Edgar Filing: MONTANA MILLS BREAD CO INC

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2002

REGISTRATION NO. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MONTANA MILLS BREAD CO., INC.
(Name of Small Business in Its Charter)

DELAWARE 5461 16-1551461
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)

2171 MONROE AVENUE, SUITE 205A
ROCHESTER, NEW YORK 14618
(585) 242-7540
(Address and Telephone Number of Principal Executive Offices)

EUGENE O'DONOVAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2171 MONROE AVENUE, SUITE 205A
ROCHESTER, NEW YORK 14618
(585) 242-7540
(Name, Address and Telephone Number of Agent for Service)

COPIES OF ALL COMMUNICATIONS TO:

JAMES M. JENKINS, ESQ. PETER M. ZIEMBA, ESQ.
DANIEL R. KINEL, ESQ. GRAUBARD MILLER
HARTER, SECREST & EMERY LLP 600 THIRD AVENUE
1600 BAUSCH & LOMB PLACE NEW YORK, NEW YORK 10016-2097
ROCHESTER, NEW YORK 14604-2711 212-818-8800
585-232-6500 FAX: 212-818-8881
FAX: 585-232-2152

Approximate date of commencement of proposed sale to the public: As soon
as practicable following the date on which this Registration Statement becomes
effective.

If any securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF DOLLAR AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SECURITY(1) PRICE FOR SECURITIES REGISTRATION FEE
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Common Stock, $.001 par value ("Common
Stock")(2).................................. 2,300,000 $ 6.20 $14,260,000 $1,311.92
Redeemable Common Stock Purchase Warrants
("Purchase Warrants")(3).................... 2,300,000 $ 0.05 $ 115,000 $ 10.58
Common Stock underlying Purchase Warrants.... 2,300,000 $ 9.30 $21,390,000 $1,967.88
Underwriter's Purchase Option................ 200,000 $0.0005 $ 100 $ 0.01
Common Stock Underlying Underwriter's
Purchase Option............................. 200,000 $ 10.23 $ 2,046,000 $ 188.23
Purchase Warrants to Purchase Common Stock
underlying Underwriter's Purchase Option.... 200,000 $ 0.083 $ 16,600 $ 1.53
Common Stock issuable upon exercise of
Purchase Warrants underlying Underwriter's
Purchase Option............................. 200,000 $ 9.30 $ 1,860,000 $ 171.12
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TOTAL........................................ $39,687,700 $3,651.27
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(2) Includes 300,000 shares of Common Stock that the underwriter has the option
to purchase to cover over allotments, if any.

(3) Includes 300,000 Purchase Warrants that the underwriter has the option to
purchase to cover over allotments, if any.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT WE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED APRIL 25, 2002

PRELIMINARY PROSPECTUS

[MONTANA MILLS BREAD LOGO]

MONTANA MILLS BREAD CO., INC.

2,000,000 Shares of Common Stock
and
2,000,000 Redeemable Common Stock Purchase Warrants
---------------------

This is our initial public offering of 2,000,000 shares of our common
stock and 2,000,000 redeemable common stock purchase warrants. We anticipate
that the offering price per share of our common stock will be between $4.20 and
$6.20 and that the purchase warrants will be offered at $.05 per purchase
warrant.

Each purchase warrant will entitle you to purchase one share of our
common stock for $ (150% of the combined offering price of one share of
our common stock and one purchase warrant) during the period beginning 90 days
after the date of this prospectus and ending on the fifth anniversary of the
date of this prospectus. We may redeem the purchase warrants, with our
underwriter's prior consent, at any time after they become exercisable, for $.01
per purchase warrant, on not less than 30 days' prior written notice if the last
sale price of our common stock has been at least 200% of the then-current
exercise price of the purchase warrants (initially $ ) for the 20
consecutive trading days ending on the third day prior to the date on which
notice is given.

Prior to this offering, there has been no public market for our
securities and we cannot assure you that a market will develop. We have applied
to list our common stock and purchase warrants on the American Stock Exchange
under the symbols MMX and MMX.W.

INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. PLEASE SEE
THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 9 TO READ ABOUT RISKS YOU
SHOULD CONSIDER CAREFULLY BEFORE BUYING OUR SECURITIES.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING
INITIAL PUBLIC DISCOUNT AND
OFFERING PRICE COMMISSIONS PROCEEDS TO US
-------------- ------------ --------------

Per share of common stock.............................
Per purchase warrant..................................
Total.......................................

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Our underwriter is offering our securities on a firm commitment basis
subject to prior sale, when, as and if delivered to and accepted by our
underwriter. Our underwriter has reserved its right to withdraw, cancel or
modify the offering and to reject any order to purchase our securities in whole
or in part.

Our underwriter has an option to purchase up to an additional 300,000
shares of our common stock and/or 300,000 purchase warrants to cover over
allotments. Our underwriter expects to deliver our securities to purchasers on
or about , 2002.

KIRLIN SECURITIES, INC.

The date of this prospectus is , 2002.

[MONTANA MILLS BREAD TRADEMARK]

[Photo of table set with a loaf of [Photo of loaves of bread,
bread on a cutting board, muffins, cookies and wheat]
Montana Mills knife, coffee
cake, scones, muffins, jam, juice
and a Java Joe's coffee mug]

[Montana Gold Wheat Trademark] [Photo
Suzy & Gene [Montana Mills Bread
O'Donovan Trademark]
Montana Mills
Bread Company]

Naturally Harvested Free Slices!
Milled Fresh Daily All The Time, Any Time.

[Photo of Gift Box containing [Photo of interior of village
loaves of bread, cookies, jam and bread store counter with sales
Montana Mills knife] associate distributing free
slice of bread]

TABLE OF CONTENTS

Prospectus Summary.......................................... 1
Summary Financial Information............................... 6
Risk Factors................................................ 9
Special Note Regarding Forward-Looking Statements........... 18
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Capitalization.............................................. 20
Dilution.................................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 22
Business.................................................... 29
Legal Proceedings........................................... 43
Management.................................................. 44
Certain Transactions........................................ 50
Principal Stockholders...................................... 52
Description of Securities................................... 54
Shares Eligible For Future Sale............................. 59
Underwriting................................................ 60
Legal Matters............................................... 62
Experts..................................................... 62
Where You Can Find More Information......................... 63
Index to Financial Statements............................... F-1

Montana Mills Bread (TM), Montana Gold(R), Flour Power (TM),
Breader (TM), Breadit (SM) and montanamills.com (TM) are trademarks or
servicemarks of ours. Java Joe's(R) is a registered trademark of Siempre Caffe,
Inc. This prospectus also includes product names, trade names, trademarks and
servicemarks of other companies.

PROSPECTUS SUMMARY

The following summary may not contain all of the information that may
be important to you. Before making a decision to purchase our securities, you
should read this entire prospectus, including the audited consolidated financial
statements and related notes and risk factors.

ABOUT US. We own and operate upscale "village bread stores" in the
Northeastern and Midwestern United States that produce and sell a variety of
baked goods and satellite cafes that sell the items we bake at our village bread
stores. Our 28 village bread stores and satellite cafes are located primarily in
suburban areas in New York, Ohio, Pennsylvania and Connecticut. We also own and
operate one permanent and several seasonal kiosks located in shopping malls that
also sell baked goods produced at our village bread stores.

We provide a special bakery experience through an open-view baking
format and a broad selection of all natural, freshly baked specialty and basic
breads, cookies, muffins and scones, our signature "Breader" sandwiches, and
coffee and other beverages we sell under the Java Joe's brand name. We also sell
gift baskets and boxes of our products and other retail items through our
internet and catalog operations.

OUR CULTURE. Our operating philosophy is to:

- vertically integrate production on-site at our village bread stores,
utilizing an open baking format that allows customers to watch and
experience the entire baking process and emphasizes the freshness and
quality of our baked goods;

- provide high quality, all-natural fresh bread and baked goods to
customers at all of our locations;

- offer a broad array of proprietary products; and

- provide and emphasize exceptional customer service.

OUR FOCUS. We differentiate Montana Mills from our competitors by:

- focusing predominantly on bread and other bakery items, which
generated approximately 72% of our sales during our fiscal year ended
January 30, 2002;

- baking all of our products fresh daily from scratch, using basic
ingredients such as Montana spring wheat milled by us fresh each day;

- offering a menu of proprietary products consisting of more than 80
different breads and dozens of other products;

- providing superior customer service, including our policy to greet
each customer with a free, fresh slice of bread the "size of
Montana"; and

- continually updating our customer service initiatives to create a
neighborhood and community feeling and build goodwill.
1

OUR GROWTH STRATEGY. We intend to capitalize on our competitive
advantages and positive industry dynamics and build a widely recognized and
respected brand name by:

- Further penetrating new and existing markets. We intend to open
additional stores in existing and new markets.

- Continuously improving the experience of our customers. We plan to
continue to provide value to our customers by constantly expanding
our product offerings and further improving our prompt, courteous
service and pleasant customer-service oriented atmosphere.

- Further developing our catalog and internet programs. We intend to
substantially grow our catalog and internet businesses to generate
additional revenue and increase awareness of the Montana Mills brand
name. We believe that we can use our catalog to direct customers to
our website.

- Franchising and establishing relationships with other retailers. We
intend to diversify our customer base and expand our operations into
new geographic areas by franchising our stores. We also intend to
explore opportunities to distribute our products through other
retailers.

- Exploring acquisitions. Due to the fragmented nature of our
industry, we believe a significant opportunity exists for
consolidation. We intend to examine potential acquisition
opportunities as they arise and will consider the acquisition of
existing companies where we believe the potential exists for
achieving economies of scale, increasing the recognition of the
Montana Mills brand name or where we would receive another benefit.

THE OFFERING

SECURITIES OFFERED............ 2,000,000 shares of our common stock and
2,000,000 purchase warrants. Each purchase
warrant will entitle you to purchase one share
of our common stock for $ (150% of
the combined offering price of one share of
common stock and one purchase warrant) during
the period beginning 90 days after the date of
this prospectus and ending on the fifth
anniversary of the date of this prospectus. We
may redeem the purchase warrants, with our
underwriter's prior consent, at any time after
they become exercisable, for $.01 per purchase
warrant on not less than 30 days' prior written
notice if the last sale price of our common
stock is at least 200% of the then-current
exercise price of the purchase warrants
(initially $ ) for the 20
consecutive trading days ending on the third
day prior to the date on which such notice is
given.
2

COMMON STOCK OUTSTANDING PRIOR
TO THE OFFERING............... 5,630,385 shares

COMMON STOCK TO BE
OUTSTANDING AFTER THE
OFFERING...................... 7,630,385 shares

PURCHASE WARRANTS TO BE
OUTSTANDING AFTER THE
OFFERING...................... 2,000,000 purchase warrants

USE OF PROCEEDS............... At an assumed initial offering price of $5.20
per share of common stock and $.05 per purchase
warrant, we estimate that we will receive
approximately $8,600,000 in net proceeds after
deducting commissions and offering expenses.

We intend to use approximately $8,100,000 of
the proceeds of the offering for working
capital and general corporate purposes
(including opening new stores and expanding our
catalog and gift operations) and the remaining
$500,000 to develop our franchise operations
infrastructure.

PROPOSED AMERICAN STOCK
EXCHANGE SYMBOLS.............. Common stock: MMX
Purchase warrants: MMX.W

CORPORATE INFORMATION......... We were founded in 1996 and reincorporated as a
Delaware corporation in 1998. Our principal
executive offices are located at 2171 Monroe
Avenue, Suite 205A, Rochester, New York 14618,
and our telephone number is (585) 242-7540. Our
web site address is www.montanamills.com. The
information contained in our web site is not a
part of this prospectus.

CERTAIN TERMS USED IN THIS
PROSPECTUS.................... In this prospectus "common stock" refers to our
common stock, par value $.001 per share, and
"purchase warrants" refers to the redeemable
common stock purchase warrants being sold in
the offering. We refer to our common stock and
purchase warrants as our "securities."

Except as set forth in the financial statements or as otherwise
specifically stated, all information in this prospectus assumes:

- that the price per share of common stock in the offering will be
$5.20 and that the price per purchase warrant will be $.05;

- no exercise of the purchase warrants offered by us in the offering;
3

- no exercise of our underwriter's over-allotment option to purchase up
to 300,000 shares of our common stock and/or 300,000 purchase
warrants;

- no exercise of our underwriter's purchase option to purchase up to
200,000 shares of our common stock and/or 200,000 purchase warrants;

- no exercise of 500,000 shares of our common stock reserved for
issuance under our 1998 stock option plan, of which 3,000 shares were
subject to options granted as of March 31, 2002 at a weighted average
exercise price of $10 per share;

- no exercise of 700,000 shares of our common stock issuable to Eugene
O'Donovan, our president and chief executive officer, upon exercise
of options to be granted to Mr. O'Donovan prior to the effective date
of the offering outside our 1998 stock option plan at an exercise
price equal to the exercise price of the purchase option we will
issue to our underwriter on the closing date of the offering;

- no exercise of outstanding warrants to purchase 148,062 shares of our
common stock issued to two of our advisors in connection with
previous financings, at a weighted average exercise price of $5.33
per share;

- that the holders of all of our outstanding shares of series A
convertible preferred stock do not elect to receive accrued but
unpaid dividends ($25,000 as of March 31, 2002) in shares of our
common stock;

- that Cephas Capital Partners, L.P. does not convert its $2,000,000
convertible promissory note into 384,615 shares of our common stock
at a conversion price equal to the offering price per share of our
common stock;

- the issuance of 15,000 shares of our common stock and payment of
$20,000 to Cephas Capital Partners in conjunction with the
modification of its convertible promissory note to, among other
things, lower the annual interest rate to 8%;

and reflects:

- a contribution to our capital of 738,172 shares of our common stock
by Eugene O'Donovan and Susan O'Donovan, our executive vice
president, at the closing of the offering;

- the conversion of all of our outstanding shares of series A
convertible preferred stock into 480,769 shares of our common stock
at the closing of the offering at a conversion price equal to the
offering price per share of our common stock; and

- the conversion of all of our outstanding subordinated convertible
debentures into 872,788 shares of our common stock on the effective
date of the offering at a conversion price equal to the offering
price per share of our common stock and a corresponding elimination
of our interest expense associated with those debentures.
4

LOCK-UPS OF EXISTING SECURITYHOLDERS

All of the holders of our outstanding securities, including the holders
of our series A convertible preferred stock, the holders of our subordinated
convertible debentures and Cephas Capital Partners, have agreed not to transfer
the shares of our common stock beneficially owned by them for a period of either
13 or 24 months following the effective date of the offering.
5

SUMMARY FINANCIAL INFORMATION

The following summary of our historical consolidated statements of
operations and balance sheet data as of January 30, 2002, for the eleven-month
fiscal year from February 28, 2000 through January 31, 2001 and for the year
ended January 30, 2002 are derived from audited historical financial statements
included elsewhere in this prospectus. During our fiscal year ended January 31,
2001, we changed our fiscal year end from the Sunday closest to February 28 of
each year to the Wednesday closest to January 31 of each year. You should be
aware of the differences in these two fiscal years prior to making any
comparisons.

The summary unaudited pro forma financial data give effect to the
conversion of all of our outstanding series A convertible preferred stock and
subordinated convertible debentures into shares of our common stock, the
contribution to our capital by Eugene O'Donovan and Susan O'Donovan of a portion
of our common stock owned by them, the issuance of 15,000 shares of our common
stock to Cephas Capital Partners and the payment of $20,000 to Cephas Capital
Partners in conjunction with the modification of its convertible promissory note
to, among other things, lower the annual interest rate to 8%. The summary
unaudited pro forma consolidated statement of operations data for our fiscal
year ended January 30, 2002 give effect to these transactions as if they
occurred at the beginning of that fiscal year. The summary unaudited pro forma
consolidated balance sheet data as of January 30, 2002 give effect to these
transactions as if they occurred on January 30, 2002. The summary unaudited pro
forma financial data do not purport to represent what our results of operations
or financial position would actually have been had these transactions, in fact,
occurred on the assumed dates and are not necessarily indicative of our results
of operations or financial position for any future periods.
6

You should read this information together with our consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus and the information under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.

FISCAL YEAR ENDED
--------------------------------------------
JANUARY 31, 2001 JANUARY 30, 2002
---------------- -------------------------
ACTUAL ACTUAL PRO FORMA
---------------- ----------- -----------
(UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Sales.................................................. $7,614,039 $10,812,453 $10,812,453
---------- ----------- -----------
Income from operations before pre-opening and
grand-opening expenses and depreciation and
amortization expenses(1)............................. 884,860 503,594 533,594
Pre-opening and grand-opening expenses................. 437,548 985,148 985,148
Depreciation and amortization.......................... 221,574 486,203 486,203
---------- ----------- -----------
Income (loss) from operations.......................... 225,738 (967,757) (937,757)
Interest income........................................ 235,420 155,470 155,470
Financing costs........................................ (418,808) (760,897) (164,682)
---------- ----------- -----------
Income (loss) before income taxes...................... 42,350 (1,573,184) (946,969)
(Benefit from) provision for income taxes.............. 9,972 (615,480) (363,846)
---------- ----------- -----------
Net income (loss)(2)................................... $ 32,378 $ (957,704) $ (583,123)
========== =========== ===========

Series A convertible preferred stock dividends......... (275,000) (300,000) -0-
---------- ----------- -----------
Net loss applicable to common stockholders............. $ (242,622) $(1,257,704) $ (583,123)
========== =========== ===========
Basic and diluted loss per common share applicable to
common stockholders.................................. $ (.05) $ (.25) $ (.10)
---------- ----------- -----------
Weighted average common shares outstanding............. 5,000,000 5,000,000 5,630,385
---------- ----------- -----------

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

(1) We consider income from operations before pre-opening and grand-opening
expenses and depreciation and amortization expenses to be an important
measure of performance for our business. We believe that in order to
facilitate a better understanding of our consolidated operations, this
caption should be considered in conjunction with income (loss) from
operations and net income (loss) as presented above. However, this measure
should not be regarded as an alternative to, or more meaningful than, either
income (loss) from operations or net income (loss) in accordance with
accounting principles generally accepted in the United States.

(2) The pro forma consolidated net income (loss) does not give effect to an
extraordinary and non-recurring charge of approximately $235,000 associated
with the modification of the convertible promissory note held by Cephas
Capital Partners to occur on or prior to the closing of the offering.
7

The following table summarizes our balance sheet data as of January 30,
2002.

The summary unaudited pro forma data give effect to:

- the conversion of all of our series A convertible preferred stock
into 480,769 shares of our common stock at the closing of the
offering, based on a conversion price for each share of series A
convertible preferred stock equal to the offering price of our common
stock;

- the conversion of all of our outstanding subordinated convertible
debentures into 872,788 shares of our common stock net of $310,553 of
unamortized deferred financing costs at the effective date of the
offering, based on a conversion price for each subordinated
convertible debenture equal to the offering price of our common
stock;

- a contribution to our capital of 738,172 shares of our common stock
by Eugene O'Donovan and Susan O'Donovan.

The summary unaudited pro forma as adjusted data give further effect to
our receipt of estimated net proceeds of $8,600,000 from the sale of our
securities being offered pursuant to this prospectus.

AS OF JANUARY 30, 2002
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(UNAUDITED) (UNAUDITED)

CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $ 789,249 $ 769,249 $ 9,369,249
Total assets............................................ $9,471,870 $9,004,465 $17,604,465
Long-term debt, including current maturities............ $6,660,103 $2,121,603 $ 2,121,603
Series A convertible preferred stock.................... $2,500,000 $ -0- $ -0-
Total common stockholders' (deficit) equity............. $ (826,403) $5,744,692 $14,344,692
Outstanding common shares............................... 5,000,000 5,630,385 7,630,385

RISK FACTORS

An investment in our securities involves a high degree of risk. You
should carefully consider the risks described below before you decide to invest
in our securities. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial also may harm our business.

If any of the following events actually occur, our business could be
seriously harmed. In such case, the value of your investment may decline and you
may lose all or part of your investment. You should not invest in our securities
unless you can afford the loss of your entire investment.

RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU MAY EVALUATE US AND WE HAVE
EXPERIENCED LOSSES.

We began our operations in 1996 and your evaluation of us and our
prospects will be based on our limited operating history. Consequently, our
historical results of operations may not give you an accurate indication of our
future results of operations or prospects. Additionally, in the last fiscal
year, we experienced a net loss. We cannot assure you that these net losses will
not continue or that we will be able to achieve our expansion plans or achieve
profitability. If we continue to incur a net loss, the value of your investment
could decline significantly.

OUR GROWTH STRATEGY IS TO OPEN A SIGNIFICANT NUMBER OF NEW VILLAGE BREAD STORES
AND SATELLITE CAFES IN OUR EXISTING MARKETS AND IN NEW MARKETS. IF WE ARE NOT
ABLE TO ACHIEVE THIS PLANNED EXPANSION, OUR BUSINESS MAY SUFFER.

The success of our growth strategy and business will depend in large
part on our ability to open new village bread stores and satellite cafes and to
operate these locations profitably. We currently plan to open between 10 and 30
village bread stores and satellite cafes in the 24-month period following the
closing of the offering. Since we will be spending a significant portion of our
resources on pre-opening and grand-opening expenses and building our franchise
operations infrastructure, we may not have net income for at least the next two
years. If we are not able to achieve our expansion goals, we may not achieve
profitability, our business may suffer and the value of your investment could
decline significantly.

THE SUCCESS OF OUR PLANNED EXPANSION WILL DEPEND UPON NUMEROUS FACTORS, MANY OF
WHICH ARE BEYOND OUR CONTROL, INCLUDING OUR ABILITY TO:

- hire, train and retain qualified operational and other personnel;

- identify, obtain and develop suitable village bread store and
satellite cafe sites on favorable lease terms;

- establish our products in new markets;

- compete successfully in our existing markets; and

- manage growth in administrative overhead and distribution costs
likely to result if our expansion occurs as planned.

Any inability to implement our business strategy could have a material
adverse impact on our operating results.

Additionally, during our fiscal year ended February 27, 2000, we closed
a village bread store because it did not generate sufficient revenues and we
cannot assure you that additional village bread stores or other locations will
not be closed. The closing of additional stores could harm our business.

IF WE ARE NOT ABLE TO MANAGE OUR GROWTH EFFECTIVELY, OUR OPERATING RESULTS COULD
BE ADVERSELY AFFECTED.

We have grown significantly since our inception and intend to grow
substantially in the future. We have increased the number of our locations from
one village bread store in June 1996 to 28 village bread stores and satellite
cafes currently and we anticipate opening between 10 and 30 new village bread
stores and satellite cafes in the 24-month period following the closing of the
offering. Our existing management systems, financial and management controls and
information systems may not be adequate to support our planned expansion. Our
ability to manage our growth effectively will require us to continue to expend
funds to improve these systems, procedures and controls, which we expect will
increase our operating expenses and capital requirements. In addition, we must
effectively expand, train and manage our work force. We cannot assure you that
we will be able to respond on a timely basis to all of the changing demands that
our planned expansion will impose on our management and our existing systems,
procedures and controls. For any of these reasons, we could lose opportunities
or overextend our resources, which in turn could seriously harm our business.

COMPETITORS MAY BE ABLE TO COPY OUR BAKING AND PRESENTATION METHODS, WHICH MAY
HARM OUR BUSINESS AND OUR ABILITY TO ESTABLISH THE MONTANA MILLS BRAND NAME.

We consider our baking and presentation methods, including our
packaging and the design of the interior of our village bread stores and other
locations, to be essential to the appeal of our products and brand. We have not
applied to register all trademarks or trade dress in connection with these
features, and therefore in some circumstances we may not be able to rely on the
legal protections provided by trademark registration. Additionally, because we
do not hold any patents for our preparation methods or recipes or have
registered trademarks for all of the intellectual property we utilize, it may be
difficult for us to prevent competitors from copying our methods or recipes or
duplicating our other intellectual property. If we do not receive registration
for all trademarks for which we have applied or if our competitors copy our
preparation or presentation methods or recipes, the value of the Montana Mills
brand name may be diminished and our market share may decrease. In addition, our
competitors may be able to develop food preparation and presentation methods or
recipes that are more appealing to consumers than our methods. If any of these
events occur, our business could be seriously harmed.

THE HIGH GEOGRAPHIC CONCENTRATION OF OUR STORES EXPOSES US TO GREATER RISK THAN
IF WE WERE NOT SO CONCENTRATED.

We presently operate 21 village bread stores and satellite cafes in New
York, three in Pennsylvania, three in Ohio and one in Connecticut. We also
operate one permanent kiosk in a shopping mall in the Rochester, New York area.
The concentration of our village bread stores and satellite cafes in limited
geographic markets exposes us to a greater risk from regional economic downturns
than would be the case if we were not so geographically concentrated.

IF WE FAIL TO FURTHER DEVELOP AND MAINTAIN THE MONTANA MILLS BRAND NAME, OUR
BUSINESS COULD SUFFER.

We believe that maintaining and developing the Montana Mills brand name
is critical to our success and that the importance of brand recognition may
increase as a result of new or future competitors offering products similar to
ours. If our brand-building strategy is unsuccessful, our business could be
seriously harmed.

Our success in promoting and enhancing the Montana Mills brand will
depend on our continued ability to provide customers with high-quality products
and superior customer service. We cannot assure you that consumers will perceive
our products as being of high quality or our customer service as superior. If
they do not, the value of our brand name may be diminished, our ability to
implement our business strategy may be adversely affected and our business may
be seriously harmed.

NEW STORES MAY COMPETE WITH OUR EXISTING STORES.

The opening of additional village bread stores and satellite cafes in
current markets could cause competition between our new and our existing village
bread stores. Opening new village bread stores and satellite cafes may divert
sales from existing village bread stores and satellite cafes, which would cause
a decrease in same-store sales. This decrease could negatively affect the price
of our securities.

WE MAY EXPERIENCE PRICE VOLATILITY IN RAW INGREDIENTS, WHICH COULD RESULT IN
DECREASED PROFIT MARGINS.

We rely on food wholesalers for the bulk of our raw ingredients. Our
primary raw ingredients include commodity items such as wheat, honey, yeast,
cheese, eggs, milk, dried and canned fruits, nuts and coffee beans. The prices
of these ingredients are subject to various factors beyond our control,
including, for example, governmental regulations, energy costs and weather. We
do not engage in hedging activities and, with the exception of volume purchase
discounts, we cannot control the price of our raw materials. We may experience
decreased profit margins if we are unable to pass any increased cost of new
ingredients on to our customers, which in turn could adversely affect our
operating results.

IF WE FACE INCREASED COSTS OR LABOR SHORTAGES, OUR GROWTH AND OPERATING RESULTS
MAY BE ADVERSELY AFFECTED.

Our growth and continued success depends in part upon our ability to
attract, motivate and retain a sufficient number of qualified employees,
including village bread store and satellite cafe managers, bakers, customer
service representatives and staff. Qualified persons to fill these positions are
in short supply in the markets in which we operate. If a significant number of
our current managers, bakers or other employees were to leave, our business
operations could be seriously harmed. If we are unable to recruit and retain
sufficient numbers of qualified employees, we may be unable to open new village
bread stores or openings could be delayed.

Labor is a primary component in the cost of operating our business. As
of March 31, 2002, we employed 40 salaried and 393 hourly employees. We expend
significant resources in recruiting and training our employees. Employee
turnover for the fiscal year ended January 30, 2002 was approximately 25% for
salaried employees and 105% for hourly employees. If our turnover rates
increase, labor costs increase because of increases in competition for
employees, the federal minimum wage or employee benefits costs increase
(including costs associated with health insurance coverage), or if our employees
become unionized, our operating expenses will increase and our growth or results
of operations may be adversely affected.

THE LOSS OF EUGENE O'DONOVAN OR SUSAN O'DONOVAN OR OUR INABILITY TO RETAIN OTHER
SENIOR MANAGEMENT PERSONNEL COULD HARM OUR BUSINESS.

We are dependent to a large degree on the services of Eugene O'Donovan,
our president and chief executive officer, and Susan O'Donovan, our executive
vice president. Our operations may suffer if we were to lose either of their
services. Although we maintain term key person insurance on Mr. O'Donovan in the
amount of $5,000,000, we do not maintain a policy on Mrs. O'Donovan.

In addition, competition for qualified management in our industry is
intense. Many of the companies with which we compete for experienced management
personnel have greater financial and other resources than we do. If we are not
able to retain qualified management personnel or if a significant number of them
were to leave our employ, our business could be harmed.

IF WE ARE UNABLE TO CONTINUE LEASING OUR CURRENT STORE LOCATIONS OR OBTAIN
ACCEPTABLE LEASES FOR NEW LOCATIONS, OUR BUSINESS MAY SUFFER.

All of our village bread stores and satellite cafes are located on
leased premises. If we are unable to renew any leases on acceptable terms, or if
we are subject to substantial rent increases, our business could suffer. Because
we compete with other retailers for retail sites, we may not be able to obtain
new leases or renew existing leases on acceptable terms, or at all. If we are
unable to renew or obtain leases, our costs could increase and our operating
results could be harmed.

OUR OPERATING RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER, WHICH COULD CAUSE
OUR STOCK PRICE TO FLUCTUATE.

Our quarterly results of operations may be affected by, among other
things, our timing in opening new stores, recognition of franchise fees and the
fact that we may generate a larger portion of our revenues during the November
and December holiday season. Our results of operations also could be affected by
expenses associated with our expansion.

RISKS RELATED TO OUR INDUSTRY

CHANGES IN CONSUMER PREFERENCES OR DISCRETIONARY CONSUMER SPENDING COULD HARM
OUR BUSINESS.

Our success depends in part upon the popularity of our bakery and other
products and our ability to develop new items that appeal to consumers. Shifts
in consumer preferences, our inability to develop new menu items that appeal to
consumers, or changes in our menu that eliminate items popular with consumers
could harm our business. Our success also depends to a significant extent on
numerous factors affecting discretionary consumer spending, including economic
conditions, disposable consumer income and consumer confidence. Adverse changes
in these factors could reduce customer traffic or impose practical limits on
pricing, either of which could seriously harm our business.

OUR BUSINESS COULD BE HARMED BY LITIGATION OR PUBLICITY CONCERNING FOOD QUALITY,
HEALTH OR OTHER ISSUES, WHICH MAY CAUSE CUSTOMERS TO AVOID OUR PRODUCTS AND
RESULT IN LIABILITIES.

Our business is subject to litigation and complaints from customers or
government authorities relating to food quality, illness, injury or other health
concerns or operating issues. Litigation or complaints could diminish the value
of the Montana Mills brand name by damaging our reputation. Even if adverse
publicity about these allegations is not true, it could discourage customers
from buying our products. Because we emphasize freshness and quality, adverse
publicity relating to food quality or similar concerns may affect us more than
it would bakeries that compete primarily on other factors. Adverse publicity
also could divert the attention of our management from other business concerns.
Additionally, we could incur significant liabilities if a lawsuit or other claim
resulted in an adverse decision or in a settlement payment, and we would likely
incur substantial litigation costs regardless of the outcome of any matter.
Although we currently maintain product liability insurance, it is possible that
this insurance coverage may be insufficient or may cease to be available on
commercially reasonable terms, or at all.

COMPETITION IN OUR INDUSTRY IS FIERCE AND INCREASED COMPETITION FROM CURRENT OR
FUTURE COMPETITORS COULD HARM OUR BUSINESS.

We compete with other local bakeries, grocery stores, and bread-only
stores that supply fresh bread and other baked goods, and with other restaurants
and other companies that may develop restaurants and bakeries that operate with
similar or superior concepts to ours. Additionally, there are many
well-established regional and national competitors and potential competitors
that have substantially greater financial, marketing, personnel and other
resources than we do and which may provide additional competition for us as we
attempt to expand into other geographic locations. We also are subject to
competition from and compete with various cafes and coffee shops in the sale of
coffee beverages. If any of our current or potential competitors establish a
concept similar to ours or begin to compete directly with our concept in any of
our current or potential markets, our business could be seriously harmed.

IF CONSUMERS ARE AFRAID TO USE THE MAIL OR OTHER DELIVERY SERVICES, OUR CATALOG
AND GIFT BUSINESSES WILL SUFFER.

As a result of the Anthrax-laced letters sent following the September
11, 2001 terrorist attacks in New York City and Washington, DC, we experienced a
lower than anticipated increase in our revenues from catalog and gift sales. If
consumers become afraid to use the mail or other delivery services as a result
of chemical or biological terrorist actions, our catalog and gift businesses
could be seriously harmed.

IF WE ARE UNABLE TO OBTAIN REGULATORY APPROVALS, OR COMPLY WITH ONGOING AND
CHANGING REGULATORY REQUIREMENTS, OUR BUSINESS COULD BE HARMED.

All of our locations are subject to various local, state and federal
governmental regulations, standards and other requirements for food storage,
preparation facilities, food handling procedures, other goods manufacturing
practices requirements and product labeling. We also are subject to license and
permit requirements relating to health and safety, building and land use and
environmental protection. If we encounter difficulties in obtaining any
necessary licenses or permits or are unable to comply with ongoing and changing
regulatory requirements:

- our opening of new village bread stores and satellite cafes could be
delayed;

- our existing village bread stores and satellite cafes could be
temporarily or permanently closed; or

- our product offerings could be limited.

The occurrence of any of these problems could seriously harm our
business.

RISKS RELATED TO FRANCHISING

IF WE ARE UNABLE TO DEVELOP A SUCCESSFUL FRANCHISING SYSTEM, OUR GROWTH AND
SUCCESS WILL BE IMPEDED.

Our current growth strategy calls for us to begin franchising our
stores. Therefore, the continued growth of our business depends in part on the
success of our franchising strategy. We anticipate significant new store growth
from franchise agreements with local franchisees. Local franchisees may not have
access to the financial resources that they need to sustain the operations of
their franchised stores. Also, franchisees may not be able to negotiate
acceptable lease or purchase terms for store sites or obtain the necessary
permits and approvals or meet construction schedules. Any of these problems
could harm our brand name, slow our growth, impair our franchise and growth
strategy and reduce our anticipated franchise revenues, which in turn could
seriously harm our business.

WE MAY BE HARMED BY ACTIONS TAKEN BY OUR FRANCHISEES THAT ARE BEYOND OUR
CONTROL.

Our franchisees will operate as independent entities and will not be
our employees. We intend to provide training and support to franchisees, but the
quality of franchised store operations may be diminished by any number of
factors beyond our control. For example, franchisees may not successfully
operate stores in a manner consistent with our standards and requirements, or
may not hire and train qualified managers and other store personnel. These
shortcomings, if they occur, could harm our image and reputation and cause our
franchise revenues to decline, which could seriously harm our business.

WE WILL BE SUBJECT TO FRANCHISE LAWS AND REGULATIONS. OUR ABILITY TO DEVELOP NEW
FRANCHISED STORES MAY BE ADVERSELY AFFECTED BY THESE LAWS AND REGULATIONS, WHICH
COULD ADVERSELY AFFECT OUR GROWTH STRATEGY.

As a franchisor, we will be subject to regulation by the United States
Federal Trade Commission and state laws regulating the offer and sale of
franchises. Our failure to obtain or maintain approvals to sell franchises would
cause us to lose franchise revenues. If we are unable to sell new franchises,
our growth strategy will be harmed and our business could suffer. In addition,
state laws that regulate substantive aspects of our relationships with
franchisees may limit our ability to terminate or otherwise resolve conflicts
with our franchisees. Because part of our growth strategy is dependent on
franchising, any impairment of our ability to develop new franchised stores
could seriously harm our business.

RISKS RELATED TO THE OFFERING

THE OFFERING PRICE OF OUR SECURITIES IS ARBITRARY.

The offering price of our securities was arbitrarily determined by
negotiation between us and our underwriter and may not bear a direct
relationship to our assets,

earnings, book value, results of operations or any other objective standard. Our
securities may be overpriced.

WE HAVE BROAD DISCRETION AS TO THE USE OF THE NET PROCEEDS FROM THIS OFFERING
AND WE MAY USE THE PROCEEDS OF THIS OFFERING IN A MANNER WHICH YOU MAY NOT
APPROVE.

We have broad discretion as to the use of the net proceeds we will
receive from the offering. We cannot assure you that we will apply these funds
effectively or in a manner which you would approve, nor can we assure you that
the net proceeds from the offering will be invested in a manner that will yield
a favorable return. If we do not utilize the net proceeds of the offering
effectively, our business may be seriously harmed and the value of our
securities may decrease.

OUR PRINCIPAL STOCKHOLDERS WILL CONTINUE TO HOLD A SUBSTANTIAL PORTION OF OUR
STOCK AFTER THE OFFERING, WHICH MAY LEAD TO CONFLICTS WITH OTHER STOCKHOLDERS
OVER CORPORATE GOVERNANCE.

Eugene O'Donovan and Susan O'Donovan together will control
approximately 53.0% of our outstanding common stock after the offering. Mr. and
Mrs. O'Donovan therefore will be able to significantly influence all matters
requiring stockholder approval, including the election of directors and
significant corporate transactions, such as mergers or other business
combinations. This control means that purchasers of our securities being sold in
the offering will not be able to effectively influence the manner in which we
are governed and that a third party may be delayed or deterred from acquiring or
merging with us, which could reduce the market price of our securities.

THERE MAY BE SUBSTANTIAL SALES OF OUR COMMON STOCK AFTER THE EXPIRATION OF
LOCK-UP PERIODS, WHICH COULD CAUSE THE PRICE OF OUR STOCK TO FALL.

After the offering, 7,630,385 shares of our common stock will be
outstanding. All of the shares of our common stock sold in the offering will be
freely tradable, except for shares purchased by holders subject to lock-up
agreements or by any of our existing "affiliates," as that term is defined in
Rule 144 under the Securities Act, which generally includes officers, directors
or 10% stockholders. The remaining 5,630,385 shares of our common stock
outstanding after the offering will be restricted as a result of securities laws
and lock-up agreements that holders have signed that restrict their ability to
transfer our stock for either 13 or 24 months after the date of this prospectus.
Of our outstanding restricted shares, 1,495,967 will be available for sale in
the public market 13 months after the date of this prospectus, and 4,134,418
will be available for sale in the public market 24 months after the date of this
prospectus. Our underwriter may in its sole discretion, however, waive or permit
us to waive the lock-up at any time for any stockholder. Sales of a substantial
number of shares of our common stock could cause the price of our securities to
fall. Additionally, these sales also could impair our ability to raise capital
by selling additional securities.

OUR STOCK PRICE MAY BE VOLATILE BECAUSE OF FACTORS BEYOND OUR CONTROL. AS A
RESULT, YOU MAY LOSE ALL OR A PART OF YOUR INVESTMENT.

Our securities have not previously been publicly traded. Following the
offering, the market price of our securities may decline substantially. In
addition, the market price of our securities may fluctuate significantly in
response to a number of factors, many of which are beyond our control,
including:

- our ability to obtain securities analyst coverage;

- changes in securities analysts' recommendations or estimates of our
financial performance;

- changes in market valuations of companies similar to us; and

- announcements by us or our competitors of significant contracts, new
offerings, acquisitions, commercial relationships, joint ventures or
capital commitments.

Furthermore, in the past, companies that have experienced volatility in
the market price of their stock have been subject to securities class action
litigation. A securities class action lawsuit against us, regardless of its
merit, could result in substantial costs and divert the attention of our
management from other business concerns, which in turn could harm our business.

THE OFFERING IS RELATIVELY SMALL IN SIZE, WHICH COULD ADVERSELY AFFECT THE
MARKET PRICE OR TRADING VOLUME OF OUR SECURITIES.

An active public market for our securities may not develop or be
sustained after the offering. Only 2,000,000 shares of our common stock will be
issued as part of the offering (an additional 300,000 shares of our common stock
will be issued if our underwriter's over-allotment option is exercised in full)
and the offering is led by only one underwriter. These factors may prevent us
from obtaining much, if any, research coverage from market analysts after the
offering as might otherwise be obtained for an offering of greater size or for
one managed by several underwriters. The small size of the offering may
adversely affect the trading volume of our securities. As a result, you may be
unable to sell the securities you purchase in the offering at or above the
initial public offering price and the value of your securities could decline
significantly.

OUR ABILITY TO ISSUE PREFERRED STOCK MAY PREVENT A CHANGE IN CONTROL OF US EVEN
IF SUCH CHANGE OF CONTROL WOULD RESULT IN AN INCREASE IN OUR STOCK PRICE.

We are authorized to issue up to 687,500 shares of preferred stock.
These shares may be issued in one or more series and our board of directors may
determine the terms of any shares of newly issued preferred stock at the time of
issuance, without further stockholder action. These terms may include voting
rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. Any issuance of our preferred stock, depending upon
the rights, preferences and designations of these shares, may delay, deter or
prevent a change in control of us, or could result in the dilution of
17

the voting power of any of our common stock you purchase in the offering. We
have no present plans to issue any of our authorized but unissued shares of
preferred stock and we have agreed not to issue any shares of preferred stock
for one year after the offering without our underwriter's prior written consent.
In addition, certain "anti-takeover" provisions of Delaware law, among other
things, may restrict the ability of our stockholders to effect a merger or
business combination or to obtain control of us.

WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK IN THE PAST AND DO NOT INTEND TO
DO SO IN THE FUTURE.

We never have paid any dividends on our common stock. We also are
subject to an agreement with a lender of ours that restricts our ability to pay
dividends. Even if we were not subject to such restrictions, we would anticipate
that for the foreseeable future our earnings, if any, will be retained for use
in our business and that no cash dividends will be paid on our common stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this prospectus are forward-looking
statements that involve risks and uncertainties. In some cases, you can identify
forward-looking statements by our use of words such as "may," "will," "could,"
"should," "project," "believe," "anticipate," "expect," "plan," "estimate,"
"forecast," "potential," "intend," "continue" or the negative or other
variations of these words and other similar words. Forward-looking statements
involve known and unknown risks, uncertainties and other factors that could
cause our actual results, performance, achievements or industry results to
differ materially from any future results, performance or achievements expressed
or implied by these forward-looking statements. These risks, uncertainties and
other factors include, among others, those discussed in more detail under the
heading "Risk Factors" and elsewhere in this prospectus.

Our forward-looking statements are based on our current expectations,
intentions and beliefs as of the date of this prospectus. Although we believe
that the expectations reflected in our forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements or other future events. You should not place undue reliance on
our forward-looking statements.

USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately
$8,600,000 from the sale of the 2,000,000 shares of common stock and 2,000,000
purchase warrants being offered by us, assuming an initial public offering price
of $5.20 per share and $.05 per warrant, after deducting $1,260,000 for
underwriting discounts and commissions and our underwriter's non-accountable
expense allowance and estimated expenses of approximately $640,000. If our
underwriter exercises its over-allotment option in full, we will receive an
additional $1,386,000 from the sale of an additional 300,000 shares of our
common stock and 300,000 purchase warrants, after deducting $189,000 for
underwriting discounts and commissions and our underwriter's non-accountable
expense allowance.

The following table describes the expected allocation of the net
proceeds of the offering, assuming that our underwriter does not exercise its
over-allotment option:

APPLICATION OF PERCENTAGE OF
NET PROCEEDS NET PROCEEDS
------------------ -----------------

Working capital and general corporate purposes (including
opening new stores and expanding our catalog and gift
operations)............................................... $8,100,000 94.2%
Developing our franchise operations infrastructure.......... 500,000 5.8
---------- -----
Total............................................. $8,600,000 100.0%
========== =====

We will have significant discretion in the use of the net proceeds of
the offering. Investors will be relying on the judgment of our management
regarding the application of the proceeds of the offering. Until we use the net
proceeds as discussed above, we intend to invest the net proceeds from the
offering in short term direct obligations of the United States or Federal
agencies, in each case with maturities of less than one year, short term
certificates of deposit or other time deposits with banks or corporate bonds
with a Moody's or Standard & Poor's investment grade rating. We expect that the
proceeds from the offering will provide us with sufficient capital for at least
the next 18 months.

DIVIDEND POLICY

Other than $1,095,490 in cumulative cash dividends which we have paid
to the holders of our series A convertible preferred stock through March 31,
2002, we never have declared or paid any dividends on our capital stock. At or
prior to the closing of this offering, all of our issued and outstanding shares
of series A convertible preferred stock automatically will convert into shares
of our common stock and no additional dividends will accrue on these shares.
Additionally, the agreements executed in connection with the $2,000,000
convertible promissory note originally issued in 2000 to Cephas Capital Partners
restrict our ability to pay dividends on our capital stock as long as this note
is outstanding. Even if this restriction on the payment by us of dividends were
removed, we would intend to retain any future earnings we may have for future
growth. We do not anticipate paying any other cash dividends in the foreseeable
future.

CAPITALIZATION

The table below sets forth our capitalization:

- on actual basis as of January 30, 2002;

- on an unaudited pro forma basis reflecting: (i) the conversion of all
of our outstanding shares of series A convertible preferred stock and
outstanding subordinated convertible debentures into shares of our
common stock; (ii) the contribution to our capital by Eugene
O'Donovan and Susan O'Donovan of a portion of our common stock owned
by them; (iii) the issuance of 15,000 shares of our common stock to
Cephas Capital Partners; and (iv) unamortized bond issuance costs
recorded on our balance sheet that will be written off against common
stockholders' equity upon the conversion of our outstanding
subordinated convertible debentures; and

- on an unaudited pro forma as adjusted basis, giving effect to the
sale of the 2,000,000 shares of common stock and 2,000,000 purchase
warrants being offered by us, net of offering expenses.

JANUARY 30, 2002
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(UNAUDITED) (UNAUDITED)

Long-term debt, net of current portion.................. $6,625,685 $2,087,185 $ 2,087,185
---------- ---------- -----------
Series A convertible preferred stock -- $.001 par value;
actual -- 1,000,000 shares authorized, 312,500 shares
issued and outstanding; pro forma and pro forma as
adjusted -- 687,500 shares authorized, -0- shares
issued and outstanding................................ 2,500,000 -0- -0-
---------- ---------- -----------
Common stockholders' equity (deficit):
Common stock -- $.001 par value; 15,000,000 shares
authorized; actual -- 5,000,000 shares issued and
outstanding; pro forma -- 5,630,385 shares issued and
outstanding; pro forma as adjusted -- 7,630,385 shares
issued and outstanding................................ 5,000 5,630 7,630
Additional paid-in capital.............................. -0- 6,805,317 15,403,317
Accumulated deficit..................................... (831,403) (1,066,255) (1,066,255)
---------- ---------- -----------
Total common stockholders' equity (deficit)............. (826,403) 5,744,692 14,344,692
---------- ---------- -----------
Total capitalization.................................... $8,299,282 $7,831,877 $16,431,877
========== ========== ===========

DILUTION

When you purchase a share of our common stock, you will suffer
immediate per share "dilution" in an amount equal to the difference between the
price you paid per share and the net tangible book value per share after the
offering. Net tangible book value per share represents the amount of our
tangible assets less the amount of our liabilities divided by the number of
shares of our common stock outstanding.

As of January 30, 2002, our net tangible book value available to our
common stockholders was $(1,704,558), or $(0.34) per share of our common stock.
Our net

tangible book value per share is based upon 5,000,000 shares outstanding as of
January 30, 2002.

As of January 30, 2002, our pro forma net tangible book value would
have been $5,313,942, or $0.94 per share of common stock. Our pro forma net
tangible book value gives effect to the conversion of all of our outstanding
series A convertible preferred stock into 480,769 shares of our common stock,
the conversion of all of our outstanding subordinated convertible debentures
into 872,788 shares of our common stock and the contribution of an aggregate of
738,172 shares of our common stock to our capital by Eugene O'Donovan, our
president and chief executive officer, and Susan O'Donovan, our executive vice
president, and the issuance of 15,000 shares of our common stock and payment of
$20,000 to Cephas Capital Partners. Our pro forma net tangible book value per
share is based upon 5,630,385 shares of our common stock outstanding.

Giving effect to the issuance of 2,000,000 shares of common stock and
2,000,000 purchase warrants offered by us at an assumed initial public offering
price of $5.20 per share and $.05 per purchase warrant (after the deduction of
estimated underwriting discounts and offering expenses payable by us), our net
tangible book value on a pro forma as adjusted basis, as of January 30, 2002,
would have been $13,913,942, or $1.82 per share. This represents an immediate
increase in net tangible book value of $0.88 per share to our existing
stockholders and an immediate dilution of $3.38 per share to investors in the
offering.

The following table illustrates this dilution per share of common stock
as of the closing of the offering in an adjusted pro forma net tangible book
value basis:

Assumed initial public offering price per share............. $5.20
Net tangible book value per share available to common
stockholders as of January 30, 2002.................... $(0.34)
Increase attributable to pro forma adjustments before
offering............................................... $ 1.28
------
Pro forma net tangible book value per share before
offering.............................................. $ 0.94
Increase per share attributable to new investors in the
offering.............................................. $ 0.88
------
Pro forma net tangible book value per share after the
offering.................................................. $1.82
-----
Dilution per share to new investors in the offering......... $3.38
=====

The following table shows the number of shares of our common stock to
be owned following the offering by existing securityholders and the new
investors in the offering:

SHARES PURCHASED TOTAL CONSIDERATION
------------------- ---------------------
NUMBER PERCENT AMOUNT PERCENT
--------- ------- ----------- -------

Existing securityholders.................... 5,630,385 73.79% $ 7,121,500 40.64%
New investors............................... 2,000,000 26.21% 10,400,000 59.36%
--------- ------ ----------- ------
Total............................. 7,630,385 100.00% $17,521,500 100.00%
========= ====== =========== ======

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of
operations should be read together with the financial statements and the
accompanying notes included elsewhere in this prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in those
forward-looking statements as a result of certain factors including, but not
limited to, those described under "Risk Factors" and included in the other
portions of the prospectus.

OVERVIEW

In 1998, we raised approximately $2,500,000 through a private placement
of our series A convertible preferred stock. Through our operating cash flow and
proceeds from this private placement, we began the further development of our
core Rochester, New York market and began expanding into additional adjoining
markets. Accordingly, we opened one village bread store in the Rochester, New
York market, two village bread stores in the Buffalo, New York market and one
village bread store in the Syracuse, New York market in the fiscal year ended
February 27, 2000.

In 2000, we raised approximately $6,538,500 through the private
placement of approximately $4,538,500 of subordinated convertible debentures and
a $2,000,000 convertible subordinated promissory note made in favor of Cephas
Capital Partners, L.P., a small business investment company. We used the net
proceeds of this private placement to continue our growth plan. In our eleven
month fiscal year February 28, 2000 through January 31, 2001, we opened two
village bread stores in the Albany, New York market, three satellite cafes in
the Rochester market, one satellite cafe in the Buffalo market and one
additional village bread store in the Syracuse market. In our fiscal year ended
January 30, 2002, we opened one village bread store in the Elmira, New York
market, one village bread store in the Binghamton, New York market and two
additional satellite cafes in the Rochester market. Upon completion of the
initial development of our concept in upstate New York's largest cities, we
conducted demographic surveys of potential new markets in Pittsburgh,
Pennsylvania, where we opened one village bread store in April 2001, Columbus,
Ohio, where we opened two village bread stores and one satellite cafe in August
through September 2001, and several other cities in late fiscal 2002, including
Hartford, Connecticut, where we opened one village bread store and Scranton and
Erie, Pennsylvania, where we opened two village bread stores. We intend to
continue to target regional cities in the Northeastern and Midwestern United
States to build our brand name before we consider entering major urban markets.
As of March 31, 2002, we operated 28 permanent locations, including 20 village
bread stores and eight satellite cafes. We also operate one year-round kiosk in
a shopping mall in the Rochester, New York market and expect to operate between
four and ten seasonal kiosks during the 2002 November and December holiday
season throughout our core markets.

You should read the following selected financial data in conjunction
with "Results of Operations" and "Liquidity and Capital Resources" below, the
consolidated financial statements and accompanying notes and the other financial
data included elsewhere in this prospectus.

The following table shows our selected financial data. The selected
historical statements of operations data for each of the fiscal years ended have
been derived from our audited consolidated financial statements, which are
included in this prospectus.

FOR THE
FISCAL YEAR FOR THE
FEBRUARY 28, FISCAL YEAR
2000 THROUGH ENDED
JANUARY 31, 2001 JANUARY 30, 2002
---------------- ----------------

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Sales....................................................... $7,614,039 $10,812,453
Cost of goods sold (exclusive of depreciation and
amortization)............................................. 3,498,069 5,386,722
---------- -----------
Gross profit................................................ 4,115,970 5,425,731
Selling, general and administrative expenses................ 3,231,110 4,922,137
Pre-opening and grand-opening expenses...................... 437,548 985,148
Depreciation and amortization............................... 221,574 486,203
---------- -----------
Income (loss) from operations............................... 225,738 (967,757)
Interest income............................................. 235,420 155,470
Financing costs............................................. (418,808) (760,897)
---------- -----------
Income (loss) before income taxes........................... 42,350 (1,573,184)
Provision for (benefit from) income taxes................... 9,972 (615,480)
---------- -----------
Net income (loss)........................................... $ 32,378 $ (957,704)
========== ===========

RESULTS OF OPERATIONS

The following historical financial data, discussion and analysis for
the two most recent fiscal years are derived from our audited consolidated
financial statements for our fiscal year ended January 30, 2002, which we refer
to as "fiscal 2002," and our fiscal year February 28, 2000 through January 31,
2001, which we refer to as "fiscal 2001". The data should be read in conjunction
with the audited consolidated financial statements and related notes included in
this prospectus.

FISCAL YEAR ENDED JANUARY 30, 2002 COMPARED WITH THE FISCAL YEAR FEBRUARY 28,
2000 THROUGH JANUARY 31, 2001

During our fiscal year ended January 31, 2001, we changed our fiscal
year-end from the Sunday closest to February 28 of each year to the Wednesday
closest to January 31 of each year. Our fiscal 2001 consists of the eleven-month
period from February 28, 2000 through January 31, 2001. Accordingly, the
following comparison for fiscal 2002 versus fiscal 2001 compares a twelve-month
period to an eleven-month period. This unequal comparison affects each of the
categories discussed below.

SALES. Sales for fiscal 2002 were $10,812,453, a 42% increase from
fiscal 2001 sales of $7,614,039. This increase was primarily attributable to
approximately $2,040,000
23

of additional sales from eleven new stores opened primarily in the last half of
fiscal 2002, an increase in sales of approximately $1,056,000 from seven stores
open a full year in fiscal 2002 compared to a partial year in fiscal 2001, and a
comparison of twelve months in fiscal 2002 with eleven months in fiscal 2001
offset by a 4% decline in comparable store sales as a result of the
cannibalization effect of new store additions in existing markets and general
economic conditions. Sales also increased as a result of the associated benefits
from newly introduced products, including sandwiches and coffee, which accounted
for 14% of sales in fiscal 2002. Total sales in established markets (markets
with stores opened in 2001 or prior) increased 19% in fiscal 2002 compared to
the previous year.

COST OF GOODS SOLD (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION). Cost
of goods sold and occupancy costs were $5,386,722 in fiscal 2002, a 54% increase
from $3,498,069 in fiscal 2001. This increase was primarily due to the addition
of eleven new stores, and the full-year costs related to seven stores open for a
full year in fiscal 2002 compared to a partial year in fiscal 2001. Cost of
goods sold and occupancy costs increased as a percentage of sales to 50% in
fiscal 2002 from 46% in fiscal 2001 primarily as a result of increased labor
costs in existing and new markets and increased product costs related to new
product offerings, including coffee, sandwiches, and other specialty bakery
items which in fiscal 2002 had a lower margin than our historical bakery
products.

GROSS PROFIT. Gross profit was $5,425,731 in fiscal 2002, a 32%
increase from $4,115,970 in fiscal 2001. Gross profit as a percentage of sales
decreased to 50% in fiscal 2002 from 54% in fiscal 2001 primarily as a result of
increases in cost of goods sold.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4,922,137 in fiscal 2002 (or 46% of sales), a 52%
increase from $3,231,110 in fiscal 2001 (or 42% of sales). Store selling
expenses increased primarily as a result of the addition of eleven new stores in
fiscal 2002 and a full year of expenses for the seven stores opened in fiscal
2001. Store selling expenses were $3,269,458 in fiscal 2002 (or 30% of sales), a
57% increase from $2,078,948 in fiscal 2001 (or 27% of sales) due primarily to
increased labor costs. Corporate general and administrative expenses increased
to $1,652,679 in fiscal 2002, a 43% increase from $1,152,162 for fiscal 2001.
The increase in general and administrative expenses was primarily due to
increases for corporate infrastructure including corporate office personnel to
support new store expansion and the effect of comparing a twelve-month period in
fiscal 2002 to eleven months for the previous period.

PRE-OPENING AND GRAND-OPENING EXPENSES. Pre-opening and grand-opening
expenses increased to $985,148 in fiscal 2002 from $437,548 for fiscal 2001, an
increase of 125%. The increase was primarily a result of the addition of
construction, administrative and training personnel to support the addition of
new stores in fiscal 2002 and current expenditures for future store development,
consisting primarily of site selection and lease negotiation fees. In addition,
we incurred increased costs as we expanded into Ohio, Connecticut and
Pennsylvania.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased to $486,203 in fiscal 2002 from $221,574 for fiscal 2001, an increase
of 119%. The increase
24

in depreciation and amortization was due to the effect of comparing a
twelve-month period in fiscal 2002 to approximately eleven months for the
previous period, and capital additions associated with existing and new store
expansion.

FINANCING COSTS, NET OF INTEREST INCOME. Interest payments increased
to $630,964 in fiscal 2002 from $347,484 in fiscal 2001, an increase of 82%. The
increase resulted from a full year of interest payments for fiscal 2002 compared
to a partial year of interest payments for the previous period on our
subordinated convertible debentures issued in fiscal 2001. Interest income
decreased to $155,470 in fiscal 2002 from $235,420 in fiscal 2001, a decrease of
34.0%. The decrease resulted from lower interest rates and reduced cash and cash
equivalent balances, partially offset by an increase due to the effect of
comparing a twelve-month period in fiscal 2002 to eleven months for the previous
period. Amortization of bond issue costs increased to $129,933 in fiscal 2002
from $71,324 in fiscal 2001, an increase of 82%. The increase resulted from a
full year of bond issue costs amortization for fiscal 2002 compared to a partial
year of bond issue costs amortization for the previous period on subordinated
convertible debentures and warrants issued in fiscal 2001.

PROVISION FOR (BENEFIT FROM) INCOME TAXES. The provision for (benefit
from) income taxes is based on the effective tax rate applied to the respective
fiscal years' pre-tax income. In fiscal 2002, the benefit from income taxes was
$615,480, representing a 39% effective tax rate, compared to a provision for
income taxes for fiscal 2001 of $9,972, representing a 24% effective tax rate.
The change primarily resulted from an increase in the loss before income taxes
to $1,573,184 in fiscal 2002 from income before income taxes of $42,350 in
fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $973,406 for fiscal 2002 and
net cash provided by operating activities was $598,937 for fiscal 2001. The
change resulted primarily from a decrease in gross profit, and increases in
corporate general and administrative expenses, pre-opening and grand-opening
expenses and interest payments on convertible debentures.

Net cash used in investing activities was $4,248,352 in fiscal 2002 and
$1,974,776 in fiscal 2001. Investing activities primarily consisted of capital
expenditures for property, plant and equipment related to new store expansion,
the purchase of a trademark and a net investment of excess cash of $518,258 in
short-term money funds.

Net cash used in financing activities was $335,563 in fiscal 2002 and
net cash provided by financing activities was $5,682,743 for fiscal 2001.
Financing activities in fiscal 2002 consisted primarily of the payment of
$300,000 in dividends to our series A convertible preferred stockholders.
Financing activities for fiscal 2001 consisted primarily of $5,983,838 in net
proceeds from the issuance of subordinated convertible debentures and the Cephas
Capital Partners convertible promissory note offset by the payment of $275,000
in dividends to our series A convertible preferred stockholders.

Since our formation, we have funded our liquidity needs generally
through a combination of operating cash and external capital. In 1998, we raised
approximately $2,500,000 through a private placement of our series A convertible
preferred stock, which will convert into our common stock automatically at the
closing of the offering. Our series A convertible preferred stock accrues a 12%
annual dividend (or $0.96 per year per share) payable at the discretion of our
board of directors. Dividends accrue and are payable when and if declared and
all unpaid dividends (approximately $25,000 at March 31, 2002) will be paid at
the closing of the offering. In 2000, we raised $6,538,500 through a private
placement of $4,538,500 of subordinated convertible debentures and a $2,000,000
convertible promissory note made in favor of Cephas Capital Partners. The
subordinated convertible debentures bear interest at an average rate of 8.7%,
depending upon the amount of principal invested, and interest is payable monthly
or quarterly, at our option. At or prior to the closing date of the offering,
the convertible promissory note will become subject to a lockup of thirteen
months, will bear interest at 8% per year (it currently bears interest at 12%
per year) and will be collateralized by all of our assets. However, Cephas
Capital Partners has agreed to subordinate its security interest to a senior
lender if we secure a senior finance facility. Of the $6,538,500 we have in
outstanding debt securities, the $4,538,500 in principal face value of
subordinated convertible debentures will automatically convert into shares of
our common stock on the effective date of the offering. The $2,000,000
convertible promissory note is convertible into shares of our common stock at
the price per share at which our common stock is sold to the public pursuant to
this prospectus.

The proceeds from these private placements were used to assist us in
our expansion into new and existing markets, build corporate infrastructure and
for general working capital purposes.

During fiscal 2002, we made an aggregate of $926,282 in dividend and
interest payments to our series A convertible preferred stockholders, Cephas
Capital Partners and our subordinated convertible debentureholders. In an effort
to conserve our current cash during the first quarter of fiscal year ending
January 29, 2003, we notified our series A convertible preferred stockholders
that dividends would no longer be declared and paid but that dividends would
accrue pending the effective date of the offering. We also notified our
subordinated convertible debentureholders that under the terms of the debentures
we switched from monthly to quarterly interest payments.

As of March 31, 2002, we had approximately $500,000 in cash and cash
equivalents and $250,000 in current income tax receivables. We are exploring
alternative methods of financing, including equipment lease financing and
short-term bank financing.

We believe proceeds from the offering will provide us with sufficient
capital for at least the next 18 months.

If we do not receive the proceeds from the offering, we believe we will
have sufficient resources to meet our current operating needs for our fiscal
year ending January 29, 2003.

SEASONALITY AND GENERAL ECONOMIC TRENDS. We anticipate that our
business will be affected by general trends that affect retailers. We do not
believe that we have operated during a period of high inflation. Based on our
experience, we expect to be able to pass on increased costs resulting from
inflation to our customers. Our business could be affected by increased wheat
prices, coffee prices, sugar prices, acquisitions of existing bakeries, weather,
marketing programs, variations in the number of store openings and general
economic conditions and diet trends. We have a significant number of employees
whose salaries are based on the minimum wage and any increase in the minimum
wage would have a significant impact on our operations.

TRANSACTIONS WITH RELATED PARTIES. Transactions with related parties
include the purchase of coffee and the leasing of three properties from entities
owned by Eugene O'Donovan, our president and chief executive officer and our
largest stockholder. We believe these arrangements are consistent in all
respects with other arrangements that could have been made with unaffiliated
third parties. For a more detailed discussion of these transactions, see
"Certain Transactions."

CONSOLIDATED CONTRACTUAL OBLIGATIONS AND LEASE COMMITMENTS. The table
below summarizes information about our consolidated contractual cash obligations
as of January 30, 2002 and the effects these obligations are expected to have on
our consolidated liquidity and cash flow in future years. The table does not
include a consulting agreement with our underwriter to be signed by us at the
closing of the offering, which will require us to make payments of $50,000 per
year for four years.

PAYMENTS DUE BY PERIOD
-------------------------------------------------------------------
LESS THAN AFTER
TOTAL 1 YEAR 1 TO 3 YEARS 4 TO 5 YEARS 5 YEARS
----------- ---------- ------------ ------------ ----------

Series A convertible preferred
stock(1)..................... $ 2,500,000 $ -0- $ 2,500,000 $ -0- $ -0-
Subordinated convertible
debentures(1)................ 4,538,500 -0- 4,538,500 -0- -0-
Convertible promissory
note(2)...................... 2,000,000 -0- 2,000,000 -0- -0-
Service related
obligation(1)................ 45,000 30,000 15,000 -0- -0-
Notes on vehicles.............. 78,603 34,418 44,185 -0- -0-
Operating lease obligations.... 8,080,982 1,057,461 1,954,778 1,847,122 3,221,621
----------- ---------- ----------- ---------- ----------
$17,243,085 $1,121,879 $11,052,463 $1,847,122 $3,221,621
=========== ========== =========== ========== ==========

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

(1) These obligations will be eliminated at or prior to the closing of the
offering, when our series A convertible preferred stock and subordinated
convertible debentures convert into shares of our common stock.

(2) On or prior to the closing of the offering, the Cephas Capital Partners
convertible promissory note will be modified and will become due and payable
on June 22, 2007.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In July 2001, the
Financial Accounting Standards Board, or FASB, issued SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that all business combinations be accounted for under the
purchase method only and that certain acquired intangible assets in a business
combination be recognized as

assets apart from goodwill. SFAS No. 142 requires that ratable amortization of
goodwill be replaced with periodic tests of the goodwill's impairment and that
intangible assets other than goodwill be amortized over their useful lives. SFAS
No. 141 is effective for all business combinations initiated after June 30,
2001, and the provisions of SFAS No. 142 are effective for all fiscal years
beginning after December 15, 2001. These statements will not have a significant
impact on our financial position or results of operations.

We adopted the provisions of Staff Accounting Bulletin, or SAB, No.
101, "Revenue Recognized in Financial Statements," on January 1, 2001. The
implementation of the provisions of SAB No. 101 did not have an impact on our
financial position or our results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting model for long-lived assets to be disposed of by sale and resulting
implementation issues. The statement requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001. We do not believe that the adoption of SFAS
No. 144 will have a material impact on our financial position or results of
operations.

CRITICAL ACCOUNTING POLICIES

An understanding of our accounting policies is necessary for a complete
analysis of our results, financial position, liquidity and trends. We focus your
attention on the following:

ASSET IMPAIRMENT. All long-lived assets are evaluated for impairment
on the basis of undiscounted cash flows whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impaired asset is written down to its estimated fair market
value based on the best information available. Estimated fair market value is
generally measured by discounting estimated future cash flows. Considerable
management judgment is necessary to estimate discounted future cash flows.
Assumptions used in these cash flows are consistent with internal forecasts.

INCOME TAXES. Our effective tax rate and the tax bases of our assets
and liabilities reflect our best estimate of the ultimate outcome of tax audits.
Valuation allowances are established where expected future taxable income does
not support the realization of the deferred tax assets. Considerable management
judgment is also necessary in estimating future taxable income. Assumptions used
in these estimates are consistent with internal forecasts.

BUSINESS

OVERVIEW

ABOUT US. Montana Mills was founded in June 1996 and reincorporated
as a Delaware corporation in 1998. Eugene O'Donovan, our president and chief
executive officer, and Susan O'Donovan, our executive vice president, designed
our unique village bread store concept that recreates a community-focused,
nostalgic, special bakery experience for customers. Through our subsidiaries, we
offer high quality, fresh boutique-style bread and other baked goods prepared in
small batches in an open-view baking format using fresh ingredients including
freshly ground wheat and dough made from scratch. All aspects of our baking
process are conducted in full view of customers to emphasize the homemade aspect
of our bread and other baked goods. We also sell our fresh bread and other
products at satellite cafes, which are small stores with up to 45 seats where
customers can enjoy fresh bakery products supplied by one of our nearby village
bread stores.

Our locations are decorated with and contain natural colors and hues,
maple counters and tables and educational, in-store displays to further
highlight our image of freshness and quality. Customers generally are greeted by
an employee and offered a free, fresh slice the "size of Montana" of one of any
breads available that day. In addition to bread, we also bake muffins, scones,
cookies, granola and other baked goods. We also offer sandwiches under the
"Breader" name and sell coffee beverages under the Java Joe's brand name. To
supplement our village bread stores and satellite cafes and expand our market
reach, we operate one permanent and several seasonal kiosks in upscale shopping
malls.

OUR STORES. As of March 31, 2002, we operated 28 permanent stores,
consisting of 20 village bread stores, eight satellite cafes and one permanent
kiosk. During the November and December 2001 holiday season, we operated seven
seasonal kiosks. We also have eight village bread stores and satellite cafes in
various stages of negotiation and development. We believe that we are positioned
to capitalize on our competitive advantages and favorable industry trends as we
implement our growth strategy.

OUR CULTURE. Our operating philosophy is to:

- vertically integrate production on site at our village bread stores,
utilizing an open baking format that allows customers to watch and
experience the entire baking process and reaffirms the freshness and
quality of our breads and baked goods;

- provide high quality, all-natural fresh bread and baked goods to
customers at all of our locations;

- offer a broad array of proprietary products; and

- provide and emphasize exceptional customer service.

OUR FOCUS. We are different from our competitors because we:

- focus predominantly on bread and other bakery items, which generated
approximately 72% of our sales during the fiscal year ended January
30, 2002;

- bake all of our products fresh daily from scratch, using basic
ingredients such as Montana spring wheat milled by us fresh each day
(our competitors often begin their baking process with refrigerated
or frozen dough purchased from commercial bakeries);

- offer a menu of proprietary products consisting of more than 80
different breads and dozens of other products (six to ten breads are
produced daily and production is rotated);

- provide superior customer service, including our policy to offer each
customer a free, fresh slice of bread the "size of Montana"; and

- continually update our customer service initiatives to create a
neighborhood and community feeling and build goodwill.

GROWTH STRATEGY

Our business strategy is to capitalize on our competitive advantages
and positive industry dynamics. Specifically, we plan to build a widely
recognized and respected brand name by further penetrating new and existing
markets, clustering new locations, continuously improving the experience of our
customers, further developing our catalog and internet sales, entering the
franchising market, exploring wholesaling to other retailers and cafes and
examining strategic acquisitions.

FURTHER PENETRATE NEW AND EXISTING MARKETS. Opening additional stores
in existing and new markets is the cornerstone of our effort to build a widely
recognized brand name. Since our inception, we have expanded upon our village
bread store locations to include satellite cafes, kiosks, the Java Joe's coffee
concept and a wide array of products, including baked goods and Breader
sandwiches.

- Build out of existing markets. We believe that clustering new
locations in existing markets will increase recognition of the
Montana Mills brand name and create a strong platform for a broad
regional expansion program. We intend to open new locations in core
markets that are geographically convenient to our Rochester, New York
headquarters. We believe that this strategy will assist us in
strengthening our brand name in our core markets.

- Penetrate new markets. Building on the strength of the Montana
Mills brand name in our core markets, we have identified a number of
cities throughout upstate New York, Pennsylvania, Ohio and
Connecticut to open new stores. We have conducted demographic surveys
of these locations and have determined that their populations fit our
profile for store development. In addition, we believe that these
markets have not captured the attention of larger, national bakery
chains. We believe that we can establish the Montana

Mills brand name and develop a loyal customer base in these areas,
thereby creating significant barriers to entry for competitors in
these markets.

CONTINUOUSLY IMPROVE THE EXPERIENCE OF OUR CUSTOMERS. In each of our
stores, we seek to provide value to our customers by continually expanding our
product offerings and further improving our prompt, courteous service and
pleasant customer-service oriented atmosphere.

- Expansion of product offerings. We continually create new products,
illustrated by our expansion from approximately 15 types of bread in
1996 to more than 80 types of bread and a wide array of baked goods,
coffee beverages and related products. We intend to continue to
maintain and improve our product offerings through customer surveys
and independent research designed to assess consumer demands and
preferences.

- Continuously improve customer service. We believe that superior
customer service is critical to achieving customer satisfaction and
operating success. We utilize comprehensive management training
programs to ensure that our employees provide customers with an
enjoyable experience during every store visit. An integral part of
this experience is our policy to greet each customer with a free
slice of bread the "size of Montana."

FURTHER DEVELOP OUR CATALOG AND INTERNET PROGRAMS. Our mail order
catalog and internet businesses represented approximately $648,000, or 6%, of
our total sales in our fiscal year ended January 30, 2002. We believe that
opportunities exist to grow our catalog and internet businesses substantially,
thereby generating additional revenue as well as expanding awareness of the
Montana Mills brand name. We also believe that we can utilize our catalog to
direct customers to our website, which received approximately 289,000 visits
(5,500,000 hits) during our fiscal year ended January 30, 2002. Our website was
awarded honors by The Rochester Business Journal in 2001 for the Best Home Page
and Best Overall Website in the small business category for Rochester-based
companies. On our website, customers may place online orders and view our
product offerings. Additionally, we intend to explore opportunities to further
capitalize on the corporate gift segment, which we believe can generate
significant revenues. Currently, corporate gifts do not represent a significant
component of our catalog or internet businesses. However, we intend to more
heavily promote our sales of corporate gifts after the offering.

FRANCHISING AND RELATIONSHIPS WITH OTHER RETAILERS

FRANCHISING. We intend to diversify our customer base and expand our
operations into new geographic areas by franchising our stores. Our franchise
strategy will be to grant franchisees the exclusive right and license to operate
our stores within a defined territory.

We intend to provide franchisees with stringent guidelines and
specifications for the operation of stores, initial training, and the use of our
name, service marks and proprietary marks. We will also assist franchisees with
identifying site locations and

provide franchisees with advice on advertising and other promotional techniques.
Our franchisees will be required to buy supplies from us or from alternative
suppliers that we have pre-approved. Additionally, our franchisees will be
required to purchase promotional materials, catalogs and various other products
from us.

We intend for our franchisees to bear the complete financial
responsibility for opening and operating franchised stores, including purchasing
insurance, hiring employees, entering into lease agreements and purchasing or
leasing equipment. In exchange for our services and the rights granted by
franchise agreements, franchisees will pay various fees to us.

We also intend for our franchisees to indemnify us and hold us harmless
from any liability, claim or judgment arising from their franchised business. We
will be able to terminate any franchise agreement upon the occurrence of events
of default, which will include a franchisee's failure to pay monies owed to us,
failure to maintain licenses, a franchisee's misuse of our service or
proprietary marks or a franchisee's insolvency. We have not entered into any
franchise agreements as of the date of this prospectus.

WHOLESALING WITH OTHER RETAILERS AND CAFES. We also believe that
opportunities exist for us to distribute our products through contractual
relationships with other retailers. Although we have not entered into any of
these relationships to date, we intend to vigorously explore opportunities as
they present themselves.

EXPLORE ACQUISITIONS. Due to the fragmented nature of the industry in
which we compete, we believe a significant opportunity exists for consolidation.
We intend to continuously examine potential acquisition opportunities as they
arise and will consider the acquisition of existing companies where we believe
the potential exists for achieving economies of scale, increasing the
recognition of the Montana Mills brand name or where completing an acquisition
will otherwise benefit our growth strategy or results of operations.

PRODUCTS

OVERVIEW. We offer more than 80 different varieties of bread and
dozens of other products. We bake six to ten types of bread per day according to
a weekly schedule that we distribute to our customers. Approximately every month
we introduce a new bread recipe that is offered as a weekly special generally
for one month. A new bread may be placed on the regular baking schedule if it
becomes popular with customers. Although we offer a broad range of baked goods,
we maintain a simple baking process, as all of our items can be baked in one
oven at one constant temperature. While fresh baked bread is the foundation of
our business, representing approximately 50% of our total revenues during the
fiscal year ended January 30, 2002, our product offerings also include:

- muffins, rolls and scones;

- cookies, brownies and mudbars;

- biscotti and coffee cakes;

- granola;

- "Breader" sandwiches;

- Java Joe's premium coffee beverages; and

- personal and corporate gift baskets and boxes which include baked
goods and other gift items such as bread knives, bread boards, jams
and mugs.

BREAD. The baking process for our whole wheat breads, muffins, rolls,
scones and cookies starts with fresh stone milled, high protein, chemical-free
Montana spring wheat. Bakers at each village bread store grind wheat flour on
the premises using a burr mill, which adds to freshness and enhances flavor.
Many of our breads have no added fats, oils, milk products, eggs, sugar or
artificial preservatives. A typical loaf weighs between one and a half and two
pounds. Each store's weekly menu of specialty and basic breads generally
includes from 20 to 30 types of bread ranging in price from $3.50 to $6.50 per
loaf. Our "Honey Whole Wheat," "Grandma's White" and "Cinnamon Swirl" breads are
baked daily in each store, while others are prepared on a rotating basis and
generally include a cheese bread, a savory bread, a fruit bread and a specialty
bread. Customers may make "bread reservations" up to ten days in advance
according to a weekly schedule. The variety of breads we offer is one of the key
ways in which we differentiate ourselves from our competitors.

BAKED GOODS. In addition to fresh-baked bread, we offer a broad range
of muffins, rolls, scones, cookies, brownies, mudbars, biscotti, coffee cakes
and granola. Similar to our bread baking process, our baked goods are prepared
from scratch and baked daily at each village bread store in full view of our
customers. On a daily basis, each village bread store also generally produces at
least two varieties of muffin, one variety of scone, two varieties of cookie,
mudbars, coffeecakes and granola. Prices for baked goods range from $1.25 for a
cookie to $10.95 for a coffee cake.

SANDWICHES. All of our village bread stores and satellite cafes offer
a variety of sandwiches under our signature "Breader" brand, including "Three
Forks Turkey," "Big Horn Roast Beef," "Ham and Cheese," "Harvest Veggie" and
"Sunburst Chicken Salad." Breader sandwiches are prepared daily on our fresh
baked bread. Breader sandwich prices range from $4.95 to $5.45.

COFFEE BEVERAGES. We offer coffee beverages under the Java Joe's
brand name, including flavored coffees, lattes, cappuccinos, chai teas and hot
chocolates. Our coffee beverage products generally lend a cafe-style atmosphere
to our village bread stores and satellite cafes and emphasize the neighborhood
feel of our stores.

GIFT ITEMS. We offer a wide range of personal and corporate gift
items through our in-store "Gift Corrals" and through our mail-order catalog and
website, including:

- gift boxes and baskets;

- bread;

- baked goods;

- Java Joe's coffee beverages;

- bread knives and slicers;

- cutting boards;

- mugs; and

- other food items such as jam, maple syrup and honey.

Our "Gift Corrals", found in most of our stores, help spur gift sales.
Our most popular gift items include specialty breads, baked goods, bread knives
and bread boards. Gifts range in price from $0.95 for a bag of fresh milled
flour to $37.95 for a hand-made maple bread board. In addition, we offer gift
baskets, each with a variety of goods, and "Bread of the Month" programs, which
allow for automatic home delivery of our products on a pre-determined schedule.
We ship gifts, including our fresh baked bread and baked goods, anywhere in the
continental United States.

STORE OPERATIONS

OVERVIEW. Our hours of operations are typically 7:00 a.m. to 7:30
p.m. Monday through Friday, 7:00 a.m. to 6:00 p.m. on Saturday and 7:00 a.m. to
5:00 p.m. on Sunday. A typical village bread store is approximately 1,500 to
2,500 square feet and positioned as a specialty retail store either in a village
setting or as a free standing, inline or build-to-suit location in or around an
existing retail center. To maximize brand exposure and profitability of village
bread stores in new markets, each village bread store consists of a full-service
retail bakery in one part of town and often includes one or more satellite cafes
with up to a 45-seat capacity in nearby locations. Most bread and baked goods
production occurs at the village bread store, and products are delivered by van
to satellite cafes up to three times daily. Staff at satellite cafes package
fresh baked goods for display and sale and also prepare fresh baked cookies and
muffins using fresh dough delivered from a village bread store. We also offer
Java Joe's coffee and coffee beverages at all but one of our village bread
stores and satellite cafes.

The following chart outlines our employee organization. We maintain
high operating standards by requiring that each location follow the procedures
set forth in our operations manuals.

DISTRICT MANAGER

The district manager reports directly to corporate
management, regularly visits all village bakeries,
satellite cafes and kiosks in his or her district,
monitors financial performance and ensures that store
managers adhere to our stringent operating standards.

GENERAL MANAGER

The general manager is responsible for
managing daily store operations.

HEAD BAKER CUSTOMER SERVICE SUPERVISOR

The head baker oversees the entire baking The customer service supervisor oversees
process, including the preparation of bread, all employee activities and acts as an
maintenance of oven cleanliness, the assistant to the general manager.
ordering of supplies and ingredients and the
training of other bakers.

SALES ASSOCIATES/ASSISTANT BAKERS

Sales associates and assistant bakers run counter
operations, serve customers, and assist with cashing-
out of registers, store closing and bakery operations.

VILLAGE BREAD STORES. At our village bread stores, a professional
head baker begins mixing dough and batter for our bread and other products
generally between 3:00 a.m. and 4:00 a.m. Another baker prepares muffins and
scones. At approximately 6:00 a.m., both bakers cut and hand knead the dough
before forming it into loaves, which are typically round. The loaves then
"proof" for up to 45 minutes before being baked for 40 to 45 minutes. During
regular hours, we generally employ between two to ten people in a village bread
store, depending on bakery size and overall customer traffic. During high volume
holiday seasons, hourly staff levels are increased to accommodate increased
customer traffic levels.

SATELLITE CAFES. In addition to our traditional, full-production
village bread stores, we have developed satellite cafes to act in a
hub-and-spoke format to fully penetrate our local markets. Satellite cafes carry
all of our products found in our village bread stores and are in a geographic
proximity so that they can benefit from the production capacity of our village
bread stores. Baked goods from our closest village

bread store are delivered to each satellite cafe several times daily. At each
satellite cafe, staff members also prepare fresh-baked cookies and muffins in a
convection oven using fresh dough supplied by a nearby village bread store.
During regular hours, we generally employ between two and six people in a
satellite cafe. During high volume holiday seasons, hourly staff levels are
increased to accommodate increased customer traffic levels.

SEASONAL KIOSKS. We supplement our village bread stores and satellite
cafes with temporary kiosks in select shopping malls during the November and
December holiday season. We also have one kiosk open permanently in a shopping
mall in Victor, New York which has generated consistent sales during non-holiday
times. A kiosk is only open during the hours when the mall in which it is
located is open. At least once a year, we review each kiosk location to
determine its eligibility as a permanent location. Kiosks are small, relatively
portable, require only a minimal investment and are staffed by one or two sales
associates. Baked goods from our closest village bread store are delivered to
each kiosk daily.

CATALOG AND MAIL ORDER. Generally holiday-related, our catalog and
mail order business is an important branding and marketing tool. Our catalog
allows customers to order our fresh baked breads and baked goods as well as gift
items. Customers can order our products from the catalog:

- through direct purchase at any of our store locations with the help
of our store staff;

- by calling our toll-free gift center; or

- by visiting our "www.montanamills.com" internet site.

Gifts can be picked up at one of our locations, delivered via local
courier for local delivery, or shipped anywhere in the continental United
States. We intend to continue to aggressively market our mail order business to
differentiate our products and we hope to continue to expand our catalog and
mail order offerings. During our fiscal year ended January 30, 2002, our
catalog, internet and mail order businesses generated approximately $648,000 in
revenues, representing 6% of our total revenues.

HIRING AND TRAINING. We believe attracting and retaining qualified
personnel is critical to ensuring high customer satisfaction. We typically
recruit general managers who have a minimum of two years of experience as a
store manager at a reputable food service company. At the district manager
level, we seek individuals who have a minimum of five to ten years of comparable
management experience.

All of our employees receive training that emphasizes product
knowledge, operating guidelines and sales techniques. New general managers are
required to complete a six-week training program, where they are instructed in
bakery operations, customer service, communication skills and employee
relations. General and district managers are required to work alongside
individuals in comparable positions before they may perform their duties without
supervision. Sales associates participate in twelve to sixteen hours of
side-by-side training and use training modules to test their knowledge of

our products and operations prior to assuming full responsibility. Our corporate
office regularly disseminates training bulletins to inform store managers and
sales associates about new products, special events and customer service tips.

INFORMATION SYSTEMS. We maintain a central computerized accounting
system which allows us to track the operating performance of each location. We
have stand-alone point-of-sale registers installed in each location that
transmit sales and payroll information via a secure internet connection directly
to our corporate office daily. This information enables us to analyze customer
purchasing habits, operating trends and promotional results.

MARKETING

We use the techniques set forth below to market the Montana Mills brand
name. We also draw customers to our stores using a community "grass-roots"
marketing approach that emphasizes our broad product offerings, the friendly,
healthy and wholesome nature of our products, our brand name and our good
neighbor policies.

- FREE, FRESH SLICES THE "SIZE OF MONTANA." Each customer is offered
a large, fresh, free slice of bread upon walking into one of our
village bread stores or satellite cafes. This allows us to test new
products and increase customer awareness of product offerings. Our
free slice policy also allows us to emphasize the neighborhood aspect
of our business.

- THE "BAKER'S ALMANAC." We mail our Baker's Almanac newsletter to up
to 70,000 customers every two to six months. The Baker's Almanac
serves to keep customers informed of our new product offerings and
helps keep the Montana Mills brand name in their minds. We believe
that the Baker's Almanac both promotes continued current customer
business and fosters word-of-mouth referral business.

- ADVERTISING. We selectively advertise store grand openings in local
publications to generate excitement in the community in which a new
store is being opened and to advertise new products and promotions in
our current markets.

- CATALOG ORDERS. We annually mail our full color catalog to over
140,000 customers. We also market our catalog to customers who visit
our stores. Our catalog is utilized most frequently during the
November and December holiday season by both corporate and retail
customers.

- INTERNET. Our internet site provides customers with a virtual
retail experience and is an important part of our marketing strategy.
Customers can order our fresh-baked breads and baked goods as well as
gift items through our internet site. Customers also can learn more
about our products, baking process and bread availability on our
internet site.

- COMMUNITY INVOLVEMENT. We receive publicity from our participation
in community events. In particular, each store donates all unsold
bread at the end of each day to local charities. We also have
sponsored fundraisers for

local organizations including the Rochester Philharmonic Orchestra,
Camp Good Days and Special Times, a camp for children suffering from
cancer, the Cystic Fibrosis Foundation and the Epilepsy Association.
As a result of our sponsorships, we have been the beneficiary of
independent articles published in community and regional newspapers
that have generated positive promotional momentum.

- "BREADIT" CARD FUNDRAISERS. Our Breadit cards assist school groups
and other not-for-profit organizations in fundraising activities.
Breadit cards are sold by these organizations for $10 each with up to
$5.40 of each card retained by the selling organization. Each Breadit
card entitles the holder to twelve "companion" loaves of bread (i.e.
"buy-one-loaf-get-one-free") and a thirteenth loaf free after a dozen
have been purchased.

PURCHASING AND SUPPLIERS

Our primary raw material is Montana spring wheat. We source our wheat
from a variety of growers in Montana and have an arrangement with Federal Bake
Mark to supply us with pre-sourced wheat products. Federal Bake Mark also
provides us with other dry foods such as sugar, yeast, and dried fruits and
nuts. Honey is supplied to us by local beekeepers. We have a relationship with
Sysco Food Service to provide us with all of the other products we need for
bread production, including eggs, milk, cheese and canned fruit. Store level
purchasing decisions from an approved list of suppliers are made by store
managers based on specific store needs. Our senior management also reviews
purchase orders and invoices. Each village bread store receives shipments of
supplies two or three times per week. While we have no direct purchase
agreements with suppliers, we believe there are several companies capable of
supplying each of our raw materials and products and anticipate being able to
continue to obtain raw materials and other products going forward.

MARKET AND SITE SELECTION STRATEGY

Our market and site selection strategy focuses on developing contiguous
regional markets. We utilize several criteria to select new markets for
expansion, including the selection of regional cities and suburbs with:

- long-term, community-oriented populations;

- a sustainable customer draw radius of three miles and of at least
50,000 people; and

- average household income of at least $45,000 (more in upscale
locations).

We believe that most of our existing core markets contain these
criteria. In identifying new markets, we also take into account the opportunity
to establish the Montana Mills brand name in areas where national chains have
not focused their attention.

Once we identify and target a new market, we generally will visit the
area several times in a three to six month period to study traffic patterns,
observe routine
38

daily life, evaluate competitors and glean information from local chambers of
commerce. Additionally, we prepare a detailed research report that summarizes
population, income, demographic and customer traffic statistics. Site-specific
factors considered in preparing a research report include traffic generators,
points of distinction, visibility, ease of access, proximity to direct
competition, access to utilities and local zoning regulations. Other site
characteristics we focus on include village settings, stand-alone locations,
strong traffic counts and complementary retailers.

The average construction, equipment, furniture, fixture and signage
costs for stores opened since inception was $253,000 ($267,000 for stores opened
in our last two fiscal years). Each village bread store location generally is
prepared for business within six months from the time of zoning approval.
Zoning, permits and building plans typically take two to three months. We
typically satisfy all zoning requirements before entering into a definitive
lease arrangement. Currently all of our locations are in leased premises. Lease
terms are typically five to ten years with one to three five-year renewal option
periods thereafter. Leases also usually have a minimum base occupancy charge and
charges for a proportional share of building operating expenses and real estate
taxes. Three of our locations include contingent percentage rent based on sales
above a stipulated sales level.

COMPETITION

Our stores compete with other local bakeries, grocery stores, and
bread-only stores that supply baked goods, and with other restaurants. Although
we believe that our products and stores are distinctive in design and operating
concept, other companies may develop restaurants and bakeries that operate with
similar or superior concepts. Additionally, there are many well-established
regional and national competitors that have substantially greater financial,
marketing, personnel and other resources than us and which may provide
additional competition for us as we attempt to expand into other geographic
locations. Some actual and potential competitors of ours include Atlanta Bread
Company(R), Panera Bread(R) Company, Corner Bakery Cafe(R), Big Sky Bread
Company(R), Breadsmith(R), Baker Street Bread Company, Au Bon Pain(R) and Great
Harvest Bread Co.(R) We also are subject to competition from and compete with
Starbucks(R), Peet's Coffee and Tea(R) and various other cafes and coffee shops
in the sale of coffee and coffee based beverages. We also compete for leased
space in desirable locations with a large variety of specialty retailers.

Despite the presence of these actual and potential competitors, we are
not aware of any competitor in the Northeastern or Midwestern United States that
is similar to us in terms of our overall concept. We believe that we compete on
the basis of innovative products and value-added experience rather than on
price, and that we distinguish ourselves from our competitors in terms of the
quality and variety of the bread, baked goods and other products we offer.
However, we cannot assure you that the proliferation of other boutique bakeries
or non-direct competitors will not have a negative affect on our
comparable-store sales growth, product sales mix, or profitability.

We also may be affected by changes in consumer tastes, national,
regional or local economic conditions, demographic trends, consumer confidence
in the economy, discretionary spending priorities, weather and traffic patterns.
Changes in these factors could seriously harm our business.

GOVERNMENT REGULATION

IN GENERAL. Our stores are subject to regulation by federal agencies
and to licensing and regulation by state and local health, sanitation, building,
zoning, safety, fire and other departments relating to the development and
operation of food preparation and service facilities. These regulations include
matters relating to environmental, building, construction and zoning
requirements and the preparation and sale of food. Our facilities also are
licensed and subject to regulation under state and local fire, health and safety
codes.

Our development and construction of additional village bread stores and
satellite cafes is subject to compliance with applicable zoning, land use and
environmental regulations. We cannot assure you that we will be able to obtain
necessary licenses or other approvals on a cost effective and timely basis to
construct and develop additional locations in the future.

AMERICANS WITH DISABILITIES ACT. We are subject to the Americans with
Disabilities Act of 1990, which, among other things, may require certain
renovations to stores to meet federally mandated requirements. We attempt to
build our stores in compliance with the Americans with Disabilities Act and do
not expect that the cost of any additional required renovations would
significantly harm our business.

LABOR. We also are subject to state and federal labor laws that
govern our relationship with our employees, such as minimum wage requirements,
overtime and working conditions, citizenship requirements and prohibitions
against discrimination. Increases in the minimum wage will increase our labor
costs and could negatively affect our results of operations.

FRANCHISING. Our franchising plans will be subject to the regulations
adopted by the United States Federal Trade Commission, or the FTC, and with
various state laws that regulate the offer and sale of franchises. The FTC's
Trade Regulation Rule on Franchising, or the FTC Rule, and certain state laws
require that we furnish prospective franchisees with a franchise offering
circular containing information prescribed by the FTC Rule and applicable state
laws and regulations. We also could become subject to a number of state laws
that regulate some substantive aspects of the franchisor-franchisee
relationship. These laws may limit a franchisor's ability to, among other
things, terminate or not renew a franchise without good cause, prohibit
interference with the right of free association among franchisees, disapprove
the transfer of a franchise, discriminate among franchisees with regard to
charges, royalties and other fees, and place new stores near existing
franchises.

TRADEMARKS

The "Montana Mills Bread" name is of material importance to us, and we
have an application pending to register the name and our logo as a trademark
with the United States Patent and Trademark Office. We also have a registered
trademark for the name "Montana Gold." We have applied to register the names
"montanamills.com," "Flour Power," "Breader" and "Breadit." Additionally, we
have the exclusive right to utilize the "Java Joe's" trademark in a retail
setting. We do not have any other trademarks or patents.

EMPLOYEES

As at March 31, 2002, we had 40 salaried and 393 hourly employees, of
whom sixteen salaried employees and one hourly employee were employed in general
and administrative functions principally at or from our executive offices in
Rochester, New York, and approximately 24 salaried and 392 hourly employees were
employed in production and distribution, and in our village bread stores,
satellite cafes and kiosks. None of our employees is represented by a labor
union. We consider our employee relations to be good.

PROPERTIES

We currently operate in leased facilities for all of our locations. Our
stores are located either in village locations, strip mall shopping centers or
as freestanding buildings. The remaining terms on our store leases range from
two to ten years, with renewal options for periods ranging from five to 25 years
at predetermined prices. The rental payments for these leases are based on a
minimum rental plus real estate taxes, insurance and other common area expenses.
Shorter term leases (generally less than six months) at shopping malls are
negotiated for our seasonal kiosks. We also lease three office suites for our
headquarters in Rochester, New York under a lease which renews automatically
March 1 of each year and provides for annual rental payments of $35,820. We can
cancel this lease with three months advance notice. We consider our physical
properties to be in good operating condition and suitable for the purposes for
which they are used. We maintain insurance on our properties in an amount we
believe is adequate.

Below is a list of all of our leased store locations:

NEW YORK

ALBANY AREA
- 592 Loudon Road, - 1638 Union Street, Schenectady
Newton Plaza, Latham (village bread (village bread store)
store)
BINGHAMTON AREA
- 2540 Vestal Parkway, Vestal (village bread store)
BUFFALO AREA
- 1701 Niagara Falls Blvd., - 227 Main Street,
K-Mart Plaza, Amherst (village bread East Aurora (satellite cafe)
store)
- 2611 Delaware Ave., Buffalo - 219-221 Buffalo St., Hamburg
(village bread store) (village bread store)
- 5601 Main St., Williamsville - 4927 Transit Road, Eastgate Plaza,
(village bread store) Clarence (village bread store)
ELMIRA AREA
- 2162 Grand Central Avenue, Horseheads (village bread store)
ROCHESTER AREA
- 1890 Monroe Avenue, - 6505 Brockport-Spencerport Road,
Twelve Corners, Brighton (village bread Brockport (village bread store)
store)
- 2633 West Ridge Road, - 2255 East Ridge Road, Culver Ridge
Greece (village bread store) Plaza,
Irondequoit (village bread store)
- 20 State Street, Pittsford (village - 1577 Howard Road, Gates (satellite
bread store) cafe)
- 210 Park Ave., Rochester (satellite - 1855 Empire Blvd., Webster (satellite
cafe) cafe)
- 395 South Main St., Canandaigua - Route 96, Eastview Mall, Victor
(satellite cafe) (kiosk)

SYRACUSE AREA
- 6790 East Genesee St., DeWitt - 318 Oswego St., Liverpool (village
(village bread store) bread store)
OHIO
COLUMBUS AREA
- 1756 West Lane Ave., Upper Arlington - 530 High Street, Worthington
(village bread store) (village bread store)
- 2651 East Main Street, Bexley
(satellite cafe)
PENNSYLVANIA
ERIE AREA
- 5442 Peach Street, Erie (village bread store)
PITTSBURGH AREA
- 3750 William Penn Highway, Monroeville (village bread store)
SCRANTON AREA
- 1504 Scranton-Carbondale Highway, Route 6, Dickson City (village bread store)
CONNECTICUT
HARTFORD AREA
- 332 N. Main St., West Hartford (village bread store)

LEGAL PROCEEDINGS

In February 2001, Coastal Construction, Inc., a general contractor,
brought an action against us in the Supreme Court of the State of New York in
connection with the remodeling of one of our stores. Coastal alleges contractual
damages of $138,211 and is seeking damages for defamation in the amount of
$1,000,000. We are vigorously opposing these claims and have asserted
counterclaims seeking damages in excess of $100,000.

From time to time in the ordinary course of business, we are involved
in other litigation. We are not presently involved in any other litigation we
deem to be material to our business.

MANAGEMENT

The following tables set forth information concerning our directors,
executive officers and key employees as of the date of this prospectus.

DIRECTORS AND EXECUTIVE OFFICERS:

NAME AGE POSITION
---- --- --------

Eugene O'Donovan.............. 42 president, chief executive officer and
chairman of the board of directors
Susan O'Donovan............... 37 executive vice president, secretary
and director
John Tate..................... 50 director
Samuel Lanzafame.............. 51 director
Edward L. Tackaberry.......... 51 director

KEY EMPLOYEES:

NAME AGE POSITION
---- --- --------

Richard Bernhart.............. 45 director of operations
Keith P. Bleier............... 32 corporate controller
Christine Caracci............. 41 human resources director
Richard Frank................. 41 director of marketing and store
development
Richard B. Gunn............... 42 director of real estate

EUGENE O'DONOVAN has served as our president, chief executive officer
and chairman of the board of directors since founding our company in June 1996
with his wife Susan O'Donovan, our executive vice president. From 1993 until
July 1996, Mr. O'Donovan held several executive management positions at
Warehouse Auto Centers, Inc., a Rochester, New York-based auto parts superstore
chain, most recently as its chief executive officer. Previously, Mr. O'Donovan
was a senior audit manager with PricewaterhouseCoopers LLP with whom he spent
nine years. Mr. O'Donovan was awarded an Ernst & Young LLP Entrepreneur of the
Year Award in 1999.

SUSAN O'DONOVAN has served as our executive vice president and
secretary since founding our company in June 1996 with her husband Eugene
O'Donovan, our president, chief executive officer and chairman of the board.
From April 1994 to June 1996, Mrs. O'Donovan was an independent accounting
consultant. From March 1992 until April 1994, Mrs. O'Donovan was an accounting
manager with Niagara Mohawk Corporation. Prior to March 1992, she held
supervisory positions with KPMG LLP, Citicorp and PricewaterhouseCoopers LLP.

JOHN TATE has served as a director since November 2001. Mr. Tate has
been employed by Krispy Kreme Doughnuts, Inc. since October 2000. He has served
as chief operating officer of Krispy Kreme since February 2002. From October
2000 until

February 2002, he served as chief financial officer and president of Krispy
Kreme Materials and Distribution, Inc. From July 1999 until October 2000, Mr.
Tate served as senior vice president and chief financial officer of
Williams-Sonoma, Inc., a home furnishing lifestyle retailer. From November 1997
until July 1999, Mr. Tate served as corporate chief financial officer for Dole
Food Company, Inc. He also served from January 1993 to November 1997 in two
senior vice president, chief financial officer positions for Dole in Europe and
Northern California. Mr. Tate served in a variety of financial and general
management positions with Ryder System, Inc. from May 1986 until December 1992.

SAMUEL LANZAFAME has served as a director since August 2001. Mr.
Lanzafame has served as a director of Alliance Financial Corp., a regional bank,
since 1988. From February 1989 until March 1992, Mr. Lanzafame served as
president of Cambridge Filter Corp., a manufacturer of high-efficiency air
filters. From November 1992 until March 1999, Mr. Lanzafame was president of CLS
Ltd., a utility-services company, and from July 1985 until December 1988, he
served as president of Oneida Ltd., a manufacturer of tableware products.

EDWARD L. TACKABERRY has served as a director since June 1998. Since
June 1994, Mr. Tackaberry has been a registered representative and principal of
Pittsford Capital Markets, Inc., a licensed broker-dealer and member of the
National Association of Securities Dealers, Inc. Pittsford Capital acted as our
placement agent for the 1998 sale of our series A convertible preferred stock
and the 2000 sale of our subordinated convertible debentures.

RICHARD BERNHART has served as director of operations since June 1999.
From March 1999 to June 1999, Mr. Bernhart was a consultant with AVI
Corporation, a professional training company. From August 1975 to February 1999,
Mr. Bernhart worked for Perk Development Corporation, which operated 42 Perkins
Family Restaurants in New York. Mr. Bernhart held a variety of positions at Perk
Development Corporation including vice president and president of operations and
training.

KEITH P. BLEIER has served as our corporate controller since September
1998. From January 1996 until September 1998, Mr. Bleier worked as a certified
public accountant holding a variety of positions, most recently as an accounting
and auditing manager, with Eldredge, Fox and Porretti LLP, a regional accounting
firm located in Rochester, New York. Previously, Mr. Bleier was a tax consultant
for PricewaterhouseCoopers LLP. Mr. Bleier is a certified public accountant in
New York State.

CHRISTINE CARACCI has served as our human resources director since June
1999. From April 1999 until June 1999, Ms. Caracci was the director of human
resources for Lewis Tree Service, a horticultural and vegetative service
organization with operations in 18 states. From December 1996 to April 1999, Ms.
Caracci was the director of human resources for Perk Development Corporation,
which operated 42 Perkins Family Restaurants in New York. From December 1983 to
September 1996, Ms. Caracci was the human resources director of ROW Corporation,
an employee leasing organization.

RICHARD FRANK has served as our director of marketing and store
development since September 2000. From April 1999 until September 2000, Mr.
Frank was the marketing and construction manager for World of Science, Inc., a
Rochester, New York based retailer of science and nature products. Before
joining World of Science on a full-time basis, from October 1996 until April
1999, Mr. Frank helped develop three private businesses in the Rochester, New
York area on a consulting basis. Prior to October 1996, Mr. Frank was in retail
management and supervision and developed marketing and merchandising concepts
for Wegman's Food Markets, a large retail grocery chain, and Bloch Industries, a
cabinet and fixtures manufacturer.

RICHARD B. GUNN has served as our director of real estate in a
consulting capacity since September 1998. At the closing of the offering, we
intend to make Mr. Gunn a full-time employee of ours. Since January 1992, Mr.
Gunn has been president and founder of The Charter Real Estate Group, a real
estate consultant for the Overland Trading Company, Hannoush Jewelers and
various other national retail companies. From September 1989 until December
1991, Mr. Gunn was a leasing agent for The Pyramid Companies of Syracuse, New
York, a real estate development company.

BOARD COMMITTEES

AUDIT COMMITTEE. The members of our audit committee are Messrs. Tate
and Lanzafame. Pursuant to our audit committee's written charter, which was
adopted on April 19, 2002, its responsibilities include, among other things:

- annually reviewing and reassessing the adequacy of the committee's
formal charter;

- reviewing our annual audited financial statements with our management
and our independent auditors and the adequacy of our internal
accounting controls;

- reviewing analyses prepared by our management and independent
auditors concerning significant financial reporting issues and
judgments made in connection with the preparation of our financial
statements;

- making recommendations concerning the engagement of the independent
auditor;

- reviewing the independence of the independent auditors;

- reviewing our auditing and accounting principles and practices with
the independent auditors and reviewing major changes to our auditing
and accounting principles and practices as suggested by the
independent auditor or our management;

- recommending the appointment of the independent auditor to the board
of directors, which firm is ultimately accountable to the audit
committee and the board of directors; and

- approving professional services provided by the independent auditors,
including the range of audit and nonaudit fees.

COMPENSATION COMMITTEE. The members of our compensation committee are
Messrs. Tate, Lanzafame and Tackaberry. Our compensation committee reviews and
recommends to our board of directors the compensation and benefits of all of our
officers and establishes and reviews general policies relating to employee
compensation and benefits. We have agreed with our underwriter that compensation
and other arrangements between us and our officers, directors and affiliates
will be subject to approval by our compensation committee, at least a majority
of whom shall be independent, for at least three years following the date of
this prospectus.

DIRECTOR COMPENSATION

Concurrent with the completion of this offering, we intend to grant
each of our directors options to purchase between 20,000 and 40,000 shares of
our common stock, depending on the number of board committees each director
serves on, under our 1998 stock option plan. These options will have an exercise
price per share of no less than the combined offering price of a share of our
common stock and a purchase warrant on the date of grant. The shares of our
common stock underlying these options will vest over a three-year period
commencing on the date of grant. We also reimburse our directors for
out-of-pocket expenses associated with their attendance at board of directors'
meetings.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

We are a Delaware corporation and are governed by the Delaware General
Corporation Law. Delaware law authorizes Delaware corporations to indemnify any
person who was or is a party to any proceeding other than an action by, or in
the right of, the corporation, by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation. The indemnity
authorized by Delaware law also applies to any person who is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or other entity. Indemnification applies against liability
incurred in connection with an indemnifiable proceeding, including any appeal,
if the person acted in good faith and in a manner he or she reasonably believed
to be in, or not opposed to, the best interests of the corporation. To be
eligible for indemnity with respect to any criminal action or proceeding, the
person must have had no reasonable cause to believe his or her conduct was
unlawful.

In the case of an action by or on behalf of a corporation,
indemnification may not be made if the person seeking indemnification is found
liable, unless the court in which the action was brought determines such person
is fairly and reasonably entitled to indemnification.

The indemnification provisions of Delaware law require indemnification
of a director, officer, employee or agent who has been successful in defending
any action, suit or proceeding to which he or she was a party by reason of the
corporation. The indemnity covers expenses actually and reasonably incurred in
defending the action.

The indemnification authorized under Delaware law is not exclusive and
is in addition to any other rights granted to officers and directors under the
certificate of

incorporation or bylaws of the corporation or any agreement between officers and
directors and the corporation.

Our certificate of incorporation and bylaws provide for the
elimination, to the fullest extent permissible under Delaware law, of the
liability of our directors to us for monetary damages. This limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief. Our bylaws also provide that we shall indemnify our directors
and officers against certain liabilities that may arise by reason of their
status or service as a director or as an officer, other than liabilities arising
from certain specified misconduct. We are required to advance all expenses
incurred as a result of any proceeding against our directors for which they
could be indemnified, including in circumstances in which indemnification is
otherwise discretionary under Delaware law.

Each of Eugene O'Donovan, our president and chief executive officer,
and Susan O'Donovan, our executive vice president, are parties to employment
agreements which provide that we will indemnify them against all liability, cost
and expense incurred as a result of their status as an employee or officer of
ours. Notwithstanding their employment agreements, Mr. and Mrs. O'Donovan are
not entitled to indemnification prohibited under Delaware law.

Currently, we are not aware of any pending litigation or proceeding
involving a director, officer, employee or other agent of ours in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
ours based on the foregoing provisions, or otherwise, we have been advised that,
in the opinion of the SEC, such indemnification is against public policy and is,
therefore, unenforceable.

EXECUTIVE COMPENSATION

The table below provides information concerning the total compensation
received for services rendered to us during the fiscal years indicated by our
president and chief executive officer and our executive vice president, the only
executive officers of ours who earned over $100,000 in the fiscal year ended
January 30, 2002. We refer to these two executives as the named officers.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
------------------------------------
NAMED OFFICER FISCAL YEAR SALARY BONUS
------------- ----------- -------- -----

Eugene O'Donovan................ 2002 $195,000 $-0-
2001 $182,250 $-0-
2000 $195,000 $-0-
Susan O'Donovan................. 2002 $175,000 $-0-
2001 $163,539 $-0-
2000 $175,000 $-0-

Salary figures for the named officers in fiscal 2001 reflect an
eleven-month fiscal year.

No options were granted to either named officer during any of the years
indicated.

Our named officers routinely receive other benefits from us which are
customary to similarly situated companies. We have concluded, after reasonable
inquiry, that the aggregate amount of these benefits in each of the years
indicated did not exceed the lesser of $50,000 or 10% of the compensation of
either named officer.

EMPLOYEE BENEFIT PLANS

1998 STOCK OPTION PLAN. In 1998, we established our 1998 employee and
non-employee director stock option plan. Under the terms of the plan, up to an
aggregate of 500,000 shares of our common stock are reserved for issuance to our
employees, directors, officers and consultants. Grants may be made in the form
of either incentive stock options or nonqualified stock options. Our
compensation committee is granted discretion to administer the plan. Options
granted to employees under the plan vest ratably over a four-year period
commencing with the date of grant, subject to adjustment by our compensation
committee. Options granted to directors under the plan vest ratably over a
three-year period commencing on the grant date of the options and are for a term
of ten years.

As of March 31, 2002, options to purchase 3,000 shares of our common
stock at a weighted average exercise price of $10 per share were outstanding
under the plan.

CHIEF EXECUTIVE OFFICER OPTIONS. Prior to the effective date of the
offering, we intend to grant Mr. O'Donovan a ten-year non-qualified option
outside of our 1998 stock option plan to purchase up to 700,000 shares of our
common stock. This option will have an exercise price equal to the purchase
price of one share of our common stock and one purchase warrant under our
underwriter's purchase option. Mr. O'Donovan's option will vest as follows:

- 250,000 options will vest if the price of our common stock exceeds
$7.50 per share for 20 consecutive days within two years after the
effective date of the offering;

- 250,000 options will vest if the price of our common stock exceeds
$10.00 per share for 20 consecutive days within four years after the
effective date of the offering; and

- 200,000 options will vest if the price of our common stock exceeds
$15.00 per share for 20 consecutive days within five years after the
effective date of this offering.

EMPLOYMENT AGREEMENTS

We intend to enter into the employment agreements described below with
each of Eugene O'Donovan and Susan O'Donovan.

EUGENE O'DONOVAN. Mr. O'Donovan's employment agreement, which will
become effective at or prior to the effective date of the offering, provides for
Mr. O'Donovan to be employed as our chief executive officer (he is currently our
president, chief executive officer and chairman of the board) for a term
expiring three years from the date of this prospectus at a salary of $180,000
per year, which reflects a reduction in his prior years' salary of $15,000. Mr.
O'Donovan's employment agreement will provide for annual cost of living raises
at the beginning of each new fiscal year. We will be able to terminate Mr.
O'Donovan's employment upon his death or disability, or for cause. If we
terminate Mr. O'Donovan's employment for cause, we will not have to pay him any
severance. If we terminate Mr. O'Donovan's employment without cause, he will be
entitled to his average salary for the twelve months preceding his termination
until the expiration of his employment agreement as well as the continued
payment of certain other expenses. Mr. O'Donovan's employment agreement will
also prevent him from competing with us for a period of two years following any
termination of his employment.

SUSAN O'DONOVAN. Mrs. O'Donovan's employment agreement, which will
become effective at or prior to the effective date of the offering, provides for
Mrs. O'Donovan to be employed as our executive vice president (she is currently
our executive vice president and secretary) for a term expiring three years from
the date of this prospectus at a salary of $175,000 per year. Mrs. O'Donovan's
employment agreement will be the same as Mr. O'Donovan's employment agreement in
all other material respects.

CERTAIN TRANSACTIONS

CONTRIBUTION OF SHARES

Eugene O'Donovan, our president and chief executive officer, and Susan
O'Donovan, our executive vice president, have agreed to contribute an aggregate
of 738,172 shares of our common stock owned by them to us as a capital
contribution prior to the date of this prospectus. Mr. and Mrs. O'Donovan will
make this capital contribution in response to a request by our underwriter to
limit the number of shares of our common stock outstanding on a fully diluted
basis on the date of this prospectus.

LICENSE AGREEMENT WITH JAVA JOE'S PUBLIC MARKET ROASTERY, INC.

In August 2000, we entered into an exclusive license agreement with
Siempre Caffe, Inc. to distribute and market Java Joe's brand name specialty
coffee and coffee beverages in a retail setting. Siempre Caffe has retained
ownership of the Java Joe's trademark and is an unrelated party. The license is
terminable upon the happening of certain events, such as our failure to cure any
non-performance by us under the license agreement or our insolvency or
bankruptcy. In November 2001, we began purchasing coffee from Java Joe's Public
Market Roastery, Inc., a corporation that is owned entirely by Mr. O'Donovan.
During our fiscal year ended January 30, 2002, we purchased $75,554 in primarily
whole and ground coffee beans from Java Joe's Public Market Roastery. We believe
that our arrangements with Java Joe's Public Market Roastery are consistent in
all respects with arrangements we could have made with an unaffiliated third
party. Mr. O'Donovan has agreed to sell prior to the closing of the offering the
assets or contribute all of the outstanding shares of common stock of Java Joe's
Public Market Roastery to us at his cost in capitalizing this company and
commencing its operations (approximately $30,000).

LEASE AGREEMENTS

WILLIAMSVILLE, NEW YORK. In October 1997, we entered into a lease
agreement for the premises on which our village bread store in Williamsville,
New York is located. The landlord, Mount Heaton Associates, LLC, is jointly
owned by Mr. and Mrs. O'Donovan. Mr. O'Donovan purchased the premises from the
prior owner, who was unwilling to lease the premises to us, in order to enable
us to secure a lease for this location. Mr. O'Donovan subsequently transferred
the lease to Mount Heaton Associates. In April 2002, the bank from which Mount
Heaton Associates obtained the mortgage for the premises released us as a
guarantor. We believe that the lease agreement with Mount Heaton Associates,
which provides for annual rent of $63,000, was consistent in all respects with
arrangements we could have made with an unaffiliated third party when the lease
was executed in 1997. This lease expires on September 30, 2008.

WORTHINGTON, OHIO. In November 2001, we entered into a lease
agreement with Generick Holdings, LLC for the premises on which our village
bread store in Worthington, Ohio is located. Generick Holdings is a limited
liability company 50% owned by each of Mr. O'Donovan and Richard B. Gunn, our
director of real estate. Generick Holdings purchased the premises from the prior
owner, who was unwilling to lease the premises to us, in order to enable us to
secure a lease for this location. We believe that the lease agreement, which
provides for annual rent of $50,000, is consistent in all respects with
arrangements we could have made with an unaffiliated third party. This lease
expires in November 2011.

ROCHESTER, NEW YORK. In February 2002, we entered into a
month-to-month lease agreement with 15 Pennsylvania Avenue LLC for purposes of
providing additional baking, purchasing and gift fulfillment space. 15
Pennsylvania Avenue LLC is owned by Mr. O'Donovan. We believe that the lease
agreement, which provides for annual rent of

$9,600 plus payment of utilities, is consistent in all respects with other
arrangements we could have made with an unaffiliated third party.

PRINCIPAL STOCKHOLDERS

The following table presents information regarding the beneficial
ownership of our common stock as of March 31, 2002, and as adjusted to reflect
the sale of common stock in this offering.

- each person who beneficially owns more than 5% of our common stock;

- each of our directors and named officers; and

- all current executive officers and directors as a group.

Beneficial ownership is determined under the rules of the SEC. These
rules deem common stock subject to options currently exercisable, or exercisable
within 60 days, to be outstanding for purposes of computing the percentage
ownership of the person holding the options or of a group of which the person is
a member, but these rules do not deem the stock to be outstanding for purposes
of computing the percentage ownership of any other person or group. To our
knowledge, the persons named in the table have sole voting and sole investment
control with regard to all shares beneficially owned. The applicable percentage
ownership for each stockholder before the offering is based on 5,630,385 shares
of our common stock outstanding immediately prior to the effective date of the
offering, which gives effect to the conversion of all of our series A
convertible preferred stock, the conversion of all of our outstanding
subordinated convertible debentures, the contribution to our capital by Eugene
O'Donovan and Susan O'Donovan of an aggregate of 738,172 shares of our common
stock and the issuance of 15,000 shares of our common stock to Cephas Capital
Partners. The percentages for after the offering give effect to our issuance of
the 2,000,000 shares of common stock being offered by us. The percentages for
after the offering do not give effect to the conversion of Cephas Capital
Partners' $2,000,000 convertible promissory note into 384,615 shares of our
common stock.

PERCENTAGE OF OUTSTANDING
SHARES TO BE OWNED
NUMBER OF -------------------------
SHARES BEFORE
BENEFICIALLY THE AFTER THE
NAME OWNED OFFERING OFFERING
---- ------------ ---------- ---------

Eugene O'Donovan............................ 4,047,713(1) 71.9% 53.0%
Susan O'Donovan............................. 4,047,713(2) 71.9% 53.0%
Samuel Lanzafame............................ 48,333(3) * *
Edward Tackaberry........................... 173,436(4) 3.0% 2.2%
John Tate................................... 13,333(5) * *
Executive officers and directors as a group
(five persons)............................ 4,282,815(6) 73.0% 54.5%

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

* Less than 1%

(1) Includes 1,531,542 shares of our common stock held by Mr. O'Donovan's wife,
Susan O'Donovan. Mr. O'Donovan disclaims beneficial ownership of Mrs.
O'Donovan's shares.

(2) Includes 2,516,171 shares of our common stock held by Mrs. O'Donovan's
husband, Eugene O'Donovan. Mrs. O'Donovan disclaims beneficial ownership of
Mr. O'Donovan's shares.

(3) Represents: (i) 40,000 shares of our common stock held by Mr. Lanzafame's
wife, as to which Mr. Lanzafame disclaims beneficial ownership; and (ii)
8,333 shares of our common stock issuable to Mr. Lanzafame upon the exercise
of options to be granted to him as a director of our company and to become
exercisable within 60 days of the date of this prospectus.

(4) Represents: (i) an aggregate of 136,962 shares of our common stock issuable
upon exercise of warrants exercisable within 60 days of the date of this
prospectus that were issued to an affiliate of Mr. Tackaberry; (ii) 6,667
shares of our common stock issuable to Mr. Tackaberry upon the exercise of
options to be granted to him as a director of our company and to become
exercisable within 60 days of the date of this prospectus; (iii) 7,692
shares of our common stock issuable upon the conversion at the closing of
the offering of 5,000 shares of our series A convertible preferred stock
owned by Mr. Tackaberry; (iv) 1,923 shares of our common stock issuable upon
the conversion at the closing of the offering of 1,250 shares of our series
A convertible preferred stock owned by Pal Tack, an affiliate of Mr.
Tackaberry; (v) 8,654 shares of our common stock issuable upon the
conversion at the closing of the offering of 5,625 shares of our series A
convertible preferred stock owned by the estate of Mr. Tackaberry's father,
of which Mr. Tackaberry is the executor; and (vi) 11,538 shares of our
common stock issuable upon the conversion at the effective date of the
offering of a $60,000 subordinated convertible debenture owned by the estate
of Mr. Tackaberry's father. Mr. Tackaberry disclaims beneficial ownership of
all securities held by his father's estate.

(5) Represents 13,333 shares of our common stock issuable to Mr. Tate upon the
exercise of options to be granted to him as a director of our company and to
become exercisable within 60 days of the date of this prospectus.

(6) Includes shares referred to as being included in notes 1-5.

Mr. and Mrs. O'Donovan can be reached at our principal business
address, 2171 Monroe Avenue, Suite 205A, Rochester, New York 14618. Mr.
Lanzafame can be reached at his principal address, One Park Place, 4th Floor, S.
State Street, Syracuse, New York 13202. Mr. Tackaberry can be reached at his
principal business address, 170 Office Parkway, Pittsford, New York 14534. Mr.
Tate can be reached at his principal business address, 370 Knollwood St., Suite
500, Winston-Salem, North Carolina 27013.

DESCRIPTION OF SECURITIES

Our authorized capital stock is 16,000,000 shares, consisting of
15,000,000 shares of common stock, $.001 par value, and 1,000,000 shares of
preferred stock, $.001 par value, of which 312,500 shares have been designated
series A convertible preferred stock. Upon the closing of the offering, all
shares of series A convertible preferred stock currently outstanding will be
converted into shares of our common stock, which will result in no shares of
series A convertible preferred stock being outstanding.

COMMON STOCK

Each share of our common stock has one vote. Because holders of our
common stock do not have cumulative voting rights or preemptive or other
subscription rights, the holders of a majority of our common stock can elect all
of the members of our board of directors. We cannot redeem our common stock.
Holders of our common stock are entitled to any dividends as may be declared by
our board of directors out of legally available funds. If we are liquidated,
dissolved or wound up, the holders of our common stock are entitled to receive a
pro rata portion of all of our assets available for distribution to our
stockholders after we pay liquidation preferences to holders of any outstanding
shares of our series A convertible preferred stock. All outstanding shares of
our common stock are fully paid and non-assessable.

PREFERRED STOCK

SERIES A CONVERTIBLE PREFERRED STOCK. We have 312,500 shares of
series A convertible preferred stock outstanding. The rights, designations,
preferences, privileges, qualifications and restrictions of our series A
convertible preferred stock are described in our certificate of designation.
This document has been filed as an exhibit to the registration statement of
which this prospectus is a part. Effective upon the closing of the offering, all
outstanding shares of our series A convertible preferred stock automatically
will convert into shares of our common stock and we will have no shares of
preferred stock outstanding.

The holders of our series A convertible preferred stock are entitled to
receive dividends at the rate of $0.96 per share per year. We intend to pay all
accrued but unpaid dividends (approximately $25,000 as of March 31, 2002) to the
holders of our series A convertible preferred stock in cash at the closing of
the offering unless individual holders request that dividends be paid to them in
shares of our common stock.

BLANK CHECK PREFERRED STOCK. Subject to the provisions of our
certificate of incorporation and to the limitations prescribed by law, our board
of directors has the authority, without further action by our stockholders, to
issue up to 687,500 shares of our authorized but unissued preferred stock in one
or more series. Our board of directors has the power and authority to fix the
rights, designations, preferences, privileges, qualifications and restrictions
of our preferred stock, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and sinking fund terms, any
or all of which may be greater than the rights of our common stock. We have no

present plans to issue any additional shares of preferred stock and we have
agreed not to issue any shares of preferred stock for one year after the
offering without our underwriter's prior written consent.

Having undesignated preferred stock enables us to render more difficult
or to discourage a third party's attempt to obtain control of us by means of a
tender offer, proxy contest, merger, or otherwise, which thereby protects the
continuity of our management. The issuance of shares of our preferred stock also
may discourage a party from making a bid for our common stock because such
issuance may adversely affect the rights of the holders of our common stock. For
example, preferred stock that we issue may rank prior to our common stock as to
dividend rights, liquidation preference, or both, may have full or limited
voting rights and may be convertible into shares of common stock. Accordingly,
the issuance by us of shares of preferred stock may discourage or delay bids for
our common stock or may otherwise adversely affect the market price of our
common stock.

WARRANTS

PURCHASE WARRANTS. Each purchase warrant will entitle you to purchase
one share of our common stock for 150% of the combined offering price of one
share of our common stock and one purchase warrant, at any time during the
period beginning 90 days after the date of this prospectus and ending on the
fifth anniversary of the date of this prospectus.

Unless we extend the terms of the purchase warrants in our sole
discretion, the purchase warrants will expire at 5:00 p.m., New York time, five
years from the date of this prospectus.

With the prior written consent of our underwriter, we may redeem any
outstanding purchase warrants you hold, once they become exercisable, at a price
of $.01 per purchase warrant on not less than 30 days' prior written notice to
you if the last sale price of our common stock has been at least 200% of the
then-current exercise price of the purchase warrants (initially $ )
for the 20 consecutive trading days ending on the third day prior to the date on
which we provide you with such notice. The purchase warrants will be exercisable
until the redemption date.

The purchase warrants will be issued in registered form under a warrant
agreement to be executed between us and Continental Stock Transfer & Trust
Company, as warrant agent. Please refer to the warrant agreement (which has been
filed as an exhibit to the registration statement of which this prospectus is a
part) for a complete description of the terms and conditions of the purchase
warrants, as this description is qualified in its entirety by our reference to
such warrant agreement.

The exercise price and number of shares of our common stock or other
securities issuable on exercise of the purchase warrants are subject to
adjustment to protect against dilution if we issue a stock dividend, or we
conduct a stock split, recapitalization, reorganization, merger or consolidation
or other similar event. We cannot assure you that the market price of our common
stock will exceed the exercise

price of the purchase warrants at any time during the period in which they are
exercisable.

You cannot exercise any of your purchase warrants unless at the time of
exercise we have filed with the SEC a prospectus covering the shares of our
common stock issuable upon exercise of the purchase warrants you wish to
exercise and such shares have been registered or qualified to be exempt under
the securities laws of your state of residence. Although we have undertaken and
intend to have all shares of our common stock qualified for sale in the states
where our securities are being offered and to maintain a current prospectus
relating to our common stock until the expiration or redemption of the purchase
warrants, subject to the terms of the warrant agreement, we cannot assure you
that we will be able to do so.

The purchase warrants do not give you any dividend, voting, preemptive
or any other rights our stockholders may have.

OTHER OUTSTANDING SECURITIES

ADVISOR WARRANTS. As of March 31, 2002, we had issued warrants to
purchase 50,000 shares of our common stock at an exercise price of $0.50 per
share and warrants to purchase an aggregate of 98,062 shares of our common stock
at an exercise price equal to the lesser of $10.00 per share of our common stock
or 150% of the initial public offering price per share of our common stock.
These warrants were issued to advisors of ours in connection with prior sales of
our securities and entitle the holders to purchase shares of our common stock in
the number and price specified in each warrant.

SUBORDINATED CONVERTIBLE DEBENTURES. In 2000, we issued subordinated
convertible debentures to outside investors in a series of closings pursuant to
a private placement. The subordinated convertible debentures and accrued but
unpaid interest are payable five years from the issue date. As of March 31,
2002, an aggregate of $4,538,500 principal amount of our debentures were
outstanding. The debentures bear interest at an average interest rate of 8.7%
per year and interest payments can be made either monthly or quarterly at our
discretion. We currently make interest payments quarterly. The principal amount
due under the subordinated convertible debentures automatically will convert
into shares of our common stock on the effective date of the offering at the
price per share equal to the offering price per share of our common stock to
investors in the offering. At the closing of the offering, we will pay all
accrued but unpaid interest due under the debentures, which was $32,190 as of
March 31, 2002.

CEPHAS CAPITAL PARTNERS CONVERTIBLE PROMISSORY NOTE. On June 22,
2000, we issued Cephas Capital Partners a $2,000,000 convertible promissory
note. The note was issued pursuant to a note purchase agreement between us and
Cephas Capital Partners and modified pursuant to an agreement between us and
Cephas Capital Partners to become effective on or prior to the closing of the
offering. In connection with this modification, we have agreed to pay Cephas
Capital Partners $20,000 and issued 15,000 shares of our common stock to Cephas
Capital Partners. The note will be collateralized by all of our assets. However,
Cephas Capital Partners has agreed to subordinate its security interest to a
senior lender if we secure a senior finance facility.

We are required to make monthly payments of interest on the note through June
2005, at which time we will be required to make amortized payments of principal
and interest through June 2007. The note is convertible, at Cephas Capital
Partners' option, into shares of our common stock at the price per share at
which our common stock is sold to the public pursuant to this prospectus. Upon
the effective date of the offering, Cephas Capital Partners will sign a lock-up
agreement which prohibits it from transferring any of our securities for a
period of thirteen months following the effective date of the offering. We may
prepay the note at any time upon the payment by us of a 4% prepayment premium if
such prepayment occurs on or before June 21, 2002, 3% if prepayment occurs on or
before June 21, 2003, 2% if prepayment occurs on or before June 21, 2004 and 1%
if prepayment occurs on or before June 21, 2005.

An event of default occurs if, among other things, any representation
or warranty under the amended and restated note purchase agreement was false or
misleading when made, if we breach any covenant under the amended and restated
note purchase agreement, a judgment of $100,000 or more is entered against us or
an event of bankruptcy occurs. If a default occurs, Cephas Capital Partners may
require us to pay all outstanding principal and accrued interest immediately and
the interest rate on the note will increase by 5% until all amounts that we owe
are paid.

We have agreed to provide Cephas Capital Partners access to and deliver
to Cephas Capital Partners on a regular basis, certain financial and other
information related to us so that Cephas Capital Partners can confirm that we
are abiding by the terms of the purchase agreement and note. Additionally, we
have agreed not to declare any dividends without Cephas Capital Partners'
consent. Pursuant to the amended and restated purchase agreement, Cephas Capital
Partners has the right to appoint an observer to attend all meetings of our
board of directors.

We have also agreed to provide Cephas Capital Partners with "piggyback"
and demand registration rights beginning at the expiration of its thirteen month
lock-up until such time as all shares of our common stock issuable upon
conversion of the note can be sold without restriction under Rule 144 of the
Securities Act.

AMERICAN STOCK EXCHANGE LISTING

We have applied to list our common stock and purchase warrants on the
American Stock Exchange under the trading symbols "MMX" and "MMX.W."

TRANSFER AGENT AND REGISTRAR

Continental Stock Transfer & Trust Company will act as our transfer
agent and as registrar for our common stock and purchase warrants.

DELAWARE LAW, CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS THAT MAY HAVE
AN ANTI-TAKEOVER EFFECT.

The following discussion concerns certain provisions of Delaware law
and our certificate of incorporation and by-laws that may delay, deter or
prevent a tender offer or takeover attempt that you might consider to be in your
best interest, including offers or
57

attempts that might result in a premium being paid to you over the market price
of our securities.

DELAWARE LAW. We are subject to the provisions of Section 203 of the
Delaware General Corporation Law. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a business combination with an
interested stockholder for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless:

- prior to the business combination the corporation's board of
directors approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
or

- upon the consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the stockholder owned
at least 85% of the outstanding voting stock of the corporation at
the time the transaction commenced, excluding for the purpose of
determining the number of shares outstanding those shares owned by
the corporation's officers and directors and by employee stock plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or

- at or subsequent to the time the business combination is approved by
the corporation's board of directors and authorized at an annual or
special meeting of its stockholders, and not by written consent, by
the affirmative vote of at least 66-2/3% of its outstanding voting
stock which is not owned by the interested stockholder.

A business combination includes a merger, asset sale or other
transaction resulting in a financial benefit to the stockholder. An interested
stockholder is a person who, together with affiliates and associates, owns (or
within three years did own) 15% or more of the corporation's vesting stock.

CERTIFICATE OF INCORPORATION AND BY-LAWS. Our by-laws provide that
special meetings of our stockholders may be called by our secretary only at the
request of our chief executive officer, by a majority of the board of directors
or upon the written request of the holders of 25% or more of our outstanding
shares of capital stock, provided that the written request state the purpose of
the meeting and any matters proposed to be acted upon. Written notice of a
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called must be given between ten and 60
days before the date of the meeting, and only business specified in the notice
may come before the meeting. In addition, our by-laws provide that directors be
elected by a plurality of votes cast at an annual meeting and does not include a
provision for cumulative voting for directors. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may be
able to ensure the election of one or more directors.

SHARES ELIGIBLE FOR FUTURE SALE

SHARES ELIGIBLE

After this offering, 7,630,385 shares of our common stock will be
outstanding, excluding exercises of options or warrants exercisable after March
31, 2002. All of the 2,000,000 shares of our common stock sold in the offering
will be freely tradable without restriction or further registration under the
Securities Act, except for shares purchased by holders subject to lock-up
agreements or by any of our existing "affiliates," as that term is defined in
Rule 144 under the Securities Act, which generally includes officers, directors
or 10% stockholders. The remaining 5,630,385 shares of our common stock
outstanding after this offering will be restricted as a result of securities
laws and lock-up agreements that holders have signed that restrict their ability
to transfer our stock for either 13 or 24 months after the date of this
prospectus. Of our outstanding shares, 1,495,967 will be available for sale in
the public market 13 months after the date of this prospectus, and 4,134,418
will be available for sale in the public market 24 months after the date of this
prospectus. Our underwriter may in its sole discretion, however, waive or permit
us to waive the lock-up at any time for any stockholder.

RULE 144

In general, under Rule 144 as currently in effect, a person who has
owned restricted shares of common stock beneficially for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of the then average weekly trading volume or 1% of the
total number of outstanding shares of the same class. Sales under Rule 144 are
also subject to manner of sale provisions, notice requirements and the
availability of current public information about us. A person who has not been
one of our affiliates for at least the three months immediately preceding the
sale and who has beneficially owned shares of common stock for at least two
years is entitled to sell the shares under Rule 144 without regard to any of the
limitations described above.

EFFECT OF SALES OF SHARES

Before the offering, there has been no market for our common stock, and
no precise prediction can be made about any effect that market sales of our
common stock or the availability for sale of our common stock will have on the
market price of the common stock. Nevertheless, sales of substantial amounts of
our common stock in the public market could adversely affect the market price
for our securities and could impair our future ability to raise additional
capital through the sale of our securities.

UNDERWRITING

Our underwriter has agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from us on a firm commitment basis a total
of 2,000,000 shares of common stock and 2,000,000 purchase warrants.

Our underwriter has qualified its obligations under the underwriting
agreement to the approval of legal matters by our counsel and various other
conditions, and subject to these conditions, our underwriter is obligated to
purchase all of the shares of our common stock and purchase warrants offered by
this prospectus (other than the shares of our common stock and purchase warrants
covered by the over-allotment option described below).

Our underwriter has advised us that it proposes to offer our securities
to the public at the initial public offering prices set forth on the cover page
of this prospectus and to certain dealers at that price less a concession not in
excess of $ per share of our common stock and $ per purchase warrant.
Our underwriter may allow, and such dealers may reallow, a concession not in
excess of $ per share of common stock and $ per purchase warrant to
certain other dealers. After the offering, our underwriter may change the
offering price and other selling terms.

We have agreed to indemnify our underwriter against certain
liabilities, including liabilities under the Securities Act. We also have agreed
to pay to our underwriter an expense allowance on a non-accountable basis equal
to 3% of the gross proceeds derived from the sale of the securities offered by
this prospectus (including the sale of any of our securities subject to our
underwriter's over-allotment option), $50,000 of which has been paid to date. We
also have agreed to pay all expenses in connection with qualifying our
securities offered hereby for sale under the laws of such states as our
underwriter may designate and registering the offering with the National
Association of Securities Dealers, Inc., or NASD, including fees and expenses of
counsel retained for these purposes by our underwriter in connection with this
registration.

We have granted to our underwriter an option, exercisable within 45
business days from the date of this prospectus, to purchase at the offering
price, less underwriting discounts and the non-accountable expense allowance, up
to an aggregate of 300,000 additional shares of our common stock and/or 300,000
additional purchase warrants for the sole purpose of covering over allotments,
if any.

We have engaged our underwriter on a non-exclusive basis as our agent
for the solicitation of the exercise of the purchase warrants. To the extent
consistent with NASD guidelines and SEC rules and regulations, we have agreed to
pay our underwriter for bona fide services rendered a commission equal to 5% of
the exercise price for each purchase warrant exercised after one year from the
date of this prospectus if the exercise was solicited by our underwriter. In
addition to soliciting, either orally or in writing, the exercise of the
purchase warrants, these services also may include disseminating information,
either orally or in writing, to our warrantholders about us or the market for
our securities, and assisting in the processing of the exercise of the purchase
warrants. We will not pay our underwriter in connection with the exercise of the
purchase warrants

if the purchase warrants are exercised within one year from the date of this
prospectus, if the market price of the underlying shares of our common stock is
lower than the exercise price, the purchase warrants are held in a discretionary
account, the purchase warrants are exercised in an unsolicited transaction, the
warrantholder has not confirmed in writing that our underwriter solicited such
exercise or the arrangement to pay the commission is not disclosed in the
prospectus provided to warrantholders at the time of exercise. In addition,
unless granted an exemption by the SEC from Regulation M under the Exchange Act,
while soliciting the exercise of the purchase warrants, our underwriter will be
prohibited from engaging in any market-making activities or solicited brokerage
activities with regard to our securities unless our underwriter has waived its
right to receive a fee for the exercise of the purchase warrants.

In connection with the offering, we have agreed to sell to our
underwriter for an aggregate of $100, an underwriter's purchase option,
consisting of the right to purchase up to an aggregate of 200,000 shares of our
common stock and/or 200,000 purchase warrants. The underwriter's purchase option
is exercisable initially at a price of $ per share (165% of the per share
offering price to investors) and $ per purchase warrant (165% of the per
purchase warrant price to investors) for a period of four years commencing one
year from the date of this prospectus. Our underwriter may not transfer, sell,
assign or hypothecate the underwriter's purchase option during the one-year
period following the date of this prospectus except to officers of the
underwriter and the selected dealers and their officers or partners. Our
underwriter's purchase option grants to the holders thereof certain "piggyback"
and demand rights for periods of seven and five years, respectively, from the
date of this prospectus with respect to the registration under the Securities
Act of the securities directly and indirectly issuable upon exercise of the
underwriter's purchase option.

Pursuant to the underwriting agreement, all of our officers and
directors, Cephas Capital Partners and all holders of our capital stock and
subordinated convertible debentures immediately prior to this offering have
agreed not to sell any shares of our common stock for either 13 or 24 months
from the date of this prospectus without the consent of our underwriter. In
addition, the underwriting agreement provides that, for a period of five years
from the date of this prospectus, our underwriter will have the right to a seat
on our board of directors and to send a representative to observe each meeting
of our board of directors. Our underwriter has not yet selected either of these
representatives.

We will engage our underwriter as our financial consultant for a period
of four years from the date of this prospectus at an annual fee of $50,000, of
which payment for the first year, $50,000, will be payable in advance on the
closing of the offering. Additionally, if within five years of the date of this
prospectus, we complete a merger, acquisition, joint venture or other
transaction with a party that our underwriter introduces to us, our underwriter
will receive a finder's fee equal to 5% of the consideration.

Prior to the offering, there has been no public market for any of our
securities. Accordingly, the offering prices of our securities and the terms of
the purchase warrants

have been determined by negotiation between us and our underwriter and do not
bear any relation to established valuation criteria. Factors considered in
determining such prices and terms, in addition to prevailing market conditions,
included an assessment of the prospects for the industry in which we will
compete, our management and our capital structure.

Our underwriter may engage in over allotment, stabilizing transactions,
syndicate short covering transactions and penalty bids in accordance with
Regulation M of the Exchange Act. Over allotment involves sales by the
underwriting syndicate in excess of the offering size, which creates a syndicate
short position. Stabilizing transactions permit bids to purchase our securities
so long as the stabilizing bids do not exceed a specified maximum. Syndicate
short covering transactions involve purchases of our securities in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit our underwriter to reclaim a selling
concession from a selling group member when our securities originally sold by
such selling group member are repurchased in the open market by the underwriter.
These stabilizing transactions, syndicate short covering transactions and
penalty bids may cause the prices of our securities to be higher than they would
otherwise be in the absence of such transactions. These transactions may be
effected on the American Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.

In July 2000, in connection with our private placement of subordinated
convertible debentures, we issued our underwriter warrants to purchase 11,100
shares of our common stock at an exercise price equal to the lesser of $10.00
per share of our common stock or 150% of the initial public offering price per
share of our common stock. These warrants expire in September 2005.

LEGAL MATTERS

Harter, Secrest & Emery LLP, Rochester, New York, will opine as to the
validity of the common stock and purchase warrants offered by this prospectus
and to certain legal matters for us. Graubard Miller, New York, New York, has
served as counsel to the underwriter in connection with this offering.

EXPERTS

The financial statements as of January 30, 2002 and January 31, 2001
and for the year ended January 30, 2002 and for the eleven-month period ended
January 31, 2001 included in this prospectus have been so included in reliance
on the report (which includes an additional paragraph relating to our restated
financial statements as discussed in Note 14 to the financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form SB-2
relating to the securities being offered through this prospectus. As permitted
by the rules and regulations of the SEC, this prospectus does not contain all
the information described in the registration statement. For further information
about us and our securities, you should read our registration statement,
including the exhibits and schedules. In addition, we will be subject to the
requirements of the Securities Exchange Act of 1934, as amended, following the
offering and thus will file annual, quarterly and special reports, proxy
statements and other information with the SEC. These SEC filings and the
registration statement are available to you over the internet at the SEC's web
site at http://www.sec.gov. You may also read and copy any document we file with
the SEC at the SEC's public reference room in Washington, D.C. Please call the
SEC at 1-800-SEC-0330 for further information about the public reference room.
Statements contained in this prospectus as to the contents of any agreement or
other document are not necessarily complete and, in each instance, you should
review the agreement or document which has been filed as an exhibit to the
registration statement.

Following the offering, we intend to furnish our stockholders with
annual reports containing audited financial statements.

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Report of Independent Accountants........................... F-2
Consolidated Balance Sheets F-3
as of January 31, 2001 and January 30, 2002..............
Consolidated Statements of Operations F-4
For the period February 28, 2000 through January 31, 2001
and for the Year Ended January 30, 2002..................
Consolidated Statements of Changes in Common Stockholders' F-5
Equity (Deficit)
For the period February 28, 2000 through January 31, 2001
and for the Year Ended January 30, 2002..................
Consolidated Statements of Cash Flows F-6
For the period February 28, 2000 through January 31, 2001
and for the Year Ended January 30, 2002..................
Notes to Consolidated Financial Statements.................. F-7

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Montana Mills Bread Co., Inc. and Subsidiaries

In our opinion, the consolidated financial statements listed in the
index appearing on page F-1 present fairly, in all material respects, the
financial position of Montana Mills Bread Co., Inc. and its Subsidiaries (the
"Company") at January 31, 2001 and January 30, 2002, and the results of their
operations and their cash flows for the eleven-month period February 28, 2000
through January 31, 2001 and for the year ended January 30, 2002 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in the first paragraph of Note 14, the consolidated
balance sheet and related consolidated statements of operations, of changes in
common stockholders' equity (deficit) and of cash flows as of and for the
eleven-month period ended January 31, 2001 have been restated to record common
stock warrants issued in connection with the raising of debt. The effect of the
restatement was to increase common stockholders' equity by $82,000 at January
31, 2001 and reduce income by $12,000 for the period ended January 31, 2001 with
no effect on earnings per share.

/s/ PRICEWATERHOUSECOOPERS LLP

Rochester, New York
March 21, 2002

F-2

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JANUARY 31, JANUARY 30,
2001 2002
------------- -----------
(AS RESTATED)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,805,564 $ 248,243
Short-term investments.................................... -- 518,258
Inventory................................................. 221,303 401,426
Income tax receivable..................................... 184,825 314,655
Prepaid expenses and other current assets................. 184,992 426,255
Deferred income taxes..................................... 27,000 53,000
----------- ----------
Total current assets.............................. 6,423,684 1,961,837
Property and equipment, net................................. 3,495,005 6,621,146
Deferred income taxes....................................... -- 260,000
Deposits and other assets................................... 75,025 181,482
Unamortized bond issue costs................................ 577,338 447,405
----------- ----------
Total assets...................................... $10,571,052 $9,471,870
=========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 636,055 $ 844,986
Payroll and related expenses.............................. 103,236 127,345
Deferred revenue.......................................... 93,030 101,191
Other current liabilities................................. 37,764 64,648
Current portion of long-term debt......................... 35,531 34,418
----------- ----------
Total current liabilities......................... 905,616 1,172,588
Subordinated convertible debentures......................... 6,538,500 6,538,500
Long-term debt, net of current portion...................... 78,635 44,185
Other long-term liabilities................................. -- 43,000
Deferred income taxes....................................... 117,000 --
----------- ----------
Total liabilities................................. 7,639,751 7,798,273
----------- ----------
Commitments and contingencies
Series A convertible redeemable preferred stock, ($.001 par
value; 1,000,000 shares authorized; 312,500 issued and
outstanding as of January 31, 2001 and January 30,
2002)..................................................... 2,500,000 2,500,000
----------- ----------
Common stockholders' equity (deficit):
Common stock, ($.001 par value; 15,000,000 shares
authorized; 5,000,000 issued and outstanding as of
January 31, 2001 and January 30, 2002)................. 5,000 5,000
Additional paid-in capital -- warrants.................... 94,000 --
Retained earnings (accumulated deficit)................... 332,301 (831,403)
----------- ----------
Common stockholders' equity (deficit)............. 431,301 (826,403)
----------- ----------
Total liabilities and stockholders' equity........ $10,571,052 $9,471,870
=========== ==========

The accompanying notes are an integral part of these consolidated financial
statements.
F-3

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIOD
FEBRUARY 28,
2000 FOR THE YEAR
THROUGH ENDED
JANUARY 31, JANUARY 30,
2001 2002
-------------- ------------
(AS RESTATED)

Sales....................................................... $7,614,039 $10,812,453
Cost of goods sold (exclusive of depreciation and
amortization)............................................. 3,498,069 5,386,722
---------- -----------
Gross profit................................................ 4,115,970 5,425,731
Selling, general and administrative expenses................ 3,231,110 4,922,137
Pre-opening and grand-opening expenses...................... 437,548 985,148
Depreciation and amortization............................... 221,574 486,203
---------- -----------
Income (loss) from operations............................... 225,738 (967,757)
Interest income............................................. 235,420 155,470
Financing costs............................................. (418,808) (760,897)
---------- -----------
Income (loss) before income taxes........................... 42,350 (1,573,184)
Provision for (benefit from) income taxes................... 9,972 (615,480)
---------- -----------
Net income (loss)........................................... $ 32,378 $ (957,704)
========== ===========

Net loss applicable to common stockholders.................. $ (242,622) $(1,257,704)
========== ===========
Basic and diluted loss per common share applicable to common
stockholders.............................................. $ (.05) $ (.25)
========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.
F-4

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)

RETAINED
COMMON STOCK PAID-IN EARNINGS/
------------------ CAPITAL ACCUMULATED
SHARES AMOUNT WARRANTS DEFICIT TOTAL
--------- ------ -------- ----------- ---------

Balance, February 27, 2000............. 5,000,000 $5,000 $ -- $ 574,923 $ 579,923
Net income............................. -- -- -- 32,378 32,378
Series A preferred stock dividends..... -- -- -- (275,000) (275,000)
Issuance of warrants in connection with
subordinated convertible
debentures........................... -- -- 94,000 -- 94,000
--------- ------ -------- --------- ---------
Balance, January 31, 2001 (as
restated)............................ 5,000,000 5,000 94,000 332,301 431,301
Net loss............................... -- -- -- (957,704) (957,704)
Series A preferred stock dividends..... -- -- (94,000) (206,000) (300,000)
--------- ------ -------- --------- ---------
Balance, January 30, 2002.............. 5,000,000 $5,000 $ -- $(831,403) $(826,403)
========= ====== ======== ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.
F-5

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIOD
FEBRUARY 28, 2000 FOR THE YEAR
THROUGH ENDED
JANUARY 31, 2001 JANUARY 30, 2002
----------------- ----------------
(AS RESTATED)

Cash flows from operating activities:
Net income (loss)......................................... $ 32,378 $ (957,704)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by
(used in) operating activities --
Depreciation and amortization.......................... 221,574 486,203
Amortization of bond issuance costs.................... 71,324 129,933
Deferred income taxes.................................. 24,000 (403,000)
(Increase) decrease in operating assets --
Inventory............................................ (67,699) (180,123)
Income tax receivable................................ 21,071 (129,830)
Prepaid expenses and other current assets............ (83,059) (241,263)
Deposits and other assets............................ (29,725) 11,293
(Decrease) increase in operating liabilities --
Accounts payable and accrued liabilities............. 299,542 208,931
Payroll and related expenses......................... 50,756 24,109
Other liabilities.................................... 58,775 78,045
----------- -----------
Total adjustments................................. 566,559 (15,702)
----------- -----------
Net cash provided by (used in) operating
activities...................................... 598,937 (973,406)
----------- -----------
Cash flows from investing activities:
Purchase/sale of short-term investments, net.............. -- (518,258)
Purchase of property and equipment........................ (1,974,776) (3,610,838)
Purchase of trademarks.................................... -- (119,256)
----------- -----------
Net cash used in investing activities............. (1,974,776) (4,248,352)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of subordinated convertible
debentures............................................. 6,538,500 --
Payment of bond issue costs............................... (554,662) --
Series A preferred stock dividends........................ (275,000) (300,000)
Repayment of debt......................................... (26,095) (35,563)
----------- -----------
Net cash provided by (used in) financing
activities...................................... 5,682,743 (335,563)
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 4,306,904 (5,557,321)
Cash and cash equivalents -- beginning of year.............. 1,498,660 5,805,564
----------- -----------
Cash and cash equivalents -- end of year.................... $ 5,805,564 $ 248,243
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................. $ 347,484 $ 630,964
=========== ===========
Income taxes.............................................. $ 15,000 $ 2,470
=========== ===========
Debt issued for purchase of vehicles...................... $ 97,836 $ --
=========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.
F-6

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FEBRUARY 28, 2000 THROUGH JANUARY 31, 2001 AND
YEAR ENDED JANUARY 30, 2002

1. SUMMARY OF OPERATIONS

Montana Mills Bread Co., Inc. (the "Company") owns and operates upscale
specialty bread stores located in Connecticut, New York, Ohio, and Pennsylvania.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts
of the Company and all of its wholly owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation.

FISCAL YEAR

In 2001, the Company changed its fiscal year end to the Wednesday
closest to January 31 from the Sunday closest to February 28. The Company's
fiscal year is based on a 52/53-week year. The statements of operations and of
cash flows presented herein are for the eleven-month period from February 28,
2000 through January 31, 2001 ("fiscal 2001") and for the year ended January 30,
2002 ("fiscal 2002").

PRE-OPENING AND GRAND-OPENING COSTS

The Company accounts for pre-opening and grand-opening expenses
representing primarily payroll, training and advertising costs, in accordance
with Statement of Position ("SOP") No. 98-5, "Reporting the Costs of Start-up
Activities," which requires that pre-opening and grand-opening costs be expensed
as incurred.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original
maturities of three months or less to be cash and cash equivalents.

The Company maintains cash balances at several banks. At January 31,
2001, the Company had deposits in excess of federal insured limits. The Company
also invested excess cash in money market funds during the fiscal years 2001 and
2002 and such balances were not insured.

SHORT-TERM INVESTMENTS

The Company invests certain of its excess cash in short-term money
funds. The Company's investments in these funds at January 30, 2002 were
classified under Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," as available
for sale securities. The fair value of these securities was approximately equal
to its market value at January 30,

F-7

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2002. There were no short-term investments in available for sale securities at
January 31, 2001.

DEFERRED FINANCING COSTS

Costs incurred in connection with obtaining debt financing are
amortized over the life of the related debt using the effective interest method.

REVENUE RECOGNITION

Store revenues are recognized when payment is tendered at the point of
sale. Gift catalog and internet sales are generally recognized upon shipment to
customers.

DEFERRED REVENUE

The Company offers gift certificates to customers with a one-year life.
The Company defers the recognition of revenue on cash received for gift
certificates until the certificates are redeemed by customers.

INVENTORY

Inventory, which consists of ingredients, retail products and paper
products, is valued at the lower of cost or market, cost being determined on a
first-in, first-out ("FIFO") basis.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost, less accumulated
depreciation, which is calculated on a straight-line method for financial
reporting purposes and on an accelerated method for income tax reporting
purposes. The cost of property and equipment is depreciated over the estimated
useful lives of the related assets, periods ranging from five years for
vehicles; three to fifteen years for equipment; and seven to twenty years for
leasehold improvements.

Management reviews its long-lived assets used in operations for
impairment when there is an event or change in circumstances that indicates an
impairment in value may be present. An asset is considered impaired when the
undiscounted future cash flows are not sufficient to recover the asset's
carrying value. If such impairment is present, an impairment loss is recognized
based on the excess of the carrying amount of the asset over its fair value. No
such losses have been recognized in either year.

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of

F-8

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and costs and expenses during the reporting period. Actual results
could differ from those estimates.

TRADEMARKS

The Company had trademarks at January 30, 2002 of $117,750, net of
accumulated amortization of $1,506, which are being amortized over their useful
lives of up to 40 years. Amortization expense was $1,506 for the fiscal year
2002. There were no trademarks in fiscal year 2001.

INCOME TAXES

The Company accounts for income taxes using the asset and liability
approach which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of such assets and liabilities.

This method utilizes enacted statutory tax rates in effect for the year
in which the temporary differences are expected to reverse and gives immediate
effect to changes in income tax rates upon enactment. Deferred tax assets are
recognized for deductible temporary differences. Deferred taxes are classified
as current or long-term based on the classification of the assets and
liabilities to which they relate. Deferred income tax expense represents the
change in the net deferred tax asset and liability balances.

State investment credits are accounted for as a reduction of income tax
expense in the year they are recognized in the financial statements under the
flow-through method.

NET EARNINGS PER COMMON SHARE

Basic earnings per common share are computed by dividing net earnings
available to common stockholders by the weighted average number of common shares
outstanding. The Company's calculation of diluted earnings per share does not
include the effect of unexercised stock options and warrants, or the conversion
of series A convertible preferred stock or the convertible debt representing
1,281,912 and

F-9

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1,117,412 potential shares of common stock at January 31, 2001 and January 30,
2002, respectively, since the effect would be anti-dilutive.

2001 2002
---------- -----------

Net income (loss)........................................... $ 32,378 $ (957,704)
Series A preferred stock dividends.......................... (275,000) (300,000)
---------- -----------
Net loss available to common stockholders................... $ (242,622) $(1,257,704)
========== ===========
Basic and diluted loss per share applicable to common
stockholders.............................................. $ (.05) $ (.25)
========== ===========
Weighted average outstanding common shares.................. 5,000,000 5,000,000
========== ===========

ADVERTISING COSTS

In accordance with SOP No. 93-7, "Reporting on Advertising Costs," the
Company expenses all advertising expenditures the first time the advertising
takes place except for direct-response advertising which is capitalized and
amortized over its expected period of future benefits. Direct-response
advertising consists primarily of catalog production and mailing costs that are
generally amortized within 12 months from the date the catalogs are mailed.
Advertising and promotion expense was $298,772 and $325,300 for the fiscal years
2001 and 2002, respectively. The amount of direct-response advertising deferred
and included in the consolidated balance sheet as of January 30, 2002 was
$29,477. There were no deferred advertising costs at January 31, 2001.

RECLASSIFICATIONS

Certain prior year amounts in the accompanying financial statements
have been reclassified to conform to the current year presentation.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of invested excess cash.
Currently, the Company manages its exposure by investing significant amounts of
its excess cash in mutual funds with short-term maturities.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," and No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that all business combinations be
accounted for under the purchase method only and that certain acquired
intangible assets in a business combination be recognized as assets apart from
goodwill. SFAS No. 142 requires that ratable amortization of goodwill and other
intangibles be replaced with periodic tests of the goodwill's impairment and
that intangible assets with other than indefinite lives be amortized over their
useful lives. SFAS No. 141 is effective for all business combinations

F-10

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

initiated after June 30, 2001, and the provisions of SFAS No. 142 are effective
for all fiscal years beginning after December 15, 2001. The statement will not
have a significant impact on the Company's financial position and its results of
operations.

The Company adopted the provisions of Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognized in Financial Statements," on January 1, 2001. The
implementation of the provisions of SAB No. 101 did not have an impact on the
Company's financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting model for long-lived assets to be disposed of by sale and resulting
implementation issues. This statement requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company does not believe that the
adoption of SFAS No. 144 will have a material impact on the Company's financial
position or its results of operations.

3. INVENTORIES

Inventories are comprised of the following:

2001 2002
-------- --------

Ingredients................................................. $105,336 $243,631
Retail products............................................. 93,540 132,232
Paper products.............................................. 22,427 25,563
-------- --------
$221,303 $401,426
======== ========

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

2001 2002
---------- ----------

Equipment and fixtures...................................... $1,996,315 $3,561,553
Vehicles.................................................... 142,621 200,845
Leasehold improvements...................................... 1,859,903 3,847,279
---------- ----------
3,998,839 7,609,677
Less -- Accumulated depreciation and amortization......... (503,834) (988,531)
---------- ----------
$3,495,005 $6,621,146
========== ==========

5. DEBT

The Company has entered into installment notes for the purchase of
various vehicles. The notes require non-interest and interest bearing monthly
installments

F-11

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

through various dates for each respective vehicle. The interest rates vary
between 0% and 6.9% per annum. The notes are collateralized by the vehicles.

Maturities of long-term debt are $34,418, $30,374, and $13,811 for
fiscal years ending 2003, 2004, and 2005, respectively.

6. LEASES

The Company conducts its operations in leased facilities with terms
ranging primarily from two to ten years with renewal provisions for periods
ranging from five to twenty-five years at the option of the Company at
predetermined prices. Generally, management expects that those leases will be
renewed in the normal course of business. The rental payments for these leases
are based on a minimum rental plus real estate taxes, insurance and other common
area expenses. Some facilities require additional contingent rent based on
revenues of such locations, for fiscal 2001 and fiscal 2002, no contingent rent
was incurred. The Company also leases two vehicles for terms of approximately
three years expiring in 2003 and 2004.

Under the terms of the agreements, these leases have been classified as
operating leases in the consolidated financial statements. The Company leases
two buildings for retail locations from its principal stockholder and Chief
Executive Officer, rent expense on these locations was $57,750 and $75,498 for
the fiscal years 2001 and 2002, respectively. Minimum rent expense for all
operating leases totaled $529,169 and $872,243 for the fiscal years 2001 and
2002, respectively. In addition, real estate taxes, insurance and other common
area expenses were $32,736 and $77,215 for the fiscal years 2001 and 2002,
respectively.

The minimum future rental payments under all non-cancelable operating
leases with initial or remaining terms of more than one year for each of the
next five years and thereafter:

FISCAL YEAR THIRD PARTY RELATED PARTY TOTAL
----------- ----------- ------------- ----------

2003............................................ $ 965,469 $ 91,992 $1,057,461
2004............................................ 941,094 49,992 991,086
2005............................................ 913,700 49,992 963,692
2006............................................ 906,221 49,992 956,213
2007............................................ 840,083 50,826 890,909
Thereafter...................................... 3,010,803 210,818 3,221,621
---------- -------- ----------
Total................................. $7,577,370 $503,612 $8,080,982
========== ======== ==========

7. EMPLOYEE BENEFIT PLANS

The Company instituted a 401(k) profit sharing plan effective January
1, 1999, which allows all employees 21 years of age or older and who have worked
90 days to participate. Employees may elect to make annual tax-deferred
contributions of up to 15%

F-12

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of their salary. Matching contributions to the plan are discretionary and are
determined annually by the Company's Board of Directors. Employees are vested
incrementally in Company contributions of 20% each year. The Company made no
matching contributions to the plan for the fiscal years 2001 and 2002.

8. INCOME TAXES

Income taxes (benefit) are as follows:

2001 2002
-------- ---------

Current:
Federal................................................... $ 1,860 $(222,025)
State..................................................... (15,888) 9,545
-------- ---------
(14,028) (212,480)
-------- ---------
Deferred:
Federal................................................... 18,000 (316,000)
State..................................................... 6,000 (87,000)
-------- ---------
24,000 (403,000)
-------- ---------
Total income taxes................................ $ 9,972 $(615,480)
======== =========

Temporary differences giving rise to the deferred tax asset consist
primarily of net operating loss carryforwards for tax purposes.

The Company's effective income tax rate in fiscal year 2001 is lower
than would be expected if the statutory rate was applied to pretax income
primarily because the income tax expense has been reduced by available
investment credits of approximately $24,000 offset by permanent differences.

Management believes that it will realize the full benefit of the
deferred tax asset of $313,000 as a result of its evaluation of the Company's
anticipated profitability based on the historical and present level of
operations.

F-13

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2001 2002
--------- ---------

Deferred tax liabilities:
Tax over book depreciation................................ $(173,000) $(318,000)
Deferred tax assets:
Intangible assets......................................... 45,000 70,000
Net operating loss carryforwards.......................... 3,000 507,000
Tax credits............................................... 24,000 31,000
Other..................................................... 11,000 23,000
--------- ---------
Net deferred tax (liabilities) assets............. $ (90,000) $ 313,000
========= =========
Net current deferred tax assets............................. $ 27,000 $ 53,000
Net non-current deferred tax (liabilities) assets........... (117,000) 260,000
--------- ---------
Net deferred tax (liabilities) assets............. $ (90,000) $ 313,000
========= =========

As of January 30, 2002, the Company had approximately $1,300,000 of net
operating loss carryforwards which expire in 2022.

9. COMMON AND PREFERRED STOCK

The Company is authorized to issue 15,000,000 shares of $.001 par value
common stock. At January 31, 2001 and January 30, 2002, 5,000,000 shares were
issued and outstanding.

The Company is also authorized to issue 1,000,000 shares of $.001 par
value preferred stock. There were 312,500 shares issued for a total
consideration of $2,500,000 and outstanding at January 31, 2001 and January 30,
2002. These shares were issued pursuant to a private placement offering in June
1998. The series A convertible redeemable preferred stock is non-participating
and provides for a 12% cumulative annual dividend based on the consideration
paid for the preferred stock. The series A preferred stock is automatically
converted into common stock upon a liquidation event; the closing of an initial
public offering ("IPO"), sale of substantially all of the Company's assets or a
merger in which the Company is not the surviving party. The series A preferred
stock is convertible to common stock at a price of $8.00 per common share or the
offering price in an IPO, whichever is lower. If a liquidation event does not
occur on or before the fifth anniversary date it is redeemable at the option of
the holder and/or the Company. If the Company calls for a redemption, the
holders have 30 days to convert to common stock before redeeming.

The terms of the remaining preferred shares that are authorized but
unissued will be finalized by the Company when issued.

In connection with the offering, the Company issued warrants to
purchase 50,000 shares of common stock at $.50 per share to the placement agent
based on their

F-14

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimated fair value. As a result of the insignificant market value of these
warrants at the time of issuance, there was no impact on the financial
statements of the Company.

10. SUBORDINATED CONVERTIBLE DEBENTURES

In fiscal 2001, the Company issued $6,538,500 of five-year convertible
debt comprised of the following:

Subordinated convertible debentures for $4,538,500 bearing interest at
an average rate of 8.7%. The debentures are redeemable or convertible
into common stock at $10 per share at the option of holder at the end
of the term. The debentures will automatically convert to common stock
upon a liquidation event, IPO or sale of substantially all of the
assets of the Company at the conversion price or the price per share in
the liquidation event, IPO or sale which ever is lower.

Convertible subordinated promissory note for $2,000,000 bearing
interest at 12%. The note is convertible into common stock at $10 per
share at any time. The terms of this note prohibit the payment of
common stock dividends.

Financing costs, including 98,062 warrants for the purchase of common
stock at the lesser of $10 per share or 150% of the price of the Company's
common stock in an IPO, should one occur, were issued to the selling agents.
Commissions and legal fees amounted to $648,662 and are being amortized over
five years using the effective interest method.

11. STOCK OPTIONS

During 1998, the Company established a stock option plan which provides
for the granting of options to purchase up to 500,000 shares of Common Stock.
Options are to be granted at an exercise price not less than the fair market
value of the shares of Common Stock on the date of grant. All options vest at a
rate of 25% per year beginning one year after the date of grant. All options
terminate 10 years after the date of grant. At January 30, 2002, no options have
been exercised.

F-15

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Company's stock options is presented
below:

WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------

Outstanding at February 27, 2000........................... 149,000 $ 8.00
Granted.................................................. 38,500 $10.00
Exercised................................................ -- $ --
Forfeited................................................ (20,000) $ 8.00
--------
Outstanding at January 31, 2001............................ 167,500 $ 8.46
Granted.................................................. -- $ --
Exercised................................................ -- $ --
Forfeited................................................ (164,500) $ 8.43
--------
Outstanding at January 30, 2002............................ 3,000 $10.00
========

The following table summarizes information concerning currently
outstanding and exercisable options:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- ----------- ----------- ----------- ----------- -----------
(YEARS) (PER SHARE) (PER SHARE)

$10.00 3,000 8.50 $10.00 900 $10.00

The Company accounts for this stock option plan under the provisions of
APB Opinion No. 25. Accordingly, no compensation cost has been recognized. Had
compensation expense for the Company's stock option plan been determined
consistent with SFAS No. 123, the Company's net earnings would not have been
reduced since the Black-Scholes fair value at the dates of grant was zero for
all options granted, due to the significant difference between the exercise
price and the fair value of the stocks on the grant dates.

The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions for the period February 28, 2000 through January 31, 2001:
Expected option terms of seven years; dividend yield of 0.00%; risk-free
interest rate of 6.03%; and volatility of 0.00%. The weighted average grant date
fair value of the common stock was $3.50. No options were granted for fiscal
year 2002.

12. CONTINGENCIES

In February 2001, an action was brought against the Company by a
contractor, in connection with the remodeling of a store. The complaint alleges
contractual damages of $138,211 and is seeking damages for defamation in the
amount of $1,000,000. The Company is vigorously opposing these claims and has
asserted counterclaims seeking

F-16

MONTANA MILLS BREAD CO., INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

damages in excess of $100,000. No amount has been recorded in the financial
statements for this item.

From time to time in the ordinary course of business, the Company was
involved in other litigation of which none is considered material to the
business.

13. RELATED PARTY TRANSACTIONS

As discussed in Note 6, the Company leases two buildings from its
principal stockholder and Chief Executive Officer. Rental expense for these
properties was $57,750 and $75,498 for the fiscal years 2001 and 2002,
respectively. The Company has a receivable from these related parties of $-0-
and $12,560 at January 31, 2001 and January 30, 2002, respectively.

In the ordinary course of business, the Company has supply arrangements
with Java Joe's Public Market Roastery, Inc. which, effective in November 2001,
is owned by the Company's principal stockholder and Chief Executive Officer. The
Company's transactions with Java Joe's Public Market Roastery, Inc. amounted to
purchases of $75,554 in fiscal year 2002. The Company has a receivable from Java
Joe's Public Market Roastery, Inc. of $9,861 at January 30, 2002.

The Company also has an agreement with the placement agent, which is
partially owned by a director, for its series A preferred stock and subordinated
convertible debentures to assist in making dividend payments on the series A
convertible preferred stock and interest payments to convertible subordinated
debentureholders. There were $24,167 and $30,000 in expenses per this agreement
for the fiscal years 2001 and 2002, respectively.

14. RESTATEMENT

The Company's financial statements as of January 31, 2001 and for the
eleven-month period then ended have been restated from amounts previously
reported to account for stock warrants issued in connection with the convertible
subordinated debentures.

Warrants issued to the placement agent valued at $94,000 are being
accounted for as additional financing costs and amortized over the life of the
debentures. Accordingly, common stockholders' equity as of January 31, 2001 has
increased by $82,000 and income for the period ended January 31, 2001 was
reduced by $12,000 with no effect on earnings per share.

F-17

MONTANA MILLS BREAD
[Photo of interior of village bread store with baker, sales associate and
customers]

[Photo of satellite cafe with customers at tables]

Cinnamon Swirl - Honey Whole Wheat - Grandma's White - Anadama - Apple Cobbler
- Apple Crunch - Apple Raisin Challah - Apple Raisin Cinnamon Swirl - Apple
Walnut
Cinnamon Swirl - Apricot Almond - Asiago Pesto - Banana Chocolate
Chip - Banana
Walnut - Bavarian Rye - Bear Claw - Blackberry Swirl - Blueberry
Cheesecake -
Blueberry Cornbread - Blueberry White Chocolate - Butterscotch Bubble - Cherry
Almond - Cherry Apple Strudel - Cherry Vanilla White Chocolate - Cinnamon
Crunch -
Cinnamon Raisin Walnut - Corn Chowder - Country Italian - Cranberry Orange -
Cranberry Orange Swirl - Cranberry Pecan - Cranberry Pecan Cornbread - Crunchy
Corn Jack - Dakota - Fiesta Bread - Five-Cheese - Focaccia - Fruit
Focaccia - Garlic
Cheddar - German Stollen - Holiday Fruit - Hot Cross Bread - Irish Soda
Bread -
Jalapeno Cheddar Corn - King's Cake - Lemon Blueberry Fizz - Maple Raisin
Walnut -
Montana Harvest - Multigrain - New York Rye - Peach Melba - Peasant
Herb - Pepperoni
Cheese Bread - Pepperoni Cheese with Peppers - Plum Passion - Potato Cheddar
Chive -
Pumpernickel - Pumpkin Nut Swirl - Raspberry Apricot - Rosemary Olive
Sourdough -
San Francisco Sourdough - S'more Bread - Sourdough Pesto - Soyburst - Spinach
Feta -
Stars 'n Stripes - Sticky Bun Bread - Stuffed Broccoli Cheddar - Stuffed
Mushroom
Parsley Jack - Stuffed Spinach Swiss - Stuffed Zucchini Mozzarella - Summer
Harvest -
Sundried Tomato Basil - Sunflower Millet - Swedish Rye - Tarragon Veggie
Jack -
Traditional Challah - Traditional Fruit Challah - Venetian Pizza - Vienna
Twist -
Walnut Torte - Wild Oat Poppyseed

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS
TO BUY, SHARES OF OUR COMMON STOCK AND PURCHASE WARRANTS ONLY IN THOSE
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF OUR COMMON STOCK OR
PURCHASE WARRANTS.
---------------------
TABLE OF CONTENTS

PAGE
----

Prospectus Summary.................... 1
Summary Financial Information......... 6
Risk Factors.......................... 9
Special Note Regarding Forward-Looking
Statements.......................... 18
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 29
Legal Proceedings..................... 43
Management............................ 44
Certain Transactions.................. 50
Principal Stockholders................ 52
Description of Securities............. 54
Shares Eligible For Future Sale....... 59
Underwriting.......................... 60
Legal Matters......................... 62
Experts............................... 62
Where You Can Find More Information... 63
Index to Financial Statements......... F-1

UNTIL , 2002 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------

2,000,000 Shares of Common Stock
and
2,000,000 Redeemable Common Stock Purchase Warrants

[MONTANA MILLS BREAD LOGO]

MONTANA MILLS
BREAD CO., INC.

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

PROSPECTUS
---------------------

KIRLIN SECURITIES, INC.

, 2002

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of Delaware (the "DGCL")
empowers a corporation to indemnify, subject to the standards set forth therein,
any person who is a party to any action in connection with any action, suit, or
proceeding brought or threatened by reason of the fact that the person was a
director, officer, employee or agent of the corporation, or is or was serving as
such with respect to another entity at the request of the corporation. The DGCL
also provides that a corporation may purchase insurance on behalf of any such
director, officer, employee or agent. Article Tenth of the Registrant's
Certificate of Incorporation and Article V of the Registrant's Bylaws each
provide that the Registrant will indemnify its officers and directors, and
persons serving at its request as officers, directors, employees and agents, of
other entities, to the fullest extent as indemnification may be permitted under
Delaware law. The Registrant provides directors' and officers' liability
insurance coverage for its directors and officers.

Section 102(b)(7) of the DGCL enables a Delaware corporation to provide
in its certificate of incorporation for the elimination or limitation of the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any such provision
cannot eliminate or limit a director's liability: (1) for any breach of
director's duty of loyalty to the corporation or its stockholders; (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (3) under Section 174 of the DGCL (which imposes
liability on directors for unlawful payment of dividends or unlawful stock
purchase or redemption); or (4) for any transaction from which the director
derived an improper personal benefit. Article Ninth of the Registrant's
Certificate of Incorporation provides for the elimination or limitation of
personal liability set forth pursuant to Section 102(b)(7) of the DGCL.

The effect of the above-described provisions and agreements is to
indemnify the directors and officers of the Registrant against all costs and
expenses of liability incurred by them in connection with any action, suit or
proceeding in which they are involved by reason of their affiliation with the
Registrant, to the fullest extent permitted by law.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
Common Stock and Redeemable Common Stock Purchase Warrants being registered
hereby. All amounts are estimates except the SEC registration fee, the NASD
review filing fee and the American Stock Exchange filing and listing fees.

II-1

AMOUNT
TO BE PAID
----------

SEC Registration Fee........................................ $ 3,651
NASD Filing Fee............................................. 4,469
American Stock Exchange Filing and Listing Fee.............. 30,000
Printing and Engraving Expenses............................. 125,000
Legal Fees and Expenses..................................... 250,000
Accounting Fees and Expenses................................ 100,000
Blue Sky Fees and Expenses.................................. 10,000
Transfer Agent and Registrar Fees........................... 20,000
Nonaccountable Expense Allowance............................ 315,000
Miscellaneous Expenses...................................... 96,468
--------
Total............................................. $954,588
========

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

The following is a summary of transactions by the Registrant since
April 24, 1999 involving sales of its securities that were not registered under
the Securities Act of 1933, as amended:

1) During June through September 2000, the Registrant sold $4,538,500
in principal amount of subordinated convertible debentures to investors in
accordance with Rule 506 as promulgated under the Securities Act of 1933,
as amended. The Registrant received proceeds of $4,176,220 from the sale of
its subordinated convertible debentures after deducting $362,280 in
commissions to Pittsford Capital Markets, Inc., the Registrant's placement
agent in this private placement.

2) In connection with the private placement described in Item 1 above,
the Registrant issued two Selling Agent Warrants to purchase up to an
aggregate of 98,062 shares of the Registrant's common stock at an exercise
price equal to the lesser of $10.00 per share of our common stock or 150%
of the initial public offering price per share of our common stock. The
Selling Agent Warrants expire in September 2005.

3) Since 1998, the Registrant has granted incentive stock options to
purchase an aggregate of 187,500 shares of common stock under individual
stock option agreements and its 1998 Employee and Non-Employee Stock Option
Plan to eligible employees, officers, directors and consultants of the
Registrant. Of the options granted, 184,500 have been forfeited and none
have expired or terminated by their terms. 3,000 of such options remain
outstanding.

Each of the above-described issuances by the Registrant of its
securities was deemed to be exempt from registration under the Securities
Act of 1933, as amended, in reliance on Section 4(2) of the Securities Act
as transactions by an issuer not involving a public offering, and/or
Regulation D promulgated thereunder, and/or transactions pursuant to
compensatory benefit plans and contracts relating to compensation under
Rule 701 of the Securities Act. The recipient of securities in each
transaction as described above represented his, her or its intention to
acquire

II-2

the applicable securities not with a view to, or for sale in connection
with, any distribution thereof, and appropriate legends were affixed to the
instruments issued in each transaction.

ITEM 27. EXHIBITS

EXHIBIT
NO. DESCRIPTION
------- -----------

*1.1 Form of Underwriting Agreement by and between the Registrant
and Kirlin Securities, Inc.
3.1 Certificate of Incorporation of the Registrant, including
Certificate of Designation.
3.2 By-laws of the Registrant.
*4.1 Specimen Common Stock Certificate of the Registrant.
4.2 Specimen Redeemable Common Stock Purchase Warrant
Certificate.
4.3 Form of Redeemable Common Stock Purchase Warrant Agreement
between the Registrant and Continental Stock Transfer &
Trust Company.
*4.4 Form of Purchase Option issued to Kirlin Securities, Inc.
5.1 Form of Opinion of Harter, Secrest & Emery LLP regarding the
legality of securities being registered.
*10.1 Employment Agreement between the Registrant and Eugene
O'Donovan.
*10.2 Employment Agreement between the Registrant and Susan
O'Donovan.
*10.3 Stock Option Agreement between the Registrant and Eugene
O'Donovan.
10.4 1998 Employee and Non-Employee Director Stock Option Plan of
the Registrant.
*10.5 Form of Consulting Agreement between the Registrant and
Kirlin Securities, Inc.
*10.6 Form of Merger and Acquisition Agreement between the
Registrant and Kirlin Securities, Inc.
10.7 License Agreement between Montana Mills Bread Co. of
Rochester, Inc., a wholly-owned subsidiary of the
Registrant, and Siempre Caffe, Inc.
*10.8 Form of Amended and Restated Note Purchase Agreement between
the Registrant and Cephas Capital Partners, L.P.
*10.9 Form of Convertible Promissory Note made by the Registrant
in favor of Cephas Capital Partners, L.P.
10.10 Selling Agent Warrant issued by the Registrant to Pittsford
Capital Markets, Inc. on July 31, 1998.
10.11 Selling Agent Warrant issued by the Registrant to Pittsford
Capital Markets, Inc. on July 12, 2000.
10.12 Selling Agent Warrant issued by the Registrant to Kirlin
Securities, Inc. on July 12, 2000.
21.1 List of Subsidiaries of the Registrant.
23.1 Form of Consent of Harter Secrest & Emery LLP (included in
Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included in Registration Statement
signature page).

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

* To be filed by amendment.

ITEM 28. UNDERTAKINGS

The Registrant hereby undertakes to provide to the Underwriter at the
closing specified in the Underwriting Agreement certificates in the
denominations and registered in the names as required by the Underwriter to
permit prompt delivery to each purchaser.

II-3

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
the indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against these
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by the officer
or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel, the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether the indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of the issue.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A under the Securities Act
and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of these securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of
Rochester, State of New York, on April 25, 2002.

MONTANA MILLS BREAD CO., INC.

By: /s/ EUGENE O'DONOVAN
------------------------------------
Eugene O'Donovan
President and Chief Executive
Officer

POWER OF ATTORNEY

Each person whose signature appears below in so signing also makes,
constitutes and appoints Eugene O'Donovan and Susan O'Donovan, and each of them
acting alone, his or her true and lawful attorney-in-fact, with full power of
substitution for him or her in any and all capacities to execute and cause to be
filed with the Securities and Exchange Commission any and all amendments and
post-effective amendments to this registration statement, and any registration
statement for the same offering covered by this registration statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act,
and all post-effective amendments thereto together with exhibits to any such
registration statements or amendments and other documents in connection
therewith, and hereby ratifies and confirms all that said attorney-in-fact or
said attorney-in-fact's substitute or substitutes may do or cause to be done by
virtue hereof.

II-5

In accordance with the requirements of the Securities Act of 1933, this
registration statement on Form SB-2 has been signed by the following persons in
the capacities and on the dates indicated.

SIGNATURE POSITION DATE
--------- -------- ----

/s/ EUGENE O'DONOVAN President, Chief Executive Officer April 25, 2002
------------------------------------------ and Chairman of the Board of Directors
Eugene O'Donovan (Principal Executive Officer)

/s/ SUSAN O'DONOVAN Executive Vice President, April 25, 2002
------------------------------------------ Secretary and Director
Susan O'Donovan

/s/ KEITH P. BLEIER Controller (Principal Financial Officer April 25, 2002
------------------------------------------ and Principal Accounting Officer)
Keith P. Bleier

/s/ SAMUEL LANZAFAME Director April 25, 2002
------------------------------------------
Samuel Lanzafame

/s/ EDWARD L. TACKABERRY Director April 25, 2002
------------------------------------------
Edward L. Tackaberry

/s/ JOHN TATE Director April 25, 2002
------------------------------------------
John Tate

II-6

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION
------- -----------

*1.1 Form of Underwriting Agreement by and between the Registrant
and Kirlin Securities, Inc.
3.1 Certificate of Incorporation of the Registrant, including
Certificate of Designation.
3.2 By-laws of the Registrant.
*4.1 Specimen Common Stock Certificate of the Registrant.
4.2 Specimen Redeemable Common Stock Purchase Warrant
Certificate.
4.3 Form of Redeemable Common Stock Purchase Warrant Agreement
between the Registrant and Continental Stock Transfer &
Trust Company.
*4.4 Form of Purchase Option issued to Kirlin Securities, Inc.
5.1 Form of Opinion of Harter, Secrest & Emery LLP regarding the
legality of securities being registered.
*10.1 Employment Agreement between the Registrant and Eugene
O'Donovan.
*10.2 Employment Agreement between the Registrant and Susan
O'Donovan.
*10.3 Stock Option Agreement between the Registrant and Eugene
O'Donovan.
10.4 1998 Employee and Non-Employee Director Stock Option Plan of
the Registrant.
*10.5 Form of Consulting Agreement between the Registrant and
Kirlin Securities, Inc.
*10.6 Form of Merger and Acquisition Agreement between the
Registrant and Kirlin Securities, Inc.
10.7 License Agreement between Montana Mills Bread Co. of
Rochester, Inc., a wholly-owned subsidiary of the Registrant
and Siempre Caffe, Inc.
*10.8 Form of Amended and Restated Note Purchase Agreement between
the Registrant and Cephas Capital Partners, L.P.
*10.9 Form of Convertible Promissory Note made by the Registrant
in favor of Cephas Capital Partners, L.P.
10.10 Selling Agent Warrant issued by the Registrant to Pittsford
Capital Markets, Inc. on July 31, 1998.
10.11 Selling Agent Warrant issued by the Registrant to Pittsford
Capital Markets, Inc. on July 12, 2000.
10.12 Selling Agent Warrant issued by the Registrant to Kirlin
Securities, Inc. on July 12, 2000.
21.1 List of Subsidiaries of the Registrant.
23.1 Form of Consent of Harter Secrest & Emery LLP (included in
Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included in Registration Statement
signature page).

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

* To be filed by amendment.