<PAGE>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q

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

     (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2000

                                       OR

     ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

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

                        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)


                1900 Mellwood Avenue, Louisville, Kentucky 40206
                    (Address of principal executive offices)

                                 (502) 893-0323
               (Registrants telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
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

The number of shares of common stock,  par value of $.01 per share,  outstanding
on November 1, 2000 was 5,839,230.


Exhibit Index: Page 21












<PAGE>



                                TUMBLEWEED, INC.

                                      INDEX


PART I.     FINANCIAL INFORMATION                                          PAGE
  Item 1.   Financial Statements (Unaudited)
    a)  Consolidated Statements of Operations for the nine months
        and three months ended September 30, 2000 and 1999                   3
    b)  Consolidated Balance Sheets as of September 30, 2000 and
        December 31, 1999                                                    4
    c)  Consolidated Statements of Cash Flows for the nine months
        ended September 30, 2000 and 1999                                    5
    d)  Notes to Consolidated Financial Statements                           6

  Item 2.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                      14

  Item 3.    Quantitative and Qualitative Disclosures About Market Risk     20


PART II.    OTHER INFORMATION

  Item 1.    Legal Proceedings                                              21
  Item 6.    Exhibits and Reports on Form 8-K                               21

Signature                                                                   22





                                        2

<PAGE>
<TABLE>
                                Tumbleweed, Inc.
                      Consolidated Statements of Operations
                                   (Unaudited)

<CAPTION>
                                                                     Nine Months Ended              Three Months Ended
                                                                       September 30                     September 30
                                                                   2000            1999            2000            1999
                                                               ------------    ------------    ------------    ------------
Revenues:
<S>                                                            <C>             <C>             <C>             <C>
   Restaurant sales                                            $ 39,186,377    $ 36,719,970    $ 13,478,991    $ 12,792,753
   Commissary sales                                               1,250,098         875,842         394,830         313,194
   Franchise fees and royalties                                     926,960         800,430         273,192         267,768
   Gain from insurance proceeds due to involuntary
     conversion of non-monetary assets                              434,311             -               -               -
   Other revenues                                                   667,872         358,558         294,584         152,161
                                                               ------------    ------------    ------------    ------------
Total revenues                                                   42,465,618      38,754,800      14,441,597      13,525,876
Operating expenses:
   Restaurant cost of sales                                      11,380,258      10,658,321       4,014,588       3,694,473
   Commissary cost of sales                                       1,100,899         789,530         352,403         274,647
   Operating expenses                                            20,569,433      18,409,630       7,156,736       6,454,667
   Selling, general and administrative expenses                   4,832,216       3,761,375       2,033,807       1,269,845
   Preopening expenses                                              486,728         318,320         110,977          63,287
   Depreciation and amortization                                  1,571,356       1,321,989         536,878         459,254
   Loss on guarantees of indebtedness                               725,000             -           250,000             -
                                                               ------------    ------------    ------------    ------------
Total operating expenses                                         40,665,890      35,259,165      14,455,389      12,216,173
                                                               ------------    ------------    ------------    ------------
Income (loss) from operations                                     1,799,728       3,495,635         (13,792)      1,309,703
Other income (expense):
   Interest income                                                   11,630          35,949           3,470          12,352
   Interest expense                                              (1,041,981)       (851,972)       (383,262)       (305,851)
   Loss from investment in TW-Springhurst                            (2,939)            -            (2,939)            -
                                                               ------------    ------------    ------------    ------------
Total other expense                                              (1,033,290)       (816,023)       (382,731)       (293,499)
                                                               ------------    ------------    ------------    ------------
Income (loss) before income taxes and cumulative effect of a
   change in accounting principle                                   766,438       2,679,612        (396,523)      1,016,204
Provision (benefit) for income taxes:
   Current and deferred                                             268,254         937,864        (138,783)        355,671
   Deferred taxes related to change in tax status                       -           639,623             -               -
                                                               ------------    ------------    ------------    ------------
Total provision (benefit) for income taxes                          268,254       1,577,487        (138,783)        355,671
                                                               ------------    ------------    ------------    ------------
Income (loss) before cumulative effect of a change
   in accounting principle                                          498,184       1,102,125        (257,740)        660,533
Cumulative effect of a change in  accounting principle, net
   of tax                                                               -          (341,035)            -               -
                                                               ------------    ------------    ------------    ------------
Net income (loss)                                              $    498,184    $    761,090    $   (257,740)   $    660,533
                                                               ============    ============    ============    ============
Basic and diluted earnings (loss) per share:
   Income (loss) before cumulative effect of a change in
     accounting principle                                      $       0.08    $       0.19    $      (0.04)   $       0.11
   Cumulative effect of a change in accounting principle,
     net of tax                                                         -             (0.06)             -              -
                                                               ------------    ------------    ------------    ------------
   Net income (loss)                                           $       0.08    $       0.13    $      (0.04)   $       0.11
                                                               ============    ============    ============    ============
Pro forma income data:
   Income before income taxes and cumulative effect of a
     change in accounting principle as reported                                $  2,679,612
   Pro forma income taxes                                                          (937,864)
                                                                                -----------
   Pro forma income before cumulative effect of a change
     in accounting principle                                                      1,741,748
   Cumulative effect of a change in accounting principle,
      net of tax                                                                   (341,035)
                                                                                -----------
   Pro forma net income                                                        $  1,400,713
                                                                                ===========
Pro forma basic and diluted earnings per share:
   Pro forma income before cumulative effect of a change
     in accounting principle                                                   $       0.30
   Cumulative effect of a change in accounting principle,
     net of tax                                                                       (0.06)
                                                                                -----------
   Pro forma net income                                                        $       0.24
                                                                                ===========

</TABLE>



                                       3
<PAGE>
<TABLE>

                                Tumbleweed, Inc.
                           Consolidated Balance Sheets
<CAPTION>


                                                          September 30   December 31
                                                              2000           1999
                                                          (Unaudited)
                                                         -------------   ------------
Assets
Current assets:
<S>                                                      <C>             <C>
   Cash and cash equivalents                             $    843,534    $    640,189
   Accounts receivable                                        797,537         606,283
   Receivable from insurance company                          258,421             -
   Inventories                                              1,750,734       1,597,794
   Prepaid expenses                                           445,496         389,271
                                                         ------------    ------------
Total current assets                                        4,095,722       3,233,537
Property and equipment, net                                31,769,465      30,147,559
Goodwill, net of accumulated amortization of
   $635,973 in 2000 and $551,478 in 1999                    2,919,422       2,737,265
Investment in TW-Springhurst                                   77,061             -
Other assets                                                  484,049         460,817
                                                         ------------    ------------
Total assets                                             $ 39,345,719    $ 36,579,178
                                                         ============    ============

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                      $  1,768,686    $  1,102,024
   Accrued liabilities                                      2,478,296       1,832,736
   Deferred income taxes                                      201,962         286,885
   Current maturities on long-term
     debt and capital leases                                1,987,327       1,028,443
                                                         ------------    ------------
Total current liabilities                                   6,436,271       4,250,088

Long-term liabilities:
   Long-term debt, less current maturities                 11,419,547      11,347,047
   Capital lease obligations, less current maturities       2,730,076       2,769,339
   Deferred income taxes                                      798,501         489,869
   Other liabilities                                          155,000         160,000
                                                         ------------    ------------
Total long-term liabilities                                15,103,124      14,766,255
                                                         ------------    ------------
Total liabilities                                          21,539,395      19,016,343

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
     at September 30, 2000 and December 31, 1999               58,818          58,818
   Paid-in capital                                         16,294,006      16,294,006
   Treasury stock, 42,400 shares at September 30, 2000       (254,695)            -
   Retained earnings                                        1,708,195       1,210,011
                                                         ------------    ------------
     Total stockholders' equity                            17,806,324      17,562,835
                                                         ------------    ------------
Total liabilities and stockholders' equity               $ 39,345,719    $ 36,579,178
                                                         ============    ============
</TABLE>

See accompanying notes.

                                       4
<PAGE>

<TABLE>

                                Tumbleweed, Inc.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<CAPTION>
                                                                   Nine Months Ended
                                                                      September 30
                                                                  2000           1999
                                                              -----------    -----------

Operating activities:
<S>                                                           <C>            <C>
   Net income                                                 $   498,184    $   761,090
   Adjustments to reconcile net income to net
       cash provided by operating activities:
        Depreciation and amortization                           1,571,356      1,321,989
        Deferred income taxes                                     223,709        714,982
        Loss on guarantees of indebtedness                        725,000            -
        Loss from investment in TW-Springhurst                      2,939            -
        Gain from insurance proceeds due to involuntary
          conversion of non-monetary assets                      (434,311)           -
        Loss on disposition of property and equipment              18,225         23,004
        Changes in operating assets and liabilities:
          Accounts receivable                                    (150,233)       (53,683)
          Inventories                                            (148,571)      (104,851)
          Deferred preopening expenses                                -          524,669
          Prepaid expenses                                        (57,642)       (47,080)
          Other assets                                            (40,756)       (45,671)
          Accounts payable                                        666,662         44,563
          Accrued liabilities                                     (90,040)       (24,604)
          Other liabilities                                        (5,000)       110,252
                                                              -----------    -----------
Net cash provided by operating activities                       2,779,522      3,224,660

Investing activities:
    Purchases of property and equipment                        (2,742,942)    (6,054,489)
    Insurance proceeds for property and equipment                 860,654            -
    Acquisition of business                                      (929,400)           -
   Investment in TW-Springhurst                                   (80,000)           -
                                                              -----------    -----------
Net cash used in investing activities                          (2,891,688)    (6,054,489)



Financing activities:
   Proceeds from common stock offering                                -        7,765,397
   Proceeds from issuance of long-term debt                     3,981,804      6,493,435
   Payments on long-term debt and capital lease obligations    (3,411,598)    (5,480,652)
   Payment on short-term borrowings                                   -       (6,990,348)
   Purchase of treasury stock                                    (254,695)           -
   Payment of public offering costs                                   -         (492,571)
                                                              -----------    -----------
Net cash provided by financing activities                         315,511      1,295,261
                                                              -----------    -----------

Net increase (decrease) in cash and cash equivalents              203,345     (1,534,568)

Cash and cash equivalents at beginning of period                  640,189      1,898,973
                                                              -----------    -----------
Cash and cash equivalents at end of period                    $   843,534    $   364,405
                                                              ===========    ===========

Supplemental cash flow information:
   Cash paid for interest, net of amount capitalized          $ 1,044,637    $   853,523
                                                              ===========    ===========
   Cash paid for income taxes                                 $   300,410    $   623,945
                                                              ===========    ===========
</TABLE>

See accompanying notes.


                                       5
<PAGE>

                                TUMBLEWEED, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                               September 30, 2000


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.

RESTAURANT FACILITIES

As of September  30,  2000,  the Company  owns and  operates 34  restaurants  in
Kentucky,  Indiana and Ohio and  franchises  an  additional  19  restaurants  in
Kentucky, Indiana, Illinois,  Wisconsin, West Virginia and Michigan. The Company
also licenses seven  restaurants  in Germany,  Jordan,  Saudi Arabia,  Egypt and
England.  The following table reflects  changes in the number of  Company-owned,
franchise and licensed  restaurants  during the nine months ended  September 30,
2000.


Company-owned restaurants:
     In operation, beginning of year                  29
     Restaurants opened                                4
     Restaurants purchased from franchisee             1
                                                --------
                                                      34
                                                --------

Franchise and licensed restaurants:
     In operation, beginning of year                  22
     Restaurants opened                                7
     Restaurants closed                               (2)
     Restaurants sold to Tumbleweed, Inc.             (1)
                                                --------
                                                      26
                                                --------
         System Total                                 60
                                                ========


Subsequent  to  September  30,  2000,   one  franchise   restaurant   opened  in
Mechanicsville, Virginia, one franchise restaurant ceased operations in Beckley,
West Virginia and one licensed restaurant opened in Istanbul, Turkey.

INTERIM FINANCIAL REPORTING

The  accompanying  consolidated  financial  statements have been prepared by the
Company without audit,  with the exception of the December 31, 1999 consolidated
balance  sheet  which  was  derived  from  the  audited  consolidated  financial
statements  included in the  Company's  Form 10-K.  The  accompanying  unaudited
consolidated   financial  statements  have  been  prepared  in  accordance  with
generally accepted accounting  principles for interim financial reporting and in
accordance  with Rule 10-01 of  Regulation  S-X.  These  consolidated  financial
statements, note disclosures and other information should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1999.

In the opinion of  management,  the  unaudited  interim  consolidated  financial
statements contained in this report reflect all adjustments,  consisting of only
normal  recurring  accruals,  which are necessary for a fair  presentation.  The
results of operations  for the nine months and three months ended  September 30,
2000 are not necessarily  indicative of the results that may be expected for the
year ended December 31, 2000.



                                        6

<PAGE>
1.  BASIS OF PRESENTATION (continued)

PRO FORMA FINANCIAL INFORMATION

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 nine
months ended September 30, 1999 reflects a pro forma adjustment to income before
income  taxes and  cumulative  effect of a change in  accounting  principle  for
federal and state  income  taxes as if the Company had been a regular  corporate
taxpayer  since its  inception.  Pro forma  income  taxes for 1999  excludes the
deferred tax effects of  Tumbleweed  changing from a limited  liability  company
(which is taxed as a  partnership)  to a  regular  corporate  taxable  status on
January 1, 1999.  Pro forma income taxes for 1999 are at an estimated  effective
rate of 35%.

2.   CHANGE IN ACCOUNTING PRINCIPLE

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 an accounting change on January 1, 1999.

3.   ACCRUED LIABILITIES

Accrued liabilities consist of:

                                         September 30        December 31
                                             2000               1999
                                       ----------------     -------------

Accrued payroll and related taxes      $      1,362,568    $      611,566
Accrued insurance and fees                       54,596           251,923
Accrued taxes, other than payroll               353,895           423,954
Gift certificate liability                      145,159           396,747
Reserve for loss on guarantees of
  indebtedness                                  481,316                 -
Other                                            80,762           148,546
                                        ---------------    --------------
                                        $     2,478,296    $    1,832,736
                                        ===============    ==============

4.   LONG-TERM DEBT

Long-term debt consists of:

                                                     September 30   December 31
                                                         2000          1999
                                                     ------------   -----------
Secured $6,500,000  mortgage  revolving line of
  credit note, bearing interest at prime rate
  plus .25% (9.75% at September 30, 2000), due
  December 31, 2003                                  $  5,251,148   $ 5,242,148

Secured mortgage note payable, bearing interest
  at commercial paper rate plus 2.65% (9.21% at
  September 30, 2000), due February 17, 2006            2,548,907     2,691,433

Secured mortgage note payable,  bearing interest at
  prime rate plus 1% (10.5% at September 30, 2000),
  payable in monthly installments through October 1,
  2017                                                  1,044,372     1,061,614

                              (Continued next page)



                                        7

<PAGE>
4.  LONG-TERM DEBT (continued)


                                                       September 30  December 31
                                                           2000         1999
                                                       -----------  ------------
Secured mortgage note payable, bearing interest at
  8.75%, payable in monthly installments through
  February 15, 2008                                    $   931,002  $    957,992

Secured mortgage note payable bearing interest at
  commercial paper rate plus 2.65% (9.21% at
  September 30, 2000), due December 31, 2000               800,000         4,395

Secured mortgage note payable, bearing interest
  at prime rate (9.5% at September 30, 2000), payable
  in monthly installments through March 1, 2006            647,245       658,071

Secured mortgage note payable, bearing interest at
  prime rate plus 1.25% (10.75% at September 30,
  2000), payable in monthly installments through
  November 27, 2016                                        606,250       634,375

Secured mortgage note payable, bearing interest at
  10.52%, payable in monthly installments through
  August 18, 2005                                          527,476             -

Other installment notes payable                            467,655       620,204
                                                       -----------   -----------
                                                        12,824,055    11,870,232
Less current maturities                                  1,404,508       523,185
                                                       -----------   -----------
Long-term debt                                        $ 11,419,547  $ 11,347,047
                                                       ===========   ===========



Property and equipment  with a net book value of  approximately  $20,000,000  at
September 30, 2000 collateralize the Company's long-term debt.

See Note 13 for information  regarding an additional  mortgage revolving line of
credit which was obtained by the Company subsequent to September 30, 2000.

5.  RELATED PARTY TRANSACTIONS

As of September 30, 2000,  accounts  receivable  includes $142,604 of management
fees,  royalties,  a franchise fee and  reimbursement of store payroll costs due
from three related party limited  liability  companies who own three  Tumbleweed
franchise  restaurants.  The  management  fees are a result of agreements  which
require the related  franchisee  to pay certain  fees to the Company in exchange
for the Company providing  operations  management and accounting services to the
franchisee.  The  royalties  and  franchise  fee are a result  of the  franchise
agreements  between the Company and related companies.  The Company  anticipates
that the amounts due will be collected  in full.  Franchise  fees and  royalties
recorded by the Company in relation to the three  related party  companies  were
$158,004 during the nine months ended September 30, 2000 and were $24,324 during
the three months ended  September  30,  2000.  Management  fees related to these
entities  totaled  $35,336  during the nine month period and were $16,215 during
the three month  period.  There were no revenues  from these  related  companies
during the 1999 nine month period.

The  Company  has  guaranteed,  under its  letter of  credit  with an  equipment
supplier,  the  purchase  of a related  franchisee's  equipment  package.  As of
September 30, 2000, the franchisee owes the supplier $157,442.




                                        8

<PAGE>



5.  RELATED PARTY TRANSACTIONS (continued)

Certain  directors and officers of the Company own substantial  interests in the
limited liability companies discussed above.

During the quarter ended September 30, 2000, the Company assumed a TW-Tennessee,
LLC  equipment  lease  which it had  previously  guaranteed  (see Note 14).  The
equipment  will  be  utilized  in  the  reconstruction  of  the  Company-  owned
restaurant  which was destroyed as a result of a fire (see Note 10). The capital
lease had a balance of approximately $225,000 on the date the lease was assumed.

See Note 6, Note 7 and Note 13 for additional related party transactions.

6.  INVESTMENT IN TW-SPRINGHURST

During the three months ended  September  30, 2000,  the Company made an initial
$80,000 investment in TW- Springhurst, LLC. ("TW-Springhurst").  The Company has
a 50% member interest with the remaining 50% held by  TW-Springhurst  Investors,
LLC. A director of the Company and an officer of the Company own  TW-Springhurst
Investors,  LLC.  The  initial  purpose of the limited  liability  company is to
construct and operate a Tumbleweed restaurant in Louisville, Kentucky. On August
29, 2000, a Management  Agreement  was signed  between TW-  Springhurst  and the
Company which provides that the Company will manage the day-to-day operations of
the  restaurant.  As of September 30, 2000,  TW-Springhurst  had a commitment of
approximately $450,000 in connection with the construction of the restaurant.

7.  ACQUISITION OF BUSINESS

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 certain directors and officers of the Company own a substantial  interest)
for $929,400.  The Company also assumed  TW-Evansville,  LLC's equipment capital
lease which had a balance of approximately $197,000 on the date of purchase. The
purchase  price  for the  business  and  property  was at fair  market  value as
determined by an independent  business valuation  appraisal.  The purchase price
was funded by cash reserves and funds drawn on the Company's  mortgage revolving
lines of credit.  The  acquisition  has been  accounted  for as a  purchase  and
accordingly,  the results of operations of the acquired business are included in
the Company's results of operations since the date of acquisition.

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


Assets and liabilities acquired:
  Inventory                         $       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
                                     =============












                                        9

<PAGE>



8.  EARNINGS PER SHARE

The following is a  reconciliation  of the Company's basic and diluted  earnings
(loss) per share data for the nine months and three months ended  September  30,
2000 and 1999 in accordance with FAS 128, "Earnings per Share."
<TABLE>
<CAPTION>

                                                                    Nine Months Ended       Three Months Ended
                                                                      September 30             September 30

                                                                   2000         1999         2000        1999
                                                                ----------   ----------   ----------   ---------
Numerator:
   Income (loss) before cumulative effect of a change
<S>                                                            <C>          <C>          <C>          <C>
    in accounting principle                                    $   498,184  $ 1,102,125  $ (257,740)  $  660,533
   Cumulative effect of a change in accounting principle,
    net of tax                                                           -     (341,035)           -           -
                                                                ----------   ----------   ----------   ---------
   Net income (loss)                                           $   498,184  $   761,090  $ (257,740)  $  660,533
                                                                ==========   ==========   ==========   =========
   Pro forma income data :
     Pro forma income before cumulative effect of a change
      in accounting principle                                               $ 1,741,748
     Cumulative effect of a change in accounting principle,
      net of tax                                                               (341,035)
                                                                             ----------
     Pro forma net income                                                   $ 1,400,713
                                                                             ==========
Denominator :
   Weighted average shares
     outstanding - basic                                         5,852,947    5,881,630    5,840,871   5,881,630
   Effect of dilutive securities:
     Employee stock options                                        127,687            -       23,001           -
                                                                ----------   ----------   ----------   ---------
   Denominator for diluted earnings
     per share-adjusted weighted
     average and assumed conversions                             5,980,634    5,881,630    5,863,872   5,881,630
                                                                ==========   ==========   ==========   =========
</TABLE>

9.   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 sale 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 in the  Company's
Annual Report on Form 10-K.

Segment information for the nine months ended September 30 is as follows:

<TABLE>
<CAPTION>

2000:
                                                   Restaurant        Commissary         Corporate          Totals
                                                  ------------     --------------     -------------     ------------
Revenues from external
<S>                                              <C>              <C>                <C>               <C>
   customers                                     $  39,186,377    $     1,250,098    $    2,029,143    $  42,465,618
Intersegment revenues                                        -          1,875,137                 -        1,875,137
General and
   administrative expenses                                   -                  -         3,705,115        3,705,115
Advertising expenses                                         -                  -         1,127,101        1,127,101
Depreciation and
   amortization                                      1,240,553             89,564           241,239        1,571,356
Net interest expense                                         -            132,075           898,276        1,030,351
Income (loss) before income taxes and
   cumulative effect of a change in
   accounting principle                              5,299,579             60,520        (4,593,661)         766,438

</TABLE>


                                       10

<PAGE>

9.  SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>

1999:
                                                   Restaurant        Commissary         Corporate          Totals
                                                  ------------     --------------     -------------     ------------
Revenues from external
<S>                                              <C>              <C>                <C>               <C>
   customers                                     $  36,719,970    $       875,842    $    1,158,988    $  38,754,800
Intersegment revenues                                        -          2,043,630                 -        2,043,630
General and
   administrative expenses                                   -                  -         2,780,399        2,780,399
Advertising expenses                                         -                  -           980,976          980,976
Depreciation and
   amortization                                      1,059,729             89,064           173,196        1,321,989
Net interest expense                                         -            128,875           687,148          816,023
Income (loss) before income taxes and
   cumulative effect of a change in
   accounting principle                              5,873,097             69,769        (3,263,254)       2,679,612


Segment information for the three months ended September 30 is as follows:


2000:
                                                  Restaurant         Commissary        Corporate          Totals
                                                 -------------     --------------     ------------     -------------
Revenues from external
   customers                                    $   13,478,991    $       394,830    $     567,776    $   14,441,597
Intersegment revenues                                        -            592,246                -           592,246
General and
   administrative expenses                                   -                  -        1,523,793         1,523,793
Advertising expenses                                         -                  -          510,014           510,014
Depreciation and
   amortization                                        426,553             29,988           80,337           536,878
Net interest expense                                         -             44,025          335,767           379,792
Income (loss) before income taxes and
   cumulative effect of a change in
   accounting principle                              1,695,634             12,824       (2,104,981)        (396,523)


1999:
                                                  Restaurant         Commissary        Corporate          Totals
                                                 -------------     --------------     ------------     -------------
Revenues from external
   customers                                    $   12,792,753    $       313,194    $     419,929    $   13,525,876
Intersegment revenues                                        -            730,787                -           730,787
General and
   administrative expenses                                   -                  -          899,253           899,253
Advertising expenses                                         -                  -          370,592           370,592
Depreciation and
   amortization                                        371,036             29,688           58,530           459,254
Net interest expense                                         -             44,025          249,474           293,499
Income (loss) before income taxes and
   cumulative effect of a change in
   accounting principle                              1,925,026             54,776         (963,598)        1,016,204


</TABLE>




                                       11

<PAGE>

10.  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 $434,311  gain. The gain  represents  the  difference  between the
carrying  amount of the  restaurant's  assets  which were  destroyed  (building,
equipment and inventory of $725,785,  in total, at the time of the fire) and the
amount to be collected from the insurance company ($1,160,096). In addition, the
Company has accrued a receivable  of  approximately  $225,000 from the insurance
company in relation to business interruption  ($160,000) and continuing expenses
($65,000) of which  approximately  $165,000 was accrued  during the three months
ended  September 30, 2000 for business  interruption  ($120,000)  and continuing
expenses ($45,000).

11.  INCOME TAXES

Concurrent  with the merger of the Company 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  statement of
income for the nine months ended September 30, 1999.

Income taxes on the Company's  income for the nine months and three months ended
September 30, 2000 and 1999 have been provided for at an estimated effective tax
rate of 35%.

12.  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  September  30, 2000,  the
Company has repurchased 42,400 shares at a total cost of $254,695.

13.  SUBSEQUENT EVENTS

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
certain directors of the Company own a substantial  interest) for $860,000.  The
purchase price was at fair market value as determined by an independent business
valuation  appraisal.  The purchase  price was funded by cash reserves and funds
drawn on the Company's mortgage revolving lines of credit.

On October 3, 2000,  the Company  obtained  an  additional  $6,500,000  mortgage
revolving  line of credit with a bank. The note bears interest at the Prime Rate
plus .25% and is due October 3, 2001. The current  maximum  amount  available on
the  revolving  line of  credit  is  $1,440,000  which  can be  increased  up to
$6,500,000 as additional collateral is provided by the Company. The note imposes
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.

14.  CONTINGENCIES

The Company has guaranteed  renewals of certain guaranteed  indebtedness and any
replacement indebtedness of TW-Tennessee,  LLC, a franchisee (TW-Tennessee),  to
the extent and in amounts not to exceed the amounts  guaranteed  as of September
30, 1998.  As of  September  30, 2000,  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
totaling approximately $560,000.

During  1999,  the  Landlord  under  the  lease  financing   agreement  declared
TW-Tennessee to be in default,  and accelerated the rent  obligations  under the
leases.  On May 8,  2000,  the  Landlord  filed suit in the  Chancery  Court for
Davidson County, Tennessee,  against TW-Tennessee and against certain guarantors
of the lease obligations,

                                       12

<PAGE>
14.  CONTINGENCIES (continued)

including the Company and a Director of the Company. Subsequent to September 30,
2000,  the Company and certain  guarantors of the lease  obligations  reached an
agreement with the Landlord, under which the Company and

such guarantors  paid certain sums to the Landlord as a final  settlement of all
claims of the Landlord,  and the Landlord dismissed its legal action against and
released the Company from further liability under its guarantees.

Subsequent  to September 30, 2000,  the lessor under the  equipment  leases with
TW-Tennessee  declared TW-  Tennessee to be in default  thereunder  and demanded
payment in full from all  guarantors of the leases,  including the Company.  The
Company  is  unaware  of the  institution  of any legal  action by the lessor to
enforce the guarantees.

As a result of the  settlement  with the Landlord under the  TW-Tennessee  lease
financing  agreement,  and given the demand for payment by the lessor  under the
TW-Tennessee  equipment  leases,  the  Company  has  incurred  a  loss,  and the
Company's  management believes that it is probable that it will incur additional
losses,  related to the Company's guarantees of TW-Tennessee's  obligations.  In
light of the recent  developments  during the three months ended  September  30,
2000,  the Company  provided an  additional  reserve of $250,000  related to the
Company's  guarantees  of  the  TW-Tennessee  obligations  which  increased  the
previously  established reserve to $725,000. The reserve amount was based on the
Company's  payment  to the  Landlord  under  the  TW-Tennessee  lease  financing
agreement,  the  Company's  share  of the  various  remaining  guarantees  of TW
Tennessee  obligations and an estimated amount for legal costs which will likely
be incurred in connection with the resolution of this matter.





























                                       13

<PAGE>

ITEM 2. 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  the
forward-looking  statements  we make.  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.

Of the 60 Tumbleweed restaurants as of September 30, 2000, we owned and operated
34  restaurants  in Kentucky,  Indiana and Ohio,  franchised 19  restaurants  in
Indiana, Illinois, Kentucky, Wisconsin, West Virginia and Michigan, and licensed
seven restaurants in Germany,  Jordan,  Saudi Arabia,  Egypt and England.  Since
September 30, 2000, one franchise restaurant opened in Mechanicsville,  Virginia
and one licensed  restaurant  opened in Istanbul,  Turkey.  Also  subsequent  to
September 30, 2000, the Company acquired a Tumbleweed  restaurant from a related
party.  See Note13 in the accompanying  financial  statements for details of the
transaction.

The  following  section  should  be  read  in  conjunction  with  our  financial
statements and the related notes included elsewhere in this filing.

RESULTS OF OPERATIONS

The table,  on the next page,  sets forth the percentage  relationship  to total
revenues of certain income  statement data,  except where noted, for the periods
indicated.




























                                       14

<PAGE>

<TABLE>
<CAPTION>

                                                          Nine  Months Ended                Three Months Ended
                                                             September 30                      September  30
                                                       2000               1999             2000             1999
                                                   -------------     -------------    -------------    -------------
Revenues:
<S>                                                         <C>               <C>              <C>              <C>
   Restaurant sales                                         92.3 %            94.7 %           93.3 %           94.6 %
   Commissary sales                                          2.9               2.3              2.7              2.3
   Franchise fees and royalties                              2.2               2.1              1.9              2.0
   Gain from insurance proceeds due to involuntary
     conversion of non-monetary assets                       1.0                 -                -                -
   Other revenues                                            1.6               0.9              2.1              1.1
                                                   -------------     -------------    -------------    -------------
     Total revenues                                        100.0             100.0            100.0            100.0
Operating expenses:
   Restaurant cost of sales (1)                             29.0              29.0             29.8             28.9
   Commissary cost of sales (2)                             88.1              90.1             89.2             87.7
   Operating expenses (1)                                   52.5              50.1             53.1             50.5
   Selling, general and administrative expenses             11.4               9.7             14.1              9.4
   Preopening expenses                                       1.1               0.8              0.8              0.5
   Depreciation and amortization                             3.7               3.4              3.7              3.4
   Loss on guarantees of indebtedness                        1.7                 -              1.7                -
                                                   -------------     -------------    -------------    -------------
     Total operating expenses                               95.8              91.0            100.1             90.3
                                                   -------------     -------------    -------------    -------------
     Income from operations                                  4.2               9.0             (0.1)             9.7
Other expense, net                                          (2.4)             (2.1)            (2.6)            (2.2)
                                                   -------------     -------------    -------------    -------------
Income (loss) before income taxes and
   cumulative effect of a change in
   accounting principle                                      1.8               6.9             (2.7)             7.5
Provision (benefit) for income taxes:
   Current and deferred                                      0.6               2.4             (0.9)             2.6
   Deferred taxes related to change in tax status              -               1.6                -
                                                   -------------     -------------    -------------    -------------
Total provision (benefit) for income taxes                   0.6               4.0             (0.9)             2.6
                                                   -------------     -------------    -------------    -------------
Income (loss) before cumulative effect
   of a change in accounting principle                       1.2               2.9             (1.8)             4.9
Cumulative effect of a change in
   accounting principle, net of tax                            -              (0.9)               -                -
                                                   -------------     -------------    -------------    -------------
Net  income (loss)                                           1.2 %             2.0 %           (1.8 )%           4.9%
                                                   =============     =============    =============    =============
Pro forma income data:
   Income before income taxes and
     cumulative effect of a change in
     accounting principle as reported                                          6.9 %
   Pro forma income taxes (3)                                                 (2.4)
                                                                     -------------
   Pro forma income before cumulative
     effect of a change in accounting principle                                4.5
   Cumulative effect of a change in
     accounting principle, net of tax                                         (0.9)
                                                                     -------------
   Pro forma net income                                                        3.6 %
                                                                     =============
<FN>

(1)    As percentage of restaurant sales.
(2)    As percentage of commissary sales.
(3)    The  pro  forma  income  taxes   reflect  the  effect  of  the  corporate
       reorganization  on the  historical  net income  assuming  the Company was
       taxed as a C corporation for income tax purposes since its inception with
       an assumed combined federal and state effective tax rate of 35%.
</FN>
</TABLE>






                                       15

<PAGE>

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Total  revenues  increased  by  $3,710,818  or 9.6%  for the nine  months  ended
September 30, 2000 compared to the same period in 1999  primarily as a result of
the following:

   Restaurant  sales  increased by  $2,466,407 or 6.7% for the nine months ended
   September 30, 2000  compared to the same period in 1999.  The increase is due
   primarily to the addition of six  Company-owned  restaurants  since September
   30, 1999.  The increase is partially  offset by a 3.0% decrease in same store
   sales for the nine month period.

   Commissary sales to franchised and licensed restaurants increased by $374,256
   or 42.7% for the nine months ended  September  30, 2000  compared to the same
   period  in 1999.  The  increase  is due  primarily  to the  addition  of nine
   franchised or licensed restaurants since September 30, 1999.

   Franchise  fees and  royalties  increased  by  $126,530 or 15.8% for the nine
   months  ended  September  30,  2000  compared to the same period in 1999 as a
   result of an increase in royalty income due primarily to additional franchise
   stores. Franchise fees were the same in both periods.

   The gain from  insurance  proceeds was due to the  involuntary  conversion of
    non-monetary assets from a fire at a Company-owned  restaurant.  See Note 10
    of the accompanying financial statements for a detail discussion.

   Other  revenues  increased  by $309,314  or 86.3% for the nine  months  ended
   September  30, 2000  compared to the same period in 1999  primarily due to an
   increase in volume related purchasing  rebates.  In addition,  other revenues
   for the 2000 nine month period includes $160,000 of insurance  proceeds as it
   relates to a business  interruption  as a result of a fire at a Company-owned
   restaurant. See Note 10 of the accompanying financial statements for a detail
   discussion. There was no similar income in the 1999 nine month period.

Restaurant cost of sales increased by $721,937 or 6.8% for the nine months ended
September  30,  2000  compared  to the same  period in 1999.  The  increase  was
principally due to the opening of six additional Company-owned restaurants since
September 30, 1999.  Restaurant cost of sales as a percentage of sales was 29.0%
for the nine months ended September 30, 2000 and 1999.

Commissary cost of sales  increased  $311,369 or 39.4% for the nine months ended
September  30,  2000  compared  to the same  period  in 1999.  The  increase  in
commissary  cost of sales is due primarily to the addition of nine franchised or
licensed  restaurants  since  September  30, 1999. As a percentage to commissary
sales,  commissary  cost of  sales  decreased  2.0% for the  nine  months  ended
September 30, 2000 compared to the same period in 1999 due to lower manufactured
food costs in 2000.

Restaurant  operating  expenses  increased by  $2,159,803  or 11.7% for the nine
months  ended  September  30,  2000  compared  to the same  period in 1999.  The
increase reflects the addition of six Company-owned  restaurants since September
30, 1999.  Operating  expenses  increased as a percentage of restaurant sales to
52.5% for the nine  months  ended  September  30,  2000 from  50.1% for the same
period in 1999 primarily due to a 0.5% increase in promotional  costs and a 0.7%
increase in management payroll costs.

Selling,  general and  administrative  expenses increased by $1,070,841 or 28.5%
for the nine months  ended  September  30,  2000  compared to the same period in
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 President and
CEO of the Company and the restructuring of the corporate staff. The increase in
selling,  general and administrative  expenses for the nine month period 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 11.4% and 9.7% of revenues for the nine months ended September 30,
2000 and 1999, respectively.

Preopening  expenses  were  $486,728  and  $318,320  for the nine  months  ended
September  30, 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 number of
restaurant locations which are in the process of being prepared for opening.


                                       16

<PAGE>

Depreciation and amortization  expense increased  $249,367 or 18.9% for the nine
months  ended  September  30,  2000  compared  to the  same  period  in 1999 due
primarily to the addition of six  Company-owned  restaurants since September 30,
1999.

Net  interest  expense  increased  $214,328 or 26.3% for the nine  months  ended
September  30, 2000 compared to the same period in 1999.  The increase  resulted
from increased  borrowing to fund the growth in  Company-owned  restaurants  and
increases in the prime interest rate during 1999 and 2000.

The combined  effective  federal and state income tax rate was approximately 35%
for the nine  months  ended  September  30, 2000 and 1999  excluding  the charge
related to change in tax  status.  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.

The  Company's  income  before  cumulative  effect  of a  change  in  accounting
principle decreased  $1,243,564 or 71.4% for the nine months ended September 30,
2000  compared  to pro  forma  income  before  cumulative  effect of a change in
accounting  principle for the nine months ended September 30, 1999. Earnings per
share before cumulative effect of a change in accounting principle was $0.08 for
the nine months ended  September 30, 2000 as compared to pro forma  earnings per
share before cumulative effect of a change in accounting  principle of $0.30 for
the nine months ended September 30, 1999.

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Total  revenues  increased  by  $915,721  or 6.8%  for the  three  months  ended
September 30, 2000 compared to the same period in 1999  primarily as a result of
the following:

   Restaurant  sales  increased  by $686,238 or 5.4% for the three  months ended
   September 30, 2000  compared to the same period in 1999.  The increase is due
   primarily to the addition of six  Company-owned  restaurants  since September
   30, 1999.  The increase is partially  offset by a 3.1% decrease in same store
   sales for the three month period.

   Commissary sales to franchised and licensed restaurants  increased by $81,636
   or 26.1% for the three months ended  September  30, 2000 compared to the same
   period  in 1999.  The  increase  is due  primarily  to the  addition  of nine
   franchised or licensed restaurants since September 30, 1999.

   Franchise fees and royalties increased by $5,424 or 2.0% for the three months
   ended  September  30, 2000  compared to same period in 1999.  The increase in
   franchise  fees and royalty  income was due to  increased  royalty  income of
   $40,424 during the three months ended September 30, 2000 compared to the same
   period in 1999.  The  increase in royalty  income was  partially  offset by a
   $35,000 decrease in franchise fees for the three month period due to the fact
   that during the 1999 three month period, one new franchised restaurant opened
   compared to none during the 2000 three month period.

   Other  revenues  increased  by $142,423 or 93.6% for the three  months  ended
   September 30, 2000  compared to the same period in 1999  primarily due to the
   fact that other revenues for the 2000 three month period includes $120,000 of
   insurance proceeds as it relates to a business  interruption as a result of a
   fire at a Company-owned restaurant. See Note 10 of the accompanying financial
   statements for a detail  discussion.  There was no similar income in the 1999
   three month period.

Restaurant  cost of sales  increased  by $320,115  or 8.7% for the three  months
ended  September 30, 2000 compared to the same period in 1999.  The increase was
principally due to the opening of six additional Company-owned restaurants since
September 30, 1999.  Restaurant cost of sales increased as a percentage of sales
by 0.9% to 29.8% for the three months ended September 30, 2000 compared to 28.9%
during the same period in 1999.

Commissary cost of sales  increased  $77,756 or 28.3% for the three months ended
September  30,  2000  compared  to the same  period  in 1999.  The  increase  in
commissary  cost of sales is due primarily to the addition of nine franchised or
licensed  restaurants  since  September  30,  1999 . As a  percentage  to sales,
commissary cost of sales increased 1.5% for the three months ended September 30,
2000 compared to the same period in 1999.




                                       17

<PAGE>

Restaurant  operating  expenses  increased  by  $702,069  or 10.9% for the three
months  ended  September  30,  2000  compared  to the same  period in 1999.  The
increase reflects the addition of six Company-owned restaurants since

September 30, 1999.  Operating  expenses increased as a percentage of restaurant
sales to 53.1% for the three months ended  September 30, 2000 from 50.5% for the
same period in 1999 primarily due to a 1.8% increase in payroll costs.

Selling,  general and administrative expenses increased by $763,926 or 60.2% for
the three months ended  September  30, 2000 compared to the same period in 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 President and
CEO of the Company and the restructuring of the corporate staff. The increase in
selling,  general and administrative expenses for the three month period 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 14.1% and 9.4% of revenues for the three  months ended  September
30, 2000 and 1999, respectively.

Preopening  expenses  were  $110,977  and  $63,287  for the three  months  ended
September  30, 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 number of
restaurant locations which are in the process of being prepared for opening.

Depreciation and amortization  expense  increased $77,624 or 16.9% for the three
months  ended  September  30,  2000  compared  to the  same  period  in 1999 due
primarily to the addition of six  Company-owned  restaurants since September 30,
1999.

Net  interest  expense  increased  $86,293 or 29.4% for the three  months  ended
September  30, 2000 compared to the same period in 1999.  The increase  resulted
from increased  borrowing to fund the growth in  Company-owned  restaurants  and
increases in the prime interest rate during 1999 and 2000.

The combined  effective  federal and state income tax rate was approximately 35%
for the three months ended September 30, 2000 and 1999.

LIQUIDITY AND CAPITAL RESOURCES

Our ability to expand the number of our  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 principal  capital needs arise from the development of new restaurants,  and
to a lesser extent,  maintenance  and  improvement of existing  facilities.  The
principal  sources  of  capital  to  fund  these  expenditures  were  internally
generated cash flow, bank  borrowings,  lease financing and an equity  offering.
The table below provides certain  information  regarding our sources and uses of
cash for the periods presented.


                                                       Nine Months Ended
                                                          September 30

                                                    2000                1999
                                                -------------       ------------
Net cash provided by operations                $    2,779,522      $   3,224,660
Purchases of property and equipment                 2,742,942          6,054,489
Acquisition of business                               929,400                  -
Insurance proceeds for property and equipment         860,654                  -
Proceeds from common stock offering                         -          7,765,397
Net borrowings on long-term
   debt and capital lease obligations                 570,207          1,012,783
Payment on short-term borrowings                            -          6,990,348


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<PAGE>

Our single largest use of funds has been for capital expenditures  consisting of
land, building and equipment  associated with our restaurant  expansion program.
The  substantial  growth  of the  Company  over  the  period  has  not  required
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 has guaranteed  renewals of certain guaranteed  indebtedness and any
replacement indebtedness of TW- Tennessee, LLC, a franchisee (TW-Tennessee),  to
the extent and in amounts not to exceed the amounts  guaranteed  as of September
30,  1998.  As of  September  30,  2000,  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 totaling approximately $560,000.

During  1999,  the  Landlord  under  the  lease  financing   agreement  declared
TW-Tennessee to be in default,  and accelerated the rent  obligations  under the
leases.  On May 8,  2000,  the  Landlord  filed suit in the  Chancery  Court for
Davidson County, Tennessee,  against TW-Tennessee and against certain guarantors
of the lease  obligations,  including the Company and a Director of the Company.
Subsequent  to September  30, 2000,  the Company and certain  guarantors  of the
lease  obligations  reached an  agreement  with the  Landlord,  under  which the
Company  and  such  guarantors  paid  certain  sums to the  Landlord  as a final
settlement of all claims of the Landlord,  and the Landlord  dismissed its legal
action  against  and  released  the Company  from  further  liability  under its
guarantees.

Subsequent  to September 30, 2000,  the lessor under the  equipment  leases with
TW-Tennessee  declared  TW-Tennessee  to be in default  thereunder  and demanded
payment in full from all  guarantors of the leases,  including the Company.  The
Company  is  unaware  of the  institution  of any legal  action by the lessor to
enforce the guarantees.

As a result of the  settlement  with the Landlord under the  TW-Tennessee  lease
financing  agreement,  and given the demand for payment by the lessor  under the
TW-Tennessee  equipment  leases,  the  Company  has  incurred  a  loss,  and the
Company's  management believes that it is probable that it will incur additional
losses,  related to the Company's guarantees of TW-Tennessee's  obligations.  In
light of the recent  developments  during the three months ended  September  30,
2000,  the Company  provided an  additional  reserve of $250,000  related to the
Company's  guarantees  of  the  TW-Tennessee  obligations  which  increased  the
previously  established reserve to $725,000. The reserve amount was based on the
Company's  payment  to the  Landlord  under  the  TW-Tennessee  lease  financing
agreement,  the  Company's  share  of the  various  remaining  guarantees  of TW
Tennessee  obligations and an estimated amount for legal costs which will likely
be incurred in connection with the resolution of this matter.

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

We plan to open by the end of the year  the  restaurant  which  will be owned by
TW-Springhurst as described in Note 6 in the accompanying  financial statements.
This will depend on the hiring and training of sufficiently  skilled  management
and other personnel and other factors. As of September 30, 2000,  TW-Springhurst
had a commitment of  approximately  $450,000 in connection with the construction
of the restaurant.

We have used and will continue to utilize mortgage,  sale/leaseback and landlord
financing,  as well as  equipment  leasing and  financing,  for a portion of the
development  costs of  restaurants  which will open during 2000.  The  remaining
costs have been and 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 2000.  Should our actual results
of operations fall short of, or our rate of expansion  significantly  exceed our
plans, or should our costs or 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.

In order to  provide  any  additional  funds  necessary  to  pursue  our  growth
strategy,  we may incur, from time to time,  additional short and long-term bank
indebtedness  and may issue, in public or private  transactions,  our equity and
debt securities, the availability and terms of which will depend upon market and
other conditions.  There is no assurance that such additional  financing will be
available on terms acceptable to us.





                                       19

<PAGE>

We have a  $6,500,000  mortgage  revolving  line of  credit  note  (the  "Credit
Facility"). At September 30, 2000 we had outstanding borrowings under the Credit
Facility  of  $5,251,148.  The note bears  interest  at the Prime Rate plus .25%
(9.75% at September 30, 2000) and is due December 31, 2003. The Credit  Facility
imposes  restrictions on us 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.

On October 3, 2000,  the Company  obtained  an  additional  $6,500,000  mortgage
revolving  line of credit with a bank. The note bears interest at the Prime Rate
plus .25% and is due October 3, 2001. The current  maximum  amount  available on
the  revolving  line of  credit  is  $1,440,000  which  can be  increased  up to
$6,500,000 as additional collateral is provided by the Company. The note imposes
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.

CHANGE IN ACCOUNTING PRINCIPLE

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,  we  capitalized  our  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) were  written-  off (net of income  taxes of $183,634) as a
cumulative effect of an accounting change on January 1, 1999.

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.

ITEM 3.   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  September  30, 2000
approximately  $11,240,000  of our debt bore  interest  at  variable  rates.  We
believe that the effect,  if any, of reasonably  possible  near-term  changes in
interest  rates on our financial  position,  results of operations or cash flows
would not be significant.




















                                       20

<PAGE>

PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

The Company has guaranteed  renewals of certain guaranteed  indebtedness and any
replacement indebtedness of TW- Tennessee, LLC, a franchisee (TW-Tennessee),  to
the extent and in amounts not to exceed the amounts  guaranteed  as of September
30,  1998.  As of  September  30,  2000,  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 totaling approximately $560,000.

During  1999,  the  Landlord  under  the  lease  financing   agreement  declared
TW-Tennessee to be in default,  and accelerated the rent  obligations  under the
leases.  On May 8,  2000,  the  Landlord  filed suit in the  Chancery  Court for
Davidson County, Tennessee,  against TW-Tennessee and against certain guarantors
of the lease  obligations,  including the Company and a Director of the Company.
Subsequent  to September  30, 2000,  the Company and certain  guarantors  of the
lease  obligations  reached an  agreement  with the  Landlord,  under  which the
Company  and  such  guarantors  paid  certain  sums to the  Landlord  as a final
settlement of all claims of the Landlord,  and the Landlord  dismissed its legal
action  against  and  released  the Company  from  further  liability  under its
guarantees.

Subsequent  to September 30, 2000,  the lessor under the  equipment  leases with
TW-Tennessee  declared  TW-Tennessee  to be in default  thereunder  and demanded
payment in full from all  guarantors of the leases,  including the Company.  The
Company  is  unaware  of the  institution  of any legal  action by the lessor to
enforce the guarantees.

As a result of the  settlement  with the Landlord under the  TW-Tennessee  lease
financing  agreement,  and given the demand for payment by the lessor  under the
TW-Tennessee  equipment  leases,  the  Company  has  incurred  a  loss,  and the
Company's  management believes that it is probable that it will incur additional
losses,  related to the Company's guarantees of TW-Tennessee's  obligations.  In
light of the recent  developments  during the three months ended  September  30,
2000,  the Company  provided an  additional  reserve of $250,000  related to the
Company's  guarantees  of  the  TW-Tennessee  obligations  which  increased  the
previously  established  reserve to $725,000 The reserve amount was based on the
Company's  payment  to the  Landlord  under  the  TW-Tennessee  lease  financing
agreement,  the  Company's  share  of the  various  remaining  guarantees  of TW
Tennessee  obligations and an estimated amount for legal costs which will likely
be incurred in connection with the resolution of this matter.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

 (a)     Exhibits:

         27.1  Financial Data Schedule

 (b)     Reports on Form 8-K

         Tumbleweed, Inc. filed Form 8-K on August 10, 2000 to report under Item
         5 that,  on  August 2,  2000,  the Board of  Directors  of the  Company
         appointed  Mr.  Terrance A. Smith the Chairman of the Board,  President
         and Chief Executive Officer.  The appointment of Mr. Smith followed the
         announcement  by John A. Butorac of his decision to retire as President
         and CEO of the Company.  Mr. Butorac will continue as a director of the
         Company.

         The  filing  also  reported  that,  on  August  2,  2000,  the Board of
         Directors  accepted the  resignation of Mr. W. Roger Drury,  formerly a
         Director of the Company.

Items 2, 3, 4 and 5 are not applicable and have been omitted.










                                       21

<PAGE>



                                    Signature

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned there unto duly authorized.

Dated:       November  2, 2000                         Tumbleweed, Inc.

                                             By:  /s/  James M. Mulrooney
                                                       ------------------
                                                       James M. Mulrooney
                                                       Executive Vice President
                                                       Chief Financial Officer


























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