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, 2005
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[ |
] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from __________ to __________
Commission file number 333-109990
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MELT INC. |
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(Exact name of small business issuer as specified in its charter) |
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Nevada |
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47-0925451 |
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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45320 Corte Palmito, Temecula, California, USA 92592 |
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(Address of principal executive offices) |
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310-601-7907 |
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(Issuer’s telephone number) |
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14 John Dykes Ave, Vaucluse, NSW, Australia 2030 |
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(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: 19,660,000 common shares issued and outstanding as of October 30, 2005
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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 o No [X ]
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- 2 – |
Item 1. Financial Statements.
It is the opinion of management that the interim consolidated financial statements for the quarter ended September 30, 2005 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, 2005
- 3 –
MELT INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
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September 30, 2005 |
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(unaudited) |
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CURRENT ASSETS |
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Cash |
$ |
277,292 |
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Inventory |
41,226 |
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Receivables |
136,864 3,346 |
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Total Current Assets |
458,728 |
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|
| |||
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FIXED ASSETS, NET |
583,300 |
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|
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OTHER ASSETS |
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Trade Mark, Net |
1,572 |
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Deposits |
17,857 |
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|
| |||
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Total Other Assets |
19,429 |
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TOTAL ASSETS |
$1,061,457 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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CURRENT LIABILITIES |
| |
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| |
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Accounts payable |
$ |
104,427 |
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Accrued expenses |
19,403 | |
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Sales Tax Payable |
9,977 | |
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Accrued management fees |
40,000 | |
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Accrued interest – related parties |
26,524 | |
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Loan from Chill Inc |
51,685 | |
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Notes payable |
192,000 | |
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Notes payable – related parties |
257,766 | |
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|
| |
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Total Current Liabilities |
701,782 | |
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|
| |
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Total Liabilities |
701,782 | |
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|
| |
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Minority Interests |
190,791 | |
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STOCKHOLDER’S EQUITY |
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Common stock: $0.001 par value 100,000,000 shares authorized; 19,660,000 shares issued and outstanding |
19,660 | |
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Additional paid-in capital |
823,557 | |
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Accumulated deficit |
(674,333) | |
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|
| |
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Total Stockholder’s Equity |
168,884 | |
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|
| |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$1,061,457 | |
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The accompanying notes are an integral part of these consolidated financial statements.
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- 4 – |
MELT INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(unaudited)
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For the nine |
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For the weeks ended | ||
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REVENUE
Franchise fees |
$ |
100,000 |
$ |
- | |
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Franchise royalties |
35,755 |
- | |||
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Sale of franchise store |
288,650 |
- | |||
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Sale of equipment |
98,111 |
- | |||
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Companied owned operations |
806,581 |
236,015 | |||
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TOTAL REVENUE |
1,329,097 |
236,015 | |||
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COST OF SALES |
542,359 |
68,444 | |||
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|
|
| |||
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GROSS PROFIT |
786,738 |
167,571 | |||
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|
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EXPENSES |
|
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|
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Depreciation and amortization |
83,554 |
37,369 | |||
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Professional fees |
111,372 |
1,003 | |||
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Rent |
188,427 |
68,129 | |||
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Salaries and wages |
220,665 |
91,025 | |||
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Management fees |
76,000 |
14,500 | |||
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General and administrative expenses |
166,109 |
189,014 | |||
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|
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Total Expenses |
846,127 |
401,040 | |||
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|
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LOSS FROM OPERATIONS |
(59,389) |
(233,469) | |||
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OTHER INCOME |
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Sale of fixed assets Loss on disposal of assets Interest income |
11,350 (32,747) - |
- - 3,444 | |||
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Interest expense |
(93,421) |
- | |||
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|
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Total Other Income (Expense) |
(114,818) |
3,444 | |||
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|
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LOSS BEFORE MINORITY INTEREST |
(174,207) |
(230,025) | |||
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|
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MINORITY SHARE OF LOSS |
35,245 |
16,919 | |||
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|
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NET LOSS |
$ |
(138,962) |
$ |
(213,106) | |
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|
|
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BASIC LOSS PER SHARE |
$ |
(0.01) |
$ |
(0.01) | |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
19,660,000 |
19,960,000 | |||
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The accompanying notes are an integral part of these consolidated financial statements.
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- 5 – |
MELT INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(unaudited) (continued)
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For the three |
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For the thirteen weeks ended |
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REVENUES |
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Franchise fees |
100,000 |
- |
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Franchise royalties |
35,755 |
- |
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Sale of franchise store |
288,650 |
- |
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Sale of equipment |
98,111 |
- |
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Companied owned operations |
225,023 |
127,960 |
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TOTAL REVENUE |
747,539 |
127,960 |
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COST OF SALES |
355,219 |
41,007 |
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GROSS PROFIT |
392,320 |
86,953 |
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EXPENSES |
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Depreciation and amortization |
16,053 |
20,943 |
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Professional fees |
22,824 |
1,003 |
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Rent |
58,349 |
37,208 |
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Salaries and wages |
62,986 |
45,692 |
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Management fees |
27,500 |
14,500 |
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General and administrative expenses |
68,866 |
47,642 |
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Total Expenses |
256,578 |
166,988 |
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PROFIT / (LOSS) FROM OPERATIONS |
135,742 |
(80,035) |
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OTHER INCOME |
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Sale of fixed assets Loss on disposal of assets Interest income |
11,350 (32,747) - |
- - 146 |
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Interest expense |
(3,170) |
- |
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Total Other Income (Expense) |
(24,567) |
146 |
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PROFIT /(LOSS) BEFORE MINORITY INTEREST |
111,175 |
(79,889) |
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MINORITY SHARE OF PROFIT (LOSS) |
13,065 |
16,919 |
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NET PROFIT / (LOSS) |
$ |
124,240 |
$ |
(62,970) |
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BASIC PROFIT / (LOSS) PER SHARE |
$ |
.01 |
$ |
(0.00) |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
19,660,000 |
18,730,000 |
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The accompanying notes are an integral part of these consolidated financial statements.
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- 6 – |
MELT INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
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For the thirty | ||||
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
$ |
(138,962) |
$ |
(213,106) | |||
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Adjustments to reconcile net loss to net cash |
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Used by operating activities: |
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Depreciation & Amortization expense |
91,529 |
37,366 | |||||
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Change in minority interest |
(35,245) |
- | |||||
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Beneficial Conversion recognized |
66,667 |
- | |||||
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Changes in operating assets and liabilities: |
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Decrease in supplies and inventory |
12,260 |
(3,048) | |||||
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Increase in prepaid expenses |
(586) |
1,808 | |||||
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Decrease / (Increase) in deposits |
6,988 |
23,781 | |||||
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(Increase) in trademark |
(1,150) |
- | |||||
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Increase (Decrease) in accrued interest – related parties |
16,578 |
(2,406) | |||||
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(Decrease) in accounts payable – related parties |
(20,800) |
17,500 | |||||
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(Decrease) Increase in accrued expenses |
(22,587) |
(6,636) | |||||
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Increase in Sales Tax payable |
9,977 |
800 | |||||
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(Decrease) in accounts payable |
(77,523) |
35,115 | |||||
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Increase in management fees Increase in accounts receivable |
40,000 (136,864) |
- | |||||
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Net Cash Used by Operating Activities |
(189,718) |
(108,826) | |||||
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Disposal of fixed Assets |
114,118 |
- | |||||
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Purchase of fixed assets |
- |
(423,570) | |||||
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Net Cash Provided (Used) by Investing Activities |
114,118 |
(423,570) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from stock issued |
- |
465,000 | |||||
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Increase in minority interest |
15,000 |
103,080 | |||||
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Increase in loan from Chill Inc. |
46,643 |
117,637 | |||||
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Increase in notes payable - related parties |
4,268 |
(162,719) | |||||
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Increase in notes payable |
192,000 |
- | |||||
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| |||||
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Net Cash Provided by Financing Activities |
257,911 |
522,998 | |||||
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NET INCREASE (DECREASE) IN CASH |
182,311 |
(9,400) | |||||
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|
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CASH AT BEGINNING OF YEAR |
94,981 |
190,402 | |||||
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CASH AT END OF PERIOD |
$277,292 |
181,002 | |||||
CASH PAID DURING THE YEAR FOR:
|
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Interest |
- |
- |
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Income Taxes |
- |
- |
The accompanying notes are an integral part of these consolidated financial statements.
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- 7 - |
MELT INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2005
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NOTE 1 - |
BASIS OF FINANCIAL STATEMENT PRESENTATION |
The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial principles have been omitted in accordance with such rules and regulations. The information furnished in the interim consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated financial statements be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its December 31, 2004 Annual Report on Form 10-KSB. Operating results for the period ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
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NOTE 2 - |
CAPITAL STOCK AND WARRANTS |
During the months ended September 30, 2005 the Company did not issue any shares or warrants.
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NOTE 3 - |
GOING CONCERN |
The consolidated audited financial statements included with this quarterly report have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the consolidated audited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.
In order to continue as a going concern, we require additional financing. 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 continue as a going concern, we would likely be unable to realize the carrying value of our assets reflected in the balances set out in the preparation of the consolidated financial statements.
- 8 –
MELT INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2005
(continued)
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NOTE 4 - |
SIGNIFICANT EVENTS |
On May 15, 2005 the Company entered into loan agreements with certain related and non-related parties to advance $200,000 in the form of a loan to finance the construction of a Melt – gelato italiano store in Los Cerritos Center, California. The loans bear interest at the rate of 15% per annum, and will be repaid either when and if Melt (California) Inc sells the store or by May 14, 2006, which ever is earlier. If the Melt store in Los Cerritos Center is sold, 25% of the profit on the sale of the store will be paid as a bonus to the loan holders. The loan holders were granted an option to convert the loan plus interest plus the bonus, if any, into common shares of the Company at a price of 25% less than the 10 day average closing price at the time of conversion, if the Company’s shares are quoted on a public stock exchange. Of the $200,000 loaned to the Company, $50,000 was loaned by our President, Clive Barwin.
On June 29, 2005, we issued a news release announcing that our shares have been approved for unpriced quotation on the National Association of Securities Dealers Inc. Over-the-Counter Bulletin Board effective June 27, 2005 under the trading symbol, MLTC. As of October 10, 2005 the company has one market maker registered trade in its shares and approximately 10,000 shares per day have been traded since. The average trading price has been $0.51.
The company is now actively engaged in the selling of the Melt concept in the form of franchises. It is currently anticipated that the primary expansion plan will be through the sale of franchised owned stores as opposed to corporate owned stores. The current marketing efforts in this regard, although very limited have proven to be extremely successful. To date two franchise owned stores are open for business and both franchisee’s have committed to their second stores.
During the third quarter the company sold its first franchise owned store in Los Cerritos, California. Prior to the sale the store had been built, equipped and readied for operations by the company. The company thus generated revenue from the sale of this store in the form of franchise fees and for the value of the assets of the business. It is the intention of the company to continue to sell such store locations on a limited basis
On November 9, 2005, the company issued an aggregate of 620,000 shares of common stock at $0.3891 per share on the conversion of loans in the amount of $200,000, plus interest, owed to various persons. The date of conversion for the loans was October 23, 2005.
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- 9 - |
Item 2. Management’s Discussion and Analysis or Plan of Operation.
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States Dollars (US$) 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. and our wholly-owned subsidiaries, Melt (California) Inc. and Melt Franchising LLC, and our partly owned subsidiary Villa Melt LLC. The term “Melt CA” refers to Melt (California) Inc and the term “Villa Melt” refers to Villa Melt 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, 2005
The period covered by our unaudited financial statements is for the nine months ended September 30, 2005 during which time we generated $1,329,097 in revenue, during the same period last year we generated $236,015 in revenue an increase of 463% and incurred a loss of $138,962 for the nine months ended September 30, 2005, during the same period last year we incurred a net loss of $230,025 a decrease of 40%. The revenue was generated from sales made through our four corporate owned retail stores, from revenue generated in royalty revenue from our franchised stores and from the sale of equipment, fixtures and goodwill and product to our franchisees. For the same period last year revenues were generated from sales made by one corporate store. Cost of sales amounted to $542,359 or 40% and $68,444 or 29% for the same period last year. The increase is due to the change in the mix of the revenue. Rental expenses for the retail stores amounted to $188,427 or 14% of sales and $68,129 or 28% of sales for the same period last year, the percentage decrease is due to the different sales mix. Salaries and wages for the retail stores amounted to $220,665 or 16% of sales and $91,025 or 39% of sales for the same period last year, the decrease is due to the different sales mix. General and administrative expenses amounted to $166,109 or 12% of sales and $189,014 or 67% of sales for the same period last year. Interest expense increase from $0 to $93,421 due to the
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- 10 - |
one time charge that we incurred relating to a convertible loan of $200,000 as mentioned in note 4 to the financial statements.
During the period Villa Melt LLC opened one new store at The Block in Orange, CA, and one store was closed at Palm Desert, CA. We also opened two new franchise owned stores one at Los Cerritos Center in Cerritos, CA and one at Northridge Fashion Mall in Northridge, CA. We have signed up five additional franchisees, of which 2 have secured locations for their stores. The company charges a $25,000 franchise fee, this fee is usually taken into income when the franchise agreement is signed, however in certain states like California the State Franchise Board does not allow Melt to receive the franchise fee until the store is open, thus in these states the revenue from the franchise fee is only taken into account when a site is secured for the franchisee.
Revenue for the three months ended September 30, 2005 was $747,539 compared to $127,960 for the corresponding period last year, due to an increase in the number of operating retail locations, and due to revenue being received from franchise fees, royalties and from the sale of equipment, fixtures, goodwill, product and royalties received from sales made by franchisees. Cost of sales during this period was $355,219 compared to $41,007 for last year, the difference is due to the change in the sales mix. Depreciation and amortization increase from $20,943 to $16,053 due to the increase in the number of corporate owned stores. All other expenses increased due to the expansion and development of the business.
LIQUIDITY AND CAPITAL RESOURCES
As at September 30, 2005 we had $277,292 cash on hand and a working capital deficit of $243,054. As of September 30, 2005 our total assets were $1,061,457 which consisted primarily of fixed assets, cash and accounts receivable.
As at September 30, 2005, our total current liabilities were to $701,782.
Historically, we have financed our operations from the sale of stock and advances from shareholders. For the three months ended September 30, 2005 we generated positive cash flow from the operations of the business.
For the nine months ended September 30, 2005, net cash used in operating activities was $ 189,718 compared to $ 108,826 for the same period last year. Net cash provided by financing activity was $ 257,991 compared to $522,988 for the same period last year.
We have no external sources of liquidity in the form of credit lines from banks. Based on our future operations described below, management believes that our available cash will not be sufficient to fund our working capital requirements through September 30, 2006 and therefore, we will have to raise financing through the sale of our equity securities or arrange a loan from outside sources.
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 during the 52 week period ending September 30, 2006 will be to further develop and expand our retail store locations and increase sales in such locations as they open. We will embark on an aggressive program to grow our business through a local and national franchise program which commenced in June 2005. We plan to expand our business from California to include Arizona, Nevada and Florida
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- 11 - |
Retail Locations
We currently own and operate 3 retail stores, and have three stores operating as franchised stores. During the 1st quarter we opened one new corporate owned store in Orange, CA, during the 2nd quarter we closed one retail store in Palm Desert, and during the 3rd quarter we opened two franchised owned stores one in Los Cerritos, CA and one in Northridge, CA. During the next twelve months we plan to open two new corporate owned and operated stores and 12 franchised owned and operated stores.
Cash Requirements
Presently, our revenues are not significant enough to meet our operating and capital expenses. Management projects that we will require at least $1,000,000 to fund our proposed expansion program over the next twelve months.
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.
Going Concern
The consolidated audited financial statements included with this quarterly report have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the consolidated audited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.
In order to expand our business and continue as a going concern, we require additional financing. 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 continue as a going concern, we would likely be unable to realize the carrying value of our assets reflected in the balances set out in the preparation of the consolidated financial statements.
Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on the consolidated financial statements for the year ended December 31, 2004, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our consolidated financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further financing, successful and sufficient market acceptance of our products, the continuing successful development of our “Melt” branded retail locations, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
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
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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 had negative cash flows from operations, have not generated any material revenues from operations and if we are not able to obtain further financing we may not be able to increase the number of stores and our business operations may fail.
To date we have had negative cash flows from operations and we have been dependent on sales of our equity securities to meet our cash requirements. We incurred a loss of $138,962 for nine months ended September 30, 2005. We do not expect positive cash flow from operations in the near term.
We will need to raise additional funds to increase the number of retail locations that we expect to open and to embark on a franchise program, and to be able to respond to unanticipated requirements or expenses. Obtaining additional financing would be subject to a number of factors, including investor acceptance of our retail gelato bar and our business model. The most likely source of future funds presently available to us is through the sale of equity capital. Any sale of share capital will result in dilution to existing shareholders. Furthermore, there is no assurance that we will not incur debt in the future, that we will have sufficient funds to repay our future indebtedness or that we will not default on our future debts, jeopardizing our business viability. Finally, we may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to conduct business, which might result in the loss of some or all of your investment in our common stock. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be forced to discontinue our business or dramatically scale down our expansion plans.
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 start-up companies, our business may fail.
We have a limited operating history. Our operating activities since our incorporation on July 18, 2003 consisted primarily of developing our business plan, establishing our subsidiary and opening our first retail locations. Our prospects are subject to the risks and expenses encountered by start up 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 favorable to us. Our limited operating history and the highly competitive nature of the retail confectionery industry make it difficult or impossible 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.
We are an early stage company . We will, in all likelihood, continue to incur operating expenses without significant revenues until additional retail operations become fully operational and gain significant popularity with customers in southern California. Our primary source of funds has been the sale of our common stock.
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The fact that we have not earned any material revenues since our incorporation raises substantial doubt about our ability to continue as a going concern or to establish and operate a successful business. If we are unable to establish and generate revenues our business will fail and you may lose some or all of your investment in our common stock.
We are an early stage company and have not generated any material revenues since our inception on July 18, 2003. We will, in all likelihood, continue to incur operating expenses without significant revenues until additional retail operations become fully operational and gain significant popularity with customers in southern California. Our primary source of funds has been the sale of our common stock. We cannot assure that we will be able to generate enough interest in potential consumers for our products. If we cannot attract a significant number of customers, we will not be able to generate any significant revenues or income. These circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph to our independent auditors’ report on the financial statements for the period ended December 31, 2004. If we are unable to establish and generate revenues our business will fail and you may lose some or all of your investment in our common stock.
Some of our directors and officers are outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers.
Some of our directors and officers are nationals and/or residents of countries 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 us or our officers or directors, 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.
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.
We currently have a trade marked registered for the trade name “Melt” and have applied for a service mark for “Melt-gelato italiano” and “Melt – café and gelato bar”. 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 products, require disputed rights to be licensed from others, or require us to cease the marketing or use of our products, 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 our 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 and retail locations 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.
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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 will have to compete with large and established ice cream retailers such as Ben & Jerry’s, Haagen-Dazs, Dreyer’s, Baskin-Robbins, Dairy Queen and Stone Cold 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, labeling, advertising, storage and distribution. These agencies establish and enforce standards for safety, purity and labeling. 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.
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Because we depend on two of our current employees, if we are required to replace them and we cannot hire and retain other qualified personnel, we might be forced to discontinue our operations.
Since our inception on July 18, 2003, our president, Chief Executive Officer, Secretary and director, Clive Barwin, and our Vice-President and director, Brandon Barwin, our key employees, have handled all of the responsibilities in the area of corporate administration, business development, research and operations. In addition, Mr. Clive Barwin has also provided us with capital raising services. The loss of the services of either of Clive Barwin or Brandon Barwin, or the inability to identify, hire, train and retain other qualified directors, executive officers or personnel in the future would have a material adverse affect on our business, financial condition and operating results. We do not maintain any life insurance policies on any of these directors, executives, or key personnel for our benefit.
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 29.4% 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 19,660,000 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.
Item 3. Controls and Procedures.
As required by Rule 13a-15 under the Exchange Act, as at September 30, 2005 (being the end of the period covered by this quarterly report on Form 10-QSB) we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s president and chief executive officer. Based upon that evaluation, our company’s president and chief executive officer concluded that our company’s disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no changes in our company’s internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and
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communicated to management, including our company’s president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibits required by Item 601 of Regulation S-B
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Exhibit Number |
Description |
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(3) |
(i) Articles of Incorporation; and (ii) Bylaws |
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3.1 |
Articles of Incorporation (incorporated by reference from our Form SB-2 Registration Statement, filed on October 2, 2003) |
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3.2 |
Bylaws (incorporated by reference from our Form SB-2 Registration Statement, filed on October 2, 2003) |
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(10) |
Material Contracts |
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10.1 |
Lease Agreement between Melt (California) Inc. and Westfield Corporation Inc., dated October 14, 2003 (incorporated by reference from our Form SB-2 Registration Statement, filed on October 2, 2003) |
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10.2 |
Supply Agreement between Melt (California) Inc. and P.G.I. of Saugatuk, Inc., dated September 30, 2003 (incorporated by reference from our Form SB-2 Registration Statement, filed on October 2, 2003) |
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10.3 |
Operating Agreement between Melt Inc. and Dolce Dolci, LLC dated July 21, 2004 (incorporated by reference from our Form 10-KSB, filed on September 30, 2005) |
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10.4 |
Operating Agreement between Melt Inc. and Melt Franchising LLC dated February 25, 2005 (incorporated by reference from our Form 10-KSB, filed on September 30, 2005) |
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10.5* |
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(14) |
Code of Ethics |
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14.1 |
Code of Ethics of the company (incorporated by reference from our Form 10-KSB, filed on March 30, 2004) |
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(21) |
Subsidiaries of the small business issuer |
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Melt (California) Inc. Villa Melt LLC Melt Franchising LLC |
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(31) |
Rule 13a-14(a)/15d-14(a) Certifications |
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31.1* |
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(32) |
Section 1350 Certifications |
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32.1* |
*Filed herewith
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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, Secretary and Director
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
Date: November 10, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature |
Title |
Date |
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/s/ Clive Barwin |
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Clive Barwin |
President, CEO, Secretary and Director |
November 10, 2005 |
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/s/ Brandon Barwin |
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Brandon Barwin |
Vice President and Director |
November 10, 2005 |