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, 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 August 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 six months and three months
                        ended June 30, 2001 and 2000                        3
                  b)    Consolidated Balance Sheets as of June 30, 2001
                        and December 31, 2000                               4
                  c)    Consolidated Statements of Cash
                        Flows for the six months and three months
                        ended June 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                      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>
<TABLE>


                                Tumbleweed, Inc.
                      Consolidated Statements of Operations
                                   (Unaudited)


<CAPTION>



                                                        Six Months Ended               Three Months Ended
                                                             June 30                         June 30
                                                       2001           2000            2001            2000
                                                  --------------  -------------   -------------  --------------
Revenues:
<S>                                              <C>             <C>             <C>            <C>
   Restaurant sales                              $    27,744,945 $   25,707,386  $   14,093,293 $    12,886,116
   Commissary sales                                      917,058        855,268         461,311         432,662
   Franchise fees and royalties                          657,607        653,768         321,161         424,802
   Gain from insurance proceeds due to
     involuntary conversion of non-monetary
     assets                                                    -        434,311               -         434,311
   Other revenues                                        260,699        373,288          70,280         213,764
                                                  --------------  -------------   -------------  --------------

Total revenues                                        29,580,309     28,024,021      14,946,045      14,391,655

Operating expenses:
   Restaurant cost of sales                            8,823,012      7,365,672       4,444,606       3,694,028
   Commissary cost of sales                              800,233        748,497         402,717         373,393
   Operating expenses                                 15,172,415     13,412,697       7,642,136       6,667,642
   Selling, general and administrative expenses        3,025,240      2,798,410       1,464,361       1,522,403
   Preopening expenses                                         -        375,751               -         289,688
   Depreciation and amortization                       1,169,943      1,034,477         595,375         516,458
   Loss on guarantees of indebtedness                          -        475,000               -         475,000
                                                  --------------  -------------   -------------  --------------

Total operating expenses                              28,990,843     26,210,504      14,549,195      13,538,612
                                                  --------------  -------------   -------------  --------------

Income from operations                                   589,466      1,813,517         396,850         853,043

Other income (expense):
   Interest expense, net                                (725,014)      (650,559)       (342,990)       (333,361)
   Equity in income of TW-Springhurst                     33,902              -          21,219               -
                                                  --------------  -------------   -------------  --------------

Total other expense                                     (691,112)      (650,559)       (321,771)       (333,361)
                                                  --------------  -------------   -------------  --------------

Income (loss) before income taxes                       (101,646)     1,162,958          75,079         519,682
Provision (benefit) for income taxes - current
  and deferred                                           (30,494)       407,035          27,828         181,889
                                                  --------------  -------------   -------------  --------------

Net income (loss)                                $       (71,152)$      755,923  $       47,251 $       337,793
                                                  ==============  =============   =============  ==============

Basic and diluted earnings (loss) per share      $         (0.01)$         0.13  $         0.01 $          0.06
                                                  ==============  =============   =============  ==============
</TABLE>

See accompanying notes.


                                        3

<PAGE>
<TABLE>



                                Tumbleweed, Inc.
                           Consolidated Balance Sheets

<CAPTION>

                                                                 June 30             December 31
                                                                   2001                  2000
                                                               (Unaudited)
                                                              --------------        --------------
Assets
Current assets:
<S>                                                          <C>                   <C>
   Cash and cash equivalents                                 $       197,012       $       281,829
   Accounts receivable, net of allowance of $68,464                  466,934               757,956
   Income tax receivable                                             303,475               240,875
   Inventories                                                     2,028,022             1,780,577
   Prepaid expenses and other assets                                 265,152               345,148
                                                              --------------        --------------
Total current assets                                               3,260,595             3,406,385
Property and equipment, net                                       31,526,657            31,795,454
Goodwill, net of accumulated amortization of
   $739,521 in 2001 and $669,395 in 2000                           3,406,491             3,476,617
Investment in TW-Springhurst                                         101,499               141,097
Other assets                                                         607,267               633,335
                                                              --------------        --------------
Total assets                                                 $    38,902,509       $    39,452,888
                                                              ==============        ==============

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                          $     1,419,661       $     1,113,443
   Accrued liabilities                                             1,927,161             2,489,727
   Deferred income taxes                                             177,657                 8,244
   Current maturities on long-term
     debt and capital leases                                       1,498,921             2,040,667
                                                              --------------        --------------
Total current liabilities                                          5,023,400             5,652,081

Long-term liabilities:
   Long-term debt, less current maturities                        12,818,936            12,422,904
   Capital lease obligations, less current maturities              2,242,371             2,534,877
   Deferred income taxes                                             897,453               831,525
   Other liabilities                                                 120,000               140,000
                                                              --------------        --------------
Total long-term liabilities                                       16,078,760            15,929,306
                                                              --------------        --------------
Total liabilities                                                 21,102,160            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                                               1,702,220             1,773,372
                                                              --------------        --------------
     Total stockholders' equity                                   17,800,349            17,871,501
                                                              --------------        --------------
Total liabilities and stockholders' equity                   $    38,902,509       $    39,452,888
                                                              ==============        ==============
</TABLE>

See accompanying notes.




                                        4

<PAGE>
<TABLE>




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

                                                                       Six Months Ended
                                                                           June 30
                                                                    2001             2000
                                                                -------------    ------------

Operating activities:
<S>                                                            <C>               <C>
   Net income (loss)                                           $      (71,152)   $    755,923
   Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
        Depreciation and amortization                               1,169,943       1,034,477
        Deferred income taxes                                         235,341         194,979
        Loss on guarantee of indebtedness                                   -         475,000
        Gain from insurance proceeds due to involuntary
           conversion of non-monetary assets                                -        (434,311)
        Equity in income of TW-Springhurst                            (33,902)              -
        Loss on disposition of property and equipment                  18,567          14,252
        Changes in operating assets and liabilities:
          Accounts receivable                                         291,022        (337,714)
          Income tax receivable                                       (62,600)              -
          Inventories                                                (247,445)       (160,329)
          Prepaid expenses                                             74,968          (9,504)
          Other assets                                                 17,720         (50,627)
          Accounts payable                                            306,218         756,820
          Accrued liabilities                                        (562,566)       (188,196)
          Other liabilities                                           (20,000)         (5,000)
                                                                -------------    ------------
Net cash provided by operating activities                           1,116,114       2,045,770

Investing activities:
    Purchases of property and equipment                              (836,211)     (1,808,302)
   Distribution from TW-Springhurst                                    73,500               -
                                                                -------------    ------------
Net cash used in investing activities                                (762,711)     (1,808,302)

Financing activities:
   Proceeds from issuance of long-term debt                         2,979,120       1,704,000
   Payments on long-term debt and capital lease obligations        (3,417,340)     (1,868,710)
   Purchase of treasury stock                                               -        (241,999)
                                                                -------------    ------------
Net cash used in financing activities                                (438,220)       (406,709)
                                                                -------------    ------------

Net decrease in cash and cash equivalents                             (84,817)       (169,241)

Cash and cash equivalents at beginning of period                      281,829         640,189
                                                                -------------    ------------
Cash and cash equivalents at end of period                     $      197,012   $     470,948
                                                                =============    ============

</TABLE>




See accompanying notes.







                                        5

<PAGE>

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


1.    BASIS OF PRESENTATION

Restaurant Facilities

As of June 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 six months ended June 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
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, 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 six months and three  months ended June 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 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.



                                        6

<PAGE>
2.   ACCRUED LIABILITIES

Accrued liabilities consist of:

                                                   June 30         December 31
                                                    2001               2000
                                                -------------     -------------

Accrued payroll, severance and related taxes    $     873,431     $     897,841
Accrued insurance and fees                            225,729           282,281
Accrued taxes, other than payroll                     591,020           548,703
Gift certificate liability                            180,587           470,652
Deferred income related to involuntary
  conversion of non-monetary assets                         -           204,893
Other                                                  56,394            85,357
                                                -------------     -------------
                                                $   1,927,161     $   2,489,727
                                                =============     =============

3.   LONG-TERM DEBT

Long-term debt consists of:

                                                        June 30      December 31
                                                          2001          2000
                                                      -----------    -----------
Secured $6,500,000  mortgage  revolving line of
  credit note, bearing interest at prime rate
  plus .25% (7.0% at June 30, 2001), due
  December 31, 2003                                  $  5,996,148   $  5,496,148

Secured mortgage note payable, bearing interest
  at commercial paper rate plus 2.65% (6.38% at
  June 30, 2001), due February 17, 2006                 2,406,381      2,501,399

Secured $6,500,000  mortgage  revolving line of
  credit note, bearing interest at prime rate
  plus .25% (7.0% at June 30, 2001), due
  October 3, 2001                                       1,164,868        915,868

Secured mortgage note payable,  bearing interest at
  prime rate plus 1% (7.75% at June 30, 2001),
  payable in monthly installments through October 1,
  2017                                                  1,026,342      1,039,068


Secured mortgage note payable, bearing interest at
  8.75%, payable in monthly installments through
  February 15, 2008                                       902,173        921,756

Secured mortgage note payable, bearing interest at
  prime rate (6.75% at June 30, 2001), payable
  in monthly installments through March 1, 2006           632,381        644,185

Secured mortgage note payable,  bearing  interest
  at prime rate plus 1.25% (8.0% at June 30, 2001),
  payable in monthly installments through
  November 27, 2016                                       578,125        596,875

Secured mortgage note payable, bearing interest at
  10.52%, payable in monthly installments through
  August 18, 2005                                         463,481        506,700

                              (Continued next page)

                                        7

<PAGE>



3.   LONG-TERM DEBT (continued)


                                                       June 30       December 31
                                                         2001            2000
                                                      -----------    -----------

Secured mortgage note payable bearing interest at
  commercial paper rate plus 2.65% (6.38% at
  June 30, 2001), due December 31, 2001              $    230,000   $    800,000

Other installment notes payable                           309,908        415,633
                                                       ----------     ----------
                                                       13,709,807     13,837,632
Less current maturities                                   890,871      1,414,728
                                                       ----------     ----------
Long-term debt                                       $ 12,818,936   $ 12,422,904
                                                       ==========     ==========

Property and equipment  with a net book value of  approximately  $23,000,000  at
June 30, 2001 collateralize the Company's long-term debt.

The Loan  Agreement of the  $6,500,000  line of credit which matures  October 3,
2001 currently has a maximum amount  available of up to $1,440,000.  The Company
can increase this amount by providing the Bank with additional  collateral.  The
current  principal  balance at June 30, 2001 is  $1,164,868.  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.

For the quarter  ended June 30,  2001,  the Company was in  compliance  with the
financial covenants  pertaining to its revolving lines of credit (balances as of
June 30,  2001 were  $5,996,148  and  $1,164,868)  and a mortgage  note  payable
(balance as of June 30, 2001 was $2,406,381).  The Company was not in compliance
with certain financial  covenants for the quarter ended March 31, 2001 for which
a waiver was obtained.

4.  EARNINGS PER SHARE

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


                                                                Six Months Ended             Three Months Ended
                                                                    June 30                       June 30
                                                              2001            2000          2001           2000
                                                          ------------     -----------   -----------    -----------
Numerator:
<S>                                                      <C>              <C>           <C>            <C>
   Net income (loss)                                     $     (71,152)   $    755,923  $     47,251   $    337,793
                                                          ============     ===========   ===========    ===========

Denominator:
   Weighted average shares
      outstanding - basic                                    5,839,230       5,859,051     5,839,230      5,843,467
   Effect of dilutive securities:
      Director and employee stock options                          329             943           259              -
                                                          ------------     -----------   -----------    -----------
   Denominator for diluted earnings per share -
      adjusted weighted average and assumed conversions      5,839,559       5,858,108     5,839,489      5,843,467
                                                          ============     ===========   ===========    ===========
</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 six months ended June 30 is as follows:
<TABLE>
<CAPTION>



2001:
                                                   Restaurant        Commissary         Corporate          Totals
                                                  ------------     --------------     -------------     ------------
Revenues from external
<S>                                              <C>              <C>                <C>               <C>
   customers                                     $  27,744,945    $       917,058    $      918,306    $  29,580,309
Intersegment revenues                                        -          1,375,587                 -        1,375,587
General and
   administrative expenses                                   -                  -         2,093,059        2,093,059
Advertising expenses                                         -                  -           932,181          932,181
Depreciation and
   amortization                                        926,782             53,298           189,863        1,169,943
Net interest expense                                         -             88,050           636,964          725,014
Income (loss) before income taxes                    2,571,002             60,285        (2,732,933)       (101,646)



2000:
                                                   Restaurant        Commissary         Corporate          Totals
                                                  ------------     --------------     -------------     ------------
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                    3,603,945             47,696        (2,488,683)       1,162,958

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


2001:
                                                   Restaurant        Commissary         Corporate          Totals
                                                  ------------     --------------     -------------     ------------
Revenues from external
   customers                                     $  14,093,293    $       461,311    $      391,441    $  14,946,045
Intersegment revenues                                        -            691,967                 -          691,967
General and
   administrative expenses                                   -                  -           990,692          990,692
Advertising expenses                                         -                  -           473,669          473,669
Depreciation and
   amortization                                        473,866             26,649            94,860          595,375
Net interest expense                                         -             44,025           298,965          342,990
Income (loss) before income taxes                    1,400,219             30,326        (1,355,466)          75,079






                                        9

<PAGE>



5.   SEGMENT INFORMATION (continued)


2000:
                                                   Restaurant        Commissary         Corporate          Totals
                                                  ------------     --------------     -------------     ------------
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                    1,860,404             29,696        (1,370,418)         519,682
</TABLE>

6.  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 had accrued as a receivable  at June 30, 2000 $59,436 from the insurance
company in relation to business interruption.  This amount was recorded in other
revenues for the six months and three months ended June 30, 2000.

7.  INCOME TAXES

Income taxes on the  Company's  income  (loss)  before  income taxes for the six
months  ended  June 30,  2001 and 2000 have been  provided  for at an  estimated
effective tax rate of 30% and 35%, respectively.

8.  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.  While the Company believes it
has  fulfilled its  obligation to the bank and intends to vigorously  defend its
position,  it is too early in the process to predict with certainty the ultimate
outcome of this  matter  since the suit is in the early  pleading  stages and no
discovery has taken place.

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

                                       10

<PAGE>

8.  CONTINGENCIES (continued)

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 has been paid
out as of June 30, 2001. 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.

9.  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 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.















                                       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.

As of June 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>


                                                      Six Months Ended         Three Months Ended
                                                           June 30                   June 30
                                                      2001         2000         2001         2000
                                                   ----------   ----------   ----------   ----------
Revenues:
<S>                                                      <C>          <C>          <C>          <C>
   Restaurant sales                                      93.8%        91.8%        94.3%        89.5%
   Commissary sales                                       3.1          3.1          3.1          3.0
   Franchise fees and royalties                           2.2          2.3          2.1          3.0
   Gain from insurance proceeds due to involuntary
      conversion of non-monetary asset                      -          1.5            -          3.0
   Other revenues                                         0.9          1.3          0.5          1.5
                                                   ----------   ----------   ----------   ----------
     Total revenues                                     100.0        100.0        100.0        100.0
Operating expenses:
   Restaurant cost of sales (1)                          31.8         28.7         31.5         28.7
   Commissary cost of sales (2)                          87.3         87.5         87.3         86.3
   Operating expenses (1)                                54.7         52.2         54.2         51.7
   Selling, general and administrative expenses          10.2         10.0          9.8         10.6
   Preopening expenses                                      -          1.3            -          2.0
   Depreciation and amortization                          4.0          3.7          4.0          3.6
   Loss on guarantees of indebtedness                       -          1.7            -          3.3
                                                   ----------   ----------   ----------   ----------
     Total operating expenses                            98.0         93.5         97.3         94.1
                                                   ----------   ----------   ----------   ----------
     Income from operations                               2.0          6.5          2.7          5.9
Other expense, net                                       (2.3)        (2.3)        (2.2)        (2.3)
                                                   ----------   ----------   ----------   ----------
Income (loss) before income taxes                        (0.3)         4.2          0.5          3.6
Provision (benefit) for income taxes - current
   and deferred                                          (0.1)         1.5          0.2          1.3
                                                   ----------   ----------   ----------   ----------
Net  income (loss)                                       (0.2)%        2.7%         0.3%         2.3%
                                                   ==========   ==========   ==========   ==========

<FN>

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


                                       12

<PAGE>



COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000

Total revenues increased by $1,556,288 or 5.5% for the six months ended June 30,
2001 compared to the same period in 2000 primarily as a result of the following:

   Restaurant  sales  increased by  $2,037,559  or 7.9% for the six months ended
   June 30, 2001 compared to the same period in 2000. The increase in restaurant
   sales is due primarily to 30 additional Company-owned restaurant store months
   during the six months  ended June 30,  2001  compared  to the same  period in
   2000. The increase is partially offset by a 1.3% decrease in same store sales
   for the six month period.

   Commissary sales to franchised and licensed restaurants  increased by $61,790
   or 7.2% for the six months ended June 30, 2001 compared to the same period in
   2000. The increase is due primarily to 24 additional  franchised and licensed
   restaurant store months during the six months ended June 30, 2001 compared to
   the same period in 2000.

   Franchise  fees and royalties  increased by $3,839 or 0.6% for the six months
   ended June 30,  2001  compared  to the same  period in 2000.  Royalty  income
   increased  $73,839  for the six  month  period  primarily  as a result  of 24
   additional  franchised  or licensed  restaurant  store months  during the six
   months ended June 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 six months ended June 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 six months ended June 30, 2000
   was due to the involuntary conversion of non-monetary assets from a fire at a
   Company-owned  restaurant.  See  Note  6  of  the  accompanying  consolidated
   financial  statements  for a detail  discussion.  There was no similar income
   during the six months ended June 30, 2001.

   Other  revenues  decreased by $112,589 or 30.2% for the six months ended June
   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
   rebate  income is partially  offset by 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 $40,000 of
   insurance  proceeds  for the  six  months  ended  June  30,  2001  and  2000,
   respectively.   See  Note  6  of  the  accompanying   consolidated  financial
   statements for a detail discussion.

Restaurant  cost of sales  increased by  $1,457,340  or 19.8% for the six months
ended June 30,  2001  compared  to the same  period in 2000.  The  increase  was
principally due to 30 additional  Company-owned  restaurant  store months during
the six  months  ended  June  30,  2001  compared  to the same  period  in 2000.
Restaurant cost of sales increased as a percentage of sales by 3.1% to 31.8% for
the six months  ended June 30, 2001  compared to 28.7% during the same period in
2000.  The 3.1%  increase in cost of sales is primarily  the result of increased
beef cost  (primarily  steaks and ribs) and as a result of improving the quality
of the beef product served in the restaurants.

Commissary cost of sales increased $51,736 or 6.9% for the six months ended June
30, 2001 compared to the same period in 2000. The increase in commissary cost of
sales is due primarily to 24 additional franchised and licensed restaurant store
months  during the six months ended June 30, 2001 compared to the same period in
2000. As a percentage to commissary  sales,  commissary  cost of sales decreased
0.2% for the six months ended June 30, 2001 compared to the same period in 2000.

Restaurant  operating  expenses  increased  by  $1,759,718  or 13.1% for the six
months ended June 30, 2001 compared to the same period in 2000.  The increase in
operating expenses reflects 30 additional  Company-owned restaurant store months
during the six months  ended June 30, 2001  compared to the same period in 2000.
Operating  expenses  increased as a percentage of restaurant  sales to 54.7% for
the six  months  ended  June 30,  2001 from  52.2%  for the same  period in 2000
primarily  due to a 0.8%  increase in utilities  and a 1.1%  increase in payroll
costs.

Selling,  general and administrative  expenses increased by $226,830 or 8.1% for
the six months  ended June 30, 2001  compared  to the same  period in 2000.  The
increase  in  selling,  general and  administrative  expenses  for the six month
period  is  primarily  due  to  increased  advertising  costs  of  approximately
$315,000, the cost of implementing a new menu during the first quarter of 2001of
approximately $95,000 and increased legal costs. The increase in selling,

                                       13

<PAGE>

general and administrative expenses for the six month period is partially offset
by a reduction in payroll  costs for  corporate  personnel.  As a percentage  to
total  revenues,  selling,  general and  administrative  expenses were 10.2% and
10.0% of revenues for the six months ended June 30, 2001 and 2000, respectively.

Preopening  expenses  were  $375,751  for the six months  ended  June 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 six months ended June 30, 2001.

Depreciation and amortization  expense  increased  $135,466 or 13.1% for the six
months ended June 30, 2001  compared to the same period in 2000 due primarily to
30 additional  Company-owned restaurant store months during the six months ended
June 30, 2001 compared to the same period in 2000.

Net interest  expense  increased  $74,455 or 11.4% for the six months ended June
30,  2001  compared to the same  period in 2000.  The  increase is the result of
increased  borrowing to fund the growth in Company-owned  restaurants  partially
offset by decreases in the prime interest rate during 2001.

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

Total revenues increased by $554,390 or 3.8% for the three months ended June 30,
2001 compared to the same period in 2000 primarily as a result of the following:

   Restaurant  sales  increased by $1,207,177 or 9.4% for the three months ended
   June 30, 2001 compared to the same period in 2000. The increase in restaurant
   sales is due primarily to 15 additional Company-owned restaurant store months
   during the three  months  ended June 30, 2001  compared to the same period in
   2000. The increase is partially offset by a 1.5% decrease in same store sales
   for the three month period.

   Commissary sales to franchised and licensed restaurants  increased by $28,649
   or 6.6% for the three months ended June 30, 2001  compared to the same period
   in 2000.  The increase is due  primarily  to six  additional  franchised  and
   licensed  restaurant store months during the three months ended June 30, 2001
   compared to the same period in 2000.

   Franchise  fees and  royalties  decreased  by $103,641 or 24.4% for the three
   months  ended June 30, 2001  compared  to the same period in 2000.  Franchise
   fees decreased  $105,000 in 2001 due to the fact that there was one franchise
   restaurant  opening in the three months ended June 30, 2001  compared to four
   franchise  restaurant  openings  in  2000.  Royalty  income  remained  fairly
   constant  during the three  months  ended June 30, 2001  compared to the same
   period in 2000.

   The gain from insurance  proceeds during the three months ended June 30, 2000
   was due to the involuntary conversion of non-monetary assets from a fire at a
   Company-owned  restaurant.  See  Note  6  of  the  accompanying  consolidated
   financial  statements  for a detail  discussion.  There was no similar income
   during the 2001 three month period.

   Other revenues decreased by $143,484 or 67.1% for the three months ended June
   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 June 30, 2001 included  $40,000 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 6 of
   the accompanying  consolidated  financial statements for a detail discussion.
   There was no similar income during the three months ended June 30, 2001.

Restaurant  cost of sales  increased  by $750,578 or 20.3% for the three  months
ended June 30, 2001 compared to the same period in 2000. The increase in cost of
sales was principally due to 15 additional Company-owned restaurant store months
during the three months ended June 30, 2001 compared to the same period in 2000.
Restaurant cost of sales increased as a percentage of sales by 2.8% to 31.5% for
the three months ended June 30, 2001 compared to 28.7% during the same period in
2000. The 2.8% increase is mainly the result of increased  beef cost  (primarily
steaks and ribs) and as a result of  improving  the quality of the beef  product
served in the restaurants.



                                       14

<PAGE>

Commissary  cost of sales  increased  $29,324 or 7.8% for the three months ended
June 30, 2001  compared to the same period in 2000.  The increase in  commissary
cost of  sales  is due  primarily  to six  additional  franchised  and  licensed
restaurant  store months during the three months ended June 30, 2001 compared to
the same period in 2000. As a percentage to commissary sales, commissary cost of
sales  increased  1.0% for the three months ended June 30, 2001  compared to the
same period in 2000.

Restaurant  operating  expenses  increased  by  $974,494  or 14.6% for the three
months ended June 30, 2001 compared to the same period in 2000.  The increase in
operating expenses reflects 15 additional  Company-owned restaurant store months
during the three months ended June 30, 2001 compared to the same period in 2000.
Operating  expenses  increased as a percentage of restaurant  sales to 54.2% for
the three  months  ended June 30,  2001 from  51.7% for the same  period in 2000
primarily  due to a 0.6%  increase in utilities  and a 0.5%  increase in payroll
costs.

Selling,  general and  administrative  expenses decreased by $58,042 or 3.8% for
the three  months ended June 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
partially  offset by increased  advertising  and legal costs. As a percentage to
total revenues, selling, general and administrative expenses were 9.8% and 10.6%
for the three months ended June 30, 2001 and 2000, respectively.

Preopening  expenses  were  $289,688  for the three  months ended June 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 June 30, 2001.

Depreciation and amortization  expense  increased $78,917 or 15.3% for the three
months ended June 30, 2001  compared to the same period in 2000 due primarily to
15  additional  Company-owned  restaurant  store months  during the three months
ended June 30, 2001 compared to the same period in 2000.

Net interest  expense  increased  $9,629 or 2.9% for the three months ended June
30,  2001  compared to the same  period in 2000.  The  increase is the result of
increased  borrowing to fund the growth in Company-owned  restaurants  partially
offset by decreases in the prime interest rate during 2001.

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 six  months  ended  June 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 six months ended June
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.









                                       15

<PAGE>

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


                                                     Six Months Ended
                                                          June 30

                                                  2001               2000
                                              ------------       ------------
Net cash provided by operations              $   1,116,114      $   2,045,770
Purchases of property and equipment               (836,211)        (1,808,302)
Net payments on long-term
   debt and capital lease obligations             (438,220)          (164,710)

Our largest use of funds  during the six months  ended June 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 six  months  ended  June  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.  While the Company believes it
has  fulfilled its  obligation to the bank and intends to vigorously  defend its
position,  it is too early in the process to predict with certainty the ultimate
outcome of this  matter  since the suit is in the early  pleading  stages and no
discovery has taken place.

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 has been paid
out as of June 30, 2001. 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

                                       16

<PAGE>

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
June 30, 2001, the Company had no material  commitments for the  construction of
new restaurants, maintenance or improvement of existing restaurant facilities.

We have a $6,500,000  mortgage  revolving line of credit with a bank. As of June
30, 2001, we had outstanding  borrowings  under the line of credit in the amount
of $5,996,148. The note bears interest at the prime rate plus .25% (7.0% at June
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.

We also have an additional  $6,500,000  mortgage revolving line of credit with a
bank.  As of June 30,  2001,  we had  outstanding  borrowings  under the line of
credit in the amount of  $1,164,868.  The note bears  interest at the prime rate
plus .25% (7.0% at June 30, 2001) and is due October 3, 2001.  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  current  maximum  amount  available  on the
revolving  line of credit is $1,440,000  which can be increased up to $6,500,000
as  additional   collateral  is  provided  by  the  Company.  The  note  imposes
restrictions on the Company with respect to the maintenance of certain financial
ratios,  the incurrence of indebtedness,  the sale of assets,  mergers,  capital
expenditures and the payment of dividends.

For the quarter  ended June 30,  2001,  the Company was in  compliance  with the
financial covenants  pertaining to its revolving lines of credit (balances as of
June 30,  2001 were  $5,996,148  and  $1,164,868)  and a mortgage  note  payable
(balance as of June 30, 2001 was $2,406,381).  The Company was not in compliance
with certain financial  covenants for the quarter ended March 31, 2001 for which
a waiver was obtained.

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 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  notified by Nasdaq that it has not met the minimum  public
float  requirement  of $5 million over the last 30  consecutive  trading days as
required by Nasdaq's  National Market rules.  Nasdaq has given the Company until
October 31, 2001 to regain compliance. If the Company does not regain compliance
by October 31, 2001,  Nasdaq will delist the Company's  securities from Nasdaq's
National Market System.  The Company is currently  evaluating its options in the
event it cannot regain compliance.

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.


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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. 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,  2001,
approximately  $12,195,000  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.  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.  While the Company believes it
has  fulfilled its  obligation to the bank and intends to vigorously  defend its
position,  it is too early in the process to predict with certainty the ultimate
outcome of this  matter  since the suit is in the early  pleading  stages and no
discovery has taken place.

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 has been paid
out as of June 30, 2001. 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.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
  (a)    Exhibits  - None
  (b)    Reports on Form 8-K

          Tumbleweed, Inc. filed Form 8-K on May 11, 2001 to report under Item 1
         that  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.  That loan is secured by 400,000 shares of
         Tumbleweed,  Inc.  owned by TW Funding,  LLC and  1,900,000  additional
         shares owned by members of TW Funding, LLC, including some officers and
         directors of  Tumbleweed,  Inc. Mr.  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.

         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 10, 2001                          Tumbleweed, Inc.
                                                          (Registrant)

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















































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