---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2008

or

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

For the transition period from _______________ to
________________

Commission File Number 333-109990

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

|Nevada                                                               | 47-0925451                       
|-------------------------------------------------------------------- | ---------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (IRS Employer Identification No.)
|                                                                     |                                  
|31556 Loma Linda Road, Temecula, CA                                  | 92592                            
|(Address of principal executive offices)                             | (Zip Code)                       

310.601.7907(Registrants telephone number,
including area code)

N/A(Former name, former address and former
fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a small
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act

|Large accelerated filer [ ] |                                               | Accelerated filer [ ]        
|--------------------------- | --------------------------------------------- | -----------------------------
|Non-accelerated filer [ ]   | (Do not check if a smaller reporting company) | Smaller reporting company [X]

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

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

Check whether the registrant has filed all documents and reports
required to be filed by Sections 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

Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable date. 21,290,000
common shares issued and outstanding as of July 31, 2008

---

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

It is the opinion of management that the interim consolidated
financial statements as of and for the periods ended June 30, 2008 include all
adjustments necessary in order to ensure that the interim consolidated financial
statements are not misleading.

2

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MELT INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2008 and December 31, 2007

3

---

MELT INC. AND SUBSIDIARIESConsolidated Balance
Sheets

ASSETS

|                                                          |   | June 30,    |  |   | December 31, | 
|--------------------------------------------------------- | - | ----------- |  | - | ------------ | 
|                                                          |   | 2008        |  |   | 2007         | 
|                                                          |   | (Unaudited) |  |   |              | 
|CURRENT ASSETS                                            |   |             |  |   |              | 
|Cash                                                      | $ | 1,456       |  | $ | 67,853       | 
|Receivables, net of allowance
      of $22,500 and $4,005 |   | 183,343     |  |   | 109,078      | 
|Prepaid assets                                            |   | 10,000      |  |   | -            | 
|Total
      Current Assets                                |   | 194,799     |  |   | 176,931      | 
|FIXED ASSETS, NET                                         |   | 15,020      |  |   | 46,807       | 
|OTHER ASSETS                                              |   |             |  |   |              | 
|Trademark, net                                            |   | 366         |  |   | 661          | 
|Debt issuance costs                                       |   | 22,867      |  |   | 25,667       | 
|Deposits                                                  |   | -           |  |   | 28,523       | 
|Total
      Other Assets                                  |   | 23,233      |  |   | 54,851       | 
|ASSETS FROM DISCONTINUED OPERATIONS (NOTE 3)              |   | 24,173      |  |   | 55,347       | 
|TOTAL
      ASSETS                                        | $ | 257,225     |  | $ | 333,936      | 

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

4

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MELT INC. AND SUBSIDIARIESConsolidated Balance Sheets
(Continued)

LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)

|                                                          |   | June 30,    |   |   | December 31, |  
|--------------------------------------------------------- | - | ----------- | - | - | ------------ | -
|                                                          |   | 2008        |   |   | 2007         |  
|                                                          |   | (Unaudited) |   |   |              |  
|CURRENT LIABILITIES                                       |   |             |   |   |              |  
|                                                          |   |             |   |   |              |  
|Accounts payable                                          | $ | 358,795     |   | $ | 472,855      |  
|Accounts payable  related party (Note 5)                 |   | -           |   |   | 17,532       |  
|Accrued expenses                                          |   | 14,500      |   |   | 444          |  
|Accrued management fees  related party (Note
      5)    |   | 88,000      |   |   | 88,000       |  
|Notes payable - related party
      (Note 5)              |   | 100,000     |   |   | 149,465      |  
|Accrued interest - related party (Note 5)                 |   | 77,500      |   |   | 74,689       |  
|Notes payable                                             |   | 182,630     |   |   | 185,431      |  
|Accrued interest                                          |   | 18,225      |   |   | 28,469       |  
|Deferred revenue                                          |   | 150,000     |   |   | 140,000      |  
|                                                          |   |             |   |   |              |  
|Total
      Current Liabilities                           |   | 989,650     |   |   | 1,156,885    |  
|                                                          |   |             |   |   |              |  
|LONG-TERM LIABILITIES                                     |   |             |   |   |              |  
|                                                          |   |             |   |   |              |  
|Notes payable                                             |   | 400,000     |   |   | 408,752      |  
|                                                          |   |             |   |   |              |  
|Total
      Long-Term Liabilities                         |   | 400,000     |   |   | 408,752      |  
|                                                          |   |             |   |   |              |  
|LIABILITIES FROM DISCONTINUED OPERATIONS
      (NOTE 3)   |   | 525,000     |   |   | 407,250      |  
|                                                          |   |             |   |   |              |  
|TOTAL
      LIABILITIES                                   |   | 1,914,650   |   |   | 1,972,887    |  
|                                                          |   |             |   |   |              |  
|STOCKHOLDERS EQUITY (DEFICIT)                            |   |             |   |   |              |  
|                                                          |   |             |   |   |              |  
|Common stock; $0.001 par
      value, 100,000,000         |   |             |   |   |              |  
|shares authorized, 21,290,000 and
      21,290,000 shares |   |             |   |   |              |  
|issued
      and outstanding, respectively                |   | 21,290      |   |   | 21,290       |  
|Additional paid-in capital                                |   | 1,877,113   |   |   | 1,877,426    |  
|Deferred equity compensation                              |   | (46,663     | ) |   | (52,487      | )
|Accumulated deficit                                       |   | (3,509,165  | ) |   | (3,485,180   | )
|                                                          |   |             |   |   |              |  
|Total Stockholders
      Equity (Deficit)                |   | (1,657,425  | ) |   | (1,638,951   | )
|                                                          |   |             |   |   |              |  
|TOTAL LIABILITIES AND
      STOCKHOLDERS EQUITY          | $ | 257,225     |   | $ | 333,936      |  

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

5

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MELT INC. AND SUBSIDIARIESConsolidated Statements of
Operations (Unaudited)

|                                                  |   | For the Three Months Ended |   |   | For the Six Months Ended |  
|------------------------------------------------- | - | -------------------------- | - | - | ------------------------ | -
|                                                  |   | June 30,                   |   |   | June 30,                 |  
|                                                  |   | 2008                       |   |   | 2007                     |  
|REVENUES                                          |   |                            |   |   |                          |  
|                                                  |   |                            |   |   |                          |  
|Food and beverage sales                           | $ | 477,798                    |   | $ | 393,462                  |  
|Royalty and marketing fees                        |   | 163,201                    |   |   | 131,013                  |  
|Franchise fees                                    |   | -                          |   |   | 150,000                  |  
|Equipment sales                                   |   | 8,198                      |   |   | -                        |  
|Miscellaneous finders and
      professional fees |   | 70,985                     |   |   | 3,415                    |  
|                                                  |   |                            |   |   |                          |  
|Total
      Revenues                              |   | 720,182                    |   |   | 677,890                  |  
|                                                  |   |                            |   |   |                          |  
|COST OF SALES                                     |   |                            |   |   |                          |  
|                                                  |   |                            |   |   |                          |  
|Cost of food and beverage                         |   | 420,013                    |   |   | 380,921                  |  
|Materials and supplies                            |   | 12,865                     |   |   | 20,011                   |  
|                                                  |   |                            |   |   |                          |  
|Total Cost of Sales                               |   | 432,878                    |   |   | 400,932                  |  
|                                                  |   |                            |   |   |                          |  
|GROSS PROFIT                                      |   | 287,304                    |   |   | 276,958                  |  
|                                                  |   |                            |   |   |                          |  
|EXPENSES                                          |   |                            |   |   |                          |  
|                                                  |   |                            |   |   |                          |  
|Depreciation and amortization                     |   | 2,635                      |   |   | 2,900                    |  
|Marketing                                         |   | 24,923                     |   |   | 49,769                   |  
|Professional fees                                 |   | 83,507                     |   |   | 84,212                   |  
|Rent                                              |   | 575                        |   |   | 9,407                    |  
|Salaries and wages                                |   | -                          |   |   | 287,798                  |  
|Management fees                                   |   | 125,500                    |   |   | 6,000                    |  
|Bad debt expense                                  |   | 12,500                     |   |   | 202,574                  |  
|General and administrative                        |   | 38,803                     |   |   | 73,778                   |  
|                                                  |   |                            |   |   |                          |  
|Total
      Expenses                              |   | 288,443                    |   |   | 716,438                  |  
|                                                  |   |                            |   |   |                          |  
|LOSS FROM OPERATIONS                              |   | (1,139                     | ) |   | (439,480                 | )
|                                                  |   |                            |   |   |                          |  
|OTHER INCOME (EXPENSES)                           |   |                            |   |   |                          |  
|                                                  |   |                            |   |   |                          |  
|Gain on litigation settlement                     |   | 85,927                     |   |   | -                        |  
|Gain (loss) on sale or disposal of equipment      |   | -                          |   |   | (3,502                   | )
|Interest expense                                  |   | (18,195                    | ) |   | (9,676                   | )
|Interest income                                   |   | -                          |   |   | 44                       |  
|                                                  |   |                            |   |   |                          |  
|Total Other Income
      (Expense)                |   | 67,732                     |   |   | (13,134                  | )
|                                                  |   |                            |   |   |                          |  
|INCOME (LOSS) BEFORE DISCONTINUED                 |   |                            |   |   |                          |  
|OPERATIONS AND INCOME TAXES                       | $ | 66,593                     |   | $ | (452,614                 | )

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

6

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MELT INC. AND SUBSIDIARIESConsolidated Statements of
Operations (Continued) (Unaudited)

|                                              |   | For the Three Months ended |   |   | For the Six Months Ended |  
|--------------------------------------------- | - | -------------------------- | - | - | ------------------------ | -
|                                              |   | June 30,                   |   |   | June 30,                 |  
|                                              |   | 2008                       |   |   | 2007                     |  
|LOSS FROM DISCONTINUED OPERATIONS             |   |                            |   |   |                          |  
|Loss from store construction                  | $ | (101,123                   | ) | $ | (670,197                 | )
|TOTAL LOSS FROM DISCONTINUED                  |   |                            |   |   |                          |  
|OPERATIONS                                    |   | (101,123                   | ) |   | (670,197                 | )
|LOSS BEFORE INCOME TAXES                      |   | (34,530                    | ) |   | (1,122,811               | )
|INCOME TAX EXPENSE                            |   | -                          |   |   | -                        |  
|NET LOSS                                      | $ | (34,530                    | ) | $ | (1,122,811               | )
|BASIC NET INCOME (LOSS) PER SHARE:            |   |                            |   |   |                          |  
|Income
      (Loss) per share on continuing   |   |                            |   |   |                          |  
|operations                                    | $ | 0.00                       |   | $ | (0.02                    | )
|Income
      (loss) per share on discontinued |   |                            |   |   |                          |  
|operations                                    |   | (0.00                      | ) |   | (0.03                    | )
|Net
      income (loss) per share             | $ | (0.00                      | ) | $ | (0.05                    | )
|WEIGHTED AVERAGE NUMBER OF SHARES             |   |                            |   |   |                          |  
|OUTSTANDING - BASIC                           |   | 21,290,000                 |   |   | 21,219,000               |  

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

7

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MELT INC. AND SUBSIDIAIESConsolidated Statement of
Stockholders Equity (Deficit)

|                                      |  |              |  |   |         |  |   | Additional |   |   |              |   |   |            |  
|------------------------------------- |  | ------------ |  | - | ------- |  | - | ---------- | - | - | ------------ | - | - | ---------- | -
|                                      |  | Common Stock |  |   | Paid-in |  |   | Deferred   |   |   | Accumulated  |  
|                                      |  | Shares       |  |   | Amount  |  |   | Capital    |   |   | Compensation |   |   | Deficit    |  
|                                      |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|Balance, December 31, 2007            |  | 21,290,000   |  | $ | 21,290  |  | $ | 1,877,426  |   | $ | (52,487      | ) | $ | (3,485,180 | )
|                                      |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|Amortization of deferred equity       |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|compensation (unaudited)              |  | -            |  |   | -       |  |   | -          |   |   | 5,511        |   |   | -          |  
|                                      |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|Grant of stock options for deferred   |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|equity compensation
      (unaudited) |  | -            |  |   | -       |  |   | 24,225     |   |   | (24,225      | ) |   | -          |  
|                                      |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|Cumulative effect of stock option     |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|forfeitures (unaudited)               |  | -            |  |   | -       |  |   | (24,538    | ) |   | 24,538       |   |   | -          |  
|                                      |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|Net income for the six months         |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|ended June 30, 2008 (unaudited)       |  | -            |  |   | -       |  |   | -          |   |   | -            |   |   | (23,985    | )
|                                      |  |              |  |   |         |  |   |            |   |   |              |   |   |            |  
|Balance, June 30, 2008 (unaudited)    |  | 21,290,000   |  | $ | 21,290  |  | $ | 1,877,113  |   | $ | (46,663      | ) | $ | (3,509,165 | )

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

8

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MELT INC. AND SUBSIDIAIESConsolidated Statements of
Cash Flows(Unaudited)

|                                                                 |   | For the Six Months Ended |  
|---------------------------------------------------------------- | - | ------------------------ | -
|                                                                 |   | June 30,                 |  
|                                                                 |   | 2008                     |  
|CASH FLOWS FROM OPERATING ACTIVITIES                             |   |                          |  
|                                                                 |   |                          |  
|Net income (loss) after discontinued operations                  | $ | (23,985                  | )
|Less: income (loss) from discontinued operations                 |   | (66,348                  | )
|                                                                 |   |                          |  
|Net income (loss) before discontinued operations                 |   | 42,363                   |  
|Items to reconcile net loss to net cash provided
      (used) by |   |                          |  
|operating activities:                                            |   |                          |  
|Depreciation
      and amortization                              |   | 5,992                    |  
|Bad debt expense                                                 |   | 23,602                   |  
|Amortization
      of deferred equity compensation               |   | 5,511                    |  
|Amortization of deferred
      debt issuance costs               |   | 2,800                    |  
|Loss on disposal
      or sale of assets                         |   | 15,690                   |  
|Common stock issued for services                                 |   | -                        |  
|Changes in operating
      assets and liabilities:               |   |                          |  
|(Increase) Decrease in receivables                               |   | (97,867                  | )
|(Increase)
      Decrease in prepaid expenses                    |   | (10,000                  | )
|(Increase) Decrease in other
      assets                        |   | 28,523                   |  
|Decrease
      in accounts payable and accrued expenses          |   | (117,536                 | )
|Increase (Decrease) in interest
      payable  related party    |   | (2,811                   | )
|Increase
      (Decrease) in interest payable                    |   | (4,622                   | )
|Increase in management fees
      payable                        |   | -                        |  
|Increase
      (Decrease) in deferred revenue                    |   | 10,000                   |  
|                                                                 |   |                          |  
|Net
      Cash Used in Operating Activities                      |   | (98,355                  | )
|                                                                 |   |                          |  
|Net
      Cash Provided (Used) by Discontinued Activities        |   | 82,576                   |  
|                                                                 |   |                          |  
|Total
      Net Cash Provided (Used) by Operating and            |   |                          |  
|Discontinued
      Activities                                    |   | (15,779                  | )
|                                                                 |   |                          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                             |   |                          |  
|                                                                 |   |                          |  
|Issuance of note receivable                                      |   | -                        |  
|Proceeds
      from sales of fixed assets                        |   | -                        |  
|Purchases of fixed assets                                        |   | -                        |  
|                                                                 |   |                          |  
|Net Cash Used
      by Investing Activities                      |   |                          |  
|
      Continuing Operations                                    |   | -                        |  
|                                                                 |   |                          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                             |   |                          |  
|                                                                 |   |                          |  
|Loans from related party                                         |   | -                        |  
|Payments on notes payable                                        |   | (1,153                   | )
|Payments on notes payable  related party                        |   | (49,465                  | )
|                                                                 |   |                          |  
|Net
      Cash Provided (Used) by Financing Activities          |   |                          |  
|Continuing
      Operations                                      |   | (50,618                  | )
|DECREASE IN CASH                                                 | $ | (66,397                  | )

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

9

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MELT INC. AND SUBSIDIAIESConsolidated Statements of
Cash Flows (Continued) (Unaudited)

|                            |   | For the Six Months Ended | 
|--------------------------- | - | ------------------------ | 
|                            |   | June 30,                 | 
|                            |   | 2008                     | 
|CASH AT BEGINNING OF PERIOD | $ | 67,853                   | 
|CASH AT END OF PERIOD       | $ | 1,456                    | 
|CASH PAID FOR:              |   |                          | 
|Interest                    | $ | 44,625                   | 
|Income taxes                | $ | -                        | 

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

10

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|MELT INC. AND SUBSIDIAIES                     
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|June 30, 2008 and December 31, 2007           

|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 (CA) was in the business
of owning and operating corporate owned stores, of which none were in existence
during the year ended December 31, 2007 and the period ended June 30, 2008,
managing the construction process for both corporate and franchisee owned
stores, securing retail space for either corporate or franchise stores to
operate from, as well as the sale and distribution of product to franchise owned
stores until October 2007. Melt (CA) ceased managing the construction of stores
during September 2007. All assets, liabilities and operating results related to
store construction and retail leases are therefore included in discontinued
operations as of June 30, 2008 (see note 3). Additionally, all operations of
Melt (CA) relating to sales of food and beverages to franchise owned stores has
been transferred to Melt Franchising, LLC.

Melt Franchising LLC (hereinafter
referred to as Melt (FA)) a wholly owned subsidiary was organized on February 2,
2005 under the laws of the State of Nevada. Melt (FA) 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 as well as the sale and distribution of product to franchisees,
marketing and the collection of royalties. To-date, Melt (FA) has sold
forty-seven franchises of which twenty-three are operating, fourteen agreements
have been terminated by the Company as a result of the franchisees not securing
retail space or other reasons, three are in the process of finding suitable
locations to operate their stores, two are in the process of building their
stores and five have closed their operations.

b. Depreciation

The cost of the equipment and property
is depreciated over the estimated useful life of 5 years. 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
six months ended June 30, 2008 and 2007 was $5,696 and $5,640, 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.

11

---

|MELT INC. AND SUBSIDIARIES                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|June 30, 2008 and December 31, 2007           

|NOTE 1 - | ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
      (Continued)
|-------- | -----------------------------------------------------------------

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.

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 franchising activities, including sales of franchise licenses,
food and beverage products, equipment, marketing services and royalties from
franchisee sales.

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 a ten year term with two
five 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. During the six months ended June
30, 2008 and 2007, the Company recognized $40,000 and $225,000 in franchise fee
revenue, respectively.

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.

12

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|MELT INC. AND SUBSIDIARIES                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|June 30, 2008 and December 31, 2007           

|NOTE 1 - | ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
      (Continued)
|-------- | -----------------------------------------------------------------

f. Revenue Recognition (Continued)

Deferred Revenue

As of June 30, 2008 and December 31,
2007 the company maintained deferred revenue of $150,000 and $140,000,
respectively. This represents franchise fees received, which have not been
recognized as revenue.

Build and Sale of Franchise
Stores

Due to the short-term nature of the
Companys store construction contracts, the Company accounted 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 were 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. The Company ceased its activities related to the
build and sale of franchise stores in 2007 (see Note 3).

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 due from the sale of products and services to franchisees for store
construction. Accounts receivable also includes 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
on continuing operations was $22,500 and $4,005 at June 30, 2008 and December
31, 2007, respectively, while bad debt expense on continuing operations totalled
$23,602 and $202,574 for the six months ended June 30, 2008 and 2007,
respectively.

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 six months ended June 30, 2008 and
2007 was $59,367 and $210,822, respectively.

13

---

|MELT INC. AND SUBSIDIARIES                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|June 30, 2008 and December 31, 2007           

|NOTE 1 - | ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
      (Continued)
|-------- | -----------------------------------------------------------------

g. Accounts Receivable and Allowance
for Doubtful Accounts (Continued)

i. Principles of Consolidation

The consolidated financial statements
include the amounts of Melt Inc. and its wholly owned subsidiaries, Melt (CA)
and Melt (FA). All material inter-company accounts and transactions have been
eliminated.

j. 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.

|NOTE 2 - | LITIGATION
|-------- | ----------

Melt Franchising, LLC and Melt
(California), Inc. v. Steven A. Field, M.D., MMSCoconut
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. As of June 30, 2008 the demand is still pending.

David Gold, Elena Gold, EAOA,
Inc., Steven Field, MMS Management, LLC, MMSCoconut 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, BrandonBarwin, Michael
Zorehkey, Rick Zorehkey, Eddie Ollman, Scott Miller, and Alin Cruz.

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

14

---

|MELT INC. AND SUBSIDIAIES                     
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|June 30, 2008 and December 31, 2007           

|NOTE 2 - | LITIGATION (CONTINUED)
|-------- | ----------------------

Franchise Acts, 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
are in the process of responding to this litigation. The Company has filed a
motion for attorneys fees and costs and expect a decision in August of
2008.

Mayflower Emerald Sq. LLC v.
Melt, Inc. and Melt (California) Inc.

Superior Court of the State of
Massachusetts, County of Bristol, Docket No. 08-00339-A. On or about March 20,
2008, plaintiff filed a breach of contract claim against us. This relates to a
store that never opened and resulting unpaid rent. The plaintiff has claimed the
net present value of the unpaid rent. In May of 2008, Melt Inc filed a motion to
dismiss, which is scheduled to be heard in September of 2008. Melt (California)
Inc. has not filed a response.

|NOTE 3 - | DISCONTINUED OPERATIONS
|-------- | -----------------------

During the period ended September
2007, Melt (CA) elected to discontinue the operations related to construction
and sale of store locations for franchisees, its store in a box program due to
continuing losses. All assets, liabilities and operating results related to
store construction are therefore included in discontinued operations as of June
30, 2008 and 2007. No tax benefit has been attributed to discontinued
operations. The following is an unaudited summary of the assets and liabilities
related to discontinued operations of construction activities:

| |                     |   | June 30, |  |   | December 31, | 
| | ------------------- | - | -------- |  | - | ------------ | 
| |                     |   | 2008     |  |   | 2007         | 
| | CURRENT ASSETS      |   |          |  |   |              | 
| | Accounts receivable | $ | 24,173   |  | $ | 55,347       | 
| | CURRENT LIABILITIES |   |          |  |   |              | 
| | Accrued expenses    | $ | 525,000  |  | $ | 407,250      | 

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

15

---

|**MELT INC. AND
    SUBSIDIAIES**             
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|June 30, 2008 and December 31, 2007           

|NOTE 3 - | DISCONTINUED OPERATIONS (CONTINUED)
|-------- | -----------------------------------

| |                                                     |   | For the Six Months Ended |  
| | --------------------------------------------------- | - | ------------------------ | -
| |                                                     |   | June 30,                 |  
| |                                                     |   | 2008                     |  
| | REVENUES                                            |   |                          |  
| | Franchise stores
      construction/equipment       | $ | -                        |  
| | Professional and finders fees                       |   | -                        |  
| | Total Revenues                                      |   | -                        |  
| | COST OF SALES                                       |   |                          |  
| | Franchise stores
      construction/equipment costs |   | -                        |  
| | Professional and finders fees                       |   | -                        |  
| | Total Cost of Sales                                 |   | -                        |  
| | GROSS PROFIT (DEFICIT)                              | $ | -                        |  
| | EXPENSES                                            |   |                          |  
| | Bad debt                                            | $ | 850                      |  
| | Rent                                                |   | 124,238                  |  
| | Total Expenses                                      |   | 125,088                  |  
| | LOSS FROM OPERATIONS                                |   | (125,088                 | )
| | OTHER INCOME (EXPENSE)                              |   |                          |  
| | Loss on disposal of assets                          |   | (15,690                  | )
| | Gain on settlement of liabilities                   |   | 74,430                   |  
| | Total Other Income
      (Expense)                  |   | 58,740                   |  
| | LOSS FROM DISCONTINUED OPERATIONS                   | $ | (66,348                  | )

|NOTE 4 - | OUTSTANDING STOCK PURCHASE WARRANTS AND OPTIONS
|-------- | -----------------------------------------------

Employee Stock Options

On April 2, 2007, the Company issued
1,720,000 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, as such, nine employees have either resigned or been terminated and
forfeited a total of 1,520,000 options as of June 30, 2008. The Company
initially deferred $172,264 in calculated fair value of the options expected to
vest and amortized $12,112 of the value to expense during the year ended
December 31, 2007. As a result of forfeitures being in excess of original
expected amounts, the Company recorded a cumulative effect adjustment related to
the excess

16

---

|**MELT INC. AND
      SUBSIDIAIES**           
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|June 30, 2008 and December 31, 2007           

|NOTE 4 - | OUTSTANDING STOCK PURCHASE WARRANTS AND OPTIONS
      (CONTINUED)
|-------- | -----------------------------------------------------------------

Employee Stock Options(Continued)

forfeitures as a reduction of deferred
equity compensation in the amount of $136,577 and reduced additional paid-in
capital. During the three months ended June 30, 2008, the Company derecognized
$74 in expense associated with the options.

On April 1, 2008, the Company issued
500,000 stock options to a consultant with an exercise price of $0.20. The
options have a five year term and vest over a 5 year period at a rate of 20% per
year. The Company initially deferred $24,225 in calculated fair value of the
options expected to vest and amortized $1,211 of the value to expense during the
periond ended June 30, 2008.

A summary of the status of the
Companys outstanding stock options as of December 31, 2007 and June 30, 2008
and changes during the periods is presented below:

| |                                |  |          |   |   | Weighted       |  |   | Weighted         | 
| | ------------------------------ |  | -------- | - | - | -------------- |  | - | ---------------- | 
| |                                |  |          |   |   | Average        |  |   | Average          | 
| |                                |  | Options  |   |   | Exercise Price |  |   | Fair
      Value | 
| | Outstanding, December 31, 2007 |  | 390,000  |   | $ | 0.40           |  | $ | 0.20             | 
| | Issued                         |  | 500,000  |   |   | 0.20           |  |   | 0.10             | 
| | Exercised                      |  | -        |   |   | -              |  |   | -                | 
| | Forfeited                      |  | (190,000 | ) |   | 0.40           |  |   | 0.20             | 
| | Expired                        |  | -        |   |   | -              |  |   | -                | 
| |                                |  |          |   |   |                |  |   |                  | 
| | Outstanding, June 30, 2008     |  | 700,000  |   | $ | 0.34           |  | $ | 0.17             | 
| |                                |  |          |   |   |                |  |   |                  | 
| | Exercisable, June 30, 2008     |  | 50,000   |   | $ | 0.40           |  | $ | 0.20             | 

Outstanding
    
    
    
    
    
    ExercisableWeightedNumber
    
    
    Average
    
    
    Weighted
    
    
    Number
    
    
    WeightedRange of
    
    Outstanding
    
    
    Remaining
    
    
    Average
    
    
    Exercisable
    
    
    AverageExercise
    
    at
    
    
    Contractual
    
    
    Exercise
    
    
    at
    
    
    ExercisePrices
    
    6/30/08
    
    
    Life
    
    
    Price
    
    
    6/30/08
    
    
    Price$ 0.20 - 0.40
    
    700,000
    
    
    4.46
    
    $
    0.34
    
    
    50,000
    
    $
    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       |  | 2.58 - 4.54% | 
| | ------------------------------ |  | ------------ | 
| | Expected lives                 |  | 5 years      | 
| | Expected volatilities          |  | 50 - 202%    | 
| | Dividend yields                |  | 0.00%        | 
| | Expected remaining forfeitures |  | 50%          | 

17

---

**MELT INC. AND SUBSIDIAIES**Notes to the
Consolidated Financial Statements June 30, 2008 and December 31, 2007

|NOTE 4 - | OUTSTANDING STOCK PURCHASE WARRANTS AND OPTIONS
      (CONTINUED)
|-------- | -----------------------------------------------------------------

Stock Warrants (Continued)

A summary of the status of the
Companys outstanding stock warrants as of June 30, 2008 and December 31, 2007
and changes during the periods is presented below:

| |                                |  |          |  |   | Weighted       |  |   | Weighted         | 
| | ------------------------------ |  | -------- |  | - | -------------- |  | - | ---------------- | 
| |                                |  |          |  |   | Average        |  |   | Average          | 
| |                                |  | Warrants |  |   | Exercise Price |  |   | Fair
      Value | 
| |                                |  |          |  |   |                |  |   |                  | 
| | Outstanding, December 31, 2007 |  | 460,000  |  | $ | 1.00           |  | $ | 0.25             | 
| | Issued                         |  | -        |  |   | -              |  |   | -                | 
| | Exercised                      |  | -        |  |   | -              |  |   | -                | 
| | Forfeited                      |  | -        |  |   | -              |  |   | -                | 
| | Expired                        |  | -        |  |   | -              |  |   | -                | 
| |                                |  |          |  |   |                |  |   |                  | 
| | Outstanding, June 30, 2008     |  | 460,000  |  | $ | 1.00           |  | $ | 0.25             | 
| |                                |  |          |  |   |                |  |   |                  | 
| | Exercisable, June 30, 2008     |  | 460,000  |  | $ | 1.00           |  | $ | 0.25             | 

Outstanding
    
    
    
    
    
    ExercisableWeightedNumber
    
    
    Average
    
    
    Weighted
    
    
    Number
    
    
    WeightedRange of
    
    Outstanding
    
    
    Remaining
    
    
    Average
    
    
    Exercisable
    
    
    AverageExercise
    
    at
    
    
    Contractual
    
    
    Exercise
    
    
    at
    
    
    ExercisePrices
    
    6/30/08
    
    
    Life
    
    
    Price
    
    
    6/30/08
    
    
    Price$ 1.00
    
    460,000
    
    
    0.31
    
    $
    1.00
    
    
    460,000
    
    $
    1.00


|NOTE 5 - | RELATED PARTY TRANSACTIONS
|-------- | --------------------------

Management Fees

During the six months ended June 30,
2008, the Company paid Chill, Inc., a related party company, a management fee of
$224,000 representing the salaries, wages, benefits and overhead expenses
related to the operation of the Company during the period. Early in 2008, the
Company ceased accruing management fees to the Companys President and began
paying his salary as part of the management arrangement with Chill, Inc.

Notes Payable

During the period June 30, 2008, the
Company repaid $49,465 of its note payable to its President. The note balance
and accrued interest at June 30, 2008 was $100,000 and $77,500,
respectively.

|NOTE 6 - | INCOME TAXES
|-------- | ------------

The Company files income tax returns
in the U.S. federal jurisdiction and the states of California, Massachusetts,
Connecticut, Arizona, Illinois and Ohio. With few exceptions, the

18

---

**MELT INC. AND SUBSIDIAIES**Notes to the
Consolidated Financial Statements June 30, 2008 and December 31, 2007

|NOTE 6 - | INCOME TAXES (CONTINUED)
|-------- | ------------------------

Company is no longer subject to U.S.
federal, state and local, or non-U.S. income tax examinations by tax authorities
for years before 2004.

The Company adopted the provisions
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109, Accounting for Income Taxes (SFAS No.
109) (FIN 48) on January 1, 2007. As a result of the implementation of FIN 48
the Company did not recognize any increases in the liability recognize for
unrecognized tax benefits.

|NOTE 7 - | 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.

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.

19

---

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

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements.
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, that may cause our 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 unaudited financial statements are stated in United States
Dollars (US$) and are prepared in accordance with United States Generally
Accepted Accounting Principles. The following discussion should be read in
conjunction with our financial statements and the related notes that appear
elsewhere in this quarterly report. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the forward
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below and elsewhere in this
quarterly report.

In this quarterly report, unless otherwise specified, all
dollar amounts are expressed in United States dollars. All references to "US$"
refer to 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",
"our company" and Melt mean Melt Inc. and 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.

Results of Operations

Three month Summary ending June 30, 2008 and 2007

Three Months EndedJune 302008
    
    
    2007Revenue
    $
    720,182
    
    $
    677,890Cost of Sales
    $
    432,878
    
    $
    400,932Operating Expenses
    $
    288,443
    
    $
    716,438Net Loss
    $
    (34,530
    )
    $
    (1,122,811
    )


Expenses

Our operating expenses for the three month periods ended June
30, 2008 and 2007 are outlined in the table below:

Three Months EndedJune 302008
    
    
    2007Depreciation and Amortization
    $
    2,635
    
    $
    2,900Marketing
    $
    24,923
    
    $
    49,769Professional Fees
    $
    83,507
    
    $
    84,212Rent
    $
    575
    
    $
    9,407Salaries and Wages
    $
    -
    
    $
    287,798


20

---

Management fees
    $
    125,500
    
    $
    6,140Bad debt expense
    $
    12,500
    
    $
    202,574General and administrative
    $
    38,803
    
    $
    73,638


Operating expenses for the three months ended June 30, 2008,
decreased by 60% as compared to the comparative period in 2007 primarily as a
result of a 100% reduction in salaries and wages, partially offset by the
increase in management fees, a 94% decrease in bad debt and a 50% reduction in
marketing expense.

Revenue

Our revenue for the three month periods ended June 30, 2008 and
2007 are outlined in the table below:

Three Months EndedJune 302008
    
    
    2007Food and beverage sales
    $
    477,798
    
    $
    393,462Royalty and marketing fees
    $
    163,201
    
    $
    131,013Franchise fees
    $
    -
    
    $
    150,000Equipment sales
    $
    8,198
    
    $
    -Miscellaneous finders and
    $
    70,985
    
    $
    3,415professional fees


Revenue for the three month period ended June 30, 2008,
increased by 6% as compared to the comparative period in 2007 primarily as a
result of a 1,979% increase in professional and finders fees, a 21% increase in
food and beverage sales and a 25% increase in royalty and marketing fees,
partially offset by a 100% decrease in franchise fees.

Six month Summary ending June 30, 2008 and 2007

Six Months EndedJune 302008
    
    
    2007Revenue
    $
    1,392,990
    
    $
    1,195,402Cost of Sales
    $
    891,866
    
    $
    728,692Operating Expenses
    $
    576,506
    
    $
    1,254,418Net Loss
    $
    (23,985
    )
    $
    (1,972,443
    )


Expenses

Our operating expenses for the six month periods ended June 30,
2008 and 2007 are outlined in the table below:

Six Months EndedJune 302008
    
    
    2007Depreciation and Amortization
    $
    5,992
    
    $
    5,932Marketing
    $
    59,637
    
    $
    210,822Professional Fees
    $
    150,357
    
    $
    144,986Rent
    $
    12,304
    
    $
    18,814Salaries and Wages
    $
    -
    
    $
    513,464Management fees
    $
    224,000
    
    $
    12,528Bad debt expense
    $
    23,602
    
    $
    202,574General and administrative
    $
    100,881
    
    $
    145,826


21

---

Operating expenses for the six month period ended June 30,
2008, decreased by 54% as compared to the comparative period in 2007 primarily
as a result of a 100% reduction in salaries and wages, partially offset by a
1,944% increase in management fees, a 88% decrease in bad debt and a 72%
reduction in marketing expense.

Revenue

Our revenue for the six month periods ended June 30, 2008 and
2007 are outlined in the table below:

Six Months EndedJune 302008
    
    
    2007Food and beverage sales
    $
    903,581
    
    $
    737,351Royalty and marketing fees
    $
    311,358
    
    $
    222,429Franchise fees
    $
    40,000
    
    $
    225,000Equipment sales
    $
    46,976
    
    $
    -Miscellaneous finders and
    $
    91,075
    
    $
    10,622professional fees


Revenue for the six months ended June 30, 2008, increased by
17% as compared to the comparative period in 2007 primarily as a result of a 23%
increase in food and beverage sales, a 100% increase in finders and professional
fees, and a 40% increase in royalty and marketing fees, partially offset by a
82% decrease in franchise fees.

Equity Compensation

We have no formal plan for compensating our directors for their
service in their capacity as directors, although such directors are expected in
the future to receive stock options to purchase common shares as awarded by our
board of directors or (as to future stock options) a compensation committee
which may be established. Directors are entitled to reimbursement for reasonable
travel and other out-of-pocket expenses incurred in connection with attendance
at meetings of our board of directors. Our board of directors may award special
remuneration to any director undertaking any special services on our behalf
other than services ordinarily required of a director. No director received
and/or accrued any compensation for their services as a director, including
committee participation and/or special assignments.

Liquidity and Financial Condition

Working CapitalAt June 30,
    
    
    At December
    
    
    Percentage2008
    
    
    31, 2007
    
    
    Increase/DecreaseCurrent Assets
    $
    194,799
    
    $
    176,931
    
    
    10%Current Liabilities
    $
    989,650
    
    $
    1,156,885
    
    
    (14)%Working Capital
    $
    (794,851
    )
    $
    (979,954
    )
    
    (19)%


Cash FlowsAt June 30,
    
    
    At December2008
    
    
    31, 2007Net Cash Provided (Used) by Operating
      Activities
    $
    (15,779
    )
    $
    (865,558
    )Net Cash Provided (Used) by Investing Activities
    $
    -
    
    $
    (10,228
    )Net Cash Provided (Used) by Financing
      Activities
    $
    (50,618
    )
    $
    388,409(Decrease) In Cash
    $
    (66,397
    )
    $
    (487,377
    )


As of June 30, 2008, our company had a working capital deficit
of $(794,851). We estimate our operating expenses and
working capital requirements for the next twelve month period to be as
follows:

22

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Estimated Expenses for the Next Twelve Month PeriodOperating ExpensesDepreciation and Amortization
    $
    5,000Marketing
    $
    80,000Professional Fees
    $
    85,000Rent
    $
    60,000Management fees
    
    480,000Bad debt expense
    $
    10,000Interest
    $
    60,000General and administrative
    $
    120,000Total
    $
    900,000


We plan to raise additional capital required to meet immediate
short-term needs and to meet the balance of our estimated funding requirements
for the twelve months, primarily through the private placement of our
securities.

We are not aware of any known trends, demands, commitments,
events or uncertainties that will result in or that are reasonably likely to
result in our liquidity increasing or decreasing in any material way.

Future Financings

We will require additional financing in order to enable us to
proceed with our plan of operations, as discussed above, including approximately
$1,250,000 over the next 12 months to pay for our ongoing expenses and current
liabilities. These expenses include depreciation and amortization, marketing,
professional fees, rent, salaries and wages, management fees, bad debt expenses
and general and administrative. Accordingly, we will require additional
financing in order to continue operations. There is no assurance that any party
will advance additional funds to us in order to enable us to sustain our plan of
operations.

We anticipate continuing to rely on equity sales of our common
stock in order to continue to fund our business operations. Issuances of
additional shares will result in dilution to our existing stockholders. There is
no assurance that we will achieve any additional sales of our equity securities
or arrange for debt or other financing to fund our planned business
activities.

We presently do not have any arrangements for additional
financing for the expansion of our operations, and no potential lines of credit
or sources of financing are currently available.

Contractual Obligations

As a smaller reporting company, we are not required to
provide tabular disclosure obligations.

Going Concern

We anticipate that additional funding will be required in the
form of equity financing from the sale of our common stock. At this time, we
cannot provide investors with any assurance that we will be able to raise
sufficient funding from the sale of our common stock or through a loan from our
directors to meet our obligations over the next twelve months. We do not have
any arrangements in place for any future debt or equity financing.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
stockholders.

23

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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.

Item 3. Quantitative Disclosures About Market Risks

As a smaller reporting company, we are not required to
provide the information required by this Item.

Item 4. 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 president and
chief executive officer (who is acting as our principal executive officer,
principal financial officer and principle accounting 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 June 30, 2008, the end of the period covered by this
report, our president and chief executive officer (our principal executive
officer, principal financial officer and principle accounting officer) carried
out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our president and
chief executive officer (our principal executive officer, principal financial
officer and principle accounting 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 significant changes in our internal controls
over financial reporting that occurred during the quarter ended June 30, 2008
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, andMMS 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. As of June 30, 2008 the demand is still pending.

24

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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 putative class action
against us, our affiliates, and our some of our former officers and employees
alleging damages and injunctive relief under state Franchise Acts, 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 purported to
represent a class of our franchisees. As of June 30, 2008, the Court tentatively
dismissed five of the six allegations contained in the Complaint. Plaintiffs
thereafter made an application to dismiss the action in its entirety. We have
filed a motion for attorneys fees and costs and expect a decision in August of
2008.

Mayflower Emerald Sq. LLC v. Melt, Inc. and Melt
(California) Inc.

Superior Court of the State of Massachusetts, County of
Bristol, Docket No. 08-00339-A. On or about March 20, 2008, plaintiff filed a
breach of contract claim against us. This relates to a store that never opened
and resulting unpaid rent. The plaintiff has claimed the net present value of
the unpaid rent. In May of 2008, Melt Inc filed a motion to dismiss, which is
scheduled to be heard in September of 2008. Melt (California) Inc. has not filed
a response.

Item 1A.

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.

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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 marks "Melt-gelato italiano" and "Melt-gelato &
crepe café" have 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 and require expenditure of significant resources to develop
non-infringing trade name and trademarks, 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 desserts), 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

26

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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 21,290,000 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.

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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 Financial Industry Regulatory Authority. 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 FINRA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, FINRA 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, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. FINRA 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.

Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds

None.

28

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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-K

|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).
|               |                                                                                                                                                                              
|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).                                                        

29

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|Exhibit Number | Description                                         
|-------------- | ----------------------------------------------------
|               |                                                     
|(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

30

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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.                                              
|---------------------- | -------------------------------------------------------
|                       | (Registrant)                                           
|                       |                                                        
|                       |                                                        
|Dated: August 19, 2008 | /s/
      Clive Barwin                                 
|                       | Clive Barwin                                           
|                       | President, CEO, Chief Financial Officer,               
|                       | Secretary and Director                                 
|                       | (Principal Executive Officer, Principal
      Financial
|                       | Officer and Principal Accounting Officer)              

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