**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549

**FORM 10-QSB**

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

Commission file number 333-94797

**HUDSON'S GRILL INTERNATIONAL, INC.**

(Name of small business issuer as specified in its charter)

Texas

(State or other jurisdiction of incorporation)

75-2738727

(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

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



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

Yes No X

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.

7,643,986 shares of Class A Common Stock outstanding as of August 13, 2007.

____________________________________________

Transitional Small Business Disclosure Format (Check one): Yes No X

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.



See the attached statements at the end of this Form 10-QSB.

Item 2. Management's Discussion and Analysis or Plan of Operation.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PORTIONS OF THIS REPORT CONTAIN FORWARD-LOOKING
INFORMATION THAT INVOLVES RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING
INFORMATION. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, AVAILABILITY OF FINANCIAL RESOURCES FOR LONG TERM NEEDS,
PRODUCT DEMAND, MARKET ACCEPTANCE AND OTHER FACTORS DISCUSSED
ELSEWHERE IN THIS REPORT. THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN
CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED
ELSEWHERE IN THIS REPORT.

Material changes in the consolidated financial condition of the Company and its subsidiary and in the
results of their operations since the end of its last fiscal year and their results from the comparable period
in their last fiscal year include the following:

**Consolidated Balances as of June 30, 2007, Compared to December 31, 2006**

The Company's cash balance at June 30, 2007 ("Q2") was $1,802, which is $1,802 more than it was at
December 31, 2006 ("FYE"), when it was $0. Accounts receivable decreased $6,845 because the Company
has two fewer franchises compared to FYE. The Company feels, nevertheless, that all of these will be
collected, and thus, no allowance for reserves is currently deemed necessary. Other current assets increased
$1,532; thus, current assets decreased $3,511.

Net property and equipment decreased slightly from FYE because of depreciation on real property owned
by the Company's subsidiary, HGI-Oshkosh LLC ("HGIO"). Consequently, net property and equipment
decreased by $20,619, which is the amount accumulated depreciation increased since FYE. Other assets
remained consistent, and as a result, total assets at Q1 decreased by $25,354 to $1,458,080 from
$1,483,434 at FYE.

Current liabilities increased by $4,930 to $106,052 at Q2 from $101,122 at FYE. This reflects decreases in
accounts payable ($13,227) and the current portion of the note payable to related party ($4,940), which
reflects a change in the note's payments to payments of interest only. At the same time, accounts payable to
related parties has increased $22,093 from $25,828 at FYE. This reflects the Company's current policy to
paying its third party vendors instead of paying related parties. As a result of lower current assets and
increased current liabilities, the Company's working capital decreased from negative working capital of
($57,470) at FYE to negative working capital of ($65,911) at Q2. Long-term notes payable increased in Q2
by $1,626, which represents two partially missed payments on the mortgage and loan taken out by the
Company's subsidiary to purchase and prepare the Oshkosh location. The bank modified the mortgage to
add an additional payment at the end of the mortgage. Long term note payable to related parties increased
by $4,939, which reflects the change to interest only payments of the note.

**The Three Months Ended June 30, 2007, Compared to June 30, 2006**

Significant changes in the results of operations for the three months ended June 30, 2007 ("Q2") compared
to the second quarter of 2006 ("Q06") include the following: franchise fees decreased from $93,552 in Q06
to $65,699 in Q2. Significant decreases in franchise fees from Santa Maria and Simi Valley, California,
and De Pere and Appleton, Wisconsin (all of which closed since Q06), and from Escanaba, Michigan,
were only partially offset by new royalties from Plover, Wisconsin. However, rent income increased by
$20,600 in Q2, which reflects HGIO's lease with the Company's Oshkosh franchise, which opened in July
2006. As a result, total revenues in Q2 declined from Q06 by $7,253 and were $86,299 in Q2.

Operating costs decreased by $54,035 during Q2 to $91,091 from $145,126 during Q06, despite an
increase in depreciation of $9,785 (the depreciation expense of the new building and equipment at
Oshkosh). General and administrative costs decreased by $63,820. This was largely the result of decreases
in bad debts ($26,081), consulting expenses with its former Midwest representative, Jim Stabile ($14,522),
and executive stock compensation ($12,900).

As a result, loss from operations decreased $46,782 during Q2, when compared to Q06. However, other
expense increased $9,864compared to Q06. This was as a result of interest expense of $34,658 incurred in
Q2 on the Oshkosh mortgage.

No income tax benefit was recorded in Q2, although $29,173 was recorded in Q06. The Company has
elected to cease recording any income tax benefit from losses until it resumes having quarters with profit.
Consequently, net loss decreased by $7,745 when compared to Q06 to a net loss of ($39,450) in Q2.

Loss per basic and diluted common share was $.01 per share for Q2 and $.01 for Q06.

**The Six Months Ended June 30, 2007, Compared to June 30, 2006**

Significant changes in the results of operations for the six months ended June 30, 2007 ("YTD07")
compared to the first six months of 2006 ("YTD06") include the following: franchise fees decreased by
$45,975 from $180,948 in YTD06 to $134,973 in YTD07. Significant decreases in franchise fees from
Santa Maria and Simi Valley, California, and De Pere and Appleton, Wisconsin (all of which closed since
YTD06), were only partially offset by new royalties from Plover, Wisconsin. A franchise opened in
YTD06 in Escanaba, Michigan, and paid a franchise fee of $25,000; no new franchises opened in YTD07,
and thus, initial franchise fees decreased by $25,000 in YTD07 compared to YTD06. However, rent
income increased by $40,600 in YTD07, which reflects HGIO's lease with the Company's Oshkosh
franchise, which opened in July 2006 and closed in July 2007. As a result, total revenues in YTD07
declined from YTD06 by $30,375 and were $175,573 in YTD07.

Operating costs decreased by $92,461 during YTD07 to $168,587 from $261,048 during YTD06, despite
an increase in depreciation of $19,570 (the depreciation expense of the new building and equipment at
Oshkosh). General and administrative costs decreased by $112,031. This was largely the result of
decreases in legal and accounting expenses ($20,242), bad debt expense ($26,081), travel ($8,558),
consulting expenses with the Company's former Midwest representative, Jim Stabile ($27,010), and
executive stock compensation ($24,510).

As a result, income from operations increased $62,086 during YTD07, when compared to YTD06, to
income of $6,986. However, other expense increased by $32,989 from ($23,745) in YTD06 to ($56,734)
in YTD07. This was as a result of an increase in interest expense of $50,493 incurred in YTD07 on the
Oshkosh mortgage. No income tax benefit was recorded in YTD07, and $29,173 was recorded in YTD06.
The Company has elected to cease recording any income tax benefit from losses until it resumes having
quarters with profit. Consequently, net loss increased by $76 when compared to YTD06 to a loss of
($49,748) in YTD07.

Loss per basic common share was $.01 per share for YTD07 and $.01 for YTD06.

**Liquidity and Capital Resources**

Normally, changes in the Company's liquidity and capital will depend primarily on continuing royalty fees
received from franchisees using the Company's trademark and restaurant concept. This in turn will be
reflective of the general economies in the areas where Hudson's Grill restaurants are located. The
Company does not currently plan to raise any capital or borrow funds to meet liquidity needs, and thus,
will rely solely on cash flows from operations. The Company's subsidiary HGIO, however, borrowed
money to buy real property in Oshkosh, Wisconsin, that was modified to be a Hudson's Grill and has been
leased to a new franchisee. This has affected the Company's liquidity since then, including Q2, since the
Company paid and has been paying for major expenses and interest related to the restaurant facilities that
HGIO was leasing out in Oshkosh. Currently, the Company's shortfall in cash flow has been covered by
increased payables to related parties.

The Company has scheduled payments with its creditors, including the related party creditors, to fit within
its cash flow constraints, but as of August 1, 2007, the Company is not paying the mortgage payment on
the Oshkosh property because the most recent Oshkosh franchisee closed down its operations there on July
31, 2007, because of poor sales and has ceased making any rent payments. The mortgagee of the Oshkosh
property is currently working with the Company and is waiting for the Company to sell the property. The
Company has listed the property for sale, but no offers have been received to date. If the Company is not
able to find a buyer soon, it will have to begin paying the mortgage or risk losing the property to
foreclosure.It may not have sufficient cash flow to make mortgage payments without borrowing from
related parties.

Two franchisees that closed in 2006 and three that closed in 2007 have decreased the Company's royalty
streams; these losses have only partially been offset by the Company's new franchise in Plover, Wisconsin.
The Company's cash balance of $1,802 at June 30, 2007, was $1,802 more than at the year ended
December 31, 2006. The increase was the result of reduced costs and increased payables to related parties.

The Company does not sustain much seasonal volatility in revenues since its franchisees are dispersed
geographically and climactically. Additionally, it does not have any material commitments for capital
expenditures and doesn't plan any in the foreseeable future.

Item 3. Disclosures; Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period, the Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's President, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the President concluded that the Company's disclosure controls and
procedures are effective in gathering, analyzing and disclosing information needed to satisfy the
Company's disclosure obligations under the Exchange Act.

(b) Changes in Internal Controls

There were no significant changes in the Company's internal controls or in other factors that could
significantly affect those controls during the quarter ended June 30, 2007.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not involved in any legal proceedings and knows of no matters that have been threatened
against the Company.

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

There were no unregistered sales of equity securities during the quarter.

Item 3. Defaults Upon Senior Securities.

None.

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

The only matters submitted to a vote of security holders during the quarter ended June 30, 2007, were the
election of directors and the approval of the Company's independent registered public accounting firm.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) The following exhibits are filed herewith:

|Exhibit No. | Description                                           | Page Number
|----------- | ----------------------------------------------------- | -----------
|            |                                                       |            
|(31.1)      | Certification Pursuant toSarbanes-Oxley Act Sec. 302  | attached   
|(32.1)      | Certification Pursuant to
Sarbanes-Oxley Act Sec. 906 | attached   

SIGNATURES

I, David L. Osborn, the President of Hudson's Grill International, Inc., certify that: (i) this report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii)
the information contained in this report fairly presents, in all material respects, the financial condition and
results of operations of Hudson's Grill International, Inc.

| | (Registrant)

HUDSON'S GRILL INTERNATIONAL, INC.

By: s/s David L. Osborn

David L. Osborn, President

Date: August 23, 2007
| | ----------------------------------------------------------------------------------------------------------------------------

| |                                       |                                                         | HUDSON'S GRILL INTERNATIONAL, INC.                                |  
| | ------------------------------------- | ------------------------------------------------------- | ----------------------------------------------------------------- | -
| |                                       |                                                         |                                                                   |  
| |                                       |                                                         | CONSOLIDATED BALANCE SHEETS                                       |  
| |                                       |                                                         |                                                                   |  
| |                                       |                                                         | ASSETS                                                           
| |                                       |                                                         |                                                                   |  
| |                                       |                                                         |                                                                   |  
| | Current
assets:                       |                                                         |                                                                   |  
| |                                       | Cash and
cash
equivalents                               |                                                                   | $
| |                                       | Accounts
receivable                                     |                                                                   |  
| |                                       | Other
current
assets                                    |                                                                   |  
| |                                       |                                                         | Total
current
assets                                              |  
| |                                       |                                                         |                                                                   |  
| |                                       |                                                         |                                                                   |  
| | Property
and
equipment,
at cost:      |                                                         |                                                                   |  
| |                                       | Furniture
and office
equipment                          |                                                                   |  
| |                                       | Restaurant
furniture
and
equipment                      |                                                                   |  
| |                                       | Land                                                    |                                                                   |  
| |                                       | Building                                                |                                                                   |  
| |                                       | Accumulated
depreciation                                |                                                                   |  
| |                                       |                                                         | Property
and
equipment,
net                                       |  
| |                                       |                                                         |                                                                   |  
| | Other
assets:                         |                                                         |                                                                   |  
| |                                       | Deferred
tax assets,
net                                |                                                                   |  
| |                                       | Loan
origination
costs, net                             |                                                                   |  
| |                                       |                                                         |                                                                   |  
| |                                       |                                                         | TOTAL
ASSETS                                                      | $
| |                                       |                                                         |                                                                   |  
| |                                       |                                                         |                                                                   |  
| |                                       |                                                         | LIABILITIES AND
STOCKHOLDERS'
EQUITY                              |  
| | Current
liabilities:                  |                                                         |                                                                   |  
| |                                       | Accounts
payable
and
accrued
expenses                   |                                                                   |  
| |                                       | Accounts
payable to
related
parties                     |                                                                   |  
| |                                       | Current
portion
note
payable                            |                                                                   |  
| |                                       | Current
portion
related
party                           |                                                                   |  
| |                                       |                                                         | Total
current
liabilities                                         |  
| |                                       |                                                         |                                                                   |  
| |                                       |                                                         |                                                                   |  
| | Long-term
note
payable                |                                                         |                                                                   |  
| | Long-term
note
payable,
related
party |                                                         |                                                                   |  
| |                                       |                                                         |                                                                   |  
| | Stockholders' equity:                 |                                                         |                                                                   |  
| |                                       | Common
stock,
Class A,
no par
value,
100,000,000 shares |                                                                   |  
| |                                       |                                                         | authorized,
7,643,986
and
7,514,986
shares
issued and
outstanding |  
| |                                       |                                                         | at June 30,
2007 and
December
31, 2006,
respectively              |  
| |                                       | Common
stock,
Class B,
no par
value,
15,000,000
shares  |                                                                   |  
| |                                       |                                                         | authorized,
no shares
issued and
outstanding                      |  
| |                                       | Retained
earnings                                       |                                                                   |  
| |                                       |                                                         | Total
stockholders' equity                                        |  
| |                                       |                                                         |                                                                   |  
| |                                       |                                                         | TOTAL
LIABILITIES AND
STOCKHOLDERS'
EQUITY                        | $

| |                         |                            |                               | HUDSON'S
GRILL
INTERNATIONAL,
INC.    |   |                    |   |             |                  |   |             |   |            
| | ----------------------- | -------------------------- | ----------------------------- | ------------------------------------- | - | ------------------ | - | ----------- | ---------------- | - | ----------- | - | -----------
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         |                            |                               | CONSOLIDATED STATEMENTS OF OPERATIONS |   |                   
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         |                            |                               |                                       |   | Three Months Ended |   |             | Six
Months
Ended |   |            
| |                         |                            |                               |                                       |   | June
30,           |   | June
30,    |                  |   | June
30,    |   | June
30,   
| |                         |                            |                               |                                       |   | 2007               |   | 2006        |                  |   | 2007        |   | 2006       
| |                         |                            |                               |                                       |   | (Unaudited)        |   | (Unaudited) |                  |   | (Unaudited) |   | (Unaudited)
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| | Revenues                |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         | Franchise
fees             |                               |                                       | $ | 65,699             | $ | 93,552      |                  | $ | 134,973     | $ | 180,948    
| |                         | Initital
franchise
fees    |                               |                                       |   | -                  |   | -           |                  |   | -           |   | 25,000     
| |                         | Rent
income                |                               |                                       |   | 20,600             |   | -           |                  |   | 40,600      |   | -          
| |                         |                            | Total
revenues                |                                       |   | 86,299             |   | 93,552      |                  |   | 175,573     |   | 205,948    
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| | Operating
costs:        |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         | General and
administrative |                               |                                       |   | 80,782             |   | 144,602     |                  |   | 147,969     |   | 260,000    
| |                         | Depreciation               |                               |                                       |   | 10,309             |   | 524         |                  |   | 20,618      |   | 1,048      
| |                         |                            | Total
operating
costs         |                                       |   | 91,091             |   | 145,126     |                  |   | 168,587     |   | 261,048    
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         |                            | Income
(loss)
from
operations |                                       |   | (4,792)            |   | (51,574)    |                  |   | 6,986       |   | (55,100)   
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| | Other
income
(expense): |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         | Note
income                |                               |                                       |   | -                  |   | 7,221       |                  |   | -           |   | 7,769      
| |                         | Interest
income            |                               |                                       |   | -                  |   | 307         |                  |   | -           |   | 808        
| |                         | Write
off
note
receivable  |                               |                                       |   | -                  |   | (26,081)    |                  |   | -           |   | (26,081)   
| |                         | Interest
expense           |                               |                                       |   | (34,658)           |   | (6,241)     |                  |   | (56,734)    |   | (6,241)    
| |                         |                            | Total
other
expense           |                                       |   | (34,658)           |   | (24,794)    |                  |   | (56,734)    |   | (23,745)   
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         |                            | Loss
before
income taxes      |                                       |   | (39,450)           |   | (76,368)    |                  |   | (49,748)    |   | (78,845)   
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         | Income tax
benefit         |                               |                                       |   | -                  |   | 29,173      |                  |   | -           |   | 29,173     
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| | Net
loss                |                            |                               |                                       | $ | (39,450)           | $ | (47,195)    |                  | $ | (49,748)    | $ | (49,672)   
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| | Net
loss
per
share-     |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         | basic
and
diluted          |                               |                                       | $ | (0.01)             | $ | (0.01)      |                  | $ | (0.01)      | $ | (0.01)     
| |                         |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| | Weighted
average        |                            |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         | outstanding
shares-        |                               |                                       |   |                    |   |             |                  |   |             |   |            
| |                         | basic
and
diluted          |                               |                                       |   | 7,643,986          |   | 7,385,986   |                  |   | 7,643,986   |   | 7,385,986  

| |                                       |                                               |                                             |                                              |                                       | HUDSON'S
GRILL
INTERNATIONAL,
INC.    |  |                           |  |  |            
| | ------------------------------------- | --------------------------------------------- | ------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------------------------------------- |  | ------------------------- |  |  | -----------
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       |                                               |                                             |                                              |                                       | CONSOLIDATED
STATEMENTS OF CASH
FLOWS |  |                          
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       |                                               |                                             |                                              |                                       |                                       |  | Six Months Ended June 30,
| |                                       |                                               |                                             |                                              |                                       |                                       |  | 2007                      |  |  | 2006       
| |                                       |                                               |                                             |                                              |                                       |                                       |  | (Unaudited)               |  |  | (Unaudited)
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| | Cash
Flows
From
Operating
Activities: |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       | Net loss                                      |                                             |                                              |                                       |                                       |  | $
(49,748)                |  |  | $
(49,672) 
| |                                       | Adjustments
to
reconcile net
loss to
net cash |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       |                                               | provided by
(used
in)
operating
activities: |                                              |                                       |                                       |  |                           |  |  |            
| |                                       |                                               |                                             | Amortization
of loan
origination
costs       |                                       |                                       |  | 1,224                     |  |  |            
| |                                       |                                               |                                             | Depreciation                                 |                                       |                                       |  | 20,619                    |  |  | 1,048      
| |                                       |                                               |                                             | Amortization
of
deferred
revenue             |                                       |                                       |  | -                         |  |  | (7,769)    
| |                                       |                                               |                                             | Stock
based
compensation                     |                                       |                                       |  | -                         |  |  | 24,510     
| |                                       |                                               |                                             | Write
off of
note
receivable                 |                                       |                                       |  |                           |  |  | 26,081     
| |                                       |                                               |                                             | Deferred tax
assets                          |                                       |                                       |  | -                         |  |  | (29,173)   
| |                                       |                                               |                                             | Interest
converted to
principal              |                                       |                                       |  | -                         |  |  | 6,241      
| |                                       |                                               |                                             | Changes in
operating assets
and
liabilities: |                                       |                                       |  |                           |  |  |            
| |                                       |                                               |                                             |                                              | Accounts
receivable                   |                                       |  | 6,845                     |  |  | (14,341)   
| |                                       |                                               |                                             |                                              | Other
current
assets                  |                                       |  | (1,532)                   |  |  | (3,769)    
| |                                       |                                               |                                             |                                              | Accounts
payable
and
accrued
expenses |                                       |  | (327)                     |  |  | 80,544     
| |                                       |                                               |                                             |                                              | Accounts
payable
to
related
parties   |                                       |  | 22,093                    |  |  | -          
| |                                       |                                               |                                             |                                              |                                       | Net
cash
provided by                  |  |                           |  |  |            
| |                                       |                                               |                                             |                                              |                                       | (used
in)
operating
activities        |  | (826)                     |  |  | 33,700     
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| | Cash
Flows
From
Investing
Activities: |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       | Royalty
receivable                            |                                             |                                              |                                       |                                       |  | -                         |  |  | (24,322)   
| |                                       | Purchase of
property and
equipment            |                                             |                                              |                                       |                                       |  | -                         |  |  | (1,229,927)
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       |                                               |                                             |                                              |                                       | Net
cash
used in                      |  |                           |  |  |            
| |                                       |                                               |                                             |                                              |                                       | investing
activities                  |  | -                         |  |  | (1,254,249)
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| | Cash
Flows
From
Financing
Activities: |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       | Proceeds from
issuance of
notes
payable       |                                             |                                              |                                       |                                       |  | 2,628                     |  |  | 1,125,000  
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       |                                               |                                             |                                              |                                       | Net
cash
provided by                  |  |                           |  |  |            
| |                                       |                                               |                                             |                                              |                                       | financing
activities                  |  | 2,628                     |  |  | 1,125,000  
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| | Net
Increase
(Decrease) In
Cash       |                                               |                                             |                                              |                                       |                                       |  | 1,802                     |  |  | (95,549)   
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| | Cash,
beginning of
period             |                                               |                                             |                                              |                                       |                                       |  | -                         |  |  | 125,803    
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| | Cash,
end of
period                   |                                               |                                             |                                              |                                       |                                       |  | $ 1,802                   |  |  | $
30,254   
| |                                       |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| | Supplemental
Disclosures:             |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       | Cash
paid for
income
taxes                    |                                             |                                              |                                       |                                       |  | $ 0                       |  |  | $ 0        
| |                                       | Cash
paid for
interest                        |                                             |                                              |                                       |                                       |  | $
40,748                  |  |  | $ 0        
| | Non-cash
Transaction:                 |                                               |                                             |                                              |                                       |                                       |  |                           |  |  |            
| |                                       | Accrued
compensation
paid
with
stock          |                                             |                                              |                                       |                                       |  | $
12,900                  |  |  | $ 0        

**1. UNAUDITED INFORMATION**

The consolidated balance sheet of Hudson's Grill International, Inc. (the "Company") as of June 30, 2007,
and the consolidated statements of operations for the three and six month periods ended June 30, 2007 and
2006, have not been audited. However, in the opinion of management, such information includes all
adjustments (consisting only of normal recurring adjustments) which are necessary to properly reflect the
financial position of the Company as of June 30, 2007, and the results of operations for the three and six
months ended June 30, 2007 and 2006.

Certain information and notes normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been condensed or omitted,
although management believes that the disclosures are adequate to make the information presented not
misleading. Interim period results are not necessarily indicative of the results to be achieved for an entire
year. These financial statements should be read in conjunction with the financial statements and notes to
financial statements included in the Company's consolidated financial statements as filed on Form 10-KSB
for the year ended December 31, 2006.

As noted in the Company's consolidated financial statements as filed on Form 10-KSB, one of the
Company's directors owns one franchise that does not pay any franchise fees. This is the result of a
previous agreement with the Company prior to the director's involvement with the Company; the Company
is not required to perform any services for the franchise owned by the director.

**2. ACCOUNTING CHANGES**

In June 2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109, Accounting for Income Taxes*(FIN48), to create a single model
to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by
prescribing a minimum recognition threshold that a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement,
classification, interest, and penalties, accounting in interim periods, disclosure and transition. The
Company adopted FIN 48 as of January 1, 2007, and the adoption did not have a material impact to the
Company's consolidated financial statements or effective tax rate and did not result in any unrecognized
tax benefits. Interest costs and penalties related to income taxes are classified as interest expense and
general and administrative costs, respectively, in the Company's consolidated financial statements. For the
three and six months ended June 30, 2007 and 2006, the Company did not recognize any interest or
penalty expense related to income taxes. The Company believes that is not reasonably possible for the
amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months. The
Company is currently subject to a three year statue of limitations by major tax jurisdictions. The Company
and its subsidiaries file income tax returns in the U.S. federal jurisdiction.

**3. STOCK GRANTS**

Beginning January 1, 2006, the Company adopted a stock plan in which stock was issued on January 2nd
and July 1st of each year to its officers and directors. Each semi-annual grant consisted of the following
amount of shares of common stock being issued: (1) 54,000 to the president; (2) 15,000 to the secretary;
and (3) 30,000 to each of the non-officer directors. The first grant occurred January 17, 2006, and a second
grant occurred on July 12, 2006, resulting in $7,740 and $16,770, respectively, of additional general and
administrative expenses. A third grant occurred January 16, 2007. The Company has decided to suspend
its stock plan effective January 15, 2007. In the last half of 2006, $12,900 was accrued as General and
Administrative expense, and Shareholder Equity was increased by this amount when the stock was actually
issued in January 2007.

**4. EARNINGS PER SHARE**

Basic earnings per share are calculated on the weighted average number of common shares outstanding
during each period. Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding for the period. Common
stock equivalents are excluded from the computation if such inclusion would have an anti-dilutive effect.

**5. BUILDING AND LAND**

On June 9, 2006, HGI-Oshkosh LLC ("HGIO"), a Texas limited liability company and wholly owned
subsidiary of the Company, purchased a building and land in Oshkosh, Wisconsin, for $1,115,000. It also
purchased furniture and equipment for $114,927, which was used to finish out the building as a Hudson's
Grill. HGIO borrowed $1,075,000 on a twenty year note from the Upper Peninsula State Bank in
Escanaba, Michigan, and $50,000 from the Company, to buy the building, land, furniture and equipment;
the Company borrowed the $50,000 that it loaned to HGIO from Border City Ale House, Inc. ("BCAH"), a
company owned by Anthony B. Duncan, one of the Company's directors. The Upper Peninsula State Bank
note has a variable interest rate of 1.5% over the prime rate as quoted by the *Wall Street Journal*; the
monthly payments are $10,178. The BCAH note has a variable interest rate of 1.0% over the prime rate as
quoted by the *Wall Street Journal*. The Company is currently paying interest only on the BCAH note. The
unpaid balance of the BCAH note is due on May 23, 2008. HGIO originally leased the building, land,
furniture and equipment to Service Solutions of Oshkosh, Inc., a former franchisee of the Company. On
May 1, 2007, it leased the property to Are We There Yet, LLC, a new franchisee of the Company.

**6. SUBSEQUENT EVENTS**

As of July 31, 2007, the new franchisee closed down operations at the Oshkosh location, and the
Company is no longer receiving any rent to cover the mortgage on the Oshkosh property. The Company
has recognized rental income according to the terms of the lease, and not on a straight line basis, since the
tenants have vacated the premises.

The mortgagee of the Oshkosh property is currently working with the Company and is waiting for the
Company to sell the property. The Company has listed the property for sale, but no offers have been
received to date. If the Company is not able to find a buyer soon, it will have to begin paying the mortgage
or risk losing the property to foreclosure.It may not have sufficient cash flow to make mortgage payments
without borrowing from related parties.