimates.
The Company bases its estimates on  historical  experience  and on various other
assumptions that are believed to be reasonable under the  circumstances.  Actual
results may differ from these estimates.

The Company believes the following critical  accounting policies affect its more
significant   assumptions   and  estimates  used  in  the   preparation  of  its
consolidated financial statements.

Valuation of Long-Lived Assets

On January 1, 2002,  the  Company  adopted  SFAS No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets."  SFAS No. 144  requires  that
long-lived assets to be disposed of by sale be measured at the lower of net book
value or fair market  value less cost to sell,  whether  reported in  continuing
operations  or  discontinued   operations.   SFAS  No.  144  also  broadens  the
presentation of discontinued  operations to include components of an entity that
have  been or will be  disposed  of  rather  than  limiting  such  reporting  to
discontinued segments of a business.

We assess the  impairment of  long-lived  assets  whenever  events or changes in
circumstances  indicate that the carrying value may not be recoverable.  Factors
we  consider  important  that could  trigger an  impairment  review  include the
following:

    o    a significant underperforming store relative to expected historical or
         projected future operating results;

    o    a significant change in the manner of our use of the acquired asset or
         the strategy for our overall business;

    o    a significant negative industry or economic trend;

Through  December  29,  2002,  we  determined  whether  the  carrying  value  of
long-lived assets may not be recoverable based upon the existence of one or more
indicators of impairment.  We determined  that there was no impairment  based on
the estimated undiscounted future cash flows of assets. If long-lived assets are
not recoverable  based upon estimated  undiscounted  cash flows, we write assets
down to fair  value.  This fair value is  generally  determined  on a  projected
discounted  cash flow method using a discount rate  determined by our management
to be  commensurate  with the risk  inherent in our current  business  model for
assets  held for use or at the  lower of net book  value  less  cost to sell for
assets held for sale.

In the  fourth  quarter  of  2001,  the  Company  recorded  special  charges  of
approximately  $4,295,000.  The special charges  include a $3,683,353  charge to
earnings in accordance with Statement of Financial  Accounting  Standards (SFAS)
No. 121,  "Impairment of Long-Lived Assets." This charge reflects the write-down
of assets  associated  with six  restaurants,  four of which were  closed in the
first quarter of 2002. The Company sold one of the remaining two  restaurants to
a current  franchisee  and  continues  to operate the other  restaurant  for the
present. The restaurant closings were part of a strategic management decision to
eliminate lower sales volume  restaurants that were  unprofitable in 2001 and to
focus its  energies on the  continued  improvement  of per-store  average  sales
volumes. The special charges also included approximate amounts totaling $611,200
for lease  obligations  and other costs  related to the  decision to close these
restaurants  of which  approximately  $295,000  remains  accrued at December 29,
2002. Although we do not anticipate significant changes, the actual net proceeds
from  anticipated  sales of assets and store  closing  costs may differ from the
estimated amounts.

Impairment of Goodwill

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS). SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No.
142 requires that goodwill and intangible assets with indefinite useful lives no
longer be  amortized,  but instead be tested for  impairment  annually,  or more
frequently  if certain  indicators  arise.  The  provisions of SFAS No. 142 also
require the  completion of a transitional  impairment  test within six months of
adoption,  with any impairments  identified  treated as a cumulative effect of a
change in accounting principle.

During the first quarter of 2002, the Company determined that all goodwill as of
January 1, 2002 related to two reporting  units was impaired.  The fair value of
each unit was determined using accepted valuation techniques. As a result of the

                                     - 17 -

<PAGE>



transitional  impairment test, an impairment loss in the amount of approximately
$1,504,000,  net of tax,  was  recorded  as a  cumulative  effect of a change in
accounting principle during the first quarter of 2002.

As of December 29, 2002, the Company completed the annual test of impairment and
determined that there is no further impairment of goodwill.

The following  section  should be read in conjunction  with "Selected  Financial
Data" included above in Item 6 and our consolidated financial statements and the
related notes included below in Item 8.




















































                                     - 18 -

<PAGE>



RESULTS OF OPERATIONS

The following table sets forth the percentage  relationship to total revenues of
certain operating statement data, except where noted, for the periods indicated.
<TABLE>
<CAPTION>


                                                                        Fiscal Years Ended
                                                      ------------------------------------------------------
                                                       December 29,       December 31,      December 31,
                                                           2002               2001              2000
                                                      ------------------------------------------------------
Revenues:
<S>                                                              <C>                <C>              <C>
   Restaurant sales                                              93.8%              94.2%            93.0%
   Commissary sales                                               2.9                3.0              3.0
   Franchisee fees and royalties                                  2.1                2.1              2.2
   Other revenues                                                 1.2                0.7              1.8
                                                      ------------------------------------------------------
      Total revenues                                            100.0              100.0            100.0
Operating expenses:
   Restaurant cost of sales (1)                                  30.0               31.1             29.5
   Commissary cost of sales (2)                                  89.9               87.7             87.8
   Operating expenses (1)                                        55.4               54.6             53.0
   Selling, general and administrative                           10.4               10.3             11.8
   Preopening expenses                                              -                  -              0.9
   Depreciation and amortization                                  3.4                3.8              3.9
   Special charges                                                0.2                7.2                -
   Loss on guarantees of indebtedness                               -                1.0              1.3
                                                      ------------------------------------------------------
      Total operating expenses                                   96.7              105.6             96.2
                                                      ------------------------------------------------------
      Income (loss) from operations                               3.3               (5.6)             2.8
Other expense, net                                               (1.0)              (2.1)            (1.7)
                                                      ------------------------------------------------------
Income (loss) before income taxes, extraordinary item
     and cumulative effect of a change in accounting
      principle                                                   2.3               (7.7)             1.1
Provision (benefit)for income taxes                               1.3               (2.0)             0.1
                                                      ------------------------------------------------------
Income (loss) before extraordinary item and
     cumulative effect of a change in accounting
     principle                                                    1.0               (5.7)             1.0
Extraordinary item - write-off of unamortized loan
     costs                                                       (0.1)                 -                -
Cumulative effect of a change in
   accounting principle, net of tax                              (2.6)                 -                -
                                                      ------------------------------------------------------
Net income (loss)                                                (1.7)%             (5.7)%            1.0%
                                                      ======================================================
<FN>


(1)    As percentage of restaurant sales.
(2)    As percentage of commissary sales.
</FN>
</TABLE>

Beginning  January 1, 2002,  the  Company  changed its fiscal year to end on the
last Sunday in December from a December 31 year end. As a result of this change,
the 2002 fiscal year has two fewer days than the 2001 fiscal year.

COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 29, 2002 AND DECEMBER 31, 2001

Total  revenues  decreased  by  $1,826,913  or  3.1% in  2002  compared  to 2001
primarily as a result of the following:

       Restaurant  sales  decreased by  $1,949,862  or 3.5% in 2002  compared to
   2001.  The decrease in restaurant  sales is primarily a result of the closing
   of four Company-owned  restaurants during the first quarter of 2002, the sale
   of one Company-owned  restaurant to a franchisee during the second quarter of
   2002 and the Company's  change in its fiscal year. The decrease in restaurant
   sales is  partially  offset by a 1.4%  increase  in same store  sales for the
   fiscal year ended December 29, 2002.

       Commissary  sales to  franchised  and licensed  restaurants  decreased by
   $116,661 or 6.5% in 2002 compared to 2001.  The decrease in commissary  sales
   is  primarily a result of the  decreased  number of  franchised  and licensed
   restaurants during 2002.

                                     - 19 -

<PAGE>



       Franchise fees and royalties decreased by $3,636 or 0.3% in 2002 compared
   to 2001.  Franchise  fees decreased by $105,000 in 2002 compared to 2001. The
   decrease  in  franchise  fee  income is a result of  having  three  franchise
   restaurant  openings in 2001 compared to no franchise  restaurant openings in
   2002. The decrease in franchise fees is partially offset by $101,364 increase
   in royalty income from 2001 to 2002. Royalty income increased  primarily as a
   result of the Company's  acquisition of the ownership  interest in Tumbleweed
   International, LLC on January 1, 2002.

       Other  revenues   increased   $243,246  or  58.1%  in  2002  compared  to
   2001 primarily as a result of an increase in insurance  proceeds which relate
   to  business   interruption  as  a  result  of  fires  at  two  Company-owned
   restaurants.  Other revenues includes $200,000 of insurance proceeds in 2002,
   as a result of a fire which  occurred  in July 2002,  compared to $100,000 of
   insurance  proceeds  in 2001,  as a result of a fire which  occurred  in June
   2000. In addition,  other revenues  increased as a result of recognizing,  as
   income in 2002,  $55,000  of  development  fees  which  were  forfeited  by a
   franchisee  and an  increase  in volume  related  purchasing  rebates in 2002
   compared to 2001.

Restaurant  cost of sales  decreased by  $1,195,169  or 6.9% in 2002 compared to
2001.  The  decrease in  restaurant  cost of sales is  primarily a result of the
closing of four Company-owned  restaurants during the first quarter of 2002, the
sale of one  Company-owned  restaurant to a franchisee during the second quarter
of 2002  and the  Company's  change  in its  fiscal  year  as  discussed  above.
Restaurant cost of sales decreased as a percentage of sales by 1.1% to 30.0% for
2002  compared  to 31.1%  during  2001.  The 1.1%  decrease  in cost of sales is
primarily  the  result  of a  temporary  increase  in the  cost of beef and pork
(primarily steaks and ribs, respectively) during the first part of 2001.

Commissary  cost of  sales  decreased  $65,462  or 4.2%  in 2002  compared  2001
primarily as a result of decreased  commissary  sales. As a percentage to sales,
commissary  cost of sales  increased  2.2%  from  87.7% in 2001 to 89.9% in 2002
primarily as a result of higher raw material product costs.

Restaurant  operating expenses decreased by $627,450 or 2.1% in 2002 compared to
2001. The decrease in operating expenses is primarily a result of the closing of
four Company-owned restaurants during the first quarter of 2002, the sale of one
Company-owned  restaurant to a franchisee  during the second quarter of 2002 and
the change in the Company's fiscal year. The decrease in operating expenses from
2001 to 2002  is  partially  offset  by  increased  local  marketing  costs  and
increased repair and maintenance  costs.  Operating  expenses as a percentage of
sales  increased by 0.8% from 54.6% in 2001 to 55.4% in 2002  primarily due to a
0.4%  increase  in local  marketing  costs and a 0.3%  increase  in  repair  and
maintenance costs.

Selling,  general and  administrative  expenses decreased by $123,302 or 2.0% in
2002  compared to 2001.  The  decrease in  selling,  general and  administrative
expenses is primarily due to the fact that the 2001 period  includes the cost of
implementing a new menu of approximately  $95,000.  There was no similar expense
in 2002. The decrease in selling,  general and  administrative  expenses is also
attributable to decreased  advertising costs. As a percentage to total revenues,
selling,  general and  administrative  expenses was 10.4% and 10.3% for 2002 and
2001, respectively.

Depreciation  and  amortization  expense  decreased  $337,842  or  14.8% in 2002
compared to 2001 as a result of goodwill no longer being amortized in accordance
with SFAS No. 142 and the write-down of assets in the fourth quarter of 2001.

The Company  recorded special charges of $103,773 in the fourth quarter of 2002.
The special charges represent the write- off of various costs that were incurred
as a result of the proposal to acquire all outstanding shares in a going private
transaction  which  was  originally  announced  in June  2002.  See  below for a
discussion regarding the 2001 special charges.

Net interest expense  decreased  $269,777 or 21.1% in 2002 compared to 2001. The
decrease in net interest  expense is due primarily to the decreases in the prime
interest rate during 2002.

The  $338,482  gain on sale of  property  is a result  of the sale of one of the
Company-owned  restaurants  (land  and  building)  which  had  been  closed,  as
discussed  above,  for $1,575,000.  A portion of the proceeds from the sale were
used to pay off a $224,611 mortgage payable and other closing costs.

The  gain  of  $91,693  from  insurance  proceeds  during  2002  was  due to the
involuntary  conversion of  non-monetary  assets from a fire at a  Company-owned
restaurant.  See Note 12 of the accompanying  consolidated  financial statements
for a detail discussion. There was no similar income during 2001.

Income taxes on the Company's income before income taxes, extraordinary item and
cumulative  effect of a change in  accounting  principle  for 2002 and 2001 have
been  provided  for  at  an  estimated  effective  tax  rate  of  54%  and  26%,
respectively. The effective tax rate differs from the statutory federal tax rate
of 34% as a result of the impact of

                                     - 20 -

<PAGE>



employment  tax credits,  state  income  taxes and an increase in the  valuation
allowance for the deferred tax asset. In 2003, the Company expects the effective
tax rate to moderate closer to the statutory rate.

The  extraordinary  item - write off of unamortized  loans costs, net of tax, of
$76,743 relates to loan costs associated with the Company's  long-term debt. The
unamortized  loan costs were  expensed due to the fact that a commitment  letter
was  signed  prior to  December  29,  2002 for  financing  which  will repay all
long-term debt prior to its maturity.  See below for a discussion  regarding the
$18.0 million financing package that was obtained  subsequent to fiscal year end
on December 31, 2002.

COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 2001 AND 2000

Total  revenues  increased  by  $3,707,280  or  6.7% in  2001  compared  to 2000
primarily as a result of the following:

       Restaurant  sales  increased by  $4,205,286  or 8.1% in 2001  compared to
   2000.  The increase in  restaurant  sales is due  primarily to 42  additional
   Company-owned  restaurant  store  months  during 2001  compared to 2000.  The
   increase in restaurant sales is also  attributable in part to a 0.7% increase
   in same store sales.

       Commissary  sales to  franchised  and licensed  restaurants  increased by
   $118,044 or 7.1% in 2001  compared to 2000.  The increase is due primarily to
   38 additional franchised or licensed restaurant store months in 2001 compared
   to 2000.

       Franchise  fees  and  royalties  decreased  by  $43,951  or  3.5% in 2001
   compared to 2000.  Franchise  fees  decreased by $145,000 in 2001 compared to
   2000.  The  decrease  in  franchise  fee  income is a result of having  seven
   franchise  restaurant openings in 2000 compared to three franchise restaurant
   openings in 2001.  The  decrease in franchise  fees is partially  offset by a
   $101,049  increase  in  royalty  income  from  2000 to 2001.  Royalty  income
   increased  primarily  as a result of 38  additional  franchised  or  licensed
   restaurant store months in 2001 compared to 2000.

       Other  revenues  decreased by $572,099 or 57.7% in 2001  compared to 2000
   primarily  due to a decrease  in volume  related  purchasing  rebates in 2001
   compared to 2000. The decrease in other revenues is also due to a decrease in
   insurance  proceeds which relate to a business  interruption as a result of a
   fire  which  occurred  in June  2000  at a  Company-owned  restaurant.  Other
   revenues  includes  $100,000 and $280,000 of insurance  proceeds related to a
   business interruption in 2001 and 2000, respectively.

Restaurant  cost of sales  increased by  $2,150,498 or 14.1% in 2001 compared to
2000. The increase was principally due to 42 additional Company-owned restaurant
store months in 2001 compared to 2000.  Restaurant  cost of sales increased as a
percentage of sales by 1.6% to 31.1% in 2001 compared to 29.5% in 2000. The 1.6%
increase in cost of sales is primarily the result of a temporary increase in the
cost of beef and pork (primarily steaks and ribs,  respectively) and as a result
of improving the quality of the beef product served in the restaurants.

Commissary  cost of sales  increased  $101,345 or 6.9% in 2001 compared to 2000.
The  increase in  commissary  cost of sales is due  primarily  to 38  additional
franchised and licensed  restaurant  store months in 2001 compared to 2000. As a
percentage of commissary sales, commissary cost of sales were 87.7% and 87.8% in
2001 and 2000, respectively.

Restaurant  operating expenses increased by $3,110,914 or 11.3% in 2001 compared
to 2000. The increase in operating expenses reflects 42 additional Company-owned
restaurant store months in 2001 compared to 2000.  Operating  expenses increased
as a percentage of restaurant  sales by 1.6% to 54.6% in 2001 from 53.0% in 2000
primarily  due to a 0.6%  increase in utilities  and a 0.4%  increase in payroll
costs.

Selling,  general and  administrative  expenses decreased by $491,140 or 7.4% in
2001  compared to 2000.  The  decrease in  selling,  general and  administrative
expenses is primarily due to decreased  payroll  costs for corporate  personnel.
The  decrease in payroll  costs is  partially  offset by  increased  advertising
costs,  the cost of  implementing a new menu during the first quarter of 2001and
increased legal costs. As a percentage to total revenues,  selling,  general and
administrative expenses were 10.3% and 11.8% for 2001 and 2000, respectively.

Preopening  expenses are start-up  costs which are incurred in  connection  with
opening new restaurant locations.  These costs are expensed as incurred and will
fluctuate  based on the number of restaurant  locations which are in the process
of being prepared for opening. There were no preopening expenses incurred during
2001. Preopening expenses were $490,394 in 2000.


                                     - 21 -

<PAGE>



Depreciation  and  amortization  expense  increased  $138,044  or  6.4%  in 2001
compared to 2000 due primarily to 42 additional  Company-owned  restaurant store
months in 2001 compared to 2000.

The Company  recorded  special  charges of $4,294,539  in the fourth  quarter of
2001. The special charges include a $3,683,353  charge to earnings in accordance
with SFAS No. 121,  "Impairment of Long-Lived  Assets." This charge reflects the
write-down of assets  associated with six  restaurants,  four of which closed in
the first quarter of 2002. The Company sold one of the remaining two restaurants
to a current  franchisee  and continues to operate the other  restaurant for the
present. The restaurant closings were part of a strategic management decision to
eliminate lower sales volume  restaurants that were  unprofitable in 2001 and to
focus its  energies on the  continued  improvement  of per-store  average  sales
volumes.  The special charges also included  $611,186 for lease  obligations and
other  costs  related  to the  decision  to  close  these  restaurants  of which
approximately $295,000 remains accrued at December 29, 2002.

Net interest expense  decreased  $181,747 or 12.5% in 2001 compared to 2000. The
decrease  in net  interest  expense  is the  result  of  decreases  in the prime
interest rate during 2001 partially offset by higher borrowings  incurred during
2000 to fund the growth in Company-owned restaurants.

The  gain  of  $554,864  from  insurance  proceeds  during  2000  was due to the
involuntary  conversion of  non-monetary  assets from a fire at a  Company-owned
restaurant. There was no similar income during 2001.

The equity in income of TW-Springhurst was $81,318 in 2001 compared to equity in
losses of $58,903 in 2000. TW- Springhurst  experienced a loss in 2000 primarily
as a result of pre-opening costs.

The combined  effective  federal and state income tax rate was approximately 26%
and 10% for the  years  ended  December  31,  2001 and 2000,  respectively.  The
effective  tax rate is lower  than the  statutory  federal  tax rate of 34% as a
result of the impact of  employment  tax credits and state  income  taxes on the
effective  rate,  as well as the  impact  on the  rate in 2001 of the  valuation
allowance against deferred income tax assets.

LIQUIDITY AND CAPITAL RESOURCES

Subsequent  to fiscal year end on December  31, 2002,  the Company  completed an
$18.0 million financing  package with GE Capital  Franchise Finance  Corporation
(GE).  The loan was divided into two real estate loans  totaling  $14.5  million
secured by fifteen fee simple properties, one loan ($7,122,000) bearing interest
at a fixed rate of 8.52% for 15 years and the other  ($7,378,000)  at a variable
rate of LIBOR  plus 4.20%  over 15 years.  The  Company  also  entered  into two
equipment loan agreements totaling $3.5 million secured by substantially all the
equipment of the Company.  One equipment loan  ($1,750,000)  bears interest at a
fixed rate of 8.32% over 10 years while the other  equipment  loan  ($1,750,000)
has a variable  rate of LIBOR plus 4.20% over 10 years.  The  financing  package
consolidates all of the Company's  outstanding  debt and provides  approximately
$1.7 million for the remodels, modernization and / or upgrades to the properties
described in  renovation  agreements  signed with GE. The Company has until June
30, 2004 to complete the  renovations,  unless the Company  obtains GE's written
consent for an  extension  of such date.  Additionally,  the  financing  package
provides for $1.2 million to be used for expansion of Company  restaurants.  The
loan imposes  restrictions  on the Company with  respect to the  maintenance  of
certain financial ratios, the incurrence of indebtedness, the sale of assets and
capital  expenditures.  The Company is required to maintain two  separate  Fixed
Charge Coverage Ratios. One is a Corporate Fixed Charge Coverage Ratio of 1.25:1
based on results of the entire company and the second, an aggregate Fixed Charge
Coverage Ratio of at least 1.25:1 on the  properties  used as collateral on this
loan.  Both  ratios are  determined  as of the last day of each fiscal year with
respect to the  twelve-month  period of time  immediately  preceding the date of
determination.  The Company must also maintain a Funded Debt to EBITDA ratio not
to exceed 5.5 to 1.0,  determined as of the last day of each fiscal  quarter for
the twelve-month period of time immediately preceding the date of determination.
With the exception of new store development, the Company shall not incur debt in
excess of $500,000 per year without prior written consent of GE. With respect to
each  of  the  required  covenants  the  Company  expects  to be  in  compliance
throughout 2003.

Our  capital  needs  during  2002 and 2001  arose  from  the  reconstruction  of
restaurant facilities which were damaged by fire during July 2002 and June 2000,
respectively,  and  the  maintenance  and  improvement  of  existing  restaurant
facilities.  The  source of  capital to fund the  reconstruction  was  insurance
proceeds  received  during  2002  and  2000.  The  maintenance  and  improvement
expenditures  were funded by internally  generated  cash flow. Our capital needs
for 2000 arose from the development of new restaurants,  and to a lesser extent,
maintenance and  improvement of existing  restaurant  facilities.  The principal
sources of capital to fund these  expenditures  were  internally  generated cash
flow,  bank  borrowings and lease  financing.  The table below provides  certain
information regarding our sources and uses of capital for the years presented:


                                     - 22 -

<PAGE>
<TABLE>
<CAPTION>


                                                                        Fiscal Years Ended
                                                        ---------------------------------------------------
                                                          December 29,      December 31,      December 31,
                                                              2002              2001              2000
                                                        ----------------   --------------    --------------
<S>                                                    <C>                <C>               <C>
Net cash provided by operations                        $       1,924,314  $     3,294,158   $     2,262,548
Purchases of property and equipment                           (1,063,911)      (1,255,406)       (3,090,936)
Business acquisitions                                           (150,000)               -        (1,806,333)
Insurance proceeds for property and equipment                          -                -         1,299,352
Proceeds from sale before debt payment                         1,125,815                -                 -
Net borrowings (payments) on long-term debt and
    capital lease obligations                                 (1,258,853)      (1,563,315)        1,431,704
</TABLE>

The table below provides information  regarding our contractual  obligations and
commitments  as of  December  29,  2002,  giving  effect to the  refinancing  on
December 31, 2002.
<TABLE>
<CAPTION>


                                                      Payments Due by Period
                            ---------------------------------------------------------------------------
                                            Less Than         1 to 3         4 to 5          After
                               Total          1 Year          Years           Years         5 Years
                            ------------   ------------    ------------   -------------  --------------
Long-term debt,
   including current
<S>                        <C>            <C>             <C>            <C>            <C>
   maturities              $  13,995,623  $     744,540   $   1,794,274  $    2,066,511 $     9,390,298
Capital leases                 3,101,424        644,642         482,559         345,018       1,629,205
Operating leases              20,087,012      1,941,106       3,725,195       3,540,064      10,880,647
                            ------------   ------------    ------------   -------------  --------------
Total contractual
   obligations             $  37,184,059  $   3,330,288   $   6,002,028  $    5,951,593 $    21,900,150
                            ============   ============    ============   =============  ==============
</TABLE>

Our largest use of funds during 2002 was for the  reconstruction of a restaurant
facility  which was damaged by fire during 2002,  for payments of long-term debt
and  capital  lease   obligations,   maintenance  and  improvement  of  existing
restaurant facilities,  and for the acquisition of the remaining 50% interest in
TW-Springhurst.  Our  largest  source  of  funds  in 2002  was  cash  flow  from
operations,  proceeds  from the  sale of  property  in the  fourth  quarter  and
proceeds from the Comapny's two mortgage  revolving lines of credit. Our largest
use of funds during 2001 was for the  reconstruction  of a restaurant  facility,
which was damaged by fire during 2000,  and for  payments on long-term  debt and
capital lease obligations.  Our largest use of funds during 2000 was for capital
expenditures consisting of land, building and equipment,  the acquisition of the
assets of two Tumbleweed  restaurants from two related party franchisees and for
payments on long-term debt and capital lease obligations.  Our largest source of
funds in 2000 was from insurance  proceeds for property and equipment which were
damaged in June 2000 and proceeds from long-term debt.  Sales are  predominantly
for cash and the  business  does not  require  the  maintenance  of  significant
receivables  or  inventories.  In addition,  it is common within the  restaurant
industry to receive trade credit on the purchase of food, beverage and supplies,
thereby  reducing  the need for  incremental  working  capital to support  sales
increases.

The Company  guaranteed  renewals  of certain  guaranteed  indebtedness  and any
replacement   indebtedness   of  TW-   Tennessee,   LLC,  a  former   franchisee
(TW-Tennessee) of the Company in which the Company and David M. Roth, a Director
of the  Company,  were  formerly  members,  to the extent and in amounts  not to
exceed the  amounts  guaranteed  as of  September  30,  1998.  The  Company  had
guaranteed certain  TW-Tennessee  obligations as follows,  jointly and severally
with  TW-Tennessee  common  members:  a) up to  $1,200,000  under a bank line of
credit,  b)  approximately  $2,800,000 of a lease  financing  agreement,  and c)
equipment leases with a bank.

Beginning in 2001, the Company had settlement  discussions with the bank holding
the TW-Tennessee line of credit, the other guarantors of that line of credit and
certain of the shareholders of TW International Investors,  Inc. and TWI-B, Inc.
regarding  the  resolution of the suit which had been filed in March 2001 by the
bank which had held the line of credit extended to TW-Tennessee  (the "Tennessee
Litigation") and related matters.

On  February  28,  2002,  the Company  entered  into a  Confidential  Settlement
Agreement and Mutual  Release (the  "Settlement  Agreement")  which resolved the
Tennessee  Litigation and related matters. The Settlement Agreement provided for
a cash  payment by the  Company to the bank  holding  the  TW-Tennessee  line of
credit of $75,000 and the execution of a promissory  note,  payable to the bank,
in the face amount of $300,000. In addition,  subject to certain conditions, the
Company will pay to the bank an additional amount of up to $200,000 in the event
Tumbleweed International, LLC successfully sells regional international licenses
and receives proceeds in excess of the $1,400,000 in indebtedness assumed by the
Company in connection with its acquisition of the interests of TW  International
Investors,

                                     - 23 -

<PAGE>
Inc. and TWI-B,  Inc. in Tumbleweed  International,  LLC. The  completion of the
acquisition of the interests of TW International Investors, Inc. and TWI-B, Inc.
in Tumbleweed International, LLC is included in the Settlement Agreement.

As a result of the Settlement Agreement, the Tennessee Litigation was dismissed.
In addition,  the parties to the settlement,  including certain Directors of the
Company  (George  Keller,  David M. Roth and Minx M.  Auerbach),  granted mutual
releases to one another  regarding  all matters,  other than those  specifically
excluded.  Among the matters  excluded from the mutual release  contained in the
Settlement  Agreement are claims asserted by the holder of the equipment  leases
granted to  TW-Tennessee  relative  to  guarantees  by the  Company  and others,
including  David M. Roth, a Director of the Company,  relative to such equipment
leases.  The  Company  agreed  to  assume  and pay one of the  equipment  leases
totaling  approximately  $125,000 and remains  contingently  liable on two other
equipment  leases  that  currently  have a  remaining  balance of  approximately
$36,000 which the Company believes will be assumed and paid by other guarantors.

In the fourth  quarter of 2001, as a result of the settlement  discussions,  the
Company  increased a reserve  established  in 2000 by the  additional  amount of
$565,000, for a total of $1,290,000, of which $1,215,427 had been paid out as of
December  29,  2002.  The Company  increased  this  reserve in 2001 to cover its
portion of the settlement  payments to the bank holding the TW-Tennessee line of
credit and pay  related  costs,  including  legal  expenses.  The  reserve  also
included an additional charge for the equipment lease which the Company assumed,
and for  payments  made by the Company in 2001 on other lease  financing  claims
related to  TW-Tennessee.  As of  December  29,  2002,  the  reserve  balance is
approximately  $74,000  which  management  believes is sufficient to satisfy the
remaining lease obligation.  The Company's management believes it will not incur
significant additional losses in connection with these matters.

On December  16,  2002,  the  Company  filed a Complaint  in  Jefferson  County,
Kentucky  Circuit  Court  against  American  Federal,  Inc.  ("AFI")  seeking  a
declaratory  judgment  that the Company had no  contractual  obligation to pay a
$270,000 commission to AFI, in connection with a Conditional  Commitment entered
into   between  AFI  and  the   Company  and  seeking   damages  for  fraud  and
misrepresentation.  In response,  AFI filed suit in the United  States  District
Court for the  Eastern  District  of  Missouri  seeking  payment  of a  $405,000
commitment  fee plus  additional  charges,  fees and costs all in the  excess of
$500,000 relating to the Conditional  Commitment,  as well as damages for breach
of contract,  unjust enrichment and  misrepresentation/fraud.  This matter is in
the early  discover  stage.  Management  believes  that AFI's claims are without
merit,  but it is too early to  predict  an  outcome.  The  Company  intends  to
vigorously  defend  itself in  connection  with this matter.  As of December 29,
2002,  the  Company  has not  made  an  accrual  for a  potential  liability  in
connection with this matter.

We are also subject to claims and legal  actions in the  ordinary  course of our
business.  Certain of these claims and actions may involve related  parties.  We
believe  that all such  claims  and  actions  are either  adequately  covered by
insurance  or would not have a  material  adverse  effect on us if  decided in a
manner unfavorable to us.

We both own and lease our restaurant  facilities.  Management determines whether
to  acquire  or  lease a  restaurant  facility  based on our  evaluation  of the
financing alternatives available for a particular site.

In 2003,  the Company  expects to  construct  one to two  additional  restaurant
facilities.  Our  ability to expand our number of  restaurants  will depend on a
number  of  factors,   including  the  selection  and  availability  of  quality
restaurant  sites,  the negotiation of acceptable  lease or purchase terms,  the
securing  of  required   governmental   permits  and  approvals,   the  adequate
supervision  of  construction,  the hiring,  training  and  retaining of skilled
management and other personnel, the availability of adequate financing and other
factors,  many of which are beyond our  control.  The  hiring and  retention  of
management and other personnel may be difficult given the low unemployment rates
in the areas in which we intend to operate.  There can be no  assurance  that we
will be successful in opening the number of restaurants  anticipated in a timely
manner.  Furthermore,  there can be no assurance that our new  restaurants  will
generate sales revenue or profit margins  consistent  with those of our existing
restaurants, or that these new restaurants will be operated profitably.

In the next 12 months,  the Company expects the demand on future liquidity to be
principally from the ongoing  maintenance and improvement of existing restaurant
facilities  and  from  the  construction  of one to  two  additional  restaurant
facilities. As of December 29, 2002, the Company had no material commitments for
the  construction  of new  restaurants,  maintenance  or improvement of existing
restaurant facilities.  In addition to the $1.2 million reserve established as a
result of the GE financing  package,  we will utilize  mortgage,  sale/leaseback
and/or landlord  financing,  as well as equipment  leasing and financing,  for a
portion of the  development  costs of  restaurants  we plan to open in 2003. The
remaining costs will be funded by available cash reserves and cash provided from
operations.  Management  believes  such sources will be  sufficient  to fund our
expansion plans through 2003. Should our actual results of operations fall short
of, or our rate of expansion  significantly exceed plans, or should our costs of
capital expenditures exceed expectations, we may need to

                                     - 24 -

<PAGE>



seek additional  financing in the future.  In negotiating such financing,  there
can be no assurance  that we will be able to raise  additional  capital on terms
satisfactory to us.

OTHER EVENTS

Beginning January 1, 2002, the Company  implemented a 401(k) plan. All employees
who are at least 21 years of age with one year of service in which they worked a
minimum of 1,000 hours are  eligible.  An employee can  contribute  up to 15% of
their  gross  salary.  The  Company  matches  25% of the  first  4% an  employee
contributes.  The employee becomes vested in the Company contribution based on a
five-year vesting schedule. The Company match was approximately $67,000 in 2002.

On June 3, 2002, a group  consisting of Gerald Mansbach,  the Company's  largest
stockholder,  Terrance A. Smith,  the  Company's  Chairman,  President and Chief
Executive  Officer,  and David M. Roth, a director of the  Company,  submitted a
proposal to the Company's Board of Directors to acquire of the Company's  common
stock not currently owned by them or others they may invite to join their group.
The proposal  contemplated a cash tender offer price of $1.75 per share. On June
5, 2002, three additional directors, Minx Auerbach, George Keller and Lewis Bass
joined Gerald Mansbach, Terrance A. Smith and David M. Roth in their proposal to
acquire all the  Company's  common  stock not owned by their group at a price of
$1.75 per share. The group owns  approximately 60% of the Company's  outstanding
common stock.

The Board appointed a Special Committee of independent directors to evaluate the
proposal.  The Special  Committee  engaged an investment  banking firm and a law
firm to act as  advisors  in  connection  with its  review of the  tender  offer
proposal.

On or about October 28, 2002, the proposal to acquire all outstanding  shares in
the going private  transaction was withdrawn.  Mr. Gerald Mansbach,  the largest
shareholder of Tumbleweed  shares and the lead  participant in the going private
proposal,  notified  Tumbleweed that he had decided,  for personal  reasons,  to
withdraw the going private proposal and would explore options for disposition of
his existing shares.

IMPACT OF INFLATION

The  impact  of  inflation  on the  cost of  food,  labor,  equipment,  land and
construction costs could harm our operations. The Company pays a majority of its
employees  hourly rates  related to federal and state  minimum  wage laws.  As a
result of increased competition and the low unemployment rates in the markets in
which the  Company's  restaurants  are  located,  the Company has  continued  to
increase wages and benefits in order to attract and retain management  personnel
and hourly  workers.  In  addition,  most of the  Company's  leases  require the
Company to pay taxes,  insurance,  maintenance,  repairs and utility costs,  and
these costs are subject to  inflationary  pressures.  Most of the leases provide
for  increases in rent based on  increases in the Consumer  Price Index when the
leases are  renewed.  The Company may attempt to offset the effect of  inflation
through periodic menu price increases, economies of scale in purchasing and cost
controls and efficiencies at existing restaurants.





















                                     - 25 -

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company  does not enter into  derivative  transactions  or  speculate on the
future  direction  of interest  rates.  The Company is exposed to interest  rate
changes  primarily  as a result of our  variable  rate debt  instruments.  As of
December  29,  2002,  approximately  $10,900,000  of our debt bore  interest  at
variable  rates. A 1% change in the variable  interest rate on this debt equates
to an approximate $109,000 change in interest for a twelve month period.






















































                                     - 26 -

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

               INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

                                                                          PAGE
                                                                          ----
   Report of Independent Auditors                                          28

   Consolidated Statements of Operations for the fiscal years
    ended December 29, 2002 and December 31, 2001 and 2000                 29

   Consolidated Balance Sheets as of December 29, 2002 and
    December 31, 2001                                                      30

   Consolidated Statements of Stockholders' Equity for the fiscal
    years ended December 29, 2002 and December 31, 2001 and 2000           31

   Consolidated Statements of Cash Flows for the fiscal years ended
    December 29, 2002 and December 31, 2001 and 2000                       32

   Notes to Consolidated Financial Statements                              33









































                                     - 27 -

<PAGE>



                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Tumbleweed, Inc.


We have audited the accompanying consolidated balance sheets of Tumbleweed, Inc.
as of December  29, 2002 and December  31,  2001,  and the related  consolidated
statements of operations,  stockholders'  equity,  and cash flows for the fiscal
year ended  December  29,  2002 and each of the two  fiscal  years in the period
ended  December  31, 2001.  Our audits also  included  the  financial  statement
schedule  listed in the Index at Item  15(a).  These  financial  statements  and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule 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 consolidated  financial position of Tumbleweed,  Inc.
at December 29, 2002 and December 31, 2001 and the  consolidated  results of its
operations  and its cash flows for the fiscal year ended  December  29, 2002 and
each of the  two  fiscal  years  in the  period  ended  December  31,  2001,  in
conformity with accounting  principles  generally accepted in the United States.
Also, in our opinion, the related financial statement schedule,  when taken as a
whole,  presents  fairly in all  material  respects  the  information  set forth
therein.

As discussed in Note 4 to the  consolidated  financial  statements,  in 2002 the
Company  changed its method for  accounting  for goodwill  and other  intangible
assets.




/s/ Ernst & Young LLP
Louisville, Kentucky
March 7, 2003























                                     - 28 -

<PAGE>

<TABLE>
<CAPTION>


                                Tumbleweed, Inc.

                      Consolidated Statements of Operations


                                                                                   Fiscal Years Ended
                                                                     ---------------------------------------------
                                                                     December 29,    December 31,    December 31,
                                                                         2002            2001            2000
                                                                     ---------------------------------------------
Revenues:
<S>                                                                 <C>            <C>             <C>
   Restaurant sales                                                 $   54,076,024 $    56,025,886 $    51,820,600
   Commissary sales                                                      1,664,591       1,781,252       1,663,208
   Franchise fees and royalties                                          1,223,664       1,227,300       1,271,251
   Other revenues                                                          661,990         418,744         990,843
                                                                     -------------  --------------  --------------
Total revenues                                                          57,626,269      59,453,182      55,745,902
Operating expenses:
   Restaurant cost of sales                                             16,231,146      17,426,315      15,275,817
   Commissary cost of sales                                              1,496,587       1,562,049       1,460,704
   Operating expenses                                                   29,940,255      30,567,705      27,456,791
   Selling, general and administrative expenses                          5,983,857       6,107,159       6,598,299
   Preopening expenses                                                           -               -         490,394
   Depreciation and amortization                                         1,947,610       2,285,452       2,147,408
   Special charges                                                         103,773       4,294,539               -
   Loss on guarantees of indebtedness                                            -         565,000         725,000
                                                                     -------------  --------------  --------------
Total operating expenses                                                55,703,228      62,808,219      54,154,413
                                                                     -------------  --------------  --------------
Income (loss) from operations                                            1,923,041      (3,355,037)      1,591,489
Other income (expense):
   Interest expense, net                                                (1,007,126)     (1,276,903)     (1,458,650)
   Gain on sale of property                                                338,482               -               -
   Gain from insurance proceeds due to involuntary conversion
     of non-monetary assets                                                 91,693               -         554,864

   Equity in income (loss) of TW-Springhurst                                     -          81,318         (58,903)
                                                                     -------------  --------------  --------------
Total other expense                                                       (576,951)     (1,195,585)       (962,689)
                                                                     -------------  --------------  --------------
Income (loss) before income taxes, extraordinary item and cumulative
   effect of a change in accounting principle                            1,346,090      (4,550,622)        628,800
Provision (benefit) for income taxes -
   current and deferred                                                    730,234      (1,178,144)         65,439
                                                                     -------------  --------------  --------------
Income (loss) before extraordinary item and cumulative effect of a
   change in accounting principle                                          615,856      (3,372,478)        563,361
Extraordinary item - write-off of unamortized loan costs, net of tax       (76,743)              -               -
Cumulative effect of a change in accounting principle, net of tax       (1,503,776)              -               -
                                                                     -------------  --------------  --------------
Net income (loss)                                                   $     (964,663)$    (3,372,478)$       563,361
                                                                     =============  ==============  ==============
Basic and diluted earnings (loss) per share:
   Income (loss) before extraordinary item and cumulative effect of
    a change in accounting principle                                $         0.10 $         (0.58)$          0.10
   Extraordinary item - write-off of unamortized loan costs                  (0.01)              -               -
   Cumulative effect of a change in accounting principle, net of tax         (0.25)              -               -
                                                                     -------------  --------------  --------------
   Net income (loss)                                                $        (0.16)$         (0.58)$          0.10
                                                                     =============  ==============  ==============
</TABLE>

See accompanying notes.














                                     - 29 -

<PAGE>



                                            Tumbleweed, Inc.

                                       Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                December 29,       December 31,
                                                                    2002               2001
                                                              -----------------   ---------------
Assets
Current assets:
<S>                                                          <C>                          <C>
   Cash and cash equivalents                                 $        1,334,631  $        757,266
   Accounts receivable, net allowance of $4,202 in 2001                 942,241           350,586
   Inventories                                                        1,786,207         1,785,481
   Deferred income taxes                                                      -           123,318
   Prepaid expenses and other assets                                    601,751           517,280
                                                              -----------------   ---------------
Total current assets                                                  4,664,830         3,533,931
Property and equipment, net                                          26,699,920        28,380,038
Goodwill, net of accumulated amortization of
   $723,897 in 2001                                                     174,657         2,349,646
Intangible assets                                                     1,524,530                 -
Investment in TW-Springhurst                                                  -           126,415
Deferred income taxes                                                   281,840                 -
Other assets                                                            631,365           507,320
                                                              -----------------   ---------------
Total assets                                                 $       33,977,142  $     34,897,350
                                                              =================   ===============

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                          $        1,292,871  $      1,269,967
   Accrued liabilities                                                2,951,024         3,542,511
   Deferred income taxes                                                153,249                 -
   Current maturities on long-term
     debt and capital leases                                          1,191,874         1,601,374
                                                              -----------------   ---------------
Total current liabilities                                             5,589,018         6,413,852

Long-term liabilities:
   Long-term debt, less current maturities                           13,251,083        11,843,939
   Capital lease obligations, less current maturities                 1,437,683         1,989,820
   Deferred income taxes                                                      -            30,716
   Other liabilities                                                     65,000           120,000
                                                              -----------------   ---------------
Total long-term liabilities                                          14,753,766        13,984,475
                                                              -----------------   ---------------
Total liabilities                                                    20,342,784        20,398,327
Commitments and contingencies (Note 21)
Stockholders' equity:
   Preferred stock, $.01 par value, 1,000,000
     shares authorized; no shares issued
     and outstanding                                                          -                 -
   Common stock, $.01 par value, 16,500,000 shares
     authorized; 5,958,553 and 5,881,630 shares issued
     at December 29, 2002 and December 31, 2001,
     respectively                                                        59,587            58,818
   Paid-in capital                                                   16,393,235        16,294,006
   Treasury stock, 42,400 shares                                       (254,695)         (254,695)
   Retained deficit                                                  (2,563,769)       (1,599,106)
                                                              -----------------   ---------------
     Total stockholders' equity                                      13,634,358        14,499,023
                                                              -----------------   ---------------
Total liabilities and stockholders' equity                   $       33,977,142  $     34,897,350
                                                              =================   ===============
</TABLE>

See accompanying notes.


                                     - 30 -

<PAGE>






                                Tumbleweed, Inc.
                 Consolidated Statements of Stockholders' Equity

       Fiscal Years Ended December 29, 2002 and December 31, 2001 and 2000

<TABLE>
<CAPTION>

                                                                                          Retained
                                           Common Stock          Paid-In     Treasury     Earnings
                                     ------------------------
                                        Shares       Amount      Capital      Stock       (Deficit)        Total
                                     ------------  ----------  -----------  ----------   -----------    -----------

<S>                                     <C>       <C>         <C>          <C>          <C>            <C>
Balance at December 31, 1999            5,881,630 $    58,818 $ 16,294,006 $         -  $  1,210,011   $ 17,562,835
Net income                                      -           -            -           -       563,361        563,361
Purchase of 42,400 shares of
  treasury stock                          (42,400)          -            -    (254,695)            -       (254,695)
                                     ------------  ----------  -----------  ----------   -----------    -----------

Balance at December 31, 2000            5,839,230      58,818   16,294,006    (254,695)    1,773,372     17,871,501
Net loss                                        -           -            -           -    (3,372,478)    (3,372,478)
                                     ------------  ----------  -----------  ----------   -----------    -----------

Balance at December 31, 2001            5,839,230      58,818   16,294,006    (254,695)   (1,599,106)    14,499,023
Net loss                                        -           -            -           -      (964,663)      (964,663)
Issuance of common stock                   76,923         769       99,229           -             -         99,998
                                     ------------  ----------  -----------  ----------   -----------    -----------

Balance at December 31, 2002            5,916,153 $    59,587 $ 16,393,235 $  (254,695)  $(2,563,769)  $ 13,634,358
                                     ============  ==========  ===========  ==========   ===========    ===========
</TABLE>

See accompanying notes.








                                     - 31 -

<PAGE>




                                Tumbleweed, Inc.

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                              Fiscal Years Ended
                                                             ----------------------------------------------------
                                                              December 29,        December 31,      December 31,
                                                                  2002                2001              2000
                                                             ---------------    ----------------   --------------
Operating activities:
<S>                                                         <C>                <C>                <C>
   Net income (loss)                                        $       (964,663)  $      (3,372,478) $       563,361
   Adjustment to reconcile net income (loss) to net
     cash provided by operating activities:
        Cummulative effect of a change in accounting principle     2,349,646                   -                -
        Depreciation and amortization                              1,947,610           2,285,452        2,147,408
        Provision for doubtful accounts                                    -               4,202           68,464
        Deferred income taxes                                        (35,989)         (1,027,371)          63,015
        Loss on guarantees of indebtedness                                 -             565,000          725,000
        Special charges                                              103,773           4,294,539                -
        Equity in loss of  TW-Springhurst, net of
        distributions received of $96,000 in 2001                          -              14,682           58,903
        Gain on sale of property                                    (338,482)                  -                -
         ain from insurance proceeds due to involuntary
        G   conversion of non-monetary assets                        (91,693)                  -         (554,864)
        Write-off of unamortized loan costs                           95,951                   -                -
        Loss on disposition of property and equipment                111,238              66,841           38,250
        Changes in operating assets and liabilities:
          Accounts receivable                                       (186,169)            403,168            2,035
          Inventories                                                (15,713)           (177,928)        (121,404)
          Prepaid expenses                                           (64,165)            (57,997)        (286,157)
          Other assets                                              (338,275)             52,379          (89,452)
          Accounts payable                                            24,990             156,524           11,418
          Accrued liabilities                                       (579,467)           (123,402)         (41,178)
          Income taxes                                               (39,278)            230,547         (302,251)
          Other liabilities                                          (55,000)            (20,000)         (20,000)
                                                             ---------------    ----------------   --------------
Net cash provided by operating activities                          1,924,314           3,294,158        2,262,548

Investing activities:
   Purchases of property and equipment                            (1,063,911)         (1,255,406)      (3,090,936)
   Insurance proceeds for property and equipment                           -                   -        1,299,352
   Business acquisitions                                            (150,000)                  -       (1,806,333)
   Proceeds from sale before debt payment                          1,125,815                   -                -
   Investment in TW-Springhurst                                            -                   -         (200,000)
                                                             ---------------    ----------------   --------------
Net cash used in investing activities                                (88,096)         (1,255,406)      (3,797,917)

Financing activities:
   Proceeds from issuance of long-term debt                        1,934,973           3,704,120        6,423,960
   Payments on long-term debt and capital lease obligations       (3,193,826)         (5,267,435)      (4,992,256)
   Purchase of treasury stock                                              -                   -         (254,695)
                                                             ---------------    ----------------   --------------
Net cash provided by (used in) financing activities               (1,258,853)         (1,563,315)       1,177,009
                                                             ---------------    ----------------   --------------

Net increase (decrease) in cash and cash equivalents                 577,365             475,437         (358,360)
Cash and cash equivalents at beginning of year                       757,266             281,829          640,189
                                                             ---------------    ----------------   --------------
Cash and cash equivalents at end of year                    $      1,334,631   $         757,266  $       281,829
                                                             ===============    ================   ==============

Supplemental cash flow information:
   Cash paid for interest, net of amount capitalized        $        977,309   $       1,287,461  $     1,477,172
                                                             ===============    ================   ==============
   Cash paid for income taxes                               $         55,914   $           4,085  $       304,674
                                                             ===============    ================   ==============
Noncash investing and financing activities:
   Equipment acquired by capital lease obligations          $              -   $               -  $       224,906
                                                             ===============    ================   ==============
    Licensing rights acquired by assumption of debt         $      1,425,968   $               -  $             -
                                                             ===============    ================   ==============
    Licensing rights acquired by issuance of stock          $         99,998   $               -  $             -
                                                             ===============    ================   ==============
</TABLE>

See accompanying notes.


                                     - 32 -

<PAGE>



                                TUMBLEWEED, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Basis of Presentation

Merger of Tumbleweed, LLC and Tumbleweed, Inc.

Tumbleweed,  Inc.  (the  Company)  was  legally  formed  in  December  1997  and
capitalized  on June 23, 1998 with the  issuance of 13 shares of Company  common
stock at $10 per share.  Effective  January 1, 1999, and as a result of the sale
of  776,630  shares  of  common  stock  in an  initial  public  offering  (IPO),
Tumbleweed,  LLC  (Tumbleweed)  was merged into the  Company.  The  interests of
Tumbleweed  members at the time of the  merger  were  converted  into a total of
5,105,000 shares of Company common stock.

Prior to the merger, Tumbleweed and its owners (Members) operated pursuant to an
Operating Agreement dated September 19, 1994. Members of Tumbleweed consisted of
Common  Members,  Class A  Members,  Class B Members  and a Class C Member.  The
capital  accounts of the Common,  Class B and Class C Members  were  $(394,000),
$747,959 and $500,  respectively,  as of December 31, 1998. Class A Members had,
in addition to their cash contributions,  provided financing which was accounted
for as redeemable  members' equity prior to Tumbleweed's  assumption of the debt
on December 31, 1998. Certain Common Members acted as the Managers of Tumbleweed
and, acting unanimously, generally had voting control of Tumbleweed.

Restaurant Facilities

As of December 29, 2002, the Company owned, franchised or licensed 56 Tumbleweed
restaurants.  The Company owned and operated 31 restaurants in Kentucky, Indiana
and Ohio.  There were 19 franchised  restaurants  located in Indiana,  Illinois,
Kentucky and Wisconsin and six licensed  restaurants  located outside the United
States in  Germany,  Jordan,  Egypt,  England and Turkey.  The  following  table
reflects  changes  in  the  number  of  Company-owned,  franchise  and  licensed
restaurants during the fiscal years presented.


                                                   2002       2001       2000
                                                   ----       ----       ----
Company-owned restaurants:
     In operation, beginning of fiscal year         36         36         29
     Restaurants opened                              -          -          4
     Restaurant sold to franchisee                  (1)         -          -
     Restaurants closed                             (4)         -          -
     Joint venture restaurant opened                 -          -          1
     Restaurants purchased from franchisee           -          -          2
                                                    --         --         --
     In operation, end of fiscal year               31         36         36
                                                    --         --         --

Franchise and licensed restaurants:
     In operation, beginning of fiscal year         29         27         22
     Restaurants opened                              -          3         10
     Restaurants closed                             (5)        (1)        (3)
     Restaurant purchased from
          Tumbleweed, Inc.                           1          -          -
     Restaurants sold to Tumbleweed, Inc.            -          -         (2)
                                                    --          -         --
     In operation, end of fiscal year               25         29         27
                                                    --         --         --
          System Total                              56         65         63
                                                    ==         ==         ==

On January 1, 2002,  the Company  purchased  from its joint venture  partner the
remaining  50%  interest  in a  restaurant  location.  See Note 10 for a further
discussion of this  transaction.  During the first quarter of 2002,  the Company
closed four Company-owned  restaurant locations. The restaurants were located in
Cincinnati,  Ohio (2),  Columbus,  Ohio (1),  and  Evansville,  Indiana (1). The
restaurant  closings were part of a strategic  management  decision to eliminate
lower sales volume  restaurants that were  unprofitable in 2001 and to focus its
energies on the continued improvement of per-store average sales volumes. During
the second quarter of 2002, the Company sold one of its restaurant  locations to
a franchisee

                                     - 33 -

<PAGE>



1.   Basis of Presentation (continued)

in accordance with the Company's plan established in the fourth quarter of 2001.
See Note 14 for a discussion  regarding  special  charges which were recorded in
2001 as a result of these restaurant closings.

Fiscal Year

Beginning  January 1, 2002,  the  Company  changed its fiscal year to end on the
last Sunday in December from a December 31 year end. The first three quarters of
each fiscal year,  beginning in 2002, consist of 12 weeks and the fourth quarter
consists of 16 weeks. Fiscal year 2002 consists of 363 days compared to 365 days
in 2001, which resulted in lower revenues of approximately $300,000.

Recently Issued Accounting Standards

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 141,  "Business  Combinations," and SFAS No. 142, "Goodwill
and Other  Intangible  Assets." SFAS No. 141  eliminates the pooling of interest
method of  accounting  and SFAS No. 142 requires  that  goodwill and  intangible
assets  with  indefinite  useful  lives no longer be  amortized,  but instead be
tested for impairment annually,  or more frequently if certain indicators arise.
The  provisions of SFAS No. 142 also require the  completion  of a  transitional
impairment  test within six months of adoption with any  impairments  identified
treated as a cumulative effect of a change in accounting principle. The adoption
of SFAS No. 142 had a significant impact on the Company's financial position and
results of operations as described in Note 4.

On January 1, 2002,  the  Company  adopted  SFAS No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets."  SFAS No. 144  requires  that
long-lived assets to be disposed of by sale be measured at the lower of net book
value or fair market  value less cost to sell,  whether  reported in  continuing
operations  or  discontinued   operations.   SFAS  No.  144  also  broadens  the
presentation of discontinued  operations to include components of an entity that
have  been or will be  disposed  of  rather  than  limiting  such  reporting  to
discontinued segments of a business.  The adoption of SFAS No. 144 had no impact
on the Company's financial position and results of operations.

In April 2002, the FASB issued SFAS No. 145  "Rescission of FASB  Statements No.
4,44, and 64,  Amendment of FASB  Statement No. 13, and Technical  Corrections,"
which is effective for the Company in 2003.  SFAS No. 145 eliminates SFAS No. 4,
which required all gains (losses) from  extinguishment  of debt to be classified
as an  extraordinary  item,  net of related income tax effect,  and thus,  gains
(losses) from extinguishment of debt should be classified as extraordinary items
only if they meet the  criteria  in APB Opinion No. 30. SFAS No. 145 amends SFAS
No. 13 to  eliminate  an  inconsistency  between  the  required  accounting  for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions. Additionally, SFAS No. 145 rescinds SFAS No. 44 and 64 because the
statements are no longer  applicable.  Tumbleweed plans to adopt SFAS No. 145 in
2003 which will result in reclassifying  its loss on unamortized loan costs from
an  extraordinary  item to an operating  item in the  Consolidated  Statement of
Operations for the 2003 fiscal year.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
With Exit or  Disposal  Activities,"  which is  effective  for exit or  disposal
activities  that are initiated  after December 31, 2002.  SFAS No. 146 nullifies
EITF  Issue  94-3,  "Liability  Recognition  for  Certain  Employee  Termination
Benefits and Other Costs to Exit an Activity  (including  Certain Costs Incurred
in a  Restructuring)."  SFAS  No.  146  requires  that  a  liability  for a cost
associated  with an exit or disposal  activity be  recognized at fair value when
the  liability is incurred.  A commitment  to an exit or disposal plan no longer
will be sufficient  basis for recording a liability  for those  activities.  The
adoption of SFAS No. 146 in 2003 is not expected to have an  immediate  material
impact on the Company's financial  condition or results of operations,  however,
the Company may have  future exit or disposal  activities  to which SFAS No. 146
would apply.

In December  2002,  the FASB issued  SFAS No. 148,  "Accounting  for Stock Based
Compensation  - Transition  and  Disclosure - an Amendment of FASB Statement No.
123," which was effective for disclosure  purposes for fiscal years ending after
December 15, 2002. SFAS No. 148 provides alternative methods of transition for a
voluntary  change to the fair value based method of  accounting  for stock based
compensation. In addition, it amends the disclosure requirements of SFAS No. 123
to require prominent  disclosures about the method of accounting for stock based
compensation  and the  effect on  reported  results.  The  provisions  regarding
alternative methods of transition do not apply to the Company which continues to
account for  stock-based  compensation  using the intrinsic  value  method.  The
disclosure provisions have been adopted in Note 2.

                                     - 34 -

<PAGE>



1. Basis of Presentation (continued)

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 contains  recognition and measurement
provisions that require certain guarantees to be recorded as a liability, at the
inception of the guarantee,  at fair value.  Current  accounting  practice is to
record a liability only when a loss is probable and reasonably estimable. FIN 45
also  requires  a  guarantor  to  make  new  disclosures.  The  recognition  and
measurement  provisions are effective for  guarantees  issued after December 31,
2002.  Management  does not expect the adoption of FIN 45 to have a  significant
impact on the Company's financial condition or results of operations.

2. Significant Accounting Policies

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned  subsidiary.  Intercompany  accounts and transactions have been
eliminated in consolidation.  Prior to January 1, 2002, the Company's investment
in TW-Springhurst (see Note 10) was accounted for using the equity method, under
which the  Company's  share of earnings or losses  were  reflected  in income as
earned.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions that affect the amounts  reported in these financial  statements
and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash  and  cash  equivalents  include  cash on hand and  deposits  at  financial
institutions with initial maturities of less than three months when purchased.

Inventories

Inventories,  which consist of  smallwares,  food,  beverages and supplies,  are
stated at the lower of average cost or market.

Property and Equipment

Property and equipment are stated at cost and  depreciated on the  straight-line
method.  Buildings and leasehold  improvements  are amortized over the lesser of
the life of the leases, including renewal options, or the estimated useful lives
of the assets,  which range from ten to thirty years.  Equipment is  depreciated
over the  estimated  useful  lives of the  assets,  which range from five to ten
years. Maintenance and repairs which do not enhance the value of or increase the
life of the assets are charged to costs and expenses as incurred.

Construction in Progress

The Company  capitalizes  all direct costs incurred in the  construction  of new
restaurants.  Upon opening, these costs are depreciated or amortized and charged
to expense based upon their property classification.

Goodwill

Prior to 2002, the Company amortized  goodwill on the straight-line  method over
thirty  years.  As of January 1, 2002,  the Company  adopted the new  accounting
pronouncement  related to goodwill (see Notes 1 and 4). In lieu of amortization,
the Company tests goodwill for impairment on an annual basis,  unless conditions
exist  which  would  require  a  more  frequent  evaluation.  In  assessing  the
recoverability of goodwill,  projections  regarding  estimated future cash flows
and other factors are made to determine the fair value of the respective assets.
If these  estimates  or  related  projections  change in the  future,  we may be
required to record impairment charges for goodwill at that time.



                                     - 35 -

<PAGE>



2. Significant Accounting Policies (continued)

Long-Lived Assets

The carrying amount of long-lived  assets is reviewed if facts and circumstances
suggest that it may be impaired. If this review indicates that long-lived assets
will not be recoverable,  as determined based on the estimated undiscounted cash
flows of the asset over the remaining  amortization  period, the carrying amount
of long-lived assets would be written down

to current fair value, which is generally  determined from estimated  discounted
future net cash flows  (assets  held for use) or current fair value less cost to
sell (assets held for sale). See Note 14 for a discussion regarding a write-down
of assets in 2001.

Stock-Based Compensation Costs

The  Company  has a  stock-based  compensation  (stock  option)  plan  which  is
described  more fully in Note 16. The  Company  accounts  for the plan using the
intrinsic  value method of APB Opinion No. 25,  "Accounting  for Stock Issued to
Employees"  ("APB  25").  Because  all  options  granted  under this plan had an
exercise price equal to the market value of the  underlying  common stock on the
date of grant,  no  stock-based  compensation  cost has been  recognized  in the
consolidated  statements of income.  Had stock-based  compensation  cost for the
plan been determined using the fair value recognition provisions of Statement of
Financial  Accounting  Standards  ("SFAS") No. 123,  "Accounting for Stock-Based
Compensation,"  the effect on the Company's  consolidated  net income (loss) and
earnings (loss) per share would have been as follows:

<TABLE>
<CAPTION>

                                                                      Fiscal Year Ended
                                                   -------------------------------------------------------
                                                    December 29,       December 31,       December 31,
                                                        2002               2001               2000
                                                   ---------------    --------------    ----------------

<S>                                               <C>                <C>               <C>
Net income (loss) as reported                     $       (964,663)  $    (3,372,478)  $         563,361
Stock-based compensation cost using fair value
  method, net of related tax effects                       753,606         1,203,622             584,729
                                                   ---------------    --------------    ----------------
Pro forma net loss                                $     (1,718,269)  $    (4,576,100)  $         (21,368)
                                                   ===============    ==============    ================

Earning (loss) per share:
  Basic and diluted, as reported                  $          (0.16)  $         (0.58)  $            0.10
  Pro forma basic and diluted                                (0.29)            (0.78)              (0.00)
</TABLE>

Fair Value of Financial Instruments

The carrying amounts of the Company's  financial  instruments  approximate their
fair value.

Revenue Recognition

Franchise  fees  are  recognized  when all  material  services,  primarily  site
approval and management and staff training, have been substantially performed by
the Company and the restaurant has opened for business.  Fees received  pursuant
to  development  agreements,   which  grant  the  right  to  develop  franchised
restaurants in future  periods in specific  geographic  areas,  are deferred and
recognized  on a pro rata  basis as the  franchised  restaurants  subject to the
development agreements begin operations. Franchise royalties, which are based on
a percentage  of monthly  sales,  are  recognized  as income when earned.  Costs
associated with franchise operations are expensed as incurred.

Advertising Costs

Advertising  costs  include  Company-owned   restaurant   contributions  to  the
Tumbleweed  Marketing Fund,  Inc. and TW- Louisville  Marketing Fund, Inc. ("the
Marketing  Funds")  and  developing  and  conducting   advertising   activities,
including  the  placement of  electronic  and print  materials  developed by the
Tumbleweed  Marketing  Fund, Inc. All advertising and related costs are expensed
as incurred.  Contributions by Company-owned  and franchised  restaurants to the
Marketing  Funds are based on an  established  percentage of monthly  restaurant
revenues. The Tumbleweed Marketing Fund, Inc. is responsible for the development
of marketing and advertising  materials for use throughout the Company's system.
The Marketing Funds are accounted for separately and are not  consolidated  with
the financial statements of the Company.

                                     - 36 -

<PAGE>



2. Significant Accounting Policies (continued)

Company contributions to the Marketing Funds for the fiscal years ended December
29, 2002 and December 31,  2001and 2000 were  $455,152,  $415,611 and  $123,435,
respectively. Advertising expense, which includes the Company's contributions to
the Marketing  Funds,  for the fiscal years ended December 29, 2002 and December
31, 2001 and 2000 were $1,800,927, $1,915,577 and $1,570,179, respectively.

3. Property and Equipment

Property and equipment consist of:

                                                  December 29,    December 31,
                                                      2002            2001
                                                      ----            ----

Land and land improvements                      $     8,638,300 $     9,048,317
Building and improvements                            12,775,399      13,010,660
Leasehold improvements                                2,382,305       2,195,482
Equipment                                             7,898,636       7,383,451
Building and equipment under capital leases           3,777,836       4,139,892
Construction in progress                                309,335          13,011
                                                 ------------------------------
                                                     35,781,811      35,790,813
Less accumulated depreciation and amortization       (9,081,891)     (7,410,775)
                                                 ------------------------------
                                                $    26,699,920 $    28,380,038
                                                 ==============================

4. Goodwill and Intangible Assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 141,  "Business  Combinations,"  and SFAS No. 142 "Goodwill
and Other  Intangible  Assets."  During the first  quarter of 2002,  the Company
determined  that all  goodwill  as of January 1, 2002  related to two  reporting
units was impaired. The fair value of each unit was determined using appropriate
valuation  techniques.  As a result  of the  transitional  impairment  test,  an
impairment  loss in the amount of  $1,503,776,  net of tax,  was  recorded  as a
cumulative  effect of a change in accounting  principle during the first quarter
of 2002.

During the fourth  quarter of 2002,  the  Company  completed  the annual test of
impairment and determined that there was no impairment of the $174,657  goodwill
acquired  during the purchase of the remaining  50% interest in  TW-Springhurst.
See Note 10 for a further discussion of this transaction.

If the Company had accounted for its goodwill under SFAS No. 142 for all periods
presented,  the  Company's  net income  (loss) and income (loss) per share would
have been as follows:
<TABLE>
<CAPTION>


                                                                        Fiscal Years Ended
                                                        ---------------------------------------------------
                                                          December 29,      December 31,      December 31,
                                                              2002              2001              2000
                                                        ----------------   --------------    --------------

<S>                                                    <C>                 <C>              <C>
Net income (loss), as reported                         $        (964,663)  $   (3,372,478)  $       563,361
Add back:
   Goodwill amortization, net of tax                                   -          135,488           117,917
                                                        ----------------   --------------    --------------
Adjusted net income (loss)                             $        (964,663)  $   (3,236,990) $        681,278
                                                        ================   ==============    ==============

Basic and diluted earnings (loss) per share:
   Net income (loss), as reported                      $           (0.16) $         (0.58) $           0.10
   Goodwill amortization, net of tax                                   -             0.02              0.02
                                                        ----------------   --------------    --------------
   Adjusted net income (loss)                          $           (0.16) $         (0.56)  $          0.12
                                                        ================   ==============    ==============


</TABLE>



                                     - 37 -

<PAGE>



4.  Goodwill and Intangible Assets (continued)

The following table sets forth changes in the Company's  goodwill for the fiscal
year ended  December  29,  2002.  All  transactions  occurred in the  restaurant
segment.


Balance as of January 1, 2002                                 $    2,349,646
Goodwill acquired (see Note 10)                                      174,657
Impairment loss                                                   (2,349,646)
                                                               -------------
Balance as of December 29, 2002                               $      174,657
                                                               =============

The  Company  acquired  Tumbleweed  International,  LLC (see Note 11) during the
first quarter of 2002,  which resulted in the acquisition of an intangible asset
in the amount of  $1,525,966  and is  included  in the  corporate  segment.  The
intangible asset consists of $1,455,966 in international licensing rights, which
are  indefinitely  lived assets not subject to amortization  under SFAS No. 142,
and $70,000 of existing  franchise  contracts,  which are definite  lived assets
amortized over the 45 year contract  period.  During 2002, the Company  recorded
amortization  expense  totaling  $1,436 for the definite lived  intangible.  The
amortization expense for each of the next five years will approximate $1,555 per
year.

5. Accrued Liabilities

Accrued liabilities consist of:
<TABLE>
<CAPTION>

                                                         December 29,     December 31,
                                                             2002             2001

<S>                                                    <C>              <C>
Accrued payroll, severance and related taxes           $       979,082  $        946,545
Accrued insurance and fees                                     178,117           192,978
Accrued taxes, other than payroll                              609,900           683,449
Gift card and certificate liability                            524,870           475,914
Reserve for loss on guarantees of indebtedness                  74,573           565,000
Reserve for store closing costs                                290,990           601,186
Other                                                          293,492            77,439
                                                        --------------------------------
                                                       $     2,951,024  $      3,542,511
                                                        ================================
</TABLE>

6.  Long-Term Debt

Long-term debt consists of:
<TABLE>
<CAPTION>


                                                               December 29,     December 31,
                                                                   2002             2001
                                                           -----------------------------------
<S>                                                        <C>                 <C>
Secured  $5,960,000  mortgage revolving line of
credit note, bearing interest at prime rate
plus .25% (4.5% at December 29, 2002), due
December 31, 2003                                           $       5,801,148 $      5,726,148

Secured mortgage note payable, bearing interest at
commercial paper rate plus 2.65% (3.95% at
December 29, 2002), due April 1, 2003                               2,130,342        2,299,567

Secured  mortgage  payable,   bearing  interest  at
7.5%,  payable  in  monthly installments through
January 22, 2007 with a lump sum payment due
February 22, 2002                                                   1,395,253                -


                                    (Continued next page)





                                     - 38 -

<PAGE>



6.  Long-Term Debt (continued)


                                                               December 29,     December 31,
                                                                   2002             2001
                                                             ---------------------------------
Secured mortgage note payable,  bearing interest at
prime rate plus 1% (5.25% at December 29, 2002), payable
in monthly installments through October 1, 2017             $         972,916 $      1,009,847

Secured mortgage note payable, bearing interest at
8.75%, payable in monthly installments through
February 15, 2008                                                     838,428          881,933

Secured $875,000 mortgage revolving line of credit
note, bearing  interest at prime rate plus 2.0% (6.25% at
December 29, 2002) due April 1, 2003                                  874,868          964,868


Secured mortgage note payable, bearing interest at prime
rate (4.25% at December 29, 2002), payable
in monthly installments through March 1, 2006                         570,604          613,632

Secured mortgage note payable, bearing interest at
prime rate plus 1.25% (5.5% at December 29,
2002),  payable in monthly installments through
November 27, 2016                                                     521,875          559,375


Secured mortgage note payable, bearing interest at
10.52%, payable in monthly installments through
August 18, 2005                                                      319,373           417,937

Unsecured note payable bearing interest at 7.5%, due
February 22, 2007                                                    282,113                 -

Secured mortgage note payable, bearing interest at
commercial paper rate plus 2.65%, due April 1, 2003                        -           224,611

Other installment notes payable                                      288,703           206,167
                                                            ----------------------------------
                                                                  13,995,623        12,904,085
Less current maturities                                              744,540         1,060,146
                                                            ----------------------------------
Long-term debt                                             $      13,251,083 $      11,843,939
                                                            ==================================
</TABLE>

Property and equipment  with a net book value of  approximately  $20,500,000  at
December 29, 2002 collateralize the Company's long-term debt.

The terms of certain loan agreements  include various  provisions  which require
the Company to (i) maintain  defined net worth and coverage  ratios,  (ii) limit
the incurrence of certain liens or  encumbrances  in excess of defined  amounts,
(iii)  maintain  defined  leverage  ratios  and (iv)  prohibit  the  payment  of
dividends.  The Company was in violation  of the debt  coverage  ratio  covenant
related to the revolving lines of credit  (balances as of December 29, 2002 were
$5,801,148  and  $874,868) as of December  29, 2002.  As a result of the Company
completing  an $18.0  million  financing  package  on  December  31,  2002  (see
discussion  below),  it was not  necessary  for the  Company to obtain  covenant
waivers as these revolving lines of credit were repaid.

Subsequent  to year end on December  31,  2002,  the Company  completed an $18.0
million financing package with GE Capital  Franchise  Finance  Corporation.  The
financing  package  consolidates  all  of the  Company's  outstanding  debt  and
equipment capital leases and provides approximately $3.0 million for the remodel
and  expansion  of Company  restaurants.  The debt bears  interest at both fixed
rates ranging from 8.32% to 8.52% ($8,872,000) and a variable rate of LIBOR plus


                                     - 39 -

<PAGE>



6.  Long-Term Debt (continued)

4.20%  ($9,128,000) with terms of 10 to 15 years. The debt is secured by fifteen
fee  simple  properties  and  substantially  all of the  equipment  owned by the
Company.  The  Company  is  required  to meet  various  financial  ratios  which
management expects to be in compliance with throughout 2003.

The aggregate  annual  maturities of the long-term debt for the years subsequent
to December 29, 2002, giving effect to the refinancing on December 31, 2002, are
as follows:

                 2003                       $    744,540
                 2004                            864,791
                 2005                            929,483
                 2006                            996,961
                 2007                          1,069,550
                 Thereafter                    9,390,298
                                             -----------
                 Total                      $ 13,995,623
                                             ===========

7.   Leases

The  Company  leases  certain   buildings  and  equipment  under  capital  lease
agreements  with related and third  parties.  The equipment  leases have five to
seven year terms.  The building  leases  expire in 2016 and 2017.  Subsequent to
year end on December 31, 2002, the Company  completed an $18.0 million financing
package  (see Note 6) which  consolidated  the  Company's  outstanding  debt and
equipment  capital  leases.  The building  capital leases which remain in effect
subsequent  to the  refinancing  have future  minimum  lease  payments  totaling
approximately  $2,492,000.   The  table  below  does  not  give  effect  to  the
refinancing  on December 31,  2002.  Future  minimum  lease  payments  under the
building and  equipment  capital  leases and the net present value of the future
minimum lease payments at December 29, 2002 were as follows:
<TABLE>
<CAPTION>


                                                         Related            Other
                                                       Party Lease          Leases          Total
                                                       -----------          ------          -----

<S>                                                   <C>               <C>            <C>
2003                                                  $      84,000     $     560,642  $      644,642
2004                                                         84,000           226,050         310,050
2005                                                         84,000            88,509         172,509
2006                                                         84,000            88,509         172,509
2007                                                         84,000            88,509         172,509
Thereafter                                                  840,000           789,205       1,629,205
                                                       ----------------------------------------------
Total minimum lease payments                          $   1,260,000     $   1,841,424       3,101,424
                                                       ==============================
Less amount representing interest
   at 6.25% to 11.30%                                                                      (1,216,407)
                                                                                        -------------
      Net present value of lease payments                                                   1,885,017
Less current maturities                                                                      (447,334)
                                                                                        -------------
Long-term portion of capital lease obligations                                         $    1,437,683
                                                                                        =============
</TABLE>

The Company leases certain  restaurants  and equipment  under  operating  leases
having terms expiring  between 2003 and 2017.  Most of the  restaurant  facility
leases have renewal clauses of five to twenty years exercisable at the option of
the  Company  and one of the  leases is with a  related  party.  Certain  leases
require  the  payment  of  contingent  rentals  based on a  percentage  of gross
revenues.  The related party  operating lease requires the payment of contingent
rent based on 30% of the restaurant's positive net cash flow.










                                     - 40 -

<PAGE>



7.  Leases (continued)

Future minimum lease  payments on operating  leases at December 29, 2002 were as
follows:

                 Related
                  Party           Other
                  Lease           Leases            Total
               -------------------------------- -------------

2003          $     60,000    $   1,881,106   $     1,941,106
2004                60,000        1,881,506         1,941,506
2005                60,000        1,723,689         1,783,689
2006                60,000        1,709,342         1,769,342
2007                60,000        1,710,722         1,770,722
Thereafter         605,000       10,275,647        10,880,647
               ----------------------------------------------
             $     905,000     $ 19,182,012   $    20,087,012
               ==============================================

Total rental expense was  approximately  $2,173,000 in 2002,  $2,302,000 in 2001
and $1,975,700 in 2000 and included contingent rent of approximately $200,000 in
2002,  $204,000 in 2001and  $244,000 in 2000.  Rental  expense for related party
leases was approximately $246,000 in 2002, $264,000 in 2001and $304,000 in 2000.

8.   Income Taxes

The components of the provision  (benefit) for income taxes for the fiscal years
ended December 29, 2002, and December 31, 2001 and 2000 related to income (loss)
before  extraordinary  item and  cumulative  effect  of a change  in  accounting
principle consists of the following:


                                          2002           2001          2000
                                      -----------    -----------   ------------
Current - federal                    $   (125,416)  $   (150,773) $       2,424
Deferred                                  855,650     (1,027,371)        63,015
                                      -----------    -----------   ------------
                                          730,234   $ (1,178,144) $      65,439
                                      ===========    ===========   ============

The provision (benefit) for income taxes for the fiscal years ended December 29,
2002 and  December  31,  2001 and 2000 on income  (loss)  before  income  taxes,
extraordinary  item and  cumulative  effect of a change in accounting  principle
differs from the amount  computed by applying the statutory  federal  income tax
rate due to the following:



                                         2002           2001           2000
                                      -----------    -----------   ------------
U.S. federal income taxes at 34%     $    457,671   $ (1,547,212) $     213,792
State income taxes, net of federal
  tax effect                                    -       (180,205)      (138,034)
Valuation allowance against deferred
 income tax assets                        332,168        655,770              -
Employment tax credits                   (185,361)      (139,632)       (97,483)

Other items                               125,756         33,135         87,164
                                      -----------    -----------   ------------
Provision (benefit) for income taxes $    730,234   $ (1,178,144) $      65,439
                                      ===========    ===========   ============














                                     - 41 -

<PAGE>



8.   Income Taxes (continued)

Significant  components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>


                                                    December 29,       December 31,
                                                        2002               2001
                                                   ---------------    ---------------
Deferred tax assets:
<S>                                               <C>                <C>
     Asset impairment and store closings          $      1,066,520   $      1,550,753
     Intangible write off                                  845,891                  -
     Tax credit and state net operating  loss
        carryforwards                                    1,102,441            661,139
     Unearned revenue and other                            259,150            419,441
     Book over tax amortization                                  -                  -
                                                   ---------------    ---------------
          Total deferred tax assets                      3,274,002          2,631,333
Deferred tax liabilities:
     Deferred expenses and other                        (1,005,499)          (930,752)
     Tax over book depreciation                           (865,651)          (867,259)
     Tax over book amortization                           (185,193)           (84,950)
                                                   ---------------    ---------------
          Total deferred tax liabilities                (2,056,343)        (1,882,961)
Valuation allowance                                     (1,089,068)          (655,770)
                                                   ---------------    ---------------
Net deferred tax asset (liability)                $        128,591   $         92,602
                                                   ===============    ===============
Classification:
     Current asset                                $              -   $        123,318
     Non-current asset                                     281,840                  -
     Current liability                                    (153,249)                 -
     Non-current liability                                       -            (30,716)
                                                   ---------------    ---------------
                                                  $        128,591   $         92,602
                                                   ===============    ===============
</TABLE>

Deferred  tax assets and  liabilities  are  classified  as current or  long-term
according  to the  related  asset  and  liability  classification  of  the  item
generating the tax.

As of December 29, 2002, the Company has state net operating loss  carryforwards
of  approximately  $6,200,000 which begin expiring in 2015. Also, as of December
29, 2002, the Company has a $20,222  alternative minimum tax credit carryforward
which has no  expiration  date,  as well as  $465,000 of  employment  tax credit
carryforwards  which begin  expiring in 2019,  available  to offset  future U.S.
federal  income taxes.  Management has concluded that it is more likely than not
that certain of the Company's deferred tax assets related to state net operating
loss  carryforwards  and  general  business  tax credits  will not be  realized.
Accordingly, these deferred tax assets have been offset by a valuation allowance
at December 29, 2002.

9.   Related Party Transactions

Franchise fees and royalties recorded by the Company in relation to TW-Tennessee
were  approximately  $36,800 in 2000.  The Company also provided  management and
accounting  services  for  TW-Tennessee  for  which  fees  were  charged.   Such
management   and   accounting   fees   recorded   in  other   revenues   totaled
approximately$12,200  in 2000.  During 2002 and 2001, the Company  recognized no
income in relation to TW-Tennessee.

During the year ended  December 31,  2000,  the Company  assumed a  TW-Tennessee
equipment  lease which it had  previously  guaranteed.  The  equipment  is being
utilized to replace the  equipment  in the  Company-owned  restaurant  which was
destroyed as result of a fire in June 2000 (see Note 12). The capital  lease had
a balance of approximately $225,000 on the date the lease was assumed, and as of
December 29, 2002 the lease has a balance of approximately $107,000.

Two common  stockholders,  one of which is also a director of the  Company,  are
members in TW-Indiana, LLC, which in April 1998 acquired the franchise rights to
five  full-service  Tumbleweed  restaurants in Indiana and Kentucky from a third
party.  As of December 29, 2002,  TW-Indiana,  LLC operated  eight  full-service
Tumbleweed restaurants.  Franchise fees and royalties recorded by the Company in
relation to this entity were approximately $477,000, $448,000 and $300,000 in

                                     - 42 -

<PAGE>



9.  Related Party Transactions (continued)

2002,  2001 and 2000,  respectively.  As of December  29, 2002 and  December 31,
2001,  the  Company  had an  interest  free  note  receivable  of  $45,000  from
TW-Indiana,  LLC with a  maturity  date of  December  31,  2002.  Subsequent  to
December

29, 2002, the note receivable was repaid.

TW-Indiana,  LLC and a director of the Company are also  members of  TW-Seymour,
LLC,  a  franchisee  of the  Company  which  opened  a  full-service  Tumbleweed
restaurant in Indiana during 1999.  Franchise fees and royalties recorded by the
Company in  relation to this entity were  approximately  $50,000,  $59,000  and,
$45,000 in 2002, 2001 and 2000, respectively.

During the year ended  December 31, 2000,  the Company  entered into  management
agreements  with five companies who own Tumbleweed  franchise  restaurants  with
respect to five  restaurant  locations.  The management  agreements  require the
franchisees  to pay  certain  fees to the  Company in  exchange  for the Company
providing  operations  management  and accounting  services to the  franchisees.
Certain  current  and  former  directors  and  officers  of  the  Company  owned
substantial interests in these companies.  Franchise fees and royalties recorded
by the Company in 2001and 2000 in relation to these entities were  approximately
$11,000 and $227,000,  respectively.  Management and accounting fees recorded in
other revenues by the Company in 2001and 2000 in relation to these entities were
approximately $4,300 and $65,000,  respectively.  During the year ended December
31, 2000, the Company  purchased the assets of two of these companies.  See Note
10 for information  regarding these  transactions.  Also during 2000, one of the
five restaurant  locations  discussed above ceased operations.  During 2001, the
Company  received  equipment  in  exchange  for an  approximately  $79,000  note
receivable  from a related party  franchisee at the time the  franchisee  ceased
operations.  During 2002, the last managed store ceased operations.  The Company
had not  recorded  any  royalties,  management  or  accounting  fees  from  this
franchisee during 2002.

A provision for doubtful  accounts of approximately  $68,000 was recorded during
2000 for the  write-off  of the  balance  due from a  related  party  franchisee
(discussed in the paragraph above) for accounting fees,  royalties and franchise
fees.

Additional related party transaction information is provided in Notes 10 and 11.

10.  Business Acquisitions

During the year ended December 31, 2000, the Company made a $200,000  investment
in  TW-Springhurst,  LLC  ("TW-  Springhurst"),  the  owner  and  operator  of a
Tumbleweed  restaurant in Louisville,  Kentucky.  During the year ended December
31,  2001,   the  Company   received  a  cash   distribution   of  $96,000  from
TW-Springhurst.  Through  December 31, 2001, the Company had a 50% interest with
the remaining 50% held by  TW-Springhurst  Investors,  LLC. A current and former
director of the Company owned TW-Springhurst Investors, LLC. The Company's share
of  TW-Springhurst's  net income  (loss) was $81,318 and ($58,903) for the years
ended December 31, 2001 and 2000, respectively.  On January 1, 2002, the Company
acquired  the  remaining  50%  interest  held by  TW-Springhurst  Investors  for
$267,000.  The acquisition  was funded from cash reserves  ($150,000) and a note
payable  to  TW-Springhurst  Investors  ($117,000).  The  Company  also  assumed
TW-Springhurst,   LLC's  note   payable  to  a  bank  which  had  a  balance  of
approximately  $161,000  on  the  date  of  purchase.  An  independent  business
valuation  appraisal was used to assist Company  management in  determining  the
purchase price.

The purchase price has been allocated as follows:


Assets and liabilities acquired:
   Inventory                         $         55,674
   Property and equipment                     317,601
   Deposits                                     1,200
   Other                                        5,677
   Note payable                              (161,394)
                                      ---------------
                                              218,758
Investment in TW-Springhurst                 (126,415)
Goodwill                                      174,657
                                      ---------------
                                     $        267,000
                                      ===============

                                      -43-

<PAGE>

10.  Business Acquisitions (continued)

On August 14, 2000, the Company  purchased the assets of an Evansville,  Indiana
Tumbleweed  restaurant from TW- Evansville,  LLC (a limited liability company in
which former directors and officers of the Company owned a substantial interest)
for $929,400.  The Company also assumed  TW-Evansville,  LLC's equipment capital
lease which had a balance of approximately $197,000 on the date of purchase. The
purchase  price  for the  business  and  property  was at fair  market  value as
determined by an independent business valuation appraisal.

The purchase  price has been  allocated as follows based upon the fair values of
the assets acquired and liabilities assumed:



 Inventories                        $       47,356
 Building                                  585,000
 Equipment                                 235,000
 Deposits                                    3,000
 Accrued property taxes                   (10,600)
 Capital lease obligation                (197,008)
                                     -------------
                                           662,748
 Goodwill                                  266,652
                                     -------------
                                    $      929,400
                                     =============

On  October 1, 2000,  the  Company  purchased  the  assets of the  Medina,  Ohio
Tumbleweed restaurant from TW-Medina,  LLC (a limited liability company in which
a current  director of the Company owned a  substantial  interest) for $876,933.
The  purchase  price for the  business  and property was at fair market value as
determined by an independent  business valuation  appraisal.  The purchase price
has been allocated as follows based upon the fair values of the assets  acquired
and liabilities assumed:



 Inventories                        $       57,010
 Equipment                                 235,000
 Accrued property taxes                    (5,694)
                                     -------------
                                           286,316
Goodwill                                   590,617
                                     -------------
                                    $      876,933
                                     =============

The  acquisitions  have been  accounted for as purchases and,  accordingly,  the
results of operations of the acquired  businesses  are included in the Company's
results of operations since the date of each acquisition.

11. Acquisition of International

In August 1997,  Tumbleweed,  LLC entered into the International  Agreement with
Tumbleweed International, LLC ("International"), a restaurant developer based in
Hanau,  Germany.  The  International  Agreement  granted  certain  licensing and
franchising   rights  to   International   for  the  development  of  Tumbleweed
restaurants  outside  of the  Western  Hemisphere.  International  was a limited
liability  company owned by three  corporations  which are controlled by current
directors and stockholders of the Company. In 2001 and 2000,  International paid
approximately $10,600 and $7,400, respectively, in fees to the Company under the
International Agreement.

On  January  1,  2002,   the  Company   purchased  the  ownership   interest  in
International  for  $1.5  million  from  TW-International  Investors,  Inc.  and
Chi-Chi'   International   Operations,   Inc.   ("CCIO").   CCIO  owned  40%  of
International.  The President and Chief Executive  Officer of the Company is the
sole shareholder of CCIO. Members of  TW-International  Investors,  Inc. include
three current directors of the Company. The acquisition gives the Company direct
control and benefit of the international licensing of the Tumbleweed concept. In
connection  with the  acquisition,  the Company assumed an existing $1.4 million
bank loan of  TW-International  Investors,  Inc. and issued 76,923 shares of its
common stock to CCIO.  The Company has entered into a commission  agreement with
CCIO  in  connection  with  the  sale  of  international  regional  licenses  by
International.


                                     - 44 -

<PAGE>



11.  Acquisition of International (continued)

The  transaction  was  accounted  for as a purchase and the  purchase  price was
allocated  to the  intangible  assets  acquired - the  Tumbleweed  international
licensing rights and existing franchise contracts.

The allocation of the purchase price is summarized as follows:


Note payable                        $    1,425,968
Common stock                                   769
Paid-in capital                             99,229
                                     -------------
                                    $    1,525,966
                                     =============
Intangible assets:
   Tumbleweed licensing rights      $    1,455,966
   Contracts in place                       70,000
                                     -------------
                                    $    1,525,966
                                     =============

12. Involuntary Conversion of Non-Monetary Assets

As a result of a fire on July 11, 2002 at a Company-owned restaurant in Ohio, an
involuntary conversion of a non-monetary asset occurred which resulted in a gain
of  approximately  $92,000.  The gain  represents  the  difference  between  the
carrying  amount  of the  Company's  assets  which  were  destroyed  in the fire
(equipment and inventories of approximately  $313,000,  in total, at the time of
the fire) and the amount  collected and estimated  amounts to be collected  from
the  insurance  company  (approximately  $405,000).  In  addition,  the  Company
recorded other revenues of approximately  $200,000  (business  interruption) and
continuing expense reimbursement of $157,000 in 2002 as a result of the fire. As
of  December  29,  2002,  the  Company  has  received  a total of  approximately
$1,222,900 from the insurance company for Company and landlord assets which were
destroyed  in  the  fire  ($884,400),   business  interruption   ($198,700)  and
continuing expense reimbursement ($139,800).

As a result of a fire which occurred June 7, 2000 at a Company-owned  restaurant
in Kentucky,  an involuntary  conversion of  non-monetary  assets occurred which
resulted in a $554,864  gain. The gain  represents  the  difference  between the
carrying  amount of the  restaurant's  assets  which were  destroyed  (building,
equipment and  inventories of $744,488,  in total,  at the time of the fire) and
the amount collected from the insurance company  ($1,299,352).  The Company also
received   approximately  $605,000  from  the  insurance  company  for  business
interruption  ($280,000) and continuing expenses ($120,000) through December 31,
2000. The additional  $205,000 received was for estimated business  interruption
and  continuing  expenses in 2001.  Accordingly,  the Company  recorded  this as
deferred income in the  accompanying  consolidated  balance sheet as of December
31, 2000 and subsequently recognized the $205,000 as other income during 2001.

13. Sale of Property

In December  2002,  the Company  sold the land and  building of a  Company-owned
restaurant  which  closed  in  the  first  quarter  of  2002  (see  Note  1) for
$1,575,000.  The sale resulted in a gain of $338,482 and cash proceeds  prior to
debt  repayment of  $1,125,815.  A portion of the cash proceeds were used to pay
off the $224,611  mortgage  note payable  associated  with the  restaurant.  The
remaining proceeds will be used for capital  improvements to existing stores and
to provide partial funding for the construction of additional restaurants.

14.  Special Charges

The Company  recorded special charges of $103,773 in the fourth quarter of 2002.
The special charges represent the write- off of various costs that were incurred
as a result of the proposal to acquire all outstanding shares in a going private
transaction  which was originally  announced in June 2002. In the fourth quarter
of 2002, Mr. Gerald Mansbach,  the largest  shareholder of Tumbleweed shares and
the lead participant in the going private transaction,  notified Tumbleweed that
he had decided, for personal reasons, to withdraw the going private proposal and
is exploring other options for the disposition of his existing shares.


                                     - 45 -

<PAGE>



14.  Special Charges (continued)

The Company  recorded  special  charges of $4,294,539  in the fourth  quarter of
2001. The special charges include a $3,683,353  charge to earnings in accordance
with SFAS No. 121,  "Impairment of Long-Lived  Assets." This charge reflects the
write-down of assets  associated with six  restaurants,  four of which closed in
the first quarter of 2002. The Company sold one of the remaining two restaurants
to a current  franchisee  and continues to operate the other  restaurant for the
present. The restaurant closings were part of a strategic management decision to
eliminate lower sales volume  restaurants that were  unprofitable in 2001 and to
focus its  energies on the  continued  improvement  of per-store  average  sales
volumes.  The special charges also included  $611,186 for lease  obligations and
other  costs  related  to the  decision  to close  these  restaurants,  of which
approximately  $306,000  was  paid  out  during  2002.  At  December  29,  2002,
approximately $295,000 remains accrued for lease obligations and for anticipated
costs connected with the disposal of one restaurant site. No additional  accrual
was required during 2002 in connection with the closing of these restaurants.

The following is a summary of the impairment charges:


                            Carrying Value                        Value at
                            at Commitment                        December 31,
                                Date             Charge              2001
                           ---------------    -------------     --------------
Property and equipment    $      4,260,428   $    2,485,428    $     1,775,000
Goodwill                           993,811          993,811                  -
Other assets                       215,837          204,114             11,723
                           ---------------    -------------     --------------
                          $      5,470,076   $    3,683,353    $     1,786,723
                           ===============    =============     ==============

The value at December  31, 2001 was  determined  as  follows.  For stores  being
disposed of, the value was based on the  estimated net proceeds from the sale of
the assets.  For the other store being operated,  the Company estimated the fair
value of the restaurant based on estimated future discounted cash flows from its
use and eventual disposition.

The operating  results of the  restaurants  to be disposed of before the special
charges included in the accompanying  consolidated  statements of operations are
as follows:


                                        2001              2000
                                   ---------------    -------------
Revenues                          $      5,513,743   $    4,324,921
Loss from operations                      (378,843)        (209,863)

15.  Treasury Stock

On January 14, 2000, the Board of Directors approved the repurchase from time to
time of up to $500,000 of the Company's  common stock.  Purchases are to be made
in the  open  market  as well as by  private  transaction  at times  and  prices
considered  appropriate  by  the  Company,   subject  to  applicable  rules  and
regulations.  The purchases were funded by cash reserves.  Through  December 29,
2002, the Company had repurchased 42,400 shares at a total cost of $254,695.

16.  Stock Incentive Plan

In June 1998, the Company adopted a Stock Option and Incentive Compensation Plan
(the "Plan").  The Plan provides for the granting of any of the following awards
to eligible  employees  or directors  of the Company and its  subsidiaries:  (i)
employee stock  options,  including both  "incentive  stock options"  within the
meaning of Section 422 of the Internal Revenue Code ("ISOs") and options that do
not qualify as ISOs; (ii) automatic grants of options to nonemployee  directors;
(iii) stock appreciation rights; and (iv) restricted stock and performance stock
awards. The Plan is intended to provide incentives and rewards for employees and
directors to support the  implementation  of the Company's  business plan and to
align the  interests  of employees  and  directors  with those of the  Company's
stockholders.

The Plan is administered by the Compensation Committee of the Company's Board of
Directors  (the  "Committee").  The Committee is comprised of three  independent
directors,  who are not current  employees of the Company and who do not receive
any remuneration from the Company in any capacity other than as a director.  The
Committee is  authorized,  among other  things,  to determine  employees to whom
grants of  awards  will be made and take such  action as it deems  necessary  or
advisable for the administration of the Plan.

The common stock subject to the Plan will be authorized  but unissued  shares or
previously  acquired shares.  The number of shares of common stock available for
grant of awards under the Plan equals the greater of 1,235,000 shares, or 10% of

                                     - 46 -

<PAGE>



16.  Stock Incentive Plan (continued)

the number of shares of common stock  outstanding  from time to time,  including
170,000  shares  reserved  for  options  automatically  granted  to  nonemployee
directors under the Plan.

As of December 29, 2002,  cumulative total options to purchase  1,481,077 shares
of the Company's common stock had been granted to employees and directors of the
Company at prices ranging from $0.85 to $10.00 per share which expire at various
dates from 2009 to 2012 with a contractual  life of 10 years.  Initial grants of
approximately  492,000  options  were  made at an  exercise  price  equal to the
Company's initial public offering price of $10.00 per share . The exercise price
of subsequent grants were equal to the market price at the time of the grant.

Stock options  granted under the Plan will be exercisable for a term of not more
than ten years,  as determined by the  Committee.  The option  grants,  with the
exception  of those  granted  to the  Company's  President  and Chief  Executive
Officer in August 2000, are  exercisable for 33% of the number of shares subject
to the option on each of the first,  second and third  anniversaries of the date
of grant and expire ten years from the date of grant.  In August  2000,  367,236
options were granted to the Company's  President and Chief Executive  Officer at
prices  ranging  from  $2.69  to  $3.88  which  become  immediately  vested  and
exercisable in the event of a change in control of the Company.

Activity  in the Plan  during the  fiscal  years  ended  December  29,  2002 and
December 31, 2001 and 2000 was:

<TABLE>
<CAPTION>

                                     2002                         2001                         2000
                           -------------------------    ------------------------    -------------------------
                                          Weighted                    Weighted                     Weighted
                                          Average                      Average                      Average
                            Options    Exercise Price    Options   Exercise Price    Options    Exercise Price
                            -------    --------------    -------   --------------    -------    --------------
Outstanding at the
<S>                           <C>          <C>           <C>            <C>            <C>           <C>
    beginning of the year     981,385      $4.87         1,044,454      $9.52          532,666       $9.34
Granted                        19,000       1.03            85,000       1.80          811,636        3.73
Exercised                           -        -                   -        -                  -         -
Forfeited                     (68,569)      4.63          (148,069)      5.75         (299,848)       8.28
                            ---------                    ---------                   ---------
Outstanding at the
    end of the year           931,816      $4.76           981,385      $4.87        1,044,454       $5.30
                            =========                    =========                   =========
Exercisable at the end
    of the year               656,928      $5.47           383,251      $6.04          112,948       $9.52
                            =========                    =========                   =========
</TABLE>

The  following  table  summarizes   information  about  employee  stock  options
outstanding at December 31, 2002:


      Range of            Number          Weighted Average
  Exercise Prices       Outstanding        Exercise Price
  ---------------
       $10.00                191,955           $10.00
   $4.50 - $6.25              43,525            $5.38
   $0.93 - $3.88             696,336            $3.28
                       -------------
                             931,816
                       =============

The remaining  contractual life of the outstanding stock options ranges from 6.1
years to 9.9 years.

The Company  accounts for the Plan as described in Note 2. The weighted  average
fair value of options  granted was  determined  using the  Black-Scholes  option
pricing model with the following assumptions:

(1)  risk-free  interest  rate of 4.6% to 6.50 %; (2) dividend  yield of 0%; (3)
expected life of 6.5 years;  and (4) volatility of .921% in 2002,  .842% in 2001
and .885% in 2000. Results may vary depending on the assumptions  applied within
the model.  The  weighted  average  fair value per share of options  granted was
$0.82, $1.38 and $3.68 for 2002, and 2001 and 2000, respectively.






                                     - 47 -

<PAGE>



17.  401(k) Plan

Beginning January 1, 2002, the Company  implemented a 401(k) plan. All employees
who are at least 21 years of age with one year of service in which they worked a
minimum of 1,000 hours are  eligible.  An employee can  contribute  up to 15% of
their  gross  salary.  The  Company  matches  25% of the  first  4% an  employee
contributes.  The employee becomes vested in the Company contribution based on a
five-year vesting schedule. The Company match was approximately $67,000 in 2002.

18.   Earnings per Share

The following is a  reconciliation  of the Company's basic and diluted  earnings
per share for the fiscal years ended December 29, 2002 and December 31, 2001 and
2000 in accordance with SFAS No. 128, "Earnings per Share."
<TABLE>
<CAPTION>


                                                                       2002          2001          2000
                                                                   ------------  ------------   -----------
Numerator:
<S>                                                               <C>           <C>             <C>
   Income (loss) before extraordinary item and cumulative
      effect of  a change in accounting principle                 $     615,856 $  (3,372,478)  $   563,361
   Extraordinary item - write-off unamortized loan costs,
      net of tax                                                        (76,743)            -             -
   Cumulative effect of a change in accounting principle,
      net of tax                                                     (1,503,776)            -             -
                                                                   ------------  ------------    ----------
   Net income (loss)                                              $    (964,663)$  (3,372,478)  $   563,361
                                                                   ============  ============    ==========
   Denominator:
   Weighted average shares
     outstanding - basic                                              5,916,153     5,839,230     5,839,230
   Effect of dilutive securities:
     Director and employee stock options                                  6,136        10,509        52,706
                                                                   ------------  ------------   -----------
   Denominator for diluted earnings per
     share - adjusted weighted
     average and assumed conversions                                  5,922,289     5,849,739     5,891,936
                                                                   ============  ============   ===========
</TABLE>

Options to purchase common stock with an exercise price greater than the average
market price were not  included in the  computation  of the  dilutive  effect of
common stock options because the effect would have been antidilutive. The number
of  antidilutive  options  was  905,816 in 2002,  912,385 in 2001 and 858,254 in
2000.

19.   Segment Information

The  Company  has  three  reportable  segments:   restaurants,   commissary  and
corporate.   The   restaurant   segment   consists  of  the  operations  of  all
Company-owned  restaurants  and  derives  its  revenues  from  the  sale of food
products to the general public. The commissary segment derives its revenues from
the sale of food  products to  Company-owned  and  franchised  restaurants.  The
corporate  segment derives  revenues from sales of franchise  rights,  franchise
royalties and related services used in restaurant  operations,  and contains the
selling,  general and administrative  activities of the Company.  Generally, the
Company evaluates  performance and allocates  resources based on pre-tax income.
The accounting  policies of the segments are the same as those  described in the
summary of significant accounting policies.
















                                     - 48 -

<PAGE>



19.   Segment Information (continued)

Segment information is as follows:

For the fiscal year ended December 29, 2002:
<TABLE>
<CAPTION>

                                               Restaurant        Commissary        Corporate        Totals
                                              -------------    --------------    -------------   ------------

<S>                                           <C>             <C>               <C>              <C>
Revenues from external customers              $   54,076,024  $      1,664,591  $     1,885,654  $  57,626,269
Intersegment revenues                                      -         2,496,887                -      2,496,887
General and administrative expenses                        -                 -        4,182,930      4,182,930
Advertising expenses                                       -                 -        1,800,927      1,800,927
Depreciation and amortization                      1,593,383            81,947          272,280      1,947,610
Special charges                                            -                 -          103,773        103,773
Net interest expense                                       -           152,932          854,194      1,007,126
Income (loss) before income taxes,                                                            .
  extraordinary item and cumulative
  effect of a change in accounting
  principle                                        5,703,880            74,053       (4,431,843)     1,346,090
Fixed assets                                      24,979,122           946,066          774,732     26,699,920
Expenditures for long-lived assets                   943,352            21,624           98,935      1,063,911

For the fiscal year ended December 31, 2001:


                                               Restaurant        Commissary        Corporate        Totals
                                              -------------    --------------    -------------   -------------

Revenues from external customers             $    56,025,886  $      1,781,252  $     1,646,044  $  59,453,182
Intersegment revenues                                      -         2,671,213                -      2,671,213
General and administrative expenses                        -                 -        4,191,582      4,191,582
Advertising expenses                                       -                 -        1,915,577      1,915,577
Depreciation and amortization                      1,797,889           106,596          380,967      2,285,452
Special charges                                    4,294,539                 -                -      4,294,539
Loss on guarantees of indebtedness                         -                 -          565,000        565,000
Net interest expense                                       -           176,100        1,100,803      1,276,903
Equity in income of TW-Springhurst                    81,318                 -                -         81,318
Income (loss) before income taxes                  1,346,244           105,724       (6,002,590)    (4,550,622)
Fixed assets                                      26,537,963           993,509          848,566     28,380,038
Expenditures for long-lived assets                 1,182,303                 -           73,103      1,255,406

For the fiscal year ended December 31, 2000:

                                               Restaurant        Commissary       Corporate         Totals
                                              -------------    --------------    ------------    --------------
Revenues from external customers             $   51,820,600  $      1,663,208  $    2,816,958  $    56,300,766
Intersegment revenues                                     -         2,494,802               -        2,494,802

General and administrative expenses                       -                 -       5,028,120        5,028,120
Advertising expenses                                      -                 -       1,570,179        1,570,179
Depreciation and amortization                     1,689,740           117,326         340,342        2,147,408
Loss on guarantees of indebtedness                        -                 -         725,000          725,000
Net interest expense                                      -           176,100       1,282,550        1,458,650
Gain from insurance proceeds due to
  involuntary conversion of non-
  monetary assets                                         -                 -         554,864          554,864
Equity in losses of TW-Springhurst                  (58,903)                -               -          (58,903)
Income (loss) before income taxes                 6,380,060            85,112      (5,836,372)         628,800
Fixed assets                                     29,758,242         1,072,609         964,603       31,795,454
Expenditures for long-lived assets                2,779,337            13,978         297,621        3,090,936

</TABLE>




                                     - 49 -

<PAGE>



20.   Selected Quarterly Data

The following is a summary of certain unaudited  quarterly results of operations
for the fiscal years ended December 29, 2002 and December 31, 2001.
<TABLE>
<CAPTION>

2002:

                                          First            Second            Third            Fourth
                                         Quarter          Quarter           Quarter        Quarter (a)         Total
                                         -------          -------           -------        -----------         -----

<S>                                  <C>               <C>               <C>             <C>              <C>
    Total revenues                   $   14,184,754    $  14,007,738     $  13,110,852   $   16,322,925   $    57,626,269
    Income (loss) from operations           480,159          527,569           515,907          399,406         1,923,041
    Income before extraordinary
        item and cumulative effect of
        a change in accounting
        principle                           137,805          166,418            41,721          269,912           615,856
    Extraordinary item - write-off
        of unamortized loan costs,
        net of tax                                -                -                 -          (76,743)          (76,743)
    Net income (loss)                    (1,365,968)(b)      166,418            41,721          193,166          (964,663)
    Basic and diluted income (loss)
       before extraordinary item and
       cumulative effect of a change
       in accounting principle per
       share                                   0.02             0.03              0.01             0.04              0.10
    Basic and diluted net income              (0.23
        (loss) per share                           )            0.03              0.01             0.03             (0.16)


2001:

                                          First           Second             Third            Fourth
                                         Quarter          Quarter           Quarter          Quarter            Total
                                         -------          -------           -------          -------            -----

    Total revenues                   $   14,634,264   $   14,946,045     $  15,189,795   $   14,683,078    $   59,453,182
    Income (loss) from operations           192,617          396,850           392,233       (4,336,737)(c)    (3,355,037)
    Net income (loss)                      (118,404)          47,251            88,214       (3,389,539)       (3,372,478)
    Basic and diluted net income              (0.02
        (loss) per share                           )            0.01              0.02            (0.58)            (0.58)
<FN>

(a) Beginning January 1, 2002, the Company changed its fiscal year to end on the
last Sunday in December from a December 31 year end. The first three quarters of
each fiscal year,  beginning in 2002, consist of 12 weeks and the fourth quarter
consists of 16 weeks.

(b) Includes a charge which is a result of the cumulative  effect of a change in
accounting principle, net of tax, of $1,503,776.

(c) Includes loss on guarantees of  indebtedness of $565,000 and special charges
of $4,294,539, before income tax.
</FN>
</TABLE>

21.  Contingencies

The Company  guaranteed  renewals  of certain  guaranteed  indebtedness  and any
replacement   indebtedness   of   TW-Tennessee,   LLC,   a   former   franchisee
(TW-Tennessee) of the Company in which the Company and David M. Roth, a Director
of the  Company,  were  formerly  members,  to the extent and in amounts  not to
exceed the  amounts  guaranteed  as of  September  30,  1998.  The  Company  had
guaranteed certain  TW-Tennessee  obligations as follows,  jointly and severally
with  TW-Tennessee  common  members:  a) up to  $1,200,000  under a bank line of
credit,  b)  approximately  $2,800,000 of a lease  financing  agreement,  and c)
equipment leases with a bank.

In March 2001, the bank which held the line of credit  extended to  TW-Tennessee
filed suit in the  Circuit  Court of  Jefferson  County,  Kentucky  against  the
Company,  the Director and others to enforce certain limited guaranty agreements
(the "Tennessee  Litigation").  The Company paid the sum of $195,044 against its
line of credit guarantee in September 2000.

                                     - 50 -

<PAGE>



21.  Contingencies (continued)

The  Company  undertook  settlement  discussions  with the  bank  and the  other
guarantors during 2001. On December 28, 2001, the court entered summary judgment
against  the  Company  and  certain  other  guarantors  including  the  affected
Director.  The amount of the judgment against the Company was $1,004,956.  Prior
to  enforcement of the judgment by the bank,  the parties  continued  settlement
discussions which resulted in the settlement described below.

By complaint dated October 4, 2001, Douglas H. Morris, II and Michael R. Greene,
plaintiffs,  filed an action (the  "Morris and Greene  Lawsuit")  in the Circuit
Court  of  Jefferson   County,   Kentucky   against  the   Company,   Tumbleweed
International,  LLC and others,  including David Roth, a current Director of the
Company,  alleging damage to the plaintiffs as a result of (i) the management of
the  TW-Tennessee   restaurants  by  the  Company,  (ii)  the  alleged  wrongful
application of proceeds of the Company's purchase of the Medina, Ohio restaurant
and  (iii)  the  alleged  wrongful  conversion  of loan  proceeds  belonging  to
TW-International, LLC to TWED-Charleston, Inc. Prior to answering the complaint,
the Company  entered  into  settlement  discussions  with the  plaintiffs  which
resulted in the settlement described below.

Beginning in 2001, the Company had settlement  discussions with the bank holding
the  TW-Tennessee  line of credit,  the other guarantors of that line of credit,
the plaintiffs in the Morris and Greene Lawsuit and certain of the  shareholders
of TW International Investors,  Inc. and TWI-B, Inc. regarding the resolution of
the Tennessee Litigation, the Morris and Greene Lawsuit and related matters.

On  February  28,  2002,  the Company  entered  into a  Confidential  Settlement
Agreement and Mutual  Release (the  "Settlement  Agreement")  which resolved the
Tennessee  Litigation,  the Morris and Greene Lawsuit and related  matters.  The
Settlement  Agreement  provided  for a cash  payment by the  Company to the bank
holding  the  TW-Tennessee  line of credit of  $75,000  and the  execution  of a
promissory  note,  payable  to the  bank,  in the face  amount of  $300,000.  In
addition,  subject to certain  conditions,  the Company  will pay to the bank an
additional amount of up to $200,000 in the event Tumbleweed  International,  LLC
successfully  sells  regional  international  licenses and receives  proceeds in
excess of the  $1,400,000 in  indebtedness  assumed by the Company in connection
with its acquisition of the interests of TW  International  Investors,  Inc. and
TWI-B,  Inc. in Tumbleweed  International,  LLC (see Note 11). The completion of
the acquisition of the interests of TW International Investors,  Inc. and TWI-B,
Inc. in Tumbleweed International, LLC is included in the Settlement Agreement.

As a result of the Settlement Agreement, the Tennessee Litigation and the Morris
and Greene Lawsuit were dismissed.  In addition,  the parties to the settlement,
including  certain  Directors of the Company (George  Keller,  David M. Roth and
Minx Auerbach),  granted mutual  releases to one another  regarding all matters,
other than those  specifically  excluded.  Among the matters  excluded  from the
mutual release contained in the Settlement  Agreement are claims asserted by the
holder of the equipment leases granted to TW-Tennessee relative to guarantees by
the Company  and others,  including  David M. Roth,  a Director of the  Company,
relative to such equipment leases.  The Company has agreed to assume and pay one
of the equipment leases totaling approximately $125,000 and remains contingently
liable on two other equipment leases that currently have a remaining  balance of
approximately  $36,000  which the Company  believes  will be assumed and paid by
other  guarantors.  These  negotiations  are ongoing and no  agreement  has been
reached.

In the fourth  quarter of 2001, as a result of the settlement  discussions,  the
Company  increased a reserve  established  in 2000 by the  additional  amount of
$565,000, for a total of $1,290,000, of which $1,215,427 had been paid out as of
December  29,  2002.  The Company  increased  this  reserve in 2001 to cover its
portion of the settlement  payments to the bank holding the TW-Tennessee line of
credit and pay  related  costs,  including  legal  expenses.  The  reserve  also
included an additional charge for the equipment lease which the Company assumed,
and for  payments  made by the Company in 2001 on other lease  financing  claims
related to  TW-Tennessee.  The Company's  management  believes it will not incur
significant additional losses in connection with these matters.

On December  16,  2002,  the  Company  filed a Complaint  in  Jefferson  County,
Kentucky  Circuit  Court  against  American  Federal,  Inc.  ("AFI")  seeking  a
declaratory  judgment  that the Company had no  contractual  obligation to pay a
$270,000 commission to AFI, in connection with a Conditional  Commitment entered
into   between  AFI  and  the   Company  and  seeking   damages  for  fraud  and
misrepresentation.  In response,  AFI filed suit in the United  States  District
Court for the  Eastern  District  of  Missouri  seeking  payment  of a  $405,000
commitment fee plus additional charges, fees and costs all in excess of $500,000
relating  to the  Conditional  Commitment,  as well as  damages  for  breach  of
contract, unjust enrichment and  misrepresentation/fraud.  This matter is in the
early discovery stage.  Management believes that AFI's claims are without merit,
but it is too early to predict an  outcome.  The Company  intends to  vigorously
defend  itself in  connection  with this matter.  As of December  29, 2002,  the
Company has not made any accrual for a potential  liability in  connection  with
this matter.


                                     - 51 -

<PAGE>



21.  Contingencies (continued)

We are also subject to claims and legal  actions in the  ordinary  course of our
business.  Certain of these claims and actions may involve related  parties.  We
believe  that all such  claims  and  actions  are either  adequately  covered by
insurance  or would not have a  material  adverse  effect on us if  decided in a
manner unfavorable to us.
























































                                     - 52 -

<PAGE>



Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

PART III

ITEM 10.   DIRECTORS AND OFFICERS OF THE REGISTRANT

The Proxy  Statement  issued in connection with the  shareholders  meeting to be
held on June 25, 2003, to be filed with the Securities  and Exchange  Commission
pursuant to Rule 14a-6b,  contains  under the caption  "Election  of  Directors"
information  required by Item 10 of Form 10-K as to directors of the Company and
is  incorporated  herein by  reference.  Pursuant to General  Instruction  G(3),
certain information  concerning executive officers of the Company is included in
Part I of this Form 10-K, under the caption "Executive Officers."

ITEM 11.  EXECUTIVE COMPENSATION

The Proxy  Statement  issued in connection with the  shareholders  meeting to be
held on June 25, 2003, to be filed with the Securities  and Exchange  Commission
pursuant to Rule 14a-6(b),  contains under the caption "Executive  Compensation"
information  required  by Item 11 of Form  10-K and is  incorporated  herein  by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The Proxy  Statement  issued in connection with the  shareholders  meeting to be
held on June 25, 2003, to be filed with the Securities  and Exchange  Commission
pursuant to Rule  14a-6(b),  contains  under  caption  "Beneficial  Ownership Of
Common Stock"and "Election of Directors" information required by Item 12 of Form
10-K and is incorporated herein by reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Proxy  Statement  issued in connection with the  shareholders  meeting to be
held on June 25, 2003, to be filed with the Securities  and Exchange  Commission
pursuant to Rule 14a-6(b) contains under the caption "Certain  Relationships and
Related  Transactions"  information  required  by Item 13 of  Form  10-K  and is
incorporated herein by reference.

ITEM 14.  CONTROLS AND PROCEDURES

Within 90 days prior to the date of the  filing of this  report,  the  Company's
Chief Executive  Officer and Chief Financial  Officer conducted an evaluation of
the effectiveness, design and operation of the Company's disclosure controls and
procedures as defined in Exchange Act Rule 13a-14.  Based upon that  evaluation,
such officers  concluded that the Company's  disclosure  controls and procedures
are effective to ensure that  information  required to be disclosed is recorded,
processed,  summarized,  and  reported  in a timely  manner.  There have been no
significant  changes in the Company's internal controls or in other factors that
could  significantly  effect  these  controls  subsequent  to  the  date  of the
evaluation referred to above.


                                     - 53 -

<PAGE>



                                     PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

 (a)   (1)     Financial Statements: See Item 8.

       (2)     Financial Statement Schedules:
               Schedule II- Valuation and Qualifying Accounts          Page 56

               All other  schedules  for which  provision  is made in the
               applicable  accounting  regulation of the  Securities  and
               Exchange  Commission  are not  required  under the related
               instructions or are inapplicable and, therefore, have been
               omitted.

       (3)     Listing of Exhibits:

       EXHIBIT
       NUMBER   DESCRIPTION OF DOCUMENT
       2.1      Agreement and Plan of Merger, dated as of June 23, 1998, between
                Tumbleweed, LLC and Registrant**

       3.1      Certificate of Incorporation of Tumbleweed, Inc., as amended**

       3.2      Bylaws of Registrant*

       10.1     Master International License Agreement, dated August 29, 1997,
                between Tumbleweed International LLC and Tumbleweed, LLC*

       10.4     Sublease  Agreement,   dated  February  5,  1997,
                between  TW-Dixie Bash, LLC and  Tumbleweed,  LLC
                (for Bardstown Road restaurant)*

       10.5     Sublease Agreement, dated February 5, 1997, between TW-Dixie
                Bash, LLC and Tumbleweed, LLC (for Valley Station restaurant)*

       10.7     Tumbleweed, Inc. 1998 Stock Option and Incentive Compensation
                Plan*

       10.8     Form of Standard Franchise Agreement for Tumbleweed, LLC*

       10.9     Articles of Incorporation of Tumbleweed Marketing Fund, Inc.*

       10.10    By-laws of Tumbleweed Marketing Fund, Inc.*

       10.11    Bonus Compensation Plan for Senior Executives*

       10.12    Revolving Line of Credit Note, dated April 21, 1999, between
                Tumbleweed, Inc. and National City Bank of Kentucky and related
                Loan Agreement***

       99.1     Registration Rights Agreement between Tumbleweed, Inc. and
                Tumbleweed, LLC*

       99.2     Certifications pursuant to 18U.S.C. 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002










                                     - 54 -

<PAGE>



      *       Incorporated by reference to exhibits filed with the Commission on
              September 29, 1998, in Form S-1 Registration No. 333-57931.

      **      Incorporated by reference to exhibits filed with the Commission in
              Form 8-A filed by Tumbleweed, Inc. on February 25, 1999.

      ***     Incorporated by reference to exhibits filed with the Commission on
              May 12, 1999 in Form 10-A, File No. 333-57931.

      (b)     Tumbleweed,  Inc.  filed Form 8-K on October  28,
              2002 to report under Items 5 and 7, Exhibit 99.1,
              that the proposal to acquire all the  outstanding
              shares in a going private transaction,  which had
              been announced in June 2002, had been withdrawn.
















































                                     - 55 -

<PAGE>



                                Tumbleweed, Inc.

                 Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>


                                                            Additions
                                               ------------------------------------
                                  Balance at                      Charged to Other
                                 Beginning of    Charged to Costs     Accounts -     Deductions -   Balance at End
Description                           Year        and Expenses        Describe        Describe         of Year
-----------                           ----        ------------        --------        --------         -------

<S>                                  <C>             <C>               <C>            <C>              <C>
Fiscal Year Ended December 29, 2002:
  Reserves and allowances deducted
    from asset accounts:
        Allowance for uncollectible
          accounts                    $4,202           -                 -            $(4,202) (b)       -

Fiscal Year Ended December 31, 2001:
  Reserves and allowances deducted
    from asset accounts:
        Allowance for uncollectible
          accounts                    68,464          4,202              -           (68,464) (a)       4,202

Fiscal Year Ended December 31, 2000:
  Reserves and allowances deducted
    from asset accounts:
        Allowance for uncollectible
          accounts                      -            68,464               -               -            68,464


<FN>


     (a) Account was written off in 2001.

     (b) Account was written off in 2002.
</FN>
</TABLE>








                                     - 56 -

<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, in the City of Louisville,
State of Kentucky.


                                          TUMBLEWEED, INC.



                                                /s/ Terrance A. Smith
                                                -------------------------
                                          By:      Terrance A. Smith
                                                   President and Chief
                                                   Executive Officer

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

                                         Title                         Date


    /s/ Terrance A. Smith
------------------------------
Terrance A. Smith               President, Chief Executive
                                 Officer and Director             March 28, 2003


    /s/ Glennon F. Mattingly
------------------------------
Glennon F. Mattingly            Vice President and                March 28, 2003
                                  Chief Financial Officer
                                  (Principal Accounting Officer)

    /s/ David M. Roth
------------------------------
David M. Roth                   Director                          March 28, 2003


    /s/ Minx Auerbach
------------------------------
Minx Auerbach                   Director                          March 28, 2003


    /s/ Lewis Bass
------------------------------
Lewis Bass                      Director                          March 28, 2003


    /s/ George R. Keller
------------------------------
George R. Keller                Director                          March 28, 2003


    /s/ James F. Koch
------------------------------
James F. Koch                   Director                          March 28, 2003


    /s/ David Lloyd
------------------------------
David Lloyd                     Director                          March 28, 2003






                                     - 57 -

<PAGE>

I, Glennon F. Mattingly, certify that:

(1) I have reviewed this annual report on Form 10-K of Tumbleweed, Inc.;
(2)     Based on my  knowledge,  this annual  report does not contain any untrue
        statement of a material fact or omit to state a material fact  necessary
        to make the statements made, in light of the  circumstances  under which
        such statements were made, not  misleading  with  respect  to the period
        covered by this annual report;
(3)     Based on my knowledge,  the financial  statements,  and other  financial
        information  included  in this  annual  report,  fairly  present  in all
        material  respects the financial  condition,  results of operations  and
        cash flows of the registrant as of, and
       for, the periods presented in this annual report;
(4)    The  registrant's  other  certifying  officer and I are  responsible  for
       establishing  and  maintaining  disclosure  controls and  procedures  (as
       defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant  and
       have:
     (a)      designed such  disclosure  controls and  procedures to ensure that
              material  information  relating to the  registrant,  including its
              consolidated  subsidiaries,  is made known to us by others  within
              those  entities,  particularly  during  the  period in which  this
              annual report is being prepared;
     (b)      evaluated  the   effectiveness  of  the  registrant's   disclosure
              controls and  procedures  as of a date within 90 days prior to the
              filing date of this annual report (the "Evaluation Date"); and
     (c)      presented in this annual report our conclusions about the
              effectiveness of the disclosure controls and procedures based on
              our evaluation as of the Evaluation Date;
(5)     The registrant's other certifying officer and I have disclosed, based on
        our most recent evaluation,  to the registrant's  auditors and the audit
        committee of registrant's board of directors:
     (a)      all  significant  deficiencies  in  the  design  or  operation  of
              internal  controls which could adversely  affect the  registrant's
              ability to record,  process,  summarize and report  financial data
              and have  identified  for the  registrant's  auditors any material
              weaknesses in internal controls; and
     (b)      any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and
(6)  The  registrant's  other  certifying  officer and I have  indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:         March 28, 2003                    /s/ Glennon F. Mattingly
                                                    ------------------------
                                                    Glennon F. Mattingly
                                                    Vice President and
                                                    Chief Financial Officer

I, Terrance A. Smith, certify that:

(1) I have reviewed this annual report on Form 10-K of Tumbleweed, Inc.;
(2)  Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;
(3)  Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;
(4)  The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
              (a)     designed such disclosure controls and procedures to ensure
                      that  material  information  relating  to the  registrant,
                      including its consolidated subsidiaries,  is made known to
                      us by others within those  entities,  particularly  during
                      the period in which this annual report is being prepared:
     (b)      evaluated  the   effectiveness  of  the  registrant's   disclosure
              controls and  procedures  as of a date within 90 days prior to the
              filing date of this annual report (the "Evaluation Date"); and
     (c)      presented  in  this  annual  report  our  conclusions   about  the
              effectiveness  of the disclosure  controls and procedures based on
              our  evaluation as of the Evaluation  Date;
(5) The  registrant's other certifying  officer and I have disclosed,  based on
    our most recent evaluation, to the registrant's auditors and the audit
    committee of registrant's board of directors:
     (a)      all  significant  deficiencies  in  the  design  or  operation  of
              internal  controls which could adversely  affect the  registrant's
              ability to record,  process,  summarize and report  financial data
              and have identified for the

                                     - 58 -

<PAGE>



              registrant's auditors any material weaknesses in internal
              controls; and
     (b)      any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and
(6)  The  registrant's  other  certifying  officer and I have  indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:         March 28,2003              /s/ Terrance A. Smith
                                             ---------------------
                                             Terrance A. Smith
                                             President and Chief
                                             Executive Officer






























                                      -59-