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, 2001

                                       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)


             2301 River Road, Suite 200, Louisville, Kentucky 40206
                    (Address of principal executive offices)

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


Indicate by check mark whether the registrant (1) has filed all reports required
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days.
                                                                 Yes X    No

The number of shares of common stock,  par value of $.01 per share,  outstanding
on November 1, 2001 was 5,839,230.















<PAGE>



                                TUMBLEWEED, INC.

                                      INDEX


PART I.     FINANCIAL INFORMATION                                          PAGE
      Item 1.     Financial Statements (Unaudited)
                  a)    Consolidated Statements of Operations
                        for the nine months and three months
                        ended September 30, 2001 and 2000                    3
                  b)    Consolidated Balance Sheets as of September 30,
                        2001 and December 31, 2000                           4
                  c)    Consolidated Statements of Cash
                        Flows for the nine months ended
                        September 30, 2001 and 2000                          5
                  d)       Notes to Consolidated Financial Statements        6

      Item 2.     Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                       13


      Item 3.     Quantitative and Qualitative Disclosures About Market
                  Risk                                                      19


PART II.    OTHER INFORMATION

      Item 1.     Legal Proceedings                                         20
      Item 6.     Exhibits and Reports on Form 8-K                          21

Signature                                                                   22





                                        2

<PAGE>





                                Tumbleweed, Inc.
                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>



<CAPTION>

                                                        Nine Months Ended               Three Months Ended
                                                           September 30                    September 30
                                                       2001            2000            2001           2000
                                                   -------------   ------------    ------------   -------------
Revenues:
<S>                                               <C>             <C>             <C>            <C>
   Restaurant sales                               $   42,111,345  $  39,186,377   $  14,366,401  $   13,478,991
   Commissary sales                                    1,360,618      1,250,098         443,560         394,830
   Franchise fees and royalties                          964,761        926,960         307,154         273,192
   Gain from insurance proceeds due to
     involuntary conversion of non-monetary
     assets                                                    -        434,311               -               -
   Other revenues                                        333,379        667,872          72,680         294,584
                                                   -------------   ------------    ------------   -------------

Total revenues                                        44,770,103     42,465,618      15,189,795      14,441,597

Operating expenses:
   Restaurant cost of sales                           13,221,757     11,380,258       4,398,746       4,014,588
   Commissary cost of sales                            1,189,510      1,100,899         389,276         352,403
   Operating expenses                                 22,994,702     20,569,433       7,822,287       7,156,736
   Selling, general and administrative expenses        4,612,473      4,832,216       1,587,233       2,033,807
   Preopening expenses                                         -        486,728               -         110,977
   Depreciation and amortization                       1,769,962      1,571,356         600,020         536,878
   Loss on guarantees of indebtedness                          -        725,000               -         250,000
                                                   -------------   ------------    ------------   -------------

Total operating expenses                              43,788,404     40,665,890      14,797,562      14,455,389
                                                   -------------   ------------    ------------   -------------

Income (loss) from operations                            981,699      1,799,728         392,233         (13,792)

Other income (expense):
   Interest expense, net                              (1,018,271)    (1,030,351)       (293,257)       (379,792)
   Equity in income (loss) of TW-Springhurst              54,531         (2,939)         20,629          (2,939)
                                                   -------------   ------------    ------------   -------------

Total other expense                                     (963,740)    (1,033,290)       (272,628)       (382,731)
                                                   -------------   ------------    ------------   -------------

Income (loss) before income taxes                         17,959        766,438         119,605        (396,523)
Provision (benefit) for income taxes - current
  and deferred                                               898        268,254          31,391        (138,783)
                                                   -------------   ------------    ------------   -------------

Net income (loss)                                 $       17,061  $     498,184   $      88,214  $     (257,740)
                                                   =============   ============    ============   =============

Basic and diluted earnings (loss) per share       $         0.00  $        0.08   $        0.02  $        (0.04)
                                                   =============   ============    ============   =============
</TABLE>

See accompanying notes.


                                        3

<PAGE>

<TABLE>


                                Tumbleweed, Inc.
                           Consolidated Balance Sheets
<CAPTION>


                                                                         September 30          December 31
                                                                             2001                  2000
                                                                         (Unaudited)
                                                                        --------------        --------------
Assets
Current assets:
<S>                                                                    <C>                   <C>
   Cash and cash equivalents                                           $       213,093       $       281,829
   Accounts receivable, net of allowance of $68,464 in 2000                    485,389               757,956
   Income tax receivable                                                       166,705               240,875
   Inventories                                                               2,054,039             1,780,577
   Prepaid expenses and other assets                                           391,490               345,148
                                                                        --------------        --------------
Total current assets                                                         3,310,716             3,406,385
Property and equipment, net                                                 31,086,893            31,795,454
Goodwill, net of accumulated amortization of
   $774,584 in 2001 and $669,395 in 2000                                     3,371,428             3,476,617
Investment in TW-Springhurst                                                    99,628               141,097
Other assets                                                                   593,726               633,335
                                                                        --------------        --------------
Total assets                                                           $    38,462,391       $    39,452,888
                                                                        ==============        ==============

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                    $     1,461,007       $     1,113,443
   Accrued liabilities                                                       2,000,282             2,489,727
   Deferred income taxes                                                       217,633                 8,244
   Current maturities on long-term
     debt and capital leases                                                 1,441,552             2,040,667
                                                                        --------------        --------------
Total current liabilities                                                    5,120,474             5,652,081

Long-term liabilities:
   Long-term debt, less current maturities                                  12,291,979            12,422,904
   Capital lease obligations, less current maturities                        2,111,523             2,534,877
   Deferred income taxes                                                       929,853               831,525
   Other liabilities                                                           120,000               140,000
                                                                        --------------        --------------
Total long-term liabilities                                                 15,453,355            15,929,306
                                                                        --------------        --------------
Total liabilities                                                           20,573,829            21,581,387

Stockholders' equity:
   Preferred stock, $.01 par value, 1,000,000
     shares authorized; no shares issued
     and outstanding                                                                 -                     -
   Common stock, $.01 par value, 16,500,000
     shares authorized; 5,881,630 shares issued                                 58,818                58,818
   Paid-in capital                                                          16,294,006            16,294,006
   Treasury stock, 42,400 shares                                              (254,695)             (254,695)
   Retained earnings                                                         1,790,433             1,773,372
                                                                        --------------        --------------
     Total stockholders' equity                                             17,888,562            17,871,501
Total liabilities and stockholders' equity                             $    38,462,391       $    39,452,888
                                                                        ==============        ==============
</TABLE>

See accompanying notes.




                                        4

<PAGE>


<TABLE>


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

                                                                                  Nine Months Ended
                                                                                     September 30
                                                                                 2001             2000
                                                                             -------------    ------------

Operating activities:
<S>                                                                         <C>              <C>
   Net income                                                               $       17,061   $     498,184
   Adjustments to reconcile net income  to net
       cash provided by operating activities:
        Depreciation and amortization                                            1,769,962       1,571,356
        Deferred income taxes                                                      307,717         223,709
        Loss on guarantee of indebtedness                                                -         725,000
        Gain from insurance proceeds due to involuntary
           conversion of non-monetary assets                                             -        (434,311)
        Equity in (income) loss of TW-Springhurst                                  (54,531)          2,939
        Loss on disposition of property and equipment                               37,646          18,225
        Changes in operating assets and liabilities:
          Accounts receivable                                                      272,567        (150,233)
          Income tax receivable                                                     74,170               -
          Inventories                                                             (273,462)       (148,571)
          Prepaid expenses                                                         (58,291)        (57,642)
          Other assets                                                              26,894         (40,756)
          Accounts payable                                                         347,564         666,662
          Accrued liabilities                                                     (489,445)        (90,040)
          Other liabilities                                                        (20,000)         (5,000)
                                                                             -------------    ------------
Net cash provided by operating activities                                        1,957,852       2,779,522

Investing activities:
    Purchases of property and equipment                                           (969,194)     (2,742,942)
   Insurance proceeds for property and equipment                                         -         860,654
   Business acquisition                                                                  -        (929,400)
   Distribution from (investment in) TW-Springhurst                                 96,000         (80,000)
                                                                             -------------    ------------
Net cash used in investing activities                                             (873,194)     (2,891,688)

Financing activities:
   Proceeds from issuance of long-term debt                                      3,379,120       3,981,804
   Payments on long-term debt and capital lease obligations                     (4,532,514)     (3,411,598)
   Purchase of treasury stock                                                            -        (254,695)
                                                                             -------------    ------------
Net cash provided by (used in) financing activities                             (1,153,394)        315,511
                                                                             -------------    ------------

Net increase (decrease) in cash and cash equivalents                               (68,736)        203,345

Cash and cash equivalents at beginning of period                                   281,829         640,189
                                                                             -------------    ------------
Cash and cash equivalents at end of period                                  $      213,093   $     843,534
                                                                             =============    ============



</TABLE>


See accompanying notes.





                                        5

<PAGE>



                                TUMBLEWEED, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                               September 30, 2001


1. BASIS OF PRESENTATION

Restaurant Facilities

As of  September  30,  2001,  the  Company  owned,  franchised  or  licensed  65
Tumbleweed  restaurants.  The  Company  owned and  operated  36  restaurants  in
Kentucky,  Indiana and Ohio, including one restaurant which is 50% owned through
a joint  venture.  There were 21  franchised  restaurants  located  in  Indiana,
Illinois,   Kentucky,  Michigan,  Virginia  and  Wisconsin  and  eight  licensed
restaurants located outside the United States in Germany,  Jordan,  Egypt, Saudi
Arabia,  England and Turkey.  The following table reflects changes in the number
of  Company-owned,  franchise  and licensed  restaurants  during the nine months
ended September 30, 2001.


Company-owned restaurants:
     In operation, beginning of period                36
     Restaurants opened                                0
                                                --------
     In operation, end of period                      36

Franchise and licensed restaurants:
     In operation, beginning of period                27
     Restaurants opened                                3
     Restaurants closed                               (1)
                                                --------
     In operation, end of period                      29
                                                --------
         System Total                                 65
                                                ========

Interim Financial Reporting

The  accompanying  consolidated  financial  statements have been prepared by the
Company without audit,  with the exception of the December 31, 2000 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
accounting  principles  generally  accepted  in the United  States  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, 2000.

In the opinion of  management,  the  unaudited  interim  consolidated  financial
statements contained in this report reflect all adjustments,  consisting of only
normal  recurring  accruals,  which are necessary for a fair  presentation.  The
results of operations  for the nine months and three months ended  September 30,
2001 are not necessarily  indicative of the results that may be expected for the
year ended December 31, 2001.

Recently Issued Accounting Standards

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial  Accounting  Standards No. 141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite  lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their estimated useful lives.

The  Company  will  apply the new rules on  accounting  for  goodwill  and other
intangible  assets  beginning in the first quarter of 2002.  Application  of the
nonamortization  provisions of the Statement is expected to reduce  depreciation
and amortization  expense by approximately  $140,000 per year.  During 2002, the
Company will perform the first of the required  impairment tests of goodwill and
indefinite  lived  intangible  assets as of January 1, 2002. The Company has not
yet  determined  what the  effect of these  tests  will be on the  earnings  and
financial position of the Company.



                                        6

<PAGE>
2.   ACCRUED LIABILITIES

Accrued liabilities consist of:


                                                 September 30     December 31
                                                     2001             2000
                                                -------------    -------------

Accrued payroll, severance and related taxes   $      971,932   $      897,841
Accrued insurance and fees                            123,903          282,281
Accrued taxes, other than payroll                     678,825          548,703
Gift certificate liability                            156,227          470,652
Deferred income related to involuntary
  conversion of non-monetary assets                         -          204,893
Other                                                  69,395           85,357
                                                -------------    -------------
                                               $    2,000,282   $    2,489,727
                                                =============    =============

3.   LONG-TERM DEBT

Long-term debt consists of:

                                                September 30      December 31
                                                     2001             2000
                                                -------------    -------------
Secured $6,500,000  mortgage  revolving line of
  credit note, bearing interest at   prime rate
  plus .25% (6.25% at September 30, 2001), due
  December 31, 2003                            $    5,861,148   $    5,496,148

Secured mortgage note payable, bearing interest
  at commercial paper rate plus 2.65% (5.32% at
  September 30, 2001), due February 17, 2006        2,351,071        2,501,399

Secured $1,200,000  mortgage  revolving line of
  credit note, bearing interest at
  prime rate plus .25% (6.25% at September 30,
  2001), due February 3, 2002                         914,868          915,868

Secured mortgage note payable, bearing interest
  at prime rate plus 1% (7.0% at September 30,
  2001), payable in monthly installments through
  October 1, 2017                                   1,018,581        1,039,068

Secured mortgage note payable, bearing interest
  at 8.75%, payable in monthly installments
  through February 15, 2008                           892,272          921,756

Secured mortgage note payable, bearing interest
  at prime rate (6.0% at September 30, 2001),
  payable in monthly installments through
  March 1, 2006                                       624,196          644,185

Secured mortgage note payable, bearing interest
  at prime rate plus 1.25% (7.25% at September
  30, 2001), payable in monthly installments
  through November 27, 2016                           568,750          596,875

Secured mortgage note payable, bearing interest
  at 10.52%, payable in monthly installments
  through August 18, 2005                             441,007          506,700

                              (Continued next page)

                                        7

<PAGE>



3.   LONG-TERM DEBT (continued)


                                                 September 30     December 31
                                                     2001            2000
                                                -------------    -------------

Secured mortgage note payable bearing interest
  at commercial paper rate plus 2.65% (6.38% at
  September 30, 2001), due December 31, 2001   $      224,947   $      800,000

Other installment notes payable                       256,064          415,633
                                                -------------    -------------
                                                   13,152,904       13,837,632
Less current maturities                               860,925        1,414,728
                                                -------------    -------------
Long-term debt                                 $   12,291,979   $   12,422,904
                                                =============    =============

Property and equipment  with a net book value of  approximately  $22,800,000  at
September 30, 2001 collateralize the Company's long-term debt.

The Loan  Agreement of the $1,200,000  line of credit which matures  February 3,
2002 has a balance  of  $914,868  at  September  30,  2001.  The Loan  Agreement
provides the bank with the option of either  extending  the maturity  date until
the line of  credit  has been  repaid  or  converting  the  current  outstanding
principal  balance  to a Term Loan with a maturity  of 5-years  from the date of
conversion.

Appropriate  waivers and a covenant  amendment have been obtained by the Company
from the  lenders  which  hold the  revolving  lines of credit  (balances  as of
September 30, 2001 were  $5,861,148  and $914,868) to resolve a non-  compliance
with a loan covenant as of September 30, 2001.  Management believes the covenant
amendment will enable compliance with this covenant in the future.

4.  EARNINGS PER SHARE

The following is a  reconciliation  of the Company's basic and diluted  earnings
(loss) per share data for the nine months and three months ended  September  30,
2001 and 2000 in accordance with FAS 128, "Earnings per Share."
<TABLE>
<CAPTION>


                                                               Nine Months Ended             Three Months Ended
                                                                  September 30                  September 30
                                                              2001            2000          2001           2000
                                                          ------------     -----------   -----------    -----------
Numerator:
<S>                                                      <C>              <C>           <C>            <C>
   Net income (loss)                                     $      17,061    $    498,184  $     88,214   $   (257,740)
                                                          ============     ===========   ===========    ===========

Denominator:
   Weighted average shares
      outstanding - basic                                    5,839,230       5,852,947     5,839,230      5,840,871
   Effect of dilutive securities:
      Director and employee stock options                        9,849         127,687             -         23,001
                                                          ------------     -----------   -----------    -----------
   Denominator for diluted earnings per share -
      adjusted weighted average and assumed conversions      5,849,079       5,980,634     5,839,230      5,863,872
                                                          ============     ===========   ===========    ===========

</TABLE>

5.   SEGMENT INFORMATION

The  Company  has  three  reportable  segments:   restaurants,   commissary  and
corporate.   The   restaurant   segment   consists  of  the  operations  of  all
Company-owned  restaurants  and  derives  its  revenues  from  the  sale of food
products to the general public. The commissary segment derives its revenues from
the sale of food  products to  Company-owned  and  franchised  restaurants.  The
corporate  segment  derives  revenues from sale of franchise  rights,  franchise
royalties and related services used in restaurant  operations,  and contains the
selling, general and administrative activities of the Company.




                                        8

<PAGE>

5.   SEGMENT INFORMATION (continued)

Generally,  the Company evaluates  performance and allocates  resources based on
pre-tax  income.  The accounting  policies of the segments are the same as those
described in the summary of  significant  accounting  policies in the  Company's
Annual Report on Form 10-K.

Segment information for the nine months ended September 30 is as follows:
<TABLE>
<CAPTION>



2001:
                                                   Restaurant        Commissary         Corporate          Totals
                                                  ------------     --------------     -------------     ------------
Revenues from external
<S>                                              <C>              <C>                <C>               <C>
   customers                                     $  42,111,345    $     1,360,618    $    1,298,140    $  44,770,103
Intersegment revenues                                        -          2,040,928                 -        2,040,928
General and
   administrative expenses                                   -                  -         3,198,236        3,198,236
Advertising expenses                                         -                  -         1,414,237        1,414,237
Depreciation and
   amortization                                      1,400,628             79,947           289,387        1,769,962
Net interest expense                                         -            132,075           886,196        1,018,271
Income (loss) before income taxes                    4,137,979             86,300        (4,206,320)          17,959



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

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


2001:
                                                   Restaurant        Commissary         Corporate          Totals
                                                  ------------     --------------     -------------     ------------
Revenues from external
   customers                                     $  14,366,401    $       443,560    $      379,834    $  15,189,795
Intersegment revenues                                        -            665,341                 -          665,341
General and
   administrative expenses                                   -                  -         1,105,177        1,105,177
Advertising expenses                                         -                  -           482,056          482,056
Depreciation and
   amortization                                        473,846             26,649            99,525          600,020
Net interest expense                                         -             44,025           249,232          293,257
Income (loss) before income taxes                    1,566,977             26,015        (1,473,387)         119,605


</TABLE>




                                        9

<PAGE>



5.   SEGMENT INFORMATION (continued)

<TABLE>
<CAPTION>


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

6.  INVESTMENT IN TW-SPRINGHURST

During 2000,  the Company made a $200,000  investment  in  TW-Springhurst,  LLC.
("TW-Springhurst"). The Company has a 50% member interest with the remaining 50%
held by  TW-Springhurst  Investors,  LLC. A current and a former director of the
Company own  TW-Springhurst  Investors,  LLC. The initial purpose of the limited
liability  company  is to  construct  and  operate a  Tumbleweed  restaurant  in
Louisville,  Kentucky. The Company's share of TW Springhurst's net income (loss)
was $54,531 and ($2,939) for the nine months ended  September 30, 2001 and 2000,
respectively.

7.  ACQUISITION OF BUSINESS

On August 14, 2000, the Company  purchased the assets of an Evansville,  Indiana
Tumbleweed  restaurant from TW- Evansville,  LLC (a limited liability company in
which  certain  directors  of the  Company  owned a  substantial  interest)  for
$929,400. The Company also assumed TW-Evansville,  LLC's equipment capital lease
which had a balance  of  approximately  $197,000  on the date of  purchase.  The
purchase  price  for the  business  and  property  was at fair  market  value as
determined by an independent  business valuation  appraisal.  The purchase price
was funded by cash reserves and funds drawn on the Company's  mortgage revolving
lines of credit.  The  acquisition  has been  accounted  for as a purchase  and,
accordingly,  the results of operations of the acquired business are included in
the Company's results of operations since the date of acquisition.

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


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









                                       10

<PAGE>



8.  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,
other revenues include $100,000 for the nine months ended September 30, 2001 and
$120,000 and $160,000 for the three months and nine months ended  September  30,
2000,  respectively,  for insurance  recoveries  for business  interruption  and
continuing expenses.

9.  INCOME TAXES

Income taxes on the  Company's  income  before  income taxes for the nine months
ended  September  30,  2001 and 2000  have  been  provided  for at an  estimated
effective tax rate of 5% and 35%, respectively.  The effective tax rate is lower
in 2001 than in 2000  principally due to the effect of the employment tax credit
on pre-tax income.

10.  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.  The Company  had  guaranteed  certain  TW-Tennessee  obligations  as
follows,  jointly and  severally  with  TW-Tennessee  common  members:  a) up to
$1,200,000 under a bank line of credit,  b) approximately  $2,800,000 of a lease
financing agreement, and c) equipment leases with a bank.

In March 2001, the bank which holds the line of credit filed suit in the Circuit
Court of  Jefferson  County,  Kentucky  against  TW-Tennessee  and  against  the
guarantors  of the line of credit,  including  the Company and a Director of the
Company.  Prior  to the  suit  being  filed,  the  Company  along  with  certain
guarantors  made a partial  payment to the bank. If the bank is  unsuccessful in
collecting the remaining  payments from the other guarantors,  the Company would
have exposure  totaling  approximately  $1,000,000.  On June 14, 2001,  the bank
filed a motion for summary judgment against the Company and certain of the other
guarantors of the line of credit. On October 29, 2001, the Court heard arguments
regarding  the motion of the bank for  judgment  against the Company and certain
other guarantors. A ruling by the Court is expected at any time. In addition, on
August 2, 2001, the Company filed a Motion to Compel  Arbitration for all claims
asserted among it and the other  guarantors of the line of credit,  which Motion
to Compel  Arbitration  was granted by the Court on August 30, 2001. The Company
intends  to  pursue  the  arbitration  among the  guarantors  to  determine  the
respective obligations of the parties.

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

The  lessor  under  the  equipment   leases  with   TW-Tennessee   has  declared
TW-Tennessee to be in default  thereunder and demanded  payment in full from all
guarantors of the leases,  including the Company. The Company along with certain
guarantors  have made a partial  payment to the  lessor and is working  with the
lessor in pursuing the other  guarantors of the  equipment  leases that have not
made any payment. If the lessor is unsuccessful in collecting the remaining sums
due from the other  guarantors,  the  Company  would  have  additional  exposure
totaling approximately $312,000.

As a result of the  settlement  with the Landlord under the  TW-Tennessee  lease
financing  agreement,  and given the demand for payment by the lessor  under the
TW-Tennessee equipment leases and by the bank that holds the line of credit, the
Company  has  incurred  a  loss   related  to  the   Company's   guarantees   of
TW-Tennessee's  obligations.  The Company established a reserve in the amount of
$725,000  during 2000 ($475,000  during the three months ended June 30, 2000 and
$250,000  during the three months ended  September 30, 2000) which had been paid
out. The reserve amount was based on the Company's payment to the Landlord under
the TW-Tennessee lease financing  agreement,  the Company's share of the various
remaining  guarantees of TW-Tennessee  obligations  and an estimated  amount for
legal


                                       11

<PAGE>



10.  CONTINGENCIES (continued)

costs which will likely be incurred in  connection  with the  resolution of this
matter. The Company's management believes that it will not incur any significant
additional losses in connection with this matter.

By Complaint dated October 4, 2001, Douglas H. Morris, II and Michael R. Greene,
plaintiffs,  filed an action against the Company and others  alleging  damage to
the plaintiffs as a result of (i) the management of the TW-Tennessee restaurants
by the  Company,  (ii) the  alleged  wrongful  application  of  proceeds  of the
Company's purchase of the Medina, Ohio restaurant and (iii) the alleged wrongful
conversion   of   loan   proceeds   belonging   to   TW-International,   LLC  to
TWED-Charleston,  Inc. The Company has not yet filed an answer or other response
to the  complaint.  This  matter is still in the early  pleading  stages  and no
discovery has been taken. Management believes that the claims are without merit,
but it is too early to predict an  outcome.  The Company  intends to  vigorously
defend itself in connection with this matter.

11.  OTHER EVENT

TW Funding,  LLC is an entity  owned by certain  officers  and  directors of the
Company. The members of TW Funding, LLC guaranteed a loan incurred by TW Funding
to finance  its  purchase  of 400,000  shares of Common  Stock in the  Company's
initial public offering in January 1999. The shares held by TW Funding,  as well
as 1,900,000  shares of Company  Common  Stock,  of which  1,800,000  shares are
beneficially owned by certain current and former directors of the Company,  have
been  pledged  to  secure  the loan and  their  guarantee.  This  pledge  totals
2,300,000  shares of Common Stock.  The loan, as extended,  matured on March 31,
2001.  On or about May 5,  2001,  the  obligation  of  approximately  $4,900,000
($4,000,000  principal and $900,000 interest) of TW Funding, LLC was declared in
default and, as a result, Mr. Gerald Mansbach has become the beneficial owner of
the above described  shares,  representing  approximately  39.0% of the Company,
with the power to vote and dispose of such  shares.  In  addition,  upon default
under the note,  Mr.  Mansbach  became  entitled to vote  approximately  725,000
shares  owned by the  guarantors  but not  pledged.  Accordingly,  Mr.  Mansbach
currently has the right to vote 3,123,000 shares, or approximately  53.5% of the
outstanding  shares.  The Company has been informed that the parties  related to
the TW Funding matter have reached a settlement.  As a result of the settlement,
Mr.  Mansbach  will become the legal and  beneficial  owner of the shares,  upon
execution of a formal settlement agreement.









                                       12

<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.

As of  September  30,  2001,  we owned,  franchised  or licensed  65  Tumbleweed
restaurants. We owned and operated 36 restaurants in Kentucky, Indiana and Ohio,
including one restaurant which is 50% owned through a joint venture.  There were
21 franchised restaurants in Indiana, Illinois,  Kentucky,  Wisconsin,  Virginia
and Michigan,  and eight licensed  restaurants located outside the United States
in Germany, Jordan, Saudi Arabia, Egypt, England and Turkey.

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  below 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
                                                      2001         2000         2001         2000
                                                   ----------   ----------   ----------   ----------
Revenues:
<S>                                                      <C>          <C>          <C>          <C>
   Restaurant sales                                      94.1%        92.3%        94.6%        93.3%
   Commissary sales                                       3.0          2.9          2.9          2.7
   Franchise fees and royalties                           2.2          2.2          2.0          1.9
   Gain from insurance proceeds due to involuntary
      conversion of non-monetary asset                      -          1.0            -            -
   Other revenues                                         0.7          1.6          0.5          2.1
                                                   ----------   ----------   ----------   ----------
     Total revenues                                     100.0        100.0        100.0        100.0
Operating expenses:
   Restaurant cost of sales (1)                          31.4         29.0         30.6         29.8
   Commissary cost of sales (2)                          87.4         88.1         87.8         89.2
   Operating expenses (1)                                54.6         52.5         54.4         53.1
   Selling, general and administrative expenses          10.3         11.4         10.4         14.1
   Preopening expenses                                      -          1.1            -          0.8
   Depreciation and amortization                          4.0          3.7          4.0          3.7
   Loss on guarantees of indebtedness                       -          1.7            -          1.7
                                                   ----------   ----------   ----------   ----------
     Total operating expenses                            97.8         95.8         97.4        100.1
                                                   ----------   ----------   ----------   ----------
     Income (loss) from operations                        2.2          4.2          2.6         (0.1)
Other expense, net                                       (2.2)        (2.4)        (1.8)        (2.6)
                                                   ----------   ----------   ----------   ----------
Income (loss) before income taxes                         0.0          1.8          0.8         (2.7)
Provision (benefit) for income taxes - current
   and deferred                                           0.0          0.6          0.2         (0.9)
                                                   ----------   ----------   ----------   ----------
Net  income (loss)                                        0.0%         1.2%         0.6%        (1.8)%
                                                   ==========   ==========   ==========   ==========


<FN>

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



                                       13

<PAGE>



COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

Total  revenues  increased  by  $2,304,485  or 5.4%  for the nine  months  ended
September 30, 2001 compared to the same period in 2000  primarily as a result of
the following:

   Restaurant  sales  increased by  $2,924,968 or 7.5% for the nine months ended
   September  30,  2001  compared to the same  period in 2000.  The  increase in
   restaurant sales is due primarily to 38 additional  Company-owned  restaurant
   store months during the nine months ended  September 30, 2001 compared to the
   same period in 2000.  The increase is partially  offset by a 0.3% decrease in
   same store sales for the nine month period.

   Commissary sales to franchised and licensed restaurants increased by $110,520
   or 8.8% for the nine months  ended  September  30, 2001  compared to the same
   period in 2000. The increase is due primarily to 31 additional franchised and
   licensed  restaurant  store months during the nine months ended September 30,
   2001 compared to the same period in 2000.

   Franchise fees and royalties increased by $37,801 or 4.1% for the nine months
   ended September 30, 2001 compared to the same period in 2000.  Royalty income
   increased  $107,801  for the nine month  period  primarily  as a result of 31
   additional  franchised  or licensed  restaurant  store months during the nine
   months  ended  September  30, 2001  compared to the same period in 2000.  The
   increase  in royalty  income is  partially  offset by a $70,000  decrease  in
   franchise income for the nine months ended September 30, 2001 compared to the
   same period in 2000. The decrease in franchise income is a result of the fact
   that there were five franchise  restaurant openings in 2000 compared to three
   franchise restaurant openings in 2001.

   The gain from insurance  proceeds  during the nine months ended September 30,
   2000 was due to the involuntary conversion of non-monetary assets from a fire
   at a Company-owned  restaurant.  See Note 8 of the accompanying  consolidated
   financial  statements  for a detail  discussion.  There was no similar income
   during the nine months ended September 30, 2001.

   Other  revenues  decreased  by $334,493  or 50.1% for the nine  months  ended
   September  30, 2001  compared to the same period in 2000  primarily  due to a
   decrease in volume related  purchasing  rebates in 2001 compared to 2000. The
   decrease in other  revenues is also due to a decrease in  insurance  proceeds
   which relate to a business  interruption as a result of a fire which occurred
   in June 2000 at a Company-owned restaurant.  Other revenues includes $100,000
   and $160,000 of insurance  proceeds for the nine months ended  September  30,
   2001 and  2000,  respectively.  See Note 8 of the  accompanying  consolidated
   financial statements for a detail discussion.

Restaurant  cost of sales  increased by  $1,841,499 or 16.2% for the nine months
ended  September 30, 2001 compared to the same period in 2000.  The increase was
principally due to 38 additional  Company-owned  restaurant  store months during
the nine months ended  September  30, 2001  compared to the same period in 2000.
Restaurant cost of sales increased as a percentage of sales by 2.4% to 31.4% for
the nine  months  ended  September  30, 2001  compared to 29.0%  during the same
period in 2000.  The 2.4% increase in cost of sales is primarily the result of a
temporary  increase  in the cost of beef and pork  (primarily  steaks  and ribs,
respectively)  and as a result of  improving  the  quality  of the beef  product
served in the restaurants.

Commissary  cost of sales  increased  $88,611 or 8.0% for the nine months  ended
September  30,  2001  compared  to the same  period  in 2000.  The  increase  in
commissary  cost of sales  is due  primarily  to 31  additional  franchised  and
licensed restaurant store months during the nine months ended September 30, 2001
compared  to the same  period in 2000.  As a  percentage  to  commissary  sales,
commissary  cost of sales decreased 0.7% for the nine months ended September 30,
2001  compared  to the  same  period  in 2000 as a  result  of  lower  corporate
allocations partially offset by higher raw material product costs.

Restaurant  operating  expenses  increased by  $2,425,269  or 11.8% for the nine
months  ended  September  30,  2001  compared  to the same  period in 2000.  The
increase in operating expenses reflects 38 additional  Company-owned  restaurant
store months  during the nine months ended  September  30, 2001  compared to the
same period in 2000.  Operating expenses increased as a percentage of restaurant
sales by 2.1% to 54.6% for the nine months ended  September  30, 2001 from 52.5%
for the same period in 2000  primarily due to a 0.7% increase in utilities and a
0.8% increase in payroll costs.


                                       14

<PAGE>



Selling,  general and administrative  expenses decreased by $219,743 or 4.5% for
the nine months ended  September  30, 2001  compared to the same period in 2000.
The decrease in selling,  general and administrative expenses for the nine month
period is primarily due to decreased payroll costs for corporate personnel.  The
decrease in  selling,  general and  administrative  expenses  for the nine month
period is  partially  offset by  increased  advertising  costs of  approximately
$300,000,  the cost of  implementing a new menu during the first quarter of 2001
of  approximately  $95,000 and increased  legal costs.  As a percentage to total
revenues,  selling, general and administrative expenses were 10.3% and 11.4% for
the nine months ended September 30, 2001 and 2000, respectively.

Preopening  expenses were $486,728 for the nine months ended September 30, 2000.
Preopening  expenses are start-up  costs which are incurred in  connection  with
opening new restaurant locations.  These costs are expensed as incurred and will
fluctuate  based on the number of restaurant  locations which are in the process
of being prepared for opening. There were no preopening expenses incurred during
the nine months ended September 30, 2001.

Depreciation and amortization  expense increased  $198,606 or 12.6% for the nine
months  ended  September  30,  2001  compared  to the  same  period  in 2000 due
primarily to 38 additional Company-owned restaurant store months during the nine
months ended September 30, 2001 compared to the same period in 2000.

Net  interest  expense  decreased  $12,080  or 1.2%  for the nine  months  ended
September  30, 2001  compared to the same  period in 2000.  The  decrease in net
interest  expense for the nine month  period is the result of  decreases  in the
prime interest rate during 2001 partially  offset by increased  borrowing during
2000 to fund the growth in Company-owned restaurants.

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

Total  revenues  increased  by  $748,198  or 5.2%  for the  three  months  ended
September 30, 2001 compared to the same period in 2000  primarily as a result of
the following:

   Restaurant  sales  increased  by $887,410 or 6.6% for the three  months ended
   September  30,  2001  compared to the same  period in 2000.  The  increase in
   restaurant  sales  is  due  primarily  to  eight   additional   Company-owned
   restaurant  store months  during the three months  ended  September  30, 2001
   compared to the same  period in 2000 and a 1.4%  increase in same store sales
   for the three month period.

   Commissary sales to franchised and licensed restaurants  increased by $48,730
   or 12.3% for the nine months ended  September  30, 2001  compared to the same
   period in 2000. The increase is due primarily to seven additional  franchised
   and licensed  restaurant store months during the three months ended September
   30, 2001 compared to the same period in 2000.

   Franchise  fees and  royalties  increased  by  $33,962 or 12.4% for the three
   months ended September 30, 2001 compared to the same period in 2000.  Royalty
   income increased  $33,962 for the three month period primarily as a result of
   seven  additional  franchised or licensed  restaurant store months during the
   three months ended  September  30, 2001  compared to the same period in 2000.
   There was no franchise  income in the three months ended  September  30, 2001
   and 2000 due to the fact that there  were no  franchise  restaurant  openings
   during either three month period.

   Other  revenues  decreased  by $221,904 or 75.3% for the three  months  ended
   September  30, 2001  compared to the same period in 2000  primarily  due to a
   decrease  in volume  related  purchasing  rebates in 2001  compared  to 2000.
   Additionally,  other  revenues for the three months ended  September 30, 2000
   included   $120,000  of  insurance   proceeds  which  relate  to  a  business
   interruption  as a result of a fire which occurred in June 2000 at a Company-
   owned  restaurant.  See  Note 8 of the  accompanying  consolidated  financial
   statements  for a detail  discussion.  There was no similar income during the
   three months ended September 30, 2001.

Restaurant  cost of sales  increased  by $384,158  or 9.6% for the three  months
ended  September 30, 2001  compared to the same period in 2000.  The increase in
cost of sales was principally due to eight additional  Company-owned  restaurant
store months  during the three months ended  September  30, 2001 compared to the
same period in 2000. Restaurant cost of sales increased as a percentage of sales
by 0.8% to 30.6% for the three months ended September 30, 2001 compared to 29.8%
during  the same  period in 2000.  The 0.8%  increase  is mainly  the  result of
improving the quality of the beef product served in the restaurants.

Commissary cost of sales  increased  $36,873 or 10.5% for the three months ended
September 30, 2001 compared to the

                                       15

<PAGE>



same period in 2000.  The increase in commissary  cost of sales is due primarily
to seven additional  franchised and licensed  restaurant store months during the
three months ended  September 30, 2001 compared to the same period in 2000. As a
percentage of commissary sales,  commissary cost of sales decreased 1.4% for the
three months ended  September  30, 2001 compared to the same period in 2000 as a
result of lower corporate  allocations  partially  offset by higher raw material
product costs.

Restaurant operating expenses increased by $665,551 or 9.3% for the three months
ended  September 30, 2001  compared to the same period in 2000.  The increase in
operating  expenses  reflects eight  additional  Company-owned  restaurant store
months  during the three months ended  September  30, 2001  compared to the same
period in 2000. Operating expenses increased as a percentage of restaurant sales
by 1.3% to 54.4% for the three  months ended  September  30, 2001 from 53.1% for
the same period in 2000 primarily due to a 0.4% increase in utilities and a 0.5%
increase in administrative costs.

Selling,  general and administrative expenses decreased by $446,574 or 22.0% for
the three months ended  September  30, 2001 compared to the same period in 2000.
The decrease in selling, general and administrative expenses for the three month
period is primarily due to decreased payroll costs for corporate personnel. As a
percentage to total revenues,  selling, general and administrative expenses were
10.4%  and  14.1%  for the  three  months  ended  September  30,  2001 and 2000,
respectively.

Preopening expenses were $110,977 for the three months ended September 30, 2000.
Preopening  expenses are start-up  costs which are incurred in  connection  with
opening new restaurant locations.  These costs are expensed as incurred and will
fluctuate  based on the number of restaurant  locations which are in the process
of being prepared for opening. There were no preopening expenses incurred during
the three months ended September 30, 2001.

Depreciation and amortization  expense  increased $63,142 or 11.8% for the three
months  ended  September  30,  2001  compared  to the  same  period  in 2000 due
primarily to eight additional  Company-owned  restaurant store months during the
three months ended September 30, 2001 compared to the same period in 2000.

Net  interest  expense  decreased  $86,535 or 22.8% for the three  months  ended
September  30, 2001  compared to the same  period in 2000.  The  decrease in net
interest  expense for the three month  period is the result of  decreases in the
prime interest rate during 2001 partially  offset by increased  borrowing during
2000 to fund the growth in Company- owned restaurants.

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 capital  needs for the nine months ended  September  30, 2001 arose from the
reconstruction  of a restaurant  facility  which was damaged by fire during June
2000, and to a lesser extent, maintenance and improvement of existing restaurant
facilities.  The  source of  capital to fund the  reconstruction  was  insurance
proceeds  received  during 2000.  The  maintenance  expenditures  were funded by
internally  generated  cash flow.  Our capital  needs for the nine months  ended
September  30,  2000 arose from the  development  of new  restaurants,  and to a
lesser extent,  maintenance and improvement of existing  restaurant  facilities.
The  principal  sources of capital to fund these  expenditures  were  internally
generated cash flow, bank borrowings and lease financing.








                                       16

<PAGE>


The table below provides certain  information  regarding our sources and uses of
cash for the periods presented.



                                                       Nine Months Ended
                                                         September 30

                                                    2001               2000
                                                ------------       ------------
Net cash provided by operations                $   1,957,852      $   2,779,522
Purchases of property and equipment                 (969,194)        (2,742,942)
Business acquisition                                       -           (929,400)
Insurance proceeds for property and equipment              -            860,654
Net borrowings (payments) on long-term
   debt and capital lease obligations             (1,153,394)           570,206

Our largest use of funds during the nine months ended September 30, 2001 was for
the  reconstruction  of a restaurant  facility  which was damaged by fire during
2000 and for  payments on  long-term  debt and capital  lease  obligations.  Our
largest use of funds  during the nine months  ended  September  30, 2000 was for
capital expenditures consisting of land, building and equipment and for payments
on  long-term  debt and  capital  lease  obligations.  The growth of the Company
during the 2000 period did not require  significant  additional working capital.
Sales  are  predominantly  for  cash  and the  business  does  not  require  the
maintenance of significant receivables or inventories. In addition, it is common
within the restaurant  industry to receive trade credit on the purchase of food,
beverage and supplies, thereby reducing the need for incremental working capital
to support sales increases.

The Company 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.  The Company  had  guaranteed  certain  TW-Tennessee  obligations  as
follows,  jointly and  severally  with  TW-Tennessee  common  members:  a) up to
$1,200,000 under a bank line of credit,  b) approximately  $2,800,000 of a lease
financing agreement, and c) equipment leases with a bank.

In March 2001, the bank which holds the line of credit filed suit in the Circuit
Court of  Jefferson  County,  Kentucky  against  TW-Tennessee  and  against  the
guarantors  of the line of credit,  including  the Company and a Director of the
Company.  Prior  to the  suit  being  filed,  the  Company  along  with  certain
guarantors  made a partial  payment to the bank. If the bank is  unsuccessful in
collecting the remaining  payments from the other guarantors,  the Company would
have exposure  totaling  approximately  $1,000,000.  On June 14, 2001,  the bank
filed a motion for summary judgment against the Company and certain of the other
guarantors of the line of credit. On October 29, 2001, the Court heard arguments
regarding  the motion of the bank for  judgment  against the Company and certain
other guarantors. A ruling by the Court is expected at any time. In addition, on
August 2, 2001, the Company filed a Motion to Compel  Arbitration for all claims
asserted among it and the other  guarantors of the line of credit,  which Motion
to Compel  Arbitration  was granted by the Court on August 30, 2001. The Company
intends  to  pursue  the  arbitration  among the  guarantors  to  determine  the
respective obligations of the parties.

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

The  lessor  under  the  equipment   leases  with   TW-Tennessee   has  declared
TW-Tennessee to be in default  thereunder and demanded  payment in full from all
guarantors of the leases,  including the Company. The Company along with certain
guarantors  have made a partial  payment to the  lessor and is working  with the
lessor in pursuing the other  guarantors of the  equipment  leases that have not
made any payment. If the lessor is unsuccessful in collecting the remaining sums
due from the other  guarantors,  the  Company  would  have  additional  exposure
totaling approximately $312,000.

As a result of the  settlement  with the Landlord under the  TW-Tennessee  lease
financing  agreement,  and given the demand for payment by the lessor  under the
TW-Tennessee equipment leases and by the bank that holds the line of credit, the
Company  has  incurred  a  loss   related  to  the   Company's   guarantees   of
TW-Tennessee's obligations. The

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Company  established a reserve in the amount of $725,000  during 2000  ($475,000
during the three months ended June 30, 2000 and $250,000 during the three months
ended  September 30, 2000) which had been paid out. The reserve amount was based
on the Company's payment to the Landlord under the TW-Tennessee  lease financing
agreement,  the  Company's  share  of the  various  remaining  guarantees  of TW
Tennessee  obligations and an estimated amount for legal costs which will likely
be incurred in  connection  with the  resolution  of this matter.  The Company's
management believes that it will not incur any significant  additional losses in
connection with this matter.

By Complaint dated October 4, 2001, Douglas H. Morris, II and Michael R. Greene,
plaintiffs,  filed an action against the Company and others  alleging  damage to
the plaintiffs as a result of (i) the management of the TW-Tennessee restaurants
by the  Company,  (ii) the  alleged  wrongful  application  of  proceeds  of the
Company's purchase of the Medina, Ohio restaurant and (iii) the alleged wrongful
conversion   of   loan   proceeds   belonging   to   TW-International,   LLC  to
TWED-Charleston,  Inc. The Company has not yet filed an answer or other response
to the  complaint.  This  matter is still in the early  pleading  stages  and no
discovery has been taken. Management believes that the claims are without merit,
but it is too early to predict an  outcome.  The Company  intends to  vigorously
defend itself in connection with this matter.

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.

In the next 12 months,  the Company expects the demand on future liquidity to be
from the ongoing maintenance and improvement of existing  restaurant  facilities
and from the construction of one to two additional restaurant facilities.  As of
September 30, 2001, the Company had no material commitments for the construction
of  new   restaurants,   maintenance  or  improvement  of  existing   restaurant
facilities.

The Company has a $6,500,000  mortgage  revolving line of credit with a bank. As
of September 30, 2001, we had outstanding borrowings under the line of credit in
the amount of  $5,861,148.  The note bears  interest at the prime rate plus .25%
(6.25% at September 30, 2001) 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.

The Company also has a $1,200,000 mortgage revolving line of credit with a bank.
As of September 30, 2001, we had outstanding borrowings under the line of credit
in the amount of $914,868.  The note bears  interest at the prime rate plus .25%
(6.25% at September  30,  2001) and is due  February 3, 2002.  Upon the maturity
date, the Loan Agreement  provides the bank with the option of either  extending
the  maturity  date until the line of credit has been repaid or  converting  the
current outstanding  principal balance to a Term Loan with a maturity of 5-years
from the date of conversion.  The note imposes  restrictions on the Company with
respect to the  maintenance  of certain  financial  ratios,  the  incurrence  of
indebtedness,  the sale of assets, mergers, capital expenditures and the payment
of dividends.

Appropriate  waivers and a covenant  amendment have been obtained by the Company
from the  lenders  which  hold the  revolving  lines of credit  (balances  as of
September 30, 2001 were  $5,861,148  and $914,868) to resolve a non-  compliance
with a loan covenant as of September 30, 2001.  Management believes the covenant
amendment will enable compliance with this covenant in the future.

OTHER EVENTS

TW Funding,  LLC is an entity  owned by certain  officers  and  directors of the
Company. The members of TW Funding, LLC guaranteed a loan incurred by TW Funding
to finance  its  purchase  of 400,000  shares of Common  Stock in the  Company's
initial public offering in January 1999. The shares held by TW Funding,  as well
as 1,900,000  shares of Company  Common  Stock,  of which  1,800,000  shares are
beneficially owned by certain current and former directors of the Company,  have
been  pledged  to  secure  the loan and  their  guarantee.  This  pledge  totals
2,300,000  shares of Common Stock.  The loan, as extended,  matured on March 31,
2001.  On or about May 5,  2001,  the  obligation  of  approximately  $4,900,000
($4,000,000  principal and $900,000 interest) of TW Funding, LLC was declared in
default and, as a result, Mr. Gerald Mansbach has become the beneficial owner of
the above described  shares,  representing  approximately  39.0% of the Company,
with the power to vote and dispose of such  shares.  In  addition,  upon default
under the note,  Mr.  Mansbach  became  entitled to vote  approximately  725,000
shares  owned by the  guarantors  but not  pledged.  Accordingly,  Mr.  Mansbach
currently has the right to vote 3,123,000 shares, or approximately  53.5% of the
outstanding  shares.  The Company has been informed that the parties  related to
the TW Funding matter have reached a settlement.  As a result of the settlement,
Mr.  Mansbach  will become the legal and  beneficial  owner of the shares,  upon
execution of a formal settlement agreement.


                                       18

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The Company has been  notified by Nasdaq that it has not met the minimum  public
float requirement of $5 million over 30 consecutive  trading days as required by
Nasdaq's  National Market rules.  Nasdaq had originally  given the Company until
October 31, 2001 to regain compliance.  In response to the extraordinary  market
conditions  following the tragedy of September 11, 2001,  Nasdaq  implemented an
across-the-board moratorium on the minimum bid and public float requirements for
continued  listing on Nasdaq  until  January 2, 2002.  The Company is  currently
evaluating  its options in the event it cannot regain  compliance  subsequent to
January 2, 2002.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial  Accounting  Standards No. 141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite  lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.

The  Company  will  apply the new rules on  accounting  for  goodwill  and other
intangible  assets  beginning in the first quarter of 2002.  Application  of the
nonamortization  provisions of the Statement is expected to reduce  depreciation
and amortization  expense by approximately  $140,000 per year.  During 2002, the
Company will perform the first of the required  impairment tests of goodwill and
indefinite  lived  intangible  assets  as of  January  1,  2002  and has not yet
determined  what the effect of these tests will be on the earnings and financial
position of the Company.

IMPACT OF INFLATION

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

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company  does not enter into  derivative  transactions  or  speculate on the
future  direction  of interest  rates.  The Company is exposed to interest  rate
changes primarily as a result of variable rate debt instruments. As of September
30, 2001,  approximately  $11,700,000  of the  Company's  debt bore  interest at
variable  rates.  A 1%  change  in  the  varible  interest  rate  equates  to an
approximate $100,000 change in interest expense for a twelve month period.



                                       19

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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.  The Company  had  guaranteed  certain  TW-Tennessee  obligations  as
follows,  jointly and  severally  with  TW-Tennessee  common  members:  a) up to
$1,200,000 under a bank line of credit,  b) approximately  $2,800,000 of a lease
financing agreement, and c) equipment leases with a bank.

In March 2001, the bank which holds the line of credit filed suit in the Circuit
Court of  Jefferson  County,  Kentucky  against  TW-Tennessee  and  against  the
guarantors  of the line of credit,  including  the Company and a Director of the
Company.  Prior  to the  suit  being  filed,  the  Company  along  with  certain
guarantors  made a partial  payment to the bank. If the bank is  unsuccessful in
collecting the remaining  payments from the other guarantors,  the Company would
have exposure  totaling  approximately  $1,000,000.  On June 14, 2001,  the bank
filed a motion for summary judgment against the Company and certain of the other
guarantors of the line of credit. On October 29, 2001, the Court heard arguments
regarding  the motion of the bank for  judgment  against the Company and certain
other guarantors. A ruling by the Court is expected at any time. In addition, on
August 2, 2001, the Company filed a Motion to Compel  Arbitration for all claims
asserted among it and the other  guarantors of the line of credit,  which Motion
to Compel  Arbitration  was granted by the Court on August 30, 2001. The Company
intends  to  pursue  the  arbitration  among the  guarantors  to  determine  the
respective obligations of the parties.

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

The  lessor  under  the  equipment   leases  with   TW-Tennessee   has  declared
TW-Tennessee to be in default  thereunder and demanded  payment in full from all
guarantors of the leases,  including the Company. The Company along with certain
guarantors  have made a partial  payment to the  lessor and is working  with the
lessor in pursuing the other  guarantors of the  equipment  leases that have not
made any payment. If the lessor is unsuccessful in collecting the remaining sums
due from the other  guarantors,  the  Company  would  have  additional  exposure
totaling approximately $312,000.

As a result of the  settlement  with the Landlord under the  TW-Tennessee  lease
financing  agreement,  and given the demand for payment by the lessor  under the
TW-Tennessee equipment leases and by the bank that holds the line of credit, the
Company  has  incurred  a  loss   related  to  the   Company's   guarantees   of
TW-Tennessee's  obligations.  The Company established a reserve in the amount of
$725,000  during 2000 ($475,000  during the three months ended June 30, 2000 and
$250,000  during the three months ended  September 30, 2000) which had been paid
out. The reserve amount was based on the Company's payment to the Landlord under
the TW-Tennessee lease financing  agreement,  the Company's share of the various
remaining  guarantees of TW Tennessee  obligations  and an estimated  amount for
legal costs which will likely be incurred in connection  with the  resolution of
this  matter.  The  Company's  management  believes  that it will not  incur any
significant additional losses in connection with this matter.

By Complaint dated October 4, 2001, Douglas H. Morris, II and Michael R. Greene,
plaintiffs,  filed an action against the Company and others  alleging  damage to
the plaintiffs as a result of (i) the management of the TW-Tennessee restaurants
by the  Company,  (ii) the  alleged  wrongful  application  of  proceeds  of the
Company's purchase of the Medina, Ohio restaurant and (iii) the alleged wrongful
conversion   of   loan   proceeds   belonging   to   TW-International,   LLC  to
TWED-Charleston,  Inc. The Company has not yet filed an answer or other response
to the  complaint.  This  matter is still in the early  pleading  stages  and no
discovery has been taken. Management believes that the claims are without merit,
but it is too early to predict an  outcome.  The Company  intends to  vigorously
defend itself in connection with this matter.






                                       20

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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

  (a)    Exhibits  - None

  (b)    Reports on Form 8-K

         Tumbleweed, Inc. (the Company) filed Form 8-K on August 13, 2001 to
         report under Item 5 that the Board of Directors had appointed Glennon
         F. Mattingly Chief Financial Officer.  The appointment of Mr. Mattingly
         followed the announcement by James M. Mulrooney of his decision to
         resign as Executive Vice President, Chief Financial Officer and a
         director of the Company.  At this time, Mr. Mulrooney's position on the
         Board of Directors has not been filled.

         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:       November 9, 2001                            Tumbleweed, Inc.

                                            By:  /s/   Glennon F. Mattingly
                                                       --------------------
                                                       Glennon F. Mattingly
                                                       Senior Vice President
                                                       Chief Financial Officer







































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