GUOZI ZHONGYU CAPITAL HOLDINGS - Quarter Report: 2009 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009 or

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

For the transition period from ___________ to ____________

Commission File Number 333-109990

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

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

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

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 21,290,000 common shares issued and outstanding as of April 30, 2009

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

It is the opinion of management that the interim consolidated financial statements as of and for the periods ended March 31, 2009 include all adjustments necessary in order to ensure that the interim consolidated financial statements are not misleading.

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MELT INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009 and December 31, 2008

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MELT INC. AND SUBSIDIARIES
Consolidated Balance Sheets

ASSETS

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

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MELT INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

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

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

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

F-4

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

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

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MELT INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders’ Equity (Deficit)

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

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

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

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

a. Organization and Business Activities

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

Melt (California), Inc. a wholly owned subsidiary (hereinafter referred to as Melt (CA)) was organized on August 6, 2003, under the laws of the State of California. Melt (CA) was in the business of owning and operating corporate owned stores, of which none were in existence during the year ended December 31, 2008 and the period ended March 31, 2009, managing the construction process for both corporate and franchisee owned stores, securing retail space for either corporate or franchise stores to operate from, as well as the sale and distribution of product to franchise owned stores until October 2007. Melt (CA) ceased managing the construction of stores during September 2007. All assets, liabilities and operating results related to store construction and retail leases are therefore included in discontinued operations as of March 31, 2009 (see note 3). Additionally, all operations of Melt (CA) relating to sales of food and beverages to franchise owned stores have been transferred to Melt Franchising, LLC.

Melt Franchising LLC (hereinafter referred to as Melt (FA)) a wholly owned subsidiary was organized on February 2, 2005 under the laws of the State of Nevada. Melt (FA) is responsible for selling franchises to allow franchisee’s to own and operate stores trading under the name of Melt – gelato italiano, Melt – café & gelato bar and Melt – gelato & crepe café as well as the sale and distribution of product to franchisees, marketing and the collection of royalties. To date, Melt (FA) has sold forty-nine franchises of which twenty-two are operating, fifteen agreements have been terminated by the Company as a result of the franchisee’s not securing retail space or other reasons, three are in the process of finding suitable locations to operate their stores, two are in the process of building their stores and seven have closed their operations.

b. Depreciation

The cost of the equipment and property is depreciated over the estimated useful life of 5 years. Depreciation is computed using the straight-line method beginning when the assets are placed in service. Depreciation expense on assets used in continuing operations for the three months ended March 31, 2009 and 2008 was $0 and $3,209, respectively.

c. Accounting Method

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

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d. Cash and Cash Equivalents

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

e. Estimates

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

f. Revenue Recognition

The Company’s revenues are derived primarily from franchising activities, including sales of franchise licenses, food and beverage products, equipment, marketing services and royalties from franchisee sales.

Food and Beverage

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

Franchise Fee Revenue

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

Revenue from initial franchise fees are recognized when the Company has completed its obligation to the franchisee, the franchise store has opened and there is (a) no remaining obligation or intent to refund amounts paid, (b) substantially all of the initial services required by the Uniform Franchise Offering Circular have been performed, and (c) there are no other material conditions or obligations related to substantial performance. Franchise fees collected for franchise agreements that are ultimately terminated are recognized as revenue only when the Company has met its obligations under the Uniform Franchise Offering Circular and there are no material conditions or obligations remaining. During the three months ended March 31, 2009 and 2008, the Company recognized $25,000 and $40,000 in franchise fee revenue, respectively.

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

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f. Revenue Recognition (Continued)

Deferred Revenue

As of March 31, 2009 and December 31, 2008 the company maintained deferred revenue of $75,000 and $100,000, respectively. This represents franchise fees received, which have not been recognized as revenue.

Miscellaneous Finder and Professional Fees

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

g. Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consists primarily of amounts due from the sale of products and services to franchisees for store construction. Accounts receivable also includes amounts related to franchise royalties, rents and other miscellaneous items.

The Company recognizes allowances for doubtful accounts to ensure receivables are not overstated due to uncollectibility. Bad debt reserves are maintained for customers in the aggregate based on a variety of factors, including the length of time receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of potential uncollectibility. The allowance for doubtful accounts on continuing operations was $0 and $1,005 at March 31, 2009 and December 31, 2008, respectively, while bad debt expense on continuing operations totaled $276 and $11,102 for the three months ended March 31, 2009 and 2008, respectively.

h. Advertising and Marketing

The Company follows the policy of charging the costs of marketing and advertising to expense as incurred. Marketing and Advertising expense for the three months ended March 31, 2009 and 2008 was $1,905 and $34,444, respectively.

i. Principles of Consolidation

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

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j. Long Lived Assets

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

l. Fair Value of Financial Instruments

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

Melt Franchising, LLC and Melt (California), Inc. (Melt) v. Steven A. Field, M.D., MMS Coconut Point, LLC, and MMS King of Prussia Court, LLC (Respondents).

On March 18, 2007, we and Melt CA filed a demand for arbitration against Steven A. Field, MD., MMS Coconut Point, LLC and MMS King of Prussia Court, LLC (collectively, “Field”) seeking a finding and/or declaration of entitlement to terminate Field’s four franchise agreements. Melt also is also seeking unpaid royalties and advertising contributions; rent and other charges due under a sublease with Melt CA; an amount equal to all unpaid construction invoices; an amount equal to all unpaid invoices for products purchased by Field; and costs and expenses of arbitration and attorneys’ fees. As of March 31, 2009, the demand is still pending.

David Gold, Elena Gold, EAOA, Inc., Steven Field, MMS Management, LLC, MMS Coconut Point, LLC, Jong Han, Yon Ho Kim, Young Suk Kim, Kang Won Lee, Yoo & Lee Enterprises, Inc., Charindra Liyanage, Liyange Investments, LLC, PMI Enterprises, Inc. and John Flannery (Plaintiffs) v. Melt, Inc., Melt (California), Inc., Melt Franchising, LLC, Clive V. Barwin, Brandon Barwin, Michael Zorehkey, Rick Zorehkey, Eddie Ollman, Scott Miller, and Alin Cruz.

On September 19, 2007, six of our franchisees filed a putative class action lawsuit against us, our affiliates, our officers and some of our employees in which the franchisees allege that we fraudulently induced the franchisees to enter into franchise agreements by misrepresenting facts about the franchise opportunity. The lawsuit sought injunctive relief and damages, in an unspecified amount, under several state franchise acts, restitution and injunctive relief under various provisions of the California Unfair Business Practices Act, damages and injunctive relief under the “Cartwright” Act, and damages for fraud, interference with prospective economic advantage, and unjust enrichment and declaratory relief. On or about June 30, 2008, the Court dismissed the plaintiffs’ lawsuit. On or about August 26, 2008, the Plaintiffs

F-11

filed a Notice of Appeal. Kang Won Lee, You & Lee Enterprises Inc, Yon Ho Kim and Young Suk Kim have withdrawn their appeals.

Melt Franchising, LLC v. PMI Enterprises, Inc. and John Flannery.

On June 24, 2008, we filed an ex parte application for a temporary restraining order and preliminary injunction against PMI Enterprises, Inc. and John Flannery for significant violations of the franchise agreement. On August 18, 2008, the Court granted our motion for a preliminary injunction and ordered the parties to allow us to assume management of the store, cease using our marks, assign the parties’ lease for the store to us, and required the parties to sell all or any portions of the assets. On September 4, 2008, the parties filed counterclaims for injunctive relief, restitution, fraud, unjust enrichment, and declaratory relief. Melt filed a Motion to Dismiss the parties’ counterclaims and on January 9, 2009, the Court dismissed all of the parties’ California claims and asked the parties to amend their complaint. As of March 31, 2009, this case is in the discovery phase.

Jong Han v. Melt, Inc., Melt (California), Inc., Melt Franchising, LLC, Clive V. Barwin, Brandon Barwin, Michael Zorehkey, Rick Zorehkey, Eddie Ollman, and Alin Cruz.

On August 22, 2008, Jong Han filed a Complaint against us similar to the purported class action suit that was dismissed by the Court. On or about December 8, 2008, the Court granted our motion to compel arbitration. As of April 20, 2009 no arbitration has been filed.

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

In October 2008, Mayflower Emerald Square LLC filed a complaint against both Melt CA and our company for early termination of a lease in North Attleboro, MA. The lease was signed by Melt CA only, however, the plaintiff claims Melt CA was acting as an agent of our company and thus has named Melt Inc. as a defendant. Melt Inc has filed a motion to dismiss, which has been heard by the court and the decision is pending.

Braintree Property Associates LP v. Melt Inc, Melt Franchising LLC, Clive Barwin (Melt)

On April 2^nd, 2009 plaintiff (landlord) filed suit against defendants which alleges that Melt made a verbal representation to landlord that Melt would be assuming obligations of a lease made between landlord and a former Melt franchisee. Melt will be vigorously defending these allegations. Melt is in the process of preparing a reply to the claims.

During the period ended September 2007, Melt (CA) elected to discontinue the operations related to construction of stores for franchisees, due to continuing losses. All assets, liabilities and operating results related to store construction are therefore included in discontinued operations as of March 31, 2009 and 2008. No tax benefit has been attributed to discontinued operations. The following is an unaudited summary of the assets and liabilities related to discontinued operations of construction activities:

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

Employee Stock Options

During March 2009, Josiah Puder, resigned as Vice President and General Counsel of the Company, forfeiting options to purchase 500,000 shares of common stock. As a result, $20,591 in previously deferred compensation expense was reversed against additional paid in capital.

During March 2009, Brandon Barwin, Vice President and Director, agreed to cancel his remaining 200,000 options to purchase common stock. As a result, $19,349 in previously deferred compensation expense was reversed against additional paid in capital.

A summary of the status of the Company’s outstanding stock options as of December 31, 2008 and March 31, 2009 and changes during the periods is presented below:

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Management Fees

During the three months ended March 31, 2009 and 2008, the Company paid Chill, Inc., a related party company, a management fee of $96,000 and $98,500, respectively, representing the salaries, wages, benefits, rent and overhead expenses related to the operation of the Company during the periods.

Notes Payable

During the three months ended March 31, 2009 and 2008, the Company repaid $0 and $49,465 of its note payable to its President, respectively. The note balance and accrued interest at March 31, 2009 and December 31, 2008 was $100,000 and $100,000, respectively.

The Company's consolidated financial statements are prepared using Generally Accepted Accounting Principals applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has accumulated significant losses, has negative working capital and a deficit in stockholders' equity. All of these items raise substantial doubt about its ability to continue as a going concern. Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the Company's ability to continue as a going concern are as follows:

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

There can be no assurance that the Company will be able to achieve its business plans, raise any required capital or secure the financing necessary to achieve its current operating plan. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

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

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

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

Results of Operations

Three month Summary ending March 31, 2009 and 2008

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Revenue

Our revenue for the three month periods ended March 31, 2009 and 2008 are outlined in the table below:

Revenue for the three month period ended March 31, 2009, decreased by 70% as compared to the comparative period in 2008 primarily as a result of a 94% decrease in food and beverage sales and a 100% decrease in equipment sales. During the third quarter of 2008 r Melt Franchising LLC decided to phase out selling food and beverages to its franchisees, this phase out was primarily completed by Dec 31, 2008.. The franchisees now purchase product directly from the distributors.

Expenses

Our operating expenses for the three month periods ended March 31, 2009 and 2008 are outlined in the table below:

Operating expenses for the three months ended March 31, 2009, decreased by 28% as compared to the comparative period in 2008 primarily as a result of a 94% reduction in marketing expenses, a 32% reduction in professional fees, a 100% reduction in rent expense and 3% reduction in management fees as a result of the management arrangement with Chill, Inc., and a 98% decrease in bad debt expense.

Equity Compensation

We have no formal plan for compensating our directors for their service in their capacity as directors, although such directors are expected in the future to receive stock options to purchase common shares as awarded by our board of directors or (as to future stock options) a compensation committee which may be established. Directors are entitled

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to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. No director received and/or accrued any compensation for their services as a director, including committee participation and/or special assignments.

Liquidity and Financial Condition

As of March 31, 2009, our company had a working capital deficit of $696,483. We estimate our operating expenses and working capital requirements for the next twelve month period to be as follows:

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

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

Future Financings

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

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

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

Contractual Obligations

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

Going Concern

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

Item 3. Quantitative Disclosures About Market Risks

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

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president and chief executive officer (who is acting as our principal executive officer, principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of March 31, 2009, the end of the period covered by this report, our president and chief executive officer (our principal executive officer, principal financial officer and principle accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief executive officer (our principal executive officer, principal financial officer and principle accounting officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

There have been no significant changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Melt Franchising, LLC and Melt (California), Inc. v. Steven A. Field, M.D., MMS Coconut Point, LLC, and MMS King of Prussia Court, LLC (Respondents).

On March 18, 2007, we and Melt CA filed a demand for arbitration against Steven A. Field, MD., MMS Coconut Point, LLC and MMS King of Prussia Court, LLC (collectively, “Field”) seeking a finding and/or declaration of entitlement to terminate Field’s four franchise agreements. We and Melt CA also seek unpaid royalties and advertising contributions; rent and other charges due under a sublease with Melt CA; an amount equal to all unpaid construction invoices; an amount equal to all unpaid invoices for products purchased by Field; and costs and expenses of arbitration and attorneys’ fees. As of March 31, 2009, the demand is still pending.

David Gold, Elena Gold, EAOA, Inc., Steven Field, MMS Management, LLC, MMS Coconut Point, LLC, Jong Han, Yon Ho Kim, Young Suk Kim, Kang Won Lee, Yoo & Lee Enterprises, Inc., Charindra Liyanage, Liyange Investments, LLC, PMI Enterprises, Inc. and John Flannery (Plaintiffs) v. Melt, Inc., Melt (California), Inc., Melt Franchising, LLC, Clive V. Barwin, Brandon Barwin, Michael Zorehkey, Rick Zorehkey, Eddie Ollman, Scott Miller, and Alin Cruz.

On September 19, 2007, six of our franchisees filed a putative class action lawsuit against us, our affiliates, our officers and some of our employees in which the franchisees allege that we fraudulently induced the franchisees to enter into franchise agreements by misrepresenting facts about the franchise opportunity. The lawsuit sought injunctive relief and damages, in an unspecified amount, under several state franchise acts, restitution and injunctive relief under various provisions of the California Unfair Business Practices Act, damages and injunctive relief under the “Cartwright” Act, and damages for fraud, interference with prospective economic advantage, and unjust enrichment and declaratory relief. On or about June 30, 2008, the Court dismissed the plaintiffs’ lawsuit. On or about August 26, 2008, the Plaintiffs filed a Notice of Appeal. Kang Won Lee, You & Lee Enterprises Inc, Yon Ho Kim and Young Suk Kim have withdrawn their appeals.

Melt Franchising, LLC v. PMI Enterprises, Inc. and John Flannery.

On June 24, 2008, we filed an ex parte application for a temporary restraining order and preliminary injunction against PMI Enterprises, Inc. and John Flannery for significant violations of the franchise agreement. On August 18, 2008, the Court granted our motion for a preliminary injunction and ordered the parties to allow us to assume management of the store, cease using our marks, assign the parties’ lease for the store to us, and required the parties to sell all or any portions of the assets. On September 4, 2008, the parties filed counterclaims for injunctive relief, restitution, fraud, unjust enrichment, and declaratory relief. Melt filed a Motion to Dismiss the parties’ counterclaims and on January 9, 2009, the Court dismissed all of the parties’ California claims and asked the parties to amend their complaint. As of March 31, 2009, this case is in the discovery phase.

Jong Han v. Melt, Inc., Melt (California), Inc., Melt Franchising, LLC, Clive V. Barwin, Brandon Barwin, Michael Zorehkey, Rick Zorehkey, Eddie Ollman, and Alin Cruz.

On August 22, 2008, Jong Han filed a Complaint against us similar to the purported class action suit that was dismissed by the Court. On or about December 8, 2008, the Court granted our motion to compel arbitration. As of April 30, 2009 no arbitration has been filed.

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

In October 2008, Mayflower Emerald Square LLC filed a complaint against both Melt CA and our company for early termination of a lease in North Attleboro, MA. The lease was signed by Melt CA only, however, the plaintiff claims Melt CA was acting as an agent of our company and thus has named Melt Inc. as a defendant. Melt Inc has filed a motion to dismiss, which has been heard by the court and the decision is pending.

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Braintree Property Associates LP v. Melt Inc, Melt Franchising LLC, Clive Barwin (Melt)

On April 2^nd, 2009 plaintiff (landlord) filed suit against defendants which alleges that Melt made a verbal representation to landlord that Melt would be assuming obligations of a lease made between landlord and a former Melt franchisee. Melt will be vigorously defending these allegations. Melt is in the process of preparing a reply to the claims.

Item 1A. RISK FACTORS

Much of the information included in this annual 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 as our business is still in an early growth stage of its development. Prospective investors should consider carefully the risk factors set out below.

Risks Related to our Business

We 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 food 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/trademarks “M Melt®” "Melt-gelato italiano®", “Melt – café & gelato bar®”, and “Melt – gelato and crepe café®” have been registered with the US Patent & Trade Mark Office. However, these measures may not be adequate to prevent the unauthorized use of our trade names. We may be unable to prevent third parties from acquiring and using names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversion 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

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significant liabilities to third parties; require expenditure of significant resources to develop non-infringing trade name and trademarks, any of which could have a material adverse effect on our business, operating results and financial condition.

The franchising industry is a highly litigious industry and almost all franchisors have one or many lawsuits filed against it. If we have many lawsuits filed against us, we may be required to incur substantial costs to defend them, which might result in the loss of some or all of your investment in our common stock.

Although we engage in ethical business practices at all times and adhere to all the rules and regulations governed by the franchise act, due to the litigious nature of our industry we could have more lawsuits filed against us. . Any litigation, by or against us, could be time consuming and costly to instuite or defend, and divert our attention and resources. An adverse outcome in litigation could have a material adverse effect on our business, operating results and financial condition.

The establishment and maintenance of the brand identity “Melt” 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 franchise owned and operated retail outlets, market acceptance of our products is critical to our future success. Factors such as market positioning, retail locations, the availability and price of competing products (in particular, frozen desserts), and the introductions of new products will affect the market acceptance of our business.

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

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

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

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

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competitors may be able to respond more quickly than us to new or changing opportunities, product and customer requirements, 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, in the aggregate, beneficially own 29.93% of the issued and outstanding shares of our common stock. In addition, Glynis Sive, the spouse of Clive Barwin, beneficially owns 9.34% of the issued and outstanding shares of our common stock. As a result, these individuals 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 Glynis Sive 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. At the moment, we do not carry directors and officers insurance nor do we cover insurance for lawsuits brought against our company or our directors. Should uninsured losses occur, purchasers of our common stock could lose their entire investment.

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

We are authorized to issue up to 100,000,000 common shares, of which 21,290,000 are issued and outstanding. Our board of directors has the authority to cause our company to issue additional shares of common stock or issue warrants or options to purchase shares of common stock without the consent of any of our shareholders. Consequently, our shareholders may experience more dilution in their ownership of our company in the future.

RISKS ASSOCIATED WITH OUR COMMON STOCK

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

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

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

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

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits.

Exhibits required by Item 601 of Regulation S-K

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* Filed herewith

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SIGNATURES

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

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