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 31, 2001
                                       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____

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 20, 2002, was approximately $2,970,000. 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 20, 2002 ($1.40) as reported on The Nasdaq Stock Market's National Market.

The number of shares of common stock,  par value of $.01 per share,  outstanding
on March 20, 2002, was 5,839,230.

                       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
                                    Annual Meeting of Shareholders to be held
Exhibit Index: Page 53-54           May 22, 2002



                                      - 1 -

<PAGE>



                                TUMBLEWEED, INC.

                                     PART I



ITEM 1. BUSINESS

At December 31, 2001,  Tumbleweed,  Inc. (the  "Company")  owned,  franchised or
licensed  65  Tumbleweed   Southwest   Mesquite   Grill  &  Bar   ("Tumbleweed")
restaurants.  We owned and  operated  36  Tumbleweed  restaurants  in  Kentucky,
Indiana and Ohio  including one  restaurant  which was 50% owned through a joint
venture until the other owner's interest was acquired by the Company  subsequent
to December 31, 2001. There were 21 franchised Tumbleweed restaurants located in
Indiana,  Illinois,  Kentucky,  Michigan,  Virginia  and  Wisconsin,  and  eight
licensed  restaurants  located  outside the United  States in  Germany,  Jordan,
Egypt,  Saudi  Arabia,  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 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,  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. The Company periodically  introduces new items that complement its
present menu selections,  a lunch menu as well as seasonal menus to increase the
frequency of guest visits.

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 10.8% of restaurant sales during 2001.

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 $5.99
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.


                                      - 2 -

<PAGE>



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 2001, the average check at a  full-service  Tumbleweed
restaurant,  including  beverages,  was $8.77 for lunch and $11.26  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  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:


                                      - 3 -

<PAGE>



OPENING RESTAURANTS IN TARGET MARKETS. We target mid-sized metropolitan markets,
initially  concentrating  in the Midwest,  Mid-Atlantic  and Southeast  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. In 2002,
the Company closed four restaurants  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.  Also
subsequent to year end, the Company purchased from its joint venture partner its
50%  interest  in a  restaurant  location.  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. Except for locations managed directly by us,
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.

MATCHING  INVESTMENT  TO  SALES  POTENTIAL.  When  developing  a new  Tumbleweed
restaurant,  we generally use one of three prototype designs management believes
is best  suited  to a  particular  site.  Our  Mini,  Midi  and  Maxi  prototype
restaurants  accommodate  approximately 150, 225, and 265 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  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. The
acquisition  gives the Company direct  control and benefit of the  international
licensing of the Tumbleweed concept.


                                      - 4 -

<PAGE>



During the year ended  December  31,  2001, 3 new  franchised  restaurants  were
opened in  Jeffersonville,  Indiana,  Fredericksburg,  Virginia  and Park Place,
Wisconsin,  and a  franchisee  elected to close its  Charleston,  West  Virginia
restaurant.

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
three 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.

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


                                      - 5 -

<PAGE>



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  and  Vice  President-Company  Operations  of the  Company  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 2001 was approximately  3.4% of
sales.

RESTAURANT  LOCATIONS

As of  December  31,  2001,  we owned and  operated  36  Tumbleweed  restaurants
including  one  Louisville,  Kentucky  restaurant  which was 50% owned through a
joint venture.  The following table sets forth the markets (including the number
of restaurants in each market) of these 36 restaurants:


                                                                 NO. OF
STATE                LOCATION                                 RESTAURANTS
-----                --------                                 -----------
Indiana              Evansville                                    4

Indiana              Ft. Wayne                                     2

Indiana              Terre Haute                                   1

Kentucky             Bowling Green                                 1

Kentucky             Louisville                                   10

Ohio                 Cincinnati                                    7

Ohio                 Columbus                                      6

Ohio                 Dayton                                        3

Ohio                 Cleveland                                     2
                                                                  --
                     TOTAL                                        36
                                                                  ==






                                      - 6 -

<PAGE>



Subsequent to December 31, 2001, 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.  Also  subsequent  to year end,  the Company
purchased  from its joint  venture  partner its 50%  interest  in a  Louisville,
Kentucky restaurant.

FRANCHISED RESTAURANTS

As of December  31,  2001,  we had ten  franchisees  that owned and  operated 21
Tumbleweed  restaurants.  The following  table sets forth the franchisee and the
location  (including  the number of  restaurants  at each  location) of these 21
restaurants:


                                                         No. of        Total By
Franchisee             State        Location           Restaurants    Franchisee
----------             -----        --------           -----------    ----------
TW-Indiana, LLC        Indiana      Floyd Knobs             1
                       Indiana      New Albany              2
                       Indiana      Salem                   1
                       Indiana      Jeffersonville          1
                       Kentucky     Lexington               1
                                                            -
                                                                          6
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-Shelbyville, Inc.   Kentucky     Shelbyville             1
                                                            -
                                                                          1

TW-Bullitt, Inc.       Kentucky     Hillview                1
                                                            -
                                                                          1

TW-Rivertown, LLC      Michigan     Grandville              1
                                                            -
                                                                          1

Tumble South, Inc.     Virginia     Mechanicsville          1
                       Virginia     Fredericksburg          1
                                                            -
                                                                          2

TW-Somerset, LLC       Kentucky     Somerset                1
                                                            -
                                                                          1
                                                                         --
                                                                         21
                                                                         ==



                                      - 7 -

<PAGE>



INTERNATIONAL LICENSING AGREEMENT

As of  December  31,  2001,  we  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.  During 2001,  International had licensed the following
locations to operate  Tumbleweed  restaurants:  Frankfurt and Vilseck,  Germany,
Essex and London, England, Amman, Jordan, Jeddah, Saudi Arabia, Istanbul, Turkey
and Cairo, Egypt. See Item 13 "Certain  Relationships and Related  Transactions"
for additional information regarding International.

The International Agreement granted us a right of first refusal if International
proposed  to sell or assign its rights  under the  Agreement,  or to sell equity
interests  in  International.  Subsequent  to  December  31,  2001,  the Company
purchased 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  will now give 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 will
issue  76,923  shares of its common  stock to CCIO.  The Company will also enter
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  10.8% of our restaurant  sales were  attributable  to the sale of
alcoholic  beverages for the year ended  December 31, 2001.  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

                                      - 8 -

<PAGE>



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.

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 31, 2001, we had  approximately  2,000 employees,  of whom 34 are
executive and administrative personnel, 120 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 will 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 31, 2001, we operated 36 Tumbleweed  restaurants
including one restaurant which was 50% owned through a joint venture. 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.

                                      - 9 -

<PAGE>



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.

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
31,  2001,  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. ..... 56    President, Chief Executive Officer, and Director

Glennon F. Mattingly ... 50    Vice President and Chief Financial Officer

Gary T. Snyder.......... 47    Vice President - Company Operations

Lynda J. Wilbourn....... 39    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.  Since 1997,  Mr. Smith
has 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

                                     - 10 -

<PAGE>


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, 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 years ended  December 31, 2001,  2000 and 1999 are
presented in Note 17 to our Consolidated  Financial Statements contained in Item
8.

ITEM 2.  PROPERTIES

Of the 36 Company-owned restaurants in operation at December 31, 2001, including
one restaurant  which was 50% owned through a joint venture,  17 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 2004 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 and our commissary
are located in Louisville,  Kentucky.  Our  commissary  and warehouse  space are
owned in fee simple by us. Our  executive  offices are located in leased  space.
The lease expires in 2007 and has two 5-year renewal options.

ITEM 3.  LEGAL PROCEEDINGS

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. 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

                                     - 11 -

<PAGE>



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. 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 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 is in negotiation with the bank
under the  equipment  leases and the other  guarantors  to resolve the Company's
obligations  relative to the equipment leases. The Company believes that it will
be  obligated  to  assume  and  pay  one  of  the  equipment   leases   totaling
approximately  $125,000  and  will  remain  contingently  liable  on  two  other
equipment  leases which the Company  believes  will be assumed and paid by other
guarantors. These negotiations are ongoing and no agreement has been reached. If
no agreement is reached,  the Company would have  additional  exposure  totaling
approximately $180,000.

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 $725,000 had been paid out as of
December 31, 2001.  The Company  increased  this reserve 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  includes an
additional  charge for the equipment  lease which the Company expects to assume,
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.

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 31, 2001.











                                     - 12 -

<PAGE>



                                     PART II


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

As of March  20,  2002,  5,839,230  shares  of  Common  Stock  were  issued  and
outstanding.  There were approximately 1,300 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 Stock Market's  National  Market under the
symbol "TWED." The following  table shows  quarterly high and low closing prices
for the Common Stock during 2001 and 2000 for the periods indicated, as reported
by the Nasdaq National Market.


                                   2001                          2000
                                   ----                          ----
                           High             Low          High             Low
First Quarter            $ 3.13           $ 1.81        $ 6.94           $4.75
Second Quarter             2.99             2.17          6.37            2.62
Third Quarter              2.30             1.30          4.09            2.62
Fourth Quarter             1.50             0.92          3.37            2.00


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.









                                     - 13 -

<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
years ended December 31, 2001, 2000 and 1999 and  Tumbleweed,  LLC for the years
ended  December 31, 1998 and 1997 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."




















                                     - 14 -

<PAGE>
<TABLE>
<CAPTION>




                                                               Years Ended December 31
                                        -----------------------------------------------------------------------
                                                       Tumbleweed,                         Tumbleweed,
                                                          Inc.                                 LLC
                                        -----------------------------------------  ----------------------------
                                             2001           2000          1999          1998           1997
                                             ----           ----          ----          ----           ----

Statement of Operations Data:
  Revenues:
<S>                                    <C>            <C>           <C>           <C>            <C>
    Restaurant sales                   $   56,025,886 $  51,820,600 $  48,578,123 $  40,490,933  $  27,891,128
    Commissary sales                        1,781,252     1,663,208     1,168,836     1,041,266      1,007,011
    Franchise fees and royalties            1,227,300     1,271,251     1,064,952       770,806        563,056
    Gain from insurance proceeds due to
      involuntary conversion of non-
      monetary assets                         -             554,864       -             -              -
    Other revenues                            418,744       990,843       532,976       504,639        365,054
                                        -------------  ------------  ------------  ------------   -------------
  Total revenues                           59,453,182    56,300,766    51,344,887    42,807,644     29,826,249
  Operating expenses:
    Restaurant cost of sales               17,426,315    15,275,817    14,232,564    11,788,578      8,191,928
    Commissary cost of sales                1,562,049     1,460,704     1,053,083       905,814        887,793
    Operating expenses                     30,567,705    27,456,791    24,377,631    20,881,212     14,035,693
    Selling, general and administrative
      expenses                              6,107,159     6,598,299     4,981,721     4,150,303      3,051,740
    Preopening expenses                       -             490,394       395,768       816,604        544,723
    Depreciation and amortization           2,285,452     2,147,408     1,804,757     1,442,011        971,863
    Special charges                         4,294,539        -             -             -              -
    Loss on guarantees of indebtedness        565,000       725,000       -             -              -
                                        -------------  ------------  ------------  ------------   -------------
  Total operating expenses                 62,808,219    54,154,413    46,845,524    39,984,522     27,683,740
                                        -------------  ------------  ------------  ------------   -------------
  Income (loss) from operations            (3,355,037)    2,146,353     4,499,363     2,823,122      2,142,509
  Interest expense, net                    (1,276,903)   (1,458,650)   (1,128,906)     (869,712)      (428,598)
  Equity in income (loss) of TW-
    Springhurst                                81,318       (58,903)      -             -              -
                                        -------------  ------------  ------------  ------------   -------------
  Income (loss) before income taxes
    and cumulative effect of a change in
    accounting principle                   (4,550,622)      628,800     3,370,457     1,953,410      1,713,911
  Provision (benefit) for income taxes:
    Current and deferred                   (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                                 (1,178,144)       65,439     1,819,282       -              -
                                        -------------  ------------  ------------  ------------   -------------
   Income (loss) before cumulative
      effect of a change in accounting
      principle                            (3,372,478)      563,361     1,551,175     1,953,410      1,713,911
   Cumulative effect of a change in
     accounting principle, net of tax         -             -            (341,035)      -              -
                                        -------------  ------------  ------------  ------------   -------------
  Net income (loss)                    $   (3,372,478)$     563,361 $   1,210,140 $   1,953,410  $   1,713,911
                                        =============  ============  ============  ============   =============
  Basic and diluted earnings (loss)
   per share:
  Income (loss) before cumulative
    effect of a change in accounting
    principle                          $        (0.58)$        0.10 $        0.27
  Cumulative effect of a change in
    accounting principle, net of tax             -             -            (0.06)
                                        -------------  ------------  ------------
  Net income (loss)                    $        (0.58)$        0.10 $        0.21
                                        =============  ============  ============

</TABLE>


                                     - 15 -

<PAGE>
<TABLE>
<CAPTION>





                                                               Years Ended December 31
                                        -----------------------------------------------------------------------
                                                       Tumbleweed,                         Tumbleweed,
                                                          Inc.                                 LLC
                                        -----------------------------------------  ----------------------------
                                            2001           2000          1999          1998           1997
                                            ----           ----          ----          ----           ----
Pro forma income data (unaudited):
   Income before income taxes
     and cumulative effect of a change
<S>                                                                 <C>           <C>            <C>
     in accounting principle as reported                            $   3,370,457 $   1,953,410  $   1,713,911
   Pro forma income taxes (1)                                           1,179,659       683,693        599,896
                                                                     ------------  ------------   -------------
   Pro forma income before cumulative
     effect of a change in accounting
     principle                                                          2,190,798     1,269,717      1,114,015
   Cumulative effect of a change in
     accounting principle, net of tax                                    (341,035)        -              -
                                                                     ------------  ------------   -------------
   Pro forma net income                                             $   1,849,763 $   1,269,717  $   1,114,015
                                                                     ============  ============   =============
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  $        0.22
   Cumulative effect of a change in
     accounting principle, net of tax                                       (0.06)         -              -
                                                                     ------------  ------------   -------------
   Pro forma net income                                             $        0.31 $        0.25  $        0.22
                                                                     ============  ============   =============
</TABLE>
<TABLE>
<CAPTION>


                                                                   As of December 31
                                      -------------------------------------------------------------------------
                                                    Tumbleweed,                          Tumbleweed,
                                                        Inc.                                 LLC
                                      ----------------------------------  -------------------------------------
                                                                               Pro
                                                                              Forma
                                           2001         2000       1999      1998 (3)     1998         1997
                                           ----         ----       ----      --------     ----         ----
                                                                    (In thousand)
Balance Sheet Data:
<S>                                   <C>            <C>        <C>         <C>        <C>         <C>
Total assets                          $      34,897  $  39,453  $   36,597  $  33,681  $   33,681  $    26,068
Long-term debt and capital lease
  obligations, including current
  maturities                                 15,435     16,998      15,145     13,363      13,363        8,542
Total liabilities                            20,398     21,581      19,035     24,743      24,103       10,725
Redeemable members' equity                   -           -           -          -          18,925       23,420
Members' equity                              -           -           -          -             354            7
Members' retained earnings (deficit)         -           -           -          -          (9,701)      (8,083)
Stockholders' equity                         14,499     17,872      17,563      -           -           -
Pro forma stockholders' equity               -           -           -          8,938       -           -
</TABLE>

(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.

                                     - 16 -

<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  31,  2001,  we owned,  franchised  or  licensed  65  Tumbleweed
restaurants. We owned and operated 36 restaurants in Kentucky, Indiana and Ohio,
including one restaurant which was 50% owned through a joint venture. There were
21 franchised  restaurants  located in Indiana,  Illinois,  Kentucky,  Michigan,
Virginia and Wisconsin and eight licensed restaurants located outside the United
States in  Germany,  Jordan,  Egypt,  Saudi  Arabia,  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                     2001    2000    1999
         -------------------------                     ----    ----    ----

             In operation, beginning of year            36      29      25
             Restaurants opened                          -       4       4
             Joint venture restaurant opened             -       1       -
             Restaurants purchased from franchisee       -       2       -
                                                       ----    ----    ----
             In operation, end of year                  36      36      29
                                                       ----    ----    ----


         Franchise and Licensed Restaurants

             In operation, beginning of year            27      22      18
             Restaurants opened                          3      10       8
             Restaurants closed                         (1)     (3)     (4)
             Restaurants sold to Tumbleweed, Inc.        -      (2)      -
                                                       ----    ----    ----
             In operation, end of year                  29      27      22
                                                       ----    ----    ----
                    System total                        65      63      51
                                                       ====    ====    ====

Subsequent  to  December  31,  2001,  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.  See below for a
discussion  regarding a special charge which was recorded in 2001 as a result of
these restaurant  closings.  Also subsequent to year end, the Company  purchased
from its joint venture partner its 50% interest in a restaurant location.

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
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

                                     - 17 -

<PAGE>



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 and Goodwill

We assess the impairment of long-lived  assets and goodwill  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;

    o    our market capitalization relative to net book value.

Through  December  31,  2001,  we  determined  whether  the  carrying  value  of
long-lived  assets and goodwill may not be recoverable  based upon the existence
of one or more  indicators of impairment.  Then, if it was determined that there
was an  impairment  based on the  estimated  undiscounted  future  cash flows of
assets, we measured any impairment based on the asset's current fair value. This
fair value was 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 net
realizable  value for assets held for sale. Net  long-lived  assets and goodwill
amounted to  approximately  $31.4 million as of December 31, 2001. See "Recently
Issued Accounting  Standards" below for a discussion of new accounting standards
for goodwill and other intangibles and long-lived assets.

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 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 closed in the first  quarter of 2002.  The
Company  plans  to  sell  one of the  remaining  two  restaurants  to a  current
franchisee  and will continue 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 include  $611,186 for lease  obligations and
other costs related to the decision to close these  restaurants.  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.

Recently Issued Accounting Standards

In June 2001, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
141,  "Business  Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." These statements established new accounting and reporting standards for
business  combinations and associated  goodwill and intangible assets.  SFAS No.
141,  effective  July 1, 2001,  eliminates  the  pooling of  interest  method of
accounting  and  amortization  of goodwill for business  combinations  initiated
after June 30, 2001.  SFAS No. 142,  effective  January 1, 2002,  requires  that
goodwill  and  intangible  assets  with  indefinite  useful  lives no  longer be
amortized, but instead be tested for impairment at least annually.

The  Company  adopted  the new  rules  on  accounting  for  goodwill  and  other
intangibles as of January 1, 2002 and is currently  completing the  transitional
impairment  test required by the new rules.  Any impairment  loss resulting from
the  transitional  impairment test will be recorded as a cumulative  effect of a
change in accounting  principle  during the first  quarter of 2002.  The Company
currently  expects  an  impairment   write-down  of  goodwill  of  approximately
$2,300,000

                                     - 18 -

<PAGE>



in the first  quarter of 2002.  Goodwill  amortization  amounted to $135,000 for
2001. As noted above, goodwill will no longer be amortized under the new rules.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets."  This  statement  supercedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed  of," and the  accounting  and  reporting  provisions  of Accounting
Principles  Board  (APB)  Opinion No. 30,  "Reporting  Results of  Operations  -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual  and  Infrequently  Occurring  Events  and  Transactions."  SFAS No. 144
requires that one accounting model be used for long-lived  assets to be disposed
of by sale, whether previously held and used or newly acquired,  and it broadens
the   presentation   of   discontinued   operations  to  include  more  disposal
transactions.  The Company  adopted the provisions of SFAS No. 144 as of January
1, 2002 and is currently evaluating the impact that SFAS No. 144 may have on its
financial position and results of operations.

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










































                                     - 19 -

<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>

                                                          Years Ended December 31
                                                        2001       2000      1999
                                                      --------------------------------
Revenues:
<S>                                                       <C>        <C>       <C>
   Restaurant sales                                       94.2%      92.0%     94.6%
   Commissary sales                                        3.0        3.0       2.3
   Franchisee fees and royalties                           2.1        2.2       2.1
   Gain from insurance proceeds due to involuntary
      conversion of non-monetary assets                      -        1.0         -
   Other revenues                                          0.7        1.8       1.0
                                                      --------------------------------
      Total revenues                                     100.0      100.0     100.0
Operating expenses:
   Restaurant cost of sales (1)                           31.1       29.5      29.3
   Commissary cost of sales (2)                           87.7       87.8      90.1
   Operating expenses (1)                                 54.6       53.0      50.2
   Selling, general and administrative                    10.3       11.7       9.7
   Preopening expenses                                       -        0.9       0.8
   Depreciation and amortization                           3.8        3.8       3.5
   Special charges                                         7.2          -         -
   Loss on guarantees of indebtedness                      1.0        1.3         -
                                                      --------------------------------
      Total operating expenses                           105.6       96.2      91.2
                                                      --------------------------------
      Income (loss) from operations                       (5.6)       3.8       8.8
Other expense, net                                        (2.1)      (2.7)     (2.2)
                                                      --------------------------------
Income (loss) before income taxes and cumulative
   effect of a change in accounting
   principle                                              (7.7)       1.1       6.6
Provision (benefit)for income taxes:
   Current and deferred                                   (2.0)       0.1       2.3
   Deferred taxes related to a change in tax status          -          -       1.3
                                                      --------------------------------
Total provision (benefit) for income taxes                (2.0)       0.1       3.6
                                                      --------------------------------
Income (loss) before cumulative effect
   of a change in accounting principle                    (5.7)       1.0       3.0
Cumulative effect of a change in
   accounting principle, net of tax                           -         -      (0.7)
                                                      --------------------------------
Net income (loss)                                         (5.7)%      1.0%      2.3%
                                                      ================================
Pro forma income data (unaudited):
   Income before income taxes and
     cumulative effect of a change in
     accounting principle as reported                                           6.6%
   Pro forma income taxes (3)                                                   2.3
                                                                           -----------
   Pro forma income before cumulative
     effect of a change in accounting
     principle                                                                  4.3
   Cumulative effect of a change in
     accounting principle, net of tax                                          (0.7)
                                                                           -----------
   Pro forma net income                                                         3.6%
                                                                           ===========
</TABLE>

(1)    As percentage of restaurant sales.
(2)    As percentage of commissary sales.

                                     - 20 -

<PAGE>



(3)    Effective  January  1, 1999,  Tumbleweed,  LLC  converted  from a limited
       liability company into a C corporation by merging with Tumbleweed,  Inc.,
       a Delaware  corporation  formed on December  17,  1997.  Pro forma income
       taxes  excludes  the  deferred  tax effects  related to the change in tax
       status as of January 1, 1999.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001 AND 2000

Total  revenues  increased  by  $3,152,416  or  5.6% 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.

       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  .  See  Note  12  of  the  accompanying   consolidated  financial
   statements for a detail discussion. There was no similar income during 2001.

       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 in 2001 and
   2000,  respectively.  See Note 12 of the accompanying  consolidated financial
   statements for a detail discussion.

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 11.7% 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

                                     - 21 -

<PAGE>



of being prepared for opening. There were no preopening expenses incurred during
2001. Preopening expenses were $490,394 in 2000.

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  plans to sell one of the remaining two
restaurants  to a current  franchisee  and will  continue  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 include $611,186 for
lease  obligations  and other  costs  related  to the  decision  to close  these
restaurants.  The Company has made  payments of $10,000 as of December  31, 2001
related to the closing  costs and expects  most of the  remaining  costs will be
disbursed in 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 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.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND 1999

Total  revenues  increased  by  $4,955,879  or  9.6% in  2000  compared  to 1999
primarily as a result of the following:

   Restaurant  sales  increased by  $3,242,477 or 6.7% in 2000 compared to 1999.
   The  increase  is  due  primarily  to  the  addition  of  six   Company-owned
   restaurants  during 2000. The increase is partially offset by a 3.3% decrease
   in same store sales.

   Commissary sales to franchised and licensed restaurants increased by $494,372
   or 42.3% in 2000  compared to 1999.  The  increase is due  primarily  to five
   additional franchised or licensed restaurants during 2000.

   Franchise fees and royalties  increased by $206,299 or 19.4% in 2000 compared
   to 1999 as a result of an increase in royalty  income due  primarily  to five
   additional franchise restaurants.  Franchise fees were approximately the same
   in both periods.

   The gain of  $554,864  from  insurance  proceeds  was due to the  involuntary
    conversion of non-monetary assets from a fire at a Company-owned restaurant.
    See  Note  12  of  the  accompanying   financial  statements  for  a  detail
    discussion.

   Other  revenues  increased  by  $457,867  or 85.9% in 2000  compared  to 1999
   primarily  due to $280,000 of insurance  proceeds as it relates to a business
   interruption as a result of a fire at a Company-owned restaurant. See Note 12
   of the accompanying  financial statements for a detail discussion.  There was
   no similar  income in 1999.  In addition,  other  revenues  increased in 2000
   compared  to 1999 as a result of an  increase  in volume  related  purchasing
   rebates.

Restaurant  cost of sales  increased by  $1,043,253  or 7.3% in 2000 compared to
1999.  The increase  was  principally  due to the addition of six  Company-owned
restaurants  during 2000.  Restaurant cost of sales increased as a percentage of
sales by 0.2% to 29.5% for 2000 compared to 29.3% for 1999.


                                     - 22 -

<PAGE>



Commissary cost of sales  increased  $407,621 or 38.7% in 2000 compared to 1999.
The increase in  commissary  cost of sales is due  primarily to five  additional
franchised  or licensed  restaurants  during 2000. As a percentage of commissary
sales,  commissary  cost of sales decreased by 2.3% in 2000 compared to 1999 due
to lower manufactured food costs in 2000.

Restaurant  operating expenses increased by $3,079,160 or 12.6% in 2000 compared
to 1999.  The increase  reflects the addition of six  Company-owned  restaurants
during 2000. Operating expenses increased as a percentage of restaurant sales to
53.0%  during  2000  from  50.2% in 1999  primarily  due to a 0.3%  increase  in
promotional costs and a 1.7% increase in total restaurant payroll costs.

Selling, general and administrative expenses increased by $1,616,578 or 32.4% in
2000 compared to 1999. The increase was due in part to additional  payroll costs
of  approximately  $280,000 which were incurred as a result of the retirement of
the  former  President  and  CEO of the  Company  and the  restructuring  of the
corporate staff. The increase in selling, general and administrative expenses in
2000 as  compared  to 1999 is also  due in part to the  addition  of  management
personnel to support the growing  restaurant base and increased  advertising and
outside professional service costs. As a percentage to total revenues,  selling,
general and  administrative  expenses  were 11.7% and 9.7% of  revenues  for the
years ended December 31, 2000 and 1999, respectively.

Preopening  expenses were $490,394 and $395,768 for the years ended December 31,
2000 and 1999,  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 size of the restaurant and
the number of restaurant  locations  which are in the process of being  prepared
for opening.

Depreciation  and  amortization  expense  increased  $342,651  or  19.0% in 2000
compared to 1999 due primarily to the addition of six Company-owned  restaurants
during 2000.

Net interest expense  increased  $333,458 or 29.5% in 2000 compared to 1999. The
increase resulted from increased  borrowings to fund the growth in Company-owned
restaurants and increases in the prime interest rate during 2000.

The equity in losses of  TW-Springhurst  was $58,903 for the year ended December
31, 2000. The TW-Springhurst restaurant location opened in 2000.

The combined  effective  federal and state income tax rate was approximately 10%
and 35% for the years ended December 31, 2000 and 1999, respectively,  excluding
the charge  related to change in tax status.  The effective tax rate is lower in
2000 as a result of lower  profitability  and the resulting impact of employment
tax credits  and state  income  taxes on the  effective  rate.  As a result of a
change in tax status from a limited  liability  corporation  to a C  corporation
effective  January 1, 1999, we recorded a net deferred  income tax liability and
income tax expense of $639,623 in 1999.

LIQUIDITY AND CAPITAL RESOURCES

In 2002,  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.

Our capital  needs  during 2001 arose from the  reconstruction  of a  restaurant
facility  which was damaged by fire during  June 2000,  and to a lesser  extent,
maintenance and  improvement of existing  restaurant  facilities.  The source of
capital to fund the  reconstruction was insurance proceeds received during 2000.
The maintenance and improvement expenditures were funded by internally generated
cash flow. Our capital needs for 2000 and 1999 arose from the development of new
restaurants,  and to a lesser extent,  maintenance  and  improvement of existing
restaurant facilities.

                                     - 23 -

<PAGE>



The  principal  sources of capital to fund these  expenditures  were  internally
generated cash flow, bank borrowings,  lease financing and an equity offering in
1999. The table below  provides  certain  information  regarding our sources and
uses of capital for the years presented:

<TABLE>
<CAPTION>

                                                                               Years
                                                                          Ended December 31
                                                                          -----------------
                                                              2001             2000              1999
                                                              ----             ----              ----
<S>                                                       <C>            <C>               <C>
Net cash provided by operations                           $  3,294,158   $    2,262,548    $    3,592,419
Purchases of property and equipment                         (1,255,406)      (3,090,936)       (6,915,544)
Business acquisitions                                           -            (1,806,333)          -
Insurance proceeds for property and equipment                   -             1,299,352           -
Proceeds from common stock offering                             -               -               7,766,300
Net borrowings (payments) on long-term debt and
  capital lease obligations                                 (1,563,315)       1,431,705         1,781,865
Payment on short-term borrowings                                -               -               (6,990,34)
</TABLE>

The table below provides information  regarding our contractual  obligations and
commitments as of December 31, 2001.


                                  Long-Term         Capital        Operating
                     Total           Debt           Leases           Leases
                     -----           ----           ------            ------
2002           $    3,884,362  $    1,060,146   $      773,510  $    2,050,706
2003               11,651,677       8,884,531          706,040       2,061,106
2004                2,768,948         324,105          398,338       2,046,505
2005                2,318,274         302,306          202,279       1,813,689
2006                2,537,126         565,275          172,509       1,799,342
Thereafter         16,835,630       1,767,722        1,801,714      13,266,194
                -------------   -------------    -------------   -------------
               $   39,996,017  $   12,904,085   $    4,054,390  $   23,037,542
                =============   =============    =============   =============


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 and
1999 was for capital expenditures consisting of land, building and equipment and
for payments on long-term debt and capital lease obligations.  The growth of the
Company during the 2000 and 1999 periods did not require significant  additional
working  capital.  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 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,

                                     - 24 -

<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 is in negotiation  with the bank under the equipment leases
and the other  guarantors to resolve the Company's  obligations  relative to the
equipment  leases.  The Company believes that it will be obligated to assume and
pay one of the equipment leases totaling  approximately $125,000 and will remain
contingently  liable on two other  equipment  leases which the Company  believes
will be assumed and paid by other guarantors. These negotiations are ongoing and
no agreement  has been  reached.  If no agreement is reached,  the Company would
have additional exposure totaling approximately $180,000.

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 $725,000 had been paid out as of
December 31, 2001.  The Company  increased  this reserve 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  includes an
additional  charge for the equipment  lease which the Company expects to assume,
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.

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 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 31, 2001, the Company had no material commitments for
the  construction  of new  restaurants,  maintenance  or improvement of existing
restaurant facilities. 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 2002. The remaining  costs
will be funded by available  cash  reserves,  cash provided from  operations and
borrowing capacity.  Management believes such sources will be sufficient to fund
our expansion  plans through 2002.  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  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.

The Company has a $5,960,000  mortgage  revolving line of credit with a bank. As
of December 31, 2001, we had outstanding  borrowings under the line of credit of
$5,726,148.  The note  bears  interest  at the prime  rate  plus  .25%  (5.0% at
December 31, 2001) and is due December 31, 2003. The Company also has a $975,000
mortgage  revolving  line of credit with a bank. As of December 31, 2001, we had
outstanding  borrowings  under  the line of credit  of  $964,868.  The note bore
interest at the prime rate plus .25% (5.0% at December 31, 2001)  through  March
31, 2002 and increased to the prime rate plus 2.0% thereafter.  The note matures
April 1, 2003. Both of the revolving lines of credit impose  restrictions on the
Company  with  respect to the  maintenance  of  certain  financial  ratios,  the
incurrence of indebtedness,  the sale of assets,  mergers,  capital expenditures
and the payment of dividends.

During the year ended December 31, 2001, the Company was not in compliance  with
certain financial covenants  pertaining to long-term totalling  $9,408,520 as of
December 31, 2001. The Company obtained appropriate waivers, and in one instance
a Forbearance Agreement, from the lenders to cure the non-compliance at December
31, 2001.  The Company also  obtained  covenant  amendments  from certain of the
lenders  which  management   believes  will  enable  compliance  with  financial
covenants  in the  future  for  all  of its  debt  agreements.  The  contractual
obligations  and  commitments  schedule  above reflects the revised terms of the
loan agreements.


                                     - 25 -

<PAGE>

SUBSEQUENT EVENTS

As of  December  31,  2001,  the Company  had a 50%  interest  in a  Louisville,
Kentucky  Tumbleweed  restaurant  location.   The  remaining  50%  was  held  by
TW-Springhurst  Investors,  LLC, which is owned by a current and former director
of the  Company.  Subsequent  to December  31,  2001,  the Company  acquired the
remaining 50% interest from TW-  Springhurst  Investors,  LLC for $267,000.  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.

Subsequent to December 31, 2001, the Company  purchased  International  for $1.5
million  from  TW-International  Investors,  Inc.  and 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  will give 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 will issue 76,
923  shares of its  common  stock to CCIO.  The  Company  will also enter into a
commission  agreement  with CCIO in  connection  with the sale of  international
regional licenses by International.

Also subsequent to December 31, 2001, 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  will match 25% of the first 4% an
employee  contributes.  The employee becomes vested in the Company  contribution
based on a five-year vesting schedule.

OTHER EVENTS

TW Funding,  LLC is an entity owned by certain  current and former  officers and
directors of the Company.  The members of TW Funding, LLC guaranteed a loan from
Gerald Mansbach incurred by TW Funding to finance its purchase of 400,000 shares
of Common Stock in the Company's  initial  public  offering in January 1999. The
shares  of Common  Stock  held by TW  Funding,  as well as  1,900,000  shares of
Company Common Stock owned by the guarantors were pledged to secure the loan and
the guarantee. The pledge totaled 2,300,000 shares of Common Stock. The loan, as
extended,  matured on March 31, 2001. On or about May 5, 2001, the obligation of
approximately  $4,900,000  ($4,000,000  principal  and $900,000  interest) of TW
Funding,  LLC was declared in default.  The Company has been  informed  that the
parties related to the TW Funding matter have reached a settlement.  As a result
of a settlement between Mr. Mansbach and the guarantors, Mr. Mansbach has become
the legal  and  beneficial  owner of  2,398,002  shares  of Common  Stock of the
Company  (which  includes  98,002  shares  which  were  previously  owned by Mr.
Mansbach)  constituting  approximately 41.1% of the outstanding shares of Common
Stock.

The Company has been  notified by Nasdaq that it has not met the minimum  public
float requirement of $5 million over 30 consecutive  trading days as required by
Nasdaq's National Market rules.  Nasdaq has given the Company until May 15, 2002
to regain compliance. If the Company does not regain compliance by May 15, 2002,
Nasdaq  will delist the  Company's  securities  from  Nasdaq's  National  Market
System.  The Company is currently  evaluating its options in the event it cannot
regain compliance.

IMPACT OF INFLATION

The  impact  of  inflation  on the  cost of  food,  labor,  equipment,  land and
construction costs could harm our operations. We pay a majority of our 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 our
restaurants  are located,  we have  continued to increase  wages and benefits in
order to  attract  and  retain  management  personnel  and  hourly  workers.  In
addition,  most of our leases require us 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.  We 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.




                                     - 26 -

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not  enter  into  derivative  transactions  or  speculate  on  the  future
direction of interest rates.  We are exposed to interest rate changes  primarily
as a result of our  variable  rate debt  instruments.  As of December  31, 2001,
approximately  $11,500,000  of our debt bore  interest at variable  rates.  A 1%
change in the  variable  interest  rate on this debt  equates to an  approximate
$100,000 change in interest for a twelve month period.



















































                                     - 27 -

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

               INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

                                                                       PAGE
  Report of Independent Auditors                                        29

  Consolidated Statements of Operations for the years ended
   December 31, 2001, 2000 and 1999                                     30

  Consolidated Balance Sheets as of December 31, 2001 and 2000          31

  Statements of Redeemable Members' Equity, Members' Equity,
   Members' Retained Earnings (Deficit) and Stockholders' Equity
   for the years ended December 31, 2001, 2000 and 1999                 32

  Consolidated Statements of Cash Flows for the years ended
   December 31, 2001, 2000 and 1999                                     33

  Notes to Consolidated Financial Statements                            34






































                                     - 28 -

<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 31, 2001 and 2000,  and the related  consolidated  statements  of
operations,  redeemable  members'  equity,  members' equity,  members'  retained
earnings (deficit) and stockholders' equity and cash flows for each of the three
years in the period  ended  December  31,  2001.  Our audits also  included  the
financial  statement schedule listed in the Index at Item 14(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 31, 2001 and 2000 and the consolidated results of its operations and
its cash flows for each of the three  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 2 to the  consolidated  financial  statements,  in 1999 the
Company  changed its method of accounting  for  pre-opening  and other  start-up
costs by adopting  the  American  Institute  of  Certified  Public  Accountants'
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities".



/s/ Ernst & Young LLP
Louisville, Kentucky
April 4, 2002




















                                     - 29 -

<PAGE>



                                Tumbleweed, Inc.

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>

                                                                                    Years Ended December 31
                                                                               2001         2000          1999
                                                                            --------------------------------------
Revenues:
<S>                                                                        <C>          <C>           <C>
   Restaurant sales                                                        $ 56,025,886 $ 51,820,600  $ 48,578,123
   Commissary sales                                                           1,781,252    1,663,208     1,168,836
   Franchise fees and royalties                                               1,227,300    1,271,251     1,064,952
   Gain from insurance proceeds due to involuntary conversion
     of non-monetary assets                                                           -      554,864             -

   Other revenues                                                               418,744      990,843       532,976
                                                                            -----------  -----------   -----------
Total revenues                                                               59,453,182   56,300,766    51,344,887
Operating expenses:
   Restaurant cost of sales                                                  17,426,315   15,275,817    14,232,564
   Commissary cost of sales                                                   1,562,049    1,460,704     1,053,083
   Operating expenses                                                        30,567,705   27,456,791    24,377,631
   Selling, general and administrative expenses                               6,107,159    6,598,299     4,981,721
   Preopening expenses                                                                -      490,394       395,768
   Depreciation and amortization                                              2,285,452    2,147,408     1,804,757
   Special charges                                                            4,294,539            -             -
   Loss on guarantees of indebtedness                                           565,000      725,000             -
                                                                            -----------  -----------   -----------
Total operating expenses                                                     62,808,219   54,154,413    46,845,524
                                                                            -----------  -----------   -----------
Income (loss) from operations                                                (3,355,037)   2,146,353     4,499,363
Other income (expense):
   Interest expense, net                                                     (1,276,903)  (1,458,650)   (1,128,906)
   Equity in income (loss) of TW-Springhurst                                     81,318      (58,903)            -
                                                                            -----------  -----------   -----------
Total other expense                                                          (1,195,585)  (1,517,553)   (1,128,906)
                                                                            -----------  -----------   -----------
Income (loss) before income taxes and cumulative effect of a
   change in accounting principle                                            (4,550,622)     628,800     3,370,457
Provision (benefit) for income taxes:
   Current and deferred                                                      (1,178,144)      65,439     1,179,659
   Deferred taxes related to change in tax status                                     -            -       639,623
                                                                            -----------  -----------   -----------
Total provision (benefit) for income taxes                                   (1,178,144)      65,439     1,819,282
                                                                            -----------  -----------   -----------
Income (loss) before cumulative effect of a change in accounting principle   (3,372,478)     563,361     1,551,175
Cumulative effect of a change in accounting principle, net of tax                     -            -      (341,035)
                                                                            -----------  -----------   -----------
Net income (loss)                                                          $ (3,372,478)$    563,361  $  1,210,140
                                                                            ===========  ===========   ===========
Basic and diluted earnings (loss) per share:
   Income (loss) before cumulative effect of a change in accounting
    principle                                                               $     (0.58)$       0.10  $       0.27
   Cumulative effect of a change in accounting principle, net of tax                  -            -         (0.06)
                                                                            -----------  -----------   -----------
   Net income (loss)                                                       $      (0.58)$       0.10  $       0.21
                                                                            ===========  ===========   ===========
Pro forma income data (unaudited):
   Income before income taxes and cumulative effect of a
     change in accounting principle as reported                                                       $  3,370,457
   Pro forma income taxes                                                                                1,179,659
                                                                                                       -----------
   Pro forma income before cumulative effect of a change
     in accounting principle                                                                             2,190,798
   Cumulative effect of a change in accounting principle, net of tax                                      (341,035)
                                                                                                       -----------
   Pro forma net income                                                                               $  1,849,763
                                                                                                       ===========
Pro forma basic and diluted earnings per share:
   Pro forma income before cumulative effect of a change
     in accounting principle                                                                          $       0.37
   Cumulative effect of a change in accounting principle,  net of tax                                        (0.06)
                                                                                                       -----------
   Pro forma net income                                                                               $       0.31
                                                                                                       ===========
See accompanying notes.

</TABLE>


                                     - 30 -

<PAGE>



                                Tumbleweed, Inc.

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                    December 31
                                                                              2001                2000
                                                                        ----------------     --------------
Assets
Current assets:
<S>                                                                    <C>                  <C>
   Cash and cash equivalents                                           $         757,266    $       281,829
   Accounts receivable, net allowance of $4,202 in 2001
      and $68,464 in 2000                                                        350,586            757,956
   Inventories                                                                 1,785,481          1,780,577
   Deferred income taxes                                                         123,318                  -
   Prepaid expenses and other assets                                             517,280            586,023
                                                                        ----------------     --------------
Total current assets                                                           3,533,931          3,406,385
Property and equipment, net                                                   28,380,038         31,795,454
Goodwill, net of accumulated amortization of
   $723,897 in 2001 and $669,395 in 2000                                       2,349,646          3,476,617
Investment in TW-Springhurst                                                     126,415            141,097
Other assets                                                                     507,320            633,335
                                                                        ----------------     --------------
Total assets                                                           $      34,897,350    $    39,452,888
                                                                        ================     ==============

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                    $       1,269,967    $     1,113,443
   Accrued liabilities                                                         3,542,511          2,489,727
   Deferred income taxes                                                               -            210,342
   Current maturities on long-term
     debt and capital leases                                                   1,601,374          2,040,667
                                                                        ----------------     --------------
Total current liabilities                                                      6,413,852          5,854,179

Long-term liabilities:
   Long-term debt, less current maturities                                    11,843,939         12,422,904
   Capital lease obligations, less current maturities                          1,989,820          2,534,877
   Deferred income taxes                                                          30,716            629,427
   Other liabilities                                                             120,000            140,000
                                                                        ----------------     --------------
Total long-term liabilities                                                   13,984,475         15,727,208
                                                                        ----------------     --------------
Total liabilities                                                             20,398,327         21,581,387

Commitments and contingencies (Note 19)

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; 5,881,630 shares issued                                   58,818             58,818
   Paid-in capital                                                            16,294,006         16,294,006
   Treasury stock, 42,400 shares                                                (254,695)          (254,695)
   Retained earnings (deficit)                                                (1,599,106)         1,773,372
                                                                        ----------------     --------------
     Total stockholders' equity                                               14,499,023         17,871,501
                                                                        ----------------     --------------
Total liabilities and stockholders' equity                             $      34,897,350    $    39,452,888
                                                                        ================     ==============
</TABLE>

See accompanying notes.


                                     - 31 -

<PAGE>




                                Tumbleweed, Inc.

     Consolidated Statements of Redeemable Members' Equity, Members' Equity,
          Members' Retained Earnings (Deficit) and Stockholders' Equity

                  Years Ended December 31, 2001, 2000 and 1999
<TABLE>
<CAPTION>

                                                                    Redeemable
                                                                     Members                  Retained
                                  Common     Paid-In   Treasury   Equity-Class A  Members'    Earnings
                                   Stock     Capital     Stock       Members       Equity    (Deficit)      Total
                               --------------------------------------------------------------------------------------

<S>                             <C>        <C>        <C>        <C>             <C>        <C>          <C>
Balance at December 31, 1998    $        - $        - $        - $    18,924,688 $  354,459 $(9,701,460) $ 9,577,687
Merger of Tumbleweed, LLC
 into Tumbleweed, Inc.              51,050  9,526,637          -     (18,924,688)  (354,459)  9,701,460            -
Tumbleweed, Inc. balances as
 of January 1, 1999                      1        129          -               -          -        (129)           1
Proceeds from common stock
 offering                            7,767  7,758,533          -               -          -           -    7,766,300
Public offering costs                    -   (991,293)         -               -          -           -     (991,293)
Net income                               -          -          -               -          -   1,210,140    1,210,140
                               --------------------------------------------------------------------------------------
Balance at December 31, 1999        58,818  16,294,006         -               -          -   1,210,011   17,562,835
Net income                               -          -          -               -          -     563,361      563,361
Purchase of treasury stock               -          -   (254,695)              -          -           -     (254,695)
                               --------------------------------------------------------------------------------------
Balance at December 31, 2000        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    $   58,818 $16,294,006$ (254,695)$             - $        - $(1,599,106) $14,499,023
                               ======================================================================================
</TABLE>



See accompanying notes.



                                     - 32 -

<PAGE>




                                Tumbleweed, Inc.

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                             Years Ended December 31
                                                                  2001               2000               1999
                                                             --------------     --------------     ---------------
Operating activities:
<S>                                                         <C>                <C>                <C>
   Net income (loss)                                        $    (3,372,478)   $       563,361    $      1,210,140
   Adjustment to reconcile net income (loss) to net
     cash provided by operating activities:
        Depreciation and amortization                             2,285,452          2,147,408           1,804,757
        Provision for doubtful accounts                               4,202             68,464                   -
        Deferred income taxes                                    (1,027,371)            63,015             776,754
        Loss on guarantees of indebtedness                          565,000            725,000                   -
        Special charges                                           4,294,539                  -                   -
         quity in (income) loss of  TW-Springhurst, net of
        Edistributions received of $96,000 in 2001                   14,682             58,903                   -
        Gain from insurance proceeds due to involuntary
          conversion of non-monetary assets                               -           (554,864)                  -
        Loss on disposition of property and equipment                66,841             38,250              38,455
        Changes in operating assets and liabilities:
          Accounts receivable                                       403,168              2,035            (172,411)
          Inventories                                              (177,928)          (121,404)           (264,203)
          Deferred preopening expenses                                    -                  -             524,669
          Prepaid expenses                                          (57,997)          (286,157)              7,563
          Other assets                                               52,379            (89,452)           (198,598)
          Accounts payable                                          156,524             11,418            (177,212)
          Accrued liabilities                                      (123,402)           (41,178)            (84,033)
          Income taxes                                              230,547           (302,251)             61,376
          Other liabilities                                         (20,000)           (20,000)             65,162
                                                             --------------     --------------     ---------------
Net cash provided by operating activities                         3,294,158          2,262,548           3,592,419

Investing activities:
   Purchases of property and equipment                           (1,255,406)        (3,090,936)         (6,915,544)
   Insurance proceeds for property and equipment                          -          1,299,352                   -
   Business acquisitions                                                  -         (1,806,333)                  -
   Investment in TW-Springhurst                                           -           (200,000)                  -
                                                             --------------     --------------     ---------------
Net cash used in investing activities                            (1,255,406)        (3,797,917)         (6,915,544)

Financing activities:
   Proceeds from common stock offering                                    -                  -           7,766,300
   Proceeds from issuance of long-term debt                       3,704,120          6,423,960           8,193,436
   Payments on long-term debt and capital lease obligations      (5,267,435)        (4,992,256)         (6,411,571)
   Payment on short-term borrowings                                       -                  -          (6,990,348)
   Purchase of treasury stock                                             -           (254,695)                  -
   Payment of public offering costs                                       -                  -            (493,476)
                                                             --------------     --------------     ---------------
Net cash provided by (used in) financing activities              (1,563,315)         1,177,009           2,064,341
                                                             --------------     --------------     ---------------

Net increase (decrease) in cash and cash equivalents                475,437           (358,360)         (1,258,784)
Cash and cash equivalents at beginning of year                      281,829            640,189           1,898,973
                                                             --------------     --------------     ---------------
Cash and cash equivalents at end of year                    $       757,266    $       281,829    $        640,189
                                                             ==============     ==============     ===============

Supplemental cash flow information:
   Cash paid for interest, net of amount capitalized        $     1,287,461    $     1,477,172    $      1,166,934
                                                             ==============     ==============     ===============
   Cash paid for income taxes                               $         4,085    $       304,674    $        798,670
                                                             ==============     ==============     ===============
Noncash investing and financing activities:
   Equipment acquired by capital lease obligations          $             -    $       224,906    $              -
                                                             ==============     ==============     ===============

See accompanying notes.

</TABLE>



                                     - 33 -

<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 (see Note 7).  Certain Common Members acted as the Managers
of  Tumbleweed  and,  acting  unanimously,   generally  had  voting  control  of
Tumbleweed.

Restaurant Facilities

As of December 31, 2001, the Company owned, franchised or licensed 65 Tumbleweed
restaurants.  The Company owned and operated 36 restaurants in Kentucky, Indiana
and Ohio,  including one restaurant  which was 50% owned through a joint venture
(see below). There were 21 franchised restaurants located in Indiana,  Illinois,
Kentucky,  Michigan,  Virginia,  and  Wisconsin and eight  licensed  restaurants
located  outside the United  States in Germany,  Jordan,  Egypt,  Saudi  Arabia,
England  and  Turkey.  The  following  table  reflects  changes in the number of
Company-owned, franchise and licensed restaurants during the years presented.


                                                   2001       2000       1999
                                                   ----       ----       ----
Company-owned restaurants:
     In operation, beginning of year                36         29         25
     Restaurants opened                              -          4          4
     Joint venture restaurant opened                 -          1          -
     Restaurants purchased from franchisee           -          2          -
                                                    --         --         --
     In operation, end of year                      36         36         29
                                                    --         --         --

Franchise and licensed restaurants:
     In operation, beginning of year                27         22         18
     Restaurants opened                             3          10          8
     Restaurants closed                             (1)        (3)        (4)
     Restaurants sold to Tumbleweed, Inc.            -         (2)         -
                                                     -         --         --
     In operation, end of year                      29         27         22
                                                    --         --         --
          System Total                              65         63         51
                                                    ==         ==         ==

Subsequent  to  December  31,  2001,  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.  See Note 13 for a
discussion  regarding special charges which were recorded in 2001 as a result of
these restaurant  closings.  Also subsequent to year end, the Company  purchased
from its joint venture  partner its 50% interest in a restaurant  location.  See
Note 10 for a further discussion of this transaction.



                                     - 34 -

<PAGE>



1.   Basis of Presentation (continued)

Pro forma Financial Information (unaudited)

Pursuant to the rules and regulations of the Securities and Exchange Commission,
the pro forma net income in the  accompanying pro forma income data for the year
ended December 31, 1999 reflects a pro forma adjustment to income taxes for 1999
to exclude  the  deferred  tax  effects of  Tumbleweed  changing  from a limited
liability  company  (which is taxed as a  partnership)  to a  regular  corporate
taxable status. Pro forma basic and diluted earnings per share is computed based
upon the weighted average number of shares of common stock outstanding for 1999.

Recently Issued Accounting Standards

In June 2001, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial Accounting  Standards (SFAS) No. 141, "Business  Combinations," and
SFAS  No.  142,  "Goodwill  and  Other  Intangible   Assets."  These  statements
established new accounting and reporting standards for business combinations and
associated goodwill and intangible assets. SFAS No. 141, effective July 1, 2001,
eliminates  the pooling of interest  method of accounting  and  amortization  of
goodwill for business combinations  initiated after June 30, 2001. SFAS No. 142,
effective  January 1, 2002,  requires that goodwill and  intangible  assets with
indefinite  useful  lives no longer be  amortized,  but  instead  be tested  for
impairment at least annually.

The  Company  adopted  the new  rules  on  accounting  for  goodwill  and  other
intangibles as of January 1, 2002 and is currently  completing the  transitional
impairment  test required by the new rules.  Any impairment  loss resulting from
the  transitional  impairment test will be recorded as a cumulative  effect of a
change in accounting  principle  during the first  quarter of 2002.  The Company
currently  expects  an  impairment   write-down  of  goodwill  of  approximately
$2,300,000  in the first  quarter of 2002.  Goodwill  amortization  amounted  to
$135,000 for 2001. As noted above,  goodwill  will no longer be amortized  under
the new rules.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets."  This  statement  supercedes  SFAS No.  121,"
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
be Disposed  of," and the  accounting  and  reporting  provisions  of Accounting
Principles  Board  (APB)  Opinion No. 30,  "Reporting  Results of  Operations  -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual  and  Infrequently  Occurring  Events  and  Transactions."  SFAS No. 144
requires that one accounting model be used for long-lived  assets to be disposed
of by sale, whether previously held and used or newly acquired,  and it broadens
the   presentation   of   discontinued   operations  to  include  more  disposal
transactions.  The  Company  will  adopt the  provisions  of SFAS No.  144 as of
January 1, 2002 and is  currently  evaluating  the impact  that SFAS No. 144 may
have on its financial position and 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.  The Company's  investment in  TW-Springhurst  (see
Note 10) is accounted  for using the equity  method,  under which the  Company's
share of earnings or losses are 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 maturities of less than three months when purchased.


                                     - 35 -

<PAGE>



2. Significant Accounting Policies (continued)

Inventories

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

Deferred Preopening Expenses

In April 1998, the American  Institute of Certified  Public  Accountants  issued
Statement of Position (SOP) 98-5,  "Reporting the Costs of Start-Up Activities."
The SOP was effective beginning January 1, 1999 and requires that start-up costs
capitalized  prior to January  1, 1999 be  written-off  and any future  start-up
costs be expensed  as  incurred.  Prior to 1999,  the  Company  capitalized  its
preopening  costs incurred in connection with opening new restaurant  locations.
The unamortized  balance of the Company's deferred preopening costs ($524,669 as
of December  31,  1998) was  written-off  (net of income taxes of $183,634) as a
cumulative effect of a change in accounting principle on January 1, 1999.

Deferred preopening expenses included the direct costs typically associated with
opening a new restaurant.  These costs consisted  primarily of costs incurred to
develop the new restaurant management team, marketing and training.

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

Goodwill is amortized on the straight-line  method over thirty years. See Note 1
regarding changes in the accounting for goodwill beginning January 1, 2002.

Long-Lived Assets

The carrying amount of long-lived  assets,  including  goodwill,  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 net realizable  value
(assets held for sale).  See Note 13 for a discussion  regarding a write-down of
assets.

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.

                                     - 36 -

<PAGE>



2. Significant Accounting Policies (continued)

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.  Company contributions to the Marketing
Funds  for the years  ended  December  31,  2001,  2000 and 1999 were  $415,611,
$123,435 and $117,362,  respectively.  Advertising  expense,  which includes the
Company's contributions to the Marketing Funds, for the years ended December 31,
2001, 2000 and 1999 were $1,915,577, $1,570,179 and $1,253,392, respectively.

Income Taxes

Concurrent with the merger as described in Note 1,  Tumbleweed  converted from a
limited liability company into a C corporation and is now subject to federal and
state income  taxes.  As of the date of the merger,  the Company  recorded a net
deferred  tax  liability  and  corresponding  income tax expense for  cumulative
temporary  differences  between  the tax basis and the  reported  amounts of the
Company's assets and liabilities. At the date of the merger, the net differences
equaled  approximately  $1,780,000 resulting in a net deferred tax liability and
corresponding  income tax expense of $639,623  which is included in the deferred
income tax provision in the  accompanying  consolidated  statement of operations
for the year ended December 31, 1999.

Reclassification of Financial Statements

Certain  reclassifications  have been made to the December 31, 2000 consolidated
financial  statements to conform with December 31, 2001  classifications.  These
reclassifications have no effect on previously reported operating results.

3. Property and Equipment

Property and equipment as of December 31 consist of:

                                                      2001            2000
                                                      ----            ----

Land and land improvements                      $     9,048,317  $    9,135,805
Building and improvements                            13,010,660      13,929,153
Leasehold improvements                                2,195,482       2,294,324
Equipment                                             7,383,451       7,662,479
Building and equipment under capital leases           4,139,892       4,496,593
Construction in progress                                 13,011         659,511
                                                  -----------------------------
                                                     35,790,813      38,177,865
Less accumulated depreciation and amortization       (7,410,775)     (6,382,411)
                                                  -----------------------------
                                                $    28,380,038  $   31,795,454
                                                  =============================












                                     - 37 -

<PAGE>



4. Accrued Liabilities

Accrued liabilities as of December 31 consist of:
<TABLE>
<CAPTION>

                                                            2001             2000
                                                            ----             ----

<S>                                                   <C>               <C>
Accrued payroll, severance and related taxes          $       946,545   $      897,841
Accrued insurance and fees                                    192,978          282,281
Accrued taxes, other than payroll                             683,449          548,703
Gift certificate liability                                    475,914          470,652
Reserve for loss on guarantees of indebtedness                565,000            9,265
Reserve for store closing costs                               601,186                -
Deferred income related to involuntary conversion of
  non-monetary assets                                               -          204,893
Other                                                          77,439           76,092
                                                        ------------------------------
                                                      $     3,542,511   $    2,489,727
                                                        ==============================
</TABLE>

5.  Long-Term Debt

Long-term debt as of December 31 consists of:


                                                       2001             2000
                                                  ------------------------------
Secured  $5,960,000  mortgage revolving line of
credit note, bearing interest at prime rate
plus .25% (5.0% at December 31, 2001), due
December 31, 2003                                 $   5,726,148     $  5,496,148

Secured mortgage note payable, bearing interest
at commercial paper rate plus 2.65% (4.43% at
December 31, 2001), due April 1, 2003                 2,299,567        2,501,399

Secured mortgage note payable,  bearing interest
at prime rate plus 1% (5.75% at December 31,
2001), payable in monthly installments through
October 1, 2017                                       1,009,847        1,039,068

Secured mortgage note payable, bearing interest
at 8.75%, payable in monthly installments through
February 15, 2008                                       881,933          921,756

Secured $975,000 mortgage revolving line of
credit note, bearing interest at prime rate plus
..25% (5.0% at December 31, 2001) through March 31,
 2002 andincreased to prime rate plus 2.0%
thereafter, due April 1, 2003                           964,868          915,868

Secured mortgage note payable, bearing interest at
prime rate (4.75% at December 31, 2001), payable
in monthly installments through March 1, 2006           613,632          644,185

Secured  mortgage note payable,  bearing interest
at prime rate plus 1.25% (6.0% at December 31,
2001), payable in monthly installments through
November 27, 2016                                       559,375          596,875


                              (Continued next page)


                                     - 38 -

<PAGE>




5. Long-Term Debt (continued)
                                                      2001             2000
                                                  ------------------------------
Secured mortgage note payable, bearing interest at
10.52%, payable in monthly installments through
August 18, 2005                                   $     417,937     $    506,700

Secured mortgage note payable, bearing interest at
commercial paper rate plus 2.65% (4.43% at
December 31, 2001), due April 1, 2003                   224,611          800,000

Other installment notes payable                         206,167          415,633
                                                  ------------------------------
                                                     12,904,085       13,837,632
Less current maturities                               1,060,146        1,414,728
                                                  ------------------------------
Long-term debt                                    $  11,843,939     $ 12,422,904
                                                  ==============================

Property and equipment  with a net book value of  approximately  $21,700,000  at
December 31, 2001 collateralize the Company's long-term debt.

The aggregate  annual  maturities of long-term debt for the years  subsequent to
December 31, 2001 are as follows:

          2002                                   $   1,060,146
          2003                                       8,884,531
          2004                                         324,105
          2005                                         302,306
          2006                                         565,275
          Thereafter                                 1,767,722
                                                  ------------
          Total                                  $  12,904,085
                                                  ============

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.  Management  does not believe that  compliance  with the credit terms
will adversely impact the Company's future operations.

During the year ended December 31, 2001, the Company was not in compliance  with
certain financial covenants  pertaining to long-term totalling  $9,408,520 as of
December 31, 2001. The Company obtained appropriate waivers, and in one instance
a Forbearance Agreement, from the lenders to cure the non-compliance at December
31, 2001.  The Company also  obtained  covenant  amendments  from certain of the
lenders  which  management   believes  will  enable  compliance  with  financial
covenants  in the  future  for  all  of its  debt  agreements.  The  contractual
obligations  and  commitments  schedule  above reflects the revised terms of the
loan  agreements.  The  long-term  debt and annual  maturities  schedules  above
reflect the revised terms of the loan agreements.

Interest costs  capitalized  during the construction  period of restaurants were
approximately $0 in 2001, $32,000 in 2000 and $50,900 in 1999.

6.   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.  Future minimum
lease  payments under the capital leases and the net present value of the future
minimum lease payments at December 31, 2001 were as follows:



                                     - 39 -

<PAGE>



6. Leases (continued)
<TABLE>
<CAPTION>


                                                      Related            Other
                                                    Party Lease          Leases          Total

<S>                                                <C>               <C>            <C>
2002                                               $      84,000     $     689,510  $      773,510
2003                                                      84,000           622,040         706,040
2004                                                      84,000           314,338         398,338
2005                                                      84,000           118,279         202,279
2006                                                      84,000            88,509         172,509
Thereafter                                               924,000           877,714       1,801,714
                                                    ----------------------------------------------
Total minimum lease payments                       $   1,344,000     $   2,710,390       4,054,390
                                                    ==============================
Less amount representing interest
   at 6.25% to 11.78%                                                                   (1,523,342)
                                                                                     -------------
      Net present value of lease payments                                                2,531,048
Less current maturities                                                                   (541,228)
                                                                                     -------------
Long-term portion of capital lease obligations                                      $    1,989,820
                                                                                     =============
</TABLE>

The Company leases certain  restaurants  and equipment  under  operating  leases
having terms expiring  between 2002 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.  Future  minimum
lease payments on operating leases at December 31, 2001 were as follows:


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

2002          $     60,000    $   1,990,706   $     2,050,706
2003                60,000        2,001,106         2,061,106
2004                60,000        1,986,505         2,046,505
2005                60,000        1,753,689         1,813,689
2006                60,000        1,739,342         1,799,342
Thereafter         665,000       12,601,194        13,266,194
               ----------------------------------------------
             $     965,000    $  22,072,542   $    23,037,542
               ==============================================

Total rental expense was  approximately  $2,302,000 in 2001,  $1,975,700 in 2000
and $1,654,700 in 1999 and included contingent rent of approximately $204,000 in
2001,$244,000  in 2000 and $207,000 in 1999.  Rental  expense for related  party
leases was  approximately  $348,000 in 2001,  $388,000  in 2000 and  $407,900 in
1999.

7.  Redeemable Class A Member Units and Bank Line of Credit

As of December 31, 1998,  Tumbleweed had a $7,500,000 line of credit with a bank
for  borrowing  at the bank's prime rate plus 1/4%.  Under a related  assumption
agreement,  the Class A Members  directly  assumed the total  liability on a pro
rata basis until  December 31, 1998 at which time  Tumbleweed  assumed the total
liability of $6,990,348.  Prior to Tumbleweed  assuming this line of credit, the
amounts  borrowed  under  the  line  of  credit  were,  in the  first  instance,
obligations  of the Class A Members  and,  accordingly,  were  accounted  for as
redeemable members' equity, and any interest and other related costs on the debt
funded by Tumbleweed were accounted for as distributions to the Class A Members.

The  $6,990,348  borrowed  under the line of credit as of December  31, 1998 was
repaid on January 5, 1999 out of the gross  proceeds of $7,766,300  from the IPO
(see Note 1). If an IPO had not  occurred,  any Class A Member  had the right to
sell to  Tumbleweed  their  interest in  Tumbleweed  at any time after the fifth
anniversary of the date that a Class A Member was



                                     - 40 -

<PAGE>



7.  Redeemable Class A Member Units and Bank Line of Credit (continued)

admitted to Tumbleweed.  The selling price was to be the sum of cash contributed
by the Class A Member  and an amount  equal to an annual  30%  internal  rate of
return on the Class A Member's cash contributions and pro rata assumed principal
portion of the line of credit,  taking into account all prior  distributions  to
such Class A Member. Redeemable members' equity in the accompanying Consolidated
Statement of Redeemable  Members'  Equity,  Members' Equity,  Members'  Retained
Earnings (Deficit) and Stockholders' Equity for the year ended December 31, 1998
includes  the  accretion  of the annual  30%  internal  rate of return.  Through
December 31, 1998, capital  contributions by the Class A Members were limited to
their  initial  cash  contributions  in 1995 which  amounted to  $7,034,375  and
borrowings under the line of credit assumed by the Class A Members.

8.   Income Taxes

The  components of the provision  (benefit) for income taxes for the years ended
December 31,  2001,  2000 and 1999 related to income  (loss)  before  cumulative
effect of a change in accounting principle consists of the following:


                                       2001           2000           1999
                                    -----------    -----------   ------------
Current - federal                  $   (150,773)  $      2,424  $     798,303
Current - state                               -              -         55,345
Deferred                             (1,027,371)        63,015        326,011
Deferred taxes resulting from
   a change in tax status                     -              -        639,623
                                    -----------    -----------   ------------
                                   $ (1,178,144)  $     65,439  $   1,819,282
                                    ===========    ===========   ============

The provision  (benefit) for income taxes for the years ended December 31, 2001,
2000 and 1999 on income (loss) before  income taxes 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:
<TABLE>
<CAPTION>


                                                              2001           2000           1999
                                                           -----------    -----------   ------------
<S>                                                       <C>            <C>           <C>
U.S. federal income taxes at 34%                          $ (1,547,212)  $    213,792  $   1,145,956
State income taxes, net of federal tax effect                 (180,205)      (138,034)        81,405
Valuation allowance against deferred income tax assets         655,770              -              -
Employment tax credits                                        (139,632)       (97,483)      (74,723)
Deferred taxes resulting from a change
   in tax status                                                     -              -        639,623
Other items                                                     33,135         87,164         27,021
                                                           -----------    -----------   ------------
Provision (benefit) for income taxes                      $ (1,178,144)  $     65,439  $   1,819,282
                                                           ===========    ===========   ============
</TABLE>

Significant  components of the Company's  deferred tax assets and liabilities as
of December 31 are as follows:
<TABLE>
<CAPTION>


                                                              2001           2000           1999
                                                           -----------    -----------   ------------
Deferred tax assets:
<S>                                                       <C>            <C>           <C>
     Asset impairment and store closings                  $  1,550,753   $          -  $           -
     Tax credit and state net operating  loss
       carryforwards                                           661,139        339,763              -
     Unearned revenue and other                                419,441        246,282        200,429
     Book over tax amortization                                      -          1,127         45,767
                                                           -----------    -----------   ------------
          Total deferred tax assets                          2,631,333        587,172        246,196
Deferred tax liabilities:
     Deferred expenses and other                              (930,752)      (733,287)      (458,896)
     Tax over book depreciation                               (867,259)      (693,654)      (564,054)
     Tax over book amortization                                (84,950)             -              -
                                                           -----------    -----------   ------------
          Total deferred tax liabilities                    (1,882,961)    (1,426,941)    (1,022,950)
Valuation allowance                                           (655,770)             -              -
                                                           -----------    -----------   ------------
Net deferred tax asset (liability)                        $     92,602   $   (839,769) $    (776,754)
                                                           ===========    ===========   ============

</TABLE>
<PAGE>

8.  Income Taxes (continued)

As of December 31, 2001, the Company has state net operating loss  carryforwards
of  approximately  $5,200,000 which begin expiring in 2016. Also, as of December
31, 2001, the Company has a $263,000 alternative minimum tax credit carryforward
which has no  expiration  date,  as well as  $298,000 of  employment  tax credit
carryforwards  which begin  expiring in 2020,  available  to offset  future U.S.
federal income taxes. In 2001,  management 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 31, 2001.

9.   Related Party Transactions

On April 1,  1999,  the  Company  purchased  the  land and  building,  including
improvements,  of the Springdale,  Ohio  restaurant from Keller,  LLC (a limited
liability  company  in  which  a  director  of the  Company  owns a  substantial
interest), the lessor of the property, for $1,625,000. The purchase was made for
an amount substantially equal to the costs originally expended by Keller, LLC in
the  purchase  of  the  land  and  construction  of  the   improvements,   which
approximated the fair market value as determined by an independent appraisal. At
the time of the purchase,  the Company's capital lease obligation to Keller, LLC
was terminated.  Prior to the purchase, the Company leased the Springdale,  Ohio
restaurant  from  Keller,  LLC and during  1999 the Company  paid rent  totaling
$46,700 to Keller, LLC.

On July 1,  1999,  the  Company  purchased  the  land  and  building,  including
improvements,  of the Bowling Green,  Kentucky restaurant from Douglass Ventures
(a  Kentucky  general  partnership  and  stockholder  of the  Company in which a
director of the Company is a general  partner) and an unrelated third party, the
co-lessors of the property,  for $884,640.  The purchase price was calculated in
accordance with the lease agreement which  approximated the fair market value as
determined  by an  independent  appraisal.  At the  time  of the  purchase,  the
Company's lease  obligation was terminated.  Prior to the purchase,  the Company
leased the Bowling Green,  Kentucky restaurant from Douglass Ventures and during
1999 the Company paid rent totaling $26,000 to Douglass Ventures.

In February  1997,  Tumbleweed  invested a nominal amount in  TW-Tennessee,  LLC
(TW-Tennessee),  a newly formed Tennessee limited liability company, in exchange
for a 9.5% common member  interest.  On September 30, 1998,  Tumbleweed sold its
interest  in  TW-Tennessee  to certain  members  of  TW-Tennessee  for  $25,000.
TW-Tennessee  was  organized  to  open  and  operate   Tumbleweed  full  service
restaurants as a franchisee of Tumbleweed.

The Company  guaranteed  renewals  of certain  guaranteed  indebtedness  and any
replacement  indebtedness to  TW-Tennessee,  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. See Note 19 for additional  information  regarding
this matter.

Franchise fees and royalties recorded by the Company in relation to TW-Tennessee
were   approximately   $0,  $36,800  and  $160,800  in  2001,   2000  and  1999,
respectively.  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  $0,  $12,200 and $40,500 in
2001, 2000 and 1999, respectively.

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

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  grants  certain  licensing  and
franchising   rights  to   International   for  the  development  of  Tumbleweed
restaurants  outside  of the  Western  Hemisphere.  International  is a  limited
liability  company owned by three  corporations  which are controlled by certain
directors and stockholders of the Company. In 2001, 2000 and 1999, International
paid approximately  $10,600,  $7,400 and $18,700,  respectively,  in fees to the
Company under the International  Agreement.  The Company acquired  International
subsequent to December 31, 2001 (see Note 20).


                                     - 42 -

<PAGE>



9.  Related Party Transactions (continued)

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 31,  2001,  TW-Indiana,  LLC  operated  six  full-service
Tumbleweed restaurants.  Franchise fees and royalties recorded by the Company in
relation to this entity were  approximately  $448,000,  $300,000 and $311,000 in
2001, 2000 and 1999, respectively. As of December 31, 2001 and 2000, the Company
had an interest free note receivable of $45,000 and $50,000, respectively,  from
TW-Indiana, LLC with a maturity date of December 31, 2002.

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  $59,000,  $45,000 and
$76,000 in 2001, 2000 and 1999, respectively.

During the years ended  December  31, 2000 and 1999,  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  directors  and  officers of the  Company own  substantial
interests  in these  companies.  Franchise  fees and  royalties  recorded by the
Company in 2001, 2000 and 1999 in relation to these entities were  approximately
$11,000,  $227,000 and $90,000,  respectively.  Management and  accounting  fees
recorded in other revenues by the Company in 2001,  2000 and 1999 in relation to
these entities were  approximately  $4,300,  $65,000 and $13,000,  respectively.
During the year ended December 31, 2000, the Company purchased the assets of two
of these companies.  See Note 11 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.

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.

See Note 10 for additional related party transactions.

10.  Investment in TW-Springhurst

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 own 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 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.

11.  Business Acquisitions

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.








                                     - 43 -

<PAGE>



11.  Business Acquisitions (continued)

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 certain director of the Company owns 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.

12.  Involuntary Conversion of Non-Monetary Assets

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).  In addition,  the
Company had  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.  Special Charges

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  plans to sell one of the remaining two
restaurants  to a current  franchisee  and will  continue  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 include $611,186 for
lease  obligations  and other  costs  related  to the  decision  to close  these
restaurants.



                                     - 44 -

<PAGE>



13.  Special Charges (continued)

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 is 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               1999
                            ---------------    -------------     --------------
Revenues                   $      5,513,743   $    4,324,921    $     3,974,121
Loss from operations               (378,843)        (209,863)           (42,892)

14.  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 may 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  will be funded by cash  reserves.  Through  December  31,  2001,  the
Company has repurchased 42,400 shares at a total cost of $254,695.

15.  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
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 31, 2001,  cumulative total options to purchase  1,462,077 shares
of the Company's common stock had been granted to employees and directors of the
Company at prices ranging from $0.93 to $10.00 per share which expire at various
dates from 2009 to 2011 with a contractual  life of 10 years.  Initial grants of
approximately 492,000 options were

                                     - 45 -

<PAGE>



15.  Stock Incentive Plan (continued)

made at a price equal to the 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 years ended  December  31,  2001,  2000 and 1999
was:
<TABLE>
<CAPTION>


                                     2001                         2000                         1999
                          ---------------------------   -------------------------   --------------------------
                                          Weighted                    Weighted                     Weighted
                                          Average                      Average                      Average
                            Options    Exercise Price    Options   Exercise Price    Options    Exercise Price
                            -------    --------------    -------   --------------    -------    --------------
Outstanding at the
<S>                         <C>            <C>             <C>          <C>
  beginning of the year     1,044,454      $9.52           532,666      $9.34                -         -
Granted                        85,000       1.80           811,636       3.73          565,411       $9.38
Exercised                           -        -                   -        -                  -         -
Forfeited                    (148,069)      5.75          (299,848)      8.28          (32,755)      10.00
                            ---------                   ----------                   ---------
Outstanding at the
  end of the year             981,385      $4.87         1,044,454      $5.30          532,666       $9.34
                            =========                   ==========                   =========
Exercisable at the end
  of the year                 383,251      $6.04           112,948      $9.52                -        $ -
                            =========                   ==========                   =========
</TABLE>

The  following  table  summarizes   information  about  employee  stock  options
outstanding at December 31, 2001:


           Range of           Number        Weighted Average
       Exercise Prices     Outstanding       Exercise Price
       ---------------    -------------     ----------------
          $10.00                206,890           $10.00
      $4.50 - $5.50              53,492            $5.41
      $0.93 - $3.88             721,003            $3.37
                          -------------
                                981,385
                          =============

The remaining  contractual life of the outstanding stock options ranges from 7.1
years to 9.9 years.

The Company  accounts for the Plan in accordance  with APB 25,  "Accounting  for
Stock  Issued to  Employees,"  as  permitted  by SFAS No. 123,  "Accounting  and
Disclosure  of  Stock-Based   Compensation."  The  Company  has  not  recognized
compensation expense for stock options granted because the exercise price of the
options  equals  the fair  value of the  underlying  stock on the date of grant,
which is the measurement date. If the alternative method of accounting for stock
incentive  plans  prescribed  by SFAS 123 had been  followed,  the Company's net
income and earnings per share for 2001, 2000 and 1999 would have been reduced to
the pro forma amounts shown in the  following  table.  For purposes of these pro
forma  disclosures,  the  estimated  fair value of the options is  recognized as
compensation expense over the options' vesting period. The weighted average fair
value of options granted was determined using the  Black-Scholes  option pricing
model with the indicated assumptions.


                                            2001            2000          1999
                                            ----            ----          ----
   Net income (loss) as reported          $ (3,372,478)   $ 563,361   $1,210,140
   Pro forma net income (loss)              (4,576,100)     (21,368)     619,803
   Pro forma basic and diluted earnings
    (loss) per common share                      (0.78)       (0.00)        0.11

                                      -46-
<PAGE>

15.  Stock Incentive Plan (continued)

The following  assumptions were used: (1) risk-free interest rate of 6.50 %; (2)
dividend  yield of 0%; (3) expected  life of 6.5 years;  and (4)  volatility  of
..842% in 2001,  .885% in 2000 and .655% in 1999.  Results may vary  depending on
the assumptions  applied within the model.  The weighted  average fair value per
share of options granted was $1.38, $3.68 and $6.31 for 2001, and 2000 and 1999,
respectively.

16.   Earnings per Share

The following is a  reconciliation  of the Company's basic and diluted  earnings
per share for the years ended  December  31, 2001,  2000 and 1999 in  accordance
with SFAS No. 128, "Earnings per Share."
<TABLE>
<CAPTION>


                                                                         2001          2000         1999
                                                                     ---------------------------------------
Numerator:
   Income (loss) before cumulative effect of a change in accounting
<S>                                                                  <C>             <C>         <C>
      principle                                                      $  (3,372,478)  $   563,361 $  1,551,175
   Cumulative effect of a change in accounting principle, net of tax       -              -          (341,035)
                                                                      ------------    ----------  -----------
   Net income (loss)                                                 $  (3,372,478)  $   563,361 $  1,210,140
                                                                      ============    ==========  ===========
Pro forma income data (unaudited):
   Pro forma income before cumulative effect of a change in
      accounting principle                                                                       $  2,190,798
   Cumulative effect of a change in accounting principle, net of tax                                 (341,035)
                                                                                                  -----------
   Pro forma net income                                                                          $  1,849,763
                                                                                                  ===========
Denominator (1):
   Weighted average shares
     outstanding - basic                                                 5,839,230     5,839,230    5,881,630
   Effect of dilutive securities:
     Director and employee stock options                                    10,509        52,706          565
                                                                      ---------------------------------------
   Denominator for diluted earnings per
     share - adjusted weighted
     average and assumed conversions                                     5,849,739     5,891,936    5,882,195
                                                                      =======================================
</TABLE>

(1) Actual for 2001 and 2000 and pro forma for 1999.

17.   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.













                                     - 47 -

<PAGE>



17.   Segment Information (continued)

Segment information for the years ended December 31 is as follows:
<TABLE>
<CAPTION>

2001:

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

<S>                                        <C>             <C>               <C>              <C>
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


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
Gain from insurance proceeds due to
  involuntary conversion of non-
  monetary assets                                       -                 -          554,864        554,864
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
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


1999:

                                             Restaurant        Commissary        Corporate        Totals
                                            -------------    --------------    -------------   ------------
Revenues from external customers            $  48,578,123  $      1,168,836  $     1,597,928  $  51,344,887
Intersegment revenues                                   -         2,727,283                -      2,727,283
General and administrative expenses                     -                 -        3,728,329      3,728,329
Advertising expenses                                    -                 -        1,253,392      1,253,392
Depreciation and amortization                   1,450,288           118,752          235,717      1,804,757
Net interest expense                                    -           172,900          956,006      1,128,906
Income before income taxes
   and cumulative effect of a change
   in accounting principle                      7,338,467            93,911       (4,061,921)     3,370,457
Fixed assets                                   28,160,697         1,147,975          838,887     30,147,559
Expenditures for long-lived assets              6,312,460           237,175          365,909      6,915,544

</TABLE>



                                     - 48 -

<PAGE>



18.   Selected Quarterly Data

The following is a summary of certain unaudited  quarterly results of operations
for the years ended December 31, 2001 and 2000.
<TABLE>
<CAPTION>

2001:

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

<S>                                  <C>              <C>                <C>             <C>               <C>
    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)(a)    (3,355,037)
    Net income (loss)                      (118,404)          47,251            88,214       (3,389,539)       (3,372,478)
    Basic and diluted net income
     (loss) per share                         (0.02)            0.01              0.02            (0.58)            (0.58)



2000:

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

    Total revenues                   $   13,632,368   $   14,391,655     $  14,441,597    $  13,835,146     $  56,300,766
    Income (loss) from operations           960,475          853,043(b)        (13,792)(c)      346,627(d)      2,146,353
    Net income (loss)                       418,130          337,793          (257,740)          65,178(e)        563,361
    Basic and diluted net income
     (loss) per share                          0.07             0.06             (0.04)            0.01              0.10
<FN>

(a)  Includes loss on guarantees of indebtedness of $565,000 and special charges
     of $4,294,539.

(b)  Includes  gain from  insurance  proceeds due to  involuntary  conversion of
     non-monetary  assets of  approximately  $434,000 and loss on  guarantees of
     indebtedness of $475,000.

(c)  Includes estimated additional loss on guarantees of indebtedness of $250,000.

(d)  Includes  additional  gain  from  insurance  proceeds  due  to  involuntary
     conversion of non-monetary assets of approximately $121,000.

(e)  Includes  a change in  estimate  of  approximately  $190,000  reducing  the
Company's provision for income taxes.
</FN>
</TABLE>

19.  Commitments and 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. 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.


                                     - 49 -

<PAGE>



19.  Commitments and Contingencies (continued)

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 20). 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 is in negotiation with the bank
under the  equipment  leases and the other  guarantors  to resolve the Company's
obligations  relative to the equipment leases. The Company believes that it will
be  obligated  to  assume  and  pay  one  of  the  equipment   leases   totaling
approximately  $125,000  and  will  remain  contingently  liable  on  two  other
equipment  leases which the Company  believes  will be assumed and paid by other
guarantors. These negotiations are ongoing and no agreement has been reached. If
no agreement is reached,  the Company would have  additional  exposure  totaling
approximately $180,000.

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 $725,000 had been paid out as of
December 31, 2001.  The Company  increased  this reserve 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  includes an
additional  charge for the equipment  lease which the Company expects to assume,
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.

20.  Subsequent Events

Subsequent to December 31, 2001, the Company  purchased  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 will give 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 will  issue 76, 923 shares of its common
stock to CCIO. The Company will also enter into a commission agreement with CCIO
in connection with the sale of international regional licenses by International.

                                     - 50 -

<PAGE>



20.  Subsequent Events (continued)

Also subsequent to December 31, 2001, 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  will match 25% of the first 4% an
employee  contributes.  The employee becomes vested in the Company  contribution
based on a five-year vesting schedule.



















































                                     - 51 -

<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 May 22, 2002, 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 May 22, 2002, 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

The Proxy  Statement  issued in connection with the  shareholders  meeting to be
held on May 22, 2002, 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 May 22, 2002, 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.



                                     - 52 -

<PAGE>



                                     PART IV

ITEM 14.   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 55

                      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*

   10.2        Employment Agreement between John A. Butorac, Jr. and
               Tumbleweed, Inc.*

   10.3        Employment Agreement between James M. Mulrooney and Tumbleweed,
               Inc.*

   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)*

   10.6        Commitment Letter, dated June 12, 1997, between CNL Fund
               Advisors, Inc. and TW Tennessee, LLC*

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


                                     - 53 -

<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)    During the quarter ended December 31, 2001, the Company did not file
            any reports on Form 8-K














































                                     - 54 -

<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
-----------                             ----        ------------        --------        --------        -------

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

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

Year Ended December 31, 1999:
  Reserves and allowances deducted
    from asset accounts:
        Allowance for uncollectible
          accounts                        -              -                 -                -              -


</TABLE>

     (a) Account was written off in 2001.











                                     - 55 -

<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     April 4, 2002
                              and Director


/s/ Glennon F. Mattingly
-------------------
Glennon F. Mattingly        Chief Financial Officer, and           April 4, 2002
                              Vice President
                              (Principal Accounting Officer)

/s/ David M. Roth
-------------------
David M. Roth               Director                               April 4, 2002


/s/ Minx Auerbach
-------------------
Minx Auerbach               Director                               April 4, 2002


/s/ Lewis Bass
--------------------
Lewis Bass                  Director                               April 4, 2002


/s/ George R. Keller
--------------------
George R. Keller            Director                               April 4, 2002


/s/ James F. Koch
--------------------
James F. Koch               Director                               April 4, 2002


                                     - 56 -

<PAGE>