SECURITIES AND EXCHANGE COMMISSION

         Washington, D.C. 20549

               FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 29, 1996

For the transition period from                 to       
                    

Commission file number 0-13642


       HUDSON'S GRILL OF AMERICA, INC.
(Name of small business issuer in its charter)


California                                    95-3477313
(State or other jurisdiction of incorporation)(IRS Employer
Identification Number)


16970 Dallas Parkway, Suite 402, Dallas, Texas  75248
(Address of Principal Executive Offices)


Issuer's telephone number, including area code:
(972) 931-9237

Securities registered under Section 12(b) of the Exchange
Act:

None                    None                              
(Title of each class)   (Name of each exchange on which
                        registered)

Securities registered under Section 12(g) of the Exchange
Act:

Common Stock
(Title of each class)
               
Check whether the issuer (1) filed all reports required to be filed by Section 
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter 
period that the registrant was required to file such reports), and (2) has 
been subject to such filing requirements for the past 90 days. 

Yes   X    No      

Check if there is no disclosure of delinquent filers in response to Item 405 
of Regulation S-B not contained in this form, and no disclosure will be 
contained, to the best of registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-KSB or any amendment to this Form 10-KSB.

[ ]

State issuer's revenues for its most recent fiscal year. 
$616,915

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.  (See definition of affiliate in Rule 12b-2 of the Exchange Act).
Average bid and asked during the week ending 3/28/97 is $0.1875.  The Issuer
has 6,056,986 shares outstanding; the market value of the voting stock is
$1,135,684.88.

Note:  If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.

(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)

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


(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's classes of 
common equity, as of the latest practicable date.

6,056,986


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Annual Report to Shareholders for the year ended 
December 29, 1996, are incorporated by reference into Parts I and II.  
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be 
held on May 27, 1997, are incorporated by referenced into Parts II and III.


                 PART I

ITEM 1. BUSINESS

Hudson's Grill of America, Inc. (the "Company"), was incorporated on June 11, 
1979, in California, and the corporation has undergone several name changes 
since then. The Company amended its charter to its current name on June 
14,1991.  Currently, the Company operates and franchises Hudson's Grill 
Restaurants.

Hudson's Grill Restaurants are full service restaurants which serve lunch and
dinner and a wide range of alcoholic beverages.  On December 29, 1996, there
were seventeen (17) Hudson's Grill restaurants; fourteen(14) were franchised
and three (3) were in escrow awaiting completion of certain conditions and
events.  The company's major focus is to expand the Hudson's Grill  operations
through franchising instead of through ownership, although it may open or
purchase a Hudson's Grill to operate as a company store for training and
exhibition purposes.  The Hudson's Grill Restaurants are currently operating
in  California, Texas, and New Jersey.  Franchises are currently under
contract in Mississippi and Guatemala City, Guatemala. The Company is actively
seeking more franchises, but the franchise market and the restaurant market
are very competitive.  Many other franchisers have substantially more capital,
thereby making it much more difficult to compete against them.


BRIEF SUMMARY OF MAJOR EVENTS OVER THE PAST THREE YEARS.

In January 1997, the Company closed on the sale of its restaurant in Pomona,
California, on January 21,1997.  Burgers of Diamond Bar, a California
partnership, purchased the restaurant for One Hundred Twenty Thousand Two
Hundred Dollars ($120,200) and agreed to an eight year lease of the Company's
equipment for Twenty Five Hundred Dollars ($2,500) per month.

In December 1996, the Company settled a trademark infringement lawsuit against
one of its former franchisees.  The former franchisee had operated a Hudson's
Grill in Bend, Oregon, and had been terminated as a franchisee for failure to
pay royalties.  The former franchisee's operations have been transferred to
new owners, and it no longer is or looks like a Hudson's Grill restaurant; the
former franchisee agreed to pay more than $31,000 to settle the case.

Also in December 1996, the Company signed its first international franchise. 
The new franchise is located in Guatemala City, Guatemala.  The Company also
agreed to transfer a modified note owed to it by Famous Bars, Grills and Cafes
of America, Inc. ("Famous Bars"), to Travis Bryant as full payment of the
Company's note owed to Mr. Bryant.  The note had previously been modified to
reflect an assignment by Famous Bars to the Company of an increase in the
royalty fees (equal to two percent of gross sales) associated with four
Hudson's Grill restaurants sold by Famous Bars since October 1995.  The
Company also settled a lawsuit against it by an unpaid vendor of a former
joint venture.

In August 1996, the Company announced two new franchises to open in the 
future.  The new franchises are located in  Fullerton, California, and in 
Santa Clarita, California.

On July 17, 1996, the Company closed on the sale of its Hornblower's 
restaurant.  The sale was pursuant to an agreement for sale signed and 
announced in 1995.

On May 28, 1996, the Company announced that it had signed a letter agreement
with Dr. S.L. Sethi, the owner of Jackie's International, Inc., to develop 40
Hudson's Grill restaurants over a six year period in the states of Arkansas,
Alabama, Georgia, Louisiana, Mississippi, and Tennessee. Also in May 1996, the
Company's shareholders voted to increase the number of authorized common
shares in the company to 100,000,000 shares.

During March 1996, the Company's first franchised restaurant on the East Coast
opened in New Jersey.  A Hudson's Grill opened in the Garden State Mall in
Paramus, New Jersey. 

On December 15, 1995, the Company signed an agreement with Wenza, Inc., and
Jotar, Inc., permitting an annex to an existing franchise location in
California, and granting rights to build up to twenty-four (24) restaurants in
certain areas of California, New Jersey and New York.

In June 1995, the Company agreed to sell its "Hornblowers" restaurant in 
Ventura, California.  This is the Company's only restaurant that is not a 
Hudson's Grill. The purchase price was Three Hundred Thousand Dollars 
($300,000), and the purchaser was the current manager.

On August 30, 1994, the Company closed on the sale of its Lancaster,
California restaurant to a company controlled by Mr. and Mrs. Daniel
Pearlstein, who had been former managers of the restaurant.  The Pearlsteins
paid Two Hundred Sixty Eight Thousand Dollars ($268,000) in cash and a note to
purchase certain of the Company's furniture, fixtures and equipment.  They
agreed to lease other assets for Four Thousand Dollars ($4,000) per month for
ten years, and they have become franchisees of the Company.

In May 1994, the Company agreed in writing to sell its Westlake and Simi 
Valley, California, restaurants to companies controlled by Davis Beckham, a 
former officer of the Company. He will pay Fifty Seven Thousand Two Hundred 
Seventy Eight Dollars($57,278) for the Westlake restaurant and Fifty Nine 
Thousand Six Hundred Fifty Five Dollars ($59,655) for the Simi Valley 
restaurant.  The restaurants  continued as franchises of the Company, and 
leased certain  assets from the Company.  These sales were completed on 
February 3,1995.  Since then, Mr. Beckham's note was modified; he paid off the
remaining balance; and as a result of the  modification of the note, the
Westlake restaurant is being leased by the Company to new operators.

In May 1994, the Company also agreed to sell its Oxnard, California,
restaurant to its manager, Alvaro Hernandez.  In January 1996, he paid Two
Hundred Twenty Eight Thousand Dollars ($228,000) in cash and notes to buy the
restaurant, and leased certain assets, too.  Subsequently, this restaurant was
transferred to new owners.  On January 31, 1994, the Company closed its Irvine
restaurant; the location remained closed until November 1994, when the Company
withdrew its furniture and equipment as part of an agreement with the Landlord
to vacate the premises.  The agreement was in dispute, but in June 1995, the
Company settled with the Landlord.

As of December 29, 1996, the Company no longer owned any restaurant that was 
still operated by it.


OPERATIONS AND RESTAURANT STYLE

HUDSON'S:

Hudson's Grill is a full service, limited menu concept with alcoholic beverage
service.  The management teams work with the philosophy that the customer
should be viewed as their  "Guest".  They stress quality of product and
service, efficient flow of communications, integrity in job performance and
strong employee morale.  These restaurants range in size from 2,500 to 5,500
square feet.  The decor package has the theme of a "Classic Grill of the 50's
and 60's", with the front end of a Hudson's automobile coming through the wall
as a main feature.  Some restaurants are in free standing buildings, and some
are located within in-line shopping centers.  One new restaurant is located at
a food court in a shopping mall.  The average Hudson's Grill employs
approximately forty employees, seventy percent of whom are part-time
employees.

With the exception of the new "food court" location, which has a limited menu
and does not serve alcoholic beverages, the restaurants have similar
operations and offer similar food. The Company plans to expand primarily
through adding franchises, but it will consider a limited number of Company
owned and operated units in the future.  Since the restaurant industry is very
competitive, the Company plans to attract loyal patrons by higher levels of
service and more exacting specifications for its products.


MENU

HUDSON'S:

Most Hudson's Grill restaurants open at 11 a.m. and remain open until 
midnight, seven days a week, utilizing the same menu throughout all parts of 
the day.  They specialize in 1/3 pound hamburgers with the beef patties 
produced to very exacting specifications.  The menu also features an expanded 
chicken sandwich section using top quality chicken breasts and whole wheat 
buns.  Also on the menu are salads, sandwiches, a variety of appetizers, 
fajitas, tacos, and handmade milkshakes and malts.  Cocktails, beer and wine 
are also available with food.  The full service restaurant concept utilizes 
booths and tables with waiters and waitresses serving the guests.


RESTAURANT DEVELOPMENT

HUDSON'S:

The Company currently has plans to construct several Hudson's Grill
restaurants in the Dallas, Texas, area to use for demonstration and testing
purposes.  Other than these units and the possible purchase and conversion of
several other restaurants if funds and credit become available, the Company
plans to expand mostly through adding franchises.


FRANCHISE AGREEMENTS

HUDSON'S:

The Company has been issued the trademark registration of a  "Hudson's Grill"
logo and of the "Hudson's" name.  It is currently seeking registration of
several older logos and several brand new ones.  The Company has secured a
permit from the California Department of Corporations to issue Hudson's Grill
franchises in California and uses a Uniform Franchise Offering Circular where
permitted.  As of December 29, 1996, the Company had fourteen (14) franchised
restaurants that were in operation.  The current standard terms to franchise a
restaurant are an initial fee of Twenty Five Thousand Dollars and a royalty of
four percent of sales, and require that three percent of sales be used for
advertising.  For these payments, the Company is obligated to do the
following: screen and train potential franchisees, review and approve sites,
and provide an operations manual and assistance.

During 1992, one restaurant was opened in Texas.  In 1993, four additional
franchise restaurants opened for business or were converted from Company owned
locations.  During 1995, two joint ventures were sold and became franchises,
and the Company entered into a Franchise Development Agreement with a current
franchisee to open 24 new restaurants in California, New Jersey, and New York. 
During 1996, the Company entered into a restaurant development agreement with
Dr. S.L. Sethi to develop 40 restaurants in six Southeastern states.  In 1996,
the company signed a franchise agreement with its first international
franchisee, for a restaurant in Guatemala City, Guatemala.


EMPLOYEES AND UNIONS:

At December 29, 1996, the Company employed three (3) persons,
who were corporate employees.  One of the three employees was employed
part-time.

The Company is not a party to any collective bargaining
agreements.


ITEM 2. PROPERTIES

At December 29, 1996, the Company was the primary lessee under leases for four
(4) properties which include its headquarters and three (3) restaurants in the
process of being sold.  The leases have varying monthly rentals and expiration
dates, which range from as short as month to month for its headquarters to up
to fourteen (14) years for Whittier, California.  A majority of leases provide
for a rental based on a percentage of gross sales against a minimum rent.  As
of February 1994, the Company closed its headquarters and moved to Dallas,
Texas, where it shares space with its majority shareholder.

As the Company moves more into franchising as its sole business, it will
become primarily liable on fewer leases, except for those units built or
purchased by the Company.

Substantially all of the Company's restaurant equipment is owned by the
Company; some is leased to franchisees. Currently, the Company has no real
property and has no real estate related investments.


ITEM 3. LEGAL PROCEEDINGS

The Company currently is not a defendant in any material litigation. 


ITEM 4. SUBMISSION OF MATTERS OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of the fiscal year covered 
by this report to a vote of security holders of the Company through the 
solicitation of proxies or otherwise.


                 PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

MARKET INFORMATION

The Company's Common Stock, no par value, is traded in the over-the-counter
market and trades under the National Association of Security Dealers Automated
Quotation System("NASDAQ") symbol "HDSG".  As of March 31, 1997, there were
approximately Three Hundred Twenty (320) registered holders of record of the
Company's Common Stock (this excludes shareholders whose stock is held by a
nominee or in "streetname", because a nominee or streetname holder is counted
as one registered shareholder even if a nominee is holding stock for several
shareholders).  The following table sets forth the reported high and low bid
prices of the Common Stock for the periods indicated as regularly quoted by
the NASD OTC Bulletin Board.  The over-the-counter market quotations reflect
interdealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions.

FISCAL YEAR ENDED DECEMBER 29, 1996           High       Low
First Quarter ended March 31, 1996            3/32      1/16
Second Quarter ended June 30, 1996             1/8      1/16
Third Quarter ended September 30, 1996        3/16      1/16
Fourth Quarter ended December 31, 1996        1/16      1/32

FISCAL YEAR ENDED DECEMBER 31, 1995           High       Low
First Quarter ended March 31, 1995             1/8      1/32
Second Quarter ended June 30, 1995            1/16       .02
Third Quarter ended September 30, 1995        1/16       .02
Fourth Quarter ended December 31, 1995        1/16       .02

FISCAL YEAR ENDED JANUARY 1, 1995             High       Low
First Quarter ended March 31, 1994             3/8       1/8
Second Quarter ended June 30, 1994             1/4      1/16
Third Quarter ended September 30, 1994        3/32      1/16
Fourth Quarter ended December 31, 1994         1/8      1/16

As of March 26, 1997, the closing bid price of the Common Stock was 3/32 of
one dollar (nine and 3/8th cents)($.09375).  This information was obtained
from the Stock Quote provided by "Yahoo" on the Hudson's Grill internet site
http://www.hudsonsgrill.com.


DIVIDENDS

Common Stock

The Company has not paid cash dividends on its common stock, and the present 
policy of the Company's Board of Directors(the "Board") is to retain earnings 
attributable to common stock to provide funds for the operation and expansion 
of the Company's business.  The Company does not expect to pay cash dividends 
on its common stock in the foreseeable future.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION

For the year ended December 29, 1996, the Company had a loss before income 
taxes and extraordinary items of Two Hundred Sixty One Thousand Three Hundred 
Thirty Four Dollars ($261,334).  This compares to a gain before income taxes 
and extraordinary items of Thirteen Thousand Four Hundred Forty Eight Dollars 
($13,448) for the year ended December 31, 1995, and losses of Nine Hundred 
Twenty Six Thousand Nine Hundred Seventy Four Dollars ($926,974) for the year 
ended January 1, 1995.  For the year ended December 29, 1996, the Company had 
a net loss after taxes and extraordinary items of Two Hundred Sixty One 
Thousand Three Hundred Thirty Four Dollars ($261,334). This compares to net 
income after taxes and extraordinary items of Thirteen Thousand Four Hundred 
Forty Eight Dollars ($13,448)for the year ended December 31, 1995, and to a 
net income of One Million One Hundred Eighty Nine Thousand Two Hundred Sixty 
One Dollars ($1,189,261) for the year ended January 1, 1995.  The net income 
for the year ended January 1, 1995, resulted primarily from a gain on 
restructuring of troubled debt.

Because the Company intends on becoming primarily a franchiser, several years 
ago it began closing poorly performing restaurants and selling the remaining 
profitable ones.  Losses due to restaurant closures amounted to Eight Hundred 
Two Thousand Seven Hundred Ninety Nine Dollars ($802,799) for the year ended 
January 1, 1995, but showed a gain of Eighty Six Thousand Seven Hundred Sixty 
Six ($86,766) for the year ended December 31, 1995.  The Company intends to 
dispose of all of its direct and indirect restaurant operations as soon as 
practical so that it will be solely in the franchising business, before 
proceeding to build, buy or operate any Company owned restaurants.

The Company's three remaining restaurants as of December 29, 1996, are all 
subject to sale agreements, and are all being operated by their prospective 
purchasers pending regulatory approvals and the closings on their agreements.

Now that the Company has sold (or has agreements to sell) all of its 
former restaurants, the Company is considering opening or purchasing several 
units to use as models and training facilities for future franchisees.


REVENUES

Because the Company was holding its remaining restaurants for sale, it had 
ceased recording sales and expenses from direct restaurant operations after 
January 1994.  However, because the Company terminated the joint venture for 
the Whittier Hudson's Grill in January, 1995, and operated it as a subsidiary, 
it once again recorded sales and expenses for that location for 1995.  The 
Company continued to record only joint venture revenues for the remaining 
stores which were operated under joint venture agreements.  These revenues 
ceased when the last joint venture stores were sold in 1996.  The three
remaining restaurants, all of which are subject to sales contracts, are not 
operated as joint ventures but are being operated by their prospective 
purchasers.  The prospective purchasers are currently paying royalties and 
advertising fees even though they are not yet franchisees, and these fees are 
being accounted for separately from the royalties received from franchisees.  
This non franchise royalty fee amounted to Forty Thousand Four Hundred Fifty 
Nine Dollars ($40,459) for the year ended December 29, 1996; as the sale of 
these restaurants is completed, the Company does not expect any future 
royalties from restaurants under sales contracts, but rather these fees will
be accounted for as normal franchising revenues.

Franchise revenues should continue to increase as new franchises are added and
as restaurants under sales contracts become franchises (see above).  
Franchising revenues have increased from Seventy Two Thousand Thirty One
Dollars ($72,031) for the year ended January 1, 1995; to Two Hundred Ninety
Five Thousand Three Hundred Twelve Dollars ($295,312) for the year ended
December 31, 1995; to Three Hundred Seven Thousand Five Hundred Forty Nine
Dollars ($307,549) for the year ended December 29, 1996.  Seventy Four
Thousand Three Hundred Seventy Four Dollars ($74,374) of the franchise
revenues for the year ended December 31, 1995, were due to one time initial
franchise fees of Twenty Five Thousand Dollars ($25,000) per franchise for
three new franchises(minus minimal costs), and Twenty Thousand Dollars
($20,000) of the franchise revenues for the year ended December 29, 1996, were
due to one time initial franchise fees.  There were no new initial franchise
fees for the year ended January 1, 1995.

The rest of the franchise revenues were the result of the weekly continuing 
royalty fees paid by franchisees.  Thus, continuing franchise revenues 
increased from Seventy Two Thousand Thirty One Dollars ($72,031) for the year 
ended January 1, 1995, to Two Hundred Twenty Thousand Nine Hundred Thirty 
Eight Dollars ($220,938) for the year ended December 31, 1995, to Two Hundred 
Eighty Seven Thousand Five Hundred Forty Nine Dollars ($287,549) for the year 
ended December 29, 1996.


COSTS AND EXPENSES

Since the Company is and has been selling or closing its restaurants, an
analysis of restaurant costs of sales and of restaurant operating expenses is
no longer meaningful because almost all of the Company's restaurants have been
or are being sold and converted to franchises, or shut down.  General and
administrative expenses, and the depreciation and amortization expenses for
equipment leased to restaurants will continue to be important.  General and
administrative expenses for the year ended December 29, 1996, increased to
Seven Hundred Ninety Eight Thousand Six Hundred Seventy Five Dollars
($798,675)  from Four Hundred Eighty Four Thousand Six Hundred Fifty Six
Dollars ($484,656) for the year ended December 31, 1995.  For the year ended
January 1, 1995, general and administrative expenses were Three Hundred Eighty
One Thousand One Hundred Eighty Two Dollars ($381,182).  The increase in
general and administrative expenses during the past fiscal year results from
increases in franchising activities (e.g., an increase of $39,464.84 in
supplies and advertising), bad debts (e.g., $54,860 in royalties and interest
owed by restaurants), the reduction in the Famous Bars, Grills and Cafes of
America, Inc. note ($118,221), and contract services (increased by $74,459).

As of December 29, 1996, the President of the Company was not drawing any
salary; and until he resigned on March 5, 1997, the Chief Financial Officer
had not drawn any salary.  Only the Secretary of the Company and one
administrative assistant are being compensated full time.  The Company is
paying for a consultant whose job it is to increase the number of franchises. 
Because of this consulting arrangement, which began in May 1995, the general
and administrative expenses for the years ended December 29, 1996, December
31, 1995, and January 1, 1995, increased greatly from the previous year.

Depreciation and amortization, which for the year ended December 29, 1996, was 
Fifty Eight Thousand Three Hundred Seventy One Dollars ($58,371); for the year 
ended December 31, 1995, was Eighty Seven Thousand One Hundred Forty Seven 
Dollars ($87,147); and was Two Hundred Ninety Seven Thousand Four Hundred 
Ninety One Dollars ($297,491) for the year ended January 1, 1995, will 
continue to decrease.  This primarily decreases to the extent that furniture, 
fixtures and equipment are sold to the purchasers of the Company's restaurants 
and to the extent restaurants are closed and written off.

Interest expense has decreased significantly since the year ended January 1, 
1995, but has not changed significantly since the year ended December 31, 
1995.  The Company recorded interest expense of Ninety Six Thousand Seven 
Hundred Thirty Four Dollars ($96,734) for the year ended December 29, 1996, 
One Hundred Four Thousand Two Hundred Twenty Dollars ($104,220) for the year 
ended December 31, 1995, and Two Hundred One Thousand Sixty Three Dollars 
($201,063) in the year ended January 1, 1995.

Interest income has increased slightly since the year ended December 31, 
1995.  The Company received interest income of One Hundred Eighty Thousand One 
Hundred Thirty Five Dollars ($180,135) during the year ended December 29, 
1996; this compares to One Hundred Seventy Six Thousand Seven Hundred Thirty 
Dollars ($176,730) in interest income for the year ended December 31, 1995.  
Thus, the net interest income (interest income minus interest expense) has 
increased from Seventy Two Thousand Five Hundred Ten Dollars ($72,510) for the 
year ended December 31,1995, to Eighty Three Thousand Four Hundred one Dollars 
($83,401) for the year ended December 29, 1996.


LIQUIDITY AND CAPITAL RESOURCES

At December 29, 1996, the Company had a positive working capital of One
Hundred Seventeen Thousand Four Hundred Twenty Eight Dollars ($117,428) as
compared to a positive working capital of One Hundred Ninety Five Thousand
Five Hundred Six Dollars ($195,506) at December 31, 1995, and a deficit of
Thirty Six Thousand Seven Hundred Thirty Five Dollars ($36,735) at January 1,
1995.  The decrease is largely due to a decrease in the current portion of
notes receivable (a decrease of $96,166) that mostly resulted from the
transfer of the Company's note from Famous Bars, Grills and Cafes of America,
Inc., as payment of a debt owed to Mr. Travis Bryant.  At the same time,
accrued liabilities increased significantly (an increase of $49,914). 
However, these decreases in working capital are offset by an increase in cash
of Thirty Thousand Three Hundred Eighty Five Dollars ($30,385) and a decrease
in the current portion of notes payable of Twenty Nine Thousand Six Hundred
Fifty Seven Dollars ($29,657).  Thus, the Company's working capital decreased
by Seventy Eight Thousand Seventy Eight Dollars ($78,078) from the previous
fiscal year end.

After the Company has sold most or all of its restaurants, changes in its 
liquidity and capital will depend mostly on initial franchise fees and from 
continuing royalty fees received from franchisees using the Company's 
trademark and restaurant concept, rather than on equipment leasing, which 
should remain stable for the next several years.

The Company received One Hundred Sixteen Thousand Eight Hundred Twenty One
Dollars ($116,821) in net cash proceeds from the sale of restaurants in the
year ended December 29, 1996, Twelve Thousand One Hundred Eighty Two Dollars
($12,182) in net cash proceeds from the sale of restaurants in the year ended
December 31, 1995, and Twenty Two Thousand Dollars ($22,000) in net cash
proceeds from the sale of restaurants in the year ended January 1, 1995. The
Company anticipates less cash proceeds in 1997 from the sale of its remaining
interests in restaurants since most of the remaining sales of restaurants are
to a large extent being financed by the Company with notes and leases covering
furniture, fixtures and equipment.  To the extent that the purchasers of the
remaining restaurants pay their notes and their lease obligations on a timely
basis, the Company's cash resources and liquidity will increase.

In January 1994, the Company reached a tentative agreement with its largest
secured creditor to reduce and restructure the secured debt owed to the
creditor and certain other related liabilities owed to him.  As part of this
agreement, the Company loaned money to an entity formerly affiliated with the
creditor, and received a note in return (the "FGA Note"). The scheduled
payments on the "FGA Note" were approximately equal to the amounts payable to
the secured creditor under the restructured credit agreement, and payments not
received on the "FGA Note" would be used to offset payments on the note
payable to the secured creditor.  This arrangement would help reduce the
future cash requirements of the Company.  The revision of the credit agreement
was finalized and completed on June 27, 1994.

Subsequent to December 31, 1995, the company formerly affiliated with the
secured creditor formally requested and obtained from the Company a
modification of the FGA Note; the Company was to forego payments until
February 1997, at which time the entire amount of unpaid principal and
interest would be amortized at 8% over ten years.  Correspondingly, the
Company began to exercise its right of offset on its note payable to the
secured creditor.  The Company was assigned several notes receivable with an
aggregate face value of One Million One Hundred Ninety Nine Thousand Dollars
($1,199,000) as additional collateral in connection with this note
modification.

On December 29, 1996, the Company agreed to reduce the FGA note by One Hundred
Eighteen Thousand Two Hundred Twenty One Dollars ($118,221) in exchange for
the transfer of an additional two percent (2%) in royalty fees from four
Hudson's Grill restaurants sold by it since 1995 (one of the restaurants has
since been closed).  The reduced FGA Note was then exchanged with the secured
creditor as full payment of the Company's obligations to the secured creditor. 
This arrangement should improve cash flow by the amount of additional
royalties received from the three Hudson's Grills formerly owned by FGA.

Until the Company opens or buys other Hudson's Grills, as the Company sells
its remaining interests in restaurants and as these restaurants are paid off,
the Company's revenues will become more dependent on initial franchise fees
and on royalty fees from franchised restaurants, all of which except one in
New Jersey are currently located in California and Texas.


ITEM 7. FINANCIAL STATEMENTS

Attached following Item 13.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND
ACCOUNTING AND FINANCIAL DISCLOSURE

Incorporated by reference from the Proxy Statement (the "Proxy
Statement") to shareholders relating to the annual meeting to
be held May 27, 1997.


                PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; IN COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Incorporated by reference from the Proxy Statement.


ITEM 10. EXECUTIVE COMPENSATION

Incorporated by reference from the Proxy Statement.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Incorporated by reference from the Proxy Statement.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the Proxy Statement.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Financial Statements; Exhibits

Financial statements are incorporated by reference from Item
7, and are attached following this Item.

Independent Auditor's Reports.

Consolidated Balance Sheets - As of December 29, 1996, and 
December 31, 1995

Consolidated Statements of Operations - Years ended December 29, 1996,
December 31, 1995, and January 1, 1995.

Consolidated Statements of Shareholders' Equity (Deficiency)
- For the Period from January 2, 1994, through December 29,
1996.

Consolidated Statements of Cash Flows - Years ended December 29, 1996,
December 31, 1995, and January 1, 1995.

Notes to Financial Statements.


There are no exhibits.

(b)  Reports on Form 8-K

The Company filed no Form 8-K during the last quarter of
the fiscal year ending December 29, 1996.


               SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.


         (Registrant) HUDSON'S GRILL OF AMERICA, INC. 

               By:                                           
              
                    David Osborn, President


               Date: April 14, 1997



In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
registrant and the capacities and on the dates indicated.

Signature           Title           Date


DAVID L. OSBORN     Chairman of the
                    Board and Chief
                    Executive Officer
                    and Director


D. MARION WOOD      Director


                              
THOMAS SACCO        Sr. V.P., and Director


f\sec\970408.O01




INDEPENDENT AUDITOR'S REPORT
















HUDSON'S GRILL OF AMERICA, INC.

CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT

FOR THE PERIODS ENDED

DECEMBER 29, 1996, DECEMBER 31, 1995 AND JANUARY 1, 1995



                     INDEPENDENT AUDITOR'S REPORT






Board of Directors
Hudson's Grill of America, Inc.
Dallas, Texas

We have audited the accompanying consolidated balance sheets of Hudson's Grill
of America, Inc. and subsidiaries as of December 29, 1996 and December 31,
1995, and the related consolidated statements of operations, shareholders'
equity (deficiency), and cash flows for the periods ended December 29, 1996,
December 31, 1995 and January 1, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hudson's
Grill of America, Inc. and its subsidiaries as of December 29, 1996 and
December 31, 1995, and the results of their operations and their cash flows
for the periods ended December 29, 1996, December 31, 1995, and January 1,
1995 in conformity with generally accepted accounting principles.

The Company is in the process of selling the remainder of its restaurant
operations and is focusing its efforts primarily on franchising activities. As
described in Note 4 to the financial statements, at December 29, 1996 the
Company is the primary obligor for future lease payments on its remaining
restaurant locations and the Company is the secondary obligor for future lease
payments on certain sold locations.





HEIN + ASSOCIATES LLP


February 28, 1997
Dallas, Texas




                                 F- 1
<PAGE>
                    HUDSON'S GRILL OF AMERICA, INC.

                    CONSOLIDATED BALANCE SHEETS



                              ASSETS

                                                DECEMBER 29,     DECEMBER 31,
                                                        1996             1995
CURRENT ASSETS:
  Cash and cash equivalents                         $ 78,680         $ 48,295
 Accounts receivable, net of allowance for doubtful
   accounts of $22,907 and $0, respectively           66,165           40,379
 Current portion of notes and leases receivable      121,055          217,221
 Prepaid expenses and other                           16,492           24,826

     Total current assets                            282,392          330,721

PROPERTY AND EQUIPMENT, at cost:
 Leasehold improvements                              614,706          662,879
 Restaurant equipment                                518,674          480,933
 Furniture and fixtures                              188,507          196,052

     Total property and equipment                  1,321,887        1,339,864

Less accumulated depreciation and amortization    (1,080,338)      (1,206,293)

     Property and equipment, net                     241,549          133,571

LONG-TERM PORTION OF NOTES AND LEASES
 RECEIVABLE                                          748,222        2,053,387

LIQUOR LICENSES, net of accumulated amortization
 of $30,000 at December 29, 1996 and $67,085
 at December 31, 1995                                 45,186          156,530

OTHER ASSETS                                          34,711           49,735

     Total assets                                $ 1,352,060      $ 2,723,944



- Continued -

F-2

<PAGE>
                          HUDSON'S GRILL OF AMERICA, INC.

                      CONSOLIDATED BALANCE SHEETS, continued


                       LIABILITIES AND SHAREHOLDERS' EQUITY


                                                DECEMBER 29,     DECEMBER 31,
                                                        1996             1995
CURRENT LIABILITIES:
 Current portion of long-term debt                  $ 35,542         $ 65,199
 Accounts payable                                     46,922           37,430
 Accrued liabilities                                  82,500           32,586

     Total current liabilities                       164,964          135,215

LONG-TERM DEBT                                           -          1,172,989

OTHER LONG-TERM LIABILITIES                          293,908          422,720

DEFERRED INCOME                                      612,360          450,858

COMMITMENTS AND CONTINGENCIES (Note 4)

SHAREHOLDERS' EQUITY:
 Preferred stock, 1,000,000 shares authorized,
 none issued or outstanding
 Common stock, no par value, 100,000,000 shares
   authorized, 6,056,986 shares issued             4,456,457        4,456,457
   and outstanding
 Accumulated deficit                              (4,175,629)      (3,914,295)
     Total shareholders' equity                      280,828          542,162

     Total liabilities and shareholders' equity  $ 1,352,060      $ 2,723,944




See accompanying notes to these financial statements



F-3

<PAGE>
                   HUDSON'S GRILL OF AMERICA, INC.

               CONSOLIDATED STATEMENTS OF OPERATIONS

                                                   PERIODS ENDED
                                     DECEMBER 29,   DECEMBER 31,   JANUARY 1,
                                             1996           1995         1995
REVENUES:
 Net sales                              $ 109,806      $ 592,316     $ 44,469
  Joint venture revenues                  107,662        171,606      489,682
 Franchising fees from restaurants under
  sales contracts                          40,459            -            -
  Franchising revenues                    307,549        295,313       72,031
  Equipment lease income                   51,439         63,989       48,000
   Total revenues                         616,915      1,123,224      654,182

COST AND EXPENSES:
  Cost of sales                           158,111        732,343      175,700
  General and administrative              798,675        484,656      381,182
  Depreciation and amortization            58,371         87,147      297,491
   Total costs and expenses             1,015,157      1,304,146      854,373

   Loss from operations                  (398,242)      (180,922)    (200,191)

OTHER INCOME (EXPENSE):
  Interest expense                        (96,734)      (104,220)    (201,063)
 Interest and dividend income             180,135        176,730      140,415
 Gain (loss) on sales of restaurants      (14,266)        21,777       47,751
 Gain (loss) on restaurant closures           -           86,766     (802,799)
 Other                                     67,773         13,317       88,913
   Total other income (expense)           136,908        194,370     (726,783)


INCOME (LOSS) BEFORE INCOME
 TAXES AND EXTRAORDINARY ITEM            (261,334)        13,448     (926,974)
BENEFIT FOR INCOME TAXES                      -              -        369,002
INCOME (LOSS) BEFORE
 EXTRAORDINARY ITEM                      (261,334)        13,448     (557,972)
Extraordinary gain on restructuring           -              -      1,747,233
 of debt

NET INCOME (LOSS)                      $ (261,334)      $ 13,448  $ 1,189,261

INCOME (LOSS) PER SHARE
 Before extraordinary item                 $ (.04)       $   -     $     (.06)
 Extraordinary item                           -              -            .20
   Net income (loss) per share             $ (.04)       $   -     $      .14

See accompanying notes to these financial statements
F-4<PAGE>
                     HUDSON'S GRILL OF AMERICA, INC.

        CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)

       FOR THE PERIOD FROM JANUARY 2, 1994 THROUGH DECEMBER 29, 1996

                                   COMMON STOCK       ACCUMULATED
                               SHARES       AMOUNT       DEFICIT       TOTAL

BALANCES, January 2, 1994   6,056,986  $ 4,456,457   $ (5,117,004) $ (660,547)

Net income                      -            -          1,189,261   1,189,261

BALANCES, January 1, 1995   6,056,986    4,456,457     (3,927,743)    528,714

Net income                      -            -             13,448      13,448

BALANCES, December 31, 1995 6,056,986    4,456,457     (3,914,295)    542,162

Net loss                        -            -           (261,334)   (261,334)

BALANCES, December 29,1996  6,056,986  $ 4,456,457    $(4,175,629)  $ 280,828




See accompanying notes to these financial statements.



F-5
<PAGE>
                     HUDSON'S GRILL OF AMERICA, INC.

                 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                              PERIODS ENDED
                               DECEMBER 29,      DECEMBER 31,      JANUARY 1,
                                       1996              1995            1995
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)               $ (261,334)         $ 13,448     $ 1,189,261
 Adjustments to reconcile net
   income (loss) to net cash
   used by operating activities:
     Depreciation and amortization   58,371            87,147         297,491
     (Gain) loss on sales and
       closures of restaurants       14,266          (108,543)        755,048
     Forgiveness of debt, net of
       write-off of related assets      -                 -        (1,747,233)
 Changes in assets and liabilities:
     Accounts receivable           (113,584)          (57,715)        180,030
     Inventories                        -                 -            86,052
     Prepaid expenses and other         218           (11,865)         34,875
     Accounts payable                 9,493            36,756        (368,144)
     Accrued liabilities and other   61,935          (314,674)       (729,888)
       Net cash used by operating
         activities                (230,635)         (355,446)       (302,508)
CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to property and
   equipment                        (14,012)              -               -
 Net proceeds from sales of assets  116,821            12,182          22,000
 Increase in note receivable            -                 -       ( 1,000,000)
 Notes receivable principal
   payments                         160,123           124,204         239,684
 Leases receivable principal
   payments                          85,006           101,300          15,000
 Decrease in other assets               -              24,409             -
       Net cash provided (used)
         by investing activities    347,938           262,095        (723,316)
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from notes payable            -              40,000             -
 Repayments of notes payable        (86,918)         (141,104)       (176,028)
 Buy down of franchise fees             -             150,000             -
       Net cash provided (used)
         by financing activities    (86,918)           48,896        (176,028)
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                    30,385           (44,455)     (1,201,852)
CASH AND CASH EQUIVALENTS, beginning
 of period                           48,295            92,750       1,294,602
CASH AND CASH EQUIVALENTS, end of
 period                            $ 78,680          $ 48,295        $ 92,750

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid                      $ 96,734         $ 103,714       $ 102,242
Income taxes paid (recovered)      $    -           $     -         $(369,002)


-Continued-


F-6
<PAGE>
                   HUDSON'S GRILL OF AMERICA, INC

           CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:

Year Ended December 29, 1996
In connection with the sale of a restaurant, the Company received a note
receivable of $294,000.

In connection with the sale of another restaurant, the Company received a note
receivable of $282,086 and a lease receivable of $450,000. The note and lease
receivable were foreclosed on during 1996 and the location repossessed.

A note and lease receivable in the total amount of $195,000 were foreclosed
upon by the Company and the location repossessed.

A note receivable in the amount of $1,269,066, including accrued interest due
from a related party was decreased by $118,221 by the Company and the
remaining note receivable was assigned to the holder of a note payable in the
amount of $1,150,845, including accrued interest, in full satisfaction of the
note payable.


Year Ended December 31, 1995
In connection with the sale of a restaurant and equipment, the Company
received two notes receivable totaling $100,000 and leases receivable totaling
$320,000.


Year Ended January 1, 1995
In connection with the sale of a restaurant and equipment, the Company
received a note receivable of $262,800 and a lease receivable of $223,000.

Liabilities of $2,780,000 were forgiven in a debt restructuring transaction.







See accompanying notes to these financial statements



F-7

<PAGE>
                       HUDSON'S GRILL OF AMERICA, INC.

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Hudson's Grill of America, Inc. (the "Company") franchises and previously
owned and operated full-service restaurants, primarily in Southern California
and Texas. As of December 29, 1996, the Company has fourteen franchised
restaurants. Additionally, it owns three restaurants, all of which are held
for sale.

The consolidated financial statements include the Company and its wholly-owned
subsidiaries, Equipco, Inc. and Hudson's Grill of Whittier, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.

Management is in the process of attempting to sell and franchise the Company's
restaurants and believes that these and other cost cutting actions will assist
the Company in meeting its cash flow requirements over the next twelve months.


Restaurants Held for Sale
As of December 29, 1996, all of the restaurants held for sale are operated
pursuant to sales agreements with prospective purchasers. The Company has
ceased recording operating revenues and expenses on these restaurant
locations, but records franchising and advertising fees from restaurants under
sales contracts and equipment rental fees (see Note 8). The assets of the
restaurants held for sale are primarily property and equipment and liquor
licenses. Management has evaluated the remaining net assets of the restaurants
held for sale and believes the carrying values do not exceed the net
realizable values of those assets. Previously, certain restaurants held for
sale were operated under joint venture agreements with prospective purchasers.


Cash and Cash Equivalents
Cash and cash equivalents for purposes of reporting cash flows consist of cash
and short-term investments purchased with an original maturity of three months
or less.


Non-Current Assets
All of the Company's property and equipment is leased under operating leases
to prospective purchasers at December 29, 1996. Depreciation of property and
equipment is recognized using the straight-line method over the estimated
lives of the assets (generally five to seven years). Amortization of
leaseholds is recognized using the straight-line method over the shorter of
the initial term of the respective lease or the service life of the leased
asset.

Liquor licenses are recorded at cost and are amortized over ten years.


Revenue Recognition
Initial franchise fees are recognized as revenue when all material services or
conditions relating to the sale have been substantially performed or
satisfied. Continuing franchise fees are recognized as revenue as the fees are
and become receivable from the franchisee.


Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the financial and income tax
reporting bases of assets and liabilities. The deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled.


F-8


                     HUDSON'S GRILL OF AMERICA, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Stock-Based Compensation
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123 "Accounting for Stock-Based Compensation", which requires
recognition of the value of stock options and warrants granted based on an
option pricing model. However, as permitted by SFAS No. 123, the Company
continues to account for stock options and warrants granted to directors and
employees pursuant to APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. See Note 7.


Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant items in the accompanying financial statements that include
estimates are notes and leases receivable and lease contingencies. Actual
results could differ materially from those estimates.


Income (loss) per share
Income (loss) per common share is computed based upon the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares are not considered if their effect is antidilutive.
Common stock equivalents consist of outstanding stock options and warrants.
Common stock equivalents are assumed to be exercised with the related proceeds
used to repurchase outstanding shares except when the effect would be
antidilutive. Common equivalent shares were antidilutive in the periods ended
December 29, 1996 and December 31, 1995.

The weighted average number of shares outstanding used in the income (loss)
per share computation was 6,056,986 for each of the periods ended December 29,
1996 and December 31, 1995, and 8,845,589 for the period ended January 1,
1995.


Impact of Recently Issued Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" and Statement No. 128, "Earnings Per Share".
The Company intends to adopt these standards in 1997. Management believes they
will not have a material impact on the Company's financial statements.


2. FRANCHISE ACTIVITIES

In 1991, the Company commenced franchising its Hudson's Grill concept. Under
the terms of the standard franchise agreement, the franchisees are obligated
to pay the Company an initial franchise fee of $25,000, and a weekly
continuing royalty fee of 4% of gross restaurant revenues, and must spend 3%
of gross sales on approved advertising, including a weekly 1% marketing fee
contributed to the Company's marketing fund. The Company is obligated to
provide initial training, continuing management assistance, administration of
advertising and sales promotion programs and establishment and monitoring of a
marketing fund.



F-9


                     HUDSON'S GRILL OF AMERICA, INC

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Franchising revenues consisted of:

                                           PERIODS ENDED
                                 DECEMBER 29,     DECEMBER 31,     JANUARY 1,
                                         1996             1995           1995

   Initial franchise revenues       $  20,000        $  74,374       $    -
   Continuing franchise revenues      287,549          220,938         72,031
     Total franchise revenues       $ 307,549        $ 295,312       $ 72,031

In November 1995, the Company received $150,000 from a franchisee to prepay
franchise fees. The Company recorded the amount received as deferred income
and will amortize it to income over the life of the agreement. The balance at
December 29, 1996 is $128,983.


3. NOTES AND LEASES RECEIVABLE

At December 31, 1995 the Company had a note receivable with a balance of
$1,199,114 from its Texas franchisee. A principal shareholder of the Company
owns an interest in this entity, and Travis L. Bryant (see Note 5) owned an
interest in this entity until 1994. Monthly payments of principal and interest
in the amount of $14,006 were required for ten years at which time all
remaining principal and accrued interest was due. The note bore interest at a
rate of 8% per year and was collateralized by restaurant equipment and
improvements. In addition, an offset agreement existed in which the Company
could offset any past due amounts on the note against a note payable to Travis
L. Bryant. During 1996, the balance of this note and related accrued interest
was reduced by $118,221 as described below. In December 1996, the Company
entered into an agreement with Travis L. Bryant whereby the Company assigned
its interest in the reduced note receivable described above to Bryant in full
satisfaction of the note payable to Bryant.

The reduction of the balance of the note receivable and accrued interest of
$118,221 was charged to expense. In exchange for the note reduction, the Texas
franchisee assigned a 2% royalty interest in the sales of certain restaurants
to the Company.

In connection with the sale of restaurants in the period ended January 2,
1994, the Company received a note for $490,000 with annual installments of
principal and interest at prime plus 2% due over five years. The balance of
the note at December 29, 1996 and December 31, 1995 was $118,486 and $228,409
respectively.

In connection with the sale of a restaurant in the period ended January 1,
1995, the Company received a note for $262,800. The note bears interest at a
rate equal to the greater of prime plus 2% or 9%, adjusted on a quarterly
basis. Payments of interest only were required for one year, after which
ninety-six monthly payments are required in amounts necessary to amortize the
remaining principal balance of the note. The balance of the note was $250,300
at December 29, 1996 and $255,752 at December 31, 1995.

In connection with the sale of a restaurant in the period ended December 29,
1996, the Company received a $294,000 note which bears interest at 10.25%. The
note requires annual installments of principal and interest of $76,800 due
over four years and a final payment of $76,655. The balance of the note
receivable at December 29, 1996 is $278,245.


F-10

                       HUDSON'S GRILL OF AMERICA, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Each of the notes that arose from the sales of the various restaurants
referred to above are collateralized with certain assets of those restaurants.

The Company also leased the restaurant equipment to the purchasers of the
restaurants sold in the periods ended December 29, 1996, December 31, 1995 and
January 1, 1995. The leases have been classified as sales-type leases. The net
carrying value of the leases receivable at December 29, 1996 and December 31,
1995 is $207,697 and $419,093 respectively.

Future lease payments required under these agreements are as follows:

Due in fiscal periods ending:

           January 4, 1998              $  48,000
           January 3, 1999                 48,000
           January 2, 2000                 48,000
           January 1, 2001                 48,000
           December 31, 2001               48,000
           Thereafter                     155,302

               Total                      395,302
               Less amount representing
                 unearned interest       (187,605)

                                        $ 207,697


4. COMMITMENTS AND CONTINGENCIES

The Company's restaurant buildings and certain equipment are operated under
noncancellable operating leases. Terms of these leases extend from 3 to 25
years. Certain leases are guaranteed by former directors. In addition to
amounts included below, the leases generally provide that the Company pay
taxes, maintenance, insurance and certain other operating expenses applicable
to the leased property, plus a percentage of gross receipts in excess of
certain limits stated in the lease agreements. As explained in Note 8, most of
the Company's remaining restaurants are operated by third parties pursuant to
sales agreements and the rental payments are being made by those parties.

The following is a summary by periods of future minimum lease payments on the
restaurant locations:

Fiscal period ending:

           January 4, 1998                $ 396,336
           January 3, 1999                  396,336
           January 2, 2000                  396,336
           January 1, 2001                  329,136
           December 31, 2001                329,136
           Thereafter                     4,754,116

           Total minimum lease
             payments                   $ 6,601,396



F-11


                    HUDSON'S GRILL OF AMERICA, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition to the leases discussed above, the Company has assigned to the
purchasers the leases of buildings for six restaurants previously sold. The
Company is secondarily liable for the lease payments on these restaurants
should the purchasers not fulfill their responsibility under the leases. The
future lease payments for these restaurants total approximately $6,821,792 at
December 29, 1996. In addition, the Company may be secondarily liable under
other leases for restaurants sold in prior years.

Total rental expenses for operating leases were $28,892, $31,483 and $106,426
for the periods ended December 29, 1996, December 31, 1995, and January 1,
1995, respectively.

During 1996, the Company settled a lawsuit with a vendor to the operator of a
former joint venture in which the Company is obligated to pay $58,000 to the
plaintiff in monthly payments until October 1997. If the Company fails to
perform under the payment arrangement above, a stipulated judgement of
$100,000 will be entered by the court and the Company will be liable for the
full amount.


5. LONG-TERM DEBT

Long-term debt at December 29, 1996 and December 31, 1995 is summarized as
follows:

                                               DECEMBER 29,      DECEMBER 31,
                                                       1996              1995
Note payable to Travis L. Bryant, a former
  Company and a former part owner of the
  Company's Texas franchisee, monthly interest
  payments of $7,696 through November 1995 and
  monthly installments of $ 1 4,006 including 
  interest at 8% through November 2005. (See below
  and Note 3.)                                  $     -           $ 1,148,110


Note payable to Corona Market Partnership, due
  in monthly installments of $5,327, including
  interest of 8% through June 1997.                31,230              90,078
Other note payable                                  4,312                 -

Total                                              35,542           1,238,188
Less current portion                              (35,542)            (65,199)

  Long-term debt                                $     -           $ 1,172,989

In the year ended January 1, 1995, Travis L. Bryant formally agreed to reduce
a $3,360,000 note payable to him into a $1,300,000 note due in monthly
installments as described above. In addition, Bryant agreed to forgive certain
other amounts due him by the Company, which totaled approximately $720,000. In
connection with the restructuring transaction, Bryant also received a warrant
to purchase 4,000,000 shares of the Company's common stock at $.0625 per share
anytime over the next ten years. Consummation of the agreement was contingent
on the Company's performance of certain conditions, including the loan of an
additional amount to the Texas franchisee to increase that note receivable
from $300,000 to $1,300,000 (see Note 3) and the compromise and satisfaction
of certain liabilities due lessors of certain closed restaurant locations (see
Note 4). These conditions were satisfied in the year ended January 1, 1995 and
the debt restructure was consummated. The total debt forgiveness of



F-12

                    HUDSON'S GRILL OF AMERICA, INC

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


$1,747,233, net of approximately $1,033,000 of the write-off of associated
goodwill, was recorded as an extraordinary item. As discussed in Note 3,
during the year ended December 29, 1996, the Company entered into an agreement
with Bryant whereby the Company assigned the note receivable from the Texas
franchisee to Bryant in full satisfaction of this note payable.


6. INCOME TAXES

There was no income tax provision in 1996 and 1995 due to the net loss in 1996
and the application of tax net operating loss carry forwards in 1995. The
income tax benefit of $369,002 in the period ended January 1, 1995 resulted
from the carry back and receipt of refunds for income tax losses for prior
years. The benefit was not recorded in prior years due to uncertainty of
recovery at that time. The actual tax expense differs from the "expected" tax
expense computed by applying the U.S. Federal corporate tax rate of 34% to
earnings before income taxes for the year ended January 1, 1995 primarily due
to differences between financial reporting and income tax treatment of the
debt restructuring described in Note 5.

Deferred income taxes are provided for temporary differences between income
tax and financial reporting as of December 29, 1996 and December 31, 1995 as
follows:

                                                DECEMBER 29,     DECEMBER 31,
                                                        1996             1995
Deferred tax asset:
  Depreciation                                     $ 137,000        $ 182,000
  Net operating loss                                 197,000          134,000
  Accrued settlement                                  27,000           46,000
  Deferral income and rent                           171,000           90,000
  Valuation allowance                               (532,000)        (452,000)

                                                   $     -          $     -


At December 29, 1996, the Company had net operating loss (NOL) and investment
tax credit carry forwards for Federal income tax purposes of approximately
$890,000 and $180,000, respectively. Use of these carry forwards (with the
exception of approximately $575,000 of the NOL carry forward) are limited due
to issuance of the warrant described in Note 5.


7. SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

During 1996, the shareholders of the Company increased the Company's
authorized shares of common stock from 10,000,000 shares to 100,000,000
shares.


Stock Option Plans
The Company has an incentive stock option plan ("ISO") which provides for the
issuance of options to officers, directors and employees to purchase up to
825,000 shares of the Company's common stock. Options are exercisable at
prices equal to the fair market value of common stock at the grant date, vest
20% annually and expire generally within five years. The Company also has a
Directors' Stock Option Plan ("DSO"). This plan provides for the issuance of
up to 200,000 shares of stock to non-employee directors in increments of
10,000 shares every two years. Options will be issued at the average of the



F-13

                  HUDSON'S GRILL OF AMERICA, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

closing bid-ask price on the date of the grant. No options were outstanding as
of December 29, 1996, December 31, 1995 or January 1, 1995 under either plan.


Other Options and Warrants
In connection with a transaction with another company in 1991, the Company
issued a warrant to acquire 100,000 shares of the Company's common stock at
$1.00 per share. This warrant expired unexercised on January 1, 1996.

In January 1994, in connection with a debt restructuring agreement described
in Note 5, the Company issued warrants to Travis L. Bryant. The warrants are
exercisable for 4,000,000 shares of common stock at $.0625 per share and
expire in ten years. The exercise price approximated the market value of the
stock at the time of grant. None of the warrants had been exercised as of
December 29, 1996.

During 1995, the Company granted options to an officer to purchase 400,000
shares of common stock with 100,000 shares vesting each year from 1995 to
1998. The exercise price is the market price at time of vesting. The exercise
prices of the shares vested in 1996 and 1995 are $.17 and $ .11 per share,
respectively. All the options expire, if not exercised, in 2003.

The following table summarizes the option and warrant activity for the years
ended December 29, 1996, December 31, 1995 and January 1, 1995:


                      DECEMBER 29,          DECEMBER 31,           JANUARY 1,
                              1996                  1995                 1995

                           Weighted              Weighted             Weighted
                            Average               Average              Average
                   Number  Exercise      Number  Exercise     Number  Exercise
                of Shares     Price   of Shares     Price  of Shares     Price

Outstanding,
beginning of
year            4,300,000       .09   4,100,000       .09    100,000     1.00
 Granted to:
  Officer and
   director           -          -      200,000       .14        -         -
  Former director                                          4,000,000      .06
 Expired         (100,000)     1.00         -          -         -         -
 Exercised            -          -          -          -         -         -


Outstanding, end of
year            4,200,000       .07   4,300,000       .09  4,100,000      .09

In addition to the warrants and options in the table above, there are options
to purchase 200,000 shares of common stock which were granted in 1995 and vest
in 1997 and 1998 and expire in 2003. The exercise price will be determined
based on the market value at the time of vesting and therefore these options
are not included in the table above.





F-14

                     HUDSON'S GRILL OF AMERICA, INC.

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


During 1996, the Company agreed to issue warrants to a potential franchisor in
connection with the successful development of several restaurants. The
franchisor will be granted 25,000 warrants with an exercise price of $0.09375
per share and a five year term with each successful opening of a franchise
restaurant. There were no warrants granted under this agreement as of December
29, 1996.

As of December 29, 1996, 4,200,000 of the 4,400,000 outstanding options and
warrants were exercisable. If not previously exercised, warrants and options
outstanding at December 29, 1996 will expire as follows:

                                               Number of     Weighted Average
                        Period Ending             Shares       Exercise Price

                                 2003            200,000                  .14
                                 2004          4,000,000                  .06

                                               4,200,000

The weighted average exercise price equaled the market price for all warrants
and options granted during the periods ended December 29, 1996, December 31,
1995 and January 1, 1995.


Pro Forma Stock Based Compensation Disclosures
As reflected in Note 1, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for grants of options to the employees
since the exercise prices were not less than the fair value of the Company's
common stock on the measurement date. Had compensation been determined based
on the fair value at the measurement dates for awards under those plans
consistent with the method prescribed by SFAS No.123, the Company's net income
(loss) and earnings per share would have been changed to the pro forma amounts
indicated below.

                                                        PERIOD ENDED
                                                DECEMBER 29,     DECEMBER 31,
                                                        1996             1995

Net income (loss)
  As reported                                     $ (261,334)        $ 13,448
  Pro forma                                         (276,334)           3,448
Net income (loss) per common share
  As reported                                         $ (.04)        $    -
  Pro forma                                             (.05)             -





F- 15


                     HUDSON'S GRILL OF AMERICA, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of the options granted in 1996 and 1995 were estimated on the
date of vesting using the Black-Scholes option-pricing model with the
following weighted assumptions:

                                                   PERIOD ENDED
                                       DECEMBER 29, 1996     DECEMBER 31,1995

Expected volatility                                116.3%               113.7%
Risk-free interest rate                             6.25%                6.25%
Expected dividends                                    -                    -
Expected terms (in years)                             7                    8


8. RESTAURANT SALES AND CLOSURES

During the period ended December 29, 1996, the Company sold two restaurants
and initially recorded deferred gains totaling $599,421, to be amortized into
income over the terms of the related note and lease receivables (see Note 3).
In December 1996, the Company foreclosed on the purchaser of one of these
restaurants. As a result of the foreclosure, the deferred gain of $395,269 was
written off against the related note and lease receivable.

During the period ended December 31, 1995, the Company sold two restaurants
and a liquor license for a total loss of $8,550. Also in 1995, the Company
reached a final settlement on a lease of a closed restaurant in an amount of
$86,766 less than had been previously accrued. This amount was recorded as a
gain in the year ended December 31, 1995.

During the period ended January 1, 1995, the Company sold one restaurant and
recorded a deferred gain of $348,782 on the sale, which will be amortized into
income over the terms of the related note and lease receivables (see Note 3).
The balance of the deferred gain at December 29, 1996 and December 31, 1995
was $294,029 and $305,127, respectively.

On January 31, 1994, the Company closed its Irvine restaurant. In connection
with this closure, a loss of $460,000 was recorded as of January 2, 1994 to
write off goodwill and estimate the settlement of lease obligations. An
additional $188,000 of losses related to the closure of the Irvine restaurant
were recorded in the year ended January 1, 1995.

The Company wrote down the carrying value of a restaurant held for sale by
approximately $587,000 during the year ended January 1, 1995 due to diminished
prospects for the sale of the restaurant.

The Company is endeavoring to sell all three of the remaining restaurants
owned as of December 29, 1996 and has granted purchase options for each of
these restaurants. These purchase agreements include certain provisions,
whereby, the future purchasers operate the restaurants and the Company
receives royalty and advertising fees based on the restaurants' sales. In
addition, certain purchasers have agreed to lease in-store assets over the
term of the agreements, which expire upon sale of the restaurants. Based on
the option price provided in these agreements, management does not anticipate
recording a loss on sale of these restaurants.




F-16


                   HUDSON'S GRILL OF AMERICA, INC

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. FINANCIAL INSTRUMENTS


Concentrations of Credit Risk
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise
from financial instruments exist for groups of customers or counterparties
when they have similar economic characteristics that would cause their ability
to meet contractual obligations to be similarly effected by changes in
economic or other conditions. In accordance with FASB Statement No. 105,
Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk, the credit
risk amounts shown do not take into account the value of any collateral or
security.

Financial instruments that subject the Company to credit risk consist
principally of accounts receivable, cash on deposit and notes and leases
receivable.

At December 29, 1996, accounts receivable totaled $66,165, net of an allowance
for doubtful accounts of $22,907. The Company does not require collateral for
accounts receivable, but performs periodic credit evaluations on its
customers' financial condition and believes that the allowance for doubtful
accounts is adequate.

The Company periodically maintains cash balances in excess of FDIC insurance
limits.

Notes and leases receivables are described in Note 3.


Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments were
determined by management using available market information and appropriate
valuation methodologies. The estimates are not necessarily indicative of the
amounts the Company could realize in a current market exchange.

At December 29, 1996, cash, accounts receivable and accounts payable have fair
values that approximate book values based on their short term or demand
maturity. The fair values of notes receivable and notes payable are based on
estimated discounted cash flows. The fair values of these instruments
approximate book values at December 29, 1996.


10. SUBSEQUENT EVENTS

In January 1997, the Company closed on the sale of a restaurant located in
California. The sales price of $120,000 will result in a deferred gain of
$71,000 recorded by the Company.




F-17