<PAGE>


                                  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 March 31, 1999

                                       OR

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                                  -------------

                        Commission file number 333-57931

                                TUMBLEWEED, INC.
             (Exact name of registrant as specified in its charter)


             DELAWARE                                   61-1327945
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)


                1900 Mellwood Avenue, Louisville, Kentucky 40206
                    (Address of principal executive offices)

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


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

The number of shares of common stock,  par value of $.01 per share,  outstanding
on May 5, 1999 was 5,881,543.

Exhibit Index:  Pages 18-19

<PAGE>




                                TUMBLEWEED, INC.

                                      INDEX

PART I.     FINANCIAL INFORMATION                                           PAGE
      Item 1.   Financial Statements (Unaudited)
                a)  Statements of Operations for the three months ended
                    March 31, 1999 and 1998                                   3
                b)  Balance Sheets as of March 31, 1999 and
                    December 31, 1998                                         4
                c)  Statements of Cash Flows for the three months
                    ended March 31, 1999 and 1998                             6
                d)  Notes to Financial Statements                             7

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

      Item 3.   Quantitative and Qualitative Disclosures About
                Market Risk                                                  17

PART II.    OTHER INFORMATION

      Item 6.   Exhibits and Reports on Form 8-K                             18

Signature                                                                    20


<PAGE>
<TABLE>
                                Tumbleweed, Inc.

                             Statements of Operaions

                                   (Unaudited)
<CAPTION>
                                                                                     Three Months Ended
                                                                                          March 31
                                                                                     1999           1998
                                                                                -----------------------------

Revenues:
<S>                                                                              <C>             <C>         
   Restaurant sales                                                              $ 11,332,318    $  8,409,122
   Commissary sales                                                                   286,237         250,866
   Franchise fees and royalties                                                       251,169         185,187
   Other revenues                                                                      89,645          62,701
                                                                                   ----------       ---------
Total revenues                                                                     11,959,369       8,907,876
                                                                                  
Operating expenses:
   Restaurant cost of sales                                                         3,263,400       2,388,417
   Commissary cost of sales                                                           260,254         210,891
   Operating expenses                                                               5,832,410       4,487,175
   Selling, general and administrative expenses                                     1,184,728         939,872
   Preopening expenses                                                                134,805          96,950
   Depreciation and amortization                                                      418,465         300,562
                                                                                   ----------       ---------
Total operating expenses                                                           11,094,062       8,423,867
                                                                                   ----------       ---------
Income from operations                                                                865,307         484,009

Other income (expense):
   Interest income                                                                     17,023          12,843
   Interest expense                                                                  (263,365)       (154,705)
                                                                                   ----------       ---------
Total other expense                                                                  (246,342)       (141,862)
                                                                                   ----------       ---------

Income before income taxes and cumulative effect of a change
   in accounting principle                                                            618,965         342,147

Provision for income taxes:
   Current                                                                           (216,638)             --
   Deferred                                                                          (639,623)             --
                                                                                   ----------       ---------
Total provision for income taxes                                                     (856,261)             --
                                                                                   ----------       ---------

Income (loss) before cumulative effect of a change
   in accounting principle                                                           (237,296)        342,147

Cumulative effect of a change in accounting principle, net of tax - see Note 2       (341,035)             --
                                                                                   ----------       ---------

Net income (loss)                                                                $   (578,331)   $    342,147
                                                                                   ==========      ==========

Pro forma income data:
   Income before income taxes and cumulative effect of a change in
     in accounting principle                                                     $    618,965    $    342,147
   Pro forma income taxes                                                            (216,638)       (119,751)
                                                                                   ----------       ---------
   Pro forma income before cumulative effect of a change
     in accounting principle                                                          402,327         222,396
   Cumulative effect of a change in accounting principle, net of tax                 (341,035)             --
                                                                                   ----------       ---------

   Pro forma net income                                                          $     61,292    $    222,396
                                                                                   ==========      ==========

Pro forma basic and diluted earnings per share:
   Pro forma income before cumulative effect of a change
     in accounting principle                                                     $       0.07    $       0.04
   Cumulative effect of a change in accounting principle, net of tax                    (0.06)             --
                                                                                   ----------       ---------

   Pro forma net income                                                          $       0.01    $       0.04
                                                                                   ==========      ==========

Weighted average number of outstanding shares (pro forma shares in 1998)            5,881,543       5,105,000
                                                                                   ==========      ==========
                                                                                                                 
</TABLE>

See accompanying notes.


                                        3


<PAGE>

<TABLE>
                                Tumbleweed, Inc.

                                 Balance Sheets

<CAPTION>

                                                                             Pro forma
                                                March 31     December 31    December 31
                                                  1999          1998           1998
                                               --------------------------  ------------
                                               (Unaudited)                  (Unaudited)
Assets
Current assets:
<S>                                            <C>           <C>           <C>        
   Cash and cash equivalents                   $   712,030   $ 1,898,973   $ 1,898,973
   Accounts receivable                             436,601       433,872       433,872
   Inventories                                   1,336,824     1,333,591     1,333,591
   Prepaid expenses                                390,279       330,439       330,439
   Deferred preopening expenses                         --       524,669       524,669
                                               --------------------------  ------------
Total current assets                             2,875,734     4,521,544     4,521,544

Property and equipment, net                     26,057,113    24,920,797    24,920,797

Goodwill, net of accumulated amortization of
   $467,972 in 1999 and $440,242 in 1998         2,806,005     2,833,704     2,833,704

Other assets                                       422,406     1,404,861     1,404,861





















                                               --------------------------  ------------

Total assets                                   $32,161,258   $33,680,906   $33,680,906
                                               ==========================  ============


See accompanying notes.











</TABLE>



                                        4

<PAGE>
<TABLE>
<CAPTION>





                                                                                               Pro forma
                                                                March 31       December 31    December 31
                                                                  1999            1998           1998
                                                             -----------------------------   -------------
                                                              (Unaudited)                     (Unaudited)

Liabilities, Redeemable Members' Equity, Members'  Equity,
   Retained Earnings (Deficit) and Stockholders' Equity
Current liabilities:
<S>                                                          <C>             <C>             <C>         
   Short-term borrowings                                     $         --    $  6,990,348    $  6,990,348
   Accounts payable                                             1,107,299       1,781,418       1,781,418
   Accrued liabilities                                          1,871,734       1,873,651       1,873,651
   Deferred income taxes                                          346,309              --         467,420
   Current maturities on long-term
     debt and capital leases                                      967,824         895,310         895,310
                                                             -----------------------------   -------------
Total current liabilities                                       4,293,166      11,540,727      12,008,147

Long-term liabilities:
   Long-term debt, less current maturities                      8,605,510       9,180,358       9,180,358
   Capital lease obligations, less current maturities           3,173,624       3,287,296       3,287,296
   Deferred income taxes                                          217,667              --         172,203
   Other liabilities                                              106,588          94,838          94,838
                                                             -----------------------------   -------------
Total long-term liabilities                                    12,103,389      12,562,492      12,734,695
                                                             -----------------------------   -------------

Total liabilities                                              16,396,555      24,103,219      24,742,842

Redeemable members' equity                                             --      18,924,688              --

Members' equity                                                        --         354,459              --

Retained earnings (deficit)                                            --      (9,701,460)             --

Stockholders' equity:
   Preferred stock, $.01 par value, 1,000,000
     shares authorized; no shares issued
     and outstanding                                                   --              --              --
   Common stock, $.01 par value, 16,500,000
     shares authorized; 5,881,543 shares issued
     and outstanding in 1999 (5,105,000 shares on a
     pro forma basis in 1998)                                      58,815              --          51,050
   Paid-in capital                                             16,284,219              --       8,887,014
   Retained earnings (deficit)                                   (578,331)             --              --
                                                             ------------------------------  --------------
      Total stockholders' equity                                15,764,703              --       8,938,064
                                                             ------------------------------  --------------

Total liabilities and stockholders' equity                   $ 32,161,258    $ 33,680,906    $  33,680,906 
                                                             ==============================  ==============
</TABLE>

See accompanying notes.















                                        5
<PAGE>
<TABLE>

                                Tumbleweed, Inc.

                            Statements of Cash Flows

                                   (Unaudited)
<CAPTION>

                                                                   Three Months Ended
                                                                        March 31
                                                                  1999           1998
                                                             ----------------------------

Operating activities:
<S>                                                          <C>             <C>            
   Net income (loss)                                         $   (578,331)   $   342,147    
   Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
       Depreciation                                               383,498        262,717
       Amortization                                                34,965         37,845
       Preopening amortization                                         --         96,950
       Deferred income taxes                                      563,976             --
       Loss on disposition of property and equipment                1,114            839
       Changes in operating assets and liabilities:
         Accounts receivable                                       (2,729)        77,613
         Inventories                                               (3,233)      (102,211)
         Deferred preopening expenses                             524,669       (412,166)
         Prepaid expenses                                         (60,812)         1,007
         Other assets                                             (23,838)       (58,200)
         Accounts payable                                        (270,970)      (276,420)
         Accrued liabilities                                       (1,917)       242,933
         Other liabilities                                         11,750          1,751
                                                             ------------    -----------                             -
Net cash provided by operating activities                         578,142        214,805

Investing activities:
   Purchases of property and equipment                         (1,520,927)    (2,176,037)
                                                             ------------    -----------  

Net cash used in investing activities                          (1,520,927)    (2,176,037)

Financing activities:
   Proceeds from issuance of members' equity                           --        842,037
   Distribution of members' equity                                     --     (1,093,484)
   Proceeds from common stock offering                          7,765,347             --
   Proceeds from issuance of long-term debt                     3,529,914      1,671,069
   Payments on long-term debt and capital lease obligations   (11,136,269)      (227,900)
   Payment of public offering costs                              (403,150)       (16,218)
                                                             ------------    ----------- 
Net cash provided by (used in) financing activities              (244,158)     1,175,504
                                                             ------------    ----------- 

Net decrease in cash and cash equivalents                      (1,186,943)      (785,728)

Cash and cash equivalents at beginning of period                1,898,973      1,228,867
                                                             ------------    ----------- 
Cash and cash equivalents at end of period                   $    712,030    $   443,139   
                                                             ============    ===========   
                                                              

Supplemental cash flow information:
   Cash paid for interest, net of amount capitalized         $    260,502    $   154,705   
                                                             ============    ===========   
                                                                                           

Noncash investing and financing activities:
   Equipment acquired by capital lease obligations           $        --     $   209,981    
                                                             ===========     ===========    
                                                                                            
</TABLE>



See accompanying notes.



                                        6



<PAGE>


                                TUMBLEWEED, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)
                                 March 31, 1999


1.    BASIS OF PRESENTATION

Merger of Tumbleweed, LLC and Tumbleweed, Inc.

Tumbleweed,  Inc.  (the  Company)  was  legally  formed  in  December  1997  and
capitalized  on June 23, 1998 with the  issuance of 13 shares of Company  common
stock at $10 per share.  Effective  January 1, 1999, and as a result of the sale
of  776,543  shares  of  common  stock  in an  initial  public  offering  (IPO),
Tumbleweed,  LLC  (Tumbleweed)  was merged into the  Company.  The  interests of
Tumbleweed  members at the time of the  merger  were  converted  into a total of
5,105,000 shares of Company common stock.

The  Company's  assets  of $1 at  December  31,  1998  consisted  solely of cash
received in connection with the  capitalization  of the Company.  As of December
31,  1998,  the Company had not  conducted  any  operations  and all  activities
through  December  31, 1998  related to the IPO and the merger with  Tumbleweed.
During  1998,  the  Company  opened  a bank  account  for the cash  received  in
connection with the capitalization totaling $130 and, as a result of maintaining
the cash account,  the Company incurred  expenses totaling $129 during 1998. All
expenditures  related  to the  IPO  were  funded  and  recorded  by  Tumbleweed.
Accordingly,  the  Company's  balance  sheet  as of  December  31,  1998 and the
statements of operations  and cash flows for the period from  inception  through
December 31, 1998 would not provide  meaningful  information  and,  accordingly,
have been omitted.  Also,  the  accompanying  statements of operations  and cash
flows for the three months ended March 31, 1998 and balance  sheet and pro forma
balance sheet as of December 31, 1998 are those of  Tumbleweed  and are included
for comparative purposes since it was the predecessor company.

As of March 31, 1999,  the Company owns and operates 26 restaurants in Kentucky,
Indiana  and Ohio and  franchises  an  additional  13  restaurants  in  Indiana,
Illinois, Tennessee and Wisconsin. The Company also licenses five restaurants in
Germany, Saudi Arabia and Jordan.

Interim Financial Reporting

The accompanying  financial statements have been prepared by the Company without
audit,  with the  exception of the  December  31, 1998  balance  sheet which was
derived from the audited  financial  statements  included in the Company's  Form
10-K. The  accompanying  unaudited  financial  statements  have been prepared in
accordance with generally accepted  accounting  principles for interim financial
reporting and in accordance  with Rule 10-01 of Regulation  S-X. These 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, 1998.

In the  opinion  of  management,  the  unaudited  interim  financial  statements
contained  in this report  reflect all  adjustments,  consisting  of only normal
recurring accruals, which are necessary for a fair presentation.  The results of
operations  for the  three  months  ended  March  31,  1999 are not  necessarily
indicative  of the results that may be expected for the year ended  December 31,
1999.


Pro forma Financial Information

Pursuant to the rules and regulations of the Securities and Exchange Commission,
the  accompanying pro forma balance sheet for Tumbleweed as of December 31, 1998
reflects  the  change  in  capitalization  attributable  to  the  conversion  of
Tumbleweed's members' interests into 5,105,000 shares of Tumbleweed, Inc. common
stock as if the IPO had closed on December  31, 1998  (excluding  the effects of
the offering  proceeds).  The pro forma balance sheet also reflects the deferred
tax effects of Tumbleweed  changing from a limited  liability  company (which is
taxed as a partnership) to a regular corporate taxable status. Such deferred tax
effects are  included  in income on January 1, 1999,  the date the change in tax
status occurred.

                                       7
<PAGE>


1.   BASIS OF PRESENTATION (continued)

Additionally, pro forma net income in the accompanying pro forma income data for
the three months ended March 31, 1999 and 1998  reflects a pro forma  adjustment
to income  before income taxes and  cumulative  effect of a change in accounting
principle for federal and state income taxes at an estimated  effective  rate of
35% as if the  Company  had been a regular  corporate  taxpayer  throughout  the
periods  presented.  Pro forma basic and diluted  earnings per share is computed
based upon the weighted average number of shares of common stock outstanding for
1999. For 1998, the weighted  average number of shares  outstanding  assumes the
conversion  of  Tumbleweed's  members'  interests  into  common  stock as of the
beginning of the period.

2.   CHANGE IN ACCOUNTING PRINCIPLE

In April 1998, the American  Institute of Certified  Public  Accountants  issued
Statement of Position (SOP) 98-5,  "Reporting the Costs of Start-Up Activities."
The SOP was effective beginning January 1, 1999 and requires that start-up costs
capitalized  prior to January  1, 1999 be  written-off  and any future  start-up
costs be expensed  as  incurred.  Prior to 1999,  the  Company  capitalized  its
preopening  costs incurred in connection with opening new restaurant  locations.
The unamortized  balance of the Company's deferred preopening costs ($524,669 as
of December  31,  1998) was  written-off  (net of income taxes of $183,634) as a
cumulative effect of an accounting change on January 1, 1999.

3.   ACCRUED LIABILITIES

Accrued liabilities consist of:

                                                 March 31  December 31
                                                   1999       1998
                                               -----------------------

Accrued payroll and related taxes              $  965,264   $  792,809
Accrued insurance and fees                        118,750      284,270
Accrued taxes, other than income and payroll      463,279      393,593
Gift certificate liability                        105,018      275,743
Other                                             219,423      127,236
                                               ----------   ----------
                                               $1,871,734   $1,873,651
                                               ==========   ==========

4.   LONG-TERM DEBT

Long-term debt consists of:

                                                        March 31     December 31
                                                          1999          1998
                                                       -------------------------
Secured $5,000,000 mortgage revolving line of 
 credit note, bearing interest at prime rate
 plus .25% (8.0% at March 31, 1999), due December
 31, 2000                                              $ 2,172,148   $ 4,302,148

Secured mortgage note payable, bearing  interest
 at commercial paper rate plus 2.65% (7.52% at
 March 31, 1999), due February 17, 2006                  2,834,683
                                                                               -

Secured mortgage note payable,  bearing interest at
 prime rate plus 1% (8.75% at March 31, 1999),
 payable in monthly installments through October
 1, 2017                                                 1,078,485     1,084,274

                              (Continued next page)

                                       8
<PAGE>

4. LONG-TERM DEBT (continued)

                                                          March 31   December 31
                                                            1999        1998
                                                       -------------------------
Secured mortgage note payable, bearing interest
 at 8.5%, payable in monthly installments through
 February 15, 2008                                     $   983,514   $   991,396

Secured  mortgage note payable, bearing interest
 at 7.75%, payable in monthly installments through
 March 1, 2006                                             673,110             -

Secured mortgage note payable, bearing interest at
 prime rate plus 1.25% (9.0% at March 31, 1999),
 payable in monthly installments through November
 27, 2016                                                  662,500       671,875

Secured mortgage note payable, bearing interest at
  Commercial paper rate plus 3%                                  -     1,111,928
                                                           

Secured mortgage note payable, bearing interest
  at commercial rate plus 3.1%                                   -       695,230

Other installment notes payable                            700,672       750,595
                                                       -------------------------
                                                         9,105,112     9,607,446
Less current maturities                                    499,602       427,088
                                                       -------------------------
Long-term debt                                         $ 8,605,510   $ 9,180,358
                                                       =========================

Property and equipment  with a net book value of  approximately  $17,200,000  at
March 31, 1999 collateralize the Company's long-term debt.

Subsequent to March 31, 1999, the Company increased its mortgage  revolving line
of credit note from  $5,000,000 to $6,500,000  and the maturity date of the note
was extended to December 31, 2001.


5.   RELATED PARTY TRANSACTIONS

On April 1,  1999,  the  Company  purchased  the  land and  building,  including
improvements, of the Springdale, Ohio restaurant from Keller, LLC, the lessor of
the property, for $1,625,000.  The purchase was made for an amount substantially
equal to the costs  originally  expended by Keller,  LLC in the  purchase of the
land and  construction of the  improvements  which  approximated the fair market
value as determined by an independent  appraisal.  At the time of purchase,  the
Company  entered into a  modification  agreement with a local bank to increase a
line of credit and to place a mortgage  on the land and  building  to secure the
increased  line of credit.  At the time of the purchase,  the Company's  capital
lease obligation to Keller, LLC was terminated.

6.   COMMITMENTS

At March 31, 1999, the Company had commitments of approximately $785,000 for the
completion  of  the  construction  of  three  restaurants,  for  which  landlord
financing has been secured.



                                       9
<PAGE>





7.   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  corporate-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
net  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 three months ended March 31 is as follows:

1999:
                               Restaurant   Commissary   Corporate     Totals
                              --------------------------------------------------
Revenues from external  
 customers                    $11,332,318  $   286,237  $   340,814  $11,959,369
Intersegment revenues                  --      667,885           --      667,885
General and                
 administrative expenses               --           --      899,766      899,766
Advertising expenses                   --           --      284,962      284,962
Depreciation
and amortization                  332,639       29,688       56,138      418,465
Net interest expense                   --       41,825      204,517      246,342
Income(loss)before income  
 taxes and cumulative effect
 of a change in accounting
 principle                      1,736,628       15,098   (1,132,761)     618,965


1998:
                               Restaurant   Commissary   Corporate     Totals
                              --------------------------------------------------
Revenues from external      
 customers                    $ 8,409,122  $   250,866  $   247,888  $ 8,907,876
Intersegment revenues                  --      585,353           --      585,353
General and   
 administrative expenses               --           --      741,679      741,679
Advertising expenses                   --           --      198,193      198,193
Depreciation and      
 amortization                     222,560       28,406       49,596      300,562
Net interest 
 expense                               --       40,425      101,437      141,862
Income(loss) before income   
 taxes and cumulative effect
 of a change in accounting 
 principle                      1,144,006       64,416     (866,275)     342,147


                                       10

<PAGE>



8.    INCOME TAXES

Concurrent  with the merger of the Company as  described  in Note 1,  Tumbleweed
converted  from a limited  liability  company  into a C  corporation  and is now
subject to federal and state  income  taxes.  As of the date of the merger,  the
Company  recorded a net  deferred tax  liability  and  corresponding  income tax
expense  for  cumulative  temporary  differences  between  the tax basis and the
reported  amounts of the Company's  assets and  liabilities.  At the date of the
merger, the net differences equaled approximately  $1,780,000 resulting in a net
deferred tax liability and corresponding income tax expense of $639,623 which is
included in the deferred income tax provision in the  accompanying  statement of
operations for the three months ended March 31, 1999.

Income taxes on the  Company's  income for the three months ended March 31, 1999
have been provided for at an estimated effective tax rate of 35%.

Significant  components of the Company's  deferred tax assets and liabilities as
of March 31, 1999 are as follows:

     Deferred tax assets:
       Book over tax amortization                  $      92,412
       Other                                              79,978
                                                   --------------
         Total deferred tax assets                       172,390

     Deferred tax liabilities:
       Deferred expenses                                (274,618)
       Tax over book depreciation                       (329,314)
       Other                                            (132,434)
                                                   --------------
         Total deferred tax liabilities                 (736,366)
                                                   --------------
     Net deferred tax liability                    $    (563,976)
                                                   ==============


















                                       11
<PAGE>



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

GENERAL

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

Of the 44 Tumbleweed  restaurants as of March 31, 1999, we owned and operated 26
restaurants in Kentucky, Indiana and Ohio, franchised 13 restaurants in Indiana,
Illinois,  Tennessee and  Wisconsin,  and licensed five  restaurants in Germany,
Jordan and Saudi Arabia. One additional  Company-owned  restaurant opened in Ft.
Wayne, Indiana in May 1999, and one additional  franchised  restaurant opened in
Glasgow, Kentucky in April 1999.

Effective  January  1,  1999,  Tumbleweed,  LLC  (Tumbleweed)  converted  to a C
corporation from a limited liability  company by merging with the Company.  As a
limited  liability  company,  Tumbleweed  had been treated as a partnership  for
income tax purposes and,  accordingly,  had not been subject to federal or state
income taxes.  The  discussion of financial  condition and results of operations
included  in the  paragraphs  that  follow  reflect a pro forma  adjustment  for
federal and state income taxes that would have been recorded  during the periods
if Tumbleweed had been subject to corporate  income taxes throughout the periods
presented.

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

RESULTS OF OPERATIONS

The table,  on the next page,  sets forth the percentage  relationship  to total
revenues of certain income  statement data,  except where noted, for the periods
indicated.






















                                       12
<PAGE>


                                                      Three-Months Ended
                                                          March 31,
                                                    1999              1998
                                                  ----------        ---------
Revenues:
  Restaurant sales                                    94.8  %          94.4   %
  Commissary sales                                     2.4              2.8
  Franchise fees and royalties                         2.1              2.1
  Other revenues                                       0.7              0.7
                                                  ----------        ---------
      Total revenues                                 100.0            100.0

Operating expenses:
  Restaurant cost of sales(1)                         28.8             28.4
  Commissary cost of sales(2)                         90.9             84.1
  Operating expenses(1)                               51.5             53.4
  Selling, general and administrative expenses         9.9             10.6
  Preopening expenses                                  1.1              1.1
  Depreciation and amortization                        3.5              3.4
                                                  ----------        ---------
      Total operating expenses                        92.8             94.6
                                                  ----------        ---------
      Income from operations                           7.2              5.4
Interest expense, net                                 (2.0)            (1.6)
                                                  ----------        ---------
Income before income taxes and cumulative
    effect of a change in accounting
    principle                                          5.2              3.8
Provision for income taxes:
    Current                                           (1.8)               -
    Deferred                                          (5.4)               -
                                                  ----------        ---------
Total provision for income taxes                      (7.2)               -
                                                  ----------        ---------
Income (loss) before cumulative effect
  of a change in accounting principle                 (2.0)             3.8
Cumulative effect of a change in
  accounting principle, net of tax                    (2.8)               -
                                                  ----------        ---------
Net income (loss)                                     (4.8) %           3.8  %
                                                  ==========        =========

Pro forma income data:
  Income before income taxes and
    cumulative effect of a change in
    accounting principle                               5.2  %           3.8  %
  Pro forma income taxes                              (1.8)            (1.3) 
                                                  ----------        ---------
  Pro forma income before cumulative
    effect of a change in accounting
    principle                                          3.4              2.5
  Cumulative effect of a change in
    accounting principle, net of tax                  (2.8)               -
                                                  ----------        ---------
  Pro forma net income                                 0.6  %           2.5  %
                                                  ==========        =========

(1)    As percentage of restaurant sales.
(2)    As percentage of commissary sales.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

Total  revenues  increased by  $3,051,493 or 34.3% for the first three months of
1999 compared to the same period in 1998 primarily as a result of the following:

    Restaurant sales increased by $2,923,196 or 34.8% for the first three months
    of 1999  compared to the same period in 1998.  The increase is due primarily
    to the addition of five additional Company-owned restaurants and an


                                       13
<PAGE>

    increase in same store sales of 2.4%

    Commissary sales to franchised restaurants increased by $35,371 or 14.1% for
    the first three  months of 1999  compared  to the same  period in 1998.  The
    increase is due  primarily  to the addition of five  franchised  or licensed
    restaurants.

    Franchise  fees and  royalties  increased  by $65,982 or 35.6% for the first
    three months of 1999  compared to the same period in 1998.  The increase was
    due  primarily to a $35,000  increase in franchise  fees  received  upon the
    opening of two new franchised  restaurants  during the first three months of
    1999 compared to one during the same period in 1998.  Additionally,  royalty
    income increased approximately $30,000 during the first three months of 1999
    compared to the same period in 1998.

    Other  revenues  increased by $26,944 or 43.0% for the first three months of
    1999  compared to the same period in 1998,  primarily  due to an increase in
    volume related purchasing rebates of approximately $25,000.

Restaurant  cost of sales  increased  by  $874,983  or 36.6% for the first three
months of 1999 compared to the same period in 1998. The increase was principally
due to the opening of five additional Company-owned restaurants. Restaurant cost
of sales increased as a percentage of sales by 0.4% to 28.8% for the first three
months of 1999  compared to 28.4%  during the same period in 1998.  The increase
was  primarily  due to an increase in sales of  American  food which  contains a
higher cost to sales ratio  compared to Mexican food sales.  American food sales
increased to 39.2% of total sales in the first three months of 1999  compared to
34.8% during the same period of 1998.

Commissary cost of sales  increased  $49,363 or 23.4% for the first three months
of 1999 compared to the same period in 1998. The increase in commissary  cost of
sales is due primarily to increased  overhead costs in the first three months of
1999 compared to the same period in 1998.  As a percentage to sales,  commissary
cost of sales increased 6.8%.

Restaurant  operating  expenses  increased by  $1,345,235 or 30.0% for the first
three months of 1999 compared to the same period in 1998. The increase  reflects
the addition of five Company-owned restaurants.  Operating expenses decreased as
a  percentage  of  restaurant  sales to 51.5% for the first three months of 1999
from 53.4% for the same period in 1998 primarily due to a 0.8% decrease in labor
costs and a 1.2% decrease in restaurant level promotional costs.

Selling,  general and administrative expenses increased by $256,856 or 27.3% for
the first three months of 1999 compared to the same period in 1998. The increase
was due in part to the addition of management  and staff  personnel  during 1998
and the first  three  months of 1999 to support  the  growing  restaurant  base.
Because of the Company's  restaurant growth plans,  management  expects selling,
general and administrative expenses to continue to increase during the remainder
of 1999 in absolute dollars. As a percentage to total revenues, selling, general
and administrative  expenses were 9.9% of revenues for the first three months of
1999 versus 10.6% for the same period in 1998.

Preopening  expenses  were  $134,805  for the three  months ended March 31, 1999
versus  preopening  amortization of $96,950 for the three months ended March 31,
1998. See Note 2 of the financial statements regarding the adoption of Statement
of Position  (SOP) 98-5,  "Reporting  the Costs of  Start-Up  Activities."  As a
result of the  adoption of SOP 98-5 on January 1, 1999,  the Company  recorded a
charge to income, net of tax, of $341,035 representing the write-off of deferred
preopening costs as of December 31, 1998. The charge is reported net of taxes as
a cumulative effect of a change in accounting principle.

Depreciation and amortization  expense increased $117,903 or 39.2% for the first
three  months of 1999  compared to the same period in 1998 due  primarily to the
addition of five Company-owned restaurants.

Net interest expense  increased  $104,480 or 73.6% for the first three months of
1999 compared to the same period in 1998.  The increase  resulted from increased
borrowing to fund the growth in Company-owned restaurants.

                                       14
<PAGE>

The combined  estimated  effective federal and state income tax rate was 35% for
the first three  months of 1999.  The pro forma  adjustments  provide for income
taxes as  though  the  Company  had  been  subject  to  corporate  income  taxes
throughout the periods presented.  Additionally,  as a result of a change in tax
status from a limited liability corporation to a C corporation effective January
1, 1999, the Company recorded a net deferred income tax liability and income tax
expense of $639,623 in 1999.

The  Company's  pro  forma  income  before  cumulative  effect  of a  change  in
accounting  principle  increased $179,931 or 80.1% for the first three months of
1999  compared to the same  period in 1998.  Pro forma  income per share  before
cumulative effect of a change in accounting  principle increased to $0.07 in the
first three months of 1999 compared to $0.04 for the same period in 1998.

LIQUIDITY AND CAPITAL RESOURCES

Our ability to expand the number of our  restaurants  will depend on a number of
factors,  including the selection and availability of quality  restaurant sites,
the negotiation of acceptable  lease or purchase terms, the securing of required
governmental  permits and approvals,  the adequate  supervision of construction,
the hiring,  training and retaining of skilled  management and other  personnel,
the  availability  of adequate  financing and other  factors,  many of which are
beyond our control.  The hiring and retention of management and other  personnel
may be  difficult  given  the low  unemployment  rates in the  areas in which we
intend to  operate.  There can be no  assurance  that we will be  successful  in
opening the number of restaurants  anticipated in a timely manner.  Furthermore,
there can be no assurance that our new  restaurants  will generate sales revenue
or profit margins  consistent  with those of our existing  restaurants,  or that
these new restaurants will be operated profitably.

Our principal  capital needs arise from the development of new restaurants,  and
to a lesser extent,  maintenance  and  improvement of existing  facilities.  The
principal  sources  of  capital  to  fund  these  expenditures  were  internally
generated cash flow,  bank borrowings and lease  financing.  The following table
provides certain  information  regarding our sources and uses of capital for the
periods presented:

                                                       Three-Months Ended
                                                           March 31,

                                                      1999             1998
                                                      ----             ----

Net cash provided by operations                 $      578,142    $    214,805

Purchases of property and equipment                  1,520,927       2,176,037

Proceeds from common stock offering                  7,765,347               -

Net distributions of members' equity                         -        (251,447)
                                             
Net borrowings (payments) on long-term
  debt and capital lease obligations               (7,606,355)       1,443,169


Since the  acquisition  of the  Tumbleweed  business,  our single largest use of
funds  has been for  capital  expenditures  consisting  of  land,  building  and
equipment  associated  with our restaurant  expansion  program.  The substantial
growth of the Company  over the period has not required  significant  additional
working  capital.  Sales are  predominantly  for cash and the business  does not
require the maintenance of significant receivables or inventories.  In addition,
it is common  within the  restaurant  industry  to receive  trade  credit on the
purchase  of  food,  beverage  and  supplies,  thereby  reducing  the  need  for
incremental working capital to support sales increases.

We both own and lease our restaurant  facilities.  Management determines whether
to  acquire  or  lease a  restaurant  facility  based on its  evaluation  of the
financing alternatives available for a particular site.


                                       15
<PAGE>


We plan to open two additional Company-owned Tumbleweed restaurants during 1999,
depending  on the  availability  of quality  sites,  the hiring and  training of
sufficiently  skilled management and other personnel,  and other factors.  As of
March 31, 1999, we had two restaurants under construction, which are expected to
open in the second quarter of 1999.

We will utilize  mortgage,  sale/leaseback  and landlord  financing,  as well as
equipment  leasing  and  financing,  for a portion of the  development  costs of
restaurants  opened during 1999. 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 through
1999.  Should our actual  results  of  operations  fall short of, or its rate of
expansion  significantly  exceed  its  plans,  or should  its  costs or  capital
expenditures exceed  expectations,  we may need to seek additional  financing in
the future.  In negotiating  such  financing,  there can be no assurance that we
will be able to raise additional capital on terms satisfactory to us.

We had a $5,000,000  mortgage  revolving  line of credit note with National City
Bank (the "Credit Facility").  At March 31, 1999, we had outstanding  borrowings
under the Credit  Facility  of  approximately  $2,172,000.  The Credit  Facility
imposes  restrictions on us with respect to the maintenance of certain financial
ratios,  the incurrence of indebtedness,  the sale of assets,  mergers,  capital
expenditures  and the payment of  dividends.  Subsequent  to March 31, 1999,  we
increased the Credit Facility to $6,500,000.

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

CHANGE IN ACCOUNTING PRINCIPLE

In April 1998, the American  Institute of Certified  Public  Accountants  issued
Statement of Position (SOP) 98-5,  "Reporting the Costs of Start-Up Activities."
The SOP was effective beginning January 1, 1999 and requires that start-up costs
capitalized  prior to January  1, 1999 be  written-off  and any future  start-up
costs be expensed  as  incurred.  Prior to 1999,  the  Company  capitalized  its
preopening  costs incurred in connection with opening new restaurant  locations.
The unamortized  balance of the Company's deferred preopening costs ($524,669 as
of December  31, 1998) were  written-off  (net of income taxes of $183,634) as a
cumulative effect of an accounting change on January 1, 1999.

IMPACT OF YEAR 2000

We have scheduled the replacement of certain of our older computer  systems with
hardware and software that has been certified to be Year 2000 compliant. We have
also  completed an assessment of our other  computer  systems and will modify or
replace  portions of our  software so that our computer  systems  will  function
properly  with  respect to dates in or after the Year 2000.  The total Year 2000
project cost is estimated at approximately $406,000, which includes $370,000 for
the purchase of new hardware and software that will be  capitalized  and $36,000
that will be expensed as incurred. As of March 31, 1999, we had not incurred any
expenses relating to the Year 2000 Project.

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

We are in the process of querying our  significant  vendors with respect to Year
2000 issues.  Based on the responses received from vendors,  we are not aware of
any  vendors  with a Year 2000  issue that would  materially  impact  results of
operations,  liquidity, or capital resources.  However, the inability of vendors
to  complete  their  Year 2000  resolution  process  in a timely  fashion  could
materially  impact the Company,  although the actual impact of non-compliance by
vendors is not determinable.

                                       16
<PAGE>


We are in the process of developing a  contingency  plan in the event that we do
not complete all phases of our Year 2000 program.

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

IMPACT OF INFLATION

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


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not  enter  into  derivative  transactions  or  speculate  on  the  future
direction of interest rates.  We are exposed to interest rate changes  primarily
as a result  of our  variable  rate  debt  instruments.  As of March  31,  1999,
approximately $7,000,000 of our debt bore interest at variable rates. We believe
that the effect,  if any, of reasonably  possible  near-term changes in interest
rates on our  consolidated  financial  position,  results of  operations or cash
flows would not be significant.





















                                       17


<PAGE>


PART II.    OTHER INFORMATION

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

     (a)   Exhibits:

      *2.1    Agreement and Plan of Merger, dated as of June 23, 1998, between 
              Tumbleweed, LLC and Registrant

      *3.1    Certificate of Incorporation of Registrant

      *3.2    Bylaws of Registrant

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

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

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

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

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

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

     *10.7    Lease Agreement between Keller LLC and Tumbleweed LLC

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

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

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

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

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

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

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

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



                                       18
<PAGE>

    *10.16    Form of Standard Franchise Agreement for Tumbleweed, LLC

    *10.17    Articles of Incorporation of Tumbleweed Marketing Fund, Inc

    *10.18    By laws of Tumbleweed Marketing Funds, Inc.

    *10.19    Bonus Compensation Plan for Senior Executives

     10.20    Revolving Line of Credit Note, dated April 21, 1999, between 
              Tumbleweed, Inc. and National City Bank of Kentucky and related 
              Loan Agreement

      27.1    Financial Data Schedule

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

         *   Incorporated by reference to exhibits of the same number filed with
               the Commission on June 29, 1998 in Form S-1 Registration No. 
               333-57931

      (b)  Reports on Form 8-K

         Tumbleweed, Inc. filed Form 8-K on January 29, 1999 to report in Item 5
         the completion of its initial public offering of common stock.

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























                                       19
<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.

Dated:        May 11, 1999            

                                                Tumbleweed, Inc.

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













                                       20
<PAGE>