**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549

**FORM 10-QSB**

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

Commission file number 333-94797

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

(Name of small business issuer in its charter)

Texas

(State or other jurisdiction of incorporation)

75-2738727

(IRS Employer Identification Number)

16970 Dallas Parkway, Suite 402, Dallas, Texas  75248

(Address of Principal Executive Offices)

Issuer's telephone number, including area code:

(972) 931-9237

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

Yes   X    No



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

Yes        No  X

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS



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

APPLICABLE ONLY TO CORPORATE REGISTRANTS

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

7,514,986 shares of Class A Common Stock outstanding as of August 10, 2006.

____________________________________________

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

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

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

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

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

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

**Consolidated Balances as of June 30, 2006, Compared to December 31, 2005**

The Company's cash balance at June 30, 2006 ("Q2") was $30,254, which is $95,549 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 about $75,000 in earnest money,
closing costs, repairs, equipment and contract services for the purchase and make ready of
the Company's subsidiary's real property that it is leasing to a new franchise in Oshkosh,
Wisconsin.  Accounts receivable increased $20,752 because the Company recognized the
current portion of the buy-up royalty receivable, franchisee fees from a new franchise that
pays monthly instead of weekly (Escanaba), and three franchisees (Simi Valley and Santa
Maria, California, and Appleton, Wisconsin) have fallen even 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 $3,769; 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 the Company's
purchase of real property and restaurant equipment that it is leasing to its Oshkosh
franchise.  Net property and equipment increased by $1,228,879, 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 $29,173,
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 $17,911,
which reflects the long term portion of a buy-up royalty receivable owed by the Appleton
franchise.  As a result, total assets at Q2 increased by $1,178,855 to $1,523,046 from
$344,191 at FYE.

Current liabilities increased by $97,314 to $102,445 at Q2 from $5,131 at FYE.   This
reflects an accrual of $16,770 in stock compensation payable to the Company's executives
on July 1, 2006, $61,044 related to unpaid expenses incurred for the repair and preparation
of the Oshkosh property, $9,113 in property taxes due on the Oshkosh property, $2,615 for
Hudson's pictures added to inventory and $3,483 in unpaid travel expenses to prepare for
the opening of the Oshkosh franchise in July.  The Company's working capital decreased
from $154,225 at FYE to negative working capital of ($14,117) at Q2.  Deferred revenue
decreased by $7,768 from $14,441 at FYE and is now $6,673 at Q2; this reflects the
deferred income that was associated with the closing of the San Luis Obispo franchise.
Long-term notes payable increased in Q2 by $1,131,241, which represents the mortgage
and loan taken out by the Company's subsidiary to purchase and prepare the Oshkosh
location.

**The Three Months Ended June 30, 2006, Compared to June 30, 2005**

Significant changes in the results of operations for the three months ended June 30, 2006
("Q2") compared to the first quarter of 2005 ("Q05") include the following: franchise fees
increased slightly from $93,072 in Q05 to $93,552 in Q2.  Significant decreases in
franchise fees from Dubuque, Iowa, and De Pere, Wisconsin, were offset by new income
flows from Appleton, Wisconsin, and Escanaba, Michigan.  A franchise opened in Q05 in
Dubuque, Iowa, and paid a franchise fee of $35,000; no new franchises opened in Q2, and
thus, initial franchise fees decreased by $35,000 in Q2 compared to Q05. Operating costs
increased by $30,660 during Q2 to $145,126 from $114,466 during Q05, primarily due  to
opening expenses at the new location in Oshkosh ($39,516) and increases in salaries
($2,250), group insurance ($2,304); these were partially offset by decreases in contract
services, training, consulting and director's fees.  As a result, income from operations
decreased $65,180 during Q2, when compared to Q05.  The decrease in other income was
$28,959 compared to Q05.  This was as a result of the write off of a note receivable (a
decrease of $26,081, reflecting the writing off of the Hornblowers note) and interest
expense of $6,241 incurred in Q2 on the Oshkosh mortgage, which was partially offset by
an increase in note income of $4,772.  An income tax benefit was recorded in expectation
that the quarter's loss would be partially recovered in reduced taxes in the future; this
benefit was $29,173.   Consequently, net income decreased by $64,966 when compared to
Q05 to a loss of ($47,195) in Q2.

Income (loss) per basic common share was ($.01) per share for Q2 and $.00 for Q05.
Income (loss) per share per diluted common share was ($.01) per share for Q2 and $.00 for
Q05.

**The Six Months Ended June 30, 2006, Compared to June 30, 2005**

Significant changes in the results of operations for the six months ended June 30, 2006
("YTD06"), compared to the same period in 2005 ("YTD05") include the following: There
was an increase of $14,138 in YTD06 franchise fees mostly attributable to new income
streams from Escanaba and from Appleton, which was offset by a significant decrease in
franchise fees from De Pere.  Initial franchise fees decreased in YTD06 by $45,000.  Only
one new franchise opened in YTD06 compared to two that opened in YTD05.  As a result,
total revenues decreased by $30,862 from $236,810 in YTD05 to $205,948 in YTD06.
Correspondingly, YTD05 operating expenses increased by $46,272 in YTD06 to
$261,048, mainly as a result of the $39,516 in opening expenses of Oshkosh and an
increase in executive stock compensation valued at $24,510.  Increases in salaries (due to
raises in mid 2005), 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 $77,134 to a
loss of ($55,100) in YTD06.  Other income decreased by $29,673 mostly because the
writing off of the Hornblowers note and the interest incurred on the Oshkosh mortgage.
An income tax benefit was recorded in expectation that the period's loss would be partially
recovered in reduced taxes in the future; this benefit was $29,173. Thus, because of the
decreases in income, somewhat offset by the tax benefit, net income decreased by $77,634
to a loss of ($49,672) in YTD06.

Income (loss) per basic common share was ($.01) per share for YTD06 and $.00 for
YTD05.  Income (loss) per share per diluted common share was ($.01) per share for
YTD06 and $.00 for YTD05.

**Liquidity and Capital Resources**

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, 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 liquidity in Q2, since the Company has paid and is still
paying for major expenses related to the purchase and establishment of the new restaurant
facilities it is leasing in Oshkosh.

Three franchisees that opened earlier in 2005 and one that opened in early 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 $30,254 at June 30, 2006, was $95,549less 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
third 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 June 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.

The Company does not currently have any senior securities outstanding.  Consequently,
there are no defaults on senior securities.

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

The Company held its annual shareholders meeting on May 23, 2006.  The shareholders
elected Anthony B. Duncan, Robert W. Fischer, and David L. Osborn as directors of the
Company and ratified the appointment of Whitley Penn LLP as the Company's
independent registered public accounting firm.  There were no other matters submitted to a
vote of security holders during the quarter ended June 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:     August 14, 2006
| | --------------------------------------------------------------------------------------------------------------------------------

| |                                       |                                                         | HUDSON'S GRILL
INTERNATIONAL, INC.                                |   |              
| | ------------------------------------- | ------------------------------------------------------- | ----------------------------------------------------------------- | - | -------------
| |                                       |                                                         |                                                                   |   |              
| |                                       |                                                         | CONSOLIDATED BALANCE
SHEETS                                       |   |              
| |                                       |                                                         |                                                                   |   |              
| |                                       |                                                         | ASSETS                                                           
| |                                       |                                                         |                                                                   |   | Jun. 30,
2006
| |                                       |                                                         |                                                                   |   | (Unaudited)  
| | Current
assets:                       |                                                         |                                                                   |   |              
| |                                       | Cash and
cash
equivalents                               |                                                                   | $ | 30,254       
| |                                       | Accounts
receivable                                     |                                                                   |   | 47,718       
| |                                       | Other
current
assets                                    |                                                                   |   | 10,356       
| |                                       |                                                         | Total
current
assets                                              |   | 88,328       
| |                                       |                                                         |                                                                   |   |              
| |                                       |                                                         |                                                                   |   |              
| | Property
and
equipment, at
cost:      |                                                         |                                                                   |   |              
| |                                       | Furniture
and
office
equipment                          |                                                                   |   | 25,637       
| |                                       | Restaurant
furniture
and
equipment                      |                                                                   |   | 114,927      
| |                                       | Building
and land                                       |                                                                   |   | 1,115,000    
| |                                       | Accumulated
depreciation                                |                                                                   |   | (21,064)     
| |                                       |                                                         | Property
and
equipment, net                                       |   | 1,234,500    
| |                                       |                                                         |                                                                   |   |              
| | Deferred
tax
assets                   |                                                         |                                                                   |   | 182,307      
| |                                       |                                                         |                                                                   |   |              
| |                                       |                                                         |                                                                   |   |              
| | Long-term note
receivable, net        |                                                         |                                                                   |   | -            
| | Long-term
royalty
receivable          |                                                         |                                                                   |   | 17,911       
| |                                       |                                                         |                                                                   |   |              
| |                                       |                                                         | TOTAL
ASSETS                                                      | $ | 1,523,046    
| |                                       |                                                         |                                                                   |   |              
| |                                       |                                                         |                                                                   |   |              
| |                                       |                                                         | LIABILITIES AND STOCKHOLDERS' EQUITY                             
| | Current
liabilities:                  |                                                         |                                                                   |   |              
| |                                       | Accounts
payable
and
accrued
expenses                   |                                                                   | $ | 102,445      
| |                                       |                                                         |                                                                   |   |              
| | Deferred
revenue                      |                                                         |                                                                   |   | 6,673        
| |                                       |                                                         |                                                                   |   |              
| | Long-term note
payable                |                                                         |                                                                   |   | 1,081,241    
| | Long-term note
payable,
related
party |                                                         |                                                                   |   | 50,000       
| |                                       |                                                         |                                                                   |   |              
| | Stockholders'
equity:                 |                                                         |                                                                   |   |              
| |                                       | Common
stock,
Class A,
no par
value,
100,000,000
shares |                                                                   |   |              
| |                                       |                                                         | authorized,
7,385,986 and
7,256,986 shares
issued
and
outstanding |   |              
| |                                       |                                                         | at June
30, 2006
and
December 31,
2005,
respectively              |   | 150,285      
| |                                       | Common
stock,
Class B,
no par
value,
15,000,000 shares  |                                                                   |   |              
| |                                       |                                                         | authorized, no
shares
issued
and
outstanding                      |   | -            
| |                                       | Retained
earnings                                       |                                                                   |   | 132,402      
| |                                       |                                                         | Total
stockholders'
equity                                        |   | 282,687      
| |                                       |                                                         |                                                                   |   |              
| |                                       |                                                         | TOTAL
LIABILITIES                                                 |   |              
| |                                       |                                                         | AND
STOCKHOLDERS'
EQUITY                                          | $ | 1,523,046    

| |                              |                               |                                   | HUDSON'S
GRILL
INTERNATIONAL,
INC.    |   |                    |   |             |                  |   |             |   |            
| | ---------------------------- | ----------------------------- | --------------------------------- | ------------------------------------- | - | ------------------ | - | ----------- | ---------------- | - | ----------- | - | -----------
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              |                               |                                   | CONSOLIDATED
STATEMENTS OF
OPERATIONS |   |                    |   |             |                  |   |             |   |            
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              |                               |                                   |                                       |   | Three Months
Ended |   |             | Six
Months
Ended |   |            
| |                              |                               |                                   |                                       |   | June
30,           |   | June
30,    |                  |   | June
30,    |   | June
30,   
| |                              |                               |                                   |                                       |   | 2006               |   | 2005        |                  |   | 2006        |   | 2005       
| |                              |                               |                                   |                                       |   | (Unaudited)        |   | (Unaudited) |                  |   | (Unaudited) |   | (Unaudited)
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| | Revenues                     |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              | Franchise
fees                |                                   |                                       | $ | 93,552             | $ | 93,072      |                  | $ | 180,948     | $ | 166,810    
| |                              | Initital
franchise
fees       |                                   |                                       |   | -                  |   | 35,000      |                  |   | 25,000      |   | 70,000     
| |                              |                               | Total
revenues                    |                                       |   | 93,552             |   | 128,072     |                  |   | 205,948     |   | 236,810    
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| | Operating
costs:             |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              | General
and
administrative    |                                   |                                       |   | 144,602            |   | 113,849     |                  |   | 260,000     |   | 213,616    
| |                              | Depreciation
and
amortization |                                   |                                       |   | 524                |   | 617         |                  |   | 1,048       |   | 1,160      
| |                              |                               | Total
operating
costs             |                                       |   | 145,126            |   | 114,466     |                  |   | 261,048     |   | 214,776    
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              |                               | Income
(loss)
from
operations     |                                       |   | (51,574)           |   | 13,606      |                  |   | (55,100)    |   | 22,034     
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| | Other
income
(expense):      |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              | Note
income                   |                                   |                                       |   | 7,221              |   | 2,449       |                  |   | 7,769       |   | 3,458      
| |                              | Interest
income               |                                   |                                       |   | 307                |   | 1,716       |                  |   | 808         |   | 2,770      
| |                              | Write
off
note
receivable     |                                   |                                       |   | (26,081)           |   | -           |                  |   | (26,081)    |   | -          
| |                              | Interest
expense              |                                   |                                       |   | (6,241)            |   | -           |                  |   | (6,241)     |   | (300)      
| |                              |                               | Total
other
income
(expense)      |                                       |   | (24,794)           |   | 4,165       |                  |   | (23,745)    |   | 5,928      
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              |                               | Income
(loss)
before
income
taxes |                                       |   | (76,368)           |   | 17,771      |                  |   | (78,845)    |   | 27,962     
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              | Income
tax
benefit            |                                   |                                       |   | 29,173             |   | -           |                  |   | 29,173      |   | -          
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| | Net
income
(loss)            |                               |                                   |                                       | $ | (47,195)           | $ | 17,771      |                  | $ | (49,672)    | $ | 27,962     
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| | Net
income
(loss)
per
share- |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              | basic                         |                                   |                                       | $ | (0.01)             | $ | -           |                  | $ | (0.01)      | $ | -          
| |                              | diluted                       |                                   |                                       | $ | (0.01)             | $ | -           |                  | $ | (0.01)      | $ | -          
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| | Weighted
average             |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              | outstanding
shares-           |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              | basic                         |                                   |                                       |   | 7,385,986          |   | 7,256,986   |                  |   | 7,385,986   |   | 7,256,986  
| |                              |                               |                                   |                                       |   |                    |   |             |                  |   |             |   |            
| |                              | diluted                       |                                   |                                       |   | 7,385,986          |   | 8,434,525   |                  |   | 7,385,986   |   | 8,344,609  

| |                                       |                                                        |                                             |                                              |                                       | HUDSON'S
GRILL
INTERNATIONAL,
INC.    |  |                  |  |  |            
| | ------------------------------------- | ------------------------------------------------------ | ------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------------------------------------- |  | ---------------- |  |  | -----------
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | CONSOLIDATED
STATEMENTS OF CASH
FLOWS |  |                 
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              |                                       |                                       |  | Six Months Ended
| |                                       |                                                        |                                             |                                              |                                       |                                       |  | June
30,         |  |  | June
30,   
| |                                       |                                                        |                                             |                                              |                                       |                                       |  | 2006             |  |  | 2005       
| |                                       |                                                        |                                             |                                              |                                       |                                       |  | (Unaudited)      |  |  | (Unaudited)
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| | Cash
Flows
From
Operating
Activities: |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       | Net
income
(loss)                                      |                                             |                                              |                                       |                                       |  | $
(49,672)       |  |  | $
27,962   
| |                                       | Adjustments
to
reconcile net
income
(loss)
to net
cash |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       |                                                        | provided by
(used
in)
operating
activities: |                                              |                                       |                                       |  |                  |  |  |            
| |                                       |                                                        |                                             | Depreciation
and
amortization                |                                       |                                       |  | 1,048            |  |  | 1,160      
| |                                       |                                                        |                                             | Amortization
of
deferred
revenue             |                                       |                                       |  | (7,769)          |  |  | (4,637)    
| |                                       |                                                        |                                             | Stock
based
compensation                     |                                       |                                       |  | 24,510           |  |  | -          
| |                                       |                                                        |                                             | Write
off of
note
receivable                 |                                       |                                       |  | 26,081           |  |  | -          
| |                                       |                                                        |                                             | Deferred tax
assets                          |                                       |                                       |  | (29,173)         |  |  | -          
| |                                       |                                                        |                                             | Interest
converted to
principal              |                                       |                                       |  | 6,241            |  |  | -          
| |                                       |                                                        |                                             | Changes in
operating
assets
and
liabilities: |                                       |                                       |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              | Accounts
receivable                   |                                       |  | (14,341)         |  |  | (1,623)    
| |                                       |                                                        |                                             |                                              | Other
current
assets                  |                                       |  | (3,769)          |  |  | -          
| |                                       |                                                        |                                             |                                              | Accounts
payable and
accrued
expenses |                                       |  | 80,544           |  |  | 5,081      
| |                                       |                                                        |                                             |                                              | Accounts
payable to
related
parties   |                                       |  | -                |  |  | (12,985)   
| |                                       |                                                        |                                             |                                              | Deferred
franchise
fees               |                                       |  | -                |  |  | (45,000)   
| |                                       |                                                        |                                             |                                              |                                       | Net
cash
provided by                  |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | (used
in)
operating
activities        |  | 33,700           |  |  | (30,042)   
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| | Cash
Flows
From
Investing
Activities: |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       | Royalty
receivable,
net                                |                                             |                                              |                                       |                                       |  | (24,322)         |  |  | -          
| |                                       | Repayment
of
notes
receivable                          |                                             |                                              |                                       |                                       |  | -                |  |  | 5,083      
| |                                       | Purchase of
property and
equipment                     |                                             |                                              |                                       |                                       |  | (1,229,927)      |  |  | (1,500)    
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | Net
cash
provided by                  |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | (used
in)
investing
activities        |  | (1,254,249)      |  |  | 3,583      
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| | Cash
Flows
From
Financing
Activities: |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       | Proceeds
from
issuance of
notes
payable                |                                             |                                              |                                       |                                       |  | 1,125,000        |  |  | -          
| |                                       | Repayment
of line
of
credit
and
notes
payable          |                                             |                                              |                                       |                                       |  | -                |  |  | (11,000)   
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | Net
cash
provided by                  |  |                  |  |  |            
| |                                       |                                                        |                                             |                                              |                                       | (used
in)
financing
activities        |  | 1,125,000        |  |  | (11,000)   
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| | Net
Increase
(Decrease) In
Cash       |                                                        |                                             |                                              |                                       |                                       |  | (95,549)         |  |  | (37,459)   
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| | Cash,
beginning of
period             |                                                        |                                             |                                              |                                       |                                       |  | 125,803          |  |  | 129,368    
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| | Cash,
end of
period                   |                                                        |                                             |                                              |                                       |                                       |  | $
30,254         |  |  | $
91,909   
| |                                       |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| | Supplemental
Disclosures:             |                                                        |                                             |                                              |                                       |                                       |  |                  |  |  |            
| |                                       | Income taxes
paid                                      |                                             |                                              |                                       |                                       |  | $ 0              |  |  | $ 0        
| |                                       | Interest paid                                          |                                             |                                              |                                       |                                       |  | $ 0              |  |  | $ 0        

**1. UNAUDITED INFORMATION**

The consolidated balance sheet of Hudson's Grill International, Inc. (the "Company") as of June
30, 2006 and the consolidated statements of operations for the three and six month periods ended
June 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 June 30, 2006, and the
results of operations for the three and six months ended June 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 June 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 June 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 six month period ended June 30, 2005, on a pro forma basis, would
have been as follows:

| | THREE MONTHS
ENDED

June 30, 2005 |  | SIX MONTHS
ENDED

June 30, 2005
| | --------------------------------- |  | -------------------------------

|                                                                            |  |  |              |  |  |  |             
|--------------------------------------------------------------------------- |  |  | ------------ |  |  |  | ------------
|                                                                            |  |  |              |  |  |  |             
|Net
income: as
reported                                                     |  |  | $ 17,771     |  |  |  | $ 27,962    
|Add:
Stock-based
compensation expense
included in
reported
net income       |  |  | -            |  |  |  | -           
|Deduct:
Stock-based
compensation expense
determined
under fair
value
method |  |  | (6,618)      |  |  |  | (11,446)    
|Net
income:
pro forma                                                       |  |  | $ 11,153     |  |  |  | $ 16,516    
|                                                                            |  |  |              |  |  |  |             
|Net income
per share:                                                       |  |  |              |  |  |  |             
|as reported
- basic and
diluted                                             |  |  | $         -  |  |  |  | $         - 
|Pro forma
- basic and
diluted                                               |  |  | $          - |  |  |  | $          -

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) |  | 4.22%   |  | 
|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 initial monthly rent is $10,000.

**5. SUBSEQUENT EVENTS**

Subsequent to the three month period ended June 30, 2006, Service Solutions of Oshkosh,
Inc., a Hudson's Grill franchisee, opened a Hudson's Grill in Oshkosh, Wisconsin.  The
new restaurant began operations on July 8, 2006, at the Oshkosh location owned by HGIO.