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







Check whether the registrant filed
all documents and reports required to be filed by Section 12,
13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.

Yes No



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

7,514,986 shares of Class A Common
Stock outstanding as of November 8, 2006.



____________________________________________

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, 2006 ("Q3")
was $13,847, which is $111,956 less than it was at December 31,
2005 ("FYE"), when it was $125,803. This is primarily
due to a "buy-up" of the Company's royalty fee rate
with its Appleton, Wisconsin franchisee, which needed $25,000
for operational purposes, and the purchase of $114,927 of furniture
and equipment. This furniture and equipment was bought to finish
out and furnish real property purchased by the Company's subsidiary
(HGI-Oshkosh, LLC, hereafter referred to as "HGIO"),
which property is now leased to the Company's franchisee in Oshkosh,
Wisconsin. Accounts receivable increased $19,110 because the Company
recognized the current portion of the buy-up royalty receivable,
and three franchisees (Santa Maria, California, Jackson, Michigan,
and Appleton, Wisconsin) have fallen further behind in payments.
The Company feels, nevertheless, that all of these will be collected,
and thus, no allowance for reserves is currently necessary. Other
current assets increased $3,170; this was mainly due to an increase
in inventory of jackets and Hudson's pictures for new franchisees.

Net property and equipment increased
significantly from FYE because of HGIO's purchase of real property
and restaurant equipment that it is leasing to the Company's Oshkosh
franchise. Net property and equipment increased by $1,219,791,
which increase was the result of the addition of $114,927 in new
restaurant furniture and equipment and the addition of $1,115,000
in building and land. Deferred tax assets increased by $43,890,
which is the amount of tax benefit the Company anticipates receiving
from the loss incurred year-to-date. The Company's long term note
receivable decreased by $26,080 due to the write-off of the remaining
net balance of the note; Hornblowers, the restaurant that secured
this note, closed for business, and the Company determined that
the value of Hornblowers' remaining assets was too small to warrant
any expenditure of funds to enforce the Company's lien. The Company's
other long term assets increased by $14,791, which reflects the
long term portion of a buy-up royalty receivable owed by the Appleton
franchise. As a result, total assets at Q3 increased by $1,162,716
to $1,506,907 from $344,191 at FYE.

Current liabilities increased
by $116,163 to $121,294 at Q3 from $5,131 at FYE. This reflects:
an accrual of $8,385 in stock compensation payable to the Company's
executives on January 2, 2007; property taxes payable by HGIO
of $14,343; an increase of $9,111 in the amount owed to the Company's
auditors; $10,000 in deferred rent income for a rent payment made
in advance; $20,311 owed for legal services to one of the Company's
directors; a $24,670 increase in the current portion of notes
payable; and the accrual of deferred franchise fees of $15,000
paid by the Company's new franchise in Plover, Wisconsin, that
opened in October 2006. The increased payables increased because
the Company was using its cash to pay for the furnishing of the
Oshkosh site. As a result of lower current assets and increased
current liabilities, the Company's working capital decreased from
$154,225 at FYE to negative working capital of ($51,614) at Q3.
Deferred revenue decreased by $8,042 from $14,441 at FYE and is
now $6,399 at Q3; this reflects the deferred income that was associated
with the closing of the San Luis Obispo franchise. Long-term notes
payable increased in Q3 by $1,065,563, which represents 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 $39,253, which reflects the long term portion
of the note payable to one of the Company's directors, who helped
fund the purchase of the Oshkosh site.





Significant changes in the results
of operations for the three months ended September 30, 2006 ("Q3")
compared to the third quarter of 2005 ("Q05") include
the following: franchise fees decreased from $103,269 in Q05 to
$95,065 in Q3. Significant decreases in franchise fees from Santa
Maria and Simi Valley, California, Dubuque, Iowa, and Appleton
and De Pere, Wisconsin, were partially offset by new royalties
from Oshkosh, Wisconsin, and Escanaba, Michigan. A franchise opened
in Q05 in Appleton, Iowa, and paid a franchise fee of $25,000;
no new franchises opened in Q3, and thus, initial franchise fees
decreased by $25,000 in Q3 compared to Q05. However, rent income
increased by $20,000 in Q3, which reflects HGIO's new lease with
the Company's Oshkosh franchise, which opened in July 2006. As
a result, total revenues in Q3 declined from Q05 by $13,204 and
were $115,065 in Q3.

Operating costs increased by $41,934
during Q3 to $122,833 from $80,899 during Q05, primarily due to
new expenses associated with HGIO's leasing of Oshkosh and the
depreciation expense of the new building and equipment at Oshkosh
(together they were $21,973). The increase in operating expenses
was also due to increases in: legal and accounting (increased
$13,585) because of new reporting requirements and new consolidated
accounting; executive stock compensation (increased $2,250), reflecting
the accounting at market value of stock issued to officers and
directors; and uncollectible receivables (increased $4,635).

As a result, income from operations
decreased $55,138 during Q3, when compared to Q05. The decrease
in other income was $32,446 compared to Q05. This was as a result
of interest expense of $32,050 incurred in Q3 on the Oshkosh mortgage.
An income tax benefit was recorded in Q3 in expectation that the
quarter's loss would be partially recovered in reduced taxes in
the future; this benefit was $14,717. Consequently, net income
decreased by $72,867 when compared to Q05 to a loss of ($25,059)
in Q3.

Income (loss) per basic common
share was ($.00) per share for Q3 and $.01 for Q05. Income (loss)
per share per diluted common share was ($.00) per share for Q3
and $.01 for Q05.





Significant changes in the results of operations for the nine
months ended September 30, 2006 ("YTD06"), compared
to the same period in 2005 ("YTD05") include the following:
There was an increase of $13,703 in YTD06 franchise fees mostly
attributable to new income streams from Escanaba, Michigan, and
from Oshkosh, Wisconsin, which was offset by a significant decrease
in franchise fees from De Pere, Wisconsin, and Simi Valley, California.
Initial franchise fees decreased in YTD06 by $70,000. Only one
new franchise opened in YTD06 compared to three that opened in
YTD05. The drop in initial franchise fees was offset somewhat
by rent income, which increased by $20,000. This reflects HGIO's
purchase and subsequent new leasing of Oshkosh, for which rent
began in August 2006. As a result, total revenues decreased by
$36,297 from $365,078 in YTD05 to $328,781 in YTD06.

YTD05 operating expenses increased by $88,206 in YTD06 to $383,881,
mainly as a result of the $61,489 in new operating expenses from
HGIO for its new Oshkosh operation, and an increase in executive
stock compensation valued at $32,895, Also, increases in salaries
(due to raises in mid 2005), legal and accounting, group insurance,
and travel (to help establish the Oshkosh location) were offset
by decreases in training expense (for opening De Pere and Dubuque
in 2005), consulting and directors fees.

Thus, income from operations decreased by $124,503 to a loss
of ($55,100) in YTD06. Other expense was ($63,522). It decreased
by $69,889 due to writing off a note of $26,081 from Hornblowers,
a restaurant in Ventura, California, that closed in 2006, and
interest expense of $36,775 associated with HGIO's mortgage on
its Oshkosh property. An income tax
benefit was recorded in expectation that the period's loss would
be recovered in reduced taxes in the future; this benefit was
$43,890. Thus, because of the decreases in income from
operations and from other income, which were somewhat offset by
the tax benefit, net income decreased by $150,502 to a loss of
($74,732) in YTD06.

Income (loss) per basic common
share was ($.01) per share for YTD06 and $.01 for YTD05. Income
(loss) per diluted common share was ($.01) per share for YTD06
and $.01 for YTD05.





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 in Q3, since the Company
has paid and is still paying for major expenses related to the
purchase and establishment of the new restaurant facilities that
HGIO is leasing out in Oshkosh.

Three franchisees that opened earlier in 2005 and two that
opened in 2006 have created new royalty streams that have been
somewhat offset by declining fees from older franchises and the
closing of two franchises since the Spring 2005. The Company's
cash balance of $13,847 at September 30, 2006, was $111,956less than at the year ended December
31, 2005. The decrease was the result of funds needed for the
purchase and renovation of the Oshkosh property. That franchisee
opened on July 8, 2006, and the Company now gets franchise fees
from that new franchise. This will improve liquidity beginning
in the fourth quarter 2006.

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, 2006.



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 September
30, 2006.

Item 5. Other Information.

The Company does not have any
material new information that has not already been disclosed in
Forms 8-K, 10-QSB and 10-KSB.

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: November 8, 2006
| | -------------------------------------------------------------------------------------------------------------------------------------------------





| |                                       |                                                         | HUDSON'S GRILL INTERNATIONAL, INC.                                |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | ------------------------------------- | ------------------------------------------------------- | ----------------------------------------------------------------- | - | -------------- | - | ------------- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | CONSOLIDATED BALANCE SHEETS                                       |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | ASSETS                                                            |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   | Sept. 30, 2006 |   | Dec. 31, 2005 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   | (Unaudited)    |   | (Audited)     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Current assets:                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Cash and cash equivalents                               |                                                                   | $ | 13,847         | $ | 125,803       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Accounts receivable                                     |                                                                   |   | 46,076         |   | 26,966        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Other current assets                                    |                                                                   |   | 9,757          |   | 6,587         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | Total current assets                                              |   | 69,680         |   | 159,356       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Property and equipment, at cost:      |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Office furniture and equipment                          |                                                                   |   | 25,637         |   | 25,637        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Restaurant furniture and equipment                      |                                                                   |   | 114,927        |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Building and land                                       |                                                                   |   | 1,115,000      |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Accumulated depreciation                                |                                                                   |   | (30,152)       |   | (20,016)      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | Property and equipment, net                                       |   | 1,225,412      |   | 5,621         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Deferred tax assets                   |                                                         |                                                                   |   | 197,024        |   | 153,134       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Long-term note receivable, net        |                                                         |                                                                   |   | -              |   | 26,080        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Long-term royalty receivable          |                                                         |                                                                   |   | 14,791         |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | TOTAL ASSETS                                                      | $ | 1,506,907      | $ | 344,191       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | LIABILITIES AND STOCKHOLDERS' EQUITY                              |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Current liabilities:                  |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Accounts payable and accrued expenses                   |                                                                   | $ | 51,313         | $ | 5,131         |  |  |  |  |  | 
| |                                       | Accounts payable to related parties                     |                                                                   |   | 20,311         |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Current portion note payable                            |                                                                   |   | 15,678         |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Current portion related party                           |                                                                   |   | 8,992          |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Deferred rent income                                    |                                                                   |   | 10,000         |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Deferred franchise fee                                  |                                                                   |   | 15,000         |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | Total current liabilities                                         |   | 121,294        |   | 5,131         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Deferred revenue                      |                                                         |                                                                   |   | 6,399          |   | 14,441        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Long-term note payable                |                                                         |                                                                   |   | 1,065,563      |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Long-term note payable, related party |                                                         |                                                                   |   | 39,253         |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| | Stockholders' equity:                 |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Common stock, Class A, no par value, 100,000,000 shares |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | authorized, 7,510,686 and 7,256,986 shares issued and outstanding |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | at September 30, 2006 and December 31, 2005, respectively         |   | 167,055        |   | 142,545       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Common stock, Class B, no par value, 15,000,000 shares  |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | authorized, no shares issued and outstanding                      |   | -              |   | -             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       | Retained earnings                                       |                                                                   |   | 107,343        |   | 182,074       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | Total stockholders' equity                                        |   | 274,398        |   | 324,619       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         |                                                                   |   |                |   |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |                                       |                                                         | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        | $ | 1,506,907      | $ | 344,191       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 



| |                              |                               |                                 | HUDSON'S GRILL INTERNATIONAL, INC.    |   |                    |   |               |                   |   |               |   |              
| | ---------------------------- | ----------------------------- | ------------------------------- | ------------------------------------- | - | ------------------ | - | ------------- | ----------------- | - | ------------- | - | -------------
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              |                               |                                 | CONSOLIDATED STATEMENTS OF OPERATIONS |   |                    |   |               |                   |   |               |   |              
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              |                               |                                 |                                       |   | Three Months Ended |   |               | Nine Months Ended |   |              
| |                              |                               |                                 |                                       |   | September 30,      |   | September 30, |                   |   | September 30, |   | September 30,
| |                              |                               |                                 |                                       |   | 2006               |   | 2005          |                   |   | 2006          |   | 2005         
| |                              |                               |                                 |                                       |   | (Unaudited)        |   | (Unaudited)   |                   |   | (Unaudited)   |   | (Unaudited)  
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| | Revenues                     |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              | Franchise Fees                |                                 |                                       | $ | 95,065             | $ | 103,269       |                   | $ | 283,781       | $ | 270,078      
| |                              | Initial franchise fees        |                                 |                                       |   | -                  |   | 25,000        |                   |   | 25,000        |   | 95,000       
| |                              | Rent income                   |                                 |                                       |   | 20,000             |   | -             |                   |   | 20,000        |   | -            
| |                              |                               | Total revenues                  |                                       |   | 115,065            |   | 128,269       |                   |   | 328,781       |   | 365,078      
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| | Operating costs:             |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              | General and administrative    |                                 |                                       |   | 113,745            |   | 80,401        |                   |   | 373,745       |   | 294,017      
| |                              | Depreciation and amortization |                                 |                                       |   | 9,088              |   | 498           |                   |   | 10,136        |   | 1,658        
| |                              |                               | Total operating costs           |                                       |   | 122,833            |   | 80,899        |                   |   | 383,881       |   | 295,675      
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              |                               | Income (loss) from operations   |                                       |   | (7,768)            |   | 47,370        |                   |   | (55,100)      |   | 69,403       
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| | Other income (expense):      |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              | Note income                   |                                 |                                       |   | -                  |   | -             |                   |   | -             |   | 3,459        
| |                              | Interest income               |                                 |                                       |   | 42                 |   | 438           |                   |   | 850           |   | 3,208        
| |                              | Write-off note receivable     |                                 |                                       |   | -                  |   | -             |                   |   | (26,081)      |   | -            
| |                              | Interest expense              |                                 |                                       |   | (32,050)           |   | -             |                   |   | (38,291)      |   | (300)        
| |                              |                               | Total other income (expense)    |                                       |   | (32,008)           |   | 438           |                   |   | (63,522)      |   | 6,367        
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              |                               | Income (loss) before income tax |                                       |   | (39,776)           |   | 47,808        |                   |   | (118,622)     |   | 75,770       
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              | Income tax benefit            |                                 |                                       |   | 14,717             |   | -             |                   |   | 43,890        |   | -            
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| | Net income (loss)            |                               |                                 |                                       | $ | (25,059)           | $ | 47,808        |                   | $ | (74,732)      | $ | 75,770       
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| | Net income (loss) per share- |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              | basic and diluted             |                                 |                                       | $ | -                  | $ | 0.01          |                   | $ | -0.01         | $ | 0.01         
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| | Weighted average             |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              | outstanding shares-           |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              | basic                         |                                 |                                       |   | 7,510,686          |   | 7,256,986     |                   |   | 7,427,552     |   | 7,256,986    
| |                              |                               |                                 |                                       |   |                    |   |               |                   |   |               |   |              
| |                              | diluted                       |                                 |                                       |   | 7,510,686          |   | 8,643,931     |                   |   | 7,427,552     |   | 8,444,383    



| |                                       |                                                        |                                             | HUDSON'S GRILL INTERNATIONAL, INC.           |                                       | .                              |  |                   |  |  |              
| | ------------------------------------- | ------------------------------------------------------ | ------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------------------------------ |  | ----------------- |  |  | -------------
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       |                                                        |                                             | CONSOLIDATED STATEMENTS OF CASH
    FLOWS    |                                       |                                |  |                  
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       |                                                        |                                             |                                              |                                       |                                |  | Nine Months Ended
| |                                       |                                                        |                                             |                                              |                                       |                                |  | September 30,     |  |  | September 30,
| |                                       |                                                        |                                             |                                              |                                       |                                |  | 2006              |  |  | 2005         
| |                                       |                                                        |                                             |                                              |                                       |                                |  | (Unaudited)       |  |  | (Unaudited)  
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| | Cash Flows From Operating Activities: |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       | Net income (loss)                                      |                                             |                                              |                                       |                                |  | $ (74,732)        |  |  | $ 75,770     
| |                                       | Adjustments to reconcile net income (loss) to net cash |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       |                                                        | provided by (used in) operating activities: |                                              |                                       |                                |  |                   |  |  |              
| |                                       |                                                        |                                             | Depreciation and amortization                |                                       |                                |  | 10,136            |  |  | 1,658        
| |                                       |                                                        |                                             | Amortization of deferred revenue             |                                       |                                |  | (8,043)           |  |  | (5,226)      
| |                                       |                                                        |                                             | 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                   |                                |  | (11,205)          |  |  | 4,678        
| |                                       |                                                        |                                             |                                              | Other current assets                  |                                |  | (3,170)           |  |  | 1,494        
| |                                       |                                                        |                                             |                                              | Accounts payable and accrued expenses |                                |  | 37,797            |  |  | (2,410)      
| |                                       |                                                        |                                             |                                              | Accounts payable to related parties   |                                |  | 20,311            |  |  | (12,985)     
| |                                       |                                                        |                                             |                                              | Deferred rent income                  |                                |  | 10,000            |  |  |              
| |                                       |                                                        |                                             |                                              | Deferred franchise fees               |                                |  | 15,000            |  |  | (70,000)     
| |                                       |                                                        |                                             |                                              |                                       | Net cash provided by           |  |                   |  |  |              
| |                                       |                                                        |                                             |                                              |                                       | (used in) operating activities |  | 17,421            |  |  | (7,021)      
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| | Cash Flows From Investing Activities: |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       | Royalty receivable, net                                |                                             |                                              |                                       |                                |  | (22,696)          |  |  | -            
| |                                       | Repayment of notes receivable                          |                                             |                                              |                                       |                                |  | -                 |  |  | 5,083        
| |                                       | Purchase of property and equipment                     |                                             |                                              |                                       |                                |  | (1,229,927)       |  |  | (2,433)      
| |                                       |                                                        |                                             |                                              |                                       | Net cash provided by           |  |                   |  |  |              
| |                                       |                                                        |                                             |                                              |                                       | (used in) investing activities |  | (1,252,623)       |  |  | 2,650        
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| | Cash Flows From Financing Activities: |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       | Proceeds from issuance of note payable                 |                                             |                                              |                                       |                                |  | 1,125,000         |  |  | -            
| |                                       | Repayment of line of credit and notes payable          |                                             |                                              |                                       |                                |  | (1,754)           |  |  | (11,000)     
| |                                       |                                                        |                                             |                                              |                                       | Net cash provided by           |  |                   |  |  |              
| |                                       |                                                        |                                             |                                              |                                       | (used in) financing activities |  | 1,123,246         |  |  | (11,000)     
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| | Net Decrease In Cash                  |                                                        |                                             |                                              |                                       |                                |  | (111,956)         |  |  | (15,371)     
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| | Cash, beginning of period             |                                                        |                                             |                                              |                                       |                                |  | 125,803           |  |  | 129,368      
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| | Cash, end of period                   |                                                        |                                             |                                              |                                       |                                |  | $ 13,847          |  |  | $ 113,997    
| |                                       |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| | Supplemental Disclosures:             |                                                        |                                             |                                              |                                       |                                |  |                   |  |  |              
| |                                       | Income taxes paid                                      |                                             |                                              |                                       |                                |  | $ 0               |  |  | $ 0          
| |                                       | Interest paid                                          |                                             |                                              |                                       |                                |  | $ 32,050          |  |  | $ 0          



**1. UNAUDITED INFORMATION**

The consolidated balance sheet
of Hudson's Grill International, Inc. (the "Company")
as of September 30, 2006 and the consolidated statements of operations
for the three and nine month periods ended September 30, 2006
and 2005, 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, 2006, and the results of operations for the three and nine
months ended September 30, 2006 and 2005.

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, 2005.

As noted in the Company's financial
statements as filed on Form 10-KSB, one of the Company's directors
owns two franchises that do 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 two franchises owned by the director.

**2. STOCK OPTIONS AND GRANTS**

Until December 31, 2005, the Company
president's compensation included the granting of stock options.
In 2005 the president was granted 18,000 stock options per month.
The Company also granted 10,000 stock options per month in 2005
to each of the two non-officer directors of the Company, as compensation
for services as directors. Additionally, beginning September 2005,
it granted 5,000 stock options per month to the Company's secretary.
All options were fully vested when granted and expire in seven
years. The Company ceased its stock option plan on December 31,
2005. Beginning January 1, 2006, the Company adopted a stock plan
in which stock will be issued on January 2nd and July
1st of each year to its officers and directors. Each
semi-annual grant will consist 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.

The Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 123R,
*Share-Based Payment*, as of January 1, 2006, using the
modified prospective application method. This statement requires
the recognition of compensation expense when an entity obtains
employee services in exchange for stock-based payment transactions.

Prior to January 1, 2006, the Company accounted for stock options
granted to directors and employees using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, *Accounting
for Stock Issued to Employees*, ("APB No. 25") and
related interpretations. APB No. 25 required compensation expense
be recognized for grants of stock options when the quoted market
price of the Company's common stock on the date the options were
granted exceeds an option's exercise price. The Company did not
grant any stock options with an exercise price that was less than
the fair market value of the stock at the date of grant during
the period ended September 30, 2005. Accordingly, no compensation
cost was recognized in that period in 2005 for its employee stock
options in the accompanying financial statements. The Company
had adopted the disclosure provisions of Statement of Financial
Accounting Standard ("SFAS") No. 123, *Accounting
for Stock-Based Compensation*, ("SFAS 123") and
SFAS No. 148, *Accounting for Stock-Based Compensation - Transition
and Disclosure - an Amendment of FASB Statement No. 123,*which
require the Company to provide pro forma information regarding
net income and net income per share as if compensation cost for
the Company's stock options had been determined under the fair
value method prescribed by SFAS No. 123.

Had compensation cost for the
Company's stock options been determined consistent with the SFAS
123 fair value approach, the Company's net income and net income
per common share for the three and nine month period ended September
30, 2005, on a pro forma basis, would have been as follows:





| | THREE MONTHS ENDED

    September 30, 2005 |  | NINE MONTHS ENDED

    September 30, 2005
| | ------------------------------------------ |  | -----------------------------------------

|                                                                                |  |  |          |  |  |  |         
|------------------------------------------------------------------------------- |  |  | -------- |  |  |  | --------
|                                                                                |  |  |          |  |  |  |         
|Net income: as reported                                                         |  |  | $ 47,808 |  |  |  | $ 75,770
|Add: Stock-based compensation expense
    included in reported net income       |  |  | -        |  |  |  | -       
|Deduct: Stock-based compensation
    expense determined under fair value method |  |  | (9,569)  |  |  |  | (21,015)
|Net income: pro forma                                                           |  |  | $ 38,239 |  |  |  | $ 54,755
|                                                                                |  |  |          |  |  |  |         
|Net income per share:                                                           |  |  |          |  |  |  |         
|as reported - basic and diluted                                                 |  |  | $ .01    |  |  |  | $ .01   
|Pro forma - basic and diluted                                                   |  |  | $ .01    |  |  |  | $ .01   

The fair values of stock options
granted during 2005 were estimated on the dates of grant using
the Black-Scholes option pricing model with the following weighted
average assumptions:



|                              |  | 2005    |  | 
|----------------------------- |  | ------- |  | 
|Volatility                    |  | 158%    |  | 
|Interest rate (at Period End) |  | 4.33%   |  | 
|Dividend yield                |  | - %     |  | 
|Expected life                 |  | 7 years |  | 



**3. 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.

**4. 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 first twenty-two monthly payments are
$1,090. The unpaid balance of the BCAH note is due on May 23,
2008. HGIO leased the building, land, furniture and equipment
to Service Solutions of Oshkosh, Inc., a franchisee of the Company.
The lease is for twenty years and is a triple net lease; the rent
escalates over time and also provides for percentage rent. The
monthly rent in 2006 is $10,000. The Company recognized rental
income according to the terms of the lease, and not on a straight
line basis.

**5. RESTAURANT CLOSURES**

The Company wrote-off its long
term note receivable from Hornblowers. The net balance of $26,080
on the note was written off after Hornblowers, the restaurant
that secured this note, closed for business during the second
quarter of 2006. The Company determined that the value of Hornblowers'
remaining assets was too small to warrant any expenditure of funds
to enforce the Company's lien, and hence the Company wrote-off
the entire net balance of the note.

Deferred revenue was reduced by $8,042; this reflects the deferred
income that was associated with the San Luis Obispo franchise,
which closed during the second quarter of 2006.The deferred income arose from the prepayment of royalty fees
by the original franchisee, which deferral was being amortized
over a 20 year period, and thus the remaining balance of which
was written-off due to San Luis Obispo's closure.

**6. SUBSEQUENT EVENTS**

Subsequent to the three month
period ended September 30, 2006, Acceleration LLC, a Hudson's
Grill franchisee, opened a Hudson's Grill in Plover, Wisconsin.
The new restaurant began operations on October 9, 2006, at a Plover
location owned by Acceleration's owners.