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



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 December 4, 2007.

____________________________________________

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



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:



The Company's cash balance at September 30, 2007 ("Q3")
was $3,847, which is $3,847 more than it was at December 31, 2006
("FYE"), when it was $0. Accounts receivable decreased
$3,663 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. The Company has offered for sale its Oshkosh building
and land. A former franchisee operated from this location, but
ceased operations on July 31, 2007. The Company has put the property
up for sale in August 2007. The assets associated with the discontinued
operations are now classified as current assets. These assets
decreased by $24,261 in Q3 to $1,228,242 from $1,252,503 at FYE
mainly as a result of depreciation. Other current assets increased
$1,491; thus, current assets decreased $22,586.

Net property and equipment decreased from FYE because of depreciation.
Consequently, net property and equipment decreased by $1,572,
which is the amount accumulated depreciation increased since FYE.
Other assets remained the same; and as a result, total assets
at Q3 decreased by $24,158 to $1,459,276 from $1,483,434 at FYE.

Current liabilities increased by $31,150 to $1,223,910 at Q3
from $1,192,760 at FYE. Accounts payable and accrued expenses
decreased by $20,955. At the same time, accounts payable to related
parties has increased to $65,191 from $25,828 at FYE. This reflects
the Company's current policy of paying its third party vendors
instead of paying related parties. The notes and liabilities related
to the original purchase of the land for the franchisee at Oshkosh
are now classified as current liabilities of discontinued operations
since the building and property are for sale. The liabilities
of discontinued operations have increased by $12,742 since FYE.
As a result of lower current assets and an increase in current
liabilities, the Company's working capital decreased from $103,395
at FYE to working capital of $49,659 at Q3.



Significant changes in the results of operations for the three
months ended September 30, 2007 ("Q3") compared to the
third quarter of 2006 ("Q06") include the following:
revenues from continuing operations decreased from $95,065 in
Q06 to $70,299 in Q3. Significant decreases in franchise fees
from Oshkosh, De Pere and Appleton, Wisconsin (all of which closed
since Q06), were only partially offset by new royalties from Plover,
Wisconsin.

Operating costs decreased by $38,552 during Q3 to $62,308 from
$100,860 during Q06. General and administrative costs decreased
by $38,552. This was largely the result of decreases in legal
and accounting costs ($7,402), which had been higher in Q06 because
of the opening of Oshkosh, bad debts ($4,635), consulting expenses
with its former Midwest representative, Jim Stabile ($12,931),
and executive stock compensation ($8,385).

As a result, income from operations increased $13,786 during
Q3, when compared to Q06. Other income (expense) remained about
the same; they decreased only $42 in Q3. No income tax benefit
was recorded in Q3 because the Company has had losses the last
several quarters, although an income tax benefit of $14,371 was
recorded in Q06. The Company has elected to cease recording any
income tax benefit from losses until it sustains profitable operations.
The net income from continuing operations was $7,991 in Q3, which
is an increase of $11,616 from Q06, which had a loss of $3,625.
The loss on discontinued operations net of income tax benefits
at the Oshkosh location was ($26,450) in Q3, which was an increase
in loss of $5,016, when compared to a loss in Q06 of ($21,434).
Thus, net loss for Q3 was ($18,459) compared to a net loss in
Q06 of ($25,059).

Loss per basic and diluted common
share for continuing operations, discontinued operations and all
operations was $.00 per share for Q3 and $.00 for Q06.



Significant changes in the results of operations for the nine
months ended September 30, 2007 ("YTD07") compared to
the first nine months of 2006 ("YTD06") include the
following: franchise fees decreased by $78,508 from $283,781 in
YTD06 to $205,273 in YTD07. Significant decreases in franchise
fees from Santa Maria and Simi Valley, California, and De Pere,
Oshkosh 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. As a result, total revenues from continuing operations
in YTD07 declined from YTD06 by $103,508 and were $205,273 in
YTD07.

Operating costs decreased by $112,666 during YTD07 to $209,726
from $322,392 during YTD06. General and administrative costs decreased
by $112,666. This was largely the result of decreases in legal
and accounting expenses ($17,461), travel ($11,229), due to opening
the Oshkosh franchise in YTD06, consulting expenses with the Company's
former Midwest representative, Jim Stabile ($39,941), who was
terminated in YTD06, and executive stock compensation ($32,895),
which was discontinued in YTD07.

As a result, loss from operations decreased $9,158 during YTD07,
when compared to YTD06, to loss of ($4,453). Other expense decreased,
too, by $25,231 from ($25,231) in YTD06 to $0 in YTD07. This was
as a result of a write off of a note receivable in YTD06 ($26,081),
associated with the closing of Hornblowers in YTD06. No
income tax benefit was recorded in YTD07, and $14,371 was recorded
in YTD06. The Company has elected to cease recording any income
tax benefit from losses until it sustains profitable operations.
Consequently, net loss from continuing operations after income
tax benefits decreased by $20,018 when compared to YTD06 to a
loss of ($4,453) in YTD07.The loss on discontinued operations
at the Oshkosh location, net of income tax benefits, was ($63,755)
in YTD07, which was an increase in loss of $13,494, when compared
to a loss in YTD06 of ($50,261). Thus, net loss for YTD07 was
($68,208) compared to a net loss in YTD06 of ($74,732).

Loss per basic and diluted common
share for continuing operations was $.00 per share for YTD06 and
$.00 for YTD06. Loss per basic and diluted common share for discontinued
operations and for all operations was ($.01) per share for YTD06
and ($.01) for YTD06.



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 or from funds or services provided by its directors.
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 had been leased to a new franchisee. This has
affected the Company's liquidity since then, including Q3, 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, which has since closed, and is classified as discontinued
operations. 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 has suspended the mortgage
payments on the Oshkosh property because the most recent Oshkosh
franchisee closed down its operations there on July 31, 2007,
due to 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. In the mean time, the Company has tentatively
agreed on a forbearance agreement with the mortgagee to be signed
by the end of November 2007 to pay a reduced interest rate of
5.25% and to pay interest only each month. This will be effective
November 2007 and will give the Company until July 1, 2008, to
sell the property. If the Company is not able to find a buyer
by the end of the forbearance period and it cannot get an extension
from the mortgagee, it will risk losing the property to foreclosure.It may not have sufficient cash flow
to make mortgage payments without borrowing from related parties.

Three 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 $3,847 at
September 30, 2007, was $3,847 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 September 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.

None.

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: December 4, 2007
| | -------------------------------------------------------------------------------------------------------------------------------------------------

| |                                  |                                                                            | HUDSON'S GRILL INTERNATIONAL, INC.                                |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | -------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------------------------- | - | -------------- | - | ------------- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | CONSOLIDATED BALANCE SHEETS                                       |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | ASSETS                                                            |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   | Sept. 30, 2007 |   | Dec. 31, 2006 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   | (Unaudited)    |   | (Audited)     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Current assets:                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Cash and cash equivalents                                                  |                                                                   | $ | 3,847          | $ | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Accounts receivable                                                        |                                                                   |   | 35,637         |   | 39,300        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Other current assets                                                       |                                                                   |   | 5,843          |   | 4,352         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Assets of discontinued operations                                          |                                                                   |   | 1,228,242      |   | 1,252,503     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | Total current assets                                              |   | 1,273,569      |   | 1,296,155     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Property and equipment, at cost: |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Furniture and office equipment                                             |                                                                   |   | 25,637         |   | 25,637        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Accumulated depreciation                                                   |                                                                   |   | (23,684)       |   | (22,112)      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | Property and equipment, net                                       |   | 1,953          |   | 3,525         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Other assets:                    |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Deferred tax assets, net                                                   |                                                                   |   | 183,754        |   | 183,754       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | TOTAL ASSETS                                                      | $ | 1,459,276      | $ | 1,483,434     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | LIABILITIES AND STOCKHOLDERS' EQUITY                              |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Current liabilities:             |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Accounts payable and accrued expenses                                      |                                                                   | $ | 7,737          | $ | 28,692       
| |                                  | Accounts payable to related parties                                        |                                                                   |   | 65,191         |   | 25,828        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Liabilities of discontinued operations (see notes 5 & 6)                   |                                                                   |   | 1,104,908      |   | 1,092,165     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Liabilities of discontinued operations-related party (see notes
    5 & 6) |                                                                   |   | 46,074         |   | 46,075        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | Total current liabilities                                         |   | 1,223,910      |   | 1,192,760     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | 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 September 30, 2007 and December 31, 2006, respectively         |   | 179,955        |   | 167,055       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Common stock, Class B, no par value, 15,000,000 shares                     |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | authorized, no shares issued and outstanding                      |   | -              |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  | Retained earnings                                                          |                                                                   |   | 55,411         |   | 123,619       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | Total stockholders' equity                                        |   | 235,366        |   | 290,674       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                  |                                                                            | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        | $ | 1,459,276      | $ | 1,483,434     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 

| |                                             |                                              |                               | HUDSON'S GRILL INTERNATIONAL, INC.    |   |                    |   |               |                   |   |               |   |              
| | ------------------------------------------- | -------------------------------------------- | ----------------------------- | ------------------------------------- | - | ------------------ | - | ------------- | ----------------- | - | ------------- | - | -------------
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             |                                              |                               | CONSOLIDATED STATEMENTS OF OPERATIONS |   |                   
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             |                                              |                               |                                       |   | Three Months Ended |   |               | Nine Months Ended |   |              
| |                                             |                                              |                               |                                       |   | September 30,      |   | September 30, |                   |   | September 30, |   | September 30,
| |                                             |                                              |                               |                                       |   | 2007               |   | 2006          |                   |   | 2007          |   | 2006         
| |                                             |                                              |                               |                                       |   | (Unaudited)        |   | (Unaudited)   |                   |   | (Unaudited)   |   | (Unaudited)  
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| | Revenues                                    |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | Franchise fees                               |                               |                                       | $ | 70,299             | $ | 95,065        |                   | $ | 205,273       | $ | 283,781      
| |                                             | Initial franchise fees                       |                               |                                       |   | -                  |   | -             |                   |   | -             |   | 25,000       
| |                                             |                                              | Total revenues                |                                       |   | 70,299             |   | 95,065        |                   |   | 205,273       |   | 308,781      
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| | Operating costs:                            |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | General and administrative                   |                               |                                       |   | 61,784             |   | 100,336       |                   |   | 208,154       |   | 320,820      
| |                                             | Depreciation                                 |                               |                                       |   | 524                |   | 524           |                   |   | 1,572         |   | 1,572        
| |                                             |                                              | Total operating costs         |                                       |   | 62,308             |   | 100,860       |                   |   | 209,726       |   | 322,392      
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             |                                              | Income (loss) from operations |                                       |   | 7,991              |   | (5,795)       |                   |   | (4,453)       |   | (13,611)     
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| | Other income (expense):                     |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | Interest income                              |                               |                                       |   | -                  |   | 42            |                   |   | -             |   | 850          
| |                                             | Write-off note receivable                    |                               |                                       |   | -                  |   | -             |                   |   | -             |   | (26,081)     
| |                                             |                                              | Total other income (expense)  |                                       |   | -                  |   | 42            |                   |   | -             |   | (25,231)     
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             |                                              | Income (loss) from continuing |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             |                                              | operations before income tax  |                                       |   | 7,991              |   | (5,753)       |                   |   | (4,453)       |   | (38,842)     
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | Income tax benefit                           |                               |                                       |   | -                  |   | 2,128         |                   |   | -             |   | 14,371       
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             |                                              | Income (loss) from continuing |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             |                                              | operations                    |                                       |   | 7,991              |   | (3,625)       |                   |   | (4,453)       |   | (24,471)     
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| | Discontinued operations (see notes 5 and 6) |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | Loss on discontinued operations (net of tax  |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | benefit of $12,589 and $29,519 for three and |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | nine month periods ended September 30, 2006) |                               |                                       |   | (26,450)           |   | (21,434)      |                   |   | (63,755)      |   | (50,261)     
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| | Net loss                                    |                                              |                               |                                       | $ | (18,459)           | $ | (25,059)      |                   | $ | (68,208)      | $ | (74,732)     
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| | Net income (loss) per share-                |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | basic and diluted                            |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | Continuing operations                        |                               |                                       |   | -                  | $ | -             |                   | $ | -             | $ | -            
| |                                             | Discontinued operations                      |                               |                                       |   | -                  | $ | -             |                   | $ | -0.01         | $ | -0.01        
| | Net loss per share-                         |                                              |                               |                                       |   | -                  | $ | -             |                   | $ | -0.01         | $ | -0.01        
| |                                             |                                              |                               |                                       | $ |                    |   |               |                   |   |               |   |              
| |                                             |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| | Weighted average                            |                                              |                               |                                       |   |                    |   |               |                   |   |               |   |              
| |                                             | outstanding shares-                          |                               |                                       |   | 7,643,986          |   | 7,510,686     |                   |   | 7,643,986     |   | 7,427,552    
| |                                             | basic and diluted                            |                               |                                       |   |                    |   |               |                   |   |               |   |              

| |                                       |                                               |                                   |                                              |                                       | HUDSON'S GRILL INTERNATIONAL, INC.    |  |                   |  |  |              
| | ------------------------------------- | --------------------------------------------- | --------------------------------- | -------------------------------------------- | ------------------------------------- | ------------------------------------- |  | ----------------- |  |  | -------------
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       |                                               |                                   |                                              |                                       | CONSOLIDATED STATEMENTS OF CASH FLOWS |  |                  
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       |                                               |                                   |                                              |                                       |                                       |  | Nine Months Ended
| |                                       |                                               |                                   |                                              |                                       |                                       |  | September 30,     |  |  | September 30,
| |                                       |                                               |                                   |                                              |                                       |                                       |  | 2007              |  |  | 2006         
| |                                       |                                               |                                   |                                              |                                       |                                       |  | (Unaudited)       |  |  | (Unaudited)  
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| | Cash Flows From Operating Activities: |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       | Net loss                                      |                                   |                                              |                                       |                                       |  | $ (68,208)        |  |  | $ (74,732)   
| |                                       | Adjustments to reconcile net loss to net cash |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       |                                               | provided by operating activities: |                                              |                                       |                                       |  |                   |  |  |              
| |                                       |                                               |                                   | Amortization of loan origination costs       |                                       |                                       |  | 1,428             |  |  | -            
| |                                       |                                               |                                   | Depreciation                                 |                                       |                                       |  | 24,405            |  |  | 10,136       
| |                                       |                                               |                                   | Amortization of deferred revenue             |                                       |                                       |  | -                 |  |  | (8,043)      
| |                                       |                                               |                                   | Stock based compensation                     |                                       |                                       |  | -                 |  |  | 32,895       
| |                                       |                                               |                                   | Write-off note receivable                    |                                       |                                       |  | -                 |  |  | 26,081       
| |                                       |                                               |                                   | Deferred tax assets                          |                                       |                                       |  | -                 |  |  | (43,890)     
| |                                       |                                               |                                   | Interest converted to principal              |                                       |                                       |  | -                 |  |  | 6,241        
| |                                       |                                               |                                   | Changes in operating assets and liabilities: |                                       |                                       |  |                   |  |  |              
| |                                       |                                               |                                   |                                              | Accounts receivable                   |                                       |  | 3,663             |  |  | (11,205)     
| |                                       |                                               |                                   |                                              | Other current assets                  |                                       |  | (1,491)           |  |  | (3,170)      
| |                                       |                                               |                                   |                                              | Accounts payable and accrued expenses |                                       |  | 2,058             |  |  | 37,797       
| |                                       |                                               |                                   |                                              | Accounts payable to related parties   |                                       |  | 39,363            |  |  | 20,311       
| |                                       |                                               |                                   |                                              | Deferred rent income                  |                                       |  | -                 |  |  | 10,000       
| |                                       |                                               |                                   |                                              | Deferred franchise fees               |                                       |  | -                 |  |  | 15,000       
| |                                       |                                               |                                   |                                              |                                       | Net cash provided by                  |  |                   |  |  |              
| |                                       |                                               |                                   |                                              |                                       | operating activities                  |  | 1,218             |  |  | 17,421       
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| | Cash Flows From Investing Activities: |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       | Royalty receivable, net                       |                                   |                                              |                                       |                                       |  | -                 |  |  | (22,696)     
| |                                       | Purchase of property and equipment            |                                   |                                              |                                       |                                       |  | -                 |  |  | (1,229,927)  
| |                                       |                                               |                                   |                                              |                                       | Net cash used in                      |  |                   |  |  |              
| |                                       |                                               |                                   |                                              |                                       | investing activities                  |  | -                 |  |  | (1,252,623)  
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| | Cash Flows From Financing Activities: |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       | Proceeds from issuance of note payable        |                                   |                                              |                                       |                                       |  | -                 |  |  | 1,125,000    
| |                                       | Repayment of notes payable                    |                                   |                                              |                                       |                                       |  | 2,629             |  |  | (1,754)      
| |                                       |                                               |                                   |                                              |                                       | Net cash provided by                  |  |                   |  |  |              
| |                                       |                                               |                                   |                                              |                                       | financing activities                  |  | 2,629             |  |  | 1,123,246    
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| | Net Increase (Decrease) In Cash       |                                               |                                   |                                              |                                       |                                       |  | 3,847             |  |  | (111,956)    
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| | Cash, beginning of period             |                                               |                                   |                                              |                                       |                                       |  | -                 |  |  | 125,803      
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| | Cash, end of period                   |                                               |                                   |                                              |                                       |                                       |  | $ 3,847           |  |  | $ 13,847     
| |                                       |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| | Supplemental Disclosures:             |                                               |                                   |                                              |                                       |                                       |  |                   |  |  |              
| |                                       | Cash paid for income taxes                    |                                   |                                              |                                       |                                       |  | $ 0               |  |  | $ 0          
| |                                       | Cash paid for interest                        |                                   |                                              |                                       |                                       |  | $ 57,562          |  |  | $ 32,050     
| | 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 September 30, 2007, and the consolidated statements of operations
for the three and nine month periods ended September 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 September
30, 2007, and the results of operations for the three and nine
months ended September 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 nine months ended September 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. DISCONTINUED OPERATIONS**

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 had a variable interest rate
of 1.5% over the prime rate as quoted by the *Wall Street Journal*;
the monthly payments were $10,178. 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, which has subsequently ceased operations at the
Oshkosh location on July 31, 2007. The property is currently vacant
and has been for sale since August 2007. Effective November 1,
2007, pursuant to a proposed forbearance agreement to be signed
by the end of November 2007, the interest rate on the State Bank
note will be adjusted to 5.25%, and the monthly payments shall
be interest only until July 1, 2008, when the forbearance agreement
expires, and the mortgagee will have the power to file a deed
in lieu of foreclosure. 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, if the building is sold by then, but if not, it has
been extended until the building is sold.

The BCAH note has been classified
as a current liability as "Liabilities from discontinued
operations - related party" since it must be paid off as
part of the sale of the land and building. The bank note is classified
as a current liability as "Liabilities from discontinued
operations" since the note secures the land and building
that is for sale, and it must be paid off when the land and building
are sold. Pursuant to EITF Issue Number 87-24, the Company has
allocated all of the interest on the bank note and the BCAH note
to the discontinued operations because the proceeds from these
notes were used solely to purchase the building and land, and
the notes must be paid off when the building and land are sold.

The operations of the Company
related to its ownership of the building and land have been accounted
for as discontinued operations under generally accepted accounting
principles, and therefore, the results of operations related to
the building and land have been reflected separately from the
Company's results from continuing operations for all periods presented
in the accompanying financial statements.

**6. SUBSEQUENT EVENTS**

The mortgagee of the Oshkosh property is currently working
with the Company and has orally agreed to a forbearance agreement
that will expire July 1, 2008, and is waiting for the Company
to sell the property. This forbearance agreement is to be signed
by the end of November 2007. The mortgagee and the Company have
not yet signed the agreement, but have orally agreed to all of
its terms. 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 risk losing the property to the
mortgagee.Further, it may not have
sufficient cash flow to make the reduced mortgage payments without
borrowing from related parties.