---

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 September 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 October 31,
2008

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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 September 30, 2008 include
all adjustments necessary in order to ensure that the interim consolidated
financial statements are not misleading.

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MELT INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2008 and December 31, 2007

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MELT INC. AND SUBSIDIARIES Consolidated Balance
Sheets

|ASSETS                                              |  
|--------------------------------------------------- | -
|                                                    |  
|                                                    |  
|                                                    |  
|                                                    |  
|CURRENT ASSETS                                      |  
|                                                    |  
|Cash                                                | $
|Receivables, net of allowance of $60,000 and $4,005 |  
|                                                    |  
|Total Current Assets                                |  
|                                                    |  
|FIXED ASSETS, NET                                   |  
|                                                    |  
|OTHER ASSETS                                        |  
|                                                    |  
|Trademark, net                                      |  
|Debt issuance costs                                 |  
|Deposits                                            |  
|                                                    |  
|Total Other Assets                                  |  
|                                                    |  
|ASSETS FROM DISCONTINUED OPERATIONS (NOTE 3)        |  
|                                                    |  
|TOTAL ASSETS                                        | $

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

---

MELT INC. AND SUBSIDIARIES Consolidated Balance
Sheets (Continued)

|LIABILITIES AND STOCKHOLDERS EQUITY
      (DEFICIT)      |  
|--------------------------------------------------------- | -
|                                                          |  
|                                                          |  
|                                                          |  
|                                                          |  
|CURRENT LIABILITIES                                       |  
|                                                          |  
|Accounts payable                                          | $
|Accounts payable  related party (Note 5)                 |  
|Accrued expenses                                          |  
|Accrued management fees  related party (Note
      5)    |  
|Notes payable - related party
      (Note 5)              |  
|Accrued interest - related party (Note 5)                 |  
|Notes payable                                             |  
|Accrued interest                                          |  
|Deferred revenue                                          |  
|                                                          |  
|Total
      Current Liabilities                           |  
|                                                          |  
|LONG-TERM LIABILITIES                                     |  
|                                                          |  
|Notes payable                                             |  
|                                                          |  
|Total
      Long-Term Liabilities                         |  
|                                                          |  
|LIABILITIES FROM DISCONTINUED OPERATIONS
      (NOTE 3)   |  
|                                                          |  
|TOTAL
      LIABILITIES                                   |  
|                                                          |  
|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                |  
|Additional paid-in capital                                |  
|Deferred equity compensation                              |  
|Accumulated deficit                                       |  
|                                                          |  
|Total Stockholders
      Equity (Deficit)                |  
|                                                          |  
|TOTAL LIABILITIES AND
      STOCKHOLDERS EQUITY          | $

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

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MELT INC. AND SUBSIDIARIES Consolidated Statements of
Operations (Unaudited)

|                                                  |   | For the Three Months Ended |   |   | For the Nine Months Ended |  
|------------------------------------------------- | - | -------------------------- | - | - | ------------------------- | -
|                                                  |   | September
      30,        |   |   | September
      30,       |  
|                                                  |   | 2008                       |   |   | 2007                      |  
|REVENUES                                          |   |                            |   |   |                           |  
|                                                  |   |                            |   |   |                           |  
|Food and beverage sales                           | $ | 54,511                     |   | $ | 594,660                   |  
|Royalty and marketing fees                        |   | 159,324                    |   |   | 167,660                   |  
|Franchise fees                                    |   | 40,000                     |   |   | 225,000                   |  
|Equipment sales                                   |   | 18,680                     |   |   | -                         |  
|Miscellaneous finders and professional
      fees |   | 2,364                      |   |   | 16,875                    |  
|                                                  |   |                            |   |   |                           |  
|Total Revenues                                    |   | 274,879                    |   |   | 1,004,195                 |  
|                                                  |   |                            |   |   |                           |  
|COST OF SALES                                     |   |                            |   |   |                           |  
|                                                  |   |                            |   |   |                           |  
|Cost of food and beverage                         |   | 6,314                      |   |   | 467,988                   |  
|Materials and supplies                            |   | 8,864                      |   |   | 108,645                   |  
|                                                  |   |                            |   |   |                           |  
|Total Cost of Sales                               |   | 15,178                     |   |   | 576,633                   |  
|                                                  |   |                            |   |   |                           |  
|GROSS PROFIT (DEFICIT)                            |   | 259,701                    |   |   | 427,562                   |  
|                                                  |   |                            |   |   |                           |  
|EXPENSES                                          |   |                            |   |   |                           |  
|                                                  |   |                            |   |   |                           |  
|Depreciation and amortization                     |   | 1,259                      |   |   | 2,635                     |  
|Marketing                                         |   | 3,205                      |   |   | 29,280                    |  
|Professional fees                                 |   | 82,534                     |   |   | 30,388                    |  
|Rent                                              |   | -                          |   |   | 9,951                     |  
|Salaries and wages                                |   | -                          |   |   | 172,665                   |  
|Management fees                                   |   | 95,500                     |   |   | 6,000                     |  
|Bad debt expense                                  |   | 70,200                     |   |   | 1,592                     |  
|General and administrative                        |   | 48,843                     |   |   | 56,047                    |  
|                                                  |   |                            |   |   |                           |  
|Total Expenses                                    |   | 301,541                    |   |   | 308,558                   |  
|                                                  |   |                            |   |   |                           |  
|INCOME (LOSS) FROM OPERATIONS                     |   | (41,840                    | ) |   | 119,004                   |  
|                                                  |   |                            |   |   |                           |  
|OTHER INCOME (EXPENSES)                           |   |                            |   |   |                           |  
|                                                  |   |                            |   |   |                           |  
|Gain on litigation settlement                     |   | -                          |   |   | -                         |  
|Gain (loss) on sale or disposal of equipment      |   | -                          |   |   | -                         |  
|Interest expense                                  |   | (20,166                    | ) |   | (11,520                   | )
|Interest income                                   |   | -                          |   |   | 909                       |  
|                                                  |   |                            |   |   |                           |  
|Total Other
      Income (Expense)                |   | (20,166                    | ) |   | (10,611                   | )
|                                                  |   |                            |   |   |                           |  
|INCOME (LOSS) BEFORE DISCONTINUED                 |   |                            |   |   |                           |  
|OPERATIONS AND INCOME TAXES                       | $ | (62,006                    | ) | $ | 108,393                   |  

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

---

MELT INC. AND SUBSIDIARIES Consolidated Statements of
Operations (Continued) (Unaudited)

|                                                 |   | For the Three Months Ended |   |   | For the Nine Months Ended | 
|------------------------------------------------ | - | -------------------------- | - | - | ------------------------- | 
|                                                 |   | September
      30,        |   |   | September
      30,       | 
|                                                 |   | 2008                       |   |   | 2007                      | 
|                                                 |   |                            |   |   |                           | 
|INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS     | $ | (62,006                    | ) | $ | 108,393                   | 
|                                                 |   |                            |   |   |                           | 
|Income (Loss) from discontinued
      operations |   |                            |   |   |                           | 
|(Note 3)                                         |   | 19,109                     |   |   | 321,337                   | 
|                                                 |   |                            |   |   |                           | 
|INCOME (LOSS) BEFORE INCOME TAXES                |   | (42,897                    | ) |   | 429,730                   | 
|                                                 |   |                            |   |   |                           | 
|INCOME TAX EXPENSE                               |   | -                          |   |   | -                         | 
|                                                 |   |                            |   |   |                           | 
|NET INCOME (LOSS)                                | $ | (42,897                    | ) | $ | 429,730                   | 
|                                                 |   |                            |   |   |                           | 
|BASIC AND DILUTED NET                            |   |                            |   |   |                           | 
|INCOME (LOSS) PER SHARE:                         |   |                            |   |   |                           | 
|                                                 |   |                            |   |   |                           | 
|Income (loss)
      per share on continuing      |   |                            |   |   |                           | 
|operations                                       | $ | (0.00                      | ) | $ | 0.00                      | 
|                                                 |   |                            |   |   |                           | 
|Income (loss) per share on
      discontinued    |   |                            |   |   |                           | 
|Operations                                       |   | (0.00                      | ) |   | 0.02                      | 
|                                                 |   |                            |   |   |                           | 
|Net loss
      per share                         | $ | (0.00                      | ) | $ | 0.02                      | 
|                                                 |   |                            |   |   |                           | 
|WEIGHTED AVERAGE NUMBER                          |   |                            |   |   |                           | 
|OF SHARES OUTSTANDING                            |   | 21,290,000                 |   |   | 21,290,000                | 
|                                                 |   |                            |   |   |                           | 
|FULLY DILUTED WEIGHTED AVERAGE                   |   |                            |   |   |                           | 
|NUMBER OF SHARES OUTSTANDING                     |   | 21,290,000                 |   |   | 22,109,000                | 

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

---

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

AdditionalCommon
        Stock
      
      
      Paid-in
      
      
      Deferred
      
      
      AccumulatedShares
      
      
      Amount
      
      
      Capital
      
      
      Compensation
      
      
      DeficitBalance, December 31, 2007
      
      21,290,000
      
      $
      21,290
      
      $
      1,877,426
      
      $
      (52,487
      )
      $
      (3,485,180
      )Amortization of deferred equitycompensation (unaudited)
      
      -
      
      
      -
      
      
      -
      
      
      8,873
      
      
      -Grant of stock options for deferredequity compensation (unaudited)
      
      -
      
      
      -
      
      
      24,225
      
      
      (24,225
      )
      
      -Cumulative effect of stock optionforfeitures (unaudited)
      
      -
      
      
      -
      
      
      (24,538
      )
      
      24,538
      
      
      -Net loss for the nine monthsended September 30, 2008(unaudited)
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (66,882
      )Balance, September 30, 2008(unaudited)
      
      21,290,000
      
      $
      21,290
      
      $
      1,877,113
      
      $
      (43,301
      )
      $
      (3,552,062
      )


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

---

MELT INC. AND SUBSIDIARIES Consolidated Statements of
Cash Flows (Unaudited)

|                                                                   |   | For the Nine Months Ended |  
|------------------------------------------------------------------ | - | ------------------------- | -
|                                                                   |   | September
      30,       |  
|                                                                   |   | 2008                      |  
|CASH FLOWS FROM OPERATING ACTIVITIES                               |   |                           |  
|                                                                   |   |                           |  
|Net loss after discontinued operations                             | $ | (66,882                   | )
|Less: loss from discontinued operations                            |   | (47,239                   | )
|                                                                   |   |                           |  
|Net Income (loss) before discontinued operations                   |   | (19,643                   | )
|Items to reconcile net loss to net                                 |   |                           |  
|cash provided (used) by operating activities:                      |   |                           |  
|Depreciation
      and amortization                                |   | 7,251                     |  
|Bad debt expense                                                   |   | 93,802                    |  
|Amortization
      of deferred equity compensation                 |   | 8,872                     |  
|Amortization of deferred
      debt issuance costs                 |   | 4,200                     |  
|Common stock issued
      for services                             |   | -                         |  
|Loss on
      sale of fixed assets                                 |   | -                         |  
|Changes in operating assets and liabilities:                       |   |                           |  
|(Increase) decrease
      in receivables                           |   | (16,586                   | )
|Decrease in supplies and
      inventory                           |   | -                         |  
|Decrease
      in prepaid expenses                                 |   | -                         |  
|(Increase) decrease in other
      assets                          |   | 28,523                    |  
|Increase
      (decrease) in accounts payable and accrued expenses |   | (106,760                  | )
|Increase in interest payable
       related party                 |   | 7,249                     |  
|Increase
      in interest payable                                 |   | 3,902                     |  
|Increase in management fees
      payable                          |   | -                         |  
|Increase
      (decrease) in deferred revenue                      |   | 10,000                    |  
|                                                                   |   |                           |  
|Net Cash Provided (Used) by Operating Activities                   |   | 20,810                    |  
|                                                                   |   |                           |  
|Net Cash Provided (Used) by Discontinued Activities                |   | 24,726                    |  
|                                                                   |   |                           |  
|Total Net Cash Provided (Used) by Operating and                    |   |                           |  
|Discontinued
      Activities                                      |   | 45,536                    |  
|                                                                   |   |                           |  
|CASH FLOWS FROM INVESTING ACTIVITIES                               |   |                           |  
|                                                                   |   |                           |  
|Proceeds from sale of fixed
      assets                           |   | -                         |  
|Purchases
      of fixed assets                                    |   | -                         |  
|                                                                   |   |                           |  
|Net Cash Used by Investing Activities                              |   |                           |  
| Continuing
      Operations                                      |   | -                         |  
|                                                                   |   |                           |  
|Net Cash Provided
      by Investing Activities                    |   |                           |  
| Discontinued Operations                                          |   | -                         |  
|                                                                   |   |                           |  
|Net Cash Used by Investing Activities                              | $ | -                         |  

9

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

|                                                 |   | For the Nine Months Ended |  
|------------------------------------------------ | - | ------------------------- | -
|                                                 |   | September
      30,       |  
|                                                 |   | 2008                      |  
|                                                 |   |                           |  
|CASH FLOWS FROM FINANCING ACTIVITIES             |   |                           |  
|                                                 |   |                           |  
|Increase in cash overdraft                       | $ | -                         |  
|Proceeds from notes payable                      |   | -                         |  
|Payments on notes payable                        |   | (1,153                    | )
|Proceeds from notes payable  related party      |   | -                         |  
|Payments on notes payable  related party        |   | (49,465                   | )
|                                                 |   |                           |  
|Net Cash Provided (Used) by Financing Activities |   | (50,618                   | )
|                                                 |   |                           |  
|DECREASE IN CASH                                 |   | (5,082                    | )
|                                                 |   |                           |  
|                                                 |   |                           |  
|                                                 |   |                           |  
|CASH AT BEGINNING OF PERIOD                      |   | 67,853                    |  
|                                                 |   |                           |  
|CASH AT END OF PERIOD                            | $ | 62,771                    |  
|                                                 |   |                           |  
|CASH PAID FOR:                                   |   |                           |  
|                                                 |   |                           |  
|Interest                                         | $ | 44,625                    |  
|Income taxes                                     | $ | -                         |  

10

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**MELT INC. AND SUBSIDIARIES**Notes to the
Consolidated Financial Statements September 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
      September 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 September
      30, 2008 (see note 3). Additionally, all operations of Melt (CA) relating
      to sales of food and beverages to franchise owned stores have 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-nine franchises of which twenty-two are operating,
      fourteen agreements have been terminated by the Company as a result of the
      franchisees not securing retail space or other reasons, four are in the
      process of finding suitable locations to operate their stores, two are in
      the process of building their stores and seven 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 nine
      months ended September 30, 2008 and 2007 was $7,251 and $8,567,
      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

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**MELT INC. AND SUBSIDIARIES**Notes to the
Consolidated Financial Statements September 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  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 nine months ended September 30, 2008 and 2007, the Company
    recognized $80,000 and $450,000 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

---

MELT INC. AND SUBSIDIARIESNotes to the Consolidated
Financial Statements September 30, 2008 and December 31, 2007

|NOTE 1 - | ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
      (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | f. Revenue Recognition (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | Deferred Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | As of September 30, 2008 and December 31, 2007 the
      company maintained deferred revenue of $150,000 and $250,000,
      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 $60,000 and $4,005 at September 30, 2008 and
      December 31, 2007, respectively, while bad debt expense on continuing
      operations totaled $94,652 and $1,592 for the nine months ended September
      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 nine months ended September 30, 2008 and 2007
      was $62,572 and $240,102, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

13

---

**MELT INC. AND SUBSIDIARIES**Notes to the
Consolidated Financial Statements September 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 (We) and Melt (California),
      Inc. (MCI) v. Steven A. Field, M.D., MMS Coconut Point, LLC,
      and MMS King of Prussia Court, LLC (Respondents).On March 18, 2007, we and MCI filed a demand for arbitration against
      Steven A. Field, MD., MMS Coconut Point, LLC and MMS King of Prussia
      Court, LLC (collectively, Field) seeking a finding and/or declaration of
      entitlement to terminate Fields four franchise agreements. We and MCI
      also seek unpaid royalties and advertising contributions; rent and other
      charges due under a sublease with MCI; an amount equal to all unpaid
      construction invoices; an amount equal to all unpaid invoices for products
      purchased by Field; and costs and expenses of arbitration and attorneys
      fees. As of October 31, 2008, the demand is still pending.                                                                                                                                                                                                                                                

14

---

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

|NOTE 2 - | LITIGATION (CONTINUED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | 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, six of our franchisees filed a
      putative class action lawsuit against us, our affiliates, our officers and
      some of our employees in which the franchisees allege that we fraudulently
      induced the franchisees to enter into franchise agreements by
      misrepresenting facts about the franchise opportunity. The lawsuit sought
      injunctive relief and damages, in an unspecified amount, under several
      state franchise acts, restitution and injunctive relief under various
      provisions of the California Unfair Business Practices Act, damages and
      injunctive relief under the Cartwright Act, and damages for fraud,
      interference with prospective economic advantage, and unjust enrichment
      and declaratory relief. On or about June 30, 2008, the Court dismissed the
      plaintiffs lawsuit. On or about August 26, 2008, Plaintiffs filed a
      Notice of Appeal.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | Melt Franchising, LLC v. PMI Enterprises, Inc. and
      John Flannery.On June 24, 2008, we filed an ex parte application
      for a temporary restraining order and preliminary injunction against PMI
      Enterprises, Inc. and John Flannery (collectively PMI) for significant
      violations of the franchise agreement. PMI filed a motion to dismiss. On
      August 18, 2008, the Court granted our motion for a preliminary injunction
      and ordered PMI to allow us to assume management of the store, cease using
      our marks, assign PMIs lease for the store to us, and required PMI to
      sell all or any portions of the assets. On September 4, 2008, PMI filed
      counterclaims for injunctive relief, restitution, fraud, unjust
      enrichment, and declaratory relief. On September 18, 2008, PMI sought to
      modify the August 18, 2008 Order via ex parte application. On September
      25, 2008, the Court denied PMIs application. A trial date has been set
      for July 14, 2009.                                                                                                                                                                                                                                                                                                                                                                                 
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | Jong Han v. Melt, Inc., Melt (California), Inc.,
      Melt Franchising, LLC, Clive V. Barwin, Brandon Barwin,
      Michael Zorehkey, Rick Zorehkey, Eddie Ollman, and Alin Cruz.On
      August 22, 2008, Jong Han (Han) filed a Complaint against us similar to
      the purported class action suit that was dismissed by the Court under
      matter 2 in this Note 2. Han seeks damages in an unspecified amount and
      injunctive relief under state franchise acts, restitution and injunctive
      relief under the unfair business practices act, damages and relief under
      the Cartwright Act, fraud, interference with prospective economic
      advantage, unjust enrichment, and declaratory relief. In October of 2008,
      the Company filed a Motion to Compel Arbitration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | Kang Won Lee and Yoo and Lee Enterprises v. Melt,
      Inc., Melt (California), Inc., Melt Franchising, LLC, Clive
      V. Barwin, Rick Zorehkey, and Eddie Ollman.On August 22, 2008,
      Kang Won Lee and Lee Enterprises (Lee) filed a Complaint against us
      similar to the purported class action suit that was dismissed by the Court
      under matter 2 in this Note 2. Lee seeks damages in an unspecified amount
      and injunctive relief under state franchise acts, restitution and
      injunctive relief under the unfair business practices act, damages and
      relief under the Cartwright Act, fraud, unjust enrichment, and declaratory
      relief. In October of 2008, the Company filed a Motion to Compel
      Arbitration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

15

---

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

|NOTE 2 - | LITIGATION (CONTINUED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | 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 March 20,
      2008, Mayflower Emerald Sq. LLC (Mayflower) filed a breach of contract
      claim against our parent and MCI. This action relates to a store that
      never opened and resulting unpaid rent. Mayflower has claimed the net
      present value of the unpaid rent is $523,592.86. In May of 2008, Melt Inc
      filed a motion to dismiss the complaint. In September of 2008, the motion
      to dismiss was heard and the Court ordered Mayflower to amend its
      Complaint.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|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
      September 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:                                            

| |                           |   | September 30, |  |   | December 31, | 
| | ------------------------- | - | ------------- |  | - | ------------ | 
| |                           |   | 2008          |  |   | 2007         | 
| |                           |   |               |  |   |              | 
| | ASSETS                    |   |               |  |   |              | 
| |                           |   |               |  |   |              | 
| | Accounts
      receivable | $ | 23,673        |  | $ | 55,347       | 
| |                           |   |               |  |   |              | 
| | LIABILITIES               |   |               |  |   |              | 
| |                           |   |               |  |   |              | 
| | Accrued
      expenses    | $ | 528,500       |  | $ | 407,250      | 

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

| |                                                     |   | For the Nine Months Ended |  
| | --------------------------------------------------- | - | ------------------------- | -
| |                                                     |   | September
      30,       |  
| |                                                     |   | 2008                      |  
| |                                                     |   |                           |  
| | REVENUES                                            |   |                           |  
| |                                                     |   |                           |  
| | Franchise
      stores construction/equipment       | $ | -                         |  
| | Professional and finders
      fees                 |   | -                         |  
| |                                                     |   |                           |  
| | Total
      Revenues                                |   | -                         |  
| |                                                     |   |                           |  
| | COST OF SALES                                       |   |                           |  
| |                                                     |   |                           |  
| | Franchise stores construction/equipment
      costs |   | 3,632                     |  
| | Professional
      and finders fees                 |   | -                         |  
| |                                                     |   |                           |  
| | Total Cost of Sales                                 |   | 3,632                     |  
| |                                                     |   |                           |  
| | GROSS PROFIT (DEFICIT)                              | $ | (3,632                    | )

16

---

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

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

| |                                                   |   | For the Nine Months Ended |  
| | ------------------------------------------------- | - | ------------------------- | -
| |                                                   |   | September
      30,       |  
| |                                                   |   | 2008                      |  
| |                                                   |   |                           |  
| | EXPENSES                                          |   |                           |  
| |                                                   |   |                           |  
| | Bad debt                                          | $ | 850                       |  
| | Rent                                              |   | 124,238                   |  
| |                                                   |   |                           |  
| | Total Expenses                                    |   | 125,088                   |  
| |                                                   |   |                           |  
| | LOSS FROM OPERATIONS                              |   | (128,720                  | )
| |                                                   |   |                           |  
| | OTHER INCOME (EXPENSE)                            |   |                           |  
| |                                                   |   |                           |  
| | Loss on write-off of construction work in-process |   | -                         |  
| | Loss on disposal of assets                        |   | (15,690                   | )
| | Gain on settlement of liabilities                 |   | 97,171                    |  
| |                                                   |   |                           |  
| | Total Other Income (Expense)                      |   | 81,481                    |  
| |                                                   |   |                           |  
| | LOSS FROM DISCONTINUED OPERATIONS                 | $ | (47,239                   | )

|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 September
      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 forfeitures
      as a reduction of deferred equity compensation in the amount of $136,577
      and reduced additional paid-in capital. During the nine months ended
      September 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 $2,422 of the value to expense
      during the nine months ended September 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         | A summary of the status of the Companys outstanding
      stock options as of December 31, 2007 and September 30, 2008 and changes
      during the periods is presented below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

17

---

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

|NOTE 4 - | OUTSTANDING STOCK PURCHASE WARRANTS AND OPTIONS
      (CONTINUED)
|-------- | -----------------------------------------------------------------
|         |                                                                  
|         | Employee Stock Options(Continued)                                

| |                                 |  |          |   |   | 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, September 30, 2008 |  | 700,000  |   | $ | 0.34           |  | $ | 0.17             | 
| |                                 |  |          |   |   |                |  |   |                  | 
| | Exercisable, September 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
      
      9/30/08
      
      
      Life
      
      
      Price
      
      
      9/30/08
      
      
      Price$ 0.20 - 0.40
      
      700,000
      
      
      4.21
      
      $
      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 yearsExpected volatilities
    50 - 202%Dividend yields
    0.00%Expected remaining forfeitures
    50%


Stock Warrants

A summary of the status of the
Companys outstanding stock warrants as of September 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, September 30, 2008 |  | 460,000  |  | $ | 1.00           |  | $ | 0.25             | 
| |                                 |  |          |  |   |                |  |   |                  | 
| | Exercisable, September 30, 2008 |  | 460,000  |  | $ | 1.00           |  | $ | 0.25             | 

18

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

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

Outstanding
      
      
      ExercisableWeightedNumber
      
      
      Average
      
      
      Weighted
      
      
      Number
      
      
      WeightedRange of
      
      
      Outstanding
      
      
      Remaining
      
      
      Average
      
      
      Exercisable
      
      
      AverageExercise
      
      
      at
      
      
      Contractual
      
      
      Exercise
      
      
      at
      
      
      ExercisePrices
      
      
      9/30/08
      
      
      Life
      
      
      Price
      
      
      9/30/08
      
      
      Price$
      1.00
      
      
      460,000
      
      
      0.06
      
      $
      1.00
      
      
      460,000
      
      $
      1.00


|NOTE 5 - | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Management Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | During the nine months ended September 30, 2008, the
      Company paid Chill, Inc., a related party company, a management fee of
      $319,500 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 September 30, 2008, the Company repaid
      $49,465 of its note payable to its President. The note balance and accrued
      interest at September 30, 2008 was $100,000 and $81,938, 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 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

19

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MELT INC. AND SUBSIDIARIESNotes to the Consolidated
Financial Statements September 30, 2008 and December 31, 2007

|NOTE 7 - | GOING CONCERN (CONTINUED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | 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.                                                                                                                                                                                                                                                                                          

20

---

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 September 30, 2008 and 2007

Three Months EndedSeptember 302008
    
    
    2007Revenue
    $
    274,879
    
    $
    1,004,195Cost of Sales
    $
    15,178
    
    $
    576,633Operating Expenses
    $
    301,541
    
    $
    308,558Net Income (Loss)
    $
    (42,897
    )
    $
    429,730


Expenses

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

Three Months EndedSeptember 302008
    
    
    2007Depreciation and Amortization
    $
    1,259
    
    $
    2,635Marketing
    $
    3,205
    
    $
    29,280Professional Fees
    $
    82,534
    
    $
    30,388Rent
    $
    -
    
    $
    9,951


21

---

Salaries and Wages
    $
    -
    
    $
    172,665Management fees
    $
    95,500
    
    $
    6,000Bad debt expense
    $
    70,200
    
    $
    1,592General and administrative
    $
    48,843
    
    $
    56,047


Operating expenses for the three months ended September 30,
2008, decreased by 2% 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 4,310% decrease in bad debt and a 89% reduction
in marketing expense.

Revenue

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

Three Months EndedSeptember 302008
    
    
    2007Food and beverage sales
    $
    54,511
    
    $
    594,660Royalty and marketing fees
    $
    159,324
    
    $
    167,660Franchise fees
    $
    40,000
    
    $
    225,000Equipment sales
    $
    18,680
    
    $
    -Miscellaneous finders andprofessional fees
    $
    2,364
    
    $
    16,875


Revenue for the three month period ended September 30, 2008,
  decreased by 54% as compared to the comparative period in 2007 primarily as
  a result of a 92% decrease in food and beverage sales and a 82% decrease in
  franchise fees. During this quarter Melt Franchasing LLC decided to phase out
  selling food and beverages to its franchisees, this phase out will be completed
  by December 31, 2008. The franchisees will be purchasing product directly from
  the distributors.

Nine month Summary ending September 30, 2008 and 2007

Nine Months EndedSeptember 302008
    
    
    2007Revenue
    $
    1,667,869
    
    $
    2,219,630Cost of Sales
    $
    835,044
    
    $
    1,305,325Operating Expenses
    $
    878,044
    
    $
    1,360,401Net Loss
    $
    (66,882
    )
    $
    (1,542,713
    )


Expenses

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

Nine Months EndedSeptember 302008
    
    
    2007Depreciation and Amortization
    $
    7,251
    
    $
    8,567Marketing
    $
    62,572
    
    $
    240,102Professional Fees
    $
    232,891
    
    $
    175,374Rent
    $
    12,304
    
    $
    28,765Salaries and Wages
    $
    -
    
    $
    686,129Management fees
    $
    319,500
    
    $
    18,000Bad debt expense
    $
    93,802
    
    $
    1,592General and administrative
    $
    149,724
    
    $
    201,872


22

---

Operating expenses for the nine month period ended September
30, 2008, decreased by 35% as compared to the comparative period in 2007
primarily as a result of a 100% reduction in salaries and wages and a 74%
reduction in marketing expense, partially offset by a 1,675% increase in
management fees and a 5,792% increase in bad debt.

Revenue

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

Nine Months EndedSeptember 302008
    
    
    2007Food and beverage sales
    $
    958,092
    
    $
    1,332,011Royalty and marketing fees
    $
    470,682
    
    $
    390,089Franchise fees
    $
    80,000
    
    $
    450,000Equipment sales
    $
    112,776
    
    $
    -Miscellaneous finders andprofessional fees
    $
    46,319
    
    $
    47,530


Revenue for the nine months ended September 30, 2008, decreased
by 29% as compared to the comparative period in 2007 primarily as a result of a
28% decrease in food and beverage sales and a 82% decrease in franchise fees,
partially offset by a 21% increase in royalty and marketing 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
    
    
    At December
    
    
    PercentageSeptember
    
    
    31, 2007
    
    
    Increase/(Decrease)30, 2008Current Assets
    $
    94,633
    
    $
    176,931
    
    
    (47)%Current Liabilities
    $
    922,359
    
    $
    1,156,885
    
    
    (20)%Working Capital
    $
    (827,726
    )
    $
    (979,954
    )
    
    (16)%


Cash FlowsAt
    
    
    At DecemberSeptember
    
    
    31, 200730, 2008Net Cash Provided (Used) by Operating
      Activities
    $
    45,536
    
    $
    (865,558
    )Net Cash Provided (Used) by Investing Activities
    $
    -
    
    $
    (10,228
    )Net Cash Provided (Used) by Financing
      Activities
    $
    (50,516
    )
    $
    388,409(Decrease) In Cash
    $
    (5,082
    )
    $
    (487,377
    )


As of September 30, 2008, our company had a working capital deficit
  of $(827,726). We estimate our operating expenses and working capital requirements
  for the next twelve month period to be as follows:

23

---

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.

24

---

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 September 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 September 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 (We) and Melt (California), Inc.
(MCI) v. Steven A. Field, M.D., MMS CoconutPoint, LLC, and
MMS King of Prussia Court, LLC (Respondents).On March 18, 2007,
we and MCI filed a demand for arbitration against Steven A. Field, MD., MMS
Coconut Point, LLC and MMS King of Prussia Court, LLC (collectively, Field)
seeking a finding and/or declaration of entitlement to terminate Fields four
franchise agreements. We and MCI also seek unpaid royalties and advertising
contributions; rent and other charges due under a sublease with MCI; an amount
equal to all unpaid construction invoices; an amount equal to all unpaid
invoices for products purchased by Field; and costs and expenses of arbitration
and attorneys fees. As of October 31, 2008, the demand is still pending.

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, six of our
franchisees filed a putative class action lawsuit against us, our affiliates,
our officers and some of our employees in which the franchisees allege that we
fraudulently induced the franchisees to enter into franchise agreements by
misrepresenting facts about the franchise opportunity. The lawsuit sought
injunctive relief and damages, in an unspecified amount, under several state
franchise acts, restitution and injunctive relief under

25

---

various provisions of the California Unfair Business Practices
Act, damages and injunctive relief under the Cartwright Act, and damages for
fraud, interference with prospective economic advantage, and unjust enrichment
and declaratory relief. On or about June 30, 2008, the Court dismissed the
plaintiffs lawsuit. On or about August 26, 2008, Plaintiffs filed a Notice of
Appeal.

Melt Franchising, LLC v. PMI Enterprises, Inc. and John
Flannery. On June 24, 2008, we filed an ex parte application for a
temporary restraining order and preliminary injunction against PMI Enterprises,
Inc. and John Flannery (collectively PMI) for significant violations of the
franchise agreement. PMI filed a motion to dismiss. On August 18, 2008, the
Court granted our motion for a preliminary injunction and ordered PMI to allow
us to assume management of the store, cease using our marks, assign PMIs lease
for the store to us, and required PMI to sell all or any portions of the assets.
On September 4, 2008, PMI filed counterclaims for injunctive relief,
restitution, fraud, unjust enrichment, and declaratory relief. On September 18,
2008, PMI sought to modify the August 18, 2008 Order via ex parte application.
On September 25, 2008, the Court denied PMIs application. A trial date has been
set for July 14, 2009.

**Jong Han v. Melt, Inc., Melt (California), Inc., Melt Franchising, LLC, Clive V. Barwin, Brandon Barwin, Michael Zorehkey, Rick Zorehkey, Eddie Ollman, and Alin Cruz.** On August 22, 2008, Jong Han (“Han”) filed a Complaint against us similar to the purported class action suit that was dismissed by the Court as previously discussed. Han seeks damages in an unspecified amount and injunctive relief under state franchise acts, restitution and injunctive relief under the unfair business practices act, damages and relief under the Cartwright Act, fraud, interference with prospective economic advantage, unjust enrichment, and declaratory relief. In October of 2008, the Company filed a Motion to Compel Arbitration.

**Kang Won Lee and Yoo and Lee Enterprises v. Melt, Inc., Melt (California), Inc., Melt Franchising, LLC, Clive V. Barwin, Rick Zorehkey, and Eddie Ollman.** On August 22, 2008, Kang Won Lee and Lee Enterprises (“Lee”) filed a Complaint against us similar to the purported class action suit that was dismissed by the Court as previously discussed. Lee seeks damages in an unspecified amount and injunctive relief under state franchise acts, restitution and injunctive relief under the unfair business practices act, damages and relief under the Cartwright Act, fraud, unjust enrichment, and declaratory relief. In October of 2008, the Company filed a Motion to Compel Arbitration.

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 March 20, 2008, Mayflower Emerald
Sq. LLC (Mayflower) filed a breach of contract claim against our parent and
MCI. This action relates to a store that never opened and resulting unpaid rent.
Mayflower has claimed the net present value of the unpaid rent is $523,592.86.
In May of 2008, Melt Inc filed a motion to dismiss the complaint. In September
of 2008, the motion to dismiss was heard and the Court ordered Mayflower to
amend its Complaint.

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".

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

RISKS RELATED TO OUR BUSINESS

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

We have a limited operating history. Our future is subject to
the risks and expenses encountered by early stage companies, such as uncertainty
regarding level of future revenue and inability to budget expenses and manage
growth accordingly, uncertainty regarding acceptance of our products and retail
operations and inability to access sources of financing when required and at
rates favourable to us. Our limited operating history and the highly competitive
nature of the retail confectionery industry make it difficult to predict future
results of our operations.

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

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

Our service 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.

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

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

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

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

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

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

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

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

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

Our officers and directors and their affiliate, in the
aggregate, beneficially own26.9%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

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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.

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

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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.

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).

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|Exhibit Number | Description                                                                                                                    
|-------------- | -------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                
|10.3           | Form of loan
        agreement entered into with each of:                                                                      
|               |                                                                                                                                
|               | Clive Barwin                                                                                                                   
|               | Errol Brome                                                                                                                    
|               | Lance Rosenberg                                                                                                                
|               | Cecil Hofman                                                                                                                   
|               |                                                                                                                                
|               | (incorporated by reference from
        our Form 8-K, filed on June 12, 2005).                                                 
|               |                                                                                                                                
|10.4           | Franchise Offering Circular
        (incorporated by reference from our Form 10-QSB, filed on November 14,
        2005).      
|               |                                                                                                                                
|(14)           | Code of Ethics                                                                                                                 
|               |                                                                                                                                
|14.1           | Code of Business Conduct and
        Ethics. (incorporated by reference from our Form 10-KSB, filed on March
        30, 2004).
|               |                                                                                                                                
|(21)           | Subsidiaries of the small
        business issuer                                                                              
|               |                                                                                                                                
|               | Melt (California) Inc.                                                                                                         
|               | Melt Franchising
        LLC                                                                                                   
|               |                                                                                                                                
|(31)           | Rule 13a-14(a)/15d-14(a)
        Certifications                                                                                
|               |                                                                                                                                
|31.1*          | Certification
        under Sarbanes-Oxley Act of 2002                                                                         
|               |                                                                                                                                
|(32)           | Section 1350
        Certifications                                                                                            
|               |                                                                                                                                
|32.1*          | Certification
        under Sarbanes-Oxley Act of 2002                                                                         

* Filed herewith

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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: November 13, 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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