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 June 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 August 1, 2000 was 5,842,230.


Exhibit Index: Page 19












<PAGE>



                                TUMBLEWEED, INC.

                                      INDEX


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

  Item 2.     Management's Discussion and Analysis of
              Financial Condition and Results of Operations                  12

  Item 3.     Quantitative and Qualitative Disclosures About Market Risk     18


PART II.    OTHER INFORMATION

  Item 1.     Legal Proceedings                                              19
  Item 6.     Exhibits and Reports on Form 8-K                               19

Signature                                                                    20





                                        2

<PAGE>



                                Tumbleweed, Inc.
                        Consolidated Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                Six Months Ended               Three Months Ended
                                                                     June 30                         June 30
                                                               2000           1999             2000           1999
                                                           ------------   ------------     ------------    -----------
Revenues:
<S>                                                        <C>            <C>              <C>             <C>
   Restaurant sales                                        $25,707,386    $23,927,217      $12,886,116     $12,594,899
   Commissary sales                                            855,268        562,647          432,662         276,411
   Franchise fees and royalties                                653,768        532,662          424,802         281,493
   Gain from insurance proceeds due to involuntary
     conversion of non-monetary assets                         434,311              -          434,311               -
   Other revenues                                              373,288        206,397          213,764         116,751
                                                           ------------    -----------     ------------    -----------
Total revenues                                              28,024,021     25,228,923       14,391,655      13,269,554
Operating expenses:
   Restaurant cost of sales                                  7,365,672      6,963,848        3,694,028       3,700,447
   Commissary cost of sales                                    748,497        514,882          373,393         254,629
   Operating expenses                                       13,412,697     11,954,963        6,667,642       6,122,553
   Selling, general and administrative expenses              2,798,410      2,491,530        1,522,403       1,306,802
   Preopening expenses                                         375,751        255,033          289,688         120,228
   Depreciation and amortization                             1,034,477        862,735          516,458         444,270
   Loss on guarantees of indebtedness                          475,000              -          475,000               -
                                                           ------------    -----------     ------------    -----------
Total operating expenses                                    26,210,504     23,042,991       13,538,612      11,948,929
                                                           ------------    -----------     ------------    -----------
Income from operations                                       1,813,517      2,185,932          853,043       1,320,625
Other income (expense):
   Interest income                                               8,160         23,597            3,888           6,574
   Interest expense                                           (658,719)      (546,121)        (337,249)       (282,756)
                                                           ------------    -----------     ------------    -----------
Total other expense                                           (650,559)      (522,524)        (333,361)       (276,182)
                                                           ------------    -----------     ------------    -----------
Income before income taxes and cumulative effect of a
   change in accounting principle                            1,162,958      1,663,408          519,682       1,044,443
Provision for income taxes:
   Current and deferred                                       (407,035)      (582,193)        (181,889)       (365,555)
   Deferred taxes related to change in tax status                    -       (639,623)               -               -
                                                           ------------    -----------     ------------    -----------
Total provision for income taxes                              (407,035)    (1,221,816)        (181,889)       (365,555)
                                                           ------------    -----------     ------------    -----------
Income before cumulative effect of a change
    in accounting principle                                    755,923        441,592          337,793         678,888
Cumulative effect of a change in accounting principle,net
   of tax                                                            -       (341,035)               -               -
                                                           ------------    -----------     ------------    -----------
Net income                                                $    755,923    $   100,557      $   337,793      $  678,888
                                                           ============    ===========     ============    ===========
Basic and diluted earnings per share:
   Income before cumulative effect of a change in
     accounting principle                                 $       0.13    $      0.08      $      0.06      $     0.12
   Cumulative effect of a change in accounting principle,
     net of tax                                                      -          (0.06)               -               -
                                                           ------------    -----------     ------------    -----------
   Net income                                             $       0.13    $      0.02      $      0.06      $     0.12
                                                           ============    ===========     ============    ===========
Pro forma income data:
   Income before income taxes and cumulative effect of a
     change in accounting principle as reported                           $ 1,663,408
   Pro forma income taxes                                                    (582,193)
                                                                           -----------
   Pro forma income before cumulative effect of a change
     in accounting principle                                                1,081,215
   Cumulative effect of a change in accounting principle,
      net of tax                                                             (341,035)
                                                                           -----------
   Pro forma net income                                                   $   740,180
                                                                           ===========
Pro forma basic and diluted earnings per share:
   Pro forma income before cumulative effect of a change
     in accounting principle                                              $      0.18
   Cumulative effect of a change in accounting principle,
     net of tax                                                                 (0.06)
                                                                           -----------
   Pro forma net income                                                   $      0.12
                                                                           ===========
</TABLE>
                                       3
<PAGE>





                                Tumbleweed, Inc.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                           June 30        December 31
                                                            2000             1999
                                                         (Unaudited)
                                                        -------------    ------------
Assets
Current assets:
<S>                                                     <C>             <C>
   Cash and cash equivalents                            $    470,948    $    640,189
   Accounts receivable                                       884,561         606,283
   Receivable from insurance company                       1,219,532               -
   Inventories                                             1,715,136       1,597,794
   Prepaid expenses                                          395,831         389,271
                                                        ------------    ------------
Total current assets                                       4,686,008       3,233,537
Property and equipment, net                               30,296,657      30,147,559
Goodwill, net of accumulated amortization of
   $607,314 in 2000 and $551,478 in 1999                   2,681,429       2,737,265
Other assets                                                 497,900         460,817
                                                        ------------    ------------
Total assets                                            $ 38,161,994    $ 36,579,178
                                                        ============    ============
Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                     $  1,858,843    $  1,102,024
   Accrued liabilities                                     2,119,540       1,832,736
   Deferred income taxes                                     222,192         286,885
   Current maturities on long-term
     debt and capital leases                               1,532,443       1,028,443
                                                        ------------    ------------
Total current liabilities                                  5,733,018       4,250,088
Long-term liabilities:
   Long-term debt, less current maturities                10,925,020      11,347,047
   Capital lease obligations, less current maturities      2,522,656       2,769,339
   Deferred income taxes                                     749,541         489,869
   Other liabilities                                         155,000         160,000
                                                        ------------    ------------
Total long-term liabilities                               14,352,217      14,766,255
                                                        ------------    ------------
Total liabilities                                         20,085,235      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 June 30, 2000 and December 31, 1999                   58,818          58,818
   Paid-in capital                                        16,294,006      16,294,006
   Treasury stock, 39,400 shares at June 30, 2000           (241,999)              -
   Retained earnings                                       1,965,934       1,210,011
                                                        ------------    ------------
     Total stockholders' equity                           18,076,759      17,562,835
                                                        ------------    ------------
Total liabilities and stockholders' equity              $ 38,161,994    $ 36,579,178
                                                        ============    ============
</TABLE>

See accompanying notes.



                                        4

<PAGE>




                                Tumbleweed, Inc.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                   Six Months Ended
                                                                        June 30
                                                                  2000           1999
                                                              -----------    -----------

Operating activities:
<S>                                                           <C>            <C>
   Net income                                                 $   755,923    $   100,557
   Adjustments to reconcile net income to net
       cash provided by operating activities:
        Depreciation and amortization                           1,034,477        862,735
        Deferred income taxes                                     194,979        653,267
        Loss on guarantees of indebtedness                        475,000              -
        Gain from insurance proceeds due to involuntary
          conversion of non-monetary assets                      (434,311)             -
        Loss on disposition of property and equipment              14,252          3,616
        Changes in operating assets and liabilities:
          Accounts receivable                                    (337,714)      (166,401)
          Inventories                                            (160,329)      (193,508)
          Deferred preopening expenses                                  -        524,669
          Prepaid expenses                                         (9,504)       (47,748)
          Other assets                                            (50,627)       (52,103)
          Accounts payable                                        756,820         44,787
          Accrued liabilities                                    (188,196)        31,779
          Other liabilities                                        (5,000)        (1,498)
                                                              -----------    -----------
Net cash provided by operating activities                       2,045,770      1,760,152

Investing activities:
   Purchases of property and equipment                         (1,808,302)    (4,765,368)
                                                              ------------   -----------
Net cash used in investing activities                          (1,808,302)    (4,765,368)

Financing activities:
   Proceeds from common stock offering                                  -      7,765,397
   Proceeds from issuance of long-term debt                     1,704,000      6,243,435
   Payments on long-term debt and capital lease obligations    (1,868,710)    (4,530,820)
   Payment on short-term borrowings                                     -     (6,990,348)
   Purchase of treasury stock                                    (241,999)             -
   Payment of public offering costs                                     -       (492,571)
                                                              -----------    -----------
Net cash provided by (used in) financing activities              (406,709)     1,995,093
                                                              -----------    -----------
Net decrease in cash and cash equivalents                        (169,241)    (1,010,123)
Cash and cash equivalents at beginning of period                  640,189      1,898,973
                                                              -----------    -----------
Cash and cash equivalents at end of period                    $   470,948    $   888,850
                                                              ===========    ===========
Supplemental cash flow information:
   Cash paid for interest, net of amount capitalized          $   643,279    $   544,570
                                                              ===========    ===========
   Cash paid for income taxes                                 $   292,492    $   311,150
                                                              ===========    ===========

</TABLE>

See accompanying notes.





                                        5

<PAGE>



                                TUMBLEWEED, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  June 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 June 30, 2000,  the Company owns and operates 32  restaurants in Kentucky,
Indiana and Ohio and  franchises  an  additional  22  restaurants  in  Kentucky,
Indiana, Illinois, Tennessee, Wisconsin, West Virginia and Michigan. The Company
also licenses seven  restaurants  in Germany,  Jordan,  Saudi Arabia,  Egypt and
England.   Since  June  30,  2000,   the  Company  has  opened  one   additional
Company-owned  restaurant  in Indiana and one  franchise  restaurant  located in
Clarksville, Tennessee ceased operations.

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 six months and three  months ended June 30, 2000
are not necessarily  indicative of the results that may be expected for the year
ended December 31, 2000.

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 six
months  ended June 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.


                                        6

<PAGE>



3.   ACCRUED LIABILITIES

Accrued liabilities consist of:

                                                   June 30    December 31
                                                     2000        1999
                                                 -----------  ----------

Accrued payroll and related taxes                $  824,998   $  611,566
Accrued insurance and fees                          152,362      251,923
Accrued taxes, other than payroll                   420,381      423,954
Gift certificate liability                          162,487      396,747
Reserve for loss on guarantees of indebtedness      475,000            -
Other                                                84,312      148,546
                                                 ----------   ----------
                                                 $2,119,540   $1,832,736
                                                 ==========   ==========

4.   LONG-TERM DEBT

Long-term debt consists of:



                                                          June 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 June 30, 2000), due
  December 31, 2003                                    $ 5,072,148   $ 5,242,148

Secured mortgage note payable, bearing interest
  at commercial  paper rate plus 2.65% (9.25% at
  June 30, 2000), due February 17, 2006                  2,596,416     2,691,433

Secured mortgage note payable, bearing interest at
  prime rate plus 1% (10.5% at June 30, 2000),
  payable in monthly installments through October 1,
  2017                                                   1,050,261     1,061,614

Secured mortgage note payable, bearing interest at
  8.75%, payable in monthly installments through
  February 15, 2008                                        940,047       957,992

Secured mortgage note payable,  bearing interest
  at prime rate (9.5% at June 30, 2000), payable
  in monthly installments through March 1, 2006            650,233       658,071

Secured mortgage note payable, bearing interest a
  prime rate plus 1.25% (10.75% at June 30, 2000),
  payable in monthly installments through
  November 27, 2016                                        615,625       634,375

Secured mortgage note payable bearing interest at
  commercial  paper rate plus 2.65% (9.25% at
  June 30, 2000), due December 31, 2000                    508,395         4,395

Other installment notes payable                            519,081       620,204
                                                        ----------    ----------
                                                        11,952,206    11,870,232
Less current maturities                                  1,027,186       523,185
                                                        ----------    ----------
Long-term debt                                         $10,925,020   $11,347,047
                                                        ==========    ==========

Property and equipment  with a net book value of  approximately  $19,800,000  at
June 30, 2000 collateralize the Company's long-term debt.


                                        7

<PAGE>
5.  RELATED PARTY TRANSACTIONS

As of June 30, 2000,  accounts  receivable includes $156,024 of management fees,
royalties,  a franchise  fee and  reimbursement  of store payroll costs due from
four related party limited liability companies who own four 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 four  related  party  companies  were
$153,699  during the six months ended June 30, 2000 and were $143,909 during the
three  months  ended June 30, 2000.  Management  fees related to these  entities
totaled  $32,466  during the six month period and were $25,939  during the three
month period.  There were no revenues from these  related  companies  during the
1999 six 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 June
30, 2000, the franchisee owes the supplier $157,442.

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

6.  COMMITMENTS

At June 30, 2000, the Company had commitments of approximately  $500,000 for the
completion of the construction of four restaurants;  three of which were open at
June 30. The  commitments  will be funded by cash reserves and proceeds from the
$6,500,000 mortgage revolving line of credit.

7.  EARNINGS PER SHARE

The following is a  reconciliation  of the Company's basic and diluted  earnings
per share for the six months and three  months  ended June 30,  2000 and 1999 in
accordance with FAS 128, "Earnings per Share."

<TABLE>
<CAPTION>
                                                        Six Months Ended       Three Months Ended
                                                            June 30                   June 30

                                                       2000         1999         2000        1999
                                                    ----------   ----------   ----------   ---------
Numerator:
<S>                                                <C>          <C>          <C>          <C>
   Income before cumulative effect of a change
      in accounting principle                      $   755,923  $   441,592  $   337,793  $  678,888
   Cumulative effect of a change in accounting
      principle, net of tax                                  -     (341,035)           -           -
                                                    ----------   ----------   ----------   ---------
   Net income                                      $   755,923  $   100,557  $   337,793  $  678,888
                                                    ==========   ==========   ==========   =========
   Pro forma income data :
     Pro forma income before cumulative effect
       of a change in accounting principle                      $ 1,081,215
     Cumulative effect of a change in accounting
       principle, net of tax                                       (341,035)
                                                                 ----------
     Pro forma net income                                       $   740,180
                                                                 ==========
Denominator :
   Weighted average shares
     outstanding                                     5,859,051    5,881,630    5,843,467   5,881,630
   Effect of dilutive securities:
     Employee stock options                                943            -            -           -
                                                    ----------   ----------   ----------   ---------
   Denominator for diluted earnings
     per share-adjusted weighted
     average and assumed conversions                 5,858,108    5,881,630    5,843,467   5,881,630
                                                    ==========   ==========   ==========   =========
</TABLE>

8.   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

                                       8

<PAGE>



8.  SEGMENT INFORMATION (CONTINUED)

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 six months ended June 30 is as follows:

<TABLE>
<CAPTION>

2000:

                                                  Restaurant     Commissary     Corporate      Totals
                                                  -----------    -----------   -----------   -----------
<S>                                              <C>           <C>           <C>           <C>
Revenues from external
   customers                                     $25,707,386   $   855,268   $ 1,461,367    $28,024,021
Intersegment revenues                                      -     1,282,891             -      1,282,891
General and
   administrative expenses                                 -             -     2,181,323      2,181,323
Advertising expenses                                       -             -       617,087        617,087
Depreciation and
   amortization                                      814,258        59,576       160,643      1,034,477
Net interest expense                                       -        88,050       562,509        650,559
Income (loss) before income taxes and
   cumulative effect of a change in
   accounting principle                            3,603,945        47,696    (2,488,683)     1,162,958


1999:
                                                  Restaurant     Commissary     Corporate       Totals
                                                  -----------    -----------   -----------    -----------
Revenues from external
   customers                                     $23,927,217   $   562,647   $   739,059    $25,228,923
Intersegment revenues                                      -     1,312,843             -      1,312,843
General and
   administrative expenses                                 -             -     1,881,146      1,881,146
Advertising expenses                                       -             -       610,384        610,384
Depreciation and
   amortization                                      688,693        59,376       114,666        862,735
Net interest expense                                       -        84,850       437,674        522,524
Income (loss) before income taxes and
   cumulative effect of a change in
   accounting principle                            3,948,071        14,993    (2,299,656)     1,663,408

</TABLE>
















                                        9

<PAGE>



8.  SEGMENT INFORMATION (CONTINUED)

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


<TABLE>
<CAPTION>




2000:
                                                     Restaurant      Commissary    Corporate       Totals
                                                   -------------   -------------  ------------  -------------
<S>                                                 <C>           <C>            <C>            <C>
Revenues from external
   customers                                        $12,886,116   $   432,662    $ 1,072,877    $14,391,655
Intersegment revenues                                         -       648,982              -        648,982
General and
   administrative expenses                                    -             -      1,166,845      1,166,845
Advertising expenses                                          -             -        355,558        355,558
Depreciation and
   amortization                                         405,837        29,888         80,733        516,458
Net interest expense                                          -        44,025        289,336        333,361
Income (loss) before income taxes and
   cumulative effect of a change in
   accounting principle                               1,860,404        29,696     (1,370,418)       519,682

1999:
                                                     Restaurant    Commissary      Corporate       Totals
                                                    -----------    -----------    -----------   -----------
Revenues from external
   customers                                        $12,594,899   $   276,411    $   398,244    $13,269,554
Intersegment revenues                                         -       644,958              -        664,958
General and
   administrative expenses                                    -             -        981,380        981,380
Advertising expenses                                          -             -        325,422        325,422
Depreciation and
   amortization                                         356,054        29,688         58,528        444,270
Net interest expense                                          -        43,025        233,157        276,182
Income (loss) before income taxes and
   cumulative effect of a change in
   accounting principle                               2,211,443          (105)    (1,166,895)     1,044,443
</TABLE>


9.  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 as a  receivable  $59,436  from the  insurance  company in
relation to business interruption. This amount is recorded in other revenues.

10.  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 six months ended June 30, 1999.

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

                                       10

<PAGE>



11.  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 June 30, 2000, the Company
has repurchased 39,400 shares at a total cost of $241,999.

12.  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 June 30, 2000, the Company has 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  $803,000.  During 1999,  the Landlord  under the lease  financing
agreement  declared TW-  Tennessee to be in default,  and  accelerated  the rent
obligations under the leases.  Negotiations  ensued between the Landlord and the
principals of TW-Tennessee regarding the restructuring of the lease obligations.
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.  The
Landlord  has  demanded  a  judgment  against  TW-Tennessee  in  excess of $21.8
million,  and a judgment  jointly and severally  against the  guarantors  named,
including  the  Company  and  the  Director,  in  the  amount  of  $6,647,582.77
representing a portion of the amounts claimed against TW-Tennessee.

Subsequent to June 30, 2000, the Landlord terminated settlement negotiations and
refused  to  grant  a  further  extension  of  time  to  restructure  the  lease
obligations and to answer the suit filed against  TW-Tennessee,  the Company and
the other defendants. As a result, certain defendants including the Company have
filed an answer to the suit described  above, as well as  counterclaims  against
the Landlord. The Company's management believes that it is probable that it will
incur a loss related to the Company's  guarantees of TW-Tennessee's  obligations
and has  therefore,  established a reserve of $475,000 as of June 30, 2000.  The
reserve amount was based on the Company's share of the various guarantees and an
estimated  amount for legal costs  which will  likely be incurred in  connection
with the resolution of this matter.



























                                       11

<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 61 Tumbleweed  restaurants  as of June 30, 2000, we owned and operated 32
restaurants in Kentucky, Indiana and Ohio, franchised 22 restaurants in Indiana,
Illinois,  Kentucky,  Tennessee,  Wisconsin,  West  Virginia and  Michigan,  and
licensed seven restaurants in Germany,  Jordan, Saudi Arabia, Egypt and England.
Since  June 30,  2000,  the  Company  has opened  one  additional  company-owned
restaurant  in Indiana  and one  franchise  restaurant  located in  Clarksville,
Tennessee ceased operations.

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.































                                       12

<PAGE>

<TABLE>
<CAPTION>



                                           Six Months Ended  Three Months Ended
                                               June 30           June 30
                                            2000     1999     2000     1999
                                            -----    -----    -----    -----
Revenues:
<S>                                         <C>      <C>      <C>      <C>
   Restaurant sales                         91.8 %   94.9 %   89.5 %   94.9 %
   Commissary sales                          3.1      2.2      3.0      2.1
   Franchise fees and royalties              2.3      2.1      3.0      2.1
   Gain from insurance proceeds due to
     involuntary conversion of
     non-monetary assets                     1.5      -        3.0      -
   Other revenues                            1.3      0.8      1.5      0.9
                                           -----    -----    -----    -----
     Total revenues                        100.0    100.0    100.0    100.0
Operating expenses:
   Restaurant cost of sales (1)             28.6     29.1     28.7     29.4
   Commissary cost of sales (2)             87.5     91.5     86.3     92.1
   Operating expenses (1)                   52.2     50.0     51.7     48.6
   Selling, general and administrative
     expenses                               10.0      9.9     10.6      9.8
   Preopening expenses                       1.3      1.0      2.0      0.9
   Depreciation and amortization             3.7      3.4      3.6      3.3
   Loss on guarantees of indebtedness        1.7      -        3.3      -
                                           -----    -----    -----    -----
     Total operating expenses               93.5     91.3     94.1     90.0
                                           -----    -----    -----    -----
     Income from operations                  6.5      8.7      5.9     10.0
   Interest expense, net                    (2.3)    (2.1)    (2.3)    (2.1)
                                           -----    -----    -----    -----
Income before income taxes and
   cumulative effect of a change in
   accounting principle                      4.2      6.6      3.6      7.9
Provision for income taxes:
   Current and deferred                     (1.5)    (2.3)    (1.3)    (2.8)
   Deferred taxes related to change in
     tax status                              -       (2.5)     -        -
                                           -----    -----    -----    -----
Total provision for income taxes            (1.5)    (4.8)    (1.3)    (2.8)
                                           -----    -----    -----    -----
Income before cumulative effect
   of a change in accounting principle       2.7      1.8      2.3      5.1
Cumulative effect of a change in
   accounting principle, net of tax          -       (1.4)     -        -
                                           -----    -----    -----    -----
Net income                                   2.7 %    0.4 %    2.3 %   5.1%
                                           =====    =====    =====    =====
Pro forma income data:
   Income before income taxes and
     cumulative effect of a change in
     accounting principle as reported                 6.6 %
   Pro forma income taxes (3)                        (2.3)
                                                     -----
   Pro forma income before cumulative
     effect of a change in accounting
       principle                                      4.3
   Cumulative effect of a change in
     accounting principle, net of tax                (1.4)
                                                     -----
   Pro forma net income                               2.9 %
                                                     =====

<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>




                                       13

<PAGE>



COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999

Total  revenues  increased by  $2,795,098 or 11.1% for the six months ended June
30,  2000  compared  to the same  period  in 1999  primarily  as a result of the
following:

   Restaurant  sales  increased by  $1,780,169  or 7.4% for the six months ended
   June 30,  2000  compared  to the same  period in 1999.  The  increase  is due
   primarily to the addition of five  company-owned  restaurants  since June 30,
   1999. The increase is partially offset by a 3.0% decrease in same store sales
   for the six month period.

   Commissary sales to franchised and licensed restaurants increased by $292,621
   or 52.0% for the six months  ended June 30, 2000  compared to the same period
   in 1999. The increase is due primarily to the addition of nine  franchised or
   licensed restaurants since June 30, 1999.

   Franchise  fees and  royalties  increased  by  $121,106  or 22.7% for the six
   months ended June 30, 2000 compared to the same period in 1999.  The increase
   was due to a $35,000  increase in franchise fees received upon the opening of
   five new  franchised  restaurants  during the six months  ended June 30, 2000
   compared to four during
   the same  period in 1999.  Additionally,  royalty  income  increased  $86,106
   during  the six months  ended June 30,  2000  compared  to the same period in
   1999.

   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 9 of
   the  accompanying financial statements for a detail discussion.

   Other  revenues  increased by $166,891 or 80.9% for the six months ended June
   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
   six month period  includes  $59,436 of insurance  proceeds as it relates to a
   business  interruption as a result of a fire at a  Company-owned  restaurant.
   See Note 9 of the accompanying financial statements for a detail discussion.
   There was no similar income in the 1999 six month period.

Restaurant  cost of sales increased by $401,824 or 5.8% for the six months ended
June 30, 2000 compared to the same period in 1999. The increase was  principally
due to the opening of five additional  Company-owned  restaurants since June 30,
1999.  The  increase  in  restaurant  cost of  sales  was  partially  offset  by
purchasing  efficiencies.  Restaurant cost of sales decreased as a percentage of
sales by 0.5% to 28.6% for the six months ended June 30, 2000  compared to 29.1%
during the same period in 1999.

Commissary  cost of sales  increased  $233,615 or 45.4% for the six months ended
June 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 June 30, 2000. As a percentage to sales,  commissary  cost of
sales decreased 4.0% for the six months ended June 30, 2000 compared to the same
period in 1999 due to lower manufactured food costs in 2000.

Restaurant  operating  expenses  increased  by  $1,457,734  or 12.2% for the six
months  ended June 30, 2000  compared to the same period in 1999.  The  increase
reflects the  addition of five  Company-owned  restaurants  since June 30, 1999.
Operating  expenses  increased as a percentage of restaurant  sales to 52.2% for
the six  months  ended  June 30,  2000 from  50.0%  for the same  period in 1999
primarily  due to a 0.7%  increase in  promotional  costs and a 0.6% increase in
management payroll costs.

Selling,  general and administrative expenses increased by $306,880 or 12.3% for
the six months  ended June 30, 2000  compared  to the same  period in 1999.  The
increase  was due in part to the  addition  of  management  and staff  personnel
during  1999 and the six months  ended  June 30,  2000 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 the  remainder  of 2000 in absolute  dollars.  As a  percentage  to total
revenues,  selling,  general and administrative  expenses were 10.0% and 9.9% of
revenues for the six months ended June 30, 2000 and 1999, respectively.

Preopening expenses were $375,751 and $255,033 for the six months ended June 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.


                                       14

<PAGE>



Depreciation and amortization  expense  increased  $171,742 or 19.9% for the six
months ended June 30, 2000  compared to the same period in 1999 due primarily to
the addition of five Company-owned restaurants since June 30, 1999.

Net interest expense  increased  $128,035 or 24.5% for the six months ended June
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 six months ended June 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  $325,292  or 30.1% for the six months  ended June 30, 2000
compared to pro forma income before  cumulative effect of a change in accounting
principle  for the six months  ended June 30,  1999.  Earnings  per share before
cumulative  effect of a change  in  accounting  principle  was $0.13 for the six
months  ended June 30, 2000 as compared to pro forma  earnings  per share before
cumulative  effect  of a change  in  accounting  principle  of $0.18 for the six
months ended June 30, 1999.

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

Total  revenues  increased by $1,122,101 or 8.5% for the three months ended June
30,  2000  compared  to the same  period  in 1999  primarily  as a result of the
following:

   Restaurant  sales  increased  by $291,217 or 2.3% for the three  months ended
   June 30,  2000  compared  to the same  period in 1999.  The  increase  is due
   primarily to the addition of five  Company-owned  restaurants  since June 30,
   1999. The increase is partially offset by a 5.8% decrease in same store sales
   for the three month period.

   Commissary sales to franchised and licensed restaurants increased by $156,251
   or 56.5% for the three months ended June 30, 2000 compared to the same period
   in 1999. The increase is due primarily to the addition of nine  franchised or
   licensed restaurants since June 30, 1999.

   Franchise  fees and  royalties  increased  by $143,309 or 50.9% for the three
   months ended June 30, 2000 compared to same period in 1999.  The increase was
   due to a $70,000 increase in franchise fees received upon the opening of four
   new  franchised  restaurants  during the three  months  ended  June 30,  2000
   compared to two during the same period in 1999. Additionally,  royalty income
   increased $73,309 during the three months ended June 30, 2000 compared to the
   same period in 1999.

   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 9 of
   the accompanying financial statements for a detail discussion.

   Other revenues  increased by $97,013 or 83.1% for the three months ended June
   30, 2000 compared to the same period in 1999  primarily due to an increase in
   volume related purchasing  rebates.  In addition,  other revenues in 2000 for
   the three month period includes  $59,436 of insurance  proceeds as it relates
   to  a  business  interruption  as  a  result  of a  fire  at a  Company-owned
   restaurant.  See Note 9 of the accompanying financial statements for a detail
   discussion. There was no similar income in the 1999 three month period.

Restaurant  cost of sales decreased by $6,419 or 0.2% for the three months ended
June 30, 2000 compared to the same period in 1999. The decrease was  principally
due  to  purchasing  efficiencies  partially  offset  by  the  opening  of  five
additional  Company-owned  restaurants  since June 30, 1999.  Restaurant cost of
sales  decreased as a percentage  of sales by 0.7% to 28.7% for the three months
ended June 30, 2000 compared to 29.4% during the same period in 1999.

Commissary cost of sales increased  $118,764 or 46.6% for the three months ended
June 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 June 30, 1999 . As a percentage to sales,  commissary cost of
sales  decreased  5.8% for the three months ended June 30, 2000  compared to the
same period in 1999 due to lower manufactured food cost in 2000.

Restaurant operating expenses increased by $545,089 or 8.9% for the three months
ended June 30, 2000 compared to the same period in 1999.  The increase  reflects
the addition of five Company-owned restaurants since June 30, 1999.

                                       15

<PAGE>



Operating  expenses  increased as a percentage of restaurant  sales to 51.7% for
the three  months  ended June 30,  2000 from  48.6% for the same  period in 1999
primarily  due to a 0.9%  increase in  promotional  costs and a 0.7% increase in
management payroll costs.

Selling,  general and administrative expenses increased by $215,601 or 16.5% for
the three  months ended June 30, 2000  compared to the same period in 1999.  The
increase  was due in part to the  addition  of  management  and staff  personnel
during  1999 and the six months  ended  June 30,  2000 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 the  remainder  of 2000 in absolute  dollars.  As a  percentage  to total
revenues,  selling,  general and administrative  expenses were 10.6% and 9.8% of
revenues for the three months ended June 30, 2000 and 1999, respectively.

Preopening  expenses  were $289,688 and $120,228 for the three months ended June
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 $72,188 or 16.2% for the three
months ended June 30, 2000  compared to the same period in 1999 due primarily to
the addition of five Company-owned restaurants since June 30, 1999.

Net interest expense  increased $57,179 or 20.7% for the three months ended June
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 June 31, 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.


                                                    Six Months Ended
                                                        June 30

                                                 2000               1999
                                             -------------      -----------
Net cash provided by operations             $    2,045,770     $  1,760,152
Purchases of property and equipment              1,808,302        4,765,368
Proceeds from common stock offering                      -        7,765,397
Net borrowings (payments) on long-term
   debt and capital lease obligations             (164,710)       1,712,615
Payment on short-term borrowings                         -        6,990,348





                                       16

<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 June 30, 2000, the Company has 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  $803,000.  During 1999,  the Landlord  under the lease  financing
agreement  declared  TW-Tennessee  to be in default,  and  accelerated  the rent
obligations under the leases.  Negotiations  ensued between the Landlord and the
principals of TW-Tennessee regarding the restructuring of the lease obligations.
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.  The
Landlord  has  demanded  a  judgment  against  TW-Tennessee  in  excess of $21.8
million,  and a judgment  jointly and severally  against the  guarantors  named,
including  the  Company  and  the  Director,  in  the  amount  of  $6,647,582.77
representing a portion of the amounts claimed against TW-Tennessee.

Subsequent to June 30, 2000, the Landlord terminated settlement negotiations and
refused  to  grant  a  further  extension  of  time  to  restructure  the  lease
obligations and to answer the suit filed against  TW-Tennessee,  the Company and
the other defendants. As a result, certain defendants including the Company have
filed an answer to the suit described  above, as well as  counterclaims  against
the Landlord. The Company's management believes that it is probable that it will
incur a loss related to the Company's  guarantees of TW-Tennessee's  obligations
and has  therefore,  established a reserve of $475,000 as of June 30, 2000.  The
reserve amount was based on the Company's share of the various guarantees 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 two additional  Company-owned  Tumbleweed restaurants during the
remainder of 2000,  depending on the  availability of quality sites,  the hiring
and training of sufficiently  skilled management and other personnel,  and other
factors.  As of June 30, 2000, we had one restaurant  under  construction  which
opened during July 2000.

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.

We have a  $6,500,000  mortgage  revolving  line of  credit  note  (the  "Credit
Facility").  At June 30,  2000 we had  outstanding  borrowings  under the Credit
Facility  of  $5,072,148.  The note bears  interest  at the Prime Rate plus .25%
(9.75% at June 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.




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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  June  30,  2000
approximately  $10,900,000  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.

































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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 June 30, 2000, the Company has 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  $803,000.  During 1999,  the Landlord  under the lease  financing
agreement  declared  TW-Tennessee  to be in default,  and  accelerated  the rent
obligations under the leases.  Negotiations  ensued between the Landlord and the
principals of TW-Tennessee regarding the restructuring of the lease obligations.
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.  The
Landlord  has  demanded  a  judgment  against  TW-Tennessee  in  excess of $21.8
million,  and a judgment  jointly and severally  against the  guarantors  named,
including  the  Company  and  the  Director,  in  the  amount  of  $6,647,582.77
representing a portion of the amounts claimed against TW-Tennessee.

Subsequent to June 30, 2000, the Landlord terminated settlement negotiations and
refused  to  grant  a  further  extension  of  time  to  restructure  the  lease
obligations and to answer the suit filed against  TW-Tennessee,  the Company and
the other defendants. As a result, certain defendants including the Company have
filed an answer to the suit described  above, as well as  counterclaims  against
the Landlord. The Company's management believes that it is probable that it will
incur a loss related to the Company's  guarantees of TW-Tennessee's  obligations
and has  therefore,  established a reserve of $475,000 as of June 30, 2000.  The
reserve amount was based on the Company's share of the various guarantees 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 May 17, 2000 to report under Item 5
         that on May 8, 2000 a suit was filed against  TW-Tennessee  and against
         certain  guarantors of a lease obligation,  including the Company and a
         Director of the Company.  See Note 12 to the financial statements for a
         further discussion of this matter.

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



















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                                    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:       August 4, 2000                       Tumbleweed, Inc.

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






































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