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, 1998

                                      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 to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.
Yes  X       No

      Indicate the number of shares  outstanding of each of the issuer's classes
of common stock, as of the latest practiciable date:

            Class                   Outstanding at November 10, 1998
        Common Stock                              13




<PAGE>


                               TUMBLEWEED, INC.
                                    INDEX


PART I.     FINANCIAL INFORMATION                                         PAGE
      Item 1.     Financial Statements
            Tumbleweed, Inc.
            a)    Balance Sheets as of September 30, 1998 and June 30,       
                  1998                                                       1
            b)    Notes to Balance Sheets                                    1
            Tumbleweed, LLC
            a)    Statements of Income for the nine months and
                  three months ended September 30, 1998 and 1997             2
            b)    Balance Sheets as of September 30, 1998, December 31,
                  1997 and as of September 30, 1998 (Pro forma)              3
            c)    Statement  of Cash Flows for the nine months               
                  ended September 30, 1998 and 1997                          4
            d)    Notes to Financial Statements                              5

      Item 2.     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations              7

      Item 3.     Quantitative and Qualitative disclosures about
                  market risk                                               13

PART II.    OTHER INFORMATION

      Item 6.     Exhibits and Reports on Form 8-K                          14

Signature                                                                   15



<PAGE>
ITEM 1.  FINANCIAL STATEMENTS
<TABLE>

TUMBLEWEED, INC

Balance Sheets

<CAPTION>
                                                    September 30      June 30
                                                       1998             1998
                                                    ------------     -----------
                                                    (Unaudited)        (Note)
<S>                                                <C>              <C>         
Assets
   Cash                                            $         130    $        130
                                                    ============     ===========
Total assets                                       $         130    $        130
                                                    ============     ===========


Stockholders' equity
            Preferred stock, $.01 par value,
                5,000,000 shares authorized; no
                shares issued and outstanding      $           -    $          -
            Common stock, $.01 par value,
                30,000,000 shares authorized;
                13 shares issued and outstanding               1               1
            Paid-in capital                                  129             129
                                                    ============     ===========
Total stockholders' equity                         $         130    $        130
                                                    ============     ===========
</TABLE>


Note:       The  balance  sheet as of June 30,  1998 has been  derived  from the
            audited  balance  sheet as of that date but does not  include all of
            the  information  and  footnotes   required  by  generally  accepted
            accounting principles for complete financial statements.

See accompanying notes.


                               TUMBLEWEED, INC.

                     NOTES TO BALANCE SHEETS (Unaudited)
                               SEPTEMBER 30, 1998


1.  DESCRIPTION OF BUSINESS

Tumbleweed,  Inc.  (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.  The Company has entered into an agreement  with  Tumbleweed,  LLC, a
Kentucky limited  liability  company  (Tumbleweed),  in which Tumbleweed will be
merged  with and into  the  Company  subject  to the sale in an  initial  public
offering  (IPO)  of at least  700,000  shares  of the  Company's  common  stock.
Tumbleweed  owns and operates 24 restaurants in Kentucky,  Indiana and Ohio, and
franchises an  additional 12  restaurants  in Indiana,  Illinois,  Tennessee and
Wisconsin.  Tumbleweed also licenses two restaurants in Germany and one in Saudi
Arabia.  The  Company  and  Tumbleweed  are  sometimes  hereinafter  referred to
collectively as the "Company".

2.  BASIS OF PRESENTATION

The  accompanying  unaudited  balance sheet has been prepared in accordance with
generally accepted accounting  principles for interim financial  information and
with  the   instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly,  it does not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  all  adjustments,  consisting of normal accruals,
considered  necessary for a fair presentation have been included.  The September
30, 1998 balance sheet and footnote  disclosures  should be read in  conjunction
with the Form S-1 Registration  Statement (No. 333-37931) effective September 9,
1998.

                                       1
<PAGE>

The Company's  assets at September  30, 1998 consist  solely of cash received in
connection with the capitalization of the Company. The Company has not conducted
any  operations  and all  activities  to date  have  related  to the IPO and the
anticipated  merger with Tumbleweed.  All  expenditures  related to the IPO have
been funded and recorded by Tumbleweed.  Accordingly,  statements of operations,
changes in  stockholders'  equity and cash flows  would not  provide  meaningful
information and have been omitted.                 


                            

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>

TUMBLEWEED, LLC

Statements of Income (Unaudited)


<CAPTION>
                                           Nine Months Ended               Three Months Ended
                                             September 30                    September 30
                                     --------------------------     ---------------------------
                                       1998            1997            1998            1997
                                    ----------      ----------     -----------     -----------
<S>                                <C>             <C>             <C>              <C>        
Revenues:
     Restaurant sales              $29,064,352     $20,522,294     $10,516,721      $7,300,640
     Commissary sales                  752,644         785,428         249,303         189,437
     Franchise fees and royalties      566,871         357,173         182,257         125,455
     Other revenues                    406,850         280,604         157,223          95,694
                                     ----------      ----------     -----------     -----------
Total revenues                      30,790,717      21,945,499      11,105,504       7,711,226


Operating expenses:
     Restaurant cost of sales        8,470,147       6,072,111       3,084,617       2,171,263
     Commissary cost of sales          648,631         700,785         218,511         168,797
     Restaurant operating expenses  14,963,287      10,266,531       5,362,538       3,548,319
     Selling, general and
     administrative expenses         2,994,809       2,174,550       1,000,936         820,469
     Preopening amortization           537,319         437,428         230,411         128,170
     Depreciation and amortization   1,024,658         695,764         369,294         242,669
                                     ----------      ----------     -----------     -----------
Total operating expenses            28,638,851      20,347,169      10,266,307       7,079,687
                                     ----------      ----------     -----------     -----------


Income from operations               2,151,866       1,598,330         839,197         631,539


Other income (expense):
     Interest income                    45,827          46,827          14,799          15,185
     Interest expense                 (651,203)       (363,634)       (240,946)       (114,720)
                                     ----------      ----------     -----------     -----------
Total other expense                   (605,376)       (316,807)       (226,147)        (99,535)
                                     ----------      ----------     -----------     -----------


Net income                          $1,546,490      $1,281,523        $613,050        $532,004
                                     ==========      ==========     ===========     ===========

Pro forma income data:
     Net income as reported         $1,546,490      $1,281,523        $613,050        $532,004
     Pro forma income taxes           (556,736)       (461,348)       (220,698)       (191,521)
                                     ----------      ----------     -----------     -----------
     Pro forma net income             $989,754        $820,175        $392,352        $340,483
                                     ==========      ==========     ===========     ===========

     Pro forma net income per
       share-basic and diluted           $0.19           $0.16           $0.08           $0.07
                                     ==========      ==========     ===========     ===========
     Shares used in computing pro
       forma net income per share    5,145,000       5,145,000       5,145,000       5,145,000
                                     ==========      ==========     ===========     ===========

</TABLE>

See accompanying notes.

                                       2

<PAGE>
<TABLE>

TUMBLEWEED, LLC                                     

Balance Sheets
<CAPTION>                                                                                Pro Forma
                                              September 30         December 31          September 30
                                                 1998                 1997                 1998
                                              ------------         ------------         ------------
                                              (UNAUDITED)                               (UNAUDITED)
<S>                                              <C>                <C>                    <C>    
Assets
Current assets:
     Cash and cash equivalents                   $255,335           $1,228,867             $255,335
     Accounts receivable                          308,793              346,700              308,793
     Note receivable from affiliate               100,000              100,000              100,000
     Inventories                                1,124,585              825,029            1,124,585
     Deferred preopening expenses                 678,596              267,100              678,596
     Prepaid expenses                             324,687              282,590              324,687
                                              ------------         ------------         ------------
       Total current assets                     2,791,996            3,050,286            2,791,996
                                              ------------         ------------         ------------

Property and equipment, net                    24,764,661           19,330,132           24,764,661
Note receivable from affiliate                    300,000              300,000              300,000
Goodwill, net of accumulated amortization
     of $412,542 as of September 30, 1998
     and $329,442 in 1997                       2,861,404            2,944,504            2,861,404
Other assets                                      798,080              443,559              798,080
                                              ============         ============         ============
       Total assets                           $31,516,141          $26,068,481          $31,516,141
                                              ============         ============         ============

Liabilities, Redeemable Member's Equity,
     Members' Equity, and Retained Earnings
     (Deficit)and Pro Forma Stockholders' Equity

Current liabilities:
     Accounts payable                          $1,192,897           $1,174,645           $1,192,897
     Accrued liabilities                        1,349,444              890,255            1,349,444
     Deferred income taxes                              -                    -              506,928
     Current maturities on long-term
       debt and capital leases                    772,349              509,779              772,349
                                              ------------         ------------         ------------
       Total current liabilities                3,314,690            2,574,679            3,821,618
                                              ------------         ------------         ------------

Long-term debt, less current maturities         9,171,945            5,750,841            9,171,945
Capital lease obligations, less current
     maturities                                 2,692,960            2,280,964            2,692,960
Deferred income taxes                                   -                    -               92,526
Other liabilities                                  98,087              118,584               98,087
                                              ------------         ------------         ------------
       Total long-term liabilities             11,962,992            8,150,389           12,055,518
                                              ------------         ------------         ------------

       Total liabilities                       15,277,682           10,725,068           15,877,136

Redeemable members' equity                     25,454,336           23,419,738            7,137,648
Members' equity                                     6,959                6,959                    -
Retained earnings (deficit)                    (9,222,836)          (8,083,284)                   -

Pro forma stockholders' equity
     Preferred stock, $.01 par value, 5,000,000
    shares authorized; no shares issued and
    outstanding                                         -                    -                    -
     Common stock, $.01 par value, 30,000,000
    shares authorized; 5,145,000 shares
    issued and outstanding                              -                    -               51,450
     Paid-in capital                                    -                    -            8,449,907
                                              ------------         ------------         ------------
       Total pro forma stockholders' equity             -                    -            8,501,357
                                              ------------         ------------         ------------
                                              $31,516,141          $26,068,481          $31,516,141
                                              ============         ============         ============

</TABLE>
See accompanying notes.

                                       3
<PAGE>
<TABLE>

TUMBLEWEED, LLC

Statements of Cash Flows (Unaudited)

<CAPTION>
                                                          Nine Months Ended
                                                             September 30
                                                    ----------------------------
                                                        1998            1997
                                                     -----------     ----------
<S>                                                  <C>             <C>       
Operating activities:
     Net income                                      $1,546,490      $1,281,523
     Adjustments to reconcile net income to net
       cash provided by operating activities:
       Depreciation                                     910,447         590,753
       Amortization                                     114,211         105,011
       Preopening amortization                          537,319         437,428
       Loss on disposition of property
         and equipment                                    9,981          13,291
       Changes in operating assets and liabilities:
         Accounts receivable                             37,907         234,357
         Inventories                                   (299,556)        (56,783)
         Deferred preopening expenses                  (948,815)       (148,003)
         Prepaid expenses                               (44,992)         64,925
         Other assets                                  (100,976)        (36,270)
         Accounts payable                                18,253         (25,363)
         Accrued liabilities                            459,189         259,918
         Other liabilities                              (20,497)              -
                                                     -----------     -----------
Net cash provided by operating activities             2,218,961       2,720,787

Investing activities:
     Purchases of property and equipment             (5,619,749)     (3,790,037)
                                                     -----------     -----------
Net cash used in investing activities                (5,619,749)     (3,790,037)

Financing activities:
     Proceeds from issuance of members' equity        1,162,929       1,776,357
     Distribution of members' equity                 (1,814,374)     (2,201,358)
     Proceeds from issuance of long-term debt         5,380,463       1,828,080
     Payments on long-term debt and capital
       lease obligations                             (2,020,001)       (480,061)
     Payment of public offering costs                  (281,761)        (35,860)
                                                     -----------     -----------
Net cash provided by financing activities             2,427,256         887,158
                                                     -----------     -----------

Net decrease in cash and cash
     equivalents                                       (973,532)       (182,092)

Cash and cash equivalents at beginning of
     period                                           1,228,867       1,031,709
                                                     ===========     ===========
Cash and cash equivalents at end of period             $255,335        $849,617
                                                     ===========     ===========

Supplemental cash flow information:
     Cash paid for interest, net of amount
       capitalized                                     $651,203        $363,634
                                                     ===========     ===========

Noncash investing and financing activities:
Property and equipment acquired by seller
     financing and capital lease obligation            $735,208               -
                                                     ===========     ===========

</TABLE>
See accompanying notes.

                                       4


<PAGE>

                               TUMBLEWEED, LLC

                        NOTES TO FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998 (UNAUDITED)


(1)   BASIS OF PRESENTATION

      The  accompanying  financial  statements have been prepared by the Company
without  audit,  with the exception of the December 31, 1997 balance sheet which
was derived from the audited financial statements included in the Company's Form
S-1 Registration  Statement.  The financial  statements  include balance sheets,
statements  of income and  statements  of cash flows which 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 financial
statements, note disclosures and other information should be read in conjunction
with the Form S-1 registration statement number 333-57931 effective September 9,
1998.

      In the opinion of management,  the unaudited interim financial  statements
contained  in this report  reflect all  adjustments,  consisting  of only normal
recurring accruals, which are necessary for a fair presentation of the financial
position and the results of operations for the interim  periods  presented.  The
results of operations for any interim period are not  necessarily  indicative of
results for the full year.

(2)   SIGNIFICANT ACCOUNTING POLICIES

      In 1998,  the  Accounting  Standards  Executive  Committee of the American
Institute  of  Certified  Public   Accountants  issued  Statement  of  Position,
"Reporting  on the Cost of  Start-Up  Activities"  (the  "SOP")  which  requires
adoption no later than the beginning of 1999. The Company's initial  application
of the SOP will require the write-off of deferred  preopening costs ($678,596 at
September  30,  1998) as of the date of  adoption,  and such  write-off  will be
reported,  on a net of tax  basis,  as the  cumulative  effect  of a  change  in
accounting  principle.  The Company is evaluating whether it will adopt this new
standard in 1998 or 1999.  After  adopting the SOP, the Company will be required
to expense preopening costs as incurred.


<TABLE>

(3)   LONG-TERM DEBT
<CAPTION>
                                                                 September 30      December 31
                                                                     1998             1997
                                                                 --------------   ------------
<S>                                                                    <C>            <C>    
Long-tern debt consists of:
Secured  $5,000,000  mortgage revolving line of credit note,
         bearing interest at prime rate plus .25% (8.50% at
         September 30, 1998), December 31, 2000                  $   4,192,147  $   3,260,391
Secured mortgage note payable bearing interest
         of 8.75% payable in monthly installments
         through February 15, 2008                                   1,000,000              -
Secured mortgage note payable bearing interest
         at prime rate plus 1.25% (9.50% at September
         30, 1998), payable in monthly installments
         through November 27, 2016                                     681,250        709,375
Secured mortgage note payable bearing interest
         at prime rate plus 1.00% (9.25% at September
         30, 1998), payable in monthly installments
         through October 1, 2017                                     1,089,611        133,937
Secured mortgage note payable bearing interest
         at commercial paper rate plus 3.00% (8.30%
         at September 30, 1998), due January 1, 2005                 1,133,333      1,200,000
Secured mortgage note payable, bearing interest
         at commercial rate plus 3.10% (8.40% at
         September 30, 1998), due May 1, 2005                          707,778              -
Other installment notes payable                                        804,392        733,280
                                                                   ------------   ------------
                                                                     9,608,511      6,036,983
Less current portion                                                   436,566        286,142
                                                                   ------------   ------------
Long-term debt                                                   $   9,171,945  $   5,750,841
                                                                   ============   ============
</TABLE>

The Company's property and equipment collateralizes long-term debt.

                                       5
<PAGE>
<TABLE>
(4)   ACCRUED LIABILITIES
<CAPTION>
                                                                   September 30   December 31
                                                                       1998           1997
                                                                   ------------   ------------
<S>                                                               <C>            <C>         
Accrued liabilities consist of:
Accrued payroll and related taxes                                 $     821,968  $     416,066
Accrued insurance and fees                                               46,569        120,800
Accrued taxes, other than income and payroll                            325,906        157,693
Gift certificate liability                                               35,908        127,922
Other                                                                   119,093         67,774
                                                                   ------------   ------------
                                                                  $   1,349,444  $     890,255
                                                                   ============   ============
</TABLE>

(5)   RELATED PARTY TRANSACTIONS

      As of December  31,  1997,  the Company  had a capital  investment  in TW-
Tennessee,  LLC  (TW-Tennessee) of $14,000.  During the year the Company made an
additional   capital   contribution  of  $23,700   bringing  the  total  capital
contribution  to $37,700.  Additionally,  as of June 30,  1998,  the Company had
recorded  minority share losses on its  investment of $70,900.  On September 30,
1998,  the Company  sold its 9.5% common  member  interest in  TW-Tennessee  for
$25,000 to other members of TW-Tennessee, which resulted in a gain of $58,200 in
the third quarter and a $12,700 loss on the Company's equity  investment for the
year.

      On September 30, 1998,  the company  entered into an agreement to purchase
the land and building, including improvements, located at 3780 West Broad Street
in Columbus, Ohio from West Broad Development,  LLC, the lessor of the property.
The  purchase  was  made  at  fair  market  value  supported  by an  independant
appraisal.  The Company,  at the time of purchase,  entered into a  modification
agreement  with a local bank to modify an existing  promissory  note on the land
and  building.  In  modifying  the  promissory  note the  principal  amount  was
increased to $1,000,000. At the time of the purchase, the Company terminated its
capital lease obligation to West Broad Development,  LLC.

(6)   PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

      Pursuant  to the rules and  regulations  of the  Securities  and  Exchange
Commission,  the  accompanying  pro forma balance sheet as of September 30, 1998
reflects the change in  capitalization  attributable  to the  conversion  of the
Company's  members'  interests into 5,145,000 shares of Tumbleweed,  Inc. Common
stock as if the IPO had closed on September 30, 1998  (excluding  the effects of
the offering  proceeds).  The pro forma balance sheet also reflects the deferred
tax effects of the Company changing from a nontaxable to a taxable status.  Such
deferred  tax  effects  will be included in income at the date the change in tax
status occurs.

      Additionally,  pro forma net income in the  accompanying  pro forma income
data for the nine  months and three  months  ended  September  30, 1998 and 1997
reflects a pro forma  adjustment to historical  net income for federal and state
income taxes at an assumed effective rate of 36%. Pro forma net income per share
is computed  based upon pro forma net income and the weighted  average number of
shares of common stock outstanding  during the period assuming the conversion of
the Company's  members'  interests  into common stock as of the beginning of the
period.

                                       6


<PAGE>
Item 2.
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Preliminary Note Regarding Forward-Looking Statements

      The following  discussion  includes  forward-looking  statements about the
Company and its  business.  For this purpose,  words such as expects,  believes,
estimates,  anticipates,  plans and similar expressions are intended to identify
forward-looking statements. This discussion also identifies important cautionary
factors that could cause the Company's actual results to differ  materially from
those  projected  in  forward-looking  statements  of the Company made by, or on
behalf of, the Company. 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 the  Company's
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.

General

      Of the 39 Tumbleweed  restaurants  as of September  30, 1998,  the Company
currently  owns and  operates  24  restaurants  in  Kentucky,  Indiana and Ohio,
franchises 12 restaurants  in Indiana,  Illinois,  Tennessee and Wisconsin,  and
licenses  two  restaurants  in  Germany  and one in Saudi  Arabia.  The  Company
anticipates opening two additional franchised  restaurants in the United States,
and two additional licensed  restaurants outside of the United States by the end
of 1998. The Company acquired the Tumbleweed business and other assets effective
on January 1, 1995.

      Immediately  before the  offering,  Tumbleweed,  LLC will  convert  from a
limited liability company into a C corporation by merging with Tumbleweed, Inc.,
a Delaware  corporation  formed on December  17,  1997.  As a limited  liability
company,  the Company has been treated as a partnership  for income tax purposes
and,  accordingly,  has incurred no federal or state income tax  liability.  The
discussion  of financial  condition  and results of  operations  included in the
paragraphs  that  follow  reflect a pro forma  adjustment  for federal and state
income taxes that would have been  recorded  during these periods if the Company
had been  subject to  corporate  income  taxes for the  periods  presented.  The
following  section should be read in conjunction  with the Form S-1 Registration
Statement number 333-57931 effective September 9, 1998.

                                       7
<PAGE>
Results of Operations

       The  following  table sets  forth the  percentage  relationship  to total
revenues of certain income  statement data,  except where noted, for the periods
indicated
<TABLE>
<CAPTION>
                                          Nine Months Ended   Three Months Ended
                                            September 30,        September 30,
                                           1998     1997        1998      1997
                                          ------   ------      ------    ------
<S>                                        <C>      <C>         <C>       <C>   
Revenues:
       Restaurant sales                    94.5 %   93.5 %      94.8 %    94.7 %
       Commissary sales                     2.4      3.6         2.2       2.5
       Franchise fees and royalties         1.8      1.6         1.6       1.6
       Other revenues                       1.3      1.3         1.4       1.2
                                          ------   ------      ------    ------
             Total revenues               100.0    100.0       100.0     100.0

Operating expenses:
       Restaurant cost of sales (1)        29.1     29.6        29.3      29.7
       Commissary cost of sales (2)        86.2     89.2        87.6      89.1
       Restaurant operating expenses (1)   51.5     50.0        51.0      48.6
       Selling, general and
             administrative                 9.7      9.9         9.0      10.6
       Depreciation and amortization        3.3      3.2         3.3       3.1
       Preopening amortization              1.7      2.0         2.1       1.7
                                         -------  -------    -------   -------
                                                             
             Total operating expenses      93.0     92.7        92.4      91.8
                                         -------  -------    -------   -------
             Income from operations         7.0      7.3         7.6       8.2
Interest expense, net                      -2.0     -1.5        -2.1      -1.3
                                         -------  -------    -------   -------
             Net  income                    5.0 %    5.8 %       5.5 %     6.9 %
                                         =======  =======    =======   =======

Historical net income                       5.0 %    5.8 %       5.5 %     6.9 %
Unaudited pro forma income taxes (3)       -1.8     -2.1        -2.0      -2.5
                                         -------  -------    -------   -------
                                                             
       Unaudited pro forma net income       3.2 %    3.7 %       3.5 %     4.4 %
                                         =======  =======    =======   =======

</TABLE>
------------------------

(1)  As percentage of restaurant sales.
(2)  As percentage of commissary sales.
(3)     The   unaudited   pro  forma   income   taxes   reflect  the  effect  of
        Reorganization  on the  historical  net income  assuming the Company was
        taxed  as a C  corporation  for  income  tax  purposes  with an  assumed
        combined federal and state effective tax rate of 36%.


                                      8


<PAGE>
COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997

      Total revenues  increased by $8,845,218 or 40.3% for the nine months ended
September  30, 1998  compared to the same period in 1997.  The increase in total
revenues  reflects  the opening of eight  additional  Company-owned  restaurants
since  September  30,  1997.  Restaurant  sales  at  Company-owned   restaurants
increased  $8,542,058  or 41.6% for the nine  months  ended  September  30, 1998
compared to the same period in 1997. Company-owned same store sales decreased by
0.3% for the nine months ended September 30, 1998.

      Commissary  sales  decreased  by $32,784 or 4.2% for the nine months ended
September 30, 1998,  compared to the same period in 1997. This was primarily due
to the decision to discontinue  commissary sales of products not manufactured by
the commissary.

      Franchise  fees and royalties  increased by $209,698 or 58.7% for the nine
months  ended  September  30,  1998,  compared to the same  period in 1997.  The
increase  was due  primarily  to $70,000 in  franchise  fees  received  upon the
opening of two new  franchised  restaurants,  $23,250 in territory fees received
from  international  operations and additional  royalties from three  franchised
restaurants opened since September 30, 1997.

      Other  revenues  increased  by $126,246 or 45.0% for the nine months ended
September  30, 1998  compared to the same  period in 1997,  primarily  due to an
increase in volume  related  purchasing  rebates of  approximately  $141,000 and
monies from the Ohio Bureau of Workers' Comp  representing  a return of invested
premiums  by the State of Ohio  totaling  approximately  $143,000  in 1998.  The
increases  were  offset in part by $178,000 in  insurance  proceeds  received in
1997.

      Restaurant  cost of sales  increased by  $2,398,036  or 39.5% for the nine
months  ended  September  30,  1998,  compared to the same  period in 1997.  The
increase was  principally due to the opening of eight  additional  Company-owned
restaurants. Restaurant cost of sales decreased as a percentage of sales by 0.5%
to 29.1% for the nine months ended  September 30, 1998 compared to 29.6% for the
same period in 1997. This decrease  resulted  primarily from improved  operating
efficiencies in the commissary and lower product costs at restaurant level.

      Commissary  cost of sales  decreased  $52,154 or 7.4% for the nine  months
ended  September 30, 1998 compared to the same period in 1997.  The decrease was
primarily due to the decision to  discontinue  commissary  sales of products not
manufactured  by the  commissary.  As a percentage to sales  commissary  cost of
sales decreased 3.0%. This was due to lower  ingredient  costs for products sold
by the commissary.

      Restaurant operating expenses increased by $4,696,756 or 45.7% in the nine
months  ended  September  30,  1998  compared  to the same  period in 1997.  The
increase  reflects the addition of eight  Company-owned  restaurants.  Operating
expenses  increased as a percentage  of  restaurant  sales to 51.5% for the nine
months  ended  September  30,  1998  compared  to 50.0% for same  period in 1997
primarily  due to a 1.4%  increase in freight and a 0.6%  increase in restaurant
level promotional  costs.  These costs were offset in part by a 0.6% decrease in
labor costs.


                                       9

<PAGE>
      Selling,  general and  administrative  expenses  increased  by $820,259 or
37.7% for the nine months ended  September  30, 1998 compared to the same period
in 1997.  The increase was due in part to the addition of  management  and staff
personnel during the nine months of 1998 to support the growing restaurant base.
Because of the Company's  restaurant  growth plans  management  expects selling,
general and  administrative  expenses  to  continue  to increase  during 1998 in
absolute dollars.

      Preopening  amortization  increased  $99,891 or 22.8% for the nine  months
ended  September 30, 1998  compared to the same period in 1997.  The increase is
due to the opening of eight additional Company-owned restaurants since September
30, 1997.

      Depreciation and amortization  expense increased  $328,894 or 47.3% in the
nine months  ended  September  30, 1998  compared to the same period in 1997 due
primarily to the addition of eight Company-owned restaurants.

      Net interest expense increased $288,569 or 91.1% for the nine months ended
September  30, 1998 compared to the same period in 1997.  The increase  resulted
from increased borrowings to fund the growth in Company-owned restaurants.

      The pro forma  adjustment  provides  for  statutory  federal and state tax
rates then in effect as though the Company had been subject to corporate  income
taxes for the periods presented.  The combined effective tax rate is 36% for the
nine months ended September 30, 1998 and 1997.

      As a result of the factors  discussed  above,  pro forma net income in the
nine months ended September 30, 1998 increased $169,579 or 20.7% compared to the
same period in 1997. Pro forma net income per share  increased to $0.19 or 20.7%
in the first nine months of 1998 from $.16 in the first nine months of 1997.


COMPARISON OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997

      Total revenues increased by $3,394,278 or 44.0% for the three months ended
September  30, 1998  compared to the same period in 1997.  The increase in total
revenues  reflects the opening of eight  additional  Company-owned  restaurants.
Restaurant sales at Company-owned  restaurants increased $3,216,081 or 44.1% for
the three months ended  September  30, 1998 compared to the same period in 1997,
and  Company-owned  same store sales  decreased  1.5% for the three months ended
September 30, 1998.


                                       10


<PAGE>
      Commissary  sales increased by $59,866 or 31.6% for the three months ended
September  30,  1998  compared  to the same  period  in 1997.  The  increase  is
primarily due to the opening of three franchised and two international  licensed
restaurants since September 1997.

      Franchise  fees and royalties  increased by $56,802 or 45.3% for the three
months  ended  September  30,  1998  compared  to the same  period in 1997.  The
increase  was due  primarily  to $18,000 of  territory  fees  received  from the
international  franchise operations and additional royalties of $38,800 from the
opening of three domestic franchise restaurants since September 30, 1997.

      Other  revenue  increased  by $61,529 or 64.3% for the three  months ended
September  30,  1998  compared  to the same  period  in 1997.  The  increase  is
partially due to an increase in volume  related  purchasing  rebates  during the
first  three  months of  approximately  $25,000.  There was also an  increase in
miscellaneous  income of  approximately  $27,000 from the health  insurance loss
participation  program  and the  school  queso  program.  The  Company  sold its
investment  in  TW-Tennessee  in 1998  which  included  a gain of  approximately
$58,200.  The 1997 results include  insurance  proceeds received during the same
period of 1997 of approximately $41,400.

      Restaurant  cost of sales  increased  by  $913,354  or 42.1% for the three
months ended September 30, 1998 compared to the same period in 1997, principally
due to  having  eight  additional  Company-owned  restaurants  open  during  the
quarter.  Restaurant  cost of sales decreased as a percentage of sales by .4% to
29.3% for the three months ended  September 30, 1998 compared to the same period
in  1997.   This  decrease  is  primarily  the  result  of  improved   operating
efficiencies in the commissary and lower product costs at restaurant level.


      Commissary cost of sales  increased  $49,714 or 29.5% for the three months
ended  September 30, 1998 compared to the same period in 1997,  primarily due to
the  addition of three  franchise  restaurants  and two  international  licensed
restaurants.  Commissary  cost of  sales as a  percentage  of  commissary  sales
decreased  1.5%.  This decrease is primarily due to lower  ingredient  costs for
products sold.


      Restaurant  operating  expenses  increased by  $1,814,219  or 51.1% in the
three  months  ended  September  30,  1998  compared to the same period in 1997,
principally  due to having  eight  additional  Company-owned  restaurants  open.
Operating  expenses  increased as a percentage of restaurant sales to 51.0% from
48.6% for the three months ended  September 30, 1998 compared to the same period
in 1997,  primarily  due to a 1.6%  increase  in freight  and a .9%  increase in
restaurant level promotional costs.

      Selling,  general and  administrative  expenses  increased  by $180,467 or
22.0% for the three months ended  September 30, 1998 compared to the same period
in 1997 due in part to the Company expanding its management and staff throughout
1998 reflecting the increased level of support  necessary to support the growing
restaurant base. The Company also increased  advertising  expense  approximately
$43,000 for the three  months  ended  September  30,  1998  compared to the same
period in 1997.  Because of the  Company's  restaurant  growth plans  management
expects these expenses to continue to increase during 1998 in absolute dollars.

                                       11
<PAGE>
      Preopening  amortization  increased $102,241 or 79.8% for the three months
ended  September 30, 1998 compared to the same period in 1997,  due primarily to
the addition of eight Company-owned restaurants since September 30, 1997.

      Depreciation and amortization  expense increased  $126,625 or 52.2% in the
three months ended  September  30, 1998  compared to the same period in 1997 due
primarily to the addition of eight Company-owned restaurants since September 30,
1997.

      Net  interest  expense  increased  $126,612 or 127.2% for the three months
ended  September  30, 1998  compared to the same  period in 1997.  The  increase
resulted  from  increased   borrowings  to  fund  the  growth  in  Company-owned
restaurants.

      The pro forma  adjustment  provides  for  statutory  federal and state tax
rates then in effect as though the Company had been subject to corporate  income
taxes  for the  periods  presented.  The  effective  tax rates are 36% for three
months ended September 30, 1998 and 1997.

      As a result of the factors  discussed  above,  pro forma net income in the
three months ended September 30, 1998 increased $51,869 or 15.2% compared to the
same period in 1997. Pro forma net income per share  increased to $0.08 or 15.2%
in the three months ended  September  30, 1998 from $0.07 during the same period
of 1997.

Liquidity and Capital Resources

      The Company's  principal  capital needs arise from the  development of new
restaurants, and to a lesser extent, maintenance and improvement of its existing
facilities.  The principal  sources of capital to fund these  expenditures  were
internally  generated  cash  flow,  bank  borrowings  and lease  financing.  The
following table provides certain information regarding the Company's sources and
uses of capital for the Nine Months Ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
                                                        Nine Months
                                                       Ended Sept 30,
                                                       --------------

                                                      1998        1997
                                                      ----        ----
<S>                                                <C>         <C>       
Net cash provided by operations                    $2,218,961  $2,720,787

Purchases of property and equipment                $5,619,749  $3,790,037

Net distributions of                               $  651,445  $  425,001
 Members' equity

Net borrowings on long-                            $3,360,462  $1,348,019
 term debt and capital
 lease obligations
</TABLE>

      The  Company's   single   largest  use  of  funds  has  been  for  capital
expenditures  consisting  of land,  building and equipment  associated  with its
restaurant  expansion  program.  The substantial  growth of the Company over the
period  has not  required  significant  additional  working  capital.  Sales are
predominantly  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.

      Capital  expenditures  and  preopening  cost for the remainder of 1998 are
estimated to range from $300,000 to $400,000 for the initial  development  costs
of restaurants expected to open in early 1999. In addition, the Company plans to
spend approximately $60,000 during the remainder of 1998 to renovate and replace
equipment in existing restaurants.



                                       12
<PAGE>
      The Company will utilize mortgage,  sale/leaseback and landlord financing,
as well as  equipment  leasing  and  financing,  for a  portion  of the  initial
development costs of restaurants to be opened in early 1999. The remaining costs
will be financed though  available cash reserves,  cash provided from operations
and borrowing  capacity.  Management believes such sources will be sufficient to
fund the Company's expansion plans for the remainder of 1998.

      The Company has a $5.0 million  revolving  credit  facility  with National
City Bank (the "Credit  Facility").  As of September  30, 1998,  the Company had
outstanding  borrowings under the Credit Facility of approximately $4.2 million.
The Credit  Facility  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.

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

Impact of Inflation

      The impact of inflation on the cost of food,  labor,  equipment,  land and
construction  costs could  affect the  Company's  operations.  A majority of the
Company's  employees  are paid hourly rates related to federal and state minimum
wage laws. In addition,  most of the Company's leases require the Company to pay
taxes,  insurance,  maintenance,  repairs and utility costs, and these costs are
subject to inflationary pressures. Most of the leases also provide for increases
in rent  based on  increases  in the  consumer  price  index when the leases are
renewed.  The  Company  may  attempt to offset the effect of  inflation  through
periodic  menu  price  increases,  economies  of  scale in  processing  and cost
controls and  efficiencies  at existing  restaurants.  Management  believes that
inflation had no  significant  impact on cost last year,  primarily  because the
largest  single item of expense,  food costs,  has  remained  relatively  stable
during this period.

Impact of Year 2000

      The Company has scheduled the replacement of certain of its older computer
systems  with  hardware  and  software  that has been  certified to be Year 2000
compliant.  The Company has also  completed an assessment of its other  computer
systems and will modify or replace portions of its software so that its computer
systems will function  properly with respect to dates in or after the year 2000.
The total Year 2000 project cost is estimated at approximately  $270,000,  which
includes  $255,000 for the  purchase of new  hardware and software  that will be
capitalized and $30,000 that will be expensed as incurred.  To date, the Company
has not incurred any expense relating to the Year 2000 project.

      The project is estimated to be completed  not later than July 1999,  which
is prior  to any  anticipated  impact  on its  operating  systems.  The  Company
believes that as a result of the installation of new hardware, the modifications
to existing  software and conversions to new software,  the Year 2000 issue will
not pose significant operational problems for its computer systems.  However, if
such  modifications  and conversions are not made, or are not completed  timely,
inability of its computer  systems to function  accurately could have a material
impact on the operations of the Company.

      The costs of the  project  and the date on which the  Company  believes it
will  complete  the Year  2000  modifications  are  based on  management's  best
estimates,  which were based on numerous assumptions of future events, including
the continued  availability  of certain  resources and other  factors.  However,
there can be no  guarantee  that these  estimates  will be  achieved  and actual
results could differ  materially from those  anticipated.  Specific factors that
might  cause such  material  differences  include,  but are not  limited to, the
availability  and cost of personnel  trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.


ITEM 3 Quantitative and Qualitative disclosures about market risk.

            None


                                       13

<PAGE>
PART II.    OTHER INFORMATION

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits:
     
       *2.1     Agreement and Plan of Merger, dated as of June 23, 1998,
                between Tumbleweed, LLC and Registrant

       *3.1     Certificate of Incorporation of Registrant

       *3.2     Bylaws of Registrant

      *10.1     Revolving Credit Loan Agreement, dated January 24, 1995,
                between Bank One, Kentucky, N.A. (f/k/a Liberty National
                Bank & Trust Company of Kentucky) and Registrant

      *10.2     Revolving Line of Credit Note, dated August 8, 1996,
                between Tumbleweed, LLC and National City Bank of
                Kentucky and related Loan Agreement

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

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

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

      *10.6     Lease Agreement, dated August 28, 1997 between West Broad
                Development, LLC and Tumbleweed, LLC

      *10.7     Lease Agreement between Keller LLC and Tumbleweed LLC

      *10.8     Agreement and Assignment, dated April 20, 1995, between
                Keller LLC and Tumbleweed, LLC

      *10.9     Lease Agreement, dated April 1, 1995, between Douglas
                Ventures, Abfam, Inc. and Blue Door Bowling Green Joint
                Venture

      *10.10    Sublease Agreement, dated June 30, 1995, among Douglas
                Ventures, Abfam, Inc., Blue Door Bowling Green Joint
                Venture and Tumbleweed, LLC

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

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



                                       14

<PAGE>
      *10.13    Asset Purchase Agreement, dated October 1, 1996, between
                Tex Mex To You, LLC and Tumbleweed, LLC

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

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

      *10.16    Form of Standard Franchise Agreement for Tumbleweed, LLC

      *10.17    Articles of Incorporation of Tumbleweed Marketing Fund,
                Inc

      *10.18    By laws of Tumbleweed Marketing Funds, Inc.

      *10.19    Bonus Compensation Plan for Senior Executives

       27.1     Financial Data Schedule

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

        *       Incorporated by reference to exhibits of the same number
                files with Form S-1 Registration No. 333-57931

      (b) Reports on Form 8-K

          Tumbleweed,  LLC filed no  reports on Form 8-K during the
          quarter ended September 30, 1998.

Items 1,2,3,4 and 5 are not applicable and have been omitted.



                                  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 10, 1998             Tumbleweed, Inc.

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



                                       15