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 8, 2002

                                       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 October 14, 2002 was 5,916,153.















<PAGE>



                                TUMBLEWEED, INC.

                                      INDEX


PART I.     FINANCIAL INFORMATION                                        PAGE
      Item 1.  Financial Statements (Unaudited)
               a)  Consolidated Statements of Operations for
                   the thirty-six weeks and twelve weeks ended
                   September 8, 2002 and the nine months and three
                   months ended September 30, 2001                         3
               b)  Consolidated Balance Sheets as of September 8,
                   2002 and December 31, 2001                              4
               c)  Consolidated Statements of Cash Flows for the
                   thirty-six weeks ended September 8, 2002 and the
                   nine months ended September 30, 2001                    5
               d)  Notes to Consolidated Financial Statements              6

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


      Item 3.  Quantitative and Qualitative Disclosures About
               Market Risk                                                20


PART II.    OTHER INFORMATION

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

Signature                                                                 21





                                        2

<PAGE>



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





                                                         Thirty-Six        Nine Months      Twelve Weeks     Three Months
                                                        Weeks Ended           Ended            Ended             Ended
                                                        September 8,      September 30,     September 8,     September 30,
                                                            2002              2001              2002             2001
                                                      ----------------   ---------------  ----------------  ---------------
Revenues:
<S>                                                  <C>                <C>              <C>               <C>
    Restaurant sales                                 $      38,842,539  $     42,111,345 $      12,282,972 $     14,366,401
    Commissary sales                                         1,184,254         1,360,618           387,775          443,560
    Franchise fees and royalties                               842,695           964,761           301,138          307,154
    Other revenues                                             433,857           333,379           138,967           72,680
                                                      ----------------   ---------------  ----------------  ---------------

Total revenues                                              41,303,345        44,770,103        13,110,852       15,189,795

Operating expenses:
    Restaurant cost of sales                                11,734,799        13,221,757         3,679,397        4,398,746
    Commissary cost of sales                                 1,058,016         1,189,510           346,419          389,276
    Operating expenses                                      21,571,863        22,994,702         6,911,550        7,822,287
    Selling, general and administrative expenses             4,058,398         4,612,473         1,210,807        1,587,233
    Depreciation and amortization                            1,356,633         1,769,962           446,772          600,020
                                                      ----------------   ---------------  ----------------  ---------------

Total operating expenses                                    39,779,709        43,788,404        12,594,945       14,797,562
                                                      ----------------   ---------------  ----------------  ---------------

Income from operations                                       1,523,636           981,699           515,907          392,233

Other income (expense):
    Interest expense, net                                     (699,960)       (1,018,271)         (235,488)        (293,257)
    Equity in income of TW-Springhurst                               -            54,531                 -           20,629
                                                      ----------------   ---------------  ----------------  ---------------

Total other expense                                           (699,960)         (963,740)         (235,488)        (272,628)
                                                      ----------------   ---------------  ----------------  ---------------

Income before income taxes and cumulative
     effect of a change in accounting  principle               823,676            17,959           280,419          119,605
Provision for income taxes - current and
     deferred                                                  477,713               898           238,698           31,391
                                                      ----------------   ---------------  ----------------  ---------------

Income before cumulative effect of a change in
     accounting principle                                      345,945            17,061            41,721           88,214
Cumulative effect of a change in accounting
   principle, net of tax ($845,873)                         (1,503,773)                -                 -                -
                                                      ----------------   ---------------  ----------------  ---------------
Net income (loss)
                                                     $      (1,157,828) $         17,061 $          41,721 $         88,214
                                                      ================   ===============  ================  ===============

Basic and diluted earnings (loss) per share:
     Income before cumulative effect of a
     change in accounting principle                  $           0.06   $           0.00 $            0.01 $           0.02
     Cumulative effect of a change in accounting
        principle,net of tax                                    (0.25)                 -                 -                -
                                                      ----------------   ---------------  ----------------  ---------------
    Net income (loss)                                $          (0.19)  $           0.00 $            0.01 $           0,02
                                                      ================   ===============  ================  ===============
</TABLE>

See accompanying notes.


                                        3

<PAGE>



                                Tumbleweed, Inc.
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>


                                                                         September 8,
                                                                             2002              December 31,
                                                                         (Unaudited)               2001
                                                                        --------------        --------------
Assets
Current assets:
<S>                                                                    <C>                   <C>
   Cash and cash equivalents                                           $       271,444       $       757,266
   Accounts receivable, net allowance of $4,202 in 2001                        902,067               350,586
   Inventories                                                               1,815,886             1,785,481
   Deferred income taxes                                                             -               123,318
   Prepaid expenses and other assets                                           521,724               517,280
                                                                        --------------        --------------
Total current assets                                                         3,511,121             3,533,931
Property and equipment, net accumulated depreciation of
   $8,532,905 in 2002 and $7,410,775 in 2001                                27,682,243            28,380,038
Goodwill, net of accumulated amortization of
   $723,897 in 2001                                                            174,657             2,349,646
Intangible assets, net of accumulated amortization of
   $1,077 in 2002                                                            1,524,889                     -
Investment in TW-Springhurst                                                         -               126,415
Deferred income taxes                                                          740,151                     -
Other assets                                                                   664,885               507,320
                                                                        --------------        --------------
Total assets                                                           $    34,297,946       $    34,897,350
                                                                        ==============        ==============

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                    $     1,719,580       $     1,269,967
   Accrued liabilities                                                       2,626,604             3,542,511
   Deferred income taxes                                                       338,519                     -
   Current maturities on long-term
     debt and capital leases                                                 4,340,609             1,601,374
                                                                        --------------        --------------
Total current liabilities                                                    9,025,312             6,413,852

Long-term liabilities:
   Long-term debt, less current maturities                                  10,217,204            11,843,939
   Capital lease obligations, less current maturities                        1,549,237             1,989,820
   Deferred income taxes                                                             -                30,716
   Other liabilities                                                            65,000               120,000
                                                                        --------------        --------------
Total long-term liabilities                                                 11,831,441            13,984,475
                                                                        --------------        --------------
Total liabilities                                                           20,856,753            20,398,327

Commitments and contingencies (Note 10)

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; 5,916,153 and 5,881,630 shares issued
     at June 16, 2002 and December 31, 2001, respectively                       59,587                58,818
   Paid-in capital                                                          16,393,235            16,294,006
   Treasury stock, 42,400 shares                                              (254,695)             (254,695)
   Retained deficit                                                         (2,756,934)           (1,599,106)
                                                                        --------------        --------------
     Total stockholders' equity                                             13,441,193            14,499,023
                                                                        --------------        --------------
Total liabilities and stockholders' equity                             $    34,297,946       $    34,897,350
                                                                        ==============        ==============
</TABLE>

See accompanying notes.

                                       4
<PAGE>
<TABLE>


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

<CAPTION>


                                                                          Thirty-Six          Nine Months
                                                                          Weeks Ended            Ended
                                                                         September 8,        September 30,
                                                                             2002                 2001
                                                                       -----------------    ----------------

Operating activities:
<S>                                                                   <C>                  <C>
   Net income (loss)                                                  $       (1,157,828)  $          17,061
   Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
        Depreciation and amortization                                          1,356,633           1,769,962
        Provision for doubtful accounts                                           (4,202)                  -
        Deferred income taxes                                                   (309,030)            307,717
        Equity in income of TW-Springhurst                                             -             (54,531)
        Loss on disposition of property and equipment                             72,735              37,646
        Cumulative effect of a change in accounting principle                  2,349,646                   -
        Changes in operating assets and liabilities:
          Accounts receivable                                                   (233,453)            272,567
          Inventories                                                            (45,393)           (273,462)
          Prepaid expenses                                                       (35,779)            (58,291)
          Income tax receivable                                                    4,593              74,170
          Other assets                                                          (165,767)             26,894
          Accounts payable                                                       451,699             347,564
          Accrued liabilities                                                   (901,328)           (489,445)
          Other liabilities                                                      (55,000)            (20,000)
                                                                       -----------------    ----------------
Net cash provided by operating activities                                      1,327,526           1,957,852

Investing activities:
    Purchases of property and equipment                                         (630,905)           (969,194)
   Business acquisition                                                         (267,000)                  -
   Distribution from TW-Springhurst                                                    -              96,000
                                                                       -----------------    ----------------
Net cash used in investing activities                                           (897,905)           (873,194)

Financing activities:
   Proceeds from issuance of long-term debt                                    1,131,812           3,379,120
   Payments on long-term debt and capital lease obligations                   (2,047,255)         (4,532,514)
                                                                       -----------------    ----------------
Net cash used in investing activities                                           (915,443)         (1,153,394)
                                                                       -----------------    ----------------

Net decrease in cash and cash equivalents                                       (485,822)            (68,736)

Cash and cash equivalents at beginning of period                                 757,266             281,829
                                                                       -----------------    ----------------
Cash and cash equivalents at end of period                            $          271,444   $         213,093
                                                                       =================    ================


</TABLE>


See accompanying notes.


                                        5

<PAGE>



                                TUMBLEWEED, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                September 8, 2002


1.  BASIS OF PRESENTATION

RESTAURANT FACILITIES

As of September 8, 2002, the Company owned, franchised or licensed 57 Tumbleweed
restaurants.  The Company owned and operated 31 restaurants in Kentucky, Indiana
and Ohio.  There were 20 franchised  restaurants  located in Indiana,  Illinois,
Kentucky,  Michigan,  and Wisconsin and six licensed restaurants located outside
the United States in Germany,  Jordan,  Egypt, England and Turkey. The following
table reflects  changes in the number of Company- owned,  franchise and licensed
restaurants during the thirty-six weeks ended September 8, 2002.


Company-owned restaurants:
     In operation, beginning of period                    36
     Restaurants opened                                    0
     Restaurant sold to franchisee                        (1)
     Restaurants closed                                   (4)
                                                   ---------
     In operation, end of period                          31

Franchise and licensed restaurants:
     In operation, beginning of period                    29
     Restaurants opened                                    0
     Restaurant purchased from Tumbleweed, Inc.            1
     Restaurants closed                                   (4)
                                                   ---------
     In operation, end of period                          26
                                                   ---------
         System Total                                     57
                                                   =========

During  the  first  quarter  of 2002,  the  Company  closed  four  Company-owned
restaurant  locations.  The  restaurants  were located in Cincinnati,  Ohio (2),
Columbus,  Ohio (1), and Evansville,  Indiana (1). The restaurant  closings were
part  of a  strategic  management  decision  to  eliminate  lower  sales  volume
restaurants  that were  unprofitable  in 2001 and to focus its  energies  on the
continued  improvement of per-store  average sales volumes.  On January 1, 2002,
the Company  purchased from its joint venture partner the remaining 50% interest
in a  restaurant  location.  See  Note  7  for  a  further  discussion  of  this
transaction.

During  the second  quarter  of 2002,  the  Company  sold one of its  restaurant
locations to a  franchisee.  This was in accordance  with the Company's  plan it
established  in the fourth  quarter of 2001.  In connection  with the plan,  the
Company  had  taken a charge  to  earnings  in  accordance  with  SFAS No.  121,
"Impairment  of  Long-Lived  Assets." The personal  property had no value on the
books of the Company as a result of this special charge.  The franchisee assumed
the building lease and purchased the inventory for $11,000.

INTERIM FINANCIAL REPORTING

The  accompanying  consolidated  financial  statements have been prepared by the
Company without audit,  with the exception of the December 31, 2001 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, 2001.

In the opinion of  management,  the  unaudited  interim  consolidated  financial
statements  contained in this report  reflect all  adjustments,  consisting of a
change  in  accounting  principle  and  normal  recurring  accruals,  which  are
necessary for a fair presentation.  The results of operations for the thirty-six
weeks and twelve weeks ended September 8 , 2002 are not  necessarily  indicative
of the results that may be expected for the year ended December 31, 2002.

                                        6

<PAGE>



1.  BASIS OF PRESENTATION (continued)

FISCAL YEAR

Beginning  January 1, 2002,  the  Company  changed its fiscal year to end on the
last Sunday in December from a December 31 year end. The first three quarters of
each fiscal year,  beginning in 2002, consist of 12 weeks and the fourth quarter
consists  of 16 weeks.  The first three  quarters  of 2002  consists of 251 days
compared to 273 days in 2001 which resulted in lower  revenues of  approximately
$3,400,000.

RECENTLY ISSUED ACCOUNTING STANDARDS

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets."  This  statement  supercedes  SFAS No.  121,"
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
be Disposed  of," and the  accounting  and  reporting  provisions  of Accounting
Principles  Board  (APB)  Opinion No. 30,  "Reporting  Results of  Operations  -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual  and  Infrequently  Occurring  Events  and  Transactions."  SFAS No. 144
requires that one accounting model be used for long-lived  assets to be disposed
of by sale, whether previously held and used or newly acquired,  and it broadens
the   presentation   of   discontinued   operations  to  include  more  disposal
transactions.  The Company  adopted the provisions of SFAS No. 144 as of January
1, 2002 and determined that SFAS No. 144 had no impact on its financial position
and results of operations.

2. GOODWILL AND INTANGIBLE ASSETS

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 141,  "Business  Combinations," and SFAS No. 142, "Goodwill
and Other  Intangible  Assets." SFAS No. 141  eliminates the pooling of interest
method of  accounting  and  amortization  of goodwill for business  combinations
initiated  after  June 30,  2001.  SFAS  No.  142  requires  that  goodwill  and
intangible  assets with  indefinite  useful  lives no longer be  amortized,  but
instead  be tested  for  impairment  annually,  or more  frequently  if  certain
indicators  arise. The provisions of SFAS No. 142 also require the completion of
a  transitional  impairment  test  within  six  months  of  adoption,  with  any
impairments  identified treated as a cumulative effect of a change in accounting
principle.

During the first quarter of 2002, the Company determined that all goodwill as of
January 1, 2002 related to two reporting  units. The fair value of each unit was
determined using certain valuation  techniques.  As a result of the transitional
impairment test, an impairment loss in the amount of $1,503,773, net of tax, was
recorded as a cumulative  effect of a change in accounting  principle during the
first quarter of 2002.

If the Company had accounted for its goodwill under SFAS No. 142 for all periods
presented,  the  Company's  net income  (loss) and income (loss) per share would
have been as follows:

<TABLE>
<CAPTION>

                                            Thirty-Six         Nine Months        Twelve Weeks      Three Months
                                           Weeks Ended            Ended              Ended             Ended
                                           September 8,       September 30,       September 8,     September 30,
                                               2002                2001               2002              2001
                                          --------------     ----------------  -----------------   --------------

<S>                                      <C>                <C>                <C>                <C>
Net income (loss)                        $    (1,157,828)   $          17,061  $          41,721  $        88,214
Add back:
     Goodwill amortization, net of tax                 -              105,189                  -           35,063
                                          --------------     ----------------  -----------------   --------------
Adjusted net income (loss)               $    (1,157,828)   $         122,250  $          41,721  $       123,277
                                          ==============     ================  =================   ==============

Basic and diluted loss per share:
    Net income (loss)                    $         (0.19)   $            0.00  $            0.01  $          0.02
    Goodwill amortization, net of tax                  -                 0.02                  -             0.00
                                          --------------     ----------------  -----------------   --------------
    Adjusted net income (loss)           $         (0.19)   $            0.02  $            0.01  $          0.02
                                          ==============     ================  =================   ==============
</TABLE>





                                        7

<PAGE>



2. GOODWILL AND INTANGIBLE ASSETS (continued)

The following table sets forth the Company's goodwill  transactions in the first
quarter of 2002. All transactions occurred in the restaurant segment.


Balance as of January 1, 2002                              $      2,349,646
Goodwill acquired in the TW-Springhurst acquisition                 174,657
Impairment loss                                                 (2,349,646)
                                                             --------------
Balance as of September 8, 2002                            $        174,657
                                                             ==============

The Company acquired Tumbleweed International, LLC (see Note 8) during the first
quarter of 2002, which resulted in the acquisition of an intangible asset in the
amount of $1,525,966 and is included in the corporate segment.

3.   ACCRUED LIABILITIES

Accrued liabilities consist of:
<TABLE>
<CAPTION>


                                                               September 8,        December 31,
                                                                   2002                2001
                                                              ---------------     --------------

<S>                                                          <C>                 <C>
Accrued payroll, severance and related taxes                 $        904,080    $       946,545
Accrued insurance and fees                                            192,169            192,978
Accrued taxes, other than payroll                                     725,051            683,449
Gift certificate liability                                            217,264            475,914
Reserve for loss on guarantees of indebtedness                         84,752            565,000
Reserve for store closing costs                                       344,445            601,186
Other                                                                 158,843             77,439
                                                              ---------------     --------------
                                                             $      2,626,604    $     3,542,511
                                                              ===============     ==============
</TABLE>

4.   LONG-TERM DEBT

Long-term debt consists of:
<TABLE>
<CAPTION>


                                                               September 8,        December 31,
                                                                   2002                2001
                                                              ---------------     ---------------
Secured  $5,960,000  mortgage revolving line of credit note,
bearing interest at prime rate plus .25% (5.0% at September

                                                          <C>                 <C>
8, 2002), due December 31, 2003                              $      5,456,148    $      5,726,148

Secured mortgage note payable, bearing interest at
commercial paper rate plus 2.65% (4.35% at September 8,
2002), due April 1, 2003                                            2,157,041           2,299,567

Secured  mortgage note payable,  bearing  interest at 7.50%,
payable in monthly installments through January 22, 2007
with a lump sum payment due February 22, 2007                       1,407,185                   -

Secured mortgage note payable,  bearing interest at prime
rate plus 1% (5.75% at September 8, 2002), payable in
monthly installments through October 1, 2017                          983,101           1,009,847



                              (Continued next page)



</TABLE>

                                        8

<PAGE>



4.   LONG-TERM DEBT (continued)
<TABLE>
<CAPTION>


                                                               September 8,        December 31,
                                                                   2002                2001
                                                              ---------------     ---------------


Secured mortgage note payable, bearing interest at 8.75%,
<S>                                                          <C>                 <C>
payable in monthly installments through February 15, 2008    $        849,711    $        881,933


Secured $925,000 mortgage revolving line of credit note,
bearing interest at prime rate plus 2.0% (6.75% at
September 8, 2002), due April 1, 2003                                 924,868             964,868

Secured mortgage note payable, bearing interest at prime
rate (4.75%  at September 8, 2002), payable in monthly
installments through March 1, 2006                                    582,873             613,632

Secured  mortgage note payable,  bearing interest at prime
rate plus 1.25% (6.0% at September 8, 2002), payable in
monthly installments through November 27, 2016                        534,375             559,375

Secured mortgage note payable, bearing interest at 10.52%,
payable in monthly installments through August 18, 2005               353,381             417,937

Unsecured note payable bearing interest at 7.50%, due
February 22, 2007                                                     289,066                   -

Secured mortgage note payable, bearing interest at
commercial paper rate plus 2.65% (4.35% at September 8,
2002), due April 1, 2003                                              224,611             224,611

Other installment notes payable                                       329,402             206,167
                                                              ---------------     ---------------

                                                                   14,091,762          12,904,085
Less Current maturities                                             3,874,558           1,060,146
                                                              ---------------     ---------------
Long-term debt                                               $     10,217,204    $     11,843,939
                                                              ===============     ===============

</TABLE>

Property and equipment  with a net book value of  approximately  $21,500,000  at
September 8, 2002 collateralize the Company's long-term debt.

In accordance with the loan agreement,  the $925,000 mortgage  revolving line of
credit note was reduced to $875,000 on September 30, 2002.

The Company was in violation of the debt coverage ratio covenant  related to the
revolving lines of credit  (balances as of September 8, 2002 were $5,456,148 and
$924,868) as of September 8, 2002.  The covenant  violation  resulted  primarily
from the amount of the current  maturities of debt.  The lenders have waived the
debt  covenant  violation  as of  September  8, 2002.  The Company is  currently
seeking  financing which would replace the majority of the Company's debt. There
can be no assurances that this financing will be obtained or that such financing
will be available on terms  acceptable  to the Company.  If the  refinancing  is
obtained,  there will be a write-off of unamortized  loan costs of approximately
$90,000. If the refinancing is not obtained by the end of the fourth quarter, it
is  uncertain at this time if the Company  will be in  compliance  with the debt
coverage ratio covenant in future periods as a result of the current  maturities
of debt. If it does not comply with the covenants in future periods, the lenders
would be entitled,  at their discretion,  to exercise certain remedies including
acceleration of repayment.









                                        9

<PAGE>



5.  EARNINGS PER SHARE

The following is a  reconciliation  of the Company's basic and diluted  earnings
(loss) per share data for the thirty-six  weeks and twelve weeks ended September
8, 2002 and the nine  months  and  three  months  ended  September  30,  2001 in
accordance with FAS 128, "Earnings per Share."
<TABLE>
<CAPTION>


                                                 Thirty-Six      Nine Months       Twelve Weeks      Three Months
                                                Weeks Ended         Ended              Ended            Ended
                                                September 8,    September 30,      September 8,     September 30,
                                                    2002             2001              2002              2001
                                               --------------   --------------    ---------------  ----------------
Numerator:
    Income (loss) before cumulative effect of
<S>                                           <C>              <C>               <C>              <C>
     a change in accounting principle         $       345,945  $        17,061   $         41,721 $          88,214
    Cumulative effect of a change in
     accounting principle, net of tax              (1,503,773)               -                  -                 -
                                               --------------   --------------    ---------------  ----------------
    Net income (loss)                         $    (1,157,828)  $       17,061   $         41,721 $          88,214
                                               ==============   ==============    ===============  ================

Denominator:
   Weighted average shares
      outstanding - basic                           5,916,153        5,839,230          5,916,153         5,839,230
   Effect of dilutive securities:
      Director and employee stock options               7,324            9,849              8,052                 -
                                               --------------   --------------    ---------------  ----------------
   Denominator for diluted earnings per share
   - adjusted weighted average and assumed
     conversions                                    5,923,477        5,849,079          5,924,205         5,839,230
                                               ==============   ==============    ===============  ================

</TABLE>

6.   SEGMENT INFORMATION

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

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

Segment  information  for the  thirty-six  weeks ended  September  8, 2002 is as
follows:

<TABLE>
<CAPTION>


                                             Restaurant       Commissary        Corporate         Totals
                                            -------------   ---------------   --------------   ------------
Revenues from external
<S>                                       <C>              <C>               <C>              <C>
   customers                              $    38,842,539  $      1,184,254  $     1,276,552  $  41,303,345
Intersegment revenues                                   -         1,776,380                -      1,776,380
General and
   administrative expenses                              -                 -        2,749,542      2,749,542
Advertising expenses                                    -                 -        1,308,856      1,308,856
Depreciation and
   amortization                                 1,110,979            56,493          189,161      1,356,633
Net interest expense                                    -           105,876          594,084        699,960

Income (loss) before income taxes
   and cumulative effect of a change in
   accounting principle                         3,997,506            61,278       (3,235,108)       823,676
Total assets                                   28,120,956         1,448,733        4,728,257     34,297,946



                                       10

</TABLE>
<PAGE>

6.   SEGMENT INFORMATION (continued)

Segment information for the nine months ended September 30, 2001 is as follows:
<TABLE>
<CAPTION>


                                             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      1,769,9,62
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
Total assets                                   31,560,175         1,496,081       5,406,135      38,462,391

Segment information for the twelve weeks ended September 8, 2002 is as follows::


                                             Restaurant       Commissary        Corporate         Totals
                                            -------------   ---------------   -------------    ------------
Revenues from external
   customers                              $    12,282,972  $        387,775  $      440,105   $  13,110,852
Intersegment revenues                                   -           581,661               -         581,661
General and
   administrative expenses                              -                 -         793,308         793,308
Advertising expenses                                    -                 -         417,499         417,499
Depreciation and
   amortization                                   364,993            18,831          62,948         446,772
Net interest expense                                    -            35,292         200,196         235,488
Income (loss) before income taxes
    and cumulative effect of a
    change in accounting principal              1,181,394            19,694        (920,669 )       280,419

Segment information for the three months ended September 30, 2001 is as follows:


                                             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>

7.  INVESTMENT IN TW-SPRINGHURST

During the year ended December 31, 2000, the Company made a $200,000  investment
in  TW-Springhurst,  LLC  ("TW-Springhurst"),   the  owner  and  operator  of  a
Tumbleweed restaurant in Louisville,  Kentucky. During the six months ended June
30,  2001,   the  Company   received  a  cash   distribution   of  $73,500  from
TW-Springhurst.  Through  December 31, 2001, the Company had a 50% interest with
the remaining 50% held by  TW-Springhurst  Investors,  LLC. A current and former
director of the Company own TW-Springhurst  Investors,  LLC. The Company's share
of  TW-Springhurst's  net income was $54,531 for the nine months ended September
30, 2001.  On January 1, 2002,  the Company  acquired the remaining 50% interest
held  by  TW-Springhurst  Investors  for  $267,000.  The  Company  also  assumed
TW-Springhurst,   LLC's  note   payable  to  a  bank  which  had  a  balance  of
approximately


                                        11

<PAGE>



7.  INVESTMENT IN TW-SPRINGHURST (continued)

$161,000 on the date of purchase.  An independent  business valuation  appraisal
was used to assist Company  management in determining  the purchase  price.  The
purchase price has been allocated as follows:



Assets and liabilities acquired:
  Inventory                         $       55,674
  Property and equipment                   317,601
  Deposits                                   1,200
  Other                                      5,677
  Note payable                           (161,394)
                                     -------------
                                           218,758
Investment in TW-Springhurst             (126,415)
Goodwill                                   174,657
                                    $      267,000
                                     =============


8.  ACQUISITION OF INTERNATIONAL

On January 1, 2002, the Company  purchased the ownership  interest in Tumbleweed
International,  LLC  ("International")  for $1.5 million  from  TW-International
Investors,  Inc. and Chi-Chi's  International  Operations,  Inc. ("CCIO").  CCIO
owned 40% of  International.  The President and Chief  Executive  Officer of the
Company is the sole shareholder of CCIO. Members of TW-International  Investors,
Inc. include three current  directors of the Company.  The acquisition gives the
Company  direct  control  and  benefit  of the  international  licensing  of the
Tumbleweed concept.  In connection with the acquisition,  the Company assumed an
existing  $1.4 million bank loan of TW-  International  Investors,  Inc. and has
issued 76,923 shares of its common stock to CCIO. The Company has entered into a
commission  agreement  with CCIO in  connection  with the sale of  international
regional licenses by International.


The  transaction  was  accounted  for as a purchase and the  purchase  price was
allocated  to the  intangible  assets  acquired - the  Tumbleweed  international
licensing  rights  and  existing  franchise  contracts.  The  allocation  of the
purchase price is summarized as follows:


Note payable                        $    1,425,968
Common stock                                   769
Paid-in capital                             99,229
                                     -------------
                                    $    1,525,966
                                     =============
Intangible assets:
   Tumbleweed licensing rights      $    1,455,966
   Contracts in place                       70,000
                                     -------------
                                    $    1,525,966
                                     =============

9.  INVOLUNTARY CONVERSION OF NON-MONETARY ASSETS

As a result of a fire on July 11, 2002 at a Company-owned restaurant in Ohio, an
involuntary  conversion  of a non-  monetary  asset  occurred.  The  Company has
accrued  a  receivable  of  approximately  $450,000  during  the  quarter  ended
September  8, 2002 from the  insurance  company in  relation  to  inventory  and
equipment  that was  destroyed  in the fire  ($320,000),  business  interruption
($70,000) and continuing expenses ($60,000).  The Company's  management does not
anticipate that there will be a loss as a result of the fire.

10.  INCOME TAXES

Income taxes on the Company's  income before income taxes and cumulative  effect
of a change in accounting  principle for the thirty-six weeks ended September 8,
2002 and the nine months ended  September  30, 2001 have been provided for at an
estimated effective tax rate of 58% and 5%, respectively. The effective tax rate
differs from the statutory





                                       12

<PAGE>



10.  INCOME TAXES (continued)

federal  tax rate of 34% as a result of the impact of  employment  tax  credits,
state income taxes and increase in the valuation  allowance for the deferred tax
asset.  The  valuation  allowance  was  increased  $115,314 in the third quarter
because it is more likely than not that an  additional  portion of the  deferred
tax asset related to certain tax credits will not be realized.

11.  CONTINGENCIES

The Company  guaranteed  certain  equipment leases with a bank for TW-Tennessee,
LLC, a former franchisee (TW- Tennessee) of the Company in which the Company and
David M. Roth, a Director of the Company,  were formerly members. The Company is
in negotiation with the bank under the equipment leases and the other guarantors
to resolve the  Company's  obligations  relative to the  equipment  leases.  The
Company  believes  that  it  will  be  obligated  to  assume  and pay one of the
equipment leases totaling  approximately  $125,000 and will remain  contingently
liable on two other equipment  leases which the Company believes will be assumed
and paid by other  guarantors.  These  negotiations are ongoing and no agreement
has been reached. If no agreement is reached,  the Company would have additional
exposure  totaling  approximately  $180,000.  In the fourth quarter of 2001, the
Company reserved $125,000 to cover its portion of the equipment lease it expects
to assume.  The  Company's  management  believes  it will not incur  significant
additional losses in connection with this matter.

We are also subject to claims and legal  actions in the  ordinary  course of our
business.  Certain of these claims and actions may involve related  parties.  We
believe  that all such  claims  and  actions  are either  adequately  covered by
insurance  or would not have a  material  adverse  effect on us if  decided in a
manner unfavorable to us.






































                                       13

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

GENERAL

We make various  forward-looking  statements about our business in the following
discussion.  When making these forward-looking  statements, we use words such as
expects,  believes,  estimates,  anticipates,  plans and similar  expressions to
identify them. We also identify  important  cautionary  factors that could cause
our  actual  results  to  differ   materially   from  those   projected  in  the
forward-looking  statements  we make.  Factors  that  realistically  could cause
results  to  differ  materially  from  those  projected  in the  forward-looking
statements  include the availability and cost of financing and other events that
affect  our  restaurant  expansion  program,  changes  in food and other  costs,
changes in national, regional or local economic conditions,  changes in consumer
tastes,  competitive  factors  such as changes in the  number  and  location  of
competing  restaurants,  the  availability of experienced  management and hourly
employees, and other factors set forth below.

As of  September  8,  2002,  we owned,  franchised  or  licensed  57  Tumbleweed
restaurants.  The Company owned and operated 31 restaurants in Kentucky, Indiana
and Ohio. There were 20 franchised restaurants in Indiana,  Illinois,  Kentucky,
Wisconsin, and Michigan, and six licensed restaurants located outside the United
States in Germany, Jordan, Egypt, England and Turkey.

During  the  first  quarter  of 2002,  the  Company  closed  four  Company-owned
restaurant  locations.  The  restaurants  were located in Cincinnati,  Ohio (2),
Columbus,  Ohio (1), and Evansville,  Indiana (1). The restaurant  closings were
part  of a  strategic  management  decision  to  eliminate  lower  sales  volume
restaurants  that were  unprofitable  in 2001 and to focus its  energies  on the
continued  improvement of per-store  average sales volumes.  On January 1, 2002,
the Company  purchased from its joint venture partner the remaining 50% interest
in a restaurant  location.  See Note 7 to the consolidated  financial statements
for a further discussion of this transaction.

During  the second  quarter  of 2002,  the  Company  sold one of its  restaurant
locations to a  franchisee.  This was in accordance  with the Company's  plan it
established  in the fourth  quarter of 2001.  In connection  with the plan,  the
Company  had  taken a charge  to  earnings  in  accordance  with  SFAS No.  121,
"Impairment  of  Long-Lived  Assets." The personal  property had no value on the
books of the Company as a result of this special charge.  The franchisee assumed
the building lease and purchased the inventory for $11,000.

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


























                                       12

<PAGE>



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>


                                                    Thirty-Six      Nine Months      Twelve Weeks     Three Months
                                                   Weeks Ended         Ended            Ended            Ended
                                                   September 8,    September 30,     September 8,    September 30,
                                                       2002             2001             2002             2001
                                                  --------------   --------------   --------------  ----------------
Revenues:
<S>                                                         <C>              <C>              <C>               <C>
   Restaurant sales                                         94.0  %          94.1  %          93.7 %            94.6 %
   Commissary sales                                          2.9              3.0              3.0               2.9
   Franchise fees and royalties                              2.0              2.2              2.3               2.0
   Other revenues                                            1.1              0.7              1.0               0.5
                                                  --------------   --------------   --------------  ----------------
     Total revenues                                        100.0            100.0            100.0             100.0
Operating expenses:
   Restaurant cost of sales (1)                             30.2             31.4             30.0              30.6
   Commissary cost of sales (2)                             89.3             87.4             89.3              87.8
   Operating expenses (1)                                   55.5             54.6             56.3              54.4
   Selling, general and administrative expenses              9.8             10.3              9.2              10.4
   Depreciation and amortization                             3.3              4.0              3.4               4.0
                                                  --------------   --------------   --------------  ----------------
     Total operating expenses                               96.3             97.8             96.1              97.4
                                                  --------------   --------------   --------------  ----------------
     Income from operations                                  3.7              2.2              3.9               2.6
Other expense, net                                          (1.7)            (2.2)            (1.8)             (1.8)
                                                  --------------   --------------   --------------  ----------------
Income before income taxes and cumulative
    effect of a change in accounting principle               2.0              0.0              2.1               0.8
Provision for income taxes - current
   and deferred                                              1.2              0.0              1.8               0.2
                                                                   --------------   --------------  ----------------
Income before cumulative effect of a
   change in accounting principle                            0.8              0.0              0.3               0.6
Cumulative effect of a change in accounting
   principle, net of tax                                    (3.6)               -                -                 -
                                                  --------------   --------------   --------------  ----------------
Net income (loss)                                           (2.8) %           0.0  %           0.3 %             0.6 %
                                                  ==============   ==============   ==============  ================
<FN>

 (1)   As percentage of restaurant sales.

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

Beginning  January 1, 2002,  the  Company  changed its fiscal year to end on the
last Sunday in December from a December 31 year end. The first three quarters of
2002  consists of 251 days compared to 273 days in 2001 and the third quarter of
2002  consists  of 84 days  compared  to 92 days in 2001.  On an overall  basis,
revenues and expenses  decreased as a result of 22 fewer days in the first three
quarters of 2002  compared  to the first three  quarters of 2001 and eight fewer
days in the third quarter of 2002 compared to the third quarter of 2001.

COMPARISON OF THE FIRST THREE QUARTERS OF 2002 AND 2001

Total  revenues  decreased by $3,466,758 or 7.7% for the first three quarters of
2002 compared to the same period in 2001 primarily as a result of the following:

   Restaurant sales decreased by $3,268,806 or 7.8% for the first three quarters
   of 2002 compared to the same period in 2001. The decrease in restaurant sales
   is primarily a result of the Company's change in its fiscal year, the closing
   of four  Company-owned  restaurants  during the first quarter of 2002 and the
   sale of one  Company-owned  restaurant  to a  franchisee  during  the  second
   quarter of 2002 (see above for  discussion  of all  items).  The  decrease in
   restaurant  sales is partially  offset by a 2.4% increase in same store sales
   for the first thirty-six weeks.

   Commissary sales to franchised and licensed restaurants decreased by $176,364
   or 13.0% for the first three  quarters of 2002 compared to the same period in
   2001. The decrease in commissary sales is primarily a result of the Company's
   change in its fiscal year.

   Franchise  fees and  royalties  decreased  by $122,066 or 12.6% for the first
   three quarters of 2002 compared to the same period in 2001.  Franchise income
   decreased $110,000 as a result of having three franchise restaurant openings


                                       15

<PAGE>



   in the first three  quarters  of 2001  compared  to no  franchise  restaurant
   openings  during the first three quarters of 2002.  Royalty income  decreased
   $12,066 primarily as a result of the Company's change in its fiscal year.

   Other revenues increased by $100,478 or 30.1% for the first three quarters of
   2002 compared to the same period in 2001 primarily as a result of recognizing
   as income $55,000 of  development  fees which were forfeited by a franchisee.
   The increase in other revenues can also be attributed to increased purchasing
   rebates in 2002 compared to the 2001 period.  The increase in other  revenues
   is  partially  offset by a decrease in  insurance  proceeds  which  relate to
   business interruptions as a result of fires at two Company-owned restaurants.
   Other revenues includes $100,000 of insurance proceeds in the 2001 period, as
   a result of a fire which  occurred  in June 2000,  compared to $70,000 in the
   2002 period, as a result of a fire which occurred in July 2002.

Restaurant  cost of sales  decreased by  $1,486,958 or 11.2% for the first three
quarters of 2002 compared to the same period in 2001. The decrease in restaurant
cost of sales is primarily a result of the Company's  change in its fiscal year,
as discussed above.  Restaurant cost of sales decreased as a percentage of sales
by 1.2% to 30.2% for the 2002 period compared to 31.4% during the same period in
2001.  The 1.2% decrease in cost of sales is primarily the result of a temporary
increase in the cost of beef and pork (primarily steaks and ribs,  respectively)
during the first part of 2001.

Commissary  cost of sales  decreased  $131,494  or  11.1%  for the  first  three
quarters of 2002 compared to the same period in 2001. The decrease in commissary
cost of sales is due  primarily to the  Company's  change in its fiscal year, as
discussed above. As a percentage to commissary  sales,  commissary cost of sales
increased  1.9% for the 2002  period  compared  to the same  period in 2001 as a
result of higher raw material product costs.

Restaurant  operating  expenses  decreased by  $1,422,839  or 6.2% for the first
three  quarters of 2002  compared to the same  period in 2001.  The  decrease in
operating  expenses is primarily a result of the Company's  change in its fiscal
year,  as discussed  above.  Operating  expenses  increased  as a percentage  of
restaurant  sales by 0.9% to 55.5% for the 2002  period  from 54.6% for the same
period in 2001  primarily as a result of  increased  local  marketing  costs and
increased repair and maintenance costs.

Selling,  general and administrative expenses decreased by $554,075 or 12.0% for
the first  three  quarters  of 2002  compared  to the same  period in 2001.  The
decrease in selling, general and administrative expenses primarily is due to the
fact  that the 2001  period  includes  the  cost of  implementing  a new menu of
approximately  $95,000.  There was no similar  expense in 2002.  The decrease in
selling,  general and administrative  expenses is also attributable to decreased
payroll  costs  as a result  of the  elimination  of  several  positions  in the
corporate  segment and  decreased  advertising  costs.  As a percentage to total
revenues,  selling,  general and administrative expenses were 9.8% and 10.3% for
the 2002 and 2001 periods, respectively.

Depreciation and amortization  expense decreased $413,329 or 23.3% for the first
three  quarters  of 2002  compared  to the same  period  in 2001 as a result  of
goodwill no longer  being  amortized  in  accordance  with SFAS No. 142, and the
write-down of assets in the fourth  quarter of 2001 (see above for discussion of
both  items).  The decrease in  depreciation  and  amortization  expense is also
attributed to the Company's change in its fiscal year.

Net interest expense decreased $318,311 or 31.3% for the first three quarters of
2002 compared to the same period in 2001.  The decrease in net interest  expense
is the result of decreases in the prime interest rate during 2001.

Income taxes on the Company's  income before income taxes and cumulative  effect
of a change in accounting  principle for the thirty-six weeks ended September 8,
2002 and the nine months ended  September  30, 2001 have been provided for at an
estimated effective tax rate of 58% and 5%, respectively. The effective tax rate
differs from the statutory  federal tax rate of 34% as a result of the impact of
employment  tax  credits,  state  income  taxes and  increase  in the  valuation
allowance  for the deferred tax asset.  The  valuation  allowance  was increased
$115,314  in the  third  quarter  because  it is more  likely  than  not that an
additional portion of the deferred tax asset related to certain tax credits will
not be realized.

COMPARISON OF THE THIRD QUARTER OF 2002 VERSUS THE THIRD QUARTER OF 2001

Total  revenues  decreased by  $2,078,943 or 13.7% for the third quarter of 2002
period  compared  to the  same  period  in 2001  primarily  as a  result  of the
following:

   Restaurant  sales  decreased by  $2,083,429 or 14.5% for the third quarter of
   2002 compared to the same period in 2001. The decrease in restaurant sales is
   a result of the Company's change in its fiscal year, the closing of four


                                       16

<PAGE>



   Company-owned  restaurants  during the first  quarter of 2002 and the sale of
   one  Company-owned  restaurant to a franchisee  during the second  quarter of
   2002 (see above for  discussion  of all items).  The  decrease in  restaurant
   sales is  partially  offset by a 0.1%  increase  in same store  sales for the
   third quarter.

    Commissary sales to franchised and licensed restaurants decreased by $55,785
    or 12.6% for the third  quarter of 2002 compared to the same period in 2001.
    The  decrease in  commissary  sales is  primarily a result of the  Company's
    change in its fiscal year.

    Franchise  fees and  royalties  decreased  by  $6,016  or 2.0% for the third
    quarter  of 2002  compared  to the  same  period  in 2001 as a  result  of a
    decrease in royalty income. There was no franchise income in either the 2002
    or 2001 periods.

    Other  revenues  increased by $66,287 or 91.2% for the third quarter of 2002
    compared  to the same  period in 2001 due to $70,000 of  insurance  proceeds
    which relate to a business interruption as a result of a fire which occurred
    in July 2002 at a Company-owned restaurant.

Restaurant cost of sales decreased by $719,349 or 16.3% for the third quarter of
2002  compared to the same period in 2001.  The decrease in  restaurant  cost of
sales is a result of the  Company's  change in its fiscal  year,  the closing of
four Company-owned  restaurants during the first quarter of 2002 and the sale of
one  Company-owned  restaurant to a franchisee during the second quarter of 2002
(see above for discussion of all items). Restaurant cost of sales decreased as a
percentage  of sales by 0.6% to 30.0% for the third  quarter of 2002 compared to
30.6%  during the same  period in 2001.  The 0.6%  decrease  in cost of sales is
primarily  the  result  of a  temporary  increase  in the  cost of beef and pork
(primarily steaks and ribs, respectively) during 2001.

Commissary  cost of sales  decreased  $42,857 or 11.0% for the third  quarter of
2002  compared to the same period in 2001.  The decrease in  commissary  cost of
sales is  primarily  a result of the  Company's  change in its fiscal  year,  as
discussed above. As a percentage to commissary  sales,  commissary cost of sales
increased 1.5% for the third quarter of 2002 compared to the same period in 2001
as a result of higher raw material product costs.

Restaurant  operating  expenses  decreased  by  $910,737  or 11.6% for the third
quarter of 2002  compared to the same period in 2001.  The decrease in operating
expenses is a result of the Company's  change in its fiscal year, the closing of
four Company-owned  restaurants during the first quarter of 2002 and the sale of
one  Company-owned  restaurant to a franchisee during the second quarter of 2002
(see above for  discussion  of all items).  Operating  expenses  increased  as a
percentage  of  restaurant  sales by 1.9% to 56.3% for the third quarter of 2002
from 54.4% for the same period in 2001 primarily as a result of increased repair
and maintenance costs and local marketing expenses.

Selling,  general and administrative expenses decreased by $376,426 or 23.7% for
the third quarter of 2002  compared to the same period in 2001.  The decrease in
selling, general and administrative expenses for the second quarter is primarily
attributable  to  decreased  payroll  costs as a result  of the  elimination  of
several positions in the corporate  segment,  decreased  corporate bonus expense
and decreased  advertising  costs. As a percentage to total  revenues,  selling,
general and administrative expenses were 9.2% and 10.4% for the third quarter of
2002 and 2001, respectively

Depreciation and amortization  expense decreased $153,248 or 25.5% for the third
quarter of 2002  compared  to the same period in 2001 as a result of goodwill no
longer being  amortized in accordance  with SFAS No. 142, and the  write-down of
assets in the fourth  quarter of 2001(see  above for  discussion of both items).
The decrease in depreciation and amortization  expense is also attributed to the
Company's change in its fiscal year.

Net interest  expense  decreased  $57,769 or 19.7% for the third quarter of 2002
compared to the same period in 2001.  The decrease in net  interest  expense for
the third  quarter is the result of decreases in the prime  interest rate during
2001.

The Company has provided for income  taxes based on income  before  income taxes
and cumulative  effect of a change in accounting  principle for the twelve weeks
ended  September  8, 2002 and the three  months ended  September  30, 2001.  The
effective  tax rate  differs  from the  statutory  federal  tax rate of 34% as a
result of the impact of employment tax credits,  state income taxes and increase
in the valuation  allowance for the deferred tax asset. The valuation  allowance
was increased  $115,314 in the third quarter  because it is more likely than not
that an  additional  portion of the  deferred  tax asset  related to certain tax
credits will not be realized.




                                       17

<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

In 2002, the Company expects to begin construction of one additional  restaurant
facility.  Our  ability  to expand our number of  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  during  the  period  ended  September  8, 2002  arose  from
maintenance and  improvement of existing  restaurant  facilities.  The source of
capital to fund the  maintenance  and  improvement  expenditures  was internally
generated cash flow.  Our capital needs for the period 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 and improvement
expenditures were funded by internally generated cash flow.

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


                                            Thirty-Six          Nine Months
                                           Weeks Ended             Ended
                                           September 8,        September 30,
                                               2002                2001
                                         ----------------    -----------------
Net cash provided by operations         $       1,327,526   $        1,957,852
Purchases of property and equipment              (630,905)            (969,194)
Business acquisition                             (267,000)                   -
Net payments on long-term
   debt and capital lease obligations            (915,443)          (1,153,394)

Our largest use of funds during the 2002 period was for the payment of long-term
debt and capital lease  obligations,  maintenance  and  improvement  of existing
restaurant facilities,  and for the acquisition of the remaining 50% interest in
TW-Springhurst.  Our  largest  use of funds  during the 2001  period 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.  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  guaranteed  certain  equipment leases with a bank for TW-Tennessee,
LLC, a former franchisee (TW- Tennessee) of the Company in which the Company and
David M. Roth, a Director of the Company,  were formerly members. The Company is
in negotiation with the bank under the equipment leases and the other guarantors
to resolve the  Company's  obligations  relative to the  equipment  leases.  The
Company  believes  that  it  will  be  obligated  to  assume  and pay one of the
equipment leases totaling  approximately  $125,000 and will remain  contingently
liable on two other equipment  leases which the Company believes will be assumed
and paid by other  guarantors.  These  negotiations are ongoing and no agreement
has been reached. If no agreement is reached,  the Company would have additional
exposure  totaling  approximately  $180,000.  In the fourth quarter of 2001, the
Company reserved $125,000 to cover its portion of the equipment lease it expects
to assume.  The  Company's  management  believes  it will not incur  significant
additional losses in connection with this matter.

We are also subject to claims and legal  actions in the  ordinary  course of our
business.  Certain of these claims and actions may involve related  parties.  We
believe  that all such  claims  and  actions  are either  adequately  covered by
insurance  or would not have a  material  adverse  effect on us if  decided in a
manner unfavorable to us.

The  Company  both  owns  and  leases  its  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.




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<PAGE>



In the next 12 months,  the Company expects the demand on future liquidity to be
principally from the ongoing  maintenance and improvement of existing restaurant
facilities  and  from  the  construction  of one to  two  additional  restaurant
facilities. As of September 8, 2002, the Company had no material commitments for
the  construction  of new  restaurants,  maintenance  or improvement of existing
restaurant facilities. We will utilize mortgage,  sale/leaseback and/or landlord
financing,  as well as  equipment  leasing and  financing,  for a portion of the
development  cost of the  restaurant we plan to open in the next 12 months.  The
remaining  costs will be funded by available cash  reserves,  cash provided from
operations  and  borrowing  capacity.  Management  believes such sources will be
sufficient to fund our expansion plans in the next 12 months.  Should our actual
results  of  operations  fall short of, or our rate of  expansion  significantly
exceed plans, or should our costs of capital  expenditures exceed  expectations,
we may need to seek  additional  financing in the future.  In  negotiating  such
financing,  there can be no assurance  that we will be able to raise  additional
capital on terms satisfactory to us.

The Company has a $5,960,000  mortgage  revolving line of credit with a bank. As
of September 8, 2002, we had outstanding  borrowings under the line of credit of
$5,456,148.  The note  bears  interest  at the prime  rate  plus  .25%  (5.0% at
September 8, 2002) and is due December 31,  2003.  In  accordance  with the loan
agreement,  the  availability  on the mortgage  revolving line of credit will be
reduced to  $5,420,000  on December  31,  2002.  The Company also has a $925,000
mortgage  revolving  line of credit with a bank. As of September 8, 2002, we had
outstanding  borrowings  under the line of credit of  $924,868.  The note  bears
interest at the prime rate plus 2.0% (6.75% at September 8, 2002). In accordance
with the loan agreement, the $925,000 mortgage revolving line of credit note was
reduced to $875,000 on September 30, 2002. The note matures April 1, 2003.  Both
of the revolving lines of credit impose 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.

The Company was in violation of the debt coverage ratio covenant  related to the
revolving lines of credit  (balances as of September 8, 2002 were $5,456,148 and
$924,868) as of September 8, 2002.  The covenant  violation  resulted  primarily
from the amount of the current  maturities of debt.  The lenders have waived the
debt  covenant  violation  as of  September  8, 2002.  The Company is  currently
seeking  financing which would replace the majority of the Company's debt. There
can be no assurances that this financing will be obtained or that such financing
will be available on terms  acceptable  to the Company.  If the  refinancing  is
obtained,  there will be a write-off of unamortized  loan costs of approximately
$90,000. If the refinancing is not obtained by the end of the fourth quarter, it
is  uncertain at this time if the Company  will be in  compliance  with the debt
coverage ratio covenant in future periods as a result of the current  maturities
of debt. If it does not comply with the covenants in future periods, the lenders
would be entitled,  at their discretion,  to exercise certain remedies including
acceleration of repayment.

OTHER EVENTS

Beginning January 1, 2002, the Company  implemented a 401(k) plan. All employees
who are at least 21 years of age with one year of service in which they worked a
minimum of 1,000 hours are  eligible.  An employee can  contribute  up to 15% of
their  gross  salary.  The  Company  will match 25% of the first 4% an  employee
contributes.  The employee becomes vested in the Company contribution based on a
five-year vesting schedule.

On June 3, 2002, a group  consisting of Gerald Mansbach,  the Company's  largest
stockholder,  Terrance A. Smith,  the  Company's  Chairman,  President and Chief
Executive  Officer,  and David M. Roth, a director of the  Company,  submitted a
proposal to the Company's Board of Directors to acquire all the Company's common
stock not currently owned by them or others they may invite to join their group.
The proposal  contemplates a cash tender offer price of $1.75 per share. On June
5, 2002, three additional directors, Minx Auerbach, George Keller and Lewis Bass
joined Gerald Mansbach, Terrance A. Smith and David M. Roth in their proposal to
acquire all the  Company's  common  stock not owned by their group at a price of
$1.75 per share. The group owns  approximately 60% of the Company's  outstanding
common stock.

The Board has appointed a Special Committee of independent directors to evaluate
the proposal. The Special Committee has engaged an investment banking firm and a
law firm to act as advisors in  connection  with its review of the tender  offer
proposal.

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


                                       19

<PAGE>



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
8, 2002,  approximately  $10,925,000  of the  Company's  debt bore  interest  at
variable  rates. A 1% change in the variable  interest rate on this debt equates
to an approximate $109,000 change in interest for a twelve month period.

PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

The Company  guaranteed  certain  equipment leases with a bank for TW-Tennessee,
LLC, a former franchisee (TW- Tennessee) of the Company in which the Company and
David M. Roth, a Director of the Company,  were formerly members. The Company is
in negotiation with the bank under the equipment leases and the other guarantors
to resolve the  Company's  obligations  relative to the  equipment  leases.  The
Company  believes  that  it  will  be  obligated  to  assume  and pay one of the
equipment leases totaling  approximately  $125,000 and will remain  contingently
liable on two other equipment  leases which the Company believes will be assumed
and paid by other  guarantors.  These  negotiations are ongoing and no agreement
has been reached. If no agreement is reached,  the Company would have additional
exposure  totaling  approximately  $180,000.  In the fourth quarter of 2001, the
Company reserved $125,000 to cover its portion of the equipment lease it expects
to assume.  The  Company's  management  believes  it will not incur  significant
additional losses in connection with this matter.

We are also subject to claims and legal  actions in the  ordinary  course of our
business.  Certain of these claims and actions may involve related  parties.  We
believe  that all such  claims  and  actions  are either  adequately  covered by
insurance  or would not have a  material  adverse  effect on us if  decided in a
manner unfavorable to us.


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

   (a)   Exhibits

         Exhibit 99 - Sarbanes Section 906 Certification

   (b)   Reports on Form 8-K

         None

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
















                                       20

<PAGE>



                                    Signature

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

 Date:       October 18, 2002                             Tumbleweed, Inc.

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




 I, Glennon F. Mattingly, certify that:

 1.      I have reviewed this quarterly report on Form 10-Q of Tumbleweed, Inc.;
 2.      Based on my  knowledge,  this  quarterly  report  does not  contain any
         untrue  statement of a material  fact or omit to state a material  fact
         necessary to make the  statements  made, in light of the  circumstances
         under which such  statements  were made, not misleading with respect to
         the period covered by this quarterly report;
 3.      Based on my knowledge,  the financial  statements,  and other financial
         information  included in this quarterly  report,  fairly present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this quarterly report;
 4.      The registrant's other  certifying  officer  and  I are responsible for
         establishing and maintaining  disclosure controls  and  procedures  (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:
         a.       designed  such  disclosure  controls and  procedures to ensure
                  that   material  information   relating  to   the  registrant,
                  including its consolidated subsidiaries,  is made known to  us
                  by  others  within  those entities,  particularly  during  the
                  period in which  this  quarterly  report is being prepared;
         b.       evaluated the  effectiveness of  the  registrant's  disclosure
                  controls and  procedures as of a date within 90 days  prior to
                  the  filing  date of  this  quarterly  report (the "Evaluation
                  Date"); and
         c.       presented in  this quarterly report our conclusions  about the
                  effectiveness of the disclosure controls and  procedures based
                  on our evaluation as of the Evaluation Date;
 5.      The registrant's other certifying officer and  I have  disclosed, based
         on our most recent evaluation, to  the  registrant's auditors  and  the
         audit committee of registrant's board of directors:
         a.       all significant  deficiencies  in the design or  operation  of
                  internal   controls   which    could    adversely  affect  the
                  registrant's ability to record, process, summarize and  report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and
         b.       any  fraud, whether or  not material, that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and
 6.      The registrant's  other certifying officer and I have indicated in this
         quarterly  report  whether there were  significant  changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.

 Date:   October 18, 2002                     /s/ Glennon F. Mattingly
                                                  ------------------------
                                                  Glennon F. Mattingly
                                                  Vice President and
                                                  Chief Financial Officer


 I, Terrance A. Smith, certify that:

 1.      I have reviewed this quarterly report on Form 10-Q of Tumbleweed, Inc.;
 2.      Based on my  knowledge,  this  quarterly  report  does not  contain any
         untrue  statement of a material  fact or omit to state a material  fact
         necessary to make the  statements  made, in light of the  circumstances
         under which such  statements  were made, not misleading with respect to
         the period covered by this quarterly report;
 3.      Based on my knowledge,  the financial  statements,  and other financial
         information  included in this quarterly  report,  fairly present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this quarterly report;


                                       21
<PAGE>

 4.      The registrant's other  certifying  officer  and  I are responsible for
         establishing and maintaining  disclosure controls  and  procedures  (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:
         a.       designed  such  disclosure  controls and  procedures to ensure
                  that   material  information   relating  to   the  registrant,
                  including its consolidated subsidiaries,  is made known to  us
                  by  others  within  those entities,  particularly  during  the
                  period in which  this  quarterly  report is being prepared;
         b.       evaluated the  effectiveness of  the  registrant's  disclosure
                  controls and  procedures as of a date within 90 days  prior to
                  the  filing  date of  this  quarterly  report (the "Evaluation
                  Date"); and
         c.       presented in  this quarterly report our conclusions  about the
                  effectiveness of the disclosure controls and  procedures based
                  on our evaluation as of the Evaluation Date;
 5.      The registrant's other certifying officer and  I have  disclosed, based
         on our most recent evaluation, to  the  registrant's auditors  and  the
         audit committee of registrant's board of directors:
         a.       all significant  deficiencies  in the design or  operation  of
                  internal   controls   which    could    adversely  affect  the
                  registrant's ability to record, process, summarize and  report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and
         b.       any  fraud, whether or  not material, that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and
 6.      The registrant's  other certifying officer and I have indicated in this
         quarterly  report  whether there were  significant  changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.





 Date:   October 18, 2002                        /s/ Terrance A. Smith
                                                     ---------------------
                                                     Terrance A. Smith
                                                     President and Chief
                                                     Executive Officer


                                       22

<PAGE>