10-K/A 1 form10ka.txt AMENDED FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-K/A {X} Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 29, 2002 or { } Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______. 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 Louisville, Kentucky 40206 ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (502) 893-0323 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, par value $.01 per share Indicated 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____ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes _____ No _____ Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. {X} The aggregate market value of the voting stock held by non-affiliates of the registrant on March 3, 2003, was approximately $2,333,000. For purposes of this calculation, shares held by non-affiliates excludes only those shares beneficially owned by officers, directors and shareholders beneficially owning 10% or more of the outstanding Common Stock. The market value calculation was determined using the closing sale price of the registrant's common stock on March 3, 2003 ($1.12) as reported on The Nasdaq Small Cap Market. The number of shares of common stock, par value of $.01 per share, outstanding on March 3, 2003, was 5,916,153. PART III This amendment is being filed to furnish the information required by Items 10, 11, 12 and 13. The amendment is necessary due to the fact that the Company will not be filing a definitive proxy statement within 120 days of its fiscal year end. ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT DIRECTORS The following table lists the board of directors of the Company as of December 29, 2002. There are no family relationships among any directors of the Company. Name Age ---- --- Minx Auerbach 80 Lewis Bass 81 George R. Keller 53 James F. Koch 59 David G. Lloyd 40 David M. Roth 52 Terrance A. Smith 57 The Company's Certificate of Incorporation and its Bylaws provide that the Board of Directors shall consist of not less than five nor more than 11 directors and authorize the exact number to be fixed from time to time by resolution of a majority of the Board of Directors. The Board of Directors has fixed the number of members at eight. As of December 29, 2002, there is one vacant position on the board. The Company's By-Laws provide that the Board of Directors has the right to divide the Board of Directors into three classes of directors with staggered, three-year terms of office, and provide that upon the expiration of the term of office for a class of directors, the nominees for that class will be elected for a term of three years to serve until the election and qualification of their successors or until their earlier resignation, death or removal from office. At its February 16, 2000 meeting, the Board of Directors divided its membership into three classes. Upon expiration of the term of each class, the nominees for that class will thereafter be elected for a term of three years. CLASS I - TERM EXPIRING 2003 David M. Roth Director of the Company since 1997 Age: 52 David M. Roth has served as a Director of the Company since it was formed in 1997. Mr. Roth was also a founding member of Tumbleweed, LLC from its inception in 1994 to its merger with the Company in January 1999. Mr. Roth is currently Of Counsel in the Louisville, Kentucky law firm of Goldberg & Simpson, P.S.C. From December 1993 to August 1999, Mr. Roth was a principal of Roth, Foley, Bryant and Cooper, and Roth and Cooper, P.S.C., Louisville, Kentucy law firms. David G. Lloyd Director of the Company since 2002 Age: 40 David G. Lloyd has served as a Director of the Company since 2002. Mr. Lloyd is currently an Executive Vice President, Chief Financial Officer and member of the Board of Directors of Taco Bueno Restaurants. From October 1994 to February 2001, Mr. Lloys was Senior Vice President, Chief Financial Officer, Secretary and Treasurer of Taco Cabana, Inc. 2 CLASS II - TERM EXPIRING 2005 George R. Keller Director of the Company since 1997 Age: 53 George R. Keller is the founder of Tumbleweed and has been a Director of the Company since it was formed in 1997. Mr. Keller also served as a member of the Board of Advisors of Tumbleweed, LLC from January 1995 to its merger with the Company in January 1999. From 1975 to January 1995, Mr. Keller served as Chief Executive Officer of Tumbleweed Mexican Food, Inc. and Tumbleweed Concepts, Inc. Terrance A. Smith Director of the Company since 1997 Age: 57 Terrance A. Smith was elected as a Director of the Company in September 1997. Mr. Smith has served as the President and Chief Executive Officer of the Company since August 2000. Since 1997, Mr. Smith has also served as the President of Tumbleweed International, LLC. From 1987 to 1997, Mr. Smith was the President and CEO of Chi-Chi's International Operations, Inc. CLASS III - TERM EXPIRING 2004 Minx Auerbach Director of the Company since 1997 Age: 80 Minx Auerbach has served as a Director of the Company since it was formed in 1997. Ms. Auerbach also served as a member of the Board of Advisors of Tumbleweed, LLC from January 1995 to its merger with the Company in January 1999. From 1975 to 1979, Ms. Auerbach was the Director of Consumer Affairs for the City of Louisville, Kentucky. From 1979 to 1984, she served as the Executive Assistant to the County Judge Executive of Jefferson County, Kentucky. Mr. Auerbach is currently retired. James F. Koch Director of the Company since 2000 Age: 59 James F. Koch has served as a Director of the Company since 2000. Mr. Koch is currently a partner and director in the Louisville, Kentucky public accounting firm of Carpenter, Mountjoy & Bressler, PSC. From March 1994 to June 1996, Mr. Koch was the Chief Financial Officer of Seed Restaurant Group, Inc. Lewis Bass Director of the Company since 1997 Age: 81 Lewis Bass has served as a Director of the Company since it was formed in 1997. Mr. Bass also served as a member of the Board of Advisors of Tumbleweed, LLC from January 1995 to its merger with the Company in January 1999. Mr. Bass is currently retired. 3 EXECUTIVE OFFICERS The following table lists the executive officers of the Company, who serve at the pleasure of the Board of Directors. There are no family relationships among any officers or directors of the Company. Name Age Position ---- --- -------- Terrance A. Smith 57 President, Chief Executive Officer, and Director Glennon F. Mattingly 51 Vice President and Chief Financial Officer Gary T. Snyder 48 Vice President of Company Operations Lynda J. Wilbourn 40 Vice President and Controller Terrance A. Smith has served as President and Chief Executive Officer of the Company since August 2000, and is a Director of the Company. Mr. Smith was elected as a director of the Company in September 1997. From 1997 to 2002, Mr. Smith also served as the President of Tumbleweed International, LLC. From 1987 to 1997, Mr. Smith was the President and CEO of Chi-Chi's International Operations, Inc. Glennon F. Mattingly joined Tumbleweed, LLC, the Company's predecessor, as Controller in March 1995 and was named Vice President-Controller in April 1998 and Chief Financial Officer in August 2001. Mr. Mattingly continues to serve the Company in that capacity. Before coming to Tumbleweed, Mr. Mattingly held various positions with Chi- Chi's, Inc. including six years as Director of Budgeting and Financial Analysis. Gary T. Snyder joined Tumbleweed, LLC, the Company's predecessor, as Director of Training and Human Resources in June 1996 and was appointed Vice President of Company Operations in April 1998. Mr. Snyder continues to serve the Company in that capacity. He previously served for 17 years with Bob Evans Farms, Inc. Lynda J. Wilbourn joined Tumbleweed, Inc. in March 1999 as Director of Accounting and was named Vice President and Controller in November 2001. Ms. Wilbourn continues to serve the Company in that capacity. From 1987 to 1999, Ms. Wilbourn held various positions with NTS Corporation, a regional real estate development firm headquartered in Louisville, Kentucky, including five years as Vice President of Accounting. ITEM 11. EXECUTIVE COMPENSATION This item discloses compensation for services rendered to the Company during each of the three fiscal years in the period ended December 29, 2002, which compensation was awarded to, paid to, or earned by the Company's Chief Executive Officer and two other executive officers of the Company whose salary and bonus exceeded $100,000 in 2002. Collectively, these persons are sometimes referred to as the "Named Executives." 4

5 OPTION GRANTS IN FISCAL 2002 The following table presents information regarding options to purchase shares of Common Stock granted by the Company during 2002 to the Named Executives. The Company has no outstanding SARs and granted no SARs during 2002.

AGGREGATED OPTION EXERCISES IN FISCAL 2002 AND FISCAL YEAR END VALUES No options to purchase shares of Common Stock were exercised during 2002 by the Named Executives. There were no SARs outstanding during 2002. The following table sets forth the number and value of unexercised options held by the Named Executives at year end.

6 (1) The last trade of the Company's common stock, as reported by NASDAQ on December 29, 2002, was $0.56. That price was used in calculating the value of exercisable and unexercisable options, of which were exercisable and were unexercisable as of December 29, 2002. (2) The options for Mr. Smith includes 12,000 options granted in 1999, prior to his being named President and Chief Executive Officer. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information as of March 3, 2003 (except as otherwise noted) regarding the amount of Common Stock beneficially owned by all persons known to the Company who beneficially own more than five percent of the outstanding Common Stock, each director and each Named Executive (as defined under "Executive Compensation" above), and all directors and executive officers of the Company as a group. An asterisk indicates beneficial ownership of less than one percent of the outstanding Common Stock. A person beneficially owns shares if the person has or shares voting or investment power with respect to the shares or has the right to acquire such power within 60 days. Except as otherwise noted, each person named in the table has sole voting and investment power with respect to the listed number of shares.

8 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Prior to the completion of the initial public offering of common stock by the Company, the Company's Board of Directors adopted a policy that all future transactions between the Company and its officers, directors, principal stockholders and affiliates must be approved by the Audit Committee and by a majority of the independent members of the Board of Directors who do not have an interest in the transaction, and generally must be on terms no less favorable to the Company than those obtainable from unrelated third parties. Some of the following transactions occurred prior to the adoption of this policy, and, although these transactions necessarily involve conflicts of interest, management believes that all of those transactions were entered into on terms comparable to those obtainable from unrelated third parties, based on a comparison of terms and conditions available from third parties. LEASES WITH RELATED PARTIES The Company leases the facilities and related real property for its Bardstown Road and Valley Station restaurants from TW-DixieBash, LLC, a limited liability company in which David M. Roth, John A. Butorac, Jr. And James M. Mulrooney, current and former directors of the Company, own substantial interests. The Bardstown Road and Valley Station restaurants in Louisville, Kentucky opened in November 1997 and January 1998, respectively. The Bardstown Road sublease provides for the assumption of all rent under the ground lease agreement with Bashford Manor Mall, Joint Venture. The sublease also provides for rent in the amount of $7,000 per month plus 30% of the restaurant's positive net cash flow. The lease is for a twenty-year term with no option to renew. The Company paid rent totaling $180,434 during 2002. The Valley Station sublease provides for the assumption of all rent under the Holiday Station Associates Limited Lease. The sublease also provides for rent in the amount of $5,000 per month thereafter, plus 30% of the restaurant's positive net cash flow. The sublease is for a twenty-year term with options to renew for three additional five- year terms. The Company paid rent totaling $148,834 during 2002 under the Valley Station sublease. RELATED PARTY TRANSACTIONS In August 1997, Tumbleweed, LLC entered into the International Agreement with Tumbleweed International, LLC ("International"), a restaurant developer based in Hanau, Germany. The International Agreement granted certain licensing and franchising rights to International for the development of Tumbleweed restaurants outside of the Western Hemisphere. International was a limited liability company owned by three corporations which are controlled by Terrance A. Smith, David M. Roth, George R. Keller and Minx Auerbach, current directors and stockholders of the Company. On January 1, 2002, the Company purchased the ownership interest in 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 audit committee obtained the opinion of an independent appraiser regarding the $1.5 million value of International. 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 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. 9 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 ================= 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 has agreed to assume and pay one of the equipment leases totaling approximately $125,000 and remains contingently liable on two other equipment leases that currently have a remaining balance of approximately $36,000 which the Company believes will be assumed and paid by other guarantors. In the fourth quarter of 2001, the Company reserved $125,000 to cover its portion of the equipment lease it assumed. As of December 29, 2002, the reserve balance is approximately $74,000 which management believes is sufficient to satisfy the remaining lease obligation. The Company's management believes it will not incur significant additional losses in connection with this matter. Two common stockholders, one of which is David M. Roth, a current director of the Company, are members in TW- Indiana, LLC, which in April 1998 acquired the franchise rights to five full-service Tumbleweed restaurants in Indiana and Kentucky from a third party. As of December 29, 2002, TW-Indiana, LLC operated eight full-service Tumbleweed restaurants. Franchise fees recorded by the Company in relation to this entity were approximately $477,000 in 2002. As of December 29, 2002, the Company had an interest free note receivable of $45,000 from TW-Indiana, LLC with a maturity date of December 31, 2002. Subsequent to December 29, 2002, the note receivable was repaid. TW-Indiana, LLC and David M. Roth, a current director of the Company, are also members of TW-Seymour, LLC, a franchisee of the Company which opened a full-service Tumbleweed restaurant in Indiana during 1999. Franchise fees recorded by the Company in relation to the entity were approximately $50,000 in 2002. David M. Roth, a current director of the Company, and Terrance A. Smith, President, Chief Executive Officer and a current director of the Company, are members of TW-Rivertown, LLC, which constructed a full-service Tumbleweed restaurant in Grandville, Michigan. Tumbleweed, Inc. performed certain accounting services for this restaurant under an agreement which provided for the reimbursement of costs incurred. During 2002, this location ceased operations. The Company did not record any royalties, management or accounting fees from this franchisee in 2002. 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. Through December 31, 2001, the Company had a 50% interest with the remaining 50% held by TW-Springhurst Investors, LLC. David M. Roth, a current director of the Company, and a former director of the Company owned TW-Springhurst Investors, LLC. On January 1, 2002, the Company acquired the remaining 50% interest held by TW-Springhurst Investors for $267,000. The acquisition was funded from cash reserves ($150,000) and a note payable to TW-Springhurst Investors ($117,000). The Company also assumed TW-Springhurst, LLC's note payable to a bank which had a balance of approximately $161,000 on the date of purchase price. An independent business valuation appraisal was used to assist Company management in determining the purchase price. 10 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 =============== During 2002, David M. Roth, a director of the Company, was of counsel with the law firm of Goldberg & Simpson, P.S.C. which provided legal services to the Company during 2002 and may be expected to render such services to the Company in the future. The Company paid $9,694 in fees for legal services rendered by Goldberg & Simpson, P.S.C. in 2002. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Louisville, State of Kentucky. TUMBLEWEED, INC. /s/ Terrance A. Smith -------------------------------- By: Terrance A. Smith President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this amended report has been signed by the following persons in capacities and on the dates indicated. Title Date ----- ---- /s/ Terrance A. Smith ---------------------------- Terrance A. Smith President, Chief Executive icer April 28, 2003 Officer and Director /s/ Glennon F. Mattingly ---------------------------- Glennon F. Mattingly Vice President and April 28, 2003 Chief Financial Officer (Principal Accounting Officer) /s/ David M. Roth ---------------------------- David M. Roth Director April 28, 2003 /s/ Minx Auerbach Minx Auerbach Director April 28, 2003 /s/ Lewis Bass Lewis Bass Director April 28, 2003 /s/ George R. Keller ---------------------------- George R. Keller Director April 28, 2003 /s/ James F. Koch ---------------------------- James F. Koch Director April 28, 2003 /s/ David Lloyd ---------------------------- David Lloyd Director April 28, 2003 12

TUMBLEWEED INC 10-K/A