**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 March 31, 2007

Commission file number 333-94797

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

(Name of small business issuer 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 May 8, 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 March 31, 2007, Compared to December 31, 2006**

The Company's cash balance at March 31, 2007 ("Q1") was $11,615, which is $11,615 more than it was at
December 31, 2006 ("FYE"), when it was $0. Accounts receivable decreased $7,787 because the Company
has fewer franchises. The Company feels, nevertheless, that all of these will be collected, and thus, no
allowance for reserves is currently necessary. Other current assets increased $792; thus, current assets
increased $4,620.

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 $10,309, which is the amount accumulated depreciation increased in Q1. Other assets
remained consistent, and as a result, total assets at Q1 decreased by $6,301 to $1,477,133 from $1,483,434
at FYE.

Current liabilities decreased by $11,624 to $89,498 at Q1 from $101,122 at FYE. This reflects decreases in
accounts payable ($5,596) and the current portion of the note payable to related party ($4,940), which is
due to that note going into interest only payments for the next year. As a result of higher current assets and
decreased current liabilities, the Company's working capital increased from negative working capital of
($57,470) at FYE to negative working capital of ($41,226) at Q1. Long-term notes payable decreased in
Q1 by $2,219, which represents principal payments made on the mortgage and loan taken out by the
Company's subsidiary to purchase and prepare the Oshkosh location. Long term note payable to related
parties increased by $4,940, which reflects the change to interest only payments of the note over the next
year.

**The Three Months Ended March 31, 2007, Compared to March 31, 2006**

Significant changes in the results of operations for the three months ended March 31, 2007 ("Q1")
compared to the first quarter of 2006 ("Q06") include the following: franchise fees decreased from
$87,944 in Q06 to $69,274 in Q1. Significant decreases in franchise fees from Santa Maria and Simi
Valley, California, and Appleton, Wisconsin (all of which closed since Q06), and from De Pere,
Wisconsin, were only partially offset by new royalties from Plover, Wisconsin. A franchise opened in Q06
in Escanaba, Michigan, and paid a franchise fee of $25,000; no new franchises opened in Q1, and thus,
initial franchise fees decreased by $25,000 in Q1 compared to Q06. However, rent income increased by
$20,000 in Q1, which reflects HGIO's lease with the Company's Oshkosh franchise, which opened in July
2006. As a result, total revenues in Q1 declined from Q06 by $23,670 and were $89,274 in Q1.

Operating costs decreased by $38,426 during Q1 to $77,496 from $115,922 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 $48,211. This was largely the result of a
decreases in legal and accounting expenses ($14,519), travel ($7,566), consulting expenses with Jim
Stabile ($12,488) and executive stock compensation ($11,610).

As a result, income from operations increased $14,756 during Q1, when compared to Q06. However,
other income decreased $22,578 compared to Q06. This was as a result of interest expense of $22,077
incurred in Q1 on the Oshkosh mortgage. Consequently, net loss increased by $7,822 when compared to
Q06 to a loss of ($10,299) in Q1.

Loss per basic common share was $.00 per share for Q1 and $.00 for Q06. Loss per share per diluted
common share was $.00 per share for Q1 and $.00 for Q06.

**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 Q1, since the
Company paid and is still paying for major expenses related to the operation of the new restaurant facilities
that HGIO is leasing out in Oshkosh.

The Company has scheduled payments with its creditors, including the insider creditors, to fit within its
cash flow, and the rent from the new Oshkosh franchise almost completely covers the monthly mortgage
payments on the Oshkosh mortgage. So long as the new franchise remains in business and pays its rent, the
Company shouldn't have any problems with paying the mortgage.

Three franchisees that closed in 2006 and two 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 does not anticipate any royalty stream from its new Oshkosh franchise until mid-2008. The
Company's cash balance of $11,615 at March 31, 2007, was $11,615 more than at the year ended
December 31, 2006. The increase was the result of reduced costs.

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 March 31, 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.

There were no matters submitted to a vote of security holders during the quarter ended March 31, 2007.

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: May 31, 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:      |                                                         |                                                                   |  
| |                                       | Office
furniture
and
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 |                                                         |                                                                   |  
| |                                       |                                                         |                                                                   |  
| | Commitments and
contingencies         |                                                         |                                                                   |  
| |                                       |                                                         |                                                                   |  
| | 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 March
31, 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
March 31, |   |             | 
| |                        |                            |                               |                                       |   | 2007                         |   | 2006        |  |  | 
| |                        |                            |                               |                                       |   | (Unaudited)                  |   | (Unaudited) |  |  | 
| |                        |                            |                               |                                       |   |                              |   |             |  |  | 
| | Revenues               |                            |                               |                                       |   |                              |   |             |  |  | 
| |                        | Franchise fees             |                               |                                       | $ | 69,274                       | $ | 87,944      |  |  | 
| |                        | Initial
franchise fees     |                               |                                       |   | -                            |   | 25,000      |  |  | 
| |                        | Rent
Income                |                               |                                       |   | 20,000                       |   | -           |  |  | 
| |                        |                            | Total
revenues                |                                       |   | 89,274                       |   | 112,944     |  |  | 
| |                        |                            |                               |                                       |   |                              |   |             |  |  | 
| | Operating
costs:       |                            |                               |                                       |   |                              |   |             |  |  | 
| |                        | General
and
administrative |                               |                                       |   | 67,187                       |   | 115,398     |  |  | 
| |                        | Depreciation               |                               |                                       |   | 10,309                       |   | 524         |  |  | 
| |                        |                            | Total
operating costs         |                                       |   | 77,496                       |   | 115,922     |  |  | 
| |                        |                            |                               |                                       |   |                              |   |             |  |  | 
| |                        |                            | Income
(loss)
from
operations |                                       |   | 11,778                       |   | (2,978)     |  |  | 
| |                        |                            |                               |                                       |   |                              |   |             |  |  | 
| | Other
income(expense): |                            |                               |                                       |   |                              |   |             |  |  | 
| |                        | Interest
income            |                               |                                       |   | -                            |   | 501         |  |  | 
| |                        | Interest
expense           |                               |                                       |   | (22,077)                     |   | -           |  |  | 
| |                        |                            | Total
other
income
(expense)  |                                       |   | (22,077)                     |   | 501         |  |  | 
| |                        |                            |                               |                                       |   |                              |   |             |  |  | 
| | Net loss               |                            |                               |                                       | $ | (10,299)                     | $ | (2,477)     |  |  | 
| |                        |                            |                               |                                       |   |                              |   |             |  |  | 
| | Net
income
per
share-  |                            |                               |                                       |   |                              |   |             |  |  | 
| |                        | basic
and
diluted          |                               |                                       | $ | -                            | $ | -           |  |  | 
| |                        |                            |                               |                                       |   |                              |   |             |  |  | 
| | Weighted
average       |                            |                               |                                       |   |                              |   |             |  |  | 
| |                        | outstanding
shares-        |                               |                                       |   |                              |   |             |  |  | 
| |                        | basic                      |                               |                                       |   | 7,643,986                    |   | 7,364,486   |  |  | 
| |                        |                            |                               |                                       |   |                              |   |             |  |  | 
| |                        | diluted                    |                               |                                       |   | 7,643,986                    |   | 7,364,486   |  |  | 

| |                                       |                                                        |                                             |                                              |                                       | HUDSON'S
GRILL
INTERNATIONAL,
INC.    |  |                              |  |  |            
| | ------------------------------------- | ------------------------------------------------------ | ------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------------------------------------- |  | ---------------------------- |  |  | -----------
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | CONSOLIDATED
STATEMENTS OF CASH
FLOWS |  |                             
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       |                                                        |                                             |                                              |                                       |                                       |  | Three Months Ended March 31,
| |                                       |                                                        |                                             |                                              |                                       |                                       |  | 2007                         |  |  | 2006       
| |                                       |                                                        |                                             |                                              |                                       |                                       |  | (Unaudited)                  |  |  | (Unaudited)
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| | Cash
Flows
From
Operating
Activities: |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       | Net
income
(loss)                                      |                                             |                                              |                                       |                                       |  | $
(10,299)                   |  |  | $
(2,477)  
| |                                       | Adjustments
to
reconcile net
income
(loss) to
net cash |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       |                                                        | provided by
(used
in)
operating
activities: |                                              |                                       |                                       |  |                              |  |  |            
| |                                       |                                                        |                                             | Amortization
of loan
origination
costs       |                                       |                                       |  | 612                          |  |  |            
| |                                       |                                                        |                                             | Depreciation                                 |                                       |                                       |  | 10,309                       |  |  | 524        
| |                                       |                                                        |                                             | Amortization
of
deferred
revenue             |                                       |                                       |  | -                            |  |  | (548)      
| |                                       |                                                        |                                             | Stock
based
compensation                     |                                       |                                       |  | -                            |  |  | 11,610     
| |                                       |                                                        |                                             | Changes in
operating assets
and
liabilities: |                                       |                                       |  |                              |  |  |            
| |                                       |                                                        |                                             |                                              | Accounts
receivable                   |                                       |  | 7,787                        |  |  | (15,124)   
| |                                       |                                                        |                                             |                                              | Other
current
assets                  |                                       |  | (792)                        |  |  | (790)      
| |                                       |                                                        |                                             |                                              | Accounts
payable
and
accrued
expenses |                                       |  | 7,304                        |  |  | 18,229     
| |                                       |                                                        |                                             |                                              | Accounts
payable
to
related
parties   |                                       |  | (1,566)                      |  |  | -          
| |                                       |                                                        |                                             |                                              | Deposits                              |                                       |  | -                            |  |  | (10,000)   
| |                                       |                                                        |                                             |                                              |                                       | Net
cash
provided by                  |  |                              |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | operating
activities                  |  | 13,355                       |  |  | 1,424      
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| | Cash
Flows
From
Investing
Activities: |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       | Royalty
receivable                                     |                                             |                                              |                                       |                                       |  | -                            |  |  | (25,000)   
| |                                       |                                                        |                                             |                                              |                                       | Net
cash
used in                      |  |                              |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | investing
activities                  |  | -                            |  |  | (25,000)   
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| | Cash
Flows
From
Financing
Activities: |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       | Repayment of
notes
payable                             |                                             |                                              |                                       |                                       |  | (1,740)                      |  |  | -          
| |                                       |                                                        |                                             |                                              |                                       | Net
cash
used in                      |  |                              |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | financing
activities                  |  | (1,740)                      |  |  | -          
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| | Net
Increase
(Decrease) In
Cash       |                                                        |                                             |                                              |                                       |                                       |  | 11,615                       |  |  | (23,576)   
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| | Cash,
beginning of
period             |                                                        |                                             |                                              |                                       |                                       |  | -                            |  |  | 125,803    
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| | Cash,
end of
period                   |                                                        |                                             |                                              |                                       |                                       |  | $
11,615                     |  |  | $
102,227  
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| | Supplemental
Disclosures:             |                                                        |                                             |                                              |                                       |                                       |  |                              |  |  |            
| |                                       | Income
taxes
paid                                      |                                             |                                              |                                       |                                       |  | $ 0                          |  |  | $ 0        
| |                                       | Interest
paid                                          |                                             |                                              |                                       |                                       |  | $
21,465                     |  |  | $ 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 March 31,
2007, and the consolidated statements of operations for the three month periods ended March 31, 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 March 31, 2007, and the results of operations for the three months
ended March 31, 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 financial statements as filed on Form 10-KSB for the year
ended December 31, 2006.

As noted in the Company's 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 months ended March 31, 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 grants have since been suspended.
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. It now
leases the property to Are We There Yet, LLC, a new franchisee of the Company. The lease is for one year
with possible renewals for up to twenty years and is a triple net lease; the rent escalates over time and also
provides for percentage rent. The monthly rent in 2007 is $10,000. The Company recognizes rental income
according to the terms of the lease, and not on a straight line basis, since the tenant is on a short term lease,
and renewals are not guaranteed.

**6. SUBSEQUENT EVENTS**

Subsequent to the three month period ended March 31, 2007, Are We There Yet, LLC, a Wisconsin
limited liability company, took over the operation of the Oshkosh, Wisconsin, franchisee that opened the
Oshkosh Hudson's Grill restaurant. Service Solutions of Oshkosh, LLC, the former Oshkosh franchise,
was in default of its lease and its franchise agreement with the Company. A smooth transition from the
former franchise to the current franchise was accomplished May 1, 2007, and the new franchise is now
operating the Oshkosh, Wisconsin, Hudson's Grill restaurant. It also started paying rent on May 1, 2007.
The new franchise is affiliated with the franchisee of the Company's Wausau, Marshfield and Plover,
Wisconsin, franchises.