**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549

**FORM 10-QSB**

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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



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.

7,385,986 shares of Class A Common Stock outstanding as of May 1, 2006.

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

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

Item 2.  Management Discussion and Analysis.

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

**Balances as of March 31, 2006, Compared to December 31, 2005**

The Company's cash balance at March 31, 2006 ("Q1") was $102,227, which is $23,576 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, and also due to $10,000 in earnest money deposited against a real estate contract to purchase real property for a
franchise site in Oshkosh, Wisconsin.  Accounts receivable increased $22,213 because the Company recognized the current portion of the
buy-up royalty receivable ($7,088), franchisee fees from a new franchise that pays monthly instead of weekly, and three franchisees (Simi
Valley and Santa Maria, California, and Appleton, Wisconsin) fell behind in payments.  Subsequent to Q1, Simi Valley has gotten more
current, Santa Maria has remained the same, and Appleton has fallen further behind; the Company feels, nevertheless, that all of these
will be collected, and thus, no allowance for reserves is necessary.  Other current assets increased $10,790; $10,000 of the increase is the
earnest money deposit for Oshkosh.  Thus, current assets at Q1 increased by $9,427.Net property and equipment decreased slightly from
FYE as a result of normal depreciation.  The Company's long term note receivable remained the same, but subsequent to Q1, the
Company has learned that the obligor on that note has closed.  The Company is waiting to see how much it will be able to recover from
its security interest in the collateral securing that note.  The Company's other long term assets increased by $17,911, which reflects the
long term portion of the buy-up royalty receivable.  As a result, total assets at Q1 increased by $26,814 to $371,005 from $344,191 at
FYE.

Current liabilities increased by $22,099 to $27,230 at Q1 from $5,131 at FYE.   This reflects an accrual of $3,870 in stock compensation
payable to the Company's executives on July 1, 2006, and an increase in payables because of accrued legal and accounting expenses
related to the Company's annual audit, its annual SEC disclosures and the preparation and filing of documents for its annual shareholders
meeting.  Thus, the Company's working capital decreased from $154,225 at FYE to $141,553 at Q1.  Deferred revenue decreased slightly
from $14,441 at FYE to $13,894 at Q1, reflecting the continued amortization of income deferred from the advance payment of royalties
from certain franchisees.

**The Three Months Ended March 31, 2006, Compared to March 31, 2005**

Significant changes in the results of operations for the three months ended March 31, 2006 ("Q1") compared to the first quarter of 2005
("Q05") include the following: Revenue increased slightly from $108,737 in Q05 to $112,944 in Q1.  A franchise opened in Q05 in De
Pere, Wisconsin, and paid a franchise fee of $35,000; and an affiliated franchise was opened in a second location in Q1 in Escanaba,
Michigan, and paid $25,000 in franchise fees.  This decrease was offset by increases in royalty fees from new franchisees (Dubuque,
Iowa, and Appleton, Wisconsin) that were not open in Q05.  Operating expenses increased by $15,630 during Q1 to $115,398 from
$99,768 during Q05, primarily as a result of increases in salaries (an increase of $4,500), contract services ($3,278 increase), group
insurance ($4,041 increase), travel ($6,689 increase) and executive stock compensation (increase due to stock issuances and stock
issuable in the future, together valued at $11,610), which increases were not completely offset by decreases, including training expenses
(a decrease of $14,406).  As a result, income from operations decreased $11,405 during Q1, when compared to Q05.  Other income
decreased slightly compared to Q05.   Consequently, net income decreased by $12,668 when compared to Q05 to a loss of ($2,477) in
Q1.

Income per common share (both basic and diluted) was $.00 per share for Q1 and $.00 for Q05.

**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, plans to borrow money to buy real property in Oshkosh, Wisconsin,
that currently has a restaurant building on it that will be leased to a new franchisee.

Beginning in the third quarter of 2005, the Company began to accumulate cash; it previously paid off all of its accounts payable to related
parties in the second quarter of 2005. Additionally, three franchisees that opened earlier in 2005 have created new royalty streams. The
Company's cash balance of $102,227 at March 31, 2006, was $23,576 less than at the year ended December 31, 2005.  If the Company
buys the real property in Oshkosh, Wisconsin, then it will commit a substantial portion of its cash reserves to a down payment on the real
property, and negatively impact its liquidity.

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

Item 3.  Disclosures; Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

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

(b) Changes in Internal Controls

There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls
during the quarter ended March 31, 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.  Changes in Securities.

During the quarter ended March 31, 2006, the Company issued 129,000 shares of its common stock to officers and directors of the
Company as compensation for services.  There were no other changes in 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.

There were no matters submitted to a vote of security holders during the quarter ended March 31, 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:     May 11, 2006
| | -----------------------------------------------------------------------------------------------------------------------------

| |                                  |                                                         | HUDSON'S GRILL INTERNATIONAL, INC.                                |   |            
| | -------------------------------- | ------------------------------------------------------- | ----------------------------------------------------------------- | - | -----------
| |                                  |                                                         |                                                                   |   |            
| |                                  |                                                         | BALANCE SHEETS                                                    |   |            
| |                                  |                                                         |                                                                   |   |            
| |                                  |                                                         | ASSETS                                                           
| |                                  |                                                         |                                                                   |   | March 31,  
| |                                  |                                                         |                                                                   |   | 2006       
| |                                  |                                                         |                                                                   |   | (Unaudited)
| |                                  |                                                         |                                                                   |   |            
| | Current
assets:                  |                                                         |                                                                   |   |            
| |                                  | Cash and cash
equivalents                               |                                                                   | $ | 102,227    
| |                                  | Accounts
receivable                                     |                                                                   |   | 49,179     
| |                                  | Other current
assets                                    |                                                                   |   | 7,377      
| |                                  | Deposit                                                 |                                                                   |   | 10,000     
| |                                  |                                                         | Total current
assets                                              |   | 168,783    
| |                                  |                                                         |                                                                   |   |            
| |                                  |                                                         |                                                                   |   |            
| | Property and
equipment, at
cost: |                                                         |                                                                   |   |            
| |                                  | Furniture and
office
equipment                          |                                                                   |   | 25,637     
| |                                  | Accumulated
depreciation                                |                                                                   |   | (20,540)   
| |                                  |                                                         | Property and
equipment,
net                                       |   | 5,097      
| |                                  |                                                         |                                                                   |   |            
| | Deferred tax
assets              |                                                         |                                                                   |   | 153,134    
| |                                  |                                                         |                                                                   |   |            
| | Long-term
note
receivable, net   |                                                         |                                                                   |   | 26,080     
| | Long-term
royalty
receivable     |                                                         |                                                                   |   | 17,911     
| |                                  |                                                         |                                                                   |   |            
| |                                  |                                                         | TOTAL
ASSETS                                                      | $ | 371,005    
| |                                  |                                                         |                                                                   |   |            
| |                                  |                                                         |                                                                   |   |            
| |                                  |                                                         | LIABILITIES AND STOCKHOLDERS' EQUITY                             
| | Current
liabilities:             |                                                         |                                                                   |   |            
| |                                  | Accounts
payable and
accrued
expenses                   |                                                                   | $ | 27,230     
| |                                  |                                                         |                                                                   |   |            
| | Deferred
revenue                 |                                                         |                                                                   |   | 13,894     
| |                                  |                                                         |                                                                   |   |            
| | Commitments
and
contingencies    |                                                         |                                                                   |   | -          
| |                                  |                                                         |                                                                   |   |            
| | 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 March 31,
2006 and
December 31,
2005,
respectively             |   | 150,284    
| |                                  | Common
stock, Class
B, no par
value,
15,000,000
shares  |                                                                   |   |            
| |                                  |                                                         | authorized, no
shares issued
and
outstanding                      |   | -          
| |                                  | Retained
earnings                                       |                                                                   |   | 179,597    
| |                                  |                                                         | Total
stockholders'
equity                                        |   | 329,881    
| |                                  |                                                         |                                                                   |   |            
| |                                  |                                                         | TOTAL
LIABILITIES
AND
STOCKHOLDERS'
EQUITY                        | $ | 371,005    

| |                              |                               |                        | HUDSON'S
GRILL
INTERNATIONAL, INC. |   |                              |   |             | 
| | ---------------------------- | ----------------------------- | ---------------------- | ---------------------------------- | - | ---------------------------- | - | ----------- | 
| |                              |                               |                        |                                    |   |                              |   |             | 
| |                              |                               |                        | STATEMENTS OF OPERATIONS          
| |                              |                               |                        |                                    |   |                              |   |             | 
| |                              |                               |                        |                                    |   | Three Months Ended March 31, |  
| |                              |                               |                        |                                    |   | 2006                         |   | 2005        | 
| |                              |                               |                        |                                    |   | (Unaudited)                  |   | (Unaudited) | 
| |                              |                               |                        |                                    |   |                              |   |             | 
| | Revenues                     |                               |                        |                                    |   |                              |   |             | 
| |                              | Franchise fees                |                        |                                    | $ | 112,944                      | $ | 108,737     | 
| |                              |                               |                        |                                    |   |                              |   |             | 
| | Operating
costs:             |                               |                        |                                    |   |                              |   |             | 
| |                              | General and
administrative    |                        |                                    |   | 115,398                      |   | 99,768      | 
| |                              | Depreciation
and
amortization |                        |                                    |   | 524                          |   | 542         | 
| |                              |                               | Total
operating
costs  |                                    |   | 115,922                      |   | 100,310     | 
| |                              |                               |                        |                                    |   |                              |   |             | 
| |                              |                               | Income from
operations |                                    |   | (2,978)                      |   | 8,427       | 
| |                              |                               |                        |                                    |   |                              |   |             | 
| | Other income
(expense):      |                               |                        |                                    |   |                              |   |             | 
| |                              | Note income                   |                        |                                    |   | -                            |   | 1,010       | 
| |                              | Interest
income               |                        |                                    |   | 501                          |   | 1,054       | 
| |                              | Interest
expense              |                        |                                    |   | -                            |   | (300)       | 
| |                              |                               | Total other
income     |                                    |   | 501                          |   | 1,764       | 
| |                              |                               |                        |                                    |   |                              |   |             | 
| | Net income
(loss)            |                               |                        |                                    | $ | (2,477)                      | $ | 10,191      | 
| |                              |                               |                        |                                    |   |                              |   |             | 
| | Net income
(loss) per
share- |                               |                        |                                    |   |                              |   |             | 
| |                              | basic and
diluted             |                        |                                    | $ | -                            | $ | -           | 
| |                              |                               |                        |                                    |   |                              |   |             | 
| | Weighted
average             |                               |                        |                                    |   |                              |   |             | 
| |                              | outstanding
shares-           |                        |                                    |   |                              |   |             | 
| |                              | basic                         |                        |                                    |   | 7,364,486                    |   | 7,256,986   | 
| |                              |                               |                        |                                    |   |                              |   |             | 
| |                              | diluted                       |                        |                                    |   | 7,364,486                    |   | 8,254,693   | 

| |                                       |                                                        |                                   |                                              | HUDSON'S GRILL
INTERNATIONAL,
INC.    |                                                     |  |                              |  | 
| | ------------------------------------- | ------------------------------------------------------ | --------------------------------- | -------------------------------------------- | ------------------------------------- | --------------------------------------------------- |  | ---------------------------- |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   |                                              | STATEMENTS OF CASH FLOWS              |                                                     | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  | Three Months Ended March 31,
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  | 2006                         |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  | (Unaudited)                  |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| | Cash
Flows
From
Operating
Activities: |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       | Net
income
(loss)                                      |                                   |                                              |                                       |                                                     |  | $ (2,477)                    |  | 
| |                                       | Adjustments to
reconcile
net
income
(loss) to
net cash |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        | provided
by
operating
activities: |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   | Depreciation and
amortization                |                                       |                                                     |  | 524                          |  | 
| |                                       |                                                        |                                   | Amortization of
deferred
revenue             |                                       |                                                     |  | (548)                        |  | 
| |                                       |                                                        |                                   | Stock
compensation                           |                                       |                                                     |  | 11,610                       |  | 
| |                                       |                                                        |                                   | Changes
in
operating
assets and
liabilities: |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   |                                              | Accounts
receivable                   |                                                     |  | (15,124)                     |  | 
| |                                       |                                                        |                                   |                                              | Other
current
assets                  |                                                     |  | (790)                        |  | 
| |                                       |                                                        |                                   |                                              | Accounts
payable
and
accrued
expenses |                                                     |  | 18,229                       |  | 
| |                                       |                                                        |                                   |                                              | Accounts
payable to
related
parties   |                                                     |  | -                            |  | 
| |                                       |                                                        |                                   |                                              | Deferred
franchise
fees               |                                                     |  | -                            |  | 
| |                                       |                                                        |                                   |                                              | Deposits                              |                                                     |  | (10,000)                     |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   |                                              |                                       | Net cash
provided
by
operating
activities           |  | 1,424                        |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| | Cash
Flows
From
Investing
Activities: |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       | Royalty
receivable                                     |                                   |                                              |                                       |                                                     |  | (25,000)                     |  | 
| |                                       | Repayment of note
receivable                           |                                   |                                              |                                       |                                                     |  | -                            |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   |                                              |                                       | Net cash
provided
by (used
in)
investing
activities |  | (25,000)                     |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| | Cash
Flows
From
Financing
Activities: |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       | Repayment of line of
credit and
notes
payable          |                                   |                                              |                                       |                                                     |  | -                            |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       |                                                        |                                   |                                              |                                       | Net cash
used in
financing
activities               |  | -                            |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| | Net
Increase
(Decrease)
In Cash       |                                                        |                                   |                                              |                                       |                                                     |  | (23,576)                     |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| | Cash,
beginning
of year               |                                                        |                                   |                                              |                                       |                                                     |  | 125,803                      |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| | Cash, end
of year                     |                                                        |                                   |                                              |                                       |                                                     |  | $ 102,227                    |  | 
| |                                       |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| | Supplemental
Disclosures:             |                                                        |                                   |                                              |                                       |                                                     |  |                              |  | 
| |                                       | Income
taxes paid                                      |                                   |                                              |                                       |                                                     |  | $ 0                          |  | 
| |                                       | Interest
paid                                          |                                   |                                              |                                       |                                                     |  | $ 0                          |  | 

**1. UNAUDITED INFORMATION**

The balance sheet of Hudson's Grill International, Inc. (the "Company") as of March 31, 2006 and the statements of operations for the three month
periods ended March 31, 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 March 31, 2006,
and the results of operations for the three months ended March 31, 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.

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
March 31, 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 month period ended March 31, 2005, on a pro forma basis, would
have been as follows:

| | THREE MONTHS ENDED

March 31, 2005 |  | 
| | ---------------------------------- |  | 

|                                                                            |  |  |              |  |  |  | 
|--------------------------------------------------------------------------- |  |  | ------------ |  |  |  | 
|                                                                            |  |  |              |  |  |  | 
|Net income: as
reported                                                     |  |  | $ 10,191     |  |  |  | 
|Add: Stock-based
compensation
expense
included in
reported net
income       |  |  | -            |  |  |  | 
|Deduct: Stock-based
compensation
expense
determined
under fair value
method |  |  | (4,828)      |  |  |  | 
|Net income: pro
forma                                                       |  |  | $ 5,363      |  |  |  | 
|                                                                            |  |  |              |  |  |  | 
|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                    |  | 169%    |  | 
|Interest rate (at Period End) |  | 4.50%   |  | 
|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. SUBSEQUENT EVENTS**

Subsequent to the three month period ended March 31, 2006,  Hornblowers, a restaurant located in Ventura, California, closed.  The
Company owns a note issued by Hornblowers and has a security interest in its personal property.  The Company carries the note as a long
term note receivable, net of a reserve, with a value of $26,080 at both the year ended December 31, 2005, and the three months ended
March 31, 2006.  The Company is unsure of the value of the collateral that it will recover under its security interest.  Once that amount is
more certain, the Company will adjust the value of the note and write off any deficiency if necessary.