**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 **October**  **31,
        2005**
 
 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: **31,221,714
        Shares of $0.001 par value Common Stock outstanding as of December 7,
        2005.**
 
 
 Transitional
        Small Business Disclosure Format (check one): Yes o  **No** x
  
  **HOUSE
        OF BRUSSELS CHOCOLATES INC.**
 
 **FORM
        10-QSB**
 **For
        The Quarter Ended October 31, 2005**
 
 **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
                  6.
              EXHIBITSSIGNATURES
 
 Corporate Logo
                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended October 31, 2005**
 **PART
        I - FINANCIAL INFORMATION**
 
 **ITEM
                  1.**
              **FINANCIAL
                  STATEMENTS**
   Consolidated
        Balance Sheets as of October 31, 2005 (unaudited) and April 30,
        2005
 
 Unaudited
        Consolidated Statements of Operations for the Three and Six Months Ended
        October
        31, 2005 and 2004
 
 Unaudited
        Consolidated Statement of Changes in Shareholders’ Equity for the Six Months
        Ended October 31, 2005
 
 Unaudited
        Consolidated Statements of Cash Flows for the Six Months Ended October 31,
        2005
        and 2004
 
 Notes
        to
        the Consolidated Financial Statements
 
  **HOUSE
          OF BRUSSELS CHOCOLATES INC.**
 
 
 
 
 **UNAUDITED
          CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF OCTOBER 31, 2005 AND 2004**
 **AND
          FOR THE THREE MONTH AND SIX MONTH PERIODS THEN ENDED**
 F-1
 Corporate Logo
                    **HOUSE
                        OF BRUSSELS CHOCOLATES INC.**
                      **Table
                        of Contents**
 Consolidated
                    Balance Sheets as of October 31, 2005 (unaudited) and April 30,
                    2005
                F-3Unaudited
                    Consolidated Statements of Operations for the Three and Six Month
                    Periods
                    Ended October 31, 2005 and 2004
                F-4Unaudited
                    Consolidated Statement of Changes in Shareholders’ Equity for the Six
                    Month Period from April, 30, 2005 to October 31, 2005
                F-5Unaudited
                    Consolidated Statements of Cash Flows for the Six Month Periods
                    Ended
                    October 31, 2005 and 2004
                F-6Notes
                    to the Consolidated Financial Statements
                F-7
  F-2
 Corporate Logo
                    **HOUSE
                        OF BRUSSELS CHOCOLATES INC.**
                      **Consolidated
                        Condensed Balance Sheets as of October 31, 2005 (unaudited)
                        and April 30,
                        2005**
 **OCTOBER
                    31, 2005**
                
                **APRIL
                    30, 2005**(unaudited)**ASSETS**Current
                    assetsCash
                
                $
                32,038
                
                
                972,938Accounts
                    receivable, net
                
                
                2,122,741
                
                
                653,555Inventory
                
                
                2,298,233
                
                
                2,092,325Prepaid
                    expenses and other
                
                
                133,466
                
                
                366,762Total
                    current assets
                
                
                4,586,478
                
                
                4,085,580Property,
                    plant and equipment, net
                
                
                3,780,252
                
                
                3,391,294Goodwill
                
                
                1,141,790
                
                
                1
                    ,043,790Other
                    assets
                
                
                301,269
                
                
                360,823Total
                    assets
                
                $
                9,809,789
                
                $
                8,881,487**LIABILITIES
                    AND SHAREHOLDERS' EQUITY**Current
                    liabilitiesAccounts
                    payable
                
                $
                2,925,004
                
                $
                1,499,635Accrued
                    liabilities
                
                
                930,043
                
                
                743,545Current
                    maturities of long term debt
                
                
                1,312,500
                
                
                984,375Current
                    portion of capital lease obligations
                
                
                35,169
                
                
                35,169Due
                    to related parties
                
                
                490,366
                
                
                185,447Total
                    current liabilities
                
                
                5,693,082
                
                
                3,448,171Deferred
                    lease payments
                
                
                141,776
                
                
                144,944Capital
                    lease obligations
                
                
                120,428
                
                
                67,422Long-term
                    debt
                
                
                866,793
                
                
                193,731Total
                    liabilities
                
                
                6,822,079
                
                
                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, 31,221,714
                    and
                    31,182,597 shares issued and outstanding at October 31, 2005
                    and April 30,
                    2005, respectively
                
                
                31,222
                
                
                31,183Additional
                    paid-in capital
                
                
                19,775,715
                
                
                18,709,155Accumulated
                    other comprehensive income
                
                
                667,423
                
                
                436,571Accumulated
                    deficit
                
                
                (17,486,650
                )
                
                (14,149,690
                )Total
                    shareholders’ equity
                
                
                2,987,710
                
                
                5,027,219Total
                    liabilities and shareholders’ equity
                
                $
                9,809,789
                
                $
                8,881,487
  The
            accompanying notes are an integral part of these unaudited consolidated
            financial statements
  F-3
 Corporate Logo
                    **HOUSE
                        OF BRUSSELS CHOCOLATES INC.**
                      **Unaudited
                          Consolidated Statements of Operations for the Three months****and
                          Six Months Ended October 31, 2005 and
                          2004**
 **THREE
                    MONTHS ENDED OCTOBER 31,**
                
                **SIX
                    MONTHS ENDED OCTOBER 31,****2005**
                
                **2004**
                
                **2005**
                
                **2004**Sales
                
                $
                3,149,537
                
                $
                4,171,563
                
                $
                4,140,199
                
                $
                4,917,210Cost
                    of sales
                
                
                3,245,806
                
                
                3,228,806
                
                
                4,592,782
                
                
                3,861,025Gross
                    margin
                
                
                (96,269
                )
                
                942,757
                
                
                (452,583
                )
                
                1,056,185Selling,
                    general and administrative expenses
                
                
                999,760
                
                
                1,114,173
                
                
                1,778,488
                
                
                1,851,598Loss
                    from operations
                
                
                (1,096,029
                )
                
                (171,416
                )
                
                (2,,231,071
                )
                
                (795,413
                )Other
                    expenses:Interest
                    expense and costs of financing
                
                
                625,913
                
                
                98,984
                
                
                1,088,105
                
                
                100,880Foreign
                    transaction losses
                
                
                9,418
                
                
                26,687
                
                
                17,784
                
                
                34,636Total
                    other expenses
                
                
                635,331
                
                
                125,671
                
                
                1,105,889
                
                
                135,516Net
                    loss
                
                $
                (1,731,360
                )
                $
                (297,087
                )
                $
                (3,336,960
                )
                $
                (930,929
                )Weighted-average
                    number of common shares outstanding
                
                
                31,221,073
                
                
                30,454,728
                
                
                31,202,355
                
                
                29,048,853Basic
                    and diluted loss per share
                
                $
                (0.06
                )
                $
                (0.01
                )
                $
                (0.11
                )
                $
                (0.03
                )
 The
              accompanying notes are an integral part of these unaudited consolidated
              financial statements
  F-4
 Corporate Logo
                    **HOUSE
                        OF BRUSSELS CHOCOLATES INC.**
                      **Unaudited
                          Consolidated Statement of Shareholders' Equity for the Six
                          months****Ended
                          October 31, 2005**
 **COMMON
                    STOCK**
                
                **ADDITIONAL
                    PAID IN**
                
                **ACCUMULATED**
                
                **ACCUMULATED
                    OTHER 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
                
                
                
                
                
                
                
                
                
                
                
                (3,336,960
                )
                
                
                
                
                (3,336,960
                )Foreign
                    currency translation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                230,852
                
                
                230,852Comprehensive
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,106,108
                )Stock-based
                    compensation for services
                
                
                39,117
                
                
                39
                
                
                34,960
                
                
                
                
                
                
                
                
                34,999Options
                    issued under the 2004 stock option plan
                
                
                
                
                
                
                
                
                22,400
                
                
                
                
                
                
                
                
                22,400Beneficial
                    conversion feature granted in association with convertible
                    debt
                
                
                
                
                
                
                
                
                878,703
                
                
                
                
                
                
                
                
                878,703Warrants
                    issued in connection with convertible debt
                
                
                
                
                
                
                
                
                32,497
                
                
                
                
                
                
                
                
                32,497Escrow
                    released from reserve in connection with acquisition of DeBas
                    Chocolates,
                    Inc.
                
                
                
                
                
                
                
                
                98,000
                
                
                
                
                
                
                
                
                98,000Balance
                    October 31, 2005
                
                
                31,221,714
                
                $
                31,222
                
                $
                19,775,715
                
                $
                (17,486,650
                )
                $
                667,423
                
                $
                2,987,710
 The
              accompanying notes are an integral part of these unaudited consolidated
              financial statements
  F-5
 Corporate Logo
                  **HOUSE
                      OF BRUSSELS CHOCOLATES INC.**
                    **Unaudited
                        Consolidated Condensed Statement of Cash Flows for the Six
                        months****Ended
                        October 31, 2005 and 2004**
 **SIX
                    MONTHS ENDED OCTOBER 31,****2005**
                
                **2004****CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    loss
                
                $
                (3,336,960
                )
                $
                (930,929
                )Adjustments
                    to reconcile net loss to net cash used in operating activitiesDepreciation
                    and amortization
                
                
                193,606
                
                
                125.352Provision
                    for bad debts
                
                
                88,962
                
                
                -Compensatory
                    common stock, stock options and warrants
                
                
                57,399
                
                
                298,825Stock
                    issued in settlement of trade payable
                
                
                -
                
                
                235,633Loss
                    on disposal of assets
                
                
                2,090
                
                
                -Amortization
                    of loan costs and beneficial conversion costs
                
                
                859,296
                
                
                -Deferred
                    Rent
                
                
                3,168
                
                
                -Changes
                    in non-cash working capital itemsAccounts
                    receivable
                
                
                (1,438,185
                )
                
                (2,592,383
                )Inventory
                
                
                (116,564
                )
                
                (629,048
                )Prepaid
                    expenses and other assets
                
                
                292,064
                
                
                (61,334
                )Accounts
                    payable and accrued liabilities
                
                
                1,720,241
                
                
                1,553,076Net
                    cash used by operating activities
                
                
                (1,674,883
                )
                
                (2,000,808
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Capital
                    expenditures
                
                
                (519,099
                )
                
                (852,619
                )Purchase
                    of DeBas Chocolate, Inc.
                
                
                -
                
                
                (280,000
                )Cash
                    flows from investing activities
                
                
                (519,099
                )
                
                (1,132,619
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceeds
                    from notes payable and long term debt
                
                
                1,442,158
                
                
                81,614Repayment
                    of long-term debt
                
                
                (328,125
                )
                
                (99,767
                )Proceeds
                    from related party loans
                
                
                300,000
                
                
                -Repayments
                    of related party loans
                
                
                4,919
                
                
                (9,656
                )Payments
                    of obligations under capital lease
                
                
                (25,932
                )
                
                (98,472
                )Proceeds
                    from issuance of common stock and exercise of warrants
                
                
                -
                
                
                3,176,526Net
                    cash provided by financing activities
                
                
                1,393,021
                
                
                3,050,285Effect
                    of foreign exchange rate changes on cash
                
                
                (139,939
                )
                
                52,628Increase
                    (decrease) in cash and cash equivalents
                
                
                (940,900
                )
                
                (30,514
                )Cash
                    and cash equivalents, beginning of the period
                
                
                972,938
                
                
                153,438Cash
                    and cash equivalents, end of the period
                
                $
                32,038
                
                $
                122,924
 The
              accompanying notes are an integral part of these unaudited consolidated
              financial statements
  F-6
 Corporate Logo
                  **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
          specialize in manufacturing chocolate products for “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 October 31, 2005 and
          the
          results of our operations for the three and six 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
 Corporate Logo
                  **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 October 31, 2005 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 three and six month periods ended October 31, 2005 were
          $
          9,418 and $17,784, 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.
 
 **Reclassifications**
 
 Depreciation
          and amortization of manufacturing assets, previously presented as a separate
          line item during the three and six month periods ended October 31, 2004,
          has
          been reclassified into cost of sales. Similarly, interest income, interest
          expense and foreign currency transaction adjustments, previously presented
          in
          selling, general and administrative expenses have been reclassified to
          other
          income and expenses. The impact of these reclassifications is as
          follows:
 F-8
 Corporate Logo
                    **HOUSE
                        OF BRUSSELS CHOCOLATES INC.**
                      **Notes
                          to the Unaudited Consolidated Financial
                          Statements**
 **THREE
                    MONTHS ENDED OCTOBER 31, 2004**
                
                **SIX
                    MONTHS ENDED OCTOBER 31, 2004**Increase
                    in cost of sales
                
                $
                56,634
                
                $
                85,750(Decrease)
                    in selling, general and administrative expenses
                
                
                (101,793
                )
                
                (95,914
                )(Decrease)
                    in depreciation and amortization of manufacturing assets
                
                
                (80,512
                )
                
                (125,352
                )Increase
                    (decrease) in other income and expenses
                
                
                125,671
                
                
                135,516
  **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 October
          31, 2005
          we’ve completed a total of $2,228,000 in sales to Walgreens under the agreement.
          Management is uncertain whether purchases from Walgreens will 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. During December 2004, we entered into an exclusive three (3)
          year
          agreement with Schokinag Chocolate North America Inc. to provide manufacturing,
          co-packing, marketing and distribution services with respect to its line
          of
          gourmet drinking chocolates. We began shipping product under this agreement
          during August 2005. 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 our revenues. 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 offerings. 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. During July 2005, Mr. Debbas achieved a $3,000,000
          minimum revenue guarantee undertaken as part of the purchase agreement.
          As a
          result, $98,000, payable in 34,146 of the shares previously held in escrow,
          has
          been recorded as an increase to the goodwill recognized on our purchase
          of
          DeBas. 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, on 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 $4,040,598 for the fiscal year ended April 30,
          2005
          and we have continued to generate losses during the three and six month
          periods
          ended October 31, 2005. We are currently taking action to address those
          losses.
          Cash used in operations during the six month period ended October 31, 2005
          was
          $1,674,882. 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 has become sharply higher during
          our
          busy season and we expect those needs to continue over the near term. Though
          we
          seek customers with non-seasonal demand, our products sales still reflect
          a
          strong element of holiday purchasing. As a result, we face significant
          cash
          needs during the periods in which we generate the least revenue. Further,
          our
          acquisition of DeBas resulted in the use of cash and the absorption of
          additional liabilities.
  F-9
 Corporate Logo
                  **HOUSE
                      OF BRUSSELS CHOCOLATES INC.**
                    **Notes
                        to the Unaudited Consolidated Financial
                        Statements**
 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. 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
          our
          eligible accounts receivable. As of October 31, 2005, we had a contractual
          balance outstanding of approximately $2,304,000 on the $2,500,000 Laurus
          Revolving Note. Under the terms of a current overadvance waiver with Laurus,
          we
          have been permitted to borrow $500,000 in excess of eligible receivables
          through
          January 31, 2006. 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.
 
 On
          June
          28, 2005, we also 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. The amount of this indebtedness was matched by
          an
          additional $300,000 in over advances under our Revolving Note with Laurus.
 
 
 **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 six month periods
          ended
          October 31, 2005 and 2004 is due primarily to an increase in the valuation
          allowance offset against deferred tax assets.
  At
          October 31, 2005, 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 six month period ended October 31, 2005, the Company issued 39,117
          shares of
          its common stock. During the same period, 60,000 stock warrants and 50,000
          stock
          options were issued, 59,716 warrants expired and no warrants were exercised.
          Shares, options and warrants were granted in connection with the issuance
          of
          convertible debt and to a consultant and a member of our Board of Directors
          for
          stock-based compensation. 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
 
 
 **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 us 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 October 31, 2005.
 
 **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.
  F-10
 Corporate Logo
                  **HOUSE
                      OF BRUSSELS CHOCOLATES INC.**
                    **Notes
                        to the Unaudited Consolidated Financial
                        Statements**
 **Related
          Party Transactions, continued**
  On
          June
          28, 2005, Mr. Siemens entered into a convertible promissory note with us
          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
          October 31, 2005.
 
 **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 October 31, 2005.
 
 **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 are
          also
          officers of the Company. All warrants were issued in exchange for services.
          Our
          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 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 is for a period of 24 months and terminates 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 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 Directors 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
          Director, received one of these warrants for 100,000 shares which will
          expire on
          March 31, 2009.
  F-11
 Corporate Logo
                  **HOUSE
                      OF BRUSSELS CHOCOLATES INC.**
                    **Notes
                        to the Unaudited Consolidated Financial
                        Statements**
 On
          November 22, 2004, 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 are exercisable at $1.40 per share until November 22, 2005.
 
 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.
 
 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.
 
 **7.**
                **Cash
                    Flow Information**
 
 **Non-Cash
          Investing and Financing Activities**
 
 During
          the six months ended October 31, 2004, we acquired equipment under capital
          leases of approximately $78,000. The Company also obtained advances under
          convertible debt agreements and offset beneficial conversion features and
          warrants totalling $818,763 and 32,497, respectively against the debt.
 
 During
          the six months ended October 31, 2004, 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 $184,695 for the six-month period
          ended October 31, 2005.
 
 The
          Company made no cash payments for income taxes during the six month periods
          ended October 31, 2005 or 2004.
 F-12
 Corporate Logo
                  **HOUSE
                      OF BRUSSELS CHOCOLATES INC.**
                    **FORM
                      10-QSB**
                    **For
                      the Quarter Ended October 31, 2005**
 **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 “private label” resale and we
        target customers with the capacity to make annual purchases of $1 million
        to $20
        million. We 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.
        Our
        clients represent a diverse group of retailers and wholesalers.
 
 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 Convertible Note (the “Secured
        Note”), (ii) a Secured Convertible Minimum Borrowing Note (the “Minimum
        Borrowing Note”) and (iii) and a $2,500,000 Secured Revolving Note (the “Secured
        Revolving Note”) (the Secured Note, Minimum Borrowing Note and Secured 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 Secured 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 Secured 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 Secured
        Note, the Company began making monthly payments of $109,375, plus accrued
        and
        unpaid interest beginning August 1, 2005. Under certain conditions set forth
        in
        the Secured 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.
  
 Corporate Logo
                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended October 31, 2005**
 In
        connection with this financing, the Company has 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
        seven (7) years from the date of issuance. 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 October 31,
        2005
        we’ve completed a total of $2,228,000 in sales to Walgreens under the agreement.
        Management is uncertain whether purchases from Walgreens will 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. During December 2004, we entered into an exclusive three (3) year
        agreement with Schokinag Chocolate North America Inc. to provide manufacturing,
        co-packing, marketing and distribution services with respect to its line
        of
        gourmet drinking chocolates. We began shipping product under this agreement
        during August 2005. 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 our revenues. 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 offerings. 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. During July 2005, Mr. Debbas achieved a $3,000,000
        minimum revenue guarantee undertaken as part of the purchase agreement. As
        a
        result, $98,000, payable in 34,146 of the shares previously held in escrow,
        has
        been recorded as an increase to the goodwill recognized on our purchase of
        DeBas. 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 workflows 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 December, 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.
  
 Corporate Logo
                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended October 31, 2005**
 Although
        not all inclusive, we believe that the following represent the more critical
        estimates and assumptions used in the preparation of our financial
        statements:
  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
        Company performs its analysis on a customer by customer basis, and takes
        into
        account, among other relevant factors, sales history, outstanding receivables,
        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 October 31, 2005 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 disposition of which is expected to have
        no
        material effect on 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.
  
  Corporate Logo
                  **HOUSE
                      OF BRUSSELS CHOCOLATES INC.**
                    **FORM
                      10-QSB**
                    **For
                      the Quarter Ended October 31, 2005**
 **RESULTS
        OF OPERATIONS**
 
 **Revenues**
 
 Our
        sales
        revenues for the three and six month periods ended October 31, 2005 decreased
        25% and 16% respectively when compared to the same periods during the previous
        fiscal year. Sales for the fiscal quarter ended October 31, 2005 were $3,150,000
        and represent a decrease of $1,022,000 under the revenues of $4,172,000 reported
        for the fiscal quarter ended October 31, 2004. Sales for the six month period
        ended October 31, 2005 were $4,140,000 and represent a decrease of $777,000
        under the revenues of $4,917,000 reported for the same period ended October
        31,
        2004.
 
 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 three month period ended October 31, 2004, 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. Management
        believes revenues for its third fiscal quarter ending January 31, 2006 will
        exceed those generated during the same period during the previous
        year.
 
 **Cost
        of Sales**
 
 Cost
        of
        sales for the three and six month periods ended October 31, 2005 were $3,246,000
        and $4,593,000 respectively. Cost of sales for the current fiscal quarter
        increased $17,000 or 1% over the cost of sales of $3,229,000 reported for
        the
        three month period ended October 31, 2004. Cost of sales for the first six
        months of our current fiscal year increased $732,000 or 19% over the cost
        of
        sales of $3,861,000 reported for the comparable six month period in the previous
        fiscal year. For the three and six month periods ended October 31, 2005 our
        costs of goods sold exceeded revenues by $96,000 and $453,000, respectively.
        As
        a result, our gross margin percentage for the three month period ended October
        31, 2005 fell 26% from a positive gross margin of 23% to a negative margin
        of 3%
        when compared to the same three month period during Fiscal 2005. For the
        six
        month period ended October 31, 2005 our gross margin fell 32% from a positive
        gross margin of 21% to a negative margin of 11% when compared to the same
        period
        during the prior year.
 
 Our
        gross
        margin for the three and six month periods 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 its 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.
 
 **Selling,
        general and administrative expenses**
 
 Selling
        expenses for the three and six month periods ended October 31, 2005 were
        $333,000 and $624,000 respectively. Selling expenses for the current fiscal
        quarter decreased $191,000 or 36% under the selling expenses of $524,000
        reported for the three month period ended October 31, 2004. Selling expenses
        for
        the first six months of our current fiscal year decreased $195,000 or 24%
        under
        the selling expenses of $819,000 reported for the comparable six-month period
        in
        the previous fiscal year. In largest part, the decreases in selling expenses
        for
        both the three and six month periods can be attributed to decreases in amounts
        incurred for promotional trade shows, sales salaries, commissions and brokerage
        costs associated with our revenues.
  
 Corporate Logo
                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended October 31, 2005**
 General
        and administrative expenses for the three and six month periods ended October
        31, 2005 were $667,000 and $1,154,000 respectively. General and administrative
        expenses for the current fiscal quarter increased $77,000 or 12% over the
        general and administrative expenses of $590,000 reported for the three-month
        period ended October 31, 2004. General and administrative expenses for the
        first
        six months of our current fiscal year increased $120,000 or 12% over the
        general
        and administrative expenses of $1,034,000 reported for the comparable six-month
        period in the previous fiscal year. During the three and six month periods
        ended
        October 31, 2005, the amounts we expended on office expense, salaries, benefits
        and consulting fees decreased while the amounts we incurred for professional
        fees, directors fees, and depreciation of non-manufacturing assets increased.
        Most significantly, during the six-month periods ended October 31, 2005 and
        2004, we incurred $512,000 or 44% and $590,000 or 54% 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 six month periods ended October 31, 2005 we incurred $626,000
        and
        $1,088,000 in interest expense and costs of financing, respectively. The
        greatest part of the indebtedness giving rise to these expenses did not exist
        during the six month period ended October 31, 2004. Accordingly, $987,000
        or 91%
        of the interest and financing costs we’ve incurred during the six month period
        ended October 31, 2005 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, $185,000 represents interest paid
        in
        cash and $750,000 relates to the non-cash amortization of loan costs and
        discounts.
 
 **Net
        Loss**
 
 Our
        net
        losses for the three and six month periods ended October 31, 2005 were
        $1,731,000 and $3,337,000, respectively. These losses reflect the impact
        of our
        negative gross margin and selling, general & administrative expenses
        resulting from our ongoing investment to support our expansion. Also included
        in
        this loss is approximately $860,000 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
        October 31, 2005, our total assets equal $9,810,000. During the six month
        period
        ended October 31, 2005 our receivables increased by $1,469,000 or 224%, our
        inventories increased by $206,000 or 10%. During the same period however,
        our
        cash decreased by $941,000 or 97% and our accounts payable and accrued
        liabilities increased by $180,000 or 25%. Increases in receivables and
        inventories relate to production supporting 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.
  
 Corporate Logo
                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended October 31, 2005**
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 During
        the six-month period ended October 31, 2005 we incurred net losses of
        $3,337,000. During that period, our operations were financed using cash
        generated from operations, vendor credit and debt financing. Costs associated
        with our expanded production facilities, asset purchases, enhancement of
        personnel, and the buildup of our inventories and accounts receivable
        contributed heavily to the cash required by our operations during this period.
        In total, for the six months ended October 31, 2005, our investing activities
        consumed $519,000, and our operations consumed $1,675,000 in excess of amounts
        generated by product sales. This shortfall has been offset by $1,393,000
        obtained by our financing activities and a use of cash resources of $941,000.
        The net amount of our financing activity includes net draws on the Laurus
        Credit
        Facility of $1,337,000. We also obtained a total of $300,000 in short-term
        loans
        from our Chief Executive Officer and a greater than ten percent
        shareholder.
 
 Sales
        of
        chocolate products have a strong seasonal element. The majority of our customer
        sales occur in our second and third fiscal quarters. We have taken steps
        to
        reduce the seasonality of our sales by focusing on larger customers who can
        purchase our products for resale year round. During the six month period
        ended
        October 31, 2005, we have successfully completed the first stage of our roll-out
        of our nutritional and energy bar lines. These lines include the “365” brand of
        nutritional bars for resale under private label agreement with Whole Foods,
        and
        our in-house “24/7” brand of nutritional bars to be distributed through a
        variety of resellers including Costco. Regardless, we believe the seasonal
        element inherent in our industry will continue to make revenues substantially
        higher preceding certain holiday periods. These seasonal patterns 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 of such seasonality, financial
        results for a particular quarter may not be indicative of results for the
        entire
        year.
 
 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. 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 reborrow or make additional
        borrowings, provided that the aggregate amount outstanding may not exceed
        our
        eligible accounts receivable criteria.
 
 Both
        the
        $3,500,000 Term Note and the $2,500,000 Revolving Note (together the “Notes”)
        provide for conversion, at the option of Laurus, of the amounts outstanding
        into
        the Company's common stock at a fixed conversion price of $0.88 per share
        (the
“Fixed Conversion Price”). 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.
  
 Corporate Logo
                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended October 31, 2005**
 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.
 
 As
        of
        December 12, 2005, we had a balance outstanding of approximately $2,452,000
        on
        the $2,500,000 Laurus Revolving Note. Under the terms of a current overadvance
        waiver with Laurus, we have been permitted to borrow $500,000 in excess of
        eligible receivables. 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.
 
 On
        June
        28, 2005, we also 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. The amount of this indebtedness was matched by
        an
        additional $300,000 in over advances under our Revolving Note with Laurus.
  With
        the
        onset of our busy season, cash required for on-going operations has increased
        significantly. 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 October
        31,
        2005, our gross margins improved, but remained negative. As such, without
        an
        increase in revenues, positive gross margins and reductions in costs, we
        will
        require additional equity investment or financing. The Company believes that
        it
        will increase its margins during the upcoming quarters. 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 October 31,
        2005.
  
 **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 October 31, 2005,
        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 Chief Accounting Officer, Luigi DiCicco.
        Based upon that evaluation, these management 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.
  
 Corporate Logo
                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended October 31, 2005**
 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 Chief Accounting Officer, to allow timely decisions
        regarding required disclosure.
 
 During
        our most recently completed fiscal quarter ended October
        31, 2005 ,
        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
                6.**
              **EXHIBITS**
  Exhibit
                    Number
                Description
                    of Exhibit31.1
                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 Chief Accounting 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 Chief Financial Accounting Officer pursuant to 18 U.S.C. Section
                    1350,
                    as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                    of 2002
 
 Corporate Logo
                **HOUSE
                    OF BRUSSELS CHOCOLATES INC.**
                  **FORM
                    10-QSB**
                  **For
                    the Quarter Ended October 31, 2005**
 **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:
              **December
                  15, 2005**By:
              s/s
                  Grant Petersen**Grant
                  Petersen****Chief
                  Executive Officer, President and
                  Director**