---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-QSB

(Mark One)

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

For the quarterly period ended June 30, 2007

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

For the transition period from __________to __________

Commission file number 333-109990

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

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

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

949.707.0456(Issuer's telephone number)

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 21,290,000
common shares issued and outstanding as of August 1, 2007

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

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

---

- 2 

|**Item 1.** | Financial Statements.
|----------- | ---------------------

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

---

- 3 

MELT INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007 and December 31, 2006

---

|- 4                       
|---------------------------
|                           
|MELT INC. AND SUBSIDIARIES 
|Consolidated Balance Sheets

|ASSETS                                    |   |             |  |   |              | 
|----------------------------------------- | - | ----------- |  | - | ------------ | 
|                                          |   |             |  |   |              | 
|                                          |   | June 30,    |  |   | December 31, | 
|                                          |   | 2007        |  |   | 2006         | 
|                                          |   | (Unaudited) |  |   |              | 
|CURRENT ASSETS                            |   |             |  |   |              | 
|                                          |   |             |  |   |              | 
|Cash                                      | $ | 23,592      |  | $ | 555,230      | 
|Receivables, net of allowance of $112,346 |   | 80,870      |  |   | 804,685      | 
|Prepaid expenses                          |   | -           |  |   | 7,500        | 
|Inventory                                 |   | 280         |  |   | 4,130        | 
|Construction in-process                   |   | 476,903     |  |   | 732,624      | 
|Other current assets                      |   | 11,703      |  |   | -            | 
|Notes receivable                          |   | 5,850       |  |   | -            | 
|                                          |   |             |  |   |              | 
|Total
      Current Assets                |   | 599,198     |  |   | 2,104,169    | 
|                                          |   |             |  |   |              | 
|FIXED ASSETS, NET                         |   | 53,358      |  |   | 51,518       | 
|                                          |   |             |  |   |              | 
|OTHER ASSETS                              |   |             |  |   |              | 
|                                          |   |             |  |   |              | 
|Trademark, net                            |   | 1,019       |  |   | 1,239        | 
|Deposits                                  |   | 59,000      |  |   | 196,817      | 
|                                          |   |             |  |   |              | 
|Total
      Other Assets                  |   | 60,019      |  |   | 198,056      | 
|                                          |   |             |  |   |              | 
|TOTAL
      ASSETS                        | $ | 712,575     |  | $ | 2,353,743    | 

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

4

---

|- 5                                   
|---------------------------------------
|                                       
|MELT INC. AND SUBSIDIARIES             
|Consolidated Balance Sheets (Continued)

|LIABILITIES AND STOCKHOLDERS EQUITY
      (DEFICIT)      |  
|--------------------------------------------------------- | -
|                                                          |  
|                                                          |  
|                                                          |  
|                                                          |  
|                                                          |  
|                                                          |  
|CURRENT LIABILITIES                                       |  
|                                                          |  
|Accounts payable                                          | $
|Accrued expenses                                          |  
|Accrued management fees 
      related party             |  
|Notes payable - related party                             |  
|Accrued interest - related
      party                    |  
|Notes payable                                             |  
|Accrued interest                                          |  
|Construction deposits                                     |  
|Deferred revenue                                          |  
|                                                          |  
|Total
      Current Liabilities                           |  
|                                                          |  
|STOCKHOLDERS EQUITY (Deficit)                            |  
|                                                          |  
|Common stock; $0.001 par
      value, 100,000,000         |  
|shares authorized, 21,290,000 and
      21,200,000 shares |  
|issued
      and outstanding, respectively                |  
|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.

5

---

|- 6                                 
|-------------------------------------
|                                     
|MELT INC. AND SUBSIDIARIES           
|Consolidated Statements of Operations
|(Unaudited)                          

|                                                  |   | For the Three Months Ended |   |  | For the Six Months Ended |  
|------------------------------------------------- | - | -------------------------- | - |  | ------------------------ | -
|                                                  |   | June 30,                   |   |  | June 30,                 |  
|                                                  |   | 2007                       |   |  | 2006                     |  
|                                                  |   |                            |   |  |                          |  
|REVENUES                                          |   |                            |   |  |                          |  
|                                                  |   |                            |   |  |                          |  
|Food and beverage sales                           | $ | 393,462 $                  |   |  | 233,801                  |  
|Franchise stores construction/equipment           |   | 1,481,352                  |   |  | 12,459                   |  
|Royalty and marketing fees                        |   | 131,013                    |   |  | 37,968                   |  
|Franchise fees                                    |   | 150,000                    |   |  | 75,000                   |  
|Miscellaneous finders and
      professional fees |   | 3,415                      |   |  | 5,196                    |  
|                                                  |   |                            |   |  |                          |  
|Total
      Revenues                              |   | 2,159,242                  |   |  | 364,424                  |  
|                                                  |   |                            |   |  |                          |  
|COST OF SALES                                     |   |                            |   |  |                          |  
|                                                  |   |                            |   |  |                          |  
|Cost of food and beverage                         |   | 380,921                    |   |  | 158,246                  |  
|Franchise stores construction/equipment           |   |                            |   |  |                          |  
|costs                                             |   | 1,864,959                  |   |  | 21,039                   |  
|Materials and supplies                            |   | 20,011                     |   |  | 67                       |  
|Miscellaneous finders and
      professional fees |   | 22,500                     |   |  | -                        |  
|                                                  |   |                            |   |  |                          |  
|Total
      Cost of Sales                         |   | 2,288,391                  |   |  | 179,352                  |  
|                                                  |   |                            |   |  |                          |  
|GROSS PROFIT (DEFICIT)                            |   | (129,149                   | ) |  | 185,072                  |  
|                                                  |   |                            |   |  |                          |  
|EXPENSES                                          |   |                            |   |  |                          |  
|                                                  |   |                            |   |  |                          |  
|Depreciation and amortization                     |   | 2,900                      |   |  | 7,512                    |  
|Marketing                                         |   | 49,769                     |   |  | -                        |  
|Professional fees                                 |   | 84,212                     |   |  | 27,651                   |  
|Rent                                              |   | 573,497                    |   |  | 14,869                   |  
|Salaries and wages                                |   | 287,798                    |   |  | 65,327                   |  
|Management fees                                   |   | 6,000                      |   |  | 30,150                   |  
|Bad debt expense                                  |   | 202,574                    |   |  | -                        |  
|General and administrative                        |   | 73,778                     |   |  | 114,873                  |  
|                                                  |   |                            |   |  |                          |  
|Total Expenses                                    |   | 1,280,528                  |   |  | 260,382                  |  
|                                                  |   |                            |   |  |                          |  
|LOSS FROM OPERATIONS                              |   | (1,109,677                 | ) |  | (75,310                  | )
|                                                  |   |                            |   |  |                          |  
|OTHER INCOME (EXPENSES)                           |   |                            |   |  |                          |  
|                                                  |   |                            |   |  |                          |  
|Interest expense                                  |   | (9,676                     | ) |  | (8,154                   | )
|Interest income                                   |   | 44                         |   |  | 655                      |  
|Gain (Loss) on sale of fixed assets               |   | (3,502                     | ) |  | 91,657                   |  
|                                                  |   |                            |   |  |                          |  
|Total Other Income
      (Expense)                |   | (13,134                    | ) |  | 84,158                   |  

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

6

---

|- 7                                             
|-------------------------------------------------
|                                                 
|                                                 
|                                                 
|MELT INC. AND SUBSIDIARIES                       
|Consolidated Statements of Operations (Continued)
|(Unaudited)                                      

|                                            |   | Three Months Ended |   |   | For the Six Months Ended |  
|------------------------------------------- | - | ------------------ | - | - | ------------------------ | -
|                                            |   | June 30,           |   |   | June 30,                 |  
|                                            |   | 2007               |   |   | 2006                     |  
|INCOME (LOSS) BEFORE MINORITY               |   |                    |   |   |                          |  
|INTEREST, DISCONTINUED OPERATIONS           |   |                    |   |   |                          |  
|AND INCOME TAXES                            | $ | (1,422,811         | ) | $ | 8,848                    |  
|                                            |   |                    |   |   |                          |  
|MINORITY INTEREST                           |   | -                  |   |   | 17,781                   |  
|                                            |   |                    |   |   |                          |  
|INCOME (LOSS) BEFORE DISCONTINUED           |   |                    |   |   |                          |  
|OPERATIONS                                  |   | (1,422,811         | ) |   | 26,629                   |  
|                                            |   |                    |   |   |                          |  
|INCOME (LOSS) ON DISCONTINUED               |   |                    |   |   |                          |  
|OPERATIONS (NOTE 5)                         |   | -                  |   |   | (35,561                  | )
|                                            |   |                    |   |   |                          |  
|LOSS BEFORE INCOME TAXES                    |   | (1,422,811         | ) |   | (8,932                   | )
|                                            |   |                    |   |   |                          |  
|INCOME TAX EXPENSE                          |   | -                  |   |   | -                        |  
|                                            |   |                    |   |   |                          |  
|NET LOSS                                    | $ | (1,422,811         | ) | $ | (8,932                   | )
|                                            |   |                    |   |   |                          |  
|BASIC AND DILUTED NET                       |   |                    |   |   |                          |  
|INCOME (LOSS) PER SHARE:                    |   |                    |   |   |                          |  
|                                            |   |                    |   |   |                          |  
|Income (loss) per share
      on continuing |   |                    |   |   |                          |  
|operations                                  | $ | (0.07              | ) | $ | 0.00                     |  
|                                            |   |                    |   |   |                          |  
|Loss per
      share on discontinued        |   |                    |   |   |                          |  
|Operations                                  |   | (0.00              | ) |   | (0.00                    | )
|                                            |   |                    |   |   |                          |  
|Net loss per share                          | $ | (0.057             | ) | $ | (0.00                    | )
|                                            |   |                    |   |   |                          |  
|WEIGHTED AVERAGE NUMBER                     |   |                    |   |   |                          |  
|OF SHARES OUTSTANDING                       |   | 21,235,801         |   |   | 20,280,000               |  
|                                            |   |                    |   |   |                          |  
|FULLY DILUTED WEIGHTED AVERAGE              |   |                    |   |   |                          |  
|NUMBER OF SHARES OUTSTANDING                |   | 22,710,000         |   |   | 21,210,000               |  

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

7

---

|- 8                                          
|----------------------------------------------
|                                              
|MELT INC. AND SUBSIDIAIES                     
|Consolidated Statement of Stockholders Equity

|                                |  |              |  |   |         |  |   | Additional |  |   |              |   |   |            |  
|------------------------------- |  | ------------ |  | - | ------- |  | - | ---------- |  | - | ------------ | - | - | ---------- | -
|                                |  | Common Stock |  |   | Paid-in |  |   | Deferred   |  |   | Accumulated  |  
|                                |  | Shares       |  |   | Amount  |  |   | Capital    |  |   | Compensation |   |   | Deficit    |  
|                                |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|Balance, December 31, 2006      |  | 21,200,000   |  | $ | 21,200  |  | $ | 1,767,017  |  | $ | -            |   | $ | (1,843,210 | )
|                                |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|Common stock issued for         |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|Services and accrued services   |  | 90,000       |  |   | 90      |  |   | 45,810     |  |   | -            |   |   | -          |  
|(unaduited)                     |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|                                |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|Stock options issued for        |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|deferred equity compensation    |  | -            |  |   | -       |  |   | 172,264    |  |   | (172,264     | ) |   | -          |  
|(unaudited)                     |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|                                |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|Amortization of deferred equity |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|Compensation (unaudited)        |  | -            |  |   | -       |  |   | -          |  |   | 10,766       |   |   | -          |  
|                                |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|Net loss for the six months     |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|ended June 30, 2007 -           |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|(unaudited)                     |  | -            |  |   | -       |  |   | -          |  |   | -            |   |   | (1,972,443 | )
|                                |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|Balance, June 30, 2007 -        |  |              |  |   |         |  |   |            |  |   |              |   |   |            |  
|(unaudited)                     |  | 21,290,000   |  | $ | 21,290  |  | $ | 1,985,091  |  | $ | (161,498     | ) | $ | (3,815,653 | )

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

8

---

|- 9                                 
|-------------------------------------
|                                     
|MELT INC. AND SUBSIDIAIES            
|Consolidated Statements of Cash Flows
|(Unaudited)                          

|                                                          |   | For the Six Months Ended |  
|--------------------------------------------------------- | - | ------------------------ | -
|                                                          |   | June 30,                 |  
|                                                          |   | 2007                     |  
|CASH FLOWS FROM OPERATING ACTIVITIES                      |   |                          |  
|                                                          |   |                          |  
|Net loss                                                  | $ | (1,972,443               | )
|Items to reconcile net (loss) to net                      |   |                          |  
|cash (used) by
      operating activities:                |   |                          |  
|Depreciation and
      amortization                       |   | 5,932                    |  
|Depreciation and amortization - discontinued              |   | -                        |  
|Bad debt expense                                          |   | 112,346                  |  
|Amortization of deferred equity compensation              |   | 10,766                   |  
|Common stock issued for services                          |   | 34,650                   |  
|Minority
      interest                                   |   | -                        |  
|(Gain) loss on sale of
      fixed assets                 |   | 3,502                    |  
|Changes in operating assets and
      liabilities:        |   |                          |  
|(Increase) decrease in
      receivables                  |   | 611,469                  |  
|(Increase) in receivables  discontinued                  |   | -                        |  
|Decrease in construction
      work in-process            |   | 255,721                  |  
|Decrease
      in supplies and inventory                  |   | 3,850                    |  
|(Increase) in supplies
      and inventory - discontinued |   | -                        |  
|Decrease
      in prepaid expenses                        |   | 7,500                    |  
|(Increase) in other
      assets                          |   | (11,778                  | )
|(Increase) decrease in deposits                           |   | 137,817                  |  
|(decrease) in accounts
      payable and accrued expenses |   | 342,487                  |  
|Increase
      in accounts payable and accrued expenses   |   |                          |  
|-
      discontinued                                      |   | -                        |  
|Increase
      in interest payable  related party        |   | 12,102                   |  
|Increase in management
      fees payable                 |   | 12,000                   |  
|Increase
      (decrease) in deferred revenue             |   | (175,000                 | )
|Increase in equipment
      deposits                      |   | (52,804                  | )
|                                                          |   |                          |  
|Net Cash
      Provided (Used) by Operating Activities    |   | (661,883                 | )
|                                                          |   |                          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                      |   |                          |  
|                                                          |   |                          |  
|Proceeds from sale of fixed assets                        |   | 1,546                    |  
|Issuance of note receivable                               |   | (5,850                   | )
|Purchases of fixed assets and construction in process     |   | (16,178                  | )
|                                                          |   |                          |  
|Net Cash
      Provided (Used) by Investing Activities    |   | (20,482                  | )
|                                                          |   |                          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                      |   |                          |  
|                                                          |   |                          |  
|Proceeds from notes payable                               |   | -                        |  
|Payments on notes payable                                 |   | (533                     | )
|Proceeds from notes payable related party                |   | 151,260                  |  
|                                                          |   |                          |  
|Net Cash
      Provided by Financing Activities           | $ | 150,727                  |  
|                                                          |   |                          |  
|INCREASE (DECREASE) IN CASH                               |   | (531,638                 | )

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

9

---

|- 10                                            
|-------------------------------------------------
|                                                 
|                                                 
|                                                 
|MELT INC. AND SUBSIDIAIES                        
|Consolidated Statements of Cash Flows (Continued)
|(Unaudited)                                      

|                                                            |   | For the Six Months Ended | 
|----------------------------------------------------------- | - | ------------------------ | 
|                                                            |   | June 30,                 | 
|                                                            |   | 2007                     | 
|CASH AT BEGINNING OF PERIOD                                 |   | 555,230                  | 
|CASH AT END OF PERIOD                                       | $ | 23,592                   | 
|CASH PAID FOR:                                              |   |                          | 
|Interest                                                    | $ | 11,397                   | 
|Income taxes                                                | $ | -                        | 
|NON CASH INVESTING AND FINANCING ACTIVITIES                 |   |                          | 
|Common stock issued for
      services and accrued services | $ | 45,900                   | 

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

10

---

|- 11 -                                        
|----------------------------------------------
|                                              
|                                              
|MELT INC. AND SUBSIDIAIES                     
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

|NOTE 1 - | ORGANIZATION AND SIGNIFICANT ACCOUNTING
      POLICIES
|-------- | ------------------------------------------------------

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

| | a. | Organization and Business Activities
| | -- | ------------------------------------

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

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

Melt Franchising LLC a wholly owned
subsidiary of Melt Inc was organized on February 2, 2005 under the laws of the
State of Nevada. Melt Franchising LLC is responsible for selling franchises to
allow franchisees to own and operate stores trading under the name of Melt 
gelato italiano, Melt  café & gelato bar and Melt  gelato & crepe
café. To-date Melt Franchising LLC has sold thirty-two franchises of which
sixteen are operating, thirteen are in the design and construction stage and
three are in the process of finding suitable locations to operate their stores.
One franchisee who has a site has stopped construction on their location.

| | b. | Depreciation
| | -- | ------------

The cost of the equipment and property
is depreciated over the estimated useful life of 5 and 7 years, respectively.
Depreciation is computed using the straight-line method beginning when the
assets are placed in service.

| | c. | Accounting Method
| | -- | -----------------

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

| | d. | Cash and Cash Equivalents
| | -- | -------------------------

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

---

|- 12 -                                        
|----------------------------------------------
|                                              
|                                              
|MELT INC. AND SUBSIDIARIES                    
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

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

| | e. | Estimates
| | -- | ---------

The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

| | f. | Revenue Recognition
| | -- | -------------------

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

Food and Beverage

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

Franchise Fee Revenue

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

Revenue from initial franchise fees are
recognized when the Company has completed its obligation to the franchisee, the
franchise store has opened and there is (a) no remaining obligation or intent to
refund an amounts paid, (b) substantially all of the initial services required
by the Uniform Franchise Offering Circular have been performed, and (c) there
are no other material conditions or obligations related to substantial
performance. Franchise fees collected for franchise agreements that are
ultimately terminated are recognized as revenue only when the Company has met
its obligations under the Uniform Franchise Offering Circular and there are no
material conditions or obligations remaining. The Company opened 7 new franchise
stores during the six months ended June 30, 2007 and recognized $225,000 in
franchise fee revenue.

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

Deferred Revenue

As of June 30, 2007 the company
maintained deferred revenue of $375,000. This represents 15 sites in deferred
revenue.

---

|- 13 -                                        
|----------------------------------------------
|                                              
|                                              
|                                              
|                                              
|MELT INC. AND SUBSIDIARIES                    
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

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

| | f. | Revenue Recognition (Continued)
| | -- | -------------------------------

Build and Sale of Franchise
Stores

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

Miscellaneous Finder and
Professional Fees

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

| | g. | Accounts Receivable and Allowance for Doubtful
      Accounts
| | -- | -------------------------------------------------------------

Accounts receivable consists primarily
of amounts 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
was $112,346, while bad debt expense totaled $202,574 for the period ended June
30, 2007.

| | h. | Advertising and Marketing
| | -- | -------------------------

The Company follows the policy of
charging the costs of marketing and advertising to expense as incurred.
Marketing and Advertising expense for the six months ended June 30, 2007.

---

|- 14 -                                        
|----------------------------------------------
|                                              
|                                              
|MELT INC. AND SUBSIDIARIES                    
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

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

| | i. | Share Based Payment
| | -- | -------------------

The Company accounts for the issuance
of stock, stock options, stock warrants and other share based payment
arrangements in accordance with the provisions of SFAS No.123 (revised 2004),
"Share-Based Payment". Statement 123(R) requires that the compensation cost
relating to share-based payment transactions be recognized in financial
statements based on the fair value of the equity or liability instruments
issued.

| | j. | Principles of Consolidation
| | -- | ---------------------------

The consolidated financial statements
include the amounts of Melt Inc. and its wholly owned subsidiaries, Melt
(California) Inc., Melt Franchising LLC and formerly owned subsidiary Villa Melt
LLC, a company in which Melt Inc. controlled and owned 50% of the equity until
it was sold in August 2006 (see Note 8). All material inter-company accounts and
transactions have been eliminated.

| | k. | Long Lived Assets
| | -- | -----------------

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

| | l. | Fair Value of Financial Instruments
| | -- | -----------------------------------

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

---

|- 15 -                                        
|----------------------------------------------
|                                              
|                                              
|MELT INC. AND SUBSIDIAIES                     
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

|NOTE 2 - | SIGNIFICANT EVENTS
|-------- | ------------------

Franchise Locations

During the first six months of 2007,
five franchisee locations elected to terminate their franchise agreement. The
franchise fees associated with those locations are non refundable and were
included in deferred revenue at December 31, 2006. We have recorded $75,000 in
franchise fee revenue associated with these five franchise agreement
terminations. Three of these five locations are with the franchisee described in
the litigation note below.

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

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

Litigation

On March 20, 2007, the Company filed
for arbitration with its Florida franchisee. The Company believes the franchisee
owes the Company over $181,000. To date, discovery has not been initiated and as
such no reasonable assessment of the likely outcome can be made. However, on
July 23, 2007 a preliminary hearing was held between the parties attorney on
this matter. The attorney for the Florida franchisee stated that they believe
the arbitration provision in the Uniform Franchise Offering Circular is not
valid. If there are no delays, the arbitrator anticipates ruling on this claim
during the third quarter of 2007. As a result of this, management has decided to
specifically reserve for $105,665 in accounts receivable.

Commitments and Contingencies

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

Common Stock Issuance

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

---

|- 16 -                                        
|----------------------------------------------
|                                              
|                                              
|MELT INC. AND SUBSIDIAIES                     
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

|NOTE 3 - | SALE OF SUBSIDIARY
|-------- | ------------------

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

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

| |                                     |   | For the      |   |   | For the    |  
| | ----------------------------------- | - | ------------ | - | - | ---------- | -
| |                                     |   | Three Months |   |   | Six Months |  
| |                                     |   | Ended        |   |   | Ended      |  
| |                                     |   |              |   |   |            |  
| |                                     |   | June 30,     |   |   | June 30,   |  
| |                                     |   | 2006         |   |   | 2006       |  
| |                                     |   |              |   |   |            |  
| | REVENUES                            | $ | 137,275      |   | $ | 236,889    |  
| |                                     |   |              |   |   |            |  
| | COST OF SALES                       |   | 68,133       |   |   | 69,989     |  
| |                                     |   |              |   |   |            |  
| | EXPENSES                            |   |              |   |   |            |  
| | Depreciation and amortization       |   | 17,553       |   |   | 35,106     |  
| | Professional fees                   |   | -            |   |   | -          |  
| | Rent                                |   | 38,192       |   |   | 76,401     |  
| | Salaries and wages                  |   | 29,260       |   |   | 86,670     |  
| | General and administrative          |   | 19,672       |   |   | 49,613     |  
| |                                     |   |              |   |   |            |  
| | Total Expenses                      |   | 104,657      |   |   | 247,790    |  
| |                                     |   |              |   |   |            |  
| | (LOSS) FROM OPERATIONS              |   | (35,515      | ) |   | (80,890    | )
| |                                     |   |              |   |   |            |  
| | OTHER EXPENSE                       |   |              |   |   |            |  
| | Interest expense                    |   | 46           |   |   | 46         |  
| | Total Other Expense                 |   | -            |   |   | 46         |  
| |                                     |   |              |   |   |            |  
| | (LOSS) FROM DISCONTINUED OPERATIONS | $ | (35,561      | ) | $ | (80,936    | )



---

- 17 -



|MELT INC. AND SUBSIDIAIES                     
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

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

Employee Stock Options

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

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

| |                                |  |           |   |   | Weighted |  |   | Weighted         | 
| | ------------------------------ |  | --------- | - | - | -------- |  | - | ---------------- | 
| |                                |  |           |   |   | Average  |  |   | Average          | 
| |                                |  | Options   |   |   | Price    |  |   | Fair
      Value | 
| |                                |  |           |   |   |          |  |   |                  | 
| | Outstanding, December 31, 2006 |  | -         |   | $ | -        |  | $ | -                | 
| |                                |  |           |   |   |          |  |   |                  | 
| | Issued                         |  | 1,760,000 |   |   | 0.40     |  |   | 0.20             | 
| | Exercised                      |  | -         |   |   | -        |  |   | -                | 
| | Forfeited                      |  | (800,000  | ) |   | 0.40     |  |   | 0.20             | 
| | Expired                        |  | -         |   |   | -        |  |   | -                | 
| |                                |  |           |   |   |          |  |   |                  | 
| | Outstanding, June 30, 2007     |  | 960,000   |   | $ | 0.40     |  | $ | 0.20             | 
| |                                |  |           |   |   |          |  |   |                  | 
| | Exercisable, June 30, 2007     |  | -         |   | $ | -        |  | $ | -                | 

| |          |             | Outstanding |          | Exercisable
| | -------- | ----------- | ----------- | -------- | -----------
| |          |             | Weighted    |          |            
| |          | Number      | Average     | Weighted | Number     
| | Range of | Outstanding | Remaining   | Average  | Exercisable
| | Exercise | at          | Contractual | Exercise | at         
| | Prices   | 6/30/07     | Life        | Price    | 6/30/07    
| |          |             |             |          |            
| | $ 0.40   | 960,000     | 4.75        | $ 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:

---

|- 18 -                                        
|----------------------------------------------
|                                              
|                                              
|MELT INC. AND SUBSIDIAIES                     
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

| | Employee Stock Options (Continued) |        
| | ---------------------------------- | -------
| |                                    |        
| | Risk free interest rates           | 4.54%  
| | Expected lives                     | 5 years
| | Expected
      volatilities        | 50%    
| | Dividend yields                    | 0.00%  
| | Expected
      forfeitures         | 50%    

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

Stock Warrants

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

| |                                |  |           |   |   | Weighted |  |   | Weighted         | 
| | ------------------------------ |  | --------- | - | - | -------- |  | - | ---------------- | 
| |                                |  |           |   |   | Average  |  |   | Average          | 
| |                                |  | Warrant   |   |   | Price    |  |   | Fair
      Value | 
| |                                |  |           |   |   |          |  |   |                  | 
| | Outstanding, December 31, 2006 |  | 1,390,000 |   | $ | 0.82     |  | $ | 0.57             | 
| |                                |  |           |   |   |          |  |   |                  | 
| | Issued                         |  | -         |   |   | -        |  |   | -                | 
| | Exercised                      |  | -         |   |   | -        |  |   | -                | 
| | Forfeited                      |  | -         |   |   | -        |  |   | -                | 
| | Expired                        |  | (930,000  | ) |   | 0.75     |  |   | 0.75             | 
| |                                |  |           |   |   |          |  |   |                  | 
| | Outstanding, June 30, 2007     |  | 460,000   |   | $ | 0.95     |  | $ | 0.95             | 
| |                                |  |           |   |   |          |  |   |                  | 
| | Exercisable, June 30, 2007     |  | 460,000   |   | $ | 0.95     |  | $ | 0.95             | 

| |               |             | Outstanding |          | Exercisable
| | ------------- | ----------- | ----------- | -------- | -----------
| |               |             | Weighted    |          |            
| |               | Number      | Average     | Weighted | Number     
| | Range of      | Outstanding | Remaining   | Average  | Exercisable
| | Exercise      | at          | Contractual | Exercise | at         
| | Prices        | 6/30/07     | Life        | Price    | 6/30/07    
| |               |             |             |          |            
| | $ 0.90  1.00 | 460,000     | 1.30        | $ 0.95   | 460,000    

|NOTE 5 - | 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



---

|- 19 -                                        
|----------------------------------------------
|                                              
|                                              
|MELT INC. AND SUBSIDIAIES                     
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

has accumulated significant losses, has
negative working capital and a deficit in stockholders' equity. All of these
items raise substantial doubt about its ability to continue as a going concern.
Management's plans with respect to alleviating the adverse financial conditions
that caused management to express substantial doubt about the Company's ability
to continue as a going concern are as follows:

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

|NOTE 5 - | GOING CONCERN (Continued)
|-------- | -------------------------

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.

|NOTE 6 - | SUBSEQUENT EVENTS
|-------- | -----------------

Financing

On July 30, 2007, the company borrowed
$400,000 from Money for Gelato, Inc (MFG). The loan is convertible into
restricted common stock at fixed conversion prices over the next five years, if
not repaid within twelve months. The loan carries an interest only payment of
prime plus 3%.

Franchise Closure

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

Litigation

On August 9, 2007 we received a summons
to appear in the 11th Judicial Circuit Court in ST. Charles County,
MO. This for the location in the note above titled Franchise Closure. Their

---

|- 20 -                                        
|----------------------------------------------
|                                              
|                                              
|MELT INC. AND SUBSIDIAIES                     
|Notes to the Consolidated Financial Statements
|June 30, 2007 and December 31, 2006           

|NOTE 6 - | SUBSEQUENT EVENTS (Continued)
|-------- | -----------------------------

Litigation (Continued)

claim is for approximately $15,000. We
have not had an opportunity to review the claim with our counsel.

Related Party Transaction

During July, the company sign Chill,
Inc as a franchisee for the upcoming Natick, MA location. Chill, Inc. is
currently owned by Clive Barwin and his wife Glynis Sive, and Brandon Barwin.
Prior to the opening of this store, Chill, Inc will be sold to Brandon Barwin, a
company director and officer, and John Flannery, a franchisee. The company will
construct the store on behalf of this franchisee and sell it to them upon
opening.

---

- 21 -

|**Item 2.** | Management's Discussion and Analysis or Plan
      of Operation.
|----------- | ----------------------------------------------------------------

FORWARD LOOKING STATEMENTS

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

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

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

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

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

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

RESULTS OF OPERATIONS

Six Months ending June 30, 2007 compared to six months
ending June 30, 2006

The period covered by our unaudited financial statements is for
the six months ended June 30, 2007 during which time we generated $2,762,879 in
revenue from continuing operations and recognized a net loss before discontinued
operations of $1,972,443 during the same period last year we generated $840,132
in revenue from continuing operations and incurred a loss of $45,358 from
continuing operations. The revenue was generated from franchise fees, from
revenue generated in royalty revenues, from food and supplies sold to our
franchise owned stores and from revenue generated from the sale of equipment and
build out of stores to our franchisees. The increase in revenues for the current
period was in all categories of revenue with royalty income up approximately
250%, franchisee fee income up 300% and sales of equipment and store build out
up over 700%. Cost of sales from continuing operations amounted to $2,781,024,
resulting in gross loss from continuing operations of $18,145, or 0.7% compared
to cost of sales of $564,172, resulting in gross profit from continuing
operations of $275,960, or 32.8% for the same period last year. The percentage
decrease is due to the change in gross profit from sales of equipment and build
out of stores to our franchisees. Excluding revenue and costs from the sales of
equipment and build out of stores to our franchisees, our gross profit would
have been 34.7% which is in line with the prior year adjusted gross profit of
37.9% . Rental expenses from continuing operations for the retail stores
amounted to $696,771 or 25.2% of sales and $34,106 or 4.1% of sales for the same
period last year. The increase is due to

---

- 22 -

$677,571 in pre opening rent and rent for sites that are not to
be built the company paid. Had it not been for this pre opening rent, rent
expense would have been $19,200 or 0.7% of revenue. The pre opening rent is due
to lease obligations commencing prior to stores being opened and transferred to
franchisees or terminating a lease that the company has signed and will not open
a store. Salaries and wages from continuing operations amounted to $513,464 or
18.6% of sales and $121,501 or 14.5% of sales for the same period last year. The
percentage increase is due to the increase in corporate staff. General and
administrative expenses from continuing operations amounted to $145,826 or 5.3%
of sales and $154,393 or 18.4% of sales for the same period last year. Marketing
expenses were $210,822 or 7.6% and $0 for the same period last year. Marketing
expenditures include retail marketing designed to increase store traffic and
revenue, franchise marketing designed to find more qualified franchisees, and
investor relations designed to improve the liquidity and price of our common
stock. Professional fees were $144,986 or 5.2% of revenue and $55,428 or 6.6% of
revenue for the same period last year.

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

The period covered by our unaudited financial statements is for
the three months ended June 30, 2007 during which time we generated $2,159,242
in revenue from continuing operations and recognized a net loss before
discontinued operations of $1,422,811 during the same period last year we
generated $364,424 in revenue from continuing operations and incurred a net gain
of $26,629 from continuing operations. The revenue was generated from franchise
fees, from revenue generated in royalty revenues, from food and supplies sold to
our franchise owned stores and from revenue generated from the sale of equipment
and build out of stores to our franchisees. The increase in revenues for the
current period was largely due revenue generated from the sale of equipment and
build out of stores to our franchisees which increase by $1,470,000 compared to
the same time frame last year. Cost of sales from continuing operations amounted
to $2,288,391, resulting in gross loss from continuing operations of $129,149,
or 6.0% compared to cost of sales of $179,352, resulting in gross profit from
continuing operations of $185,072, or 50.7% for the same period last year. The
percentage decrease is due to the change in gross profit from sales of equipment
and build out of stores to our franchisees. Rental expenses from continuing
operations for the retail stores amounted to $573,497 or 26.6% of sales and
$14,869 or 4.1% of sales for the same period last year.

The increase is due to $563,897 in pre opening rent the company
paid. Had it not been for this pre opening rent, rent expense would have been
$9,600 or 0.4% of revenue. The pre opening rent is due to lease obligations
commencing prior to stores being opened and transferred to franchisees or
terminating a lease that the company has signed and will not open a store.
Salaries and wages from continuing operations amounted to $287,798 or 13.3% of
sales and $65,327 or 17.9% of sales for the same period last year. The
percentage increase is due to the increase in corporate staff. General and
administrative expenses from continuing operations amounted to $73,778 or 3.4%
of sales and $114,873 or 31.5% of sales for the same period last year. Marketing
expenses were $49,769 or 2.3% and $0 for the same period last year. Marketing
expenditures include retail marketing designed to increase store traffic and
revenue, franchise marketing designed to find more qualified franchisees, and
investor relations designed to improve the liquidity and price of our common
stock. Professional fees were $84,212 or 3.9% of revenue and $27,651 or 7.6% of
revenue for the same period last year.

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

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2007 we had $23,592 cash on hand and negative working
  capital of $2,084,147. As of June 30, 2007 our total current assets were $599,198,
  and our total assets were $712,575.

At June 30, 2007 our total liabilities were $2,683,345, of
which all were considered to be current.

For the six months ended June 30, 2007, net cash used by
operating activities was $661,883 compared to net cash provided by operations of
$83,847 for the same period last year. Net cash used by investing activities was
$20,482 compared to cash provided by investing activities $169,188 for same
period last year. Net cash provided by financing activities was $150,727
compared to $116,362 for the same period last year.

---

- 23 -

Presently, we have insufficient revenue and cash flow to
support our growth plan. Management is in the process of raising an additional
$2,500,000 in capital. We believe this will be enough capital for our 2007 and
2008 growth plan.

There are no assurances that we will be able to obtain further
funds required for our continued operations. We are pursuing various financing
alternatives to meet our immediate and long-term financial requirements. There
can be no assurance that additional financing will be available to us when
needed or, if available, that it can be obtained on commercially reasonable
terms. If we are not able to obtain the additional financing on a timely basis,
we will not be able to proceed with our expansion program at the level
anticipated. Subsequent to the period ending, management was able to secure a
$400,000 convertible debenture, please see note 6 of the financial statements.

FUTURE OPERATIONS

Immediate Objectives

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

Retail Locations

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

Cash Requirements

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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

RISK FACTORS

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

Such estimates, projections or other "forward looking
statements" involve various risks and uncertainties as outlined below. We
caution the reader that important factors in some cases have affected and, in
the future, could materially

---

- 24 -

affect actual results and cause actual results to differ
materially from the results expressed in any such estimates, projections or
other "forward looking statements".

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

RISKS RELATED TO OUR BUSINESS

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

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

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

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

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

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

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

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

---

- 25 -

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

---

- 26 -

Glynis Sive, the wife of Clive Barwin) can exercise such
influence over our company, investors may not be able to replace our management
if they disagree with the way our business is being run. Because control by
these insiders could result in management making decisions that are in the best
interest of those insiders and not in the best interest of the investors, you
may lose some or all of the value of your investment in our common stock.

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

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

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

We are authorized to issue up to 100,000,000 common shares, of
which 21,235,801 are issued and outstanding. Our board of directors has the
authority to cause our company to issue additional shares of common stock or
issue warrants or options to purchase shares of common stock without the consent
of any of our shareholders. Consequently, our shareholders may experience more
dilution in their ownership of our company in the future.

RISKS ASSOCIATED WITH OUR COMMON STOCK

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

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

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

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

---

- 27 -

stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.

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

OTHER RISKS

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

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

|**Item 3.** | Controls and Procedures.
|----------- | ------------------------

As required by Rule 13a-15 under the Exchange Act, as at June
30, 2007 (being the end of the period covered by this quarterly report on Form
10-QSB) we have carried out an evaluation of the effectiveness of the design and
operation of our company's disclosure controls and procedures. This evaluation
was carried out under the supervision and with the participation of our
company's management, including our company's president and chief executive
officer and our chief financial officer. Based upon that evaluation, our
company's president and chief executive officer and chief financial officer
concluded that our company's disclosure controls and procedures are effective as
at the end of the period covered by this report. There have been no changes in
our company's internal controls or in other factors, which could significantly
affect internal controls subsequent to the date we carried out our evaluation.

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
in our company's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our company's reports filed
under the Exchange Act is accumulated and communicated to management, including
our company's president and chief executive officer as appropriate, to allow
timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

|Item 1. | Legal Proceedings.
|------- | ------------------

On March 20, 2007, we filed for arbitration against a Florida
franchisee seeking payment of past due obligations. We believe that the
franchisee owes over $181,000. No discovery has been initiated and as such no
reasonable assessment of outcome is possible. On August 9, 2007, we were served
with an action in circuit court in the state of

---

- 28 -

Missouri. The claim is for approximately $15,000 for past due
rent, but management has not had an opportunity to review this claim. There are
no proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial shareholder, is an adverse party or has a material
interest adverse to our interest.

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

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

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

|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

None.

|Item 4. | Submission of Matters to a Vote of Security
      Holders.
|------- | ----------------------------------------------------------

None.

|Item 5. | Other Information.
|------- | ------------------

None.

|Item 6. | Exhibits.
|------- | ---------

Exhibits required by Item 601 of Regulation S-B

|Exhibit Number | Description                                                                                                                                                                   
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3)            | (i) Articles of
      Incorporation; and (ii) Bylaws                                                                                                                          
|3.1            | Articles of Incorporation (incorporated by reference from
      our Form SB-2 Registration Statement, filed on October 2, 2003).                                              
|3.2            | Bylaws (incorporated by reference from our Form SB-2
      Registration Statement, filed on October 2, 2003).                                                                 
|(10)           | Material Contracts                                                                                                                                                            
|10.1           | Operating Agreement between Melt Inc. and Dolce Dolci,
      LLC dated July 21, 2004 (incorporated by reference from our Form 10-KSB,
      filed on March 31, 2005).         
|10.2           | Operating Agreement between Melt Inc. and Melt
      Franchising LLC dated February 25, 2005  (incorporated by
      reference from our Form 10-KSB, filed on March 31, 2005).
|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).                                                                                                  

---

- 29 -

|Exhibit Number | Description                                                                                                          
|-------------- | ---------------------------------------------------------------------------------------------------------------------
|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                                                                 
|31.2*          | Certification
      under Sarbanes-Oxley Act of 2002                                                                 
|(32)           | Section 1350 Certifications                                                                                          
|32.1*          | Certification
      under Sarbanes-Oxley Act of 2002                                                                 
|32.2*          | Certification under Sarbanes-Oxley
      Act of 2002                                                                 

*filed herewith

---

**SIGNATURES**

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

**MELT INC.**

By: /s/ *Clive Barwin*
  Clive Barwin, President, CEO, Secretary and Director
  (Principal Executive Officer)

Date: August 13, 2007

By: /s/ *Scott M. Miller*
  Scott M. Miller, Executive Vice President and Chief Financial Officer
  (Principal Financial Officer and Principal Accounting Officer)

Date: August 13, 2007

---