UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.  20549 Form 10-QSB/A (Mark One) xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended  June 30, 2006 [
        ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to __________ Commission file number333-109990 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(Address of principal executive offices)  949-707-0456(Issuer's telephone number)  (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.     YesxNo [   ] 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:20,280,000 common shares issued and outstanding as of June 30, 2006 Transitional Small Business Disclosure Format (Check one):     Yes [   ]     Nox  CW1133201.1       Item1.Financial Statements.  It is the opinion of management that the interim restated consolidated financial statements for the quarter ended June 30, 2006 include all adjustments necessary in order to ensure that the interim consolidated financial statements are not misleading.          MELT INC. AND SUBSIDIARIES  RESTATED CONSOLIDATED FINANCIAL STATEMENTS  June 30, 2006 and December 31, 2005         2        MELT INC. AND SUBSIDIARIES Consolidated Balance Sheets   ASSETSJune 30,2006
        
        December 31,2005Restated(Unaudited)CURRENT ASSETSCash
        $
        587,555
        
        $
        220,672Receivables
        
        244,846
        
        
        205,724Inventory
        
        -
        
        
        63,000Prepaid expenses
        
        -
        
        
        8,688Total Current Assets
        
        832,401
        
        
        498,084FIXED ASSETS, NET
        
        22,868
        
        
        206,300OTHER ASSETSTrademark, net
        
        1,527
        
        
        1,815Construction in process
        
        85,572
        
        
        -Deposits
        
        180,317
        
        
        15,000Total Other Assets
        
        267,416
        
        
        16,815ASSETS OF DISCONTINUED OPERATIONS (NOTE 5)
        
        372,408
        
        
        397,079TOTAL ASSETS
        $
        1,495,093
        
        $
        1,118,278    The accompanying notes are an integral part of these restated consolidated financial statements.  3       MELT INC. AND SUBSIDIARIES Consolidated Balance Sheets (Continued)  LIABILITIES AND STOCKHOLDERS EQUITYJune 30,2006
        
        December 31,2005Restated(Unaudited)CURRENT LIABILITIESAccounts payable & accrued expenses
        $
        156,583
        
        $
        81,810Accrued management fees  related party
        
        58,000
        
        
        46,000Notes payable - related party
        
        225,659
        
        
        224,000Accrued interest - related party
        
        30,658
        
        
        25,570Notes payable
        
        156,703
        
        
        42,000Accrued interest
        
        7,763
        
        
        3,150Equipment deposits
        
        128,300
        
        
        -Deferred revenue
        
        275,000
        
        
        125,000Total Current Liabilities
        
        1,038,666
        
        
        547,530LIABILITIES OF DISCONTINUED OPERATIONS (NOTE 5)
        
        85,066
        
        
        32,625TOTAL LIABILITIES
        
        1,123,732
        
        
        580,155MINORITY INTEREST
        
        141,359
        
        
        181,827STOCKHOLDERS EQUITYCommon stock; $0.001 par value, 100,000,000 shares authorized, 20,280,000 shares issued and outstanding
        
        20,280
        
        
        20,280Additional paid-in capital
        
        1,077,937
        
        
        1,077,937Accumulated deficit
        
        (868,215)
        
        
        (741,921)Total Stockholders Equity
        
        230,002
        
        
        356,296TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
        $
        1,495,093
        
        $
        1,118,278    The accompanying notes are an integral part of these restated consolidated financial statements. 4       MELT INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)  For the Three Months EndedJune 30,
        
        For the Six Months EndedJune 30,2006
        
        2005
        
        2006
        
        2005Restated
        
        
        
        
        RestatedREVENUESFood and supplies
        $
        233,801
        
        $
        107,173
        
        $
        484,617
        
        $
        268,185Franchise fees
        
        75,000
        
        
        -
        
        
        75,000
        
        
        -Equipment
        
        12,459
        
        
        -
        
        
        159,929
        
        
        -Royalty and marketing fees
        
        37,968
        
        
        7,137
        
        
        62,932
        
        
        14,274Miscellaneous
        
        5,196
        
        
        -
        
        
        57,654
        
        
        -Total Revenues
        
        364,424
        
        
        114,310
        
        
        840,132
        
        
        282,459COST OF SALES
        
        179,352
        
        
        38,398
        
        
        564,172
        
        
        90,351GROSS PROFIT
        
        185,072
        
        
        75,913
        
        
        275,960
        
        
        192,108EXPENSESDepreciation and amortization
        
        7,512
        
        
        16,317
        
        
        18,816
        
        
        32,444Professional fees
        
        27,651
        
        
        31,050
        
        
        55,428
        
        
        88,048Rent
        
        14,869
        
        
        22,023
        
        
        34,106
        
        
        54,727Salaries and wages
        
        65,327
        
        
        27,509
        
        
        121,501
        
        
        69,503Management fees
        
        30,150
        
        
        26,500
        
        
        55,650
        
        
        48,500General and administrative
        
        114,873
        
        
        29,925
        
        
        154,393
        
        
        49,655Total Expenses
        
        260,382
        
        
        153,324
        
        
        439,894
        
        
        342,877LOSS FROM OPERATIONS
        
        (75,310)
        
        
        (77,412)
        
        
        (163,934)
        
        
        (150,769)OTHER INCOME (EXPENSES)Interest expense
        
        (8,154)
        
        
        (81,782)
        
        
        (14,204)
        
        
        (90,251)Interest income
        
        655
        
        
        -
        
        
        655
        
        
        -Gain on sale of fixed assets
        
        91,657
        
        
        -
        
        
        91,657
        
        
        -Total Other Income (Expense)
        
        84,158
        
        
        (81,782)
        
        
        78,108
        
        
        (90,251)INCOME (LOSS) BEFORE MINORITY INTEREST, DISCONTINUED OPERATIONS AND INCOME TAXES
        
        8,848
        
        
        (159,194)
        
        
        (85,826)
        
        
        (241,020)MINORITY INTEREST
        
        17,781
        
        
        8,154
        
        
        40,468
        
        
        22,180INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS
        
        26,629
        
        
        (151,040)
        
        
        (45,358)
        
        
        (218,840)INCOME (LOSS) ON DISCONTINUED OPERATIONS (NOTE 5)
        $
        (35,561)
        
        $
        (19,305)
        
        $
        (80,936)
        
        $
        (44,360)    The accompanying notes are an integral part of these restated consolidated financial statements. 5        MELT INC. AND SUBSIDIARIES Consolidated Statements of Operations (Continued) (Unaudited) For the Three Months EndedJune 30,
        
        For the Six Months EndedJune 30,2006
        
        2005
        
        2006
        
        2005Restated
        
        
        
        
        RestatedLOSS BEFORE INCOME TAXES
        
        (8,932)
        
        
        (170,345)
        
        
        (126,294)
        
        
        (263,200)INCOME TAX EXPENSE
        
        -
        
        
        -
        
        
        -
        
        
        -NET LOSS
        $
        (8,932)
        
        $
        (170,345)
        
        $
        (126,294)
        
        $
        (263,200)BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:Income (loss) per share on continuing operations
        $
        0.00
        
        $
        (0.01)
        
        $
        (0.00)
        
        $
        (0.01)Loss per share on discontinued Operations
        
        (0.00)
        
        
        (0.00)
        
        
        (0.01)
        
        
        (0.00)Net loss per share
        $
        (0.00)
        
        $
        (0.01)
        
        $
        (0.01)
        
        $
        (0.01)WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
        
        20,280,000
        
        
        19,660,000
        
        
        20,280,0000
        
        
        19,660,000FULLY DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
        
        21,210,000      The accompanying notes are an integral part of these restated consolidated financial statements. 6       MELT INC. AND SUBSIDIARIES Consolidated Statement of Stockholders Equity AdditionalCommon Stock
        
        Paid-in
        AccumulatedShares
        
        Amount
        
        Capital
        
        DeficitBalance, December 31, 2005
        
        20,280,000
        
        $
        20,280
        
        $
        1,077,937
        
        $
        (741,921)Net loss for the six months ended June 30, 2006 - restated (unaudited)
        
        -
        
        
        -
        
        
        -
        
        
        (126,294)Balance, June 30, 2006 - restated (unaudited)
        
        20,280,000
        
        $
        20,280
        
        $
        1,077,937
        
        $
        (868,215)      The accompanying notes are an integral part of these restated consolidated financial statements. 7       MELT INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) For the Six Months EndedJune 30,2006
        
        
        2005CASH FLOWS FROM OPERATING ACTIVITIES
        RestatedNet loss
        $
        (126,294)
        
        $
        (263,200)Items to reconcile net (loss) to netcash (used) by operating activities:Depreciation and amortization
        
        18,817
        
        
        32,396Depreciation and amortization - discontinued
        
        35,106
        
        
        35,058Minority interest
        
        (40,468)
        
        
        (22,180)Gain on sale of fixed assets
        
        (91,657)
        
        
        -Beneficial conversion
        
        -
        
        
        66,667Changes in operating assets and liabilities:(Increase) in receivables
        
        (39,122)
        
        
        -(Increase) in receivables  discontinued
        
        (4,437)
        
        
        -Decrease in supplies and inventory
        
        63,000
        
        
        10,699(Increase) in supplies and inventory - discontinued
        
        (1,685)
        
        
        (2,225)Decrease in prepaid expenses
        
        8,688
        
        
        3,586(Increase) in prepaid expenses - discontinued
        
        -
        
        
        (4,517(Increase) in deposits
        
        (165,317)
        
        
        (512)(Increase) in deposits  discontinued
        
        -
        
        
        (11,510)(Increase) in trademark
        
        -
        
        
        (1,150)Increase (decrease) in accounts payable
and accrued expenses
        
        72,153
        
        
        (88,027)Increase (decrease) in accounts payable
and accrued expenses - discontinued
        
        59,675
        
        
        (1,288)(Decrease) in accounts payable  related party
        
        -
        
        
        (20,800)Increase in interest payable  related party
        
        5,088
        
        
        13,638Increase in funds held on deposit
        
        -
        
        
        29,000Increase in management fees payable
        
        12,000
        
        
        32,000Increase in deferred revenue
        
        150,000
        
        
        -Increase in equipment deposits
        
        128,300
        
        
        -Net Cash Provided (Used) by Operating Activities
        
        83,847
        
        
        (192,365)CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of fixed assets
        
        276,900
        
        
        54,969Purchases of fixed assets and construction in process
        
        (107,712)
        
        
        (88,279)Purchases of fixed assets - discontinued
        
        -
        
        
        (1,800)Net Cash Provided (Used) by Investing Activities
        
        169,188
        
        
        (35,110)CASH FLOWS FROM FINANCING ACTIVITIESIncrease in minority interest
        
        -
        
        
        20,000Payments on notes payable  related party
        
        (24,000)
        
        
        -Proceeds from notes payable
        
        114,703
        
        
        192,000Proceeds from notes payable related party
        
        25,659
        
        
        35,357Net Cash Provided by Financing Activities
        $
        116,362
        
        $
        247,357    The accompanying notes are an integral part of these restated consolidated financial statements. 8       MELT INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) (Unaudited) For the Six Months EndedJune 30,2006
        
        
        2005INCREASE IN CASH
        
        369,397
        
        
        19,882CASH AT BEGINNING OF PERIOD
        
        245,064
        
        
        94,981CASH AT END OF PERIOD
        $
        614,461
        
        $
        114,863CASH PAID FOR:Interest
        $
        3,250
        
        $
        -Income taxes
        $
        -
        
        $
        -   The accompanying notes are an integral part of these restated consolidated financial statements. 9       MELT INC. AND SUBSIDIARIES Notes to the Restated Consolidated Financial Statements June 30, 2006 and December 31, 2005 NOTE 1 -
        ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited restated consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial principles have been omitted in accordance with such rules and regulations.  The information furnished in the interim restated consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements.  Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim restated consolidated financial statements be read in conjunction with the Companys most recent audited financial statements
and notes thereto included in its December 31, 2005 Annual Report on Form 10-KSB.  Operating results for the period ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. NOTE 2 -
        SIGNIFICANT EVENTS On January 27, 2006 the Company signed a Product Purchase Agreement for the future purchase of food products to be sold in both the Melt owned corporate stores and their franchises. The agreement provides for minimum purchases of $3,000,000 over the term of the agreement, which commenced on January 31, 2006 and will expire on January 31, 2009. On May 28, 2006 the Company executed an Asset Purchase Agreement and Bill of Sale with Veronica and Tito Pulido, wherein, the Company agreed to sell the Melt Gelato store located at the 1208 Galleria at Tyler, Riverside California in exchange for $300,000 in cash. Veronica and Tito Pulido assumed the lease for the location and agreed to operate the location as a franchised store.  Of the $300,000 received as compensation, $25,000 was recorded as franchise fees, while the remaining $275,000 was recorded as the sales value of the fixed assets associated with the store.  As a result of the transaction, a gain on sale of equipment, of $94,592 was recorded in the second quarter. NOTE 3 -
        OUTSTANDING STOCK PURCHASE WARRANTS A summary of the status of the Companys stock warrants as of December 31, 2005 and June 30, 2006, is presented below:  OptionsWarrants
        
        
        WeightedAveragePrice
        
        
        WeightedAverageFair ValueOutstanding, December 31, 2005
        930,000
        
        $
        0.75
        
        $
        0.75Outstanding, June 30, 2006
        930,000
        
        $
        0.75
        
        $
        0.75Exercisable, June 30, 2006
        930,000
        
        $
        0.75
        
        $
        0.75    10       MELT INC. AND SUBSIDIARIES Notes to the Restated Consolidated Financial Statements June 30, 2006 and December 31, 2005 NOTE 3 -
        OUTSTANDING STOCK PURCHASE WARRANTS (CONTINUED)Outstanding
        
        ExercisableWeightedNumber
        
        Average
        
        Weighted
        
        Number
        
        WeightedRange of
        Outstanding
        
        Remaining
        
        Average
        
        Exercisable
        
        AverageExercise
        at
        
        Contractual
        
        Exercise
        
        at
        
        ExercisePrices
        6/30/06
        
        Life
        
        Price
        
        6/30/06
        
        Price$
        0.75
        930,000
        
        1.88
        
        $
        0.75
        
        930,000
        
        $
        0.75NOTE 4 -
        CORRECTION OF AN ERROR Subsequent to the issuance of the June 30, 2006 consolidated financial statements, the Company discovered an error in the way it has been recognizing franchise fee revenue.  As a result, the Company revised its franchise fee revenue recognition policy to recognize franchise fees as income 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.  Previously, the Company recognized the revenue when the franchisee signed the franchise agreement and paid the fee. The following is a summary of the impact of the correction on the balance sheet as of June 30, 2006 and the statement of operations for the six months ended June 30, 2006:  AsReported
        
        
        Adjustment
        
        
        As AdjustedBALANCE SHEETDeferred revenue
        $
        150,000
        
        $
        125,000
        
        $
        275,000Total Current Liabilities
        
        913,666
        
        
        125,000
        
        
        1,038,666INCOME STATEMENTFranchise Fees
        $
        200,000
        
        $
        (125,000)
        
        $
        75,000Total Revenues
        
        965,132
        
        
        (125,000)
        
        
        840,132NET LOSS
        $
        (1,294)
        
        $
        (125,000)
        
        $
        (126,294)NET LOSS PER SHARE
        $
        (0.00)
        
        $
        (0.01)
        
        $
        (0.01)    11       MELT INC. AND SUBSIDIARIES Notes to the Restated Consolidated Financial Statements June 30, 2006 and December 31, 2005 NOTE 5 -
        SUBSEQUENT 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 and 2005.  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 Three Months EndedJune 30,
        
        For the Six Months EndedJune 30,2006
        
        2005
        
        2006
        
        2005REVENUES
        $
        137,275
        
        $
        156,797
        
        $
        236,889
        
        $
        299,099COST OF SALES
        
        68,133
        
        
        51,580
        
        
        69,989
        
        
        96,787GROSS PROFIT
        
        69,177
        
        
        105,217
        
        
        166,900
        
        
        202,312EXPENSESDepreciation andamortization
        
        17,553
        
        
        17,591
        
        
        35,106
        
        
        35,058Professional fees
        
        -
        
        
        500
        
        
        -
        
        
        500Rent
        
        38,192
        
        
        37,889
        
        
        76,401
        
        
        75,351Salaries and wages
        
        29,260
        
        
        43,366
        
        
        86,670
        
        
        88,177General andadministrative
        
        19,652
        
        
        25,176
        
        
        49,613
        
        
        47,586Total Expenses
        
        104,657
        
        
        124,522
        
        
        247,790
        
        
        246,672(LOSS) FROMOPERATIONS
        
        (35,515)
        
        
        (19,305)
        
        
        (80,890)
        
        
        (44,360)OTHER EXPENSEInterest expense
        
        46
        
        
        -
        
        
        46
        
        
        -Total OtherExpense
        
        46
        
        
        -
        
        
        46
        
        
        -(LOSS) FROM DISCONTINUED OPERATIONS
        $
        (35,561)
        
        $
        (19,305)
        
        $
        (80,936)
        
        $
        (44,360)    12       Item2.Management's Discussion and Analysis or Plan of Operation. FORWARD LOOKING STATEMENTS This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to the common shares in our capital stock. As used in this quarterly report, the terms "we", "us", "our", and "Melt" mean Melt Inc. and our wholly-owned subsidiaries, Melt (California) Inc. and Melt Franchising LLC, and our partly owned subsidiary Villa Melt LLC. The term Melt CA refers to Melt (California) Inc and the term Villa Melt refers to Villa Melt LLC unless otherwise indicated. You should read the following discussion of our financial condition and results of operations together with the unaudited restated consolidated financial statements and the notes to unaudited restated consolidated 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, 2006 The period covered by our unaudited restated consolidated financial statements is for the six months ended June 30, 2006 during which time we generated $840,132 in revenue from continuing operations, realized a loss of $45,358 from continuing operations and incurred a net loss of $126,294.   During the same period last year we generated $282,459 in revenue from continuing operations, incurred a loss of $218,840 from continuing operations and incurred a total loss of $263,200. The revenue was generated from sales made through our retail stores, from franchise fees, from revenue generated in royalty revenues, food and supplies sold to our franchise owned stores and from revenue generated from the sale of equipment to our franchisees. The increase in revenues for the current period was largely due to franchise fees, food, equipment, and supplies sold to franchise owned stores.  Cost of sales from continuing
operations amounted to $564,172 or 67% and $90,351 or 32% for the same period last year. The percentage increase is due to the change in the sales mix and margins on sales of food, equipment, and supplies, which to our franchise owned stores is lower than sales made to company owned stores. Rental expenses for the retail stores amounted to $34,106 or 4% of sales and $54,727 or 19% of sales for the same period last year. The  13      decrease is due to increase in sales to franchise owned stores. Salaries and wages amounted to $121,501 or 14% of sales and $69,503 or 25% of sales for the same period last year. The percentage decrease is due to increase in sales made to franchise owned stores. General and administrative expenses amounted to $154,393 or 18% of sales and $49,655 or 18% of sales for the same period last year. Subsequent to June 30, 2006 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.  Accordingly, all assets, liabilities, and operating results of Villa Melt LLC are included in discontinued operations as of June 30, 2006 and 2005.  Assets from discontinued operations at June 30, 2006 totaled $372,408, liabilities from discontinued operations totaled $85,066 and the loss from discontinued operations totaled $80,936 for the six months ended June 30, 2006.  During the same period last year the Company incurred a loss from discontinued operations of $44,360. During the period two franchise owned stores opened, the first in Simi Valley, CA and the second in Valencia, CA. Three Months ending June 30, 2006 The period covered by our unaudited restated consolidated financial statements is also for the three months ended June 30, 2006 during which time we generated $364,424 in revenue from continuing operations, realized income of $26,629 from continuing operations and incurred a net loss of $8,932.  During the same period last year we generated $114,310 in revenue from continuing operations, realized a loss of $151,040 from continuing operations and incurred a net loss from operations of $170,345. The revenue was generated from sales of food, supplies and equipment to our franchisees, from franchise fees, and from revenue generated in royalty revenues. The increase in revenues for the current period was largely due to franchise fees, and food, supplies, and equipment sold to franchise owned stores.  Cost of sales from continuing operations amounted to $179,352 or 49% and $38,398 or 34% for the same period last
year. The percentage increase is due to the change in the sales mix and margins on sales of food, supplies and equipment, which to our franchise owned stores is lower than sales made to company owned stores. Rental expenses for the retail stores amounted to $14,869 or 4% of sales and $22,023 or 19% of sales for the same period last year. The decrease is due to increase in sales to franchise owned stores.  Salaries and wages amounted to $65,327 or 18% of sales and $27,509 or 24% of sales for the same period last year. The percentage decrease is due to increase in sales made to franchise owned stores. General and administrative expenses amounted to $114,873 or 32% of sales and $29,925 or 26% of sales for the same period last year. Our net loss for the three month period ended June 30, 2006 was $8,932, compared to a net loss of $170,345 for the corresponding prior period. The change was principally as a result of income from operations as noted above, the decrease in interest expenses
from $81,782 to $8,154 and a gain on the sale of fixed assets of $91,657. The loss from discontinued operations totaled $35,561 for the three months ended June 30, 2006.  During the same period last year the Company incurred a loss from discontinued operations of $19,305. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2006 we had $587,555 cash on hand from continuing operations, $26,906 from discontinued operations and a working capital deficit of $206,265. As of June 30, 2006 our total current assets from continuing operations were $832,401, assets from discontinued operations were $372,408 and our total assets were $1,495,093.  At June 30, 2006 our total liabilities were $1,123,732, of which $1,038,666 were considered to be current and $85,066 were from discontinued operations.  We also had minority interest of $141,359 at June 30, 2006. For the six months ended June 30, 2006, net cash provided by operating activities was $83,847 compared to operational cash outflows of $192,365 for the same period last year. Net cash provided by investing activities was $169,188 compared to investing cash outflows of $35,110 for same period last year. Net cash provided by financing activities was $116,362 compared to $247,357 for the same period last year.   14       We have no external sources of liquidity in the form of credit lines from banks. Based on our future operations described below, management believes that our available cash will not be sufficient to fund our working capital requirements through June 30, 2007 and, therefore, we will have to raise financing through the sale of our equity securities or arrange a loan from outside sources. There are no assurances that we will be able to obtain further funds required for our continued operations. We are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to proceed with our expansion program at the level anticipated. FUTURE OPERATIONS Recent Changes On August 22, 2006 the Company entered into an agreement to sell its equity interest in its 50% owned subsidiary Villa Melt, LLC.  (See Note 5 to the restated consolidated financial statements) This decision marked a change in how the company will grow going forward.  With the consummation of this transaction, the company no longer owns any gelato and crepe cafes.  This strategy change to be a franchisor only was based on the success of the owner operator aspect of the franchise system.  In the future, the company may have to operate some stores to seed new markets, but the intent is to sell those stores quickly. Immediate Objectives Our primary objective during the 52 week period ending June 30, 2007 will be to greatly increase the number of franchise owned and operated stores across the country.  We will expand our footprint in Arizona and open new states including Ohio, New Jersey, Massachusetts, Connecticut, New York,  and Illinois. Retail Locations As at June 30, 2006 we have seven stores operating as franchised stores and we have subsequesntly opened another 9 new franchised owned stores.  By December 31, 2007, we plan on opening 16 new franchised owned stores Cash Requirements Presently, our cash position is sufficient to fund our normal operating expenses through mid year.   Management projects that we will require at least $2,500,000 to fund our operations and proposed capital expansion program over the next twelve months. APPLICATION OF CRITICAL ACCOUNTING POLICIES Our consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.   15       RISK FACTORS Much of the information included in this quarterly report includes or is based upon estimates, projections or other "forward looking statements". Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Such estimates, projections or other "forward looking statements" involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward looking statements". Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out below. RISKS RELATED TO OUR BUSINESS We have only commenced our business operations in July, 2003 and opened our first retail store in November, 2003 and thus have a limited operating history. If we cannot successfully manage the risks normally faced by start-up companies, our business may fail. We have a limited operating history. Our prospects are subject to the risks and expenses encountered by start up companies, such as uncertainty regarding level of future revenue and inability to budget expenses and manage growth accordingly, uncertainty regarding acceptance of our products and retail operations and inability to access sources of financing when required and at rates favorable to us. Our limited operating history and the highly competitive nature of the retail confectionery industry make it difficult or impossible to predict future results of our operations. We may not establish a customer following that will make us profitable, which might result in the loss of some or all of your investment in our common stock. Some of our directors and officers are outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers. Some of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons' assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal securities laws against them. If we are unable to protect our trade name, our efforts to increase public recognition of our "Melt" brand may be impaired and we may be required to incur substantial costs to protect our trade name. We currently have a trade marked registered for the trade name "Melt" and have applied for a service mark for "Melt-gelato italiano" and Melt  café and gelato bar. However, these measures may not be adequate to prevent the unauthorized use of our trade names. We may be unable to prevent third parties from acquiring and using names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources. Any claims, by or against us, could be time consuming and costly to defend or litigate, divert our attention and resources and result in the loss of goodwill associated with our trade names. An adverse outcome in litigation or similar
proceedings could subject us to significant  16      liabilities to third parties, require expenditure of significant resources to develop non-infringing products, require disputed rights to be licensed from others, or require us to cease the marketing or use of our products, any of which could have a material adverse effect on our business, operating results and financial condition. The establishment and maintenance of brand identity of our "Melt" brand gelato products is critical to our future success. If we are unable to promote and maintain our "Melt" brand our business could fail. Since we expect that substantially all of our revenues will be generated from purchases by the consumer of our gelato and related products at our retail outlets, market acceptance of our products is critical to our future success. Factors such as market positioning, retail locations, the availability and price of competing products (in particular, frozen deserts), and the introductions of new products will affect the market acceptance of our business. We believe that establishing and maintaining brand identity of our products will increase the appeal of our products and retail locations to prospective customers. Consumer recognition and a preference of our "Melt" brand products over similar products offered by our competition will be critical to our future success. Promotion and enhancement of our gelato and related products will depend largely on our success in continuing to provide high quality products. In order to attract and retain customers and to promote and maintain our "Melt" brand in response to competitive pressures, we may increase our financial commitment to creating and maintaining a distinct brand loyalty among our customers. Currently, given the large number of factors and variables in achieving and maintaining consumer recognition and brand loyalty, we cannot anticipate or estimate how much we may be required to spend to establish such
loyalty. If we are unable to provide high quality products, or otherwise fail to promote and maintain our "Melt" brand, incur excessive expenses in an attempt to improve, or promote and maintain our brand, we may not be able to successfully implement our business plan and achieve a profitable level of operations. Due to the nature of our products, we will be subject to specific risks unique to the retail frozen desert industry. Specialty retail food businesses such as ours are often affected by changes in consumer and competitive conditions, including changes in consumer tastes; national, regional, and local economic conditions and demographic trends; and the type, number, and location of competing businesses. Adverse publicity resulting from food quality, illness, injury, or other health concerns or operating issues stemming from one of our products may adversely affect our retail operations. We, as well as our competitors, are subject to the foregoing risks, the occurrence of any of which would impair or prevent our efforts to establish and expand our frozen desert operations. The occurrence of such risks may result in an investor losing some or all of their investment in our common stock. Because we face intense competition, an investment in our company is highly speculative. The retail confectionery industry is characterized by intense and substantial competition. We believe that our business will have to compete with large and established ice cream retailers such as Ben & Jerry's, Haagen-Dazs, Dreyer's, Baskin-Robbins, Dairy Queen and Stone Cold Creamery Company, as well as other small to medium sized ice cream and gelato business entities that provide similar products. A number of our competitors are well established, substantially larger and have substantially greater market recognition, greater resources and broader distribution capabilities than we have. These existing and future competitors may be able to respond more quickly to new or changing opportunities, product and customer requirements than us and may be able to undertake more extensive promotional activities, offer more retail locations to customers and adopt more aggressive pricing policies than we do. Increased competition by these existing and future competitors could materially and adversely affect our ability to commence, maintain, or expand our operations.   17       Our operations are subject to governmental regulation associated with the food service industry, the operation and enforcement of which may restrict our ability to carry on our business. We are in the perishable food industry. The development, manufacture and marketing of products sold by us will be subject to extensive regulation by various government agencies, including the U.S. Food and Drug Administration and the U.S. Federal Trade Commission, as well as various state and local agencies. These agencies regulate production processes, product attributes, packaging, labeling, advertising, storage and distribution. These agencies establish and enforce standards for safety, purity and labeling. In addition, other governmental agencies (including the U.S. Occupational Safety and Health Administration), establish and enforce health and safety standards and regulations in the workplace, including those in our retail locations. Our retail locations will be subject to inspection by federal, state, and local authorities. We will seek to comply at all times with all such laws and regulations. We will
obtain and maintain all necessary permits and licenses relating to our operations, and will ensure that our facilities and practices comply with applicable governmental laws and regulations. Nevertheless, there is no guarantee that we will be able to comply with any future laws and regulations. Our failure to comply with applicable laws and regulations could subject us to civil remedies including fines, injunctions, recalls or seizures as well as potential criminal sanctions. As a result of such regulations we may encounter a variety of difficulties or extensive costs, which could delay or preclude us from marketing our products or continuing or expanding our operations. We cannot predict if all necessary approvals will be granted or that if granted, any approval will be received on a timely basis. If approvals are not obtained or are delayed, this may also preclude us from marketing our products or continuing or expanding our operations. Because our officers, directors and principal shareholders control a substantial portion of our common stock, investors will have little or no control over our management or other matters requiring shareholder approval. Our officers and directors and their affiliate, in the aggregate, beneficially own 29.4% of issued and outstanding shares of our common stock. As a result, they have the ability to exert significant influence over matters affecting minority shareholders, including the election of our directors, the acquisition or disposition of our assets, and the future issuance of our shares. Because our officers, directors and one of our principal shareholders (specifically Glynis Sive, the wife of Clive Barwin) can exercise such influence over our company, investors may not be able to replace our management if they disagree with the way our business is being run. Because control by these insiders could result in management making decisions that are in the best interest of those insiders and not in the best interest of the investors, you may lose some or all of the value of your investment in our common stock. Because we might not have sufficient insurance to cover any losses that may arise, we might have uninsured losses, increasing the possibility that you would lose your investment. We may incur uninsured liabilities and losses as a result of the conduct of our business. We do currently maintain comprehensive liability and property insurance. However there can be no assurance that we have coverage sufficient to satisfy potential claims. We do not carry any business interruption insurance. Should uninsured losses occur, any purchasers of our common stock could lose their entire investment. Because we can issue additional common shares, purchasers of our common stock may incur immediate dilution and may experience further dilution. We are authorized to issue up to 100,000,000 common shares, of which 20,280,000 are issued and outstanding. Our board of directors has the authority to cause our company to issue additional shares of common stock or issue warrants or options to purchase shares of common stock without the consent of any of our shareholders. Consequently, our shareholders may experience more dilution in their ownership of our company in the future.   18       Item3.Controls and Procedures. As required by Rule 13a-15 under the Exchange Act, as at June 30, 2006 (being the end of the period covered by this quarterly report on Form 10-QSB) we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company's management, including our company's president and chief executive officer. Based upon that evaluation, our company's president and chief executive officer concluded that our company's disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no changes in our company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation.  Even though we are presenting unaudited restated consolidated
financial statements, management believes that the control procedures remain effective.  The nature of the restatement is caused by a change in our revenue recognition policy and not by a failure to follow our policy.    Our accounting was in accordance with our revenue recognition policy and upon changing our policy we initiated this restatement. 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 Item1.
        Legal Proceedings. We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest. Item 2.
        Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3.
        Defaults Upon Senior Securities. None. Item 4.
        Submission of Matters to a Vote of Security Holders. None. Item 5.
        Other Information. None.   19        Item6.
        Exhibits. Exhibits required by Item 601 of Regulation S-B Exhibit Number
        Description(3)
        (i) Articles of Incorporation; and (ii) Bylaws3.1
        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 Contracts10.1
        Lease Agreement between Melt (California) Inc. and Westfield Corporation Inc., dated October 14, 2003 (incorporated by reference from our Form SB-2 Registration Statement, filed on October 2, 2003)10.2
        Supply Agreement between Melt (California) Inc. and P.G.I. of Saugatuk, Inc., dated September 30, 2003 (incorporated by reference from our Form SB-2 Registration Statement, filed on October 2, 2003)10.3
        Operating Agreement between Melt Inc. and Dolce Dolci, LLC dated July 21, 2004 (incorporated by reference from our Form 10-KSB, filed on June 30, 2005)10.4
        Operating Agreement between Melt Inc. and Melt Franchising LLC dated February 25, 2005 (incorporated by reference from our Form 10-KSB, filed on June 30, 2005)(14)
        Code of Ethics14.1
        Code of Ethics of the company (incorporated by reference from our Form 10-KSB, filed on March 30, 2004)(21)
        Subsidiaries of the small business issuerMelt (California) Inc.
Villa Melt LLC
Melt Franchasing LLC(31)
        Rule 13a-14(a)/15d-14(a) Certifications31.1
        Certification under Sarbanes-Oxley Act of 200231.2
        Certification under Sarbanes-Oxley Act of 2002(32)
        Section 1350 Certifications32.1
        Certification under Sarbanes-Oxley Act of 200232.2
        Certification under Sarbanes-Oxley Act of 2002    20         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: March 29, 2007  By:/s/ Scott M. Miller Scott M. Miller, Chief Financial Officer and Executive Vice President (Principal Financial Officer and Principal Accounting Officer)  Date: March 29, 2007    21