Edgar Filing: MELT INC

Filed by Automated Filing Services Inc. (604) 609-0244 - Melt Inc. - Form 10-QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________to __________

Commission file number 333-109990

MELT INC.
(Exact name of small business issuer as specified in its charter)

Nevada	47-0925451
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

22912 Mill Creek Dr, Suite D, Laguna Hills, CA 92653
(Address of principal executive offices)

949.707.0456
(Issuer's telephone number)

32222 Corte Tomatlan, Temecula, CA 92592
(Former name, former address and former fiscal year, if changed since last report)

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable
date: 21,290,000 common shares issued and outstanding as of November 13, 2007

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X ]

Item 1.

Financial Statements.

It is the opinion of management that the interim consolidated financial statements for the quarter ended September 30, 2007 include all adjustments necessary in order to ensure that the interim consolidated financial statements are not misleading.

MELT INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007 and December 31, 2006

MELT INC. AND SUBSIDIARIES

Consolidated Balance Sheets

ASSETS

		September 30,		December 31,
		2007		2006
		(Unaudited)
CURRENT ASSETS
Cash	$	-	$	555,230
Receivables, net of allowance of $5,000		262,855		804,685
Prepaid expenses		-		7,500
Inventory		-		4,130
Total Current Assets		262,855		1,371,545
FIXED ASSETS, NET		50,871		51,518
OTHER ASSETS
Trademark, net		871		1,239
Deposits		6,500		196,817
Total Other Assets		7,371		198,056
ASSETS FROM DISCONTINUED OPERATIONS (NOTE 4)		364,000		732,624
TOTAL ASSETS	$	685,097	$	2,353,743

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

MELT INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

		September 30,		December 31,
		2007		2006
		(Unaudited)
CURRENT LIABILITIES

Cash overdraft	$	94,144	$	-
Accounts payable		445,937		870,058
Accrued expenses		455,157		192,498
Accrued management fees – related party		81,911		63,911
Notes payable - related party		311,260		242,000
Accrued interest - related party		68,676		40,328
Notes payable		512,130		113,239
Accrued interest		7,167		10,195
Deferred revenue		250,000		550,000

Total Current Liabilities		2,226,382		2,082,229

LIABILITIES FROM DISCONTINUED OPERATIONS (NOTE 4)		-		326,507

TOTAL LIABILITIES		2,226,382		2,408,736

STOCKHOLDERS’ EQUITY (Deficit)

Common stock; $0.001 par value, 100,000,000
shares authorized, 21,290,000 and 21,200,000 shares
issued and outstanding, respectively		21,290			21,200
Additional paid-in capital		1,897,001			1,767,017
Deferred equity compensation		(73,653	)		-
Accumulated deficit		(3,385,923	)		(1,843,210	)

Total Stockholders’ Equity (Deficit)		(1,541,285	)		(54,993	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	685,097		$	2,353,743

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

MELT INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

		For the Three Months Ended						For the Nine Months Ended
		September 30,						September 30,
		2007			2006			2007			2006
REVENUES

Food and beverage sales	$	594,660		$	229,387		$	1,332,011		$	714,004
Royalty and marketing fees		167,660			49,203			390,089			112,135
Franchise fees		225,000			100,000			450,000			175,000
Miscellaneous finders and professional fees		16,875			5,738			47,530			40,892

Total Revenues		1,004,195			384,328			2,219,630			1,042,031

COST OF SALES

Cost of food and beverage		467,988			181,606			1,159,622			570,776
Materials and supplies		108,645			14,729			145,703			47,603

Total Cost of Sales		576,633			196,335			1,305,325			618,379

GROSS PROFIT		427,562			187,993			914,305			423,652

EXPENSES

Depreciation and amortization		2,635			1,839			8,567			20,655
Marketing		29,280			48,162			240,102			73,584
Professional fees		30,388			44,645			175,374			100,073
Rent		9,951			7,098			28,765			41,204
Salaries and wages		172,665			57,369			686,129			178,870
Management fees		6,000			27,600			18,000			83,250
Bad debt expense		1,592			-			1,592			-
General and administrative		56,047			126,260			201,872			255,231

Total Expenses		308,558			312,973			1,360,401			752,867

INCOME (LOSS) FROM OPERATIONS		119,004			(124,980	)		(446,096	)		(329,215	)

OTHER INCOME (EXPENSES)

Interest expense		(11,520	)		(9,551	)		(30,875	)		(23,755	)
Interest income		909			2,855			1,843			3,510
Gain (Loss) on sale of fixed assets		-			-			(3,502	)		91,657

Total Other Income (Expense)		(10,611	)		(6,696	)		(32,534	)		71,412

INCOME (LOSS) BEFORE MINORITY
INTEREST, DISCONTINUED OPERATIONS
AND INCOME TAXES		108,393			(131,676	)		(478,630	)		(257,803	)

MINORITY INTEREST		-			15,110			-			55,578

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

MELT INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Continued)

(Unaudited)

		Three Months Ended					For the Nine Months Ended
		September 30,					September 30,
		2007		2006			2007			2006

INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS	$	108,393	$	(116,566	)	$	(478,630	)	$	(202,225	)

(Loss) from sale of subsidiary (Note 3)		-		(22,149	)		-			(22,149	)
(Loss) from discontinued operations (Note 3)		-		(30,220	)		-			(111,156	)
Income (Loss) from discontinued operations
(Note 4)		321,337		66,523			(1,064,083	)		106,824

TOTAL INCOME (LOSS) FROM
DISCONTINUED
OPERATIONS		321,337		14,154			(1,064,083	)		(26,481	)

INCOME (LOSS) BEFORE INCOME TAXES		429,730		(102,412	)		(1,542,713	)		(228,706	)

INCOME TAX EXPENSE		-		-			-			-

NET INCOME (LOSS)	$	429,730	$	(102,412	)	$	(1,542,713	)	$	(228,706	)

BASIC AND DILUTED NET
INCOME (LOSS) PER SHARE:

Income (loss) per share on continuing
operations	$	0.00	$	(0.01	)	$	(0.02	)	$	(0.01	)

Income (loss) per share on discontinued
Operations		0.02		0.00			(0.05	)		(0.00	)

Net income (loss) per share	$	0.02	$	0.01		$	(0.07	)	$	(0.01	)

WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING		21,290,000		20,280,000			21,254,066			20,280,000

FULLY DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING		22,109,000		21,210,000

The accompanying notes are an integral part of these consolidated financial statements.
7

MELT INC. AND SUBSIDIAIES

Consolidated Statement of Stockholders’ Equity (Deficit)

					Additional
	Common Stock				Paid-in			Deferred			Accumulated
	Shares		Amount		Capital			Compensation			Deficit

Balance, December 31, 2006	21,200,000	$	21,200	$	1,767,017		$	-		$	(1,843,210	)

Common stock issued for
Services and accrued services	90,000		90		45,810			-			-
(unaudited)

Stock options issued for
deferred equity compensation	-		-		172,264			(172,264	)		-
(unaudited)

Amortization of deferred equity
Compensation (unaudited)	-		-		-			10,521			-

Cumulative effect of stock option
forfeiture (unaudited)	-		-		(88,090	)		88,090			-

Net loss for the nine months
ended September 30, 2007 -
(unaudited)	-		-		-			-			(1,542,713	)

Balance, September 30, 2007 -
(unaudited)	21,290,000	$	21,290	$	1,897,001		$	(73,653)		$	(3,385,923	)

The accompanying notes are an integral part of these consolidated financial statements.
8

MELT INC. AND SUBSIDIAIES

Consolidated Statements of Cash Flows

(Unaudited)

		For the Nine Months Ended
		September 30,
		2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss after discontinued operations	$	(1,542,713	)	$	(228,706	)
Less: loss from discontinued operations		(1,064,083	)		(185,327	)

Net loss before discontinued operations		(478,630	)		(43,379	)
Items to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization		8,567			20,655
Bad debt expense		6,592			-
Amortization of deferred equity compensation		10,521			-
Common stock issued for services		34,650			-
Minority interest		-			(55,578	)
(Gain) loss on sale of fixed assets		3,502			(91,657	)
Changes in operating assets and liabilities:
(Increase) decrease in receivables		332,664			(386,870	)
Decrease in supplies and inventory		4,130			57,311
Decrease in prepaid expenses		7,500			8,624
(Increase) in other assets		(72	)		-
Increase in accounts payable and accrued expenses		16,230			699,107
Increase in interest payable – related party		25,320			10,089
Increase in interest payable		-			5,663
Increase in management fees payable		18,000			18,000
Increase (decrease) in deferred revenue		(300,000	)		325,000

Net Cash Provided (Used) by Operating Activities		(311,026	)		566,965

Net Cash Used by Discontinued Activities		(791,867	)		(700,161	)

Total Net Cash Used by Operating and Discontinued
Activities		(1,102,893	)		(133,196	)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of fixed assets		1,546			-
Purchases of fixed assets		(16,178	)		(33,929	)

Net Cash Used by Investing Activities
– Continuing Operations		(14,632	)		(33,929	)

Net Cash Provided by Investing Activities
– Discontinued Operations		-			231,900

Net Cash Provided (Used) by Investing Activities	$	(14,632	)	$	197,971

The accompanying notes are an integral part of these consolidated financial statements.
9

MELT INC. AND SUBSIDIAIES

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

		For the Nine Months Ended
		September 30,
		2007			2006
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in cash overdraft	$	94,144		$	-
Proceeds from notes payable		400,000			114,703
Payments on notes payable		(1,109	)		(887	)
Proceeds from notes payable – related party		201,260			25,659
Payments on notes payable – related party		(132,000	)		(32,495	)
Net Cash Provided by Financing Activities	$	562,295		$	106,980
INCREASE (DECREASE) IN CASH		(555,230	)		171,755
CASH AT BEGINNING OF PERIOD		555,230			245,064
CASH AT END OF PERIOD	$	-		$	416,819
CASH PAID FOR:
Interest	$	16,155		$	3,250
Income taxes	$	-		$	-
NON CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for services and accrued services	$	34,650		$	-

The accompanying notes are an integral part of these consolidated financial statements.
10

MELT INC. AND SUBSIDIAIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 1 -

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Melt Inc. and Subsidiaries is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements.

a. Organization and Business Activities

Melt Inc. (Hereinafter referred to as the Company) was organized on July 18, 2003, under the laws of the State of Nevada. The Company operates as a holding company for operating subsidiaries.

Melt (California), Inc. a wholly owned subsidiary (hereinafter referred to as Melt (CA)) was organized on August 6, 2003, under the laws of the State of California.

Melt Franchising LLC (hereinafter referred to as Melt (FA)) a wholly owned subsidiary of Melt Inc was organized on February 2, 2005 under the laws of the State of Nevada. Melt Franchising LLC is responsible for selling franchises to allow franchisee’s to own and operate stores trading under the name of Melt – gelato italiano, Melt – café & gelato bar and Melt – gelato & crepe café. To-date Melt Franchising LLC has sold thirty-two franchises of which twenty-three are operating and four are in the process of finding suitable locations to operate their stores. During the three months ended September 2007, Melt (CA) discontinued its business of constructing franchisee sites and completed the construction of three sites and abandoned construction of six sites (see Note 4).

b. Depreciation

The cost of the equipment and property is depreciated over the estimated useful life of 5 and 7 years, respectively. Depreciation is computed using the straight-line method beginning when the assets are placed in service. Depreciation expense on assets used in continuing operations for the nine months ended September 2007 and 2006 was $8,567 and $20,655, respectively.

c. Accounting Method

The Company’s consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 year-end.

d. Cash and Cash Equivalents

For the purpose of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

MELT INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 1 -

ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (Continued)

e. Estimates

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

f. Revenue Recognition

The Company’s revenues are derived primarily from the operation of corporate owned retail stores and franchising activities, including revenue from store development, acquisition and construction services on behalf of its franchisees.

Food and Beverage

Revenue from the sale of food and beverages at corporate owned stores and to franchisees is recognized as products are sold and when all rights and obligations of the Company have been met.

Franchise Fee Revenue

The Company’s franchise agreements require an initial franchise fee of $25,000 and have seven year terms with two seven year options. The agreements also call for weekly royalty payments of six percent and a one percent marketing fee.

Revenue from initial franchise fees are recognized when the Company has completed its obligation to the franchisee, the franchise store has opened and there is (a) no remaining obligation or intent to refund an amounts paid, (b) substantially all of the initial services required by the Uniform Franchise Offering Circular have been performed, and (c) there are no other material conditions or obligations related to substantial performance. Franchise fees collected for franchise agreements that are ultimately terminated are recognized as revenue only when the Company has met its obligations under the Uniform Franchise Offering Circular and there are no material conditions or obligations remaining. The Company opened 7 new franchise stores during the nine months ended September 30, 2007 and recognized $450,000 in franchise fee revenue.

Revenue from continuing royalties and marketing fees, which are based on a percentage of net sales of franchised restaurants, are recognized as income is earned and when it becomes receivable from the franchisee.

Deferred Revenue

As of September 30, 2007 the company maintained deferred revenue of $250,000. This represents ten sites in deferred revenue.

MELT INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 1 -

ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (Continued)

f. Revenue Recognition (Continued)

Build and Sale of Franchise Stores

Due to the short-term nature of the Company’s store construction contracts, the Company accounts for the build and sale of franchise stores in accordance with ARB 45 “Long-Term Construction-Type Contracts” using the completed-contract method, whereby, income is only recognized when the contract is completed, or substantially completed. Accordingly, costs of contracts in process and current billings are accumulated but there are no interim charges or credits to income other than provisions for losses. A contract is regarded as substantially completed if remaining costs are not significant in amount.

Miscellaneous Finder and Professional Fees

Miscellaneous finder and professional fees revenue consists of services performed by the Company for franchise store design, lease review and site finders fees. The revenue from these professional fees is recognized as services are performed and when all rights and obligations of the Company have been met.

g. Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consists primarily of amounts related to franchise royalties, rents and other miscellaneous items.

The Company recognizes allowances for doubtful accounts to ensure receivables are not overstated due to uncollectibility. Bad debt reserves are maintained for customers in the aggregate based on a variety of factors, including the length of time receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of potential uncollectibility. The allowance for doubtful accounts is $5,000 at September 2007 for accounts receivable from continuing operations, while bad debt expense from continuing operations totalled $1,592 for the period ended September 30, 2007.

h. Advertising and Marketing

The Company follows the policy of charging the costs of marketing and advertising to expense as incurred. Marketing and Advertising expense for the nine months ended September 30, 2007 and 2006 was $240,102 and $73,584, respectively.

MELT INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 1 -

ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (Continued)

j. Principles of Consolidation

The consolidated financial statements include the amounts of Melt Inc. and its wholly owned subsidiaries, Melt (California) Inc., Melt Franchising LLC and formerly owned subsidiary Villa Melt LLC, a company in which Melt Inc. controlled and owned 50% of the equity until it was sold in August 2006 (see Note 3). All material inter-company accounts and transactions have been eliminated.

k. Long Lived Assets

The Company adopted Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 develops one accounting model (based on the model in SFAS 121) for long-lived assets that are to be disposed of by sale, and addresses the principal implementation issues. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. This requirement eliminates APB30's requirement that discontinued operations be measured at net realizable value or that entities include under discontinued operations in the financial statements amounts for operating losses that have not yet occurred. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction.

l. Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash, accounts payable, and accrued liabilities, approximate fair value due to their short maturities.

MELT INC. AND SUBSIDIAIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 2 -

SIGNIFICANT EVENTS

Franchise Locations

During the first nine months of 2007, five franchisee locations elected to terminate their franchise agreement. The franchise fees associated with those locations are non refundable and were included in deferred revenue at December 31, 2006. We have recorded $125,000 in franchise fee revenue associated with these five franchise agreement terminations. Three of these five locations are with the franchisee described in the litigation note below.

On March 12, 2007, the franchisee for the Valencia Mall ceased to operate. On March 15, 2007, the company terminated the franchise agreement and is seeking post closure remedies to collect outstanding bills. All outstanding receivables as of March 15, 2007 were written off.

On June 23, 2007, the franchisee for the Mid Rivers Mall ceased to operate. On June 30, 2007, the company wrote off a $100,000 note receivable due from this franchisee as management determined it was uncollectible. On July 2, 2007 the company terminated the franchise agreement and entered into a negotiated settlement for outstanding bills.

Litigation

Melt Franchising, LLC and Melt (California), Inc. v. Steven A. Field, M.D., MMS Coconut Point, LLC, and MMS King of Prussia Court, LLC (Respondents).

On March 18, 2007, Melt (FA) and Melt (CA) filed a demand for arbitration against Respondents seeking a finding and/or declaration of entitlement to terminate respondents’ franchises. Claimants also seek unpaid royalties and advertising contributions; rent and other charges due under subleases between respondents and Melt (CA); an amount equal to all unpaid construction invoices; an amount equal to all unpaid invoices for products purchased by respondents; and costs and expenses of arbitration and attorneys’ fees. An arbitrator has been appointed and a preliminary hearing was held wherein Respondents, who have not responded to the demand for arbitration, alleged that the arbitration clause contained in Respondents’ franchise agreements violates California law and is therefore unenforceable. Further, Respondents are seeking to disqualify the Arbitrator because the Arbitrator is local counsel for our co-counsel Faegre & Benson (who has subsequently been removed as co-counsel). As of October 31, 2007 the demand is still pending subject to resolution of these preliminary matters.

David Gold, Elena Gold, EAOA, Inc., Steven Field, MMS Management, LLC, MMS Coconut Point, LLC, Jong Han, Yon Ho Kim, Young Suk Kim, Kang Won Lee, Yoo & Lee Enterprises, Inc., Charindra Liyanage, Liyange Investments, LLC (Plaintiffs) v. Melt, Inc., Melt (California), Inc., Melt Franchising, LLC, Clive V. Barwin, Brandon Barwin, Michael Zorehkey, Rick Zorehkey, Eddie Ollman, Scott Miller, and Alin Cruz.

On September 19, 2007, Plaintiffs filed a punative class action against us, our affiliates, and our officers and employees alleging damages and injunctive relief under state Franchise Acts,

MELT INC. AND SUBSIDIAIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 2 -

SIGNIFICANT EVENTS (CONTINUED)

Litigation (Continued)

restitution and injunctive relief under unfair business practices act, damages and injunctive relief under the “Cartwright” act, fraud, interference with prospective economic advantage, and declaratory relief. Plaintiffs purport to represent a class of our franchisees. We and our affiliates and employees deny the allegations and intend to respond to this litigation.

Financing

On July 30, 2007, the company borrowed $400,000 from Money for Gelato, Inc (MFG). The loan is convertible into restricted common stock at fixed conversion prices over the next five years, if not repaid within twelve months. The loan carries an interest only payment of prime plus 3%. Due to the conversion price being greater than the market price of the Company’s common stock at issuance, no beneficial conversion feature was recognized as a result of entering into the loan.

Franchise Closure

On July 2, 2007 the company entered into a settlement agreement with our St Louis franchisee. The settlement covers this store and a franchise agreement for a second store as well as two sublease agreements. As part of this settlement the company is now liable for the rent payment on these two stores.

Commitments and Contingencies

On March 15, 2007, one of the eleven noncancelable leases held by the Company was assigned to a franchisee. With the assignment, the company is no longer liable for any future minimum lease payments. In addition, one other noncancelable lease was subleased to a franchisee.

Common Stock Issuance

On April 19, 2007, the Company issued 90,000 shares of its common stock to an investor relations firm as a result of a December 1, 2006 consultant agreement. Pursuant to the terms of the six month consultant agreement, the Company agreed to pay $15,000 on signing as payment for the first and last month’s payment and $7,500 on or before the first day of each of the next four months and issue 90,000 shares of its common stock.

NOTE 3 -

SALE OF SUBSIDIARY

On August 22, 2006, the Company entered into an agreement to sell its equity interest in its 50% owned subsidiary Villa Melt, LLC to the remaining interest holders for $145,000. A cash payment of $50,000 was received upon closing and a receivable of $95,000 was recorded at September 30, 2006. Upon close of the sale, the Company recognized a loss on sale of assets of $22,149.

MELT INC. AND SUBSIDIAIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 3 -

SALE OF SUBSIDIARY (CONTINUED

All assets, liabilities and operating results of Villa Melt, LLC are included in discontinued operations as of September 30, 2006. No tax benefit has been attributed to discontinued operations. The following is an unaudited summary of the loss from discontinued operations resulting from the sale of Villa Melt, LLC:

		For the			For the
		Three Months			Nine Months
		Ended			Ended
		September 30,			September 30,
		2006			2006
REVENUES	$	75,583		$	312,472
COST OF SALES		29,003			99,992
GROSS PROFIT		46,580			212,480
EXPENSES
Depreciation and amortization		11,702			46,808
Professional fees		1,520			1,520
Rent		20,944			97,345
Salaries and wages		23,356			112,026
General and administrative		17,728			65,891
Total Expenses		76,800			323,590
LOSS FROM OPERATIONS		(30,220	)		(111,110	)
OTHER EXPENSE
Interest expense		-			46
Total Other Expense		-			46
LOSS FROM DISCONTINUED OPERATIONS	$	(30,220	)	$	(111,156	)

NOTE 4 -

DISCONTINUED OPERATIONS

During the period ended September 2007, Melt (CA) elected to discontinue the operations related construction and sale of store locations for franchisees, its “store in a box” program due to continuing losses. During the period Melt (CA) completed construction on three stores and abandoned construction activities on six stores.

All assets, liabilities and operating results related to store construction are therefore included in discontinued operations as of September 30, 2007. No tax benefit has been attributed to

MELT INC. AND SUBSIDIAIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 4 -

DISCONTINUED OPERATIONS (CONTINUED)

discontinued operations. The following is an unaudited summary of the assets and liabilities related to discontinued operations of construction activities:

		September 30,		December 31,
		2007		2006
CURRENT ASSETS
Accounts receivable – related party	$	364,000	$
Construction in-process		-		732,624
Total Current Assets	$	364,000	$	732,624
CURRENT LIABILITIES
Construction deposits	$	-	$	326,507

The following is an unaudited summary of the loss from discontinued operations resulting from the discontinuation of construction activities:

		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,
		2007		2006		2007		2006
REVENUES

Franchise
stores
construction/
equipment	$	675,594	$	807,945	$	2,228,071	$	967,874
Professional
and finders
fees		14,534		106,500		9,500		129,000

Total
Revenues		690,128		914,445		2,237,571		1,096,874

COST OF SALES

Franchise stores
construction/
equipment costs		120,221		847,922		2,127,553		990,050
Professional
and finders fees		12,000		-		57,000		-

Total Cost of
Sales		132,221		847,922		2,184,553		990,050

MELT INC. AND SUBSIDIAIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 4 -

DISCONTINUED OPERATIONS (CONTINUED)

		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,
		2007		2006		2007			2006

GROSS PROFIT
(DEFICIT)	$	557,907	$	66,523	$	53,018		$	106,824

EXPENSES

Bad debt		-		-		202,574			-
Rent		5,514		-		683,471			-

Total Expenses		5,514		-		886,045			-

INCOME (LOSS)
FROM
OPERATIONS		552,393		66,523		(833,027	)		106,824

OTHER EXPENSE

Loss on write-off
of construction
work in-process		231,056		-		231,056			-

INCOME (LOSS)
FROM
DISCONTINUED
OPERATIONS	$	321,337	$	66,523	$	(1,064,083	)	$	106,824

NOTE 5 -

OUTSTANDING STOCK PURCHASE WARRANTS AND OPTIONS

Employee Stock Options

On April 2, 2007, the Company issued 1,760,000 stock options to employees with an exercise price of $0.40, which was the previous five day weighted average price of the Company’s common stock when issued. The options have a five year term and vest over a 4 year period at a rate of 25% per year. The options terminate upon leaving the Company prior to vesting and as such, four employees have resigned and forfeited a total of 800,000 options. The Company deferred $172,264 in calculated fair value of the options expected to vest and amortized $10,766 of the value to expense during the period.

A summary of the status of the Company’s outstanding stock warrants as of September 30, 2007 and December 31, 2006 and changes during the periods is presented below:

MELT INC. AND SUBSIDIAIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 5 -

OUTSTANDING STOCK PURCHASE WARRANTS AND OPTIONS (CONTINUED)

Employee Stock Options (Continued)
				Weighted		Weighted
				Average		Average
	Options			Price		Fair Value

Outstanding, December 31, 2006	-		$	-	$	-

Issued	1,760,000			0.40		0.20
Exercised	-			-		-
Forfeited	(1,330,000	)		0.40		0.20
Expired	-			-		-

Outstanding, September 30, 2007	430,000		$	0.40	$	0.20

Exercisable, September 30, 2007	-		$	-	$	-

Outstanding

Exercisable

Weighted

Number

Average

Weighted

Number

Weighted

Range of

Outstanding

Remaining

Average

Exercisable

Average

Exercise

Contractual

Exercise

Prices

9/30/07

Life

Price

9/30/07

Price

0.40

430,000

4.50

0.40

The Company estimated the fair value of the stock options at the grant date by using the Black-Scholes option pricing model based on the following assumptions:

	Risk free interest rates	4.54%
	Expected lives	5 years
	Expected volatilities	50%
	Dividend yields	0.00%
	Expected forfeitures	50%

As a result of forfeitures being in excess of expected amounts, the Company recorded a cumulative effect adjustment related to the excess forfeitures as a reduction of deferred equity compensation in the amount of $87,845, reduced recognized compensation year-to-date by $244 and reduced additional paid-in capital by $88,090.

Stock Warrants

A summary of the status of the Company’s outstanding stock warrants as of September 30, 2007 and December 31, 2006 and changes during the periods is presented below:

MELT INC. AND SUBSIDIAIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 5 -

OUTSTANDING STOCK PURCHASE WARRANTS AND OPTIONS (CONTINUED)

Stock Warrants (Continued)

				Weighted		Weighted
				Average		Average
	Warrant			Price		Fair Value

Outstanding, December 31, 2006	1,390,000		$	0.82	$	0.57

Issued	-			-		-
Exercised	-			-		-
Forfeited	-			-		-
Expired	(930,000	)		0.75		0.75

Outstanding, September 30, 2007	460,000		$	0.95	$	0.95

Exercisable, September 30, 2007	460,000		$	0.95	$	0.95

Outstanding

Exercisable

Weighted

Number

Average

Weighted

Number

Weighted

Range of

Outstanding

Remaining

Average

Exercisable

Average

Exercise

Contractual

Exercise

Prices

9/30/07

Life

Price

9/30/07

Price

0.90 – 1.00

460,000

1.05

0.95

460,000

0.95

NOTE 6 -

GOING CONCERN

The Company's consolidated financial statements are prepared using Generally Accepted Accounting Principals applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has accumulated significant losses, has negative working capital and a deficit in stockholders' equity. All of these items raise substantial doubt about its ability to continue as a going concern. Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the Company's ability to continue as a going concern are as follows:

Management believes that, based upon the current operating plan of divesting itself of operations failing to produce cash flows from operations should help alleviate the adverse financial condition of the Company. If the Company is not successful in identifying positive cash flow revenue streams from its franchising activities, the Company may be forced to raise additional equity or debt financing to fund its ongoing obligations, seek protection under existing bankruptcy laws or cease doing business. If additional funds are raised through the issuance of equity securities, the percentage ownership of the Company's then-current stockholders would be diluted. If additional funds are raised through the issuance of debt securities, the Company will incur interest charges until the related debt is paid off.

MELT INC. AND SUBSIDIAIES

Notes to the Consolidated Financial Statements

September 30, 2007 and December 31, 2006

NOTE 6 -

GOING CONCERN (CONTINUED)

There can be no assurance that the Company will be able to achieve its business plans, raise any required capital or secure the financing necessary to achieve its current operating plan. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Item 2.

Management's Discussion and Analysis or Plan of Operation.

FORWARD LOOKING STATEMENTS

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to the common shares in our capital stock.

As used in this quarterly report, the terms "we", "us", "our" and "Melt" mean Melt, Inc. our wholly-owned subsidiaries, Melt (California) Inc. and Melt Franchising LLC. The term “Melt CA” refers to Melt (California) Inc., and the term “Melt Franchising” refers to Melt Franchising LLC, unless otherwise indicated.

You should read the following discussion of our financial condition and results of operations together with the unaudited financial statements and the notes to unaudited financial statements included elsewhere in this filing prepared in accordance with accounting principles generally accepted in the United States. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.

RESULTS OF OPERATIONS

Nine Months ending September 30, 2007 compared to nine months ending September 30, 2006

The period covered by our unaudited financial statements is for the nine months ended September 30, 2007 during which time we generated $2,219,630 in revenue from continuing operations and recognized a net loss before discontinued operations of $478,630 during the same period last year we generated $1,042,031 in revenue from continuing operations and incurred a loss of $202,255 from continuing operations. The revenue was generated from franchise fees, from revenue generated in royalty revenues and from food and supplies sold to our franchise owned stores. The increase in revenues from continuing operations for the current period was in almost all categories of revenue with royalty income up approximately 248%, franchisee fee income up 157% and sales of food and beverage up 87%. Cost of sales from continuing operations amounted to $1,305,325, resulting in gross profit from continuing operations of $914,305, or 41% compared to cost of sales of $618,375 during the same period last year, resulting in gross profit from continuing operations of $423,656, or 41%. The percentage gross profit is in line with the prior year adjusted gross profit.

Salaries and wages from continuing operations amounted to $686,129 or 31% of sales and $178,870 or 17% of sales for the same period last year. The percentage increase is due to the increase in corporate staff. General and administrative expenses from continuing operations amounted to $201,872 or 9% of sales and $255,231 or 24% of sales for the same period last year. Marketing expenses were $240,102 or 11% of sales and $73,584 or 7% of sales for the same period last year. Marketing expenditures include retail marketing designed to increase store traffic and

revenue, franchise marketing designed to find more qualified franchisees, and investor relations designed to improve the liquidity and price of our common stock. Professional fees were $175,374 or 8% of revenue and $100,073 or 10% of revenue for the same period last year.

Three Months ending September 30, 2007 compared to three month ending September 30, 2006

The period covered by our unaudited financial statements is for the three months ended September 30, 2007 during which time we generated $1,004,195 in revenue from continuing operations and recognized net income before discontinued operations of $108,393 during the same period last year we generated $384,324 in revenue from continuing operations and incurred a net loss of $116,566 from continuing operations. The revenue was generated from franchise fees, from revenue generated in royalty revenues and from food and supplies sold to our franchise owned stores. The increase in revenues for the current period was in almost all categories of revenue with royalty income up approximately 241%, franchisee fee income up 125% and sales of food and beverage up 159%. Cost of sales from continuing operations amounted to $576,633, resulting in gross loss from continuing operations of $427,562, or 43% compared to cost of sales of $196,335, resulting in gross profit from continuing operations of $187,993, or 49% for the same period last year. The percentage decrease is due mainly to the increase in food and beverage costs relative to sales prices.

Salaries and wages from continuing operations amounted to $172,665 or 17% of sales and $57,369 or 15% of sales for the same period last year. The percentage increase is due to the increase in corporate staff. General and administrative expenses from continuing operations amounted to $56,047 or 6% of sales and $126,260 or 33% of sales for the same period last year. Marketing expenses were $29,280 or 3% of sales and $48,162 or 13% of sales for the same period last year. Marketing expenditures include retail marketing designed to increase store traffic and revenue, franchise marketing designed to find more qualified franchisees, and investor relations designed to improve the liquidity and price of our common stock. Professional fees were $30,388 or 3% of revenue and $44,645 or 12% of revenue for the same period last year.

During the period, three franchised stores opened and one store closed. At the end of the quarter, there were twenty three stores open.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2007 we had $0 cash on hand and negative working capital of $1,963,527. As of September 30, 2007 our total current assets were $262,855, and our total assets were $685,097.

At September 30, 2007 our total liabilities were $2,226,382 of which all were considered to be current.

For the nine months ended September 30, 2007, net cash used by operating activities from continuing operations was $311,026 compared to net cash provided by operations of $566,965 for the same period last year. Net cash used by investing activities for continuing operations was $14,632 compared to cash used by investing activities for continuing operations of $33,929 for same period last year. Net cash provided by financing activities was $562,295 compared to $106,980 for the same period last year.

Presently, we have insufficient revenue and cash flow to support our growth plan. Management is in the process of raising an additional $2,500,000 in capital. We believe this will be enough capital for our 2007 and 2008 growth plan. During July 2007 management was able to secure a $400,000 convertible loan, please see note 2 of the financial statements.

There are no assurances that we will be able to obtain further funds required for our continued operations. We are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to proceed with our expansion program at the level anticipated.

FUTURE OPERATIONS

Immediate Objectives

Our primary objective for the 12 month period ending September 30, 2008 will be to expand our franchise program into three (3) new states, and secure new retail locations in all states that we operate. We also plan on expanding our marketing program with the intention of creating some brand awareness and thus increasing sales at our franchise owned stores. We also plan on introducing additional products into our stores during the second half of 2007.

Retail Locations

Our business plan for the 12 month period ending September 30, 2008, envisions opening 8 new franchise stores and no corporate owned stores for a total of 8 new operating stores. The stores will range from kiosk’s of approximately 180 square feet to sit down gelateria’s of up to 1,200 square feet.

Cash Requirements

Presently, our cash is sufficient to fund our normal operating expenses. Management projects that we will require at least $1,250,000 to fund continuing operations over the next twelve months. We have signed retail leases for new stores that the we plan to award to franchisee’s, if our company is not able to find franchisee’s for these committed leases we will be required to raise additional funds to build out and operate the stores until they can be sold to interested franchisees.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.

RISK FACTORS

Much of the information included in this quarterly report includes or is based upon estimates, projections or other "forward looking statements". Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other "forward looking statements" involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward looking statements".

Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out below.

RISKS RELATED TO OUR BUSINESS

We have only commenced our business operations in July, 2003 and opened our first retail store in November, 2003 and thus have a limited operating history. If we cannot successfully manage the risks normally faced by early stage companies, our business may fail.

We have a limited operating history. Our future is subject to the risks and expenses encountered by early stage companies, such as uncertainty regarding level of future revenue and inability to budget expenses and manage

growth accordingly, uncertainty regarding acceptance of our products and retail operations and inability to access sources of financing when required and at rates favourable to us. Our limited operating history and the highly competitive nature of the retail confectionery industry make it difficult to predict future results of our operations.

We may not establish a customer following that will make us profitable, which might result in the loss of some or all of your investment in our common stock.

If we are unable to protect our trade name, our efforts to increase public recognition of our ”Melt” brand may be impaired and we may be required to incur substantial costs to protect our trade name.

Our service mark "Melt-gelato italiano" has been registered with the US Patent & Trade Mark Office. However, these measures may not be adequate to prevent the unauthorized use of our trade names. We may be unable to prevent third parties from acquiring and using names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources. Any claims, by or against us, could be time consuming and costly to defend or litigate, divert our attention and resources and result in the loss of goodwill associated with our trade names. An adverse outcome in litigation or similar proceedings could subject us to significant liabilities to third parties, require expenditure of significant resources to develop non-infringing trade name and trade marks, any of which could have a material adverse effect on our business, operating results and financial condition.

The establishment and maintenance of brand identity of our “Melt” brand gelato products is critical to our future success. If we are unable to promote and maintain our “Melt” brand our business could fail.

Since we expect that substantially all of our revenues will be generated from purchases by the consumer of our gelato and related products at corporate and franchise owned and operated retail outlets, market acceptance of our products is critical to our future success. Factors such as market positioning, retail locations, the availability and price of competing products (in particular, frozen deserts), and the introductions of new products will affect the market acceptance of our business.

We believe that establishing and maintaining brand identity of our products will increase the appeal of our products to prospective customers. Consumer recognition and a preference of our "Melt" brand products over similar products offered by our competition will be critical to our future success. Promotion and enhancement of our gelato and related products will depend largely on our success in continuing to provide high quality products and service. In order to attract and retain customers and to promote and maintain our "Melt" brand in response to competitive pressures, we may increase our financial commitment to creating and maintaining a distinct brand loyalty among our customers. Currently, given the large number of factors and variables in achieving and maintaining consumer recognition and brand loyalty, we cannot anticipate or estimate how much we may be required to spend to establish such loyalty. If we are unable to provide high quality products, or otherwise fail to promote and maintain our "Melt" brand, incur excessive expenses in an attempt to improve, or promote and maintain our brand, we may not be able to successfully implement our business plan and achieve a profitable level of operations.

Due to the nature of our products, we will be subject to specific risks unique to the retail frozen desert industry.

Specialty retail food businesses such as ours are often affected by changes in consumer and competitive conditions, including changes in consumer tastes; national, regional, and local economic conditions and demographic trends; and the type, number, and location of competing businesses. Adverse publicity resulting from food quality, illness, injury, or other health concerns or operating issues stemming from one of our products may adversely affect our retail operations. We, as well as our competitors, are subject to the foregoing risks, the occurrence of any of which would impair or prevent our efforts to establish and expand our frozen desert operations. The occurrence of such risks may result in an investor losing some or all of their investment in our common stock.

Because we face intense competition, an investment in our company is highly speculative.

The retail confectionery industry is characterized by intense and substantial competition. We believe that our business competes with large and established ice cream retailers such as Ben & Jerry's, Haagen-Dazs, Dreyer’s, Baskin-Robbins, Dairy Queen and Cold Stone Creamery Company, as well as other small to medium sized ice cream and gelato business entities that provide similar products.

A number of our competitors are well established, substantially larger and have substantially greater market recognition, greater resources and broader distribution capabilities than we have. These existing and future competitors may be able to respond more quickly to new or changing opportunities, product and customer requirements than us and may be able to undertake more extensive promotional activities, offer more retail locations to customers and adopt more aggressive pricing policies than we do. Increased competition by these existing and future competitors could materially and adversely affect our ability to commence, maintain, or expand our operations.

Our operations are subject to governmental regulation associated with the food service industry, the operation and enforcement of which may restrict our ability to carry on our business.

We are in the perishable food industry. The development, manufacture and marketing of products sold by us will be subject to extensive regulation by various government agencies, including the U.S. Food and Drug Administration and the U.S. Federal Trade Commission, as well as various state and local agencies. These agencies regulate production processes, product attributes, packaging, labelling, advertising, storage and distribution. These agencies establish and enforce standards for safety, purity and labelling. In addition, other governmental agencies (including the U.S. Occupational Safety and Health Administration), establish and enforce health and safety standards and regulations in the workplace, including those in our retail locations. Our retail locations will be subject to inspection by federal, state, and local authorities. We will seek to comply at all times with all such laws and regulations. We will obtain and maintain all necessary permits and licenses relating to our operations, and will ensure that our facilities and practices comply with applicable governmental laws and regulations. Nevertheless, there is no guarantee that we will be able to comply with any future laws and regulations. Our failure to comply with applicable laws and regulations could subject us to civil remedies including fines, injunctions, recalls or seizures as well as potential criminal sanctions.

As a result of such regulations we may encounter a variety of difficulties or extensive costs, which could delay or preclude us from marketing our products or continuing or expanding our operations. We cannot predict if all necessary approvals will be granted or that if granted, any approval will be received on a timely basis. If approvals are not obtained or are delayed, this may also preclude us from marketing our products or continuing or expanding our operations.

Because our officers, directors and principal shareholders control a substantial portion of our common stock, investors will have little or no control over our management or other matters requiring shareholder approval.

Our officers and directors and their affiliate, in the aggregate, beneficially own 26.9% of issued and outstanding shares of our common stock. As a result, they have the ability to exert significant influence over matters affecting minority shareholders, including the election of our directors, the acquisition or disposition of our assets, and the future issuance of our shares. Because our officers, directors and one of our principal shareholders (specifically Glynis Sive, the wife of Clive Barwin) can exercise such influence over our company, investors may not be able to replace our management if they disagree with the way our business is being run. Because control by these insiders could result in management making decisions that are in the best interest of those insiders and not in the best interest of the investors, you may lose some or all of the value of your investment in our common stock.

Because we might not have sufficient insurance to cover any losses that may arise, we might have uninsured losses, increasing the possibility that you would lose your investment.

We may incur uninsured liabilities and losses as a result of the conduct of our business. We do currently maintain comprehensive liability and property insurance. However there can be no assurance that we have coverage sufficient to satisfy potential claims. We do not carry any business interruption insurance. Should uninsured losses occur, any purchasers of our common stock could lose their entire investment.

Because we can issue additional common shares, purchasers of our common stock may incur immediate dilution and may experience further dilution.

We are authorized to issue up to 100,000,000 common shares, of which 21,235,801 are issued and outstanding. Our board of directors has the authority to cause our company to issue additional shares of common stock or issue

warrants or options to purchase shares of common stock without the consent of any of our shareholders. Consequently, our shareholders may experience more dilution in their ownership of our company in the future.

RISKS ASSOCIATED WITH OUR COMMON STOCK

Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

Our common stock is quoted on the OTC Bulletin Board service of the National Association of Securities Dealers. Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our company’s operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like Amex. Accordingly, shareholders may have difficulty reselling any of the shares.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and the NADSD’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

OTHER RISKS

One of our directors and officers resides outside the United States, making it difficult for investors to enforce within the United States any judgments obtained against this director and officer.

One director and officer is a national and/or resident of a country other than the United States, and all or a substantial portion of such persons assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against this director, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal securities laws against them.

Item 3.

Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting and financial officer (our president and chief financial officer) to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of September 30, 2007, the end of the nine month period year covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our president and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

Melt Franchising, LLC and Melt (California), Inc. v. Steven A. Field, M.D., MMS Coconut Point, LLC, and MMS King of Prussia Court, LLC (Respondents).

David Gold, Elena Gold, EAOA, Inc., Steven Field, MMS Management, LLC, MMS Coconut Point, LLC, Jong Han, Yon Ho Kim, Young Suk Kim, Kang Won Lee, Yoo & Lee Enterprises, Inc., Charindra Liyanage,

Liyange Investments, LLC (Plaintiffs) v. Melt, Inc., Melt (California), Inc., Melt Franchising, LLC, Clive V. Barwin, Brandon Barwin, Michael Zorehkey, Rick Zorehkey, Eddie Ollman, Scott Miller, and Alin Cruz.

On September 19, 2007, Plaintiffs filed a punative class action against us, our affiliates, and our officers and restitution and injunctive relief under unfair business practices act, damages and injunctive relief under the “Cartwright” act, fraud, interference with prospective economic advantage, and declaratory relief. Plaintiffs purport to represent a class of our franchisees. We and our affiliates and employees deny the allegations and intend to respond to this litigation.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

On April 19, 2007, we issued 90,000 shares to a U.S. person in consideration for investor relations services provided to our company.

We issued all of the 90,000 shares to one U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) relying on the exemptions from registration provided by Section 4(2) of the Securities Act of 1933 and upon Rule 506 of Regulation D of the Securities Act of 1933.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Submission of Matters to a Vote of Security Holders.

None.

Item 5.

Other Information.

On August 31, 2007, Scott M. Miller resigned as Executive Vice President and Chief Financial Officer and Clive Barwin was appointed Chief Financial Officer of our company.

Item 6.

Exhibits.

Exhibits required by Item 601 of Regulation S-B

Exhibit Number	Description

(3)	(i) Articles of Incorporation; and (ii) Bylaws

3.1	Articles of Incorporation (incorporated by reference from our Form SB-2 Registration Statement, filed on October 2, 2003).

3.2	Bylaws (incorporated by reference from our Form SB-2 Registration Statement, filed on October 2, 2003).

(10)	Material Contracts

10.1	Operating Agreement between Melt Inc. and Dolce Dolci, LLC dated July 21, 2004 (incorporated by reference from our Form 10-KSB, filed on March 31, 2005).

10.2	Operating Agreement between Melt Inc. and Melt Franchising LLC dated February 25, 2005 (incorporated by reference from our Form 10-KSB, filed on March 31, 2005).

Exhibit Number	Description

10.3	Form of loan agreement entered into with each of: Clive Barwin Errol Brome Lance Rosenberg Cecil Hofman (incorporated by reference from our Form 8-K, filed on June 12, 2005).

10.4	Franchise Offering Circular (incorporated by reference from our Form 10-QSB, filed on November 14, 2005).

(14)	Code of Ethics

14.1	Code of Business Conduct and Ethics. (incorporated by reference from our Form 10-KSB, filed on March 30, 2004).

(21)	Subsidiaries of the small business issuer

	Melt (California) Inc. Melt Franchising LLC

(31)	Rule 13a-14(a)/15d-14(a) Certifications

31.1*	Certification under Sarbanes-Oxley Act of 2002

(32)	Section 1350 Certifications

32.1*	Certification under Sarbanes-Oxley Act of 2002

*filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MELT INC.

By: /s/ Clive Barwin

Clive Barwin, President, CEO, CFO, Secretary and Director

(Principal Executive Officer)

Date: November 14, 2007