UNITED
      STATES


**SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        DC 20549
 
 
 **FORM
        10-QSB**
 **x**
                QUARTERLY
                    REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                    ACT OF
                    1934
 
 For
          the
          quarterly period ended **January**  **31,
          2006**
 
 **o**
                TRANSITION
                    REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                    OF
                    1934
 
 For
          the
          transition period from ________ to ________
  Commission
        file number:  **0-29213**
  **HOUSE
        OF BRUSSELS CHOCOLATES INC.**
 (Exact
        name of small business issuer as specified in its charter)
 
 
 **NEVADA**
              
              **52-2202416**(State
                  or other jurisdiction of incorporation or organization)
              
              (IRS
                  Employer Identification No.)
   **1658
        Fosters Way, Delta, BC, Canada V3M 6S6**
 (Address
        of principal executive offices)
 
 **(604)
        636-1056**
 (Issuer’s
        telephone number)
 
 
 One
        Riverway, Suite 1700, Houston, Texas, 77056
 (Former
        Address)
 
 State
        the
        number of shares outstanding of each of the issuer’s classes of common stock, as
        of the latest practicable date: **33,867,221
        Shares of $0.001 par value Common Stock outstanding as of March 13,
        2006.**
 
 
 Transitional
        Small Business Disclosure Format (check one): Yes **o**  **No** **x**
 
 
 
  **HOUSE
        OF BRUSSELS CHOCOLATES INC.**
 
 **FORM
        10-QSB**
 **For
        The Quarter Ended January 31, 2006**
 **INDEX**
  
 PART
                    I - FINANCIAL INFORMATIONITEM
                    1.
                FINANCIAL
                    STATEMENTSITEM
                    2.
                MANAGEMENT'S
                    DISCUSSION AND ANALYSIS OR PLAN OF
                    OPERATIONSITEM
                    3.
                CONTROLS
                    AND PROCEDURESPART
                    II--OTHER INFORMATIONITEM
                    1.
                LEGAL
                    PROCEEDINGSITEM
                    2.
                UNREGISTERED
                    SALES OF EQUITY
                    SECURITIESITEM
                    6.
                EXHIBITSSIGNATURES
  Index
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **FORM
                          10-QSB**
                        **For
                          the Quarter Ended January 31, 2006**
  **PART
            I - FINANCIAL INFORMATION**
   **ITEM
                      1.**
                  **FINANCIAL
                      STATEMENTS**
  Consolidated
                      Condensed Balance Sheets as of January 31, 2006 (unaudited)
                      and April 30,
                      2005Unaudited
                      Consolidated Statements of Operations for the Nine Months and
                      Three Months
                      Ended January 31, 2006 and 2005Unaudited
                      Consolidated Statement of Changes in Shareholders’ Equity for the Nine
                      Months Ended January 31, 2006Unaudited
                      Consolidated Statements of Cash Flows for the Nine Months Ended
                      January
                      31, 2006 and 2005Notes
                      to the Consolidated Financial Statements
 Index
 **HOUSE
              OF BRUSSELS CHOCOLATES INC.**
 
 
 
 
 **UNAUDITED
              CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
              OF JANUARY 31, 2006 AND 2005**
 AND
              FOR
              THE THREE MONTH AND NINE MONTH PERIODS THEN ENDED
  F-1
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **Table
                          of Contents**
 Consolidated
                        Condensed Balance Sheets as of January 31, 2006 (unaudited)
                        and April 30,
                        2005
                    F-3Unaudited
                        Consolidated Statements of Operations for the Nine Months
                        and Three Months
                        Ended January 31, 2006 and 2005
                    F-4Unaudited
                        Consolidated Statement of Changes in Shareholders’ Equity for the Nine
                        Months Ended January 31, 2006
                    F-5Unaudited
                        Consolidated Statements of Cash Flows for the Nine Months
                        Ended January
                        31, 2006 and 2005
                    F-6Notes
                        to the Consolidated Financial Statements
                    F-7
  F-2
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                    **HOUSE
                        OF BRUSSELS CHOCOLATES INC.**
                      **Consolidated
                        Condensed Balance Sheets as of January 31, 2006 (unaudited)
                        and April 30,
                        2005**
   **JANUARY
                        31, 2006**
                    
                    **APRIL
                        30, 2005**(unaudited)**ASSETS**Current
                        assetsCash
                    
                    $
                    195,038
                    
                    $
                    972,938Accounts
                        receivable, net
                    
                    
                    2,055,117
                    
                    
                    653,555Inventory
                    
                    
                    1,742,093
                    
                    
                    2,092,325Prepaid
                        expenses and other
                    
                    
                    126,665
                    
                    
                    366,762Total
                        current assets
                    
                    
                    4,118,913
                    
                    
                    4,085,580Property,
                        plant and equipment, net
                    
                    
                    3,762,230
                    
                    
                    3,391,294Goodwill
                    
                    
                    1,141,790
                    
                    
                    1
                        ,043,790Other
                        assets
                    
                    
                    300,414
                    
                    
                    360,823Total
                        assets
                    
                    $
                    9,323,347
                    
                    $
                    8,881,487**LIABILITIES
                        AND SHAREHOLDERS' EQUITY**Current
                        liabilitiesAccounts
                        payable
                    
                    $
                    2,857,482
                    
                    $
                    1,499,635Accrued
                        liabilities
                    
                    
                    685,310
                    
                    
                    743,545Current
                        Maturities of long term debt
                    
                    
                    1,703,125
                    
                    
                    984,375Current
                        portion of capital lease obligations
                    
                    
                    58,045
                    
                    
                    35,169Due
                        to related parties
                    
                    
                    525,664
                    
                    
                    185,447Total
                        current liabilities
                    
                    
                    5,829,626
                    
                    
                    3,448,171Deferred
                        lease payments
                    
                    
                    141,776
                    
                    
                    144,944Capital
                        lease obligations
                    
                    
                    72,611
                    
                    
                    67,422Long-term
                        debt
                    
                    
                    525,086
                    
                    
                    193,731Total
                        liabilities
                    
                    
                    6,569,099
                    
                    
                    3,854,268Commitments
                        and contingenciesShareholders’
                        equity:Preferred
                        stock - $0.001 par value, 4,000,000 shares authorized, none
                        outstandingCommon
                        stock - $0.001 par value, 60,000,000 shares authorized, 32,216,424
                        and
                        31,182,597 shares issued and outstanding at January 31, 2006
                        and April 30,
                        2005, respectively
                    
                    
                    32,217
                    
                    
                    31,183Additional
                        paid-in capital
                    
                    
                    20,192,538
                    
                    
                    18,709,155Accumulated
                        other comprehensive income
                    
                    
                    792,031
                    
                    
                    436,571Accumulated
                        deficit
                    
                    
                    (18,262,538
                    )
                    
                    (14,149,690
                    )Total
                        shareholders’ equity
                    
                    
                    2,754,247
                    
                    
                    5,027,219Total
                        liabilities and shareholders’ equity
                    
                    $
                    9,323,347
                    
                    $
                    8,881,487
  The
              accompanying notes are an integral part of these unaudited consolidated
              financial statements
  F-3
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **Unaudited
                          Consolidated Statements of Operations for the Nine
                          Months**
                        **and
                          Three Months Ended January 31, 2006 and 2005**
 **NINE
                        MONTHS ENDED JANUARY 31,**
                    
                    **THREE
                        MONTHS ENDED JANUARY 31,****2006**
                    
                    **2005**
                    
                    **2006**
                    
                    **2005**Sales
                    
                    $
                    6,364,961
                    
                    $
                    6,702,567
                    
                    $
                    2,165,187
                    
                    $
                    1,770,186Cost
                        of sales
                    
                    
                    6,513,955
                    
                    
                    6,053,622
                    
                    
                    1,856,415
                    
                    
                    2,236,668Gross
                        margin
                    
                    
                    (148,994
                    )
                    
                    648,945
                    
                    
                    308,772
                    
                    
                    (466,482
                    )Selling,
                        general and administrative expenses
                    
                    
                    2,464,699
                    
                    
                    2,947,750
                    
                    
                    669,392
                    
                    
                    1,098,414Loss
                        from operations
                    
                    
                    (2,613,693
                    )
                    
                    (2,298,805
                    )
                    
                    ((360,620
                    )
                    
                    (1,564,896
                    )Other
                        (income) expense:Interest
                        expense and costs of financing
                    
                    
                    1,470,795
                    
                    
                    156,905
                    
                    
                    539,250
                    
                    
                    44,230Foreign
                        transaction (gains) losses
                    
                    
                    28,360
                    
                    
                    22,045
                    
                    
                    11,937
                    
                    
                    (14,344
                    )Total
                        other expenses
                    
                    
                    1,499,155
                    
                    
                    178,950
                    
                    
                    551,187
                    
                    
                    29,886Net
                        loss
                    
                    $
                    (4,112,848
                    )
                    $
                    (2,477,755
                    )
                    $
                    (911,807
                    )
                    $
                    (1,594,782
                    )Weighted-average
                        number of common shares outstanding
                    
                    
                    31,220,867
                    
                    
                    29,469,107
                    
                    
                    31,252,458
                    
                    
                    30,849,616Basic
                        and diluted loss per share
                    
                    $
                    (0.13
                    )
                    $
                    (0.08
                    )
                    $
                    (0.03
                    )
                    $
                    (0.05
                    )
  The
                accompanying notes are an integral part of these unaudited consolidated
                financial statements
 F-4
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **Unaudited
                            Consolidated Statement of Changes in Shareholders' Equity
                            for the**
                          **Nine
                            Months Ended January 31, 2006**
 **ACCUMULATED****ADDITIONAL**
                    
                    
                    
                    **OTHER****COMMON
                        STOCK**
                    
                    **PAID
                        IN**
                    
                    **ACCUMULATED**
                    
                    **COMPREHENSIVE**
                    
                    **SHAREHOLDERS'****SHARES**
                    
                    **AMOUNT**
                    
                    **CAPITAL**
                    
                    **DEFICIT**
                    
                    **INCOME**
                    
                    **EQUITY**Balance
                        April 30, 2005
                    
                    
                    31,182,597
                    
                    $
                    31,183
                    
                    $
                    18,709,155
                    
                    $
                    (14,149,690
                    )
                    $
                    436,571
                    
                    $
                    5,027,219Net
                        loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (4,112,848
                    )
                    
                    
                    
                    
                    (4,112,848
                    )Foreign
                        currency translation
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    355,460
                    
                    
                    355,460Comprehensive
                        income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (3,757,388
                    )Stock-based
                        compensation for services
                    
                    
                    39,117
                    
                    
                    39
                    
                    
                    34,960
                    
                    
                    
                    
                    
                    
                    
                    
                    34,999Stock
                        issued in settlement of trade payable
                    
                    
                    85,710
                    
                    
                    86
                    
                    
                    29,914
                    
                    
                    
                    
                    
                    
                    
                    
                    30,000Options
                        issued under the 2004 stock option plan
                    
                    
                    
                    
                    
                    
                    
                    
                    92,067
                    
                    
                    
                    
                    
                    
                    
                    
                    92,067Beneficial
                        conversion feature granted in association with convertible
                        debt
                    
                    
                    
                    
                    
                    
                    
                    
                    878,703
                    
                    
                    
                    
                    
                    
                    
                    
                    878,703Warrants
                        issued in connection with convertible debt
                    
                    
                    
                    
                    
                    
                    
                    
                    32,497
                    
                    
                    
                    
                    
                    
                    
                    
                    32,497Stock
                        purchase warrants exercised
                    
                    
                    909,000
                    
                    
                    909
                    
                    
                    317,241
                    
                    
                    
                    
                    
                    
                    
                    
                    318,150Escrow
                        released from reserve in connection with acquisition of DeBas
                        Chocolates,
                        Inc.
                    
                    
                    
                    
                    
                    
                    
                    
                    98,000
                    
                    
                    
                    
                    
                    
                    
                    
                    98,000Balance
                        January 31, 2006
                    
                    
                    32,216,424
                    
                    $
                    32,217
                    
                    $
                    20,192,538
                    
                    $
                    (18,262,538
                    )
                    $
                    792,031
                    
                    $
                    2,754,247
  The
                accompanying notes are an integral part of these unaudited consolidated
                financial statements
 F-5
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                          **HOUSE
                              OF BRUSSELS CHOCOLATES INC.**
                            **Unaudited
                                Consolidated Condensed Statement of Cash Flows for
                                the Nine Months**
                              **Ended
                                January 31, 2006 and 2005**
 **NINE
                        MONTHS ENDED JANUARY 31,****2006**
                    
                    **2005****CASH
                        FLOWS FROM OPERATING ACTIVITIES**Net
                        loss
                    
                    $
                    (4,112,848
                    )
                    $
                    (2,477,755
                    )Adjustments
                        to reconcile net loss to net cash used in operating activitiesDepreciation
                        and amortization
                    
                    
                    299,269
                    
                    
                    334,514Provision
                        for bad debts
                    
                    
                    148,622
                    
                    
                    112,739Compensatory
                        common stock, stock options and warrants
                    
                    
                    126,119
                    
                    
                    381,746Stock
                        issued in settlement of trade payable
                    
                    
                    29,914
                    
                    
                    235,632(Gain)
                        Loss on disposal of assets
                    
                    
                    (2,580
                    )
                    
                    -Amortization
                        of loan costs and beneficial conversion costs
                    
                    
                    820,287
                    
                    
                    -Issuance
                        of stock warrants associated with convertible debt
                    
                    
                    76,250
                    
                    
                    -Deferred
                        Rent
                    
                    
                    (7,686
                    )
                    
                    -Changes
                        in non-cash working capital itemsAccounts
                        receivable
                    
                    
                    (1,461,562
                    )
                    
                    (779,511
                    )Inventory
                    
                    
                    439,576
                    
                    
                    (612,854
                    )Prepaid
                        expenses and other assets
                    
                    
                    299,718
                    
                    
                    84,729Accounts
                        payable and accrued liabilities
                    
                    
                    1,454,296
                    
                    
                    816,433Net
                        cash used by operating activities
                    
                    
                    (1,890,625
                    )
                    
                    (1,904,327
                    )**CASH
                        FLOWS FROM INVESTING ACTIVITIES**Capital
                        expenditures
                    
                    
                    (610,724
                    )
                    
                    (1,175,309
                    )Purchase
                        of DeBas Chocolate, Inc.
                    
                    
                    -
                    
                    
                    (200,000
                    )Cash
                        flows from investing activities
                    
                    
                    (610,724
                    )
                    
                    (1,375,309
                    )**CASH
                        FLOWS FROM FINANCING ACTIVITIES**Net
                        proceeds from notes payable and long term debt
                    
                    
                    6,155,327
                    
                    
                    36,755Repayments
                        of notes payable and Long term debt
                    
                    
                    (4,837,830
                    )
                    
                    -Proceeds
                        from related party loans
                    
                    
                    301,794
                    
                    
                    -Repayments
                        of related party loans
                    
                    
                    -
                    
                    
                    (9,302
                    )Payments
                        of obligations under capital lease
                    
                    
                    (67,063
                    )
                    
                    (89,961
                    )Proceeds
                        from issuance of common stock and exercise of warrants
                    
                    
                    318,150
                    
                    
                    3,266,603Net
                        cash provided by financing activities
                    
                    
                    1,870,378
                    
                    
                    3,204,095Effect
                        of foreign exchange rate changes on cash
                    
                    
                    (146,929
                    )
                    
                    23,946Increase
                        (decrease) in cash and cash equivalents
                    
                    
                    (777,900
                    )
                    
                    (51,595
                    )Cash
                        and cash equivalents, beginning of the period
                    
                    
                    972,938
                    
                    
                    153,438Cash
                        and cash equivalents, end of the period
                    
                    $
                    195,038
                    
                    $
                    101,843
 The
                accompanying notes are an integral part of these unaudited consolidated
                financial statements
 F-6
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **Notes
                            to the Unaudited Consolidated Financial Statements**
 **1.**
                    **Nature
                        of Operations and Summary of Significant Accounting
                        Policies**
 
  House
              of
              Brussels Chocolates Inc. is a manufacturer of gourmet chocolates and
              offers its
              products through four wholly owned subsidiaries; Brussels Chocolates,
              Ltd.
              (“Brussels Chocolates”), House of Brussels Chocolates (USA), Ltd. (“HOBC USA”),
              DeBas Chocolate Inc. (DeBas), and ChocoMed Inc. (“ChocoMed’). House of Brussels
              Chocolates Inc. and its wholly owned subsidiaries are hereinafter collectively
              referred to as “We” or the “Company”). The Company has manufacturing plants in
              Delta, B.C., Canada, and Fresno, California. For more than 20 years
              our line of
              quality chocolates have been manufactured to very strict standards.
              We
              manufacture chocolate products for “branded” and “private label” resale by major
              retailers. We are currently targeting customers that management believes
              have
              the capacity to make annual purchases of $1 million to $20 million.
              We formed
              ChocoMed in February 2004 to investigate the use of chocolate as a
              carrier for
              dietary supplements, functional foods and pharmaceutical compounds
              to treat
              various medical conditions. We acquired DeBas in July 2004 to increase
              our
              ability to produce and market specialty chocolate products.
 
 Following
              is a summary of our significant accounting policies:
 
 **Basis
              of presentation**
 
 The
              accompanying consolidated financial statements have been prepared by
              the Company
              in accordance with generally accepted accounting principles in the
              United States
              for interim financial information. Certain information and disclosures
              normally
              included in financial statements prepared in accordance with generally
              accepted
              accounting principles have been condensed or omitted. In the opinion
              of the
              Company’s management, the unaudited consolidated financial statements contain
              all adjustments necessary (consisting of normal recurring adjustments)
              for a
              fair presentation of our financial position as of January 31, 2006
              and the
              results of our operations for the three and nine month periods then
              ended. These
              financial statements should be read in conjunction with the audited
              financial
              statements and related notes of the Company included in our Form 10-KSB
              for the
              year ended April 30, 2005 filed with Securities Exchange Commission
              on August 2,
              2005.
 
 **Principles
              of consolidation**
 
 These
              consolidated financial statements include the accounts of House of
              Brussels
              Chocolates Inc. and all its wholly-owned subsidiaries after the elimination
              of
              all inter-company accounts and transactions.
 
 **Use
              of estimates**
 
 The
              preparation of financial statements in conformity with accounting principles
              generally accepted in the United States of America requires us to make
              estimates
              and assumptions that affect the reported amounts of assets and liabilities
              at
              the date of the financial statements and revenues and expenses during
              the
              reporting period. Actual results could differ from those estimates.
 
 **Accounts
              Receivable**
 
 In
              the
              normal course of business, the Company extends credit to customers
              that satisfy
              its credit criteria. Because we sell the majority of our products to
              less than
              10 customers, our receivable risk is highly concentrated. We believe
              the
              customers to whom we sell are credit worthy. An allowance for doubtful
              accounts
              is determined through analysis of the aging of accounts receivable,
              assessments
              of collectibility based on historical trends, and an evaluation of
              the impact of
              current and projected economic conditions. The process by which the
              Company
              performs its analysis is conducted on a customer by customer basis,
              and takes
              into account, among other relevant factors, sales history, outstanding
              receivables, and customer financial strength. The Company monitors
              the
              collectibility of its accounts receivable on an ongoing basis by assessing
              the
              credit worthiness of its customers and evaluating the impact of reasonably
              likely changes in economic conditions that may impact credit risks.
              Estimates
              with regard to the collectibility of accounts receivable are reasonably
              likely
              to change in the future.
 
 **Revenue
              Recognition**
 
 The
              Company records sales when all of the following criteria have been
              met: a valid
              customer order with a fixed price has been received; the product has
              been
              shipped within the required lead time; there is no further significant
              obligation to assist in the resale of the product; and collectibility
              is
              reasonably assured. Net sales include revenue from the sale of finished
              goods,
              net of allowances for trade promotions, consumer coupon programs and
              other sales
              incentives, and allowances and discounts associated with aged or potentially
              unsaleable products. Trade promotions and sales incentives primarily
              include
              reduced price features, merchandising displays, sales growth incentives,
              new
              item allowances and cooperative advertising
  F-7
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **Notes
                            to the Unaudited Consolidated Financial Statements**
 **Nature
              of Operations and Summary of Significant Accounting Policies,
              continued**
 
 **Inventories**
 
 The
              Company’s inventories are stated at the lower of cost or market value and are
              reduced by an allowance for slow-moving, excess, discontinued and shelf-life
              expired inventories. Our estimate for such allowance is based on our
              review of
              inventories on hand compared to estimated future usage and demand for
              our
              products. Such review encompasses not only potentially perishable inventories
              but also specialty packaging, much of it specific to certain private
              labels and
              holiday seasons. If actual future usage and demand for our products
              are less
              favourable than those projected by our review, inventory write-downs
              may be
              required. We closely monitor our inventory, both perishable and non-perishable,
              and related shelf and product lives. At January 31, 2006 and April
              30, 2005 our
              inventories were adjusted to recognize the impact of all write-downs
              and
              obsolescence. As such, we have no reserves against inventories at those
              dates.
 
 **Goodwill**
 
 Goodwill
              consists of the excess of purchase price over the fair market value
              of acquired
              assets and liabilities. Effective March 1, 2002, under SFAS 142 all
              goodwill with indefinite lives is no longer subject to amortization.
              SFAS 142
              requires that an impairment test be conducted annually or in the event
              of an
              impairment indicator. Our test conducted in fiscal 2005 showed no impairment
              of
              our goodwill.
 
 **Foreign
              Currency Translation**
 
 Foreign
              exchange gains and losses, which result from the process of remeasuring
              foreign
              currency transactions into the appropriate functional currency, are
              included in
              other income and expenses, net in the Company’s Consolidated Statements of
              Operations. The translation of foreign currency financial statements
              into U.S.
              Dollars is included in other comprehensive income, which is a separate
              component
              of stockholders’ equity. Net foreign exchange losses, included in other income
              and expenses, were $31,370 and $11,606 for the years ended April 30,
              2005 and
              2004, respectively. Net foreign exchange losses, included in other
              income and
              expenses, for the nine and three month periods ended January 31, 2006
              were
              $28,360 and $11,937, respectively.
 
 Results
              of operations for foreign entities are translated using the average
              exchange
              rates during the period. For foreign entities, assets and liabilities
              are
              translated to U.S. dollars using a combination of the exchange rate
              in effect at
              the balance sheet date and historical rates, depending on the nature
              of the
              underlying assets and liabilities. Resulting translation adjustments
              are
              recorded as a component of other comprehensive loss.
 
 **Stock
              Based Compensation**
 
 During
              the fiscal year ended April 30, 2004, we elected a timely transition
              to “fair
              market value” based accounting for stock options in accordance with “Statement
              of Accounting Standard 148.” As a result, we currently recognize the fair market
              value of all options awarded to officers, elected directors and employees
              as
              compensation expense in the accompanying financial statements.
 
 **Segment
              Reporting**
  We
              monitor our operations on a consolidated basis and we have only one
              operating
              segment, manufacturing of chocolate products.
 
 **2.**
                    **Significant
                        Events**
 
 In
              May
              2004, we executed an agreement with Walgreens for the sale of private
              label
              chocolates using our “Truffelinos” and “Truffelinos Lite” trademarks. As part of
              the agreement, Walgreens guaranteed that it would purchase not less
              than
              $3,000,000 in product annually for a two (2) year period. As of January
              31, 2006
              we’ve completed a total of $2,335,531 in sales to Walgreens under the
              agreement.
              Management believes purchases from Walgreens will not meet the minimum
              agreed
              commitment. In the event the minimum commitment is not reached, Management
              anticipates a settlement or renegotiation of its agreement with Walgreens.
              Large
              customers such as Walgreens, Laura Secord, Nordstrom, Whole Foods and
              Costco now
              represent a significant portion of our sales. We continue to focus
              our marketing
              efforts at large companies with the objective of reducing our selling
              expenses
              as a percentage of revenues. We believe this focus will also concentrate
              our
              manufacturing efforts on a narrower set of high volume product offerings.
              This
              strategy, however, makes us more dependent on a few, large
              customers.
 
 In
              July
              2004, we acquired the operations of DeBas Chocolate Inc. located in
              Fresno,
              California. We undertook the acquisition of DeBas to expand our manufacturing
              capacity, increase revenues, enhance product lines and add a variety
              of highly
              recognizable gourmet trademarks to our family of brands. In the DeBas
              transaction, we acquired all of the outstanding shares of DeBas from
              Guy Debbas,
              its sole shareholder. Of the purchase price tendered, 226,481 shares
              of our
              common stock were held in escrow awaiting distribution to either Mr.
              Debbas or
              cancellation by the Company. On October 7, 2005, Guy Debbas was terminated
              from
              his position as the Company’s Chief Operating Officer. The final distribution of
              shares associated with the purchase of DeBas awaits measurement and
              settlement
              of certain liabilities.
  F-8
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **Notes
                            to the Unaudited Consolidated Financial Statements**
 During
              the period from November 2004 through February 2005, we vacated a 32,000
              square
              foot plant near downtown Vancouver and moved to approximately 80,000
              square feet
              of modern office, manufacturing and inventory warehouse space located
              in an
              industrial community in Delta, British Columbia. Though previous capacity
              was
              adequate to meet historic needs, our prior facilities did not provide
              the
              opportunity to reengineer work flows or allow the most effective layout
              of our
              manufacturing equipment. Our new facilities substantially increase
              our capacity.
              We believe the layout of these facilities supports our continued expansion.
              In
              addition, in the December 1, 2004 we closed our manufacturing facilities
              at 2065
              Oakdale Avenue, San Francisco, California. The shutdown of this operating
              location was undertaken to reduce manufacturing costs and consolidate
              domestic
              west coast operations at our production facilities in Fresno, California.
              The
              inventories and manufacturing assets previously located at the San
              Francisco
              plant were reallocated to support operations at both our Fresno and
              Delta,
              British Columbia locations.
 
 **3.**
                    **Liquidity**
 
 We
              experienced a net loss of $4,855,080 for the fiscal year ended April
              30, 2005
              and we have continued to generate losses during the three and nine
              month periods
              ended January 31, 2006. We are currently taking action to address those
              losses.
              Cash used in operations during the nine month period ended January
              31, 2006 was
              $1,890,625. We have financed our operations using cash generated from
              operations, sales of our common stock, the exercise of share purchase
              warrants,
              vendor credit and debt financing.
 
 Cash
              required for on-going operations has increased significantly. Our need
              for raw
              materials and our investment in inventories remains high. As part of
              our
              strategy, we have sought customers with significant elements of non-seasonal
              purchasing. Though products sales still reflect a strong element of
              holiday
              demand, we expect current year off-peak product revenues to be higher
              than
              historically achieved. As a result, we face significant cash needs
              to support
              our facilities, manufacturing, personnel and administrative needs.
              Further, our
              acquisition of DeBas resulted in the use of cash and the absorption
              of
              additional liabilities.
 
 On
              March
              29, 2005, we executed a convertible debt facility with Laurus Master
              Fund, Ltd.
              granting us access to borrow up to $6,000,000. This financing consists
              of a
              $3,500,000 secured term loan (the “Term Note”) and a $2,500,000 secured
              revolving note (the “Revolving Note”). The Revolving Note is effectuated through
              a $1,000,000 convertible minimum borrowing note and provides for advances
              up to
              90% of eligible accounts receivable (the “Formula Amount”). To the extent we
              repay the amount outstanding under the Revolving Note and/or Laurus
              converts
              amounts due under the Revolving Note into Common Stock, we may re-borrow
              or make
              additional borrowings, provided that the aggregate amount outstanding
              may not
              exceed the Formula Amount. As of January 31, 2006, we had a balance
              outstanding
              of $2,494,567 on the $2,500,000 Laurus Revolving Note. Under the terms
              of an
              overadvance waiver signed February 7, 2006, Laurus agreed to make available
              to
              the Company an amount on the Revolving Note equal to the Formula Amount
              plus
              $500,000 until March 31, 2006. For the period beginning on April 1,
              2006 and
              ending on April 30, 2006, Laurus agreed to make available to the Company
              an
              amount on the Revolving Note equal to the Formula Amount plus $400,000.
              For the
              period beginning on May 1, 2006 and ending on May 31, 2006, Laurus
              agreed to
              make available to the Company an amount on the Revolving Note equal
              to the
              Formula Amount plus $300,000, and for the period beginning on June
              1, 2006 and
              ending on June 30, 2006, Laurus agreed to make available to the Company
              an
              amount on the Revolving Note equal to the Formula Amount plus $200,000.
              Upon
              expiration of that waiver, our borrowing capacity under the Revolving
              Note must
              be fully supported by an eligible receivables base. In the event our
              eligible
              receivables base is insufficient, and the waiver date cannot be extended,
              we may
              be subject to substantial additional interest on the remaining overadvance.
              Further, additional draws under the Revolving Note will be unavailable
              until
              eligible receivable collections and invoicing create an eligible receivables
              base that supports the entire balance outstanding.
 
 In
              an
              amendment to the Term Note (the “Amendment”), Laurus also postponed the
              obligation of the Company to make certain scheduled amortization payments
              in
              accordance with the terms of the Term Note such that the monthly principal
              amount of $109,375 due on the first business day of December 2005,
              January 2006
              and February 2006 shall be deferred and made payable on the maturity
              date of the
              Term Note, March 9, 2008. Further, Laurus granted the Company a right
              to raise
              an additional $500,000 in equity capital at a rate below the Fixed
              Conversion
              Rate set forth in the Laurus Term Note. In consideration of the foregoing,
              the
              Amendment resets the price per share of the Company’s common stock at which
              Laurus may convert the first $500,000 of the Company’s existing indebtedness
              from $0.88 to $0.35 per share. During January 2006, the Company substantially
              completed its raise of approximately $500,000 in equity capital in
              accordance
              with rights granted to it under the terms of the Amendment. In
              that
              connection, we issued 909,000 shares of our common stock to four (4)
              holders of
              registered stock purchase warrants and converted a trade payable in
              the amount
              of $30,000 into 85,714 unregistered shares. The fair market price at
              which these
              instruments were exercised or converted was $0.35 per share. As part
              of this
              capital raise, we also received $100,000 from our Chairman of the Board
              of
              Directors which was used to purchase 222,222 unregistered shares at
              a fair
              market value of $0.45 per share during February 2006.
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **Notes
                            to the Unaudited Consolidated Financial Statements**
 **4.**
                    **Income
                        Taxes**
 
 The
              difference between the income tax benefit in the accompanying statement
              of
              operations and the amount that would result if the U.S. Federal statutory
              rate
              of 34% were applied to pre-tax loss for the three and nine month periods
              ended
              January 31, 2006 and 2005 is due primarily to an increase in the valuation
              allowance offset against deferred tax assets.
  At
              January 31, 2006, for United States federal income tax and alternative
              minimum
              tax reporting purposes, the Company has approximately $12,200,000 of
              unused net
              operating losses available for carryforward to future years. The benefit
              from
              carryforward of such net operating losses will expire in various years
              through
              2025. The benefit from utilization of net operating loss carryforwards
              could be
              subject to limitations if significant future ownership changes occur
              in the
              Company. The Company believes that a significant portion of its unused
              net
              operating loss carryforwards will never be utilized due to expiration
              or
              limitations on use due to ownership changes.
 
 
 **5.**
                    **Stockholders’
                        Equity**
 
 During
              the nine month period ended January 31, 2006, the Company issued 1,033,827
              shares of its common stock. During the same period, 60,000 share purchase
              warrants and 230,000 stock options were issued, 259,716 warrants expired
              and
              909,000 warrants were exercised. Substantially all of the shares were
              issued in
              connection with warrant exercises and the settlement of trade payables.
              Options
              and warrants were granted as compensation for services provided by
              employees, a
              consultant and a member of our Board of Directors. The fair value of
              each
              warrant was estimated on the date of grant using the Black-Scholes
              option-pricing model and the resulting equity value has been amortized
              to
              expense in the accompanying financial statements.
 
 
 **6.**
                    **Related
                        Party Transactions**
 
 **Grant
              Petersen Loan**
 
 On
              June
              28, 2005, Grant Petersen, our Chief Executive Officer, President and
              Director,
              entered into a convertible promissory note with the Company in the
              principal
              amount of $50,000. The note bears interest at the Wall Street Journal
              prime rate
              plus 2%. At the noteholder’s option, amounts due under this note may be
              converted to shares of our common stock at a price of $.90 per share.
              The
              principal amount of the note is due and payable in two equal monthly
              installments of principal and interest, with the first monthly installment
              due
              within thirty days after the date on which (a) the amount of outstanding
              loans
              (as defined in the Security Agreement between the Company and Laurus
              first
              becomes equal to or less than the “Formula Amount” as set forth in the Security
              Agreement and (b) no event of default has occurred and is continuing
              under any
              obligations owed to Laurus. The entire principal and accrued interest
              amount
              related to this indebtedness remains outstanding at January 31,
              2006.
 
 **Richard
              Siemens**
 
 In
              January 2004, Mr. Siemens, one of our directors and a greater than
              10%
              shareholder, forwarded $99,844 to fund the issuance of certain share
              purchase
              warrants. Subsequent to forwarding the funds however, Mr. Siemens elected
              not to
              exercise. On September 15, 2004, Mr. Siemens used the amounts then
              payable to
              him, including interest, to offset the purchase price of 59,716 investment
              units. Each investment unit consisted of one share of our common stock
              at a
              purchase price of $1.75 and one share purchase warrant entitling the
              Mr. Siemens
              to purchase one share of our common stock at a price of $1.85 per share.
              These
              warrants expired without exercise on September 7, 2005.
 
 On
              June
              28, 2005, Mr. Siemens entered into a convertible promissory note with
              the
              Company in the principal amount of $250,000. The note bears interest
              at the Wall
              Street Journal prime rate plus 2%. At the noteholder’s option, amounts due under
              this note may be converted to shares of our common stock at a price
              of $.90 per
              share. The principal amount of the note is due and payable in two equal
              monthly
              installments of principal and interest, with the first monthly installment
              due
              within thirty days after the date on which (a) the amount of outstanding
              loans
              (as defined in the Security Agreement between the Company and Laurus
              first
              becomes equal to or less than the “Formula Amount” as set forth in the Security
              Agreement and (b) no event of default has occurred and is continuing
              under any
              obligations owed to Laurus. The entire principal and accrued interest
              amount
              related to this indebtedness remains outstanding at January 31,
              2006.
 
 **Distacom
              Ventures Advance**
 
 During
              August and September, 2005, Distacom Ventures Inc., a private company
              controlled
              by Mr. Richard Siemens, one of our directors and a greater than 10%
              shareholder
              advanced a total of $73,914 to the Company to facilitate the purchase
              of
              packaging from Asia. $28,475 of the amount advanced was repaid during
              August
              2005. The residual advance of $45,439, which bears a 5% facilitation
              fee,
              remains outstanding at January 31, 2006.
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **Notes
                            to the Unaudited Consolidated Financial Statements**
 **Theodore
              Labella**
 
 On
              July
              30, 2004, Mr. Labella purchased 67,000 shares of our common stock at
              a price of
              $2.00 each under the terms of a private placement made to "accredited
              investors", as that term is defined in Rule 501 of Regulation D of
              the
              Securities Act. The Company received $134,000 in proceeds from this
              sale.
 
 On
              August
              18, 2004 and October 8, 2004 Mr. Labella purchased 85,000 and 110,000
              shares of
              our common stock, respectively, pursuant to the exercise of previously
              issued
              share purchase warrants. The warrants were exercisable at a price of
              $0.65 per
              share, for total proceeds of $126,750. In connection with his second
              warrant
              exercise, we also issued Mr. Labella share purchase warrants for 10,000
              shares
              of our common stock at an exercise price of $3.00 per share until September
              28,
              2006.
 
 During
              February 2005, Mr. Labella advanced a total of $125,375 to the Company
              to assist
              with cash flow. The funds were advanced as a short-term loan. During
              April 2005
              this indebtedness, together with accrued interest was converted into
              147,664
              shares of our restricted common stock at a conversion price of $0.90
              per
              share.
 
 **Directors**
 
 During
              February and March 2004, a total of 1,520,000 share purchase warrants
              were
              issued to four (4) members of our Board of Directors, two of which
              were then
              officers of the Company. All warrants were issued in exchange for services.
              Our
              former Chief Financial Officer, Robert Wesolek, received warrants for
              the
              purchase of 500,000 shares at an exercise price of $1.65 which expire
              February
              23, 2009. Our Former Chief Operating Officer, John Veltheer, received
              warrants
              for the purchase of 500,000 shares of our common stock at an exercise
              price of
              $1.85 which expire March 12, 2009. Our former Director, Harold Kahn,
              received
              warrants for the purchase of 260,000 shares of our common stock at
              an exercise
              price of $1.58 which expire March 31, 2009. The residual warrants relate
              to an
              on-going Consulting Agreement with Dr. William Donovan, our Chairman
              of the
              Board, to provide consulting services regarding the Company's product
              development. This Agreement was for a period of 24 months and terminated
              on
              November 6, 2005. Under the terms of the Agreement, Dr. Donovan received
              a share
              purchase warrant for 260,000 shares of our common stock at a warrant
              exercise
              price of $1.02 per share. Dr. Donovan received 160,000 shares of common
              stock
              upon partial exercise on July 30, 2004 and the remaining balance expired
              on
              November 6, 2004. The fair value of each warrant was estimated on the
              date of
              grant using the Black-Scholes option-pricing model and the resulting
              equity
              value or expense has been included in the accompanying financial
              statements.
 
 On
              July
              30, 2004, we issued 260,000 shares of our common stock to two members
              of our
              Board of Directors pursuant to the exercise of previously issued share
              purchase
              warrants. Dr. William Donovan, our Director and Chairman, received
              160,000 of
              these shares, and Harold Kahn, our former Director, received 100,000
              of these
              shares. The warrants had exercise prices ranging from $1.02 to $1.58.
              We
              received $321,200 in total proceeds from these exercises. In connection
              with
              these transactions, we also issued share purchase warrants for 260,000
              shares of
              common stock to these individuals at an exercise price of $3.00 per
              share. Dr.
              William Donovan, our Director and Chairman, received one of these warrants
              for
              160,000 shares which will expire on August 3, 2006. Mr. Harold Kahn,
              our former
              Director, received one of these warrants for 100,000 shares which will
              expire on
              March 31, 2009.
 
 On
              November 22, 2004, our former Director, Mr. Dale Frey received warrants
              for the
              purchase of 100,000 shares of our common stock at an exercise price
              of $1.30 per
              share until November 22, 2005, and warrants for the purchase of 60,000
              shares of
              our common stock at an exercise price of $1.45 per share until November
              22,
              2007. Mr. Frey was also granted 100,000 stock options under our 2004
              Stock
              Option Plan. These options were exercisable at $1.40 per share until
              November
              22, 2005. The fair value of each warrant or option was estimated on
              the date of
              grant using the Black-Scholes option-pricing model and the resulting
              equity
              value or expense has been included in the accompanying financial statements.
              During November 2005, 200,000 of the warrants and options granted to
              Mr. Frey
              expired, or were forfeited in accordance with their terms.
 
 On
              March
              3, 2005, Dr. Donovan, Mr. Kahn and Mr. Frey were each granted 50,000
              stock
              options under our 2004 Stock Option Plan. These options are exercisable
              at $0.91
              per share until March 3, 2007. The fair value of each option was estimated
              on
              the date of grant using the Black-Scholes option-pricing model and
              the resulting
              equity value or expense has been included in the accompanying financial
              statements. The options granted to our former directors, Mr. Kahn and
              Mr. Frey,
              have been forfeited in accordance with the terms of the stock option
              plan.
 
 On
              May
              17, 2005, Mr. Corbin Miller, a former director of the Company was granted
              an
              option to purchase 50,000 shares of our common stock under the terms
              of our 2004
              Stock option Plan. These options are exercisable at $.91 per share
              until May 17,
              2007. The fair value of each option was estimated on the date of grant
              using the
              Black-Scholes option-pricing model and the resulting equity value or
              expense has
              been included in the accompanying financial statements. The options
              granted to
              Mr. Miller have been forfeited in accordance with the terms of the
              stock option
              plan.
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                      **HOUSE
                          OF BRUSSELS CHOCOLATES INC.**
                        **Notes
                            to the Unaudited Consolidated Financial Statements**
 **7.**
                    **Cash
                        Flow Information**
 
 **Non-Cash
              Investing and Financing Activities**
 
 During
              the nine month periods ended January 31, 2006 and 2005, we acquired
              equipment
              under capital lease of approximately $58,795and $127,013, respectively.
  During
              the nine months ended January 31, 2005, we acquired DeBas Chocolate
              Inc. in a
              transaction that involved cash payments of $200,000, the issuance of
              shares of
              our restricted common stock and the absorption of debt and
              liabilities.
 
 **Supplemental
              Cash Flow Information**
  The
              Company made cash payments for interest of $345,377 for the nine month
              period
              ended January 31, 2006.
 
 The
              Company made cash no payments for income taxes during the nine month
              periods
              ended January 31, 2006 or 200 5.
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                  **HOUSE
                      OF BRUSSELS CHOCOLATES INC.**
                    **FORM
                      10-QSB**
                    **For
                      the Quarter Ended January 31, 2006**
 **ITEM
                  2.**
              **MANAGEMENT'S
                  DISCUSSION AND ANALYSIS****OR
                  PLAN OF OPERATIONS**
  The
        following discussion and analysis of the financial condition and results
        of
        operations of House of Brussels Chocolates Inc. should be read in conjunction
        with the our unaudited consolidated financial statements and related notes
        included elsewhere in this report and our Form 10-KSB for the year ended
        April
        30, 2005 filed with Securities Exchange Commission on August 2,
        2005.
  **FORWARD
        LOOKING STATEMENTS**
 
 The
        information contained in this Form 10-QSB contains certain forward-looking
        statements within the meaning of Section 27A of the Securities Act of 1933,
        as
        amended, Section 21E of the Securities Exchange Act of 1934, as amended,
        and the
        Private Securities Litigation Reform Act of 1995. These forward-looking
        statements involve risks and uncertainties, including among other things,
        statements regarding our capital needs, business strategy and expectations.
        Any
        statement which does not contain an historical fact may be deemed to be a
        forward-looking statement. In some cases, you can identify forward-looking
        statements by terminology such as "may", "will", "should", "expect", "plan",
        "intend", "anticipate", "believe", "estimate", "predict", "potential" or
        "continue", the negative of such terms or other comparable terminology. In
        evaluating forward looking statements, you should consider various factors,
        including the risk factors outlined in our latest Form 10-KSB, and, from
        time to
        time, in other reports we file with the U.S. Securities and Exchange Commission
        (“SEC). These factors may cause our actual results to differ materially from
        any
        forward-looking statement. We disclaim any obligation to publicly update
        these
        statements, or disclose any difference between its actual results and those
        reflected in these statements.
 
 **OVERVIEW**
 
 House
        of
        Brussels Chocolates Inc. owns and operates Brussels Chocolates Ltd. (“Brussels
        Chocolates”), House of Brussels Chocolates (USA), Ltd. (“HOBC USA”), DeBas
        Chocolate Inc. (“DeBas”) and ChocoMed Inc. (“ChocoMed”). House
        of
        Brussels Chocolates Inc. and its wholly owned subsidiaries are hereinafter
        collectively referred to as “We”,
        the “Company” or “House of Brussels”. We are an established manufacturer of
        gourmet chocolate products with plants in Delta, B.C., Canada, and Fresno,
        California. For more than 20 years we’ve offered a full line of quality
        chocolates, made from high-grade ingredients. Our chocolate products have
        a long
        history of customer acceptance and are manufactured to strict standards.
 
 We
        specialize in manufacturing chocolate products for “branded’ and “private label”
resale. We target customers with the capacity to make annual purchases of
        $1
        million to $20 million and believe our expertise in formulating custom chocolate
        offerings and providing turnkey packaging solutions sets us apart. In early
        2002, we primarily marketed our products directly to consumers through 13
        high-end retail outlets. Based on our assessment of market potential and
        costs,
        we redirected our efforts to pursue private label and wholesale distribution
        customers exclusively.
 
 Effective
        March 29, 2005, we entered into a $6,000,000 convertible financing facility
        with
        Laurus Master Fund, Ltd. (“Laurus" and the “Credit Facility”). The Credit
        Facility consists of (i) a $3,500,000 Secured Term Note (the “Term Note”), (ii)
        a Secured Convertible Minimum Borrowing Note (the “Minimum Borrowing Note”) and
        (iii) and a $2,500,000 Secured Revolving Note (the “Revolving Note”) (the
        Secured Note, Minimum Borrowing Note and Revolving Note are collectively
        referred to herein as the “Notes”). The Notes are secured by a security interest
        in substantially all of the assets and intellectual property of the Company
        and
        its subsidiaries. The Term Note matures three (3) years from the date of
        issuance, and is convertible into common stock of the Company, under certain
        conditions, at a price of $0.88 (the “Fixed Conversion Price”). The Term Note
        has an interest rate equal to the Wall Street Journal prime rate plus 2%,
        reducible to as low as zero if the Company’s share price rises in accordance
        with certain benchmarks. Under the terms of the Term Note, the Company began
        making monthly payments of $109,375.00, plus accrued and unpaid interest
        beginning August 1, 2005. Under certain conditions set forth in the term
        Note,
        Laurus will be required to convert into shares of common stock all or a portion
        of their monthly payment. In the event that all or a portion of the monthly
        payment is paid in cash, then the Company must pay Laurus 102% of such
        amount.
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                  **HOUSE
                      OF BRUSSELS CHOCOLATES INC.**
                    **FORM
                      10-QSB**
                    **For
                      the Quarter Ended January 31, 2006**
 In
        connection with this financing, the we have issued Laurus a common stock
        purchase warrants to purchase up to 1,560,000 shares of its common stock
        at a
        price of $1.20 per share (the "Warrants"). The Warrants are exercisable until
        March 29, 2012. Pursuant to the terms of the Credit Facility, the Company
        paid a
        closing payment of 3.6% of the total amount available under the facility
        to
        Laurus which represents a fee of 1.2% per year.
 
 In
        May
        2004, we executed an agreement with Walgreens for the sale of private label
        chocolates using our “Truffelinos” and “Truffelinos Lite” trademarks. As part of
        the agreement, Walgreens guaranteed that it would purchase not less than
        $3,000,000 in product annually for a two (2) year period. As of January 31,
        2006
        we’ve completed a total of $2,355,000 in sales to Walgreens under the agreement.
        Management believes purchases from Walgreens will not meet the minimum agreed
        commitment. In the event the minimum commitment is not reached, Management
        anticipates a settlement or renegotiation of its agreement with Walgreens.
        Large
        customers such as Walgreens, Laura Secord, Nordstrom, Whole Foods and Costco
        now
        represent a significant portion of our sales. We continue to focus our marketing
        efforts at large companies with the objective of reducing our selling expenses
        as a percentage of revenues. We believe this focus will also concentrate
        our
        manufacturing efforts on a narrower set of high volume product offerings.
        This
        strategy, however, makes us more dependent on a few, large
        customers.
 
 In
        July
        2004, we acquired the operations of DeBas Chocolate Inc. located in Fresno,
        California. We undertook the acquisition of DeBas to expand our manufacturing
        capacity, increase revenues, enhance product lines and add a variety of highly
        recognizable gourmet trademarks to our family of brands. In the DeBas
        transaction, we acquired all of the outstanding shares of DeBas from Guy
        Debbas,
        its sole shareholder. Of the purchase price tendered, 226,481 shares of our
        common stock were held in escrow awaiting distribution to either Mr. Debbas
        or
        cancellation by the Company. On October 7, 2005, Guy Debbas was terminated
        from
        his position as the Company’s Chief Operating Officer. The final distribution of
        shares associated with the purchase of DeBas awaits measurement and settlement
        of certain liabilities.
 
 During
        the period from November 2004 through February 2005, we vacated a 32,000
        square
        foot plant near downtown Vancouver and moved to approximately 80,000 square
        feet
        of modern office, manufacturing and inventory warehouse space located in
        an
        industrial community in Delta, British Columbia. Though previous capacity
        was
        adequate to meet historic needs, our prior facilities did not provide the
        opportunity to reengineer work flows or allow the most effective layout of
        our
        manufacturing equipment. Our new facilities substantially increase our capacity.
        We believe the layout of these facilities supports our continued expansion.
        In
        addition, in the December 1, 2004 we closed our manufacturing facilities
        at 2065
        Oakdale Avenue, San Francisco, California. The shutdown of this operating
        location was undertaken to reduce manufacturing costs and consolidate domestic
        west coast operations at our production facilities in Fresno, California.
        The
        inventories and manufacturing assets previously located at the San Francisco
        plant were reallocated to support operations at both our Fresno and Delta,
        British Columbia locations.
  **CRITICAL
        ACCOUNTING POLICIES AND ESTIMATES**
  The
        Company’s discussion and analysis of its financial condition and results of
        operations are based upon the Company’s financial statements, which have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America. The preparation of these financial statements requires
        the Company to make estimates and judgments that affect the reported amounts
        of
        assets, liabilities, revenues and expenses and the related disclosures.
        Estimates and assumptions include, but are not limited to, the carrying value
        of
        accounts receivable from customers, inventories, the useful lives of fixed
        assets, goodwill, and other intangible assets, contingencies and litigation.
        The
        Company bases its estimates on analyses which form the basis for making
        judgments about the carrying values of assets and liabilities that are not
        readily apparent from other sources. Actual results may differ from these
        estimates.
  Although
        not all inclusive, we believe that the following represent the more critical
        estimates and assumptions used in the preparation of our financial
        statements:
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                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended January 31, 2006**
 Accounts
        Receivable **-** In
        the
        normal course of business, the Company extends credit to customers that satisfy
        its credit criteria. Because we sell the majority of our products to less
        than
        10 customers, our receivable risk is highly concentrated. We believe the
        customers to whom we sell are credit worthy. An allowance for doubtful accounts
        is determined through analysis of the aging of accounts receivable, assessments
        of collectibility based on historical trends, and an evaluation of the impact
        of
        current and projected economic conditions. The process by which the Company
        performs its analysis is conducted on a customer by customer basis, and takes
        into account, among other relevant factors, sales history, outstanding
        receivables, and customer financial strength. The Company monitors the
        collectibility of its accounts receivable on an ongoing basis by assessing
        the
        credit worthiness of its customers and evaluating the impact of reasonably
        likely changes in economic conditions that may impact credit risks. Estimates
        with regard to the collectibility of accounts receivable are reasonably likely
        to change in the future.
 
 Revenue
        Recognition - **** The
        Company records sales when all of the following criteria have been met: a
        valid
        customer order with a fixed price has been received; the product has been
        shipped within the required lead time; there is no further significant
        obligation to assist in the resale of the product; and collectibility is
        reasonably assured. Net sales include revenue from the sale of finished goods,
        net of allowances for trade promotions, consumer coupon programs and other
        sales
        incentives, and allowances and discounts associated with aged or potentially
        unsaleable products. Trade promotions and sales incentives primarily include
        reduced price features, merchandising displays, sales growth incentives,
        new
        item allowances and cooperative advertising.
 
 Inventories
        - **** The
        Company’s inventories are stated at the lower of cost or market value and are
        reduced by an allowance for slow-moving, excess, discontinued and shelf-life
        expired inventories. Our estimate for such allowance is based on our review
        of
        inventories on hand compared to estimated future usage and demand for our
        products. Such review encompasses not only potentially perishable inventories
        but also specialty packaging, much of it specific to certain private labels
        and
        holiday seasons. If actual future usage and demand for our products are less
        favourable than those projected by our review, inventory write-downs may
        be
        required. We closely monitor our inventory, both perishable and non-perishable,
        and related shelf and product lives. At January 31, 2006 and April 30, 2005
        our
        inventories were adjusted to recognize the impact of all write-downs and
        obsolescence. As such, we have no reserves against inventories at those
        dates.
 
 Goodwill
        - **** Goodwill
        consists of the excess of purchase price over the fair market value of acquired
        assets and liabilities. Effective March 1, 2002, under SFAS 142 all
        goodwill with indefinite lives is no longer subject to amortization. SFAS
        142
        requires that an impairment test be conducted annually or in the event of
        an
        impairment indicator. Our test conducted in fiscal 2005 showed no impairment
        of
        our goodwill.
  Other
        accounting estimates inherent in the preparation of the Company’s financial
        statements include estimates associated with its evaluation of the
        recoverability of deferred tax assets, as well as those used in the
        determination of liabilities related to litigation and taxation. Various
        assumptions and other factors underlie the determination of these significant
        estimates. The process of determining significant estimates is fact specific
        and
        takes into account factors such as historical experience, current and expected
        economic conditions, and product mix. The Company constantly re-evaluates
        these
        significant factors and makes adjustments where facts and circumstances dictate.
        Historically, actual results have not significantly deviated from those
        determined using the estimates described above.
  The
        Company is involved in litigation with Stephen Whittington and other matters
        incidental to its business, the effect of the disposition of which, if known
        or
        estimable, have been included in the Company’s financial position or results of
        operations. It is possible, however, that future results of operations for
        any
        particular quarterly or annual period could be materially affected by changes
        in
        the Company’s assumptions related to these proceedings.
  3
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                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended January 31, 2006**
 **RESULTS
        OF OPERATIONS**
 
 **Revenues**
 
 Our
        sales
        revenues for the three months ended January 31, 2006 increased 22% and our
        sales
        revenues for the nine months ended January 31, 2006 decreased 5% when compared
        to the same periods during the previous fiscal year. Sales for the fiscal
        quarter ended January 31, 2006 were $2,165,000 and represent an increase
        of
        $395,000 over the revenues of $1,770,000 reported for the fiscal quarter
        ended
        January 31, 2005. Sales for the nine months ended January 31, 2006 were
        $6,365,000 and represent a decrease of $338,000 under the revenues of $6,703,000
        reported for the same period ended January 31, 2005.
 
 Though
        second quarter revenues generally reflect our busiest season, the distribution
        of sales between second and third fiscal quarters depends, in part, upon
        customer mix. During the nine months ended January 31, 2005, we delivered
        nearly
        $1,350,000 in orders to supermarket giant Safeway Inc. No such seasonal order
        was forthcoming from Safeway during the current fiscal year. The lack of
        seasonal revenue from Safeway has been largely offset by an increase in orders
        from existing customers, and the addition of business from new customers
        including Laura Secord. Further, the Company’s efforts at targeting non-seasonal
        business have begun to ripen. As a result, current third fiscal quarter revenues
        are significantly higher than revenues generated during the same period during
        the prior year. Likewise, management believes revenues for its fourth fiscal
        quarter ending April 30, 2006 will exceed those generated during the fourth
        fiscal quarter of the previous year.
 
 **Cost
        of Sales**
 
 Cost
        of
        sales for the three and nine months ended January 31, 2006 were $1,856,000
        and
        $6,514,000, respectively. Cost of sales for the current fiscal quarter decreased
        $380,000 or 17% under the cost of sales of $2,237,000 reported for the three
        months ended January 31, 2005. Cost of sales for the first nine months of
        our
        current fiscal year increased $460,000 or 7% over the cost of sales of
        $6,054,000 reported for the comparable nine month period in the previous
        fiscal
        year. For the three months ended January 31, 2006 revenues exceeded costs
        of
        goods sold by $309,000. For the nine months ended January 31, 2006 our costs
        of
        goods sold exceeded revenues by $149,000.
 
 For
        the
        three months ended January 31, 2006 we generated a positive gross margin
        of 14%.
        For the same period during the previous year our margin was a negative 26%.
        In
        total, our gross margin improved 40% between the periods, comparatively.
        In
        largest part, this improvement in performance resulted from a refocusing
        of our
        manufacturing efforts on more profitable product lines, together with the
        impact
        of non-recurring charges recognized during the third fiscal quarter of the
        prior
        year. During fiscal year 2005, our third quarter gross margin loss reflected
        the
        impact of costs incurred in the shutdown of our San Francisco manufacturing
        facilities and the relocation of our Vancouver operating plant. No such
        relocation occurred during fiscal year 2006
 
 For
        the
        nine months ended January 31, 2006, we generated a negative gross margin
        of 2%.
        For the same period during the previous year our margin was a positive 10%.
        In
        total, our gross margins weakened 12% between the periods, comparatively.
        Our
        performance during the current fiscal quarter helped improve our margins
        substantially. In largest part, however, our gross margin for the nine months
        ended January 31, 2006 were negatively impacted by the write-off of wasted
        raw
        materials, seconds and packaging supplies associated with the initial production
        of certain new product offerings. Further, for a limited period, customer
        pricing commitments on those products did not allow us to recapture the costs
        we
        incurred in their production. During September and October 2005, management
        re-priced or discontinued sales and production of these questionably priced
        items. In this connection, the Company terminated the employment of is chief
        operating officer effective October 7, 2005. In addition, during the fiscal
        quarter ended July 31, 2005, we successfully installed and established
        production facilities related to our drinking chocolate line and incurred
        non-productive labor associated with the expansion of crews required to support
        busy season demand. Included within those costs were 1) time and expense
        incurred in the training of personnel associated with the development and
        roll-out of our new nutritional and energy bar products and 2) non-productive
        labor and excess idle-time associated with equipment set-up, downtime and
        initial runs of new product formulations and packaging.
  4
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                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended January 31, 2006**
 **Selling,
        general and administrative expenses**
 
 Selling
        expenses for the three and nine month periods ended January 31, 2006 were
        $280,000 and $1,037,000 respectively. Selling expenses for the current fiscal
        quarter decreased $161,000 or 36% under the selling expenses of $441,000
        reported for the three month period ended January 31, 2005. Selling expenses
        for
        the first nine months of our current fiscal year decreased $208,000 or 17%
        under
        the selling expenses of $1,245,000 reported for the comparable nine month
        period
        in the previous fiscal year. In largest part, the decreases in selling expenses
        for both the three and nine month periods can be attributed to decreases
        in
        amounts incurred for promotional trade shows, travel & entertainment, sales
        salaries, commissions and brokerage costs associated with our revenues.
 
 General
        and administrative expenses for the three and nine month periods ended January
        31, 2006 were $389,000 and $1,428,000, respectively. General and administrative
        expenses for the current fiscal quarter decreased $268,000 or 41% under the
        general and administrative expenses of $657,000 reported for the three month
        period ended January 31, 2005. General and administrative expenses for the
        first
        nine months of our current fiscal year decreased $275,000 or 16% under the
        general and administrative expenses of $1,703,000 reported for the comparable
        nine month period in the previous fiscal year. During the three and nine
        month
        periods ended January 31, 2006, the amounts we expended on office expense,
        directors fees, salaries, benefits and consulting fees decreased substantially
        while the amounts we incurred for professional fees and depreciation of
        non-manufacturing assets increased. Most significantly, during the nine months
        ended January 31, 2006 and 2005, we invested $666,000 or 47% and $1,000,000
        or
        59% respectively, of our general and administrative expense on salaries,
        benefits, consulting, and directors’ fees.
 
 The
        Company is currently focused on ways in which it can significantly reduce
        the
        amounts it incurs in selling, general and administrative expenses.
 
 **Interest
        Expense and Costs of Financing**
 
 During
        the three and nine months ended January 31, 2006 we incurred $539,000 and
        $1,471,000 in interest expense and costs of financing, respectively. The
        greatest part of the indebtedness giving rise to these expenses did not exist
        during the nine month period ended January 31, 2005. Accordingly, $1,314,000
        or
        89% of the interest and financing costs we’ve incurred during the nine months
        ended January 31, 2006 represents an increase over the same period last year.
        Of
        the amount incurred, $76,000 relates to the recognition of beneficial conversion
        features granted in connection with convertible debt undertaken with related
        parties. Significantly all of the remaining expense relates to amounts incurred
        in connection with our indebtedness with Laurus which was undertaken during
        March 2005. Of that amount, approximately, $345,000 represents interest paid
        in
        cash and $1,050,000 relates to the non-cash amortization of loan costs and
        discounts.
 
 **Net
        Loss**
 
 Our
        net
        losses for the three and nine months ended January 31, 2005 were $912,000
        and
        $4,113,000, respectively. These losses reflect the impact of negative gross
        margins generated during the first and second quarters of this fiscal year,
        which have been offset, in part, by the positive gross margin generated during
        the present fiscal quarter, and selling, general & administrative expenses
        resulting from our ongoing investment to support our expansion. Also included
        in
        this loss is approximately $1,126,000 in non-cash cost related to the
        recognition of the value of beneficial conversion features and the amortization
        of discounts associated with our indebtedness.
 
 **FINANCIAL
        CONDITION**
 
 At
        January 31, 2006, our total assets equal $9,323,000 which is an increase
        over
        our assets at April 30, 2005 of $482,000 or 5%. Contributing to that increase
        was a growth in our accounts receivable of $1,462,000 or 224%. During the
        same
        period however, our cash decreased by $778,000 or 80% and our accounts payable
        and accrued liabilities increased by $1,454,000 or 65%. Increases in receivables
        relate to billings associated with our customer demand. Increases in
        accounts payable relate to purchasing to support busy season production,
        and an
        increased aging in of our trade accounts. A substantial portion of our trade
        payables have aged beyond agreed terms. Certain other accrued liabilities
        have
        not been paid when due. In the event we are unable to increase our gross
        margins, reduce our costs and/or generate sufficient additional revenues
        to
        offset our increased costs, which include significantly increased non-cash
        finance related expense, we will continue to sustain losses which would have
        a
        negative impact on our financial condition.
  5
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                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended January 31, 2006**
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 We
        generated a net loss of $4,855,000 for the fiscal year ended April 30, 2005
        and
        during the nine month period ended January 31, 2006 we incurred an additional
        loss of $4,113,000. We are currently taking action to address those losses.
        Our
        current Fiscal Year operations have been financed using cash generated from
        operations, sales of our common stock, the exercise of share purchase warrants,
        vendor credit and debt financing. In total, for the nine months ended January
        31, 2006, our investing activities consumed $611,000, and our operations
        consumed $1,891,000 in excess of amounts generated by product sales. This
        shortfall has been offset by $1,870,000 obtained by our financing activities
        and
        a use of cash resources of $778,000. The net amount of our financing activity
        includes net draws on the Laurus Credit Facility of $1,317,000. We also obtained
        $300,000 in short-term loans from our Chief Executive Officer and a greater
        than
        ten percent shareholder.
 
 Cash
        required for on-going operations has increased significantly. Our need for
        raw
        materials and our investment in inventories remains high. As part of our
        strategy, we have sought customers with significant elements of non-seasonal
        purchasing. In that connection, we have successfully completed the first
        stage
        of the roll-out of our nutritional and energy bar lines. These lines include
        our
        in-house “24/7” brand of nutritional bars which have begun regular distribution
        though Costco. Though products sales still reflect a strong element of holiday
        demand, we expect current year off-peak product revenues to be higher than
        historically achieved. Seasonal patterns continue to cause our quarterly
        operating results and working capital requirements to fluctuate. They also
        make
        it much more difficult for us to operate profitably during the first and
        last
        quarters of the fiscal year. As a result, we face significant cash needs
        to
        support our facilities, manufacturing, personnel and administrative needs.
        Further, our acquisition of DeBas resulted in the use of cash and the absorption
        of additional liabilities.
 
 To
        the
        extent we repay the amount outstanding under our Revolving Note with Laurus,
        or
        Laurus converts amounts due under the Revolving Note into common stock, we
        may
        re-borrow or make additional borrowings, provided that the aggregate amount
        outstanding does not exceed the Formula Amount, which is generally equal
        to 90%
        of eligible accounts receivable. As of January 31, 2006, we had a balance
        outstanding of $2,495,000 on the $2,500,000 Revolving Note which includes
        an
        overadvance of $500,000. Under the terms of an overadvance waiver signed
        February 7, 2006, Laurus agreed to make available to the Company an amount
        on
        the Revolving Note equal to the Formula Amount plus $500,000 until March
        31,
        2006. For the period beginning on April 1, 2006 and ending on April 30, 2006,
        Laurus agreed to make available to the Company an amount on the Revolving
        Note
        equal to the Formula Amount plus $400,000. For the period beginning on May
        1,
        2006 and ending on May 31, 2006, Laurus agreed to make available to the Company
        an amount on the Revolving Note equal to the Formula Amount plus $300,000,
        and
        for the period beginning on June 1, 2006 and ending on June 30, 2006, Laurus
        agreed to make available to the Company an amount on the Revolving Note equal
        to
        the Formula Amount plus $200,000. Upon expiration of that waiver, our borrowing
        capacity under the Revolving Note must be fully supported by an eligible
        receivables base. In the event our eligible receivables base is insufficient,
        and the waiver date cannot be extended, we may be subject to substantial
        additional interest on the remaining overadvance. Further, additional draws
        under the Revolving Note will be unavailable until eligible receivable
        collections and invoicing create an eligible receivables base that supports
        the
        entire balance outstanding.
 
 Both
        the
        $3,500,000 Term Note and the $2,500,000 Revolving Note provide for conversion,
        at the option of Laurus, of the amounts outstanding into the Company's common
        stock at the Fixed Conversion Price of $0.88 per share. In the event that
        we
        issue common stock or derivatives convertible into our common stock for a
        price
        less than $0.88 per share, then the price at which Laurus may convert its
        shares
        is reset to that lower price. The conversion prices under the Notes are subject
        to equitable adjustment for stock splits, stock dividends and similar events.
        Laurus is obligated to convert scheduled principal and interest payments
        under
        the Term Note when (i) a registration statement has become effective with
        respect to the shares of common stock underlying the indebtedness, (ii) the
        five
        (5) day average market price of our common stock is 110% of the Fixed Conversion
        Price, and (iii) certain trading volume criteria have been met. Using the
        Black-Scholes option pricing model, we determined the fair value of the
        conversion feature related to the Notes to be $2,996,000. The assumptions
        used
        in the fair value calculation for the warrants were as follows: stock price
        of
        $0.93, exercise price of $0.88, weighted average term of three (3) years,
        volatility (annual) of 65%, annual rate of quarterly dividends of 0%, a risk
        free rate of 3.5%. Accordingly, the fair value per share of the warrants
        was
        calculated to be $0.44 per share. As a result of the beneficial conversion
        feature, a discount on debt issued of $4,023,000 was recorded and is being
        amortized to interest expense over the three year life of the debt
        agreement.
  6
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                  **HOUSE
                      OF BRUSSELS CHOCOLATES INC.**
                    **FORM
                      10-QSB**
                    **For
                      the Quarter Ended January 31, 2006**
 The
        Notes
        bear annual interest at the prime rate (as reported in the Wall Street Journal)
        plus 2% subject to a floor of six percent, and mature in three years. The
        interest rate on the Notes will be decreased by 2.0% for every 25% increase
        in
        the market value of our common stock above the Fixed Conversion Price up
        to a
        minimum of 0.0%. Monthly interest payments on the Notes began April 1, 2005.
        Monthly amortizing payments of principal on the Term Note, equal to $109,375,
        are payable on the first day of each month commencing August 1, 2005. The
        final
        principal amortization payment on the Term Note is due March 1, 2008. Under
        the
        Term Note if monthly payments of interest and principal are made in cash
        rather
        than converted to shares of our common stock, we will pay Laurus 102% of
        the
        then monthly amount due. Prepayments under the Term Note are subject to a
        premium in the amount of 20% of the principal being prepaid. The Revolving
        Note
        terminates, and borrowings there under become due March 29, 2008. During
        August
        2006, we filed an effective registration statement covering the common stock
        underlying the conversion feature of the Notes and the Warrants issued in
        connection with the Notes.
 
 In
        an
        amendment to the Term Note (the “Amendment”), Laurus postponed the obligation of
        the Company to make certain scheduled amortization payments in accordance
        with
        the terms of the Term Note such that the monthly principal amount of $109,375
        due on the first business day of December 2005, January 2006 and February
        2006
        shall be deferred and made payable on the maturity date of the Term Note,
        March
        9, 2008. Further, Laurus granted the Company a right to raise an additional
        $500,000 in equity capital at a rate below the Fixed Conversion Rate set
        forth
        in the Laurus Term Note. In consideration of the foregoing, the Amendment
        resets
        the price per share of the Company’s common stock at which Laurus may convert
        the first $500,000 of the Company’s existing Term Note indebtedness from $0.88
        to $0.35 per share. During January 2006, the Company substantially completed
        its
        raise of approximately $500,000 in equity capital in accordance with rights
        granted to it under the terms of the Amendment. In that connection, we issued
        909,000 shares of our common stock to four (4) holders of registered stock
        purchase warrants and converted a trade payable in the amount of $30,000
        into
        85,714 unregistered shares. The fair market price at which these instruments
        were exercised or converted was $0.35 per share. As part of this capital
        raise,
        we also received $100,000 from our Chairman of the Board of Directors which
        was
        used to purchase 222,222 unregistered shares at a fair market value of $0.45
        per
        share during February 2006.
  On
        June
        28, 2005, we entered into two convertible promissory notes totaling $300,000
        with our chief executive officer and a greater than 10% shareholder. The
        proceeds of the notes provided extra working capital for use during the onset
        of
        our busy season.
  Our
        need
        for raw materials and our investment in inventories, manpower and equipment
        has
        become sharply higher. We expect those needs to continue over the near term.
        During the three month period ended January 31, 2006, we have refocused our
        manufacturing efforts and our gross margins have improved significantly.
        Regardless, without an increase in revenues, a growth and continuation of
        positive gross margins and reductions in costs, we will not generate operating
        profit. In addition, the Company expects its efforts at cost reduction will
        successfully reduce its overhead. If, however, we are unable to generate
        operating profits we will require additional financing to pay costs associated
        with our core business. In that instance, the Company will seek equity
        investment or financing from its existing relationships.
 
 **Off-Balance
        Sheet Arrangements**
 
 We
        had no
        off-balance sheet arrangements during the fiscal quarter ended January 31,
        2006.
  7
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                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended January 31, 2006**
 **ITEM
                  3.**
              **CONTROLS
                  AND PROCEDURES**
  As
        required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange
        Act”), we carried out an evaluation of the effectiveness of the design and
        operation of our disclosure controls and procedures as of January 31, 2006,
        that
        being the date of our most recently completed fiscal quarter. This evaluation
        was carried out under the supervision and with the participation of our Chief
        Executive Officer, Grant Petersen and Principal Financial Officer, Luigi
        DiCicco. Based upon that evaluation, these executives concluded that our
        disclosure controls and procedures are effective in timely alerting management
        to material information relating to us required to be included in our periodic
        SEC filings. There have been no significant changes in our internal controls
        or
        in other factors that could significantly affect internal controls subsequent
        to
        the date we carried out our evaluation.
 
 Disclosure
        controls and procedures are controls and other procedures that are designed
        to
        ensure that information required to be disclosed our reports filed or submitted
        under the Exchange Act is recorded, processed, summarized and reported, within
        the time periods specified in the SEC’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 reports filed under
        the
        Exchange Act is accumulated and communicated to management, including our
        Chief
        Executive Officer and Principal Financial Officer, to allow timely decisions
        regarding required disclosure.
 
 During
        our most recently completed fiscal quarter ended January
        31, 2006 ,
        there
        were no changes in our internal control over financial reporting that have
        materially affected, or are reasonably likely to affect, our internal control
        over financial reporting.
 
 The
        term
“internal control over financial reporting” is defined as a process designed by,
        or under the supervision of, the registrant's principal executive and principal
        financial officers, or persons performing similar functions, and effected
        by the
        registrant's board of directors, management and other personnel, to provide
        reasonable assurance regarding the reliability of financial reporting and
        the
        preparation of financial statements for external purposes in accordance with
        generally accepted accounting principles and includes those policies and
        procedures that:
 
 1.
              Pertain
                  to the maintenance of records that in reasonable detail accurately
                  and
                  fairly reflect the transactions and dispositions of the assets
                  of the
                  registrant;
 
 2.
              Provide
                  reasonable assurance that transactions are recorded as necessary
                  to permit
                  preparation of financial statements in accordance with generally
                  accepted
                  accounting principles, and that receipts and expenditures of the
                  registrant are being made only in accordance with authorizations
                  of
                  management and directors of the registrant;and
 
 3.
              Provide
                  reasonable assurance regarding prevention or timely detection of
                  unauthorized acquisition, use or disposition of the registrant's
                  assets
                  that could have a material effect on the financial
                  statements.
 
  **PART
        II--OTHER INFORMATION**
   **ITEM
                1.**
              **LEGAL
                  PROCEEDINGS**
  We
        are
        involved in a matter pending in District Court, Clark County, Nevada, entitled
        Whittington v. House of Brussels Chocolates, Inc., Case No. A482600 ("the
        Matter").
 8
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                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended January 31, 2006**
  Mr.
            Whittington is a former officer and director of the Company. He claims
            to have
            had an agreement with the Company entitling him to purchase 1.2 million
            shares
            of stock (post 1 for 5 reverse split) for $0.05 per share and warrant
            rights to
            purchase another $1.2 million shares (post 1 for 5 split) at $0.30 per
            share.
            Whittington filed suit in District Court, Clark County, Nevada on March
            22,
            2004, seeking to enforce this alleged agreement. On April 6, 2004, Whittington
            took the further step of filing an application for temporary restraining
            order
            and preliminary injunction, asking the court to compel the Company to
            immediately issue him 1.2 million shares of stock and to give him adequate
            time
            to exercise his alleged warrant rights to purchase an additional 1.2
            million
            shares of stock. The Company answered Whittington's complaint, denying
            the
            existence of the alleged agreement and denying that he is entitled to
            any shares
            or warrants. In addition, the Company opposed Whittington's application
            for a
            temporary restraining order and preliminary injunction. A hearing on
            Whittington's application for temporary restraining order and preliminary
            injunction was held on April 27, 2004. At the conclusion of the hearing,
            the
            court denied all of the relief requested by Mr. Whittington in his preliminary
            application. On May 6, 2004, Mr. Whittington filed a motion to amend
            his
            complaint.  The motion was granted and the First Amended Complaint
            was filed on September 9, 2004.  The First Amended
            Complaint asserts the following causes of action against the Company: (1)
            alter ego/piercing the corporate veil; (2) accounting; (3) injunctive
            relief;
            (4) breach of contract; (5) application for receivership; (6) unjust
            enrichment;
            (7) conversion; (8) tortious and contractual breach of the covenant of
            good
            faith and fair dealing; (9) breach of fiduciary duties; (10) fraud/negligent
            misrepresentation; and (11) punitive damages.  The Company has filed
            an Answer to the First Amended Complaint denying and contesting
            all claims, causes of action, and relief sought.  The Answer
            includes a counterclaim against Mr. Whittington for abuse of process.
 The
        bench
        trial in the Matter of Whittington v. House of Brussels (the “Trial”) began
        March 6, 2006. At the date of this filing, the Trial is underway and no
        determination as to its results can be made.
  On
        March
        6, 2006, we accepted service with respect to a matter presented to the Supreme
        Court of British Columbia, Canada, entitled Schokinag Chocolate North America
        Inc. (“Schokinag”) v. House of Brussels Chocolates Inc. Vancouver Registry No.
        S-061506 .
  Schokinag
        is a wholesale chocolate manufacturer and a supplier of chocolate to the
        Company. Schokinag claims the Company is indebted to it in the amount of
        approximately $550,000 for chocolate provided to the Company in connection
        with
        certain supply agreements. Further, Schokinag claims that payments under
        these
        supply agreements are past due and in breach of their terms. In addition,
        Schokinag claims the Company is in breach of a manufacturing, co-packing,
        marketing and distribution agreement involving drinking chocolate (the “Drinking
        Chocolate Agreement”). With respect to the Drinking Chocolate Agreement,
        Schokinag asserts that the Company 1) failed to protect certain confidential
        and
        proprietary recipes, registered trademarks and names; 2) refused to account
        for
        its sales of drinking chocolate and pay its share of revenues to Schokinag
        ; and
        3) continued to manufacture, market and sell product although in breach of
        the
        Drinking Chocolate Agreement. Lastly, Schokinag claims that the Company
        contravened and was negligent in the preparation of a certain blended drinking
        chocolate which resulted in the shipment of product which was not acceptable
        and
        for which Schokinag should be reimbursed. As remedy to the foregoing, Schokinag
        seeks monetary damages including payment of amounts due plus interest and
        unspecified damages for loss of reputation and profits. Schokinag further
        seeks
        injunctive relief restraining the Company from producing, marketing and
        advertising products covered by the Drinking Chocolate Agreement.
 
 The
        Company’s has made an initial appearance in this matter and intends to defend
        itself against these claims. In addition , the Company asserts that Schokinag
        was the first party to breach the Drinking Chocolate Agreement and in that
        connection, intends to pursue counterclaims against Schokinag.
  **ITEM
                  2.**
              **UNREGISTERED
                  SALES OF EQUITY SECURITIES******
  During
        our quarter ended January 31, 2006, we completed the following transaction
        in
        reliance upon exemptions from registration under the Securities Act of 1933,
        as
        amended (the "Act") as provided in Section 4(2) thereof. The certificate
        issued
        in connection with this transaction was endorsed with a restrictive legend
        confirming that the securities could not be resold without registration under
        the Act or an applicable exemption from the registration requirements of
        the
        Act. This transaction did not involve a public offering, underwriting discounts
        or sales commissions. We believe that each person involved was knowledgeable
        about our operations and financial condition.
  1.
              On
                  January 1, 2006, we converted $30,000 in a trade payable to 85,714
                  shares
                  of our common stock. This trade debt was payable to Machine Marketing,
                  a
                  vendor owned by our newly appointed Vice-President of Sales &
                  Marketing David Townsend, and was incurred by the Company prior
                  to Mr.
                  Townsend’s employment. The shares were converted at a fair market value
                  of
                  $0.35 per share. No gain or loss was recorded on this conversion.
  9
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                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended January 31, 2006**
 **ITEM
                  6.**
              **EXHIBITS**
  Exhibit
                      Number
                  Description
                      of Exhibit10.1
                  Amendment
                      to certain secured convertible notes by and among House of
                      Brussels
                      Chocolates Inc. and Laurus Master Fund, Ltd.(1)10.2
                  Overadvance
                      Letter by and among House of Brussels Chocolates Inc. and Laurus
                      Master
                      Fund, Ltd.(1)31.1
                  Certification
                      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                      as adopted
                      pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
                  Certification
                      of Principal Financial Officer pursuant to 18 U.S.C. Section
                      1350, as
                      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                      200232.1
                  Certification
                      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                      as adopted
                      pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
                  Certification
                      of Principal Financial Officer pursuant to 18 U.S.C. Section
                      1350, as
                      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                      2002
 (1)
        Previously filed with the Securities and Exchange Commission as an exhibit
        to
        the Registrant’s Form 8-K filed on February 8, 2005.
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                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended January 31, 2006**
 **SIGNATURES**
  
 In
        accordance with the requirements of the Securities and Exchange Act of 1934,
        the
        Registrant has duly caused this report to be signed on its behalf by the
        undersigned, thereunto duly authorized.
 
 **HOUSE
        OF BRUSSELS CHOCOLATES INC.**
 
 Date:
              **March
                  17, 2006**By:
              s/s
                  Grant Petersen**Grant
                  Petersen****Chief
                  Executive Officer, President and Director**
  11