SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

For the transition period from                 to



Commission file number 333-94797

HUDSON'S GRILL INTERNATIONAL, INC.

(Name of small business issuer in its charter)

Texas                                           75-2738727

(State or other jurisdiction of incorporation) (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

Securities registered under Section 12(b) of the Exchange Act:

None                                                     None

(Title of each class)   (Name of each exchange on which registered)

Securities registered under Section 12(g) of the Exchange Act:

Common Stock

(Title of each class)



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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B not
contained in this form, and no disclosure will be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.

[ ]

State issuer's revenues for its most recent fiscal year.

$302,259

State the aggregate market value of the voting stock held by non-affiliates computed by reference
to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days.  (See definition of affiliate in Rule 12b-2 of the Exchange
Act).

The average bid and asked on March 14, 2002, was $.01 per share.  The issuer has 7,256,986 shares
outstanding; thus, on that date the market value of the voting stock was $72,570.

Note:  If determining whether a person is an affiliate will involve an unreasonable effort and
expense, the issuer may calculate the aggregate market value of the common equity held by
non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.

(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE YEARS)

Check whether the issuer has 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.

7,256,986

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 23, 2003,
are incorporated by reference into Parts II and III.

PART I

ITEM 1. BUSINESS

Hudson's Grill International, Inc. (the "Company" or "Hudson's" or "Hudson's Grill"), was
incorporated on October 30, 1997, in Texas, and certain assets were transferred to the Company on
December 1, 1997, from its former parent, Hudson's Grill of America, Inc. ("HGA"). Currently, the
Company franchises Hudson's Grill Restaurants.

Hudson's Grill Restaurants are full service restaurants that serve lunch and dinner and a wide range
of alcoholic beverages.  On December 31, 2002, there were ten Hudson's Grill restaurants; all ten
were franchised, and one is recent. In September 2002, a franchisee opened a Hudson's Grill in
Marshfield, Wisconsin.  The company's major focus is to expand the Hudson's Grill operations
through franchising instead of through ownership.  The Hudson's Grill restaurants are currently
operating in California, Michigan, Wisconsin and Texas.  The Company is still accepting franchises,
but the franchise market and the restaurant market are very competitive.  Many other franchisers
have substantially more capital, thereby making it much more difficult to compete against them.

BRIEF SUMMARY OF MAJOR EVENTS OVER THE PAST THREE YEARS.

On December 28, 2002, the franchisee of the Santa Barbara, California franchise, sold his lease, and
the Hudson's Grill at that location was closed. On April 30, 2002, the Oxnard, California franchisee
lost his lease, and the Hudson's Grill at that location was also closed.

On September 9, 2002, Acceleration, LLC, a company associated with William W. Hall, formerly
a Burger King franchisee, opened a Hudson's Grill in Marshfield, Wisconsin.  It is a free standing
building that uses the new prototype developed over the past several years.

On December 18, 2000, Acceleration, LLC, opened a Hudson's Grill in Wausau, Wisconsin.  It, too,
is a free standing building that uses the new prototype developed over the past several years.

In January 1999, Hudson's Grill of Richardson, Inc., a subsidiary of the Company's former parent,
HGA, opened a Hudson's Grill Restaurant in northern Dallas, near Richardson, Texas, a suburb of
Dallas.  This new restaurant was the first restaurant to open that was affiliated with the Company
and was not a restaurant associated with a franchisee.  HGA closed the restaurant February 2000
because of continuing losses.

OPERATIONS AND RESTAURANT STYLE OF HUDSON'S.

Hudson's Grill is a full service, limited menu concept with alcoholic beverage service.  The
management teams work with the philosophy that the customer should be viewed as their "Guest."
They stress quality of product and service, efficient flow of communications, integrity in job
performance and strong employee morale.  These restaurants range in size from 2,500 to 5,500
square feet.  The decor package has the theme of a "Classic Grill of the 50's and 60's", with the front
end of a Hudson's automobile coming through the wall as a main feature.  Some restaurants are in
free standing buildings, and some are located within in-line shopping centers.  The average
Hudson's Grill employs approximately forty employees, seventy percent of whom are part-time
employees.

The restaurants have similar operations and offer similar food. The Company plans to expand by
adding franchises.  Since the restaurant industry is very competitive, the Company plans to attract
loyal patrons by higher levels of service and more exacting specifications for its products.

HUDSON'S MENU.

Most Hudson's Grill Restaurants open at 11 a.m. and remain open until midnight, seven days a
week, utilizing the same menu throughout all parts of the day.  They specialize in 1/3 pound
hamburgers with the beef patties produced to very exacting specifications.  The menu also features
an expanded chicken sandwich section using top quality chicken breasts and whole wheat buns.
Also on the menu are salads, sandwiches, a variety of appetizers, fajitas, tacos, and handmade
milkshakes and malts.  Cocktails, beer and wine are also available with food.  The full service
restaurant concept utilizes booths and tables with waiters and waitresses serving the guests.

HUDSON'S RESTAURANT DEVELOPMENT.

The Company currently plans to expand only after paying off its current debts.  Once the debts are
paid, the Company plans to increase efforts to add franchisees, and only if the Company's cash flow
will permit, it may entertain directly operating a Hudson's Grill.  Once the debts are paid, the
Company also intends to hire a full time president to run the Company.

HUDSON'S FRANCHISE AGREEMENTS.

The Company owns the trademark registrations for two "Hudson's Grill" logos and for the
"Hudson's" name.  It has also received registration of its "Burgers*Shakes*Rock'n Roll" mark.
The Company has secured a permit from the California Department of Corporations to issue
Hudson's Grill franchises in California and uses a Uniform Franchise Offering Circular where
permitted.  As of December 31, 2002, the Company had ten franchised restaurants that were in
operation.  The current standard terms to franchise a restaurant are an initial fee of Thirty Five
Thousand Dollars and a royalty of four percent of sales, and require that three percent of sales be
used for advertising, of which one percent is to be paid to the Company for collective advertising.
For these payments, the Company is obligated to do the following: screen and train potential
franchisees, review and approve sites, and provide an operations manual and assistance.  The
Company is not currently collecting the one percent advertising fees since collective advertising
does not make sense with the current franchisees because they are too far from each other.

EMPLOYEES AND UNIONS.

At December 31, 2002, the Company employed one person, who is the receptionist/administrative
assistant/bookkeeper for the Company.  The President works only part time, and is paid $1,000 a
month; each month he also is granted seven year options to purchase 50,000 shares of the
Company's stock for anywhere from $.005 to $.05 above the market price on the last day of the
preceding month; the exact exercise price within the range depends on how much the options impact
the financial statements of the Company.

The Company is not a party to any collective bargaining agreements.

ITEM 2. PROPERTIES

At December 31, 2002, the Company was the primary lessee for its headquarters in Dallas, Texas.
The headquarters lease is month-to-month. The Company shares office space with its largest
shareholder, who is a part owner of the lessor. The office space is sufficient to meet the Company's
current needs, and it expects that its needs will be satisfied with this space for the foreseeable future.

All of the Company's restaurant equipment that it still owns is owned free and clear by the
Company.  The Company's restaurant  equipment is currently stored in a warehouse and is for sale.
Currently, the Company has no real property and has no real estate related investments.

ITEM 3. LEGAL PROCEEDINGS

The Company is not involved in any legal proceedings at the current time.  The Company knows of
no threatened legal actions.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote
of security holders of the Company through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

MARKET INFORMATION.

In early 2001, the Company's Common Stock, no par value, began trading over-the-counter on the
NASD OTC Bulletin Board under the National Association of Security Dealers ("NASD") symbol
"HGII."  As of March 14, 2003, there were approximately 320 registered holders of record of the
Company's Common Stock (this excludes shareholders whose stock is held by a nominee or in
"street name," because a nominee or street name holder is counted as one registered shareholder
even if a nominee is holding stock for many shareholders). The following table sets forth the
reported high and low bid prices of the Common Stock for the periods indicated as regularly quoted
by the NASD OTC Bulletin Board, based on the infrequent transactions in the Company's stock
reported on Yahoo and the recollection of its officers.  The table does not reflect offer prices, and
the prices that are shown, are in U.S. Dollars.  The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.

|FISCAL YEAR ENDED DECEMBER 31, 2002    | High | Low 
|-------------------------------------- | ---- | ----
|First Quarter ended March 31, 2002     | .01  | .01 
|Second Quarter ended June 30, 2002     | .15  | .01 
|Third Quarter ended September 30, 2002 | .015 | .005
|Fourth Quarter ended December 31, 2002 | .015 | .005

|FISCAL YEAR ENDED DECEMBER 31, 2001    | High | Low
|-------------------------------------- | ---- | ---
|First Quarter ended March 31, 2001     | .02  | .01
|Second Quarter ended June 30, 2001     | .02  | .01
|Third Quarter ended September 30, 2001 | .10  | .02
|Fourth Quarter ended December 31, 2001 | .02  | .01

As of March 26, 2003, the closing bid price of the Common Stock was $.01.  Historical information
about the price of the Company's common stock can sometimes be obtained from the Internet by
visiting the following site at Yahoo.com: go to  "http://finance.yahoo.com/q?s=HGIIA.OB&d=t"
(but don't use the apostrophes).

DIVIDENDS.

Common Stock

The Company has not paid cash dividends on its common stock, and the present policy of the
Company's Board of Directors (the "Board") is to retain earnings attributable to common stock, pay
off the Company's debts, and if and when earned, to provide funds for the operation and expansion
of the Company's business.  The Company does not expect to pay cash dividends on its common
stock in the foreseeable future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

For the year ended December 31, 2002, the Company had a net income of  $139,502.  This compares
to net income of $75,732 for the year ended December 31, 2001. In 2002, $81,705 of the net income
came from operations, while $57,797 came from other income.  This compares with income from
operations in 2001 of $17,839 and other income in 2001 of $57,893.

In 1993, a franchisee agreed to pay a higher initial franchise fee in return for a reduced royalty fee.
The Company defers its recognition of the additional fee amount, and is amortizing it into income
through 2014.  In the fourth quarter of 2002, the Company recognized additional income of $13,065
associated with a successor franchisee's closure of one of four restaurants covered by the
arrangement.This increase in recognition accounts for some of the increase in revenues and in net
income from 2001 to 2002.

The Company has disposed of all of its direct and indirect restaurant operations and is solely in the
franchising business.

REVENUES.

Franchise revenues increased despite slackening general demand nationwide and a fire at one of the
Company's franchisees; like other domestic companies, the slowdown in the United States economy
has greatly affected restaurant sales.  The increase was due to the addition of a new franchise in
Marshfield, Wisconsin.  The royalties from this new franchise more than offset the fees that used
to come from the Oxnard franchise that closed in April 2002 and also offset the loss in fees from a
fire at Marquette, Michigan, which closed that restaurant for one month, and the general decline in
the other franchisees' royalty fees.  As a result, franchising revenues increased in 2002 to $315,324
from $287,608 for the year ended December 31, 2001.  The 2002 revenues included initial franchise
fees from new restaurants of $15,000, paid for by the new franchisee in Marshfield, Wisconsin.  The
Company had no initial restaurant franchise fees in 2001, but a new franchisee began operations in
2001 at Wausau, Wisconsin, and the franchise royalty fees from the new franchisee offset some of
the decline in initial franchising fees.

COSTS AND EXPENSES.

Operating costs in 2002 were $233,619; this is a decrease from 2001, when operating costs were
$269,769.  The decrease is mostly due to lower legal expenses as a result of litigation that was
completed in 2001; the legal expenses declined by $37,424.  Other material changes include: (1)
salaries/consulting increased as a group by $12,483 because of the hiring of a West Coast
representative to monitor the California based Hudson's Grills; (2) training for new franchisees
decreased by $4,489 since the Company didn't have to train any new franchisees (the Marshfield
franchisee's employees were trained by the personnel from Wausau, Wisconsin); (3) travel increased
by $5,437 -- this was due to travel by Company directors and officers as part of a plan to visit each
Hudson's Grill in 2001 and 2002; and (4) depreciation that decreased by $3,118 that was due to the
sale of the Company's equipment that it was formerly leasing to the Oxnard franchisee.

Other income remained about the same in 2002 as it was in 2001.  Nonetheless, certain items within
this category has material changes.  Settlement income decreased slightly by $7,000 in 2002 to
$36,000, where it will remain until the settlement agreement with the former Pomona franchisee is
completed.This is due to a settlement in early 2001 with a former franchisee, in which the
franchisee paid an initial $10,000 and will be paying $3,000 monthly until he has paid the Company
a total of $108,000. The Company had a one-time gain in 2002 of $18,000 on the disposal/sale of
assets involved in the Oxnard closing as compared to no one-time gains registered in 2001.   Income
from the sale of assets decreased in 2002 to $3,187 from $12,706in 2001.  This decreased because
income from the sale of the Hornblowers restaurant formerly owned by the Company is recognized
on an installment basis as cash is collected; cash collections were lower in 2002, and thus, less
income was recognized.

LIQUIDITY AND CAPITAL RESOURCES.

At December 31, 2002, the Company had negative working capital of $62,174 as compared to
December 31, 2001, when the Company had negative working capital of $182,403.

Changes in its liquidity and capital will depend mostly 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.  Unfortunately,
at the present time, most of the U.S. is suffering a general decline.  As long as this continues, the
year to year sales at the Company's franchisees will likely decline as a whole, too.

The Company is currently allocating more of its cash flow to pay off accounts payable; it plans to
continue to do so until all of its past due debts are essentially paid off.  This may take the next
several years to accomplish. The Company's cash balance of $46,167 at December 31, 2002, was
$22,273 more than at the year ended December 31, 2001.  The Company is also beginning to
increase its cash reserves in order to withstand any more substantial, future downturn in the U.S.
economy.  It will, however, spend some of the reserve in April 2003 to hold a gathering of its
franchisees in Las Vegas, Nevada.  The Company has not held such a gathering in many years.

The effects of inflation on the Company are minimal.  To the extent that the franchisees need to raise
prices to offset extra costs (and are able to pass the increased costs onto customers), then the
Company will have increased royalty fees.  Any increase in royalty fees will probably be offset in
increased operating costs of the Company.  Thus, the Company expects that increases from inflation
will be minimal now and in the future.

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.

CRITICAL ACCOUNTING POLICIES.

The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires the use of management's judgment in making estimates and
assumptions that affect amounts reported in the financial statements and the accompanying notes.
Summarized below are the accounting policies management believes are most critical to the
preparation of the Company's financial statements.

Initial franchise fees are recognized as revenue only after the Company has substantially performed
or satisfied all material services or conditions relating to the sale of a new franchise.  Continuing
franchise fees are recognized as revenue as the fees are earned and collection from the franchisee
is reasonably assured.  The Company uses the installment method of accounting in those cases when
revenue is collectible over an extended period.  An allowance for doubtful accounts, if deemed
necessary, is recorded based upon management's assessment of a franchisee's inability to make
payment.

Income taxes are accounted for under the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes".  Under this accounting method, deferred tax assets and
liabilities are determined based on the difference between the financial statement and tax bases of
assets and liabilities using the enacted tax rates in effect for the year in which the differences are
expected to affect taxable income.  A valuation allowance is established when necessary to reduce
deferred tax assets to the amounts expected to be realized.

The Company is subject to various claims and contingencies arising out of the normal course of
business.  Liabilities related to commitments and contingencies are recognized when a loss is
probable and reasonably estimable.

The Company's significant accounting policies are more fully described in Note 2 to the financial
statements that are attached following Item 13.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.

Recently issued pronouncements can be found in Note 2 in the Financial Statements that are attached
following Item 13.

DISCLOSURES; CONTROLS AND PROCEDURES

With the participation of management, the Company's President evaluated the Company's
disclosure controls and procedures during the week before the date of this report.  Based on this
evaluation, the President concluded that the disclosure controls and procedures are effective in
connection with the Company's filing of its annual report on Form 10-KSB for the annual period
ended December 31, 2002.  Subsequent to March 3, 2003, through the date of this filing of Form 10-KSB for the annual period ended December 31, 2002, there have been no significant changes in the
Company's internal controls or in other factors that could significantly affect these controls,
including any significant deficiencies or material weaknesses of internal controls that would require
corrective action.

ITEM 7. FINANCIAL STATEMENTS

Attached following Item 13.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING
AND FINANCIAL DISCLOSURE

Incorporated by reference from the Proxy Statement (the "Proxy Statement") to shareholders relating
to the annual meeting to be held June 4, 2003. No changes or disagreements are known.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Incorporated by reference from the Proxy Statement.

ITEM 10. EXECUTIVE COMPENSATION

Incorporated by reference from the Proxy Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Incorporated by reference from the Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the Proxy Statement.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Financial Statements; Exhibits

Financial statements are incorporated by reference from Item 7, and are attached following this Item.

See the Index to the Financial Statements in the beginning of the Independent Auditor's Report for
a list of the statements and items contained in the Independent Auditor's Report.

There are no exhibits.

(b)  Reports on Form 8-K

The Company filed no Forms 8-K during the last quarter of the fiscal year ending December 31,
2002.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

|(Registrant) | HUDSON'S GRILL INTERNATIONAL,
INC.

By:   /s/ David L. Osborn

David Osborn, President
|------------ | --------------------------------------------------------------------------------------



Date: March 31, 2003

In accordance with the Exchange Act, this report has been signed below by the following persons
on behalf of the registrant and the capacities and on the dates indicated.

|Signature

/s/ David L. Osborn           | Title     | Date          
|---------------------------------------- | --------- | --------------
|DAVID L. OSBORN

/s/ Robert W. Fischer   | President | March 31, 2003
|ROBERT W. FISCHER

/s/ Anthony B. Duncan | Director  | March 31, 2003
|ANTHONY B. DUNCAN                        | Director  | March 31, 2003

I, David L. Osborn, certify that:

1.	I have reviewed this annual report on Form 10-KSB of Hudson's Grill International, Inc.;

2.	Based on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;

3.	Based on my knowledge, the financial statements, and other financial information included
in this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.	The registrant's other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)	designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this annual report is being prepared;

b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as
of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)	presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant's other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):

a)	all significant deficiencies in the design or operation of internal controls which could
adversely affect the registrant's ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses in internal controls; and

b)	any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal controls; and

6.	The registrant's other certifying officers and I have indicated in this annual report whether
or not there were significant changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|Date:	March 31, 2003 | /s/David L. Osborn

[Signature]

President
|-------------------- | ------------------------------------------

f\sec\030331.o01

INDEPENDENT AUDITOR'S REPORT

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

**INDEX TO FINANCIAL STATEMENTS**

**PAGE**

**INDEPENDENT AUDITOR'S REPORT**	F-1

**FINANCIAL STATEMENTS**

****Balance Sheets at December 31, 2002 and 2001	F-2

****Statements of Income for the Years Ended December 31, 2002 and 2001	F-3

Statements of Stockholders' Deficit for the Years Ended December 31, 2002 and 2001	F-4

Statements of Cash Flows for the Years Ended December 31, 2002 and 2001	F-5

**NOTES TO FINANCIAL STATEMENTS**	F-6

**************INDEPENDENT AUDITOR'S REPORT**

Board of Directors

Hudson's Grill International, Inc.

Dallas, Texas

We have audited the accompanying balance sheets of Hudson's Grill International, Inc. as of December 31,
2002 and 2001, and the related statements of income, stockholders' deficit, and cash flows for the years then
ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is
to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of
America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Hudson's Grill International, Inc. as of December 31, 2002 and 2001, and the results of its
operations and its cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a
going concern.  As discussed in Note 1 to the financial statements, the Company has a working capital deficit
and a stockholders' deficit, which raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1.  The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Hein + Associates llp

March 3, 2003

Dallas, Texas

******BALANCE SHEETS**

ASSETS

|                                                                                                                                           |      | December 31,
|------------------------------------------------------------------------------------------------------------------------------------------ | ---- | ------------
|                                                                                                                                           |      | 2002        
|**CURRENT ASSETS:**                                                                                                                        | **** |             
|Cash                                                                                                                                       |      | $	46,167    
|Accounts receivable, no allowance for doubtful accounts                                                                                    |      | 22,371      
|Prepaid expenses and other current assets                                                                                                  |      | 10,135      
|Total current assets                                                                                                                       |      | 78,673      
|                                                                                                                                           |      |             
|**PROPERTY AND EQUIPMENT,**at cost**:**                                                                                                    | **** |             
|Furniture and office equipment                                                                                                             |      | 17,869      
|Restaurant furniture and equipment                                                                                                         |      | -           
|Total property and equipment                                                                                                               |      | 17,869      
|Accumulated depreciation                                                                                                                   |      | (16,157)    
|Net property and equipment                                                                                                                 |      | 1,712       
|                                                                                                                                           |      |             
|**LONG-TERM RECEIVABLE**                                                                                                                   |      | 103,002     
|                                                                                                                                           |      |             
|Total assets                                                                                                                               |      | $	183,387   
|                                                                                                                                           |      |             
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                     
|                                                                                                                                           |      |             
|**********CURRENT LIABILITIES:**                                                                                                           | **** |             
|Line of credit                                                                                                                             |      | $	9,037     
|Loans payable                                                                                                                              |      | 45,000      
|Accounts payable and accrued expenses                                                                                                      |      | 10,068      
|Accounts payable to related parties                                                                                                        |      | 76,452      
|Advances from related party                                                                                                                |      | 290         
|Total current liabilities                                                                                                                  |      | 140,847     
|                                                                                                                                           |      |             
|**DEFERRED REVENUE**                                                                                                                       |      | 107,552     
|                                                                                                                                           |      |             
|Total liabilities                                                                                                                          |      | 248,399     
|                                                                                                                                           |      |             
|**COMMITMENTS AND CONTINGENCIES** (Note 1 and 6)                                                                                           |      |             
|                                                                                                                                           |      |             
|**********STOCKHOLDERS' DEFICIT:**                                                                                                         | **** |             
|Common stock, Class A, no par value; 100,000,000 shares
authorized, 7,256,986 shares issued and outstanding at 2002 and
2001, respectively |      | 142,545     
|Common stock, Class B, no par value; 15,000,000 shares

authorized, no shares issued and outstanding                                       |      | -           
|Accumulated deficit                                                                                                                        |      | (207,557)   
|Total stockholders' deficit                                                                                                                |      | (65,012)    
|                                                                                                                                           |      |             
|Total liabilities and stockholders' deficit                                                                                                |      | $	183,387   

**STATEMENTS OF INCOME**

|                                                                           |      | Years Ended December 31,
|-------------------------------------------------------------------------- | ---- | ------------------------
|                                                                           |      | 2002                    
|                                                                           |      |                         
|**********REVENUE**                                                        |      | $	315,324               
|****                                                                       |      |                         
|**OPERATING COSTS**                                                        |      | 233,619                 
|                                                                           |      |                         
|Income from operations                                                     |      | 81,705                  
|                                                                           |      |                         
|**OTHER INCOME (EXPENSE):**                                                | **** |                         
|Settlement income                                                          |      | 36,000                  
|Gain on disposal of assets                                                 |      | 18,000                  
|Income from sale of assets                                                 |      | 3,187                   
|Interest income                                                            |      | 6,844                   
|Interest expense                                                           |      | (6,234)                 
|Total other income (expense), net                                          |      | 57,797                  
|                                                                           |      |                         
|**NET INCOME**                                                             | **** | $	139,502               
|                                                                           |      |                         
|**NET INCOME PER COMMON SHARE** - basic and diluted                        |      | $	0.02                  
|                                                                           |      |                         
|**********WEIGHTED AVERAGE COMMON SHARES OUTSTANDING** -
basic and diluted |      | 7,256,986               
|                                                                           |      |                         
|                                                                           |      |                         
|                                                                           |      |                         
|                                                                           |      |                         
|                                                                           |      |                         

**STATEMENTS OF STOCKHOLDERS' DEFICIT**



Years Ended December 31, 2002 and 2001

|                                                     |  | Common Stock |  | Additional

Paid-in |  | Accumulated    |  |            
|---------------------------------------------------- |  | ------------ |  | ------------------- |  | -------------- |  | -----------
|                                                     |  | Shares       |  | Amount              |  | Capital        |  | Deficit    
|                                                     |  |              |  |                     |  |                |  |            
|**BALANCE**, January 1, 2001                         |  | 6,656,986    |  | $	118,545           |  | $	5,289        |  | $	(410,080)
|                                                     |  |              |  |                     |  |                |  |            
|Stock issued in connection with employment agreement |  | 300,000      |  | 18,000              |  | (5,289)        |  | (12,711)   
|                                                     |  |              |  |                     |  |                |  |            
|Stock issued in connection with consulting agreement |  | 300,000      |  | 6,000               |  | -              |  | -          
|                                                     |  |              |  |                     |  |                |  |            
|Net income                                           |  | -            |  | -                   |  | -              |  | 75,732     
|                                                     |  |              |  |                     |  |                |  |            
|**BALANCE**, December 31, 2001                       |  | 7,256,986    |  | 142,545             |  | -              |  | (347,059)  
|                                                     |  |              |  |                     |  |                |  |            
|Net income                                           |  | -            |  | -                   |  | -              |  | 139,502    
|                                                     |  |              |  |                     |  |                |  |            
|**BALANCE**, December 31, 2002                       |  | 7,256,986    |  | $	142,545           |  | $            - |  | $	(207,557)
|                                                     |  |              |  |                     |  |                |  |            
|                                                     |  |              |  |                     |  |                |  |            
|                                                     |  |              |  |                     |  |                |  |            

**STATEMENTS OF CASH FLOWS**

|                                                                                                |      | Years Ended December 31,
|----------------------------------------------------------------------------------------------- | ---- | ------------------------
|                                                                                                |      | 2002                    
|                                                                                                |      |                         
|**********CASH FLOWS FROM OPERATING ACTIVITIES:**                                               |      |                         
|****Net income                                                                                  |      | $	139,502               
|****Adjustments to reconcile net income to net cash provided by (used
in) operating activities: |      |                         
|****Depreciation and amortization                                                               |      | 3,613                   
|****Value assigned to stock issued for consulting services                                      |      | -                       
|****Gain on disposal of assets                                                                  |      | (18,000)                
|****Amortization of deferred franchise fee                                                      |      | (23,446)                
|****Amortization of deferred income from sale of assets                                         |      | (3,186)                 
|****Changes in operating assets and liabilities:                                                |      |                         
|****Accounts receivable                                                                         |      | (58)                    
|****Prepaid expenses and other current assets                                                   |      | (142)                   
|****Accounts payable and accrued expenses                                                       |      | (44,136)                
|****Accounts payable to related parties                                                         |      | (23,160)                
|****Net cash provided by (used in) operating activities                                         |      | 30,987                  
|****                                                                                            |      |                         
|**CASH FLOWS FROM INVESTING ACTIVITIES:**                                                       |      |                         
|Repayment of note receivable                                                                    |      | 3,801                   
|Proceeds from disposal of assets                                                                |      | 20,000                  
|Purchases of property and equipment                                                             |      | (2,055)                 
|****Net cash provided by investing activities                                                   |      | 21,746                  
|                                                                                                |      |                         
|**CASH FLOWS FROM FINANCING ACTIVITIES:**                                                       | **** |                         
|Repayment of line of credit and loans payable                                                   |      | (18,460)                
|Repayment of advances from related parties                                                      |      | (12,000)                
|Net cash used in financing activities                                                           |      | (30,460)                
|                                                                                                |      |                         
|**NET INCREASE IN CASH**                                                                        |      | 22,273                  
|                                                                                                |      |                         
|**CASH,**beginning of year                                                                      |      | 23,894                  
|                                                                                                |      |                         
|**CASH**, end of year                                                                           |      | $	46,167                
|                                                                                                |      |                         
|**SUPPLEMENTAL DISCLOSURES:**                                                                   | **** |                         
|Income taxes paid                                                                               |      | $             -         
|Interest paid                                                                                   |      | $	6,200                 
|                                                                                                |      |                         



**1.	Organization and Basis of Presentation**

****Hudson's Grill International, Inc. (the "Company") was incorporated in the state of Texas on October 30,
1997.  On December 1, 1997, the Company became a wholly-owned subsidiary of Hudson's Grill of
America, Inc. ("HGAI" or the "Parent"), a public company, and at that time HGAI transferred certain
franchise rights and agreements to the Company.  On August 15, 2000 HGAI registered the Company's
common stock and distributed 100% of the Company's shares to the stockholders of HGAI.

****The Company owns the franchise rights to the *Hudson's Grill* restaurant concept*.*  The Company currently
provides management and support services to ten franchised restaurants located in Texas, California,
Michigan and Wisconsin.

*Continuing Operations*

The accompanying financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and liquidation of liabilities in the normal course of business.  The Company had a
working capital deficit of $62,174 and a stockholders' deficit of $65,012 as of December 31, 2002.  These
issues raise substantial doubt about the Company's ability to continue as a going concern.  Management of
the Company intends to continue to sell franchises in an attempt to improve operating results.
Management also intends to use excess profits to pay down the Company's debts.  There can be no degree
of assurance that the Company will be successful in these efforts.

The accompanying financial statements do not include any adjustments to reflect the possible effects on
the recoverability and classification of assets or classification of liabilities which may result from the
inability of the Company to continue as a going concern.****

******2.	Summary of Significant Accounting Policies**

*Cash and Cash Equivalents*

Cash consists of bank and money market accounts with financial institutions.  The Company considers all
highly liquid debt instruments purchased with an original maturity of three months or less to be cash
equivalents.

*Property and Equipment*

Property and equipment are stated at cost.  Depreciation is computed using the straight-line method over
the estimated useful lives of the assets (generally five to seven years).  Depreciation expense was $3,613
and $6,732 for the years ended December 31, 2002 and 2001, respectively.  Maintenance and repairs are
expensed as incurred.

*Impairment of Long-Lived Assets*

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of long-lived assets may not be recoverable.  An impairment loss would
be recognized when estimated future undiscounted cash flows associated with an asset and its eventual
disposition is less than the asset's carrying amount.  There was no impairment of the value of such assets
for the years ended December 31, 2002 and 2001.

*Revenue Recognition*

Initial franchise fees are recognized as revenue when all material services or conditions relating to the sale
have been substantially performed or satisfied and collection is certain.  Continuing franchise fees are
recognized as revenue as the fees are earned and become receivable from the franchisee.

*Stock-Based Compensation*

The Company accounts 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.  Pro forma disclosures of compensation expense
determined under the fair value method required under Statement of Financial Accounting Standards
("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* are discussed in Note 8.

**

*Income Taxes*

The Company accounts for income taxes using the asset and liability method which recognizes deferred
tax assets and liabilities for the future tax impact attributable to differences in the basis of assets and
liabilities reported for financial statement and income tax purposes.  Valuation allowances are established
when necessary to reduce deferred tax assets to amounts expected to be realized.

*Per Share Data*

Basic earnings per share is computed by dividing net income by the weighted average number of common
shares outstanding for the 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.  There were no dilutive common stock equivalents at December 31, 2002 and 2001.

*Use of Estimates*

The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting period.  Actual results
could differ materially from those estimates.  Significant estimates made by the Company's management
include the allowance for doubtful accounts, carrying amount of a note receivable and contingent lease
liabilities.



*Recent Accounting Pronouncements*

**In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146, *Accounting for
Costs Associated with Exit or Disposal Activities*, ("SFAS 146") which addresses accounting and reporting
for exit and disposal activities.  SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal
plan.  SFAS 146 is effective for exit and disposal activities that are initiated after December 31, 2002, with
early adoption permitted.  Adoption of this new standard is not expected to have a material impact on the
Company's financial statements.



In December 2002, the FASB issued SFAS No. 148, *Accounting for Stock-Based Compensation -
Transition and Disclosure - an amendment of FASB Statement 123*, ("SFAS 148").  SFAS 148 amends
SFAS 123 to provide alternative transition methods for entities voluntary change in their accounting for
stock-based compensation from the intrinsic method to the fair value method under SFAS 123.  In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial  statements  about  the  method  of  accounting  for  stock-based employee  compensation  and the  effect  of the  method  used  on  reported results. The Company
currently plans to continue to account for its stock-based compensation using the intrinsic value method as
prescribed by APB No. 25 and will comply with the new disclosure requirements beginning with these
financial statements.



**3.	Franchise Activities**

Under the terms of the Company's standard franchise agreement, franchisees are obligated to pay the
Company an initial franchise fee and a weekly continuing franchise fee ("royalty") of generally 4% of
gross restaurant revenues.  Each franchisee must spend 3% of gross sales on approved advertising,
including a weekly 1% marketing fee contributed to the Company's marketing fund.  The Company is
obligated to provide initial training, continuing management assistance, administration of advertising and
sales promotion programs and establishment and monitoring of a marketing fund. During the years ended
December 31, 2002 and 2001, the Company received no contribution toward the marketing fund nor has
the marketing fund been maintained.

One franchisee agreed to pay a higher initial franchise fee in return for a reduced royalty fee.  The
Company deferred its recognition of the additional fee amount, and is amortizing it into income through
2014.  In the fourth quarter of 2002, the Company recognized income of $13,065 associated with the
franchisee's closure of one of four restaurants covered by the arrangement.  Unamortized initial franchise
fee at December 31, 2002 and 2001 of $39,194 and $62,640, respectively, were included in deferred
revenue.

During the year ended December 31, 2002 the Company added a new franchisee in Wisconsin.  The
franchisee paid an initial franchise fee of $15,000 in connection with a restaurant, which opened in the
third quarter of 2002.  In December 2002, two of the Company's franchisees located in California closed
their restaurants and terminated their franchise agreements.

Franchising revenues consisted of the following for the years ended December 31,:

|                                       |  | 2002      |  | 2001          
|-------------------------------------- |  | --------- |  | --------------
|                                       |  |           |  |               
|Initial franchise fee                  |  | $	15,000  |  | $            -
|Amortization of deferred franchise fee |  | 23,446    |  | 11,240        
|Royalty fees                           |  | 276,878   |  | 276,368       
|Total franchise revenue                |  | $	315,324 |  | $	287,608     

**4.	Sale of Assets**

Prior to the distribution transaction described in Note 1, the Company's Parent sold a restaurant and agreed
to receive a promissory note as consideration.  The note receivable was not paid at maturity, but the debtor
continued to make payments, and the balance of principal and accrued interest was refinanced on
December 31, 2002.  The referenced note bears interest at 6%, requires monthly principal and interest
payments of $1,600 until fully repaid and is collateralized by certain assets of the restaurant sold.  Unpaid
balances under the note at December 31, 2002 and 2001 were $103,002 and $106,803, respectively.  The
gain on the sale was deferred and income is being recognized on an installment basis.  At December 31,
2002 and 2001, the deferred gain on the sale totaled $68,358 and $71,544, respectively.  The Company
recognized income of $3,186 and $12,706 from the sale of these assets during the years ended December
31, 2002 and 2001, respectively.



**5.	Debt**

The Company has a revolving line of credit with a financial institution which provides for borrowings of
up to $30,000.  Balances outstanding at December 31, 2002 and 2001 under the line of credit were $9,037
and $14,299, respectively.  Borrowings bear interest at a variable rate (13.25% at December 31, 2002) and
are secured by the personal guarantee of the president of the Company.  Principal and interest payments
are due on demand.



Loans payable consisted of the following at December 31,:

|                                                                                                                     |  | 2002     |  | 2001    
|-------------------------------------------------------------------------------------------------------------------- |  | -------- |  | --------
|Loan payable to a financial institution; interest at 7%, unsecured
and principal and interest payments due on demand |  | $	45,000 |  | 45,000  
|                                                                                                                     |  |          |  |         
|Bank credit card debt, interest at variable rate, unsecured; paid-off in 2002                                        |  | -        |  | 13,198  
|                                                                                                                     |  | $	45,000 |  | $	58,198

**6.	Commitments and Contingencies**

In January 2001, the Company received a judgment with respect to certain assets previously written-off.
The judgment and related settlement agreement provided for $118,000 to be paid by the defendant to the
Company.  The first payment on the settlement of $10,000 was received in January 2001.  Thirty-six future
payments of $3,000 per month were established, and began in February 2001.  The Company is
recognizing income for the payments as received.

The Company's former parent, HGAI, had been involved in litigation arising from a lease associated with
a franchised restaurant location that ceased operations.  On June 17, 2002, judgment in favor of the
landlord was rendered in the amount of $37,042.  In addition, HGAI is secondarily liable under other
leases for restaurants it sold in prior years.  None of these restaurants, lease agreements or obligations were
transferred to or assumed by the Company.  The Company, based upon consultation with its legal counsel,
is of the opinion that the former parent's actual and contingent obligations with respect to these leases will
not ultimately be attributable to the Company, but that if a creditor obtained a judgment against the former
parent, stock in the Company formerly held by HGAI might be subject to attachment or execution by the
creditor under certain limited circumstances.  Accordingly, the Company believes these matters will not
have a material adverse effect on the Company's financial condition or results of operations, and no
provision for any estimated loss is reflected in the accompanying financial statements.

**7.	Income Taxes**

There was no provision for income taxes in the years ended December 31, 2002 and 2001 due to the
carryforward of net losses ("NOL") incurred in prior years.  The Company had no material deferred tax
liabilities at December 31, 2002 and 2001.

Deferred taxes consisted of the following at December 31,:

|                          |  | 2002           |  | 2001          
|------------------------- |  | -------------- |  | --------------
|Deferred tax assets:      |  |                |  |               
|Deferred revenue          |  | $	37,000       |  | $	46,000      
|Net operating loss        |  | 199,000        |  | 247,000       
|Total deferred tax assets |  | 236,000        |  | 293,000       
|Valuation allowance       |  | (236,000)      |  | (293,000)     
|Net deferred taxes        |  | $            - |  | $            -

The net change in the valuation allowance for deferred tax assets was a decrease of $57,000 and $26,000 in
2002 and 2001, respectively.  The changes related primarily to changes in the NOL.

At December 31, 2002 NOL carryforwards of approximately $586,000 were available to offset future
taxable income and expire through 2018.

The Company's effective income tax rate varied from the federal statutory rate for the years ended
December 31, as follows:

|                                     |  | 2002  |  | 2001 
|------------------------------------ |  | ----- |  | -----
|                                     |  |       |  |      
|Federal income tax at statutory rate |  | 34%   |  | 34%  
|Net operating loss carryforward      |  | (34%) |  | (34%)
|Total effective income tax rate      |  | 0%    |  | 0%   

******8.	Stock Options**

The Company president's compensation is established at the sole discretion of the board of directors and
includes the granting of stock options.  In January 2000, the Company granted the president 100,000 stock
options per month in lieu of salary.  Effective February 2001, the president received a monthly salary of
$1,000 and was granted 50,000 stock options per month.  The Company granted the president options to
purchase a total of 650,000 shares of the Company's common stock during the year ended December 31,
2001.

The Company also grants 10,000 stock options per month to each of the directors of the Company as
compensation for services as directors.  The Company granted the directors options to purchase 240,000
shares of the Company's common stock during the year ended December 31, 2001.

All options granted during 2001 vested immediately, were issued with an exercise price of $0.10, which
exceeded the market value of the Company's common stock on the date of grant, and expire seven years
from the date of grant.

In May 2002, the board of directors decided to cancel all stock options granted during January through
May 2002.  A total of 350,000 stock options that were already granted were cancelled, and the monthly
grant of 70,000 stock options was discontinued.

On December 17, 2002, the Company granted options to purchase a total of 600,000 and 240,000 shares of
the Company's common stock to the president and the directors, respectively.

The options granted in December 2002 vested immediately, were issued with an exercise price of $0.015,
which exceeded the market value of the Company's common stock on the date of grant, and expire seven
years from the date of grant.

The following is a summary of stock options transactions:

|                                 |  | Options   |  | Weighted

Average

Exercise

Price
|-------------------------------- |  | --------- |  | ----------------------------------
|                                 |  |           |  |                                   
|Outstanding at January 1, 2001   |  | 1,440,000 |  | $	0.10                            
|Granted                          |  | 890,000   |  | 0.10                              
|Cancelled                        |  | -         |  | -                                 
|Outstanding at December 31, 2001 |  | 2,330,000 |  | $	0.10                            
|Granted                          |  | 1,190,000 |  | 0.04                              
|Cancelled                        |  | (350,000) |  | 0.10                              
|Outstanding at December 31, 2002 |  | 3,170,000 |  | $	0.08                            

Employee stock options are valued on the date of grant using the Black-Scholes option pricing model.  The
weighted average fair value of options granted during 2002 and 2001 was $0.005 each year.

The following table summarizes information about options outstanding at December 31, 2002:

|                          |  | Options Outstanding |  |                                                 |  | Options Exercisable               
|------------------------- |  | ------------------- |  | ----------------------------------------------- |  | ----------------------------------
|Range of

Exercise
Prices |  | Number

Outstanding |  | Weighted

Average

Remaining

Contractual

Life |  | Weighted

Average

Exercise

Price
|                          |  |                     |  |                                                 |  |                                   
|$0.10                     |  | 2,330,000           |  | 5 years                                         |  | $0.10                             
|$0.015                    |  | 840,000             |  | 7 years                                         |  | $0.015                            
|                          |  | 3,170,000           |  |                                                 |  | $0.08                             

As permitted by SFAS 123, the Company applies APB No. 25 in accounting for its employee stock
options, which requires 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 years ended December 31, 2002 and 2001.
Accordingly, no compensation cost has been recognized for its employee stock options in the
accompanying financial statements.  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 years ended December 31, 2002 and 2001, on a pro forma basis, would have
been as follows:

|                                                                             |  | 2002      |  | 2001     
|---------------------------------------------------------------------------- |  | --------- |  | ---------
|Net income :                                                                 |  |           |  |          
|as reported                                                                  |  | $	139,502 |  | $	75,732 
|Add: Stock-based compensation
expense included in reported net
income        |  | $	-       |  | $	-      
|Deduct: Stock-based compen-sation expense determined under
fair value method |  | $	(3,860) |  | $	(3,520)
|Net Income: Pro forma                                                        |  | $	135,642 |  | $	72,212 
|                                                                             |  |           |  |          
|Net income per share:                                                        |  |           |  |          
|as reported - basic and diluted                                              |  | $	0.02    |  | $	0.01   
|Pro forma - basic and diluted                                                |  | $	0.02    |  | $	0.01   



The fair values of stock options granted during fiscal years 2002 and 2001 were estimated on the dates of
grant using the Black-Scholes option pricing model with the following weighted average assumptions:



|               |  | 2002    |  | 2001   
|-------------- |  | ------- |  | -------
|Volatility     |  | 50%     |  | 50%    
|Interest rate  |  | 4.00%   |  | 5.00%  
|Dividend yield |  | - %     |  | - %    
|Expected life  |  | 7 years |  | 7 years

**9.	Related Party Transactions**

A law firm associated with a director of the Company provides legal services to the Company.  During the
years ended December 31, 2002 and 2001, the cost of these services to the Company were approximately
$40,100 and $52,900, respectively.  Related amounts included in accounts payable to related parties at
December 31, 2002 and 2001 were approximately $76,400 and $98,600, respectively.

The Company assumed a loan of a former employee of the Parent with a financial institution.  This loan is
unsecured and bears interest at 7%.  The balance outstanding on the loan was $45,000 at December 31,
2001 and 2002.  Principal and interest payments are due on demand.  See Note 5.

The Company assumed the bank credit card debt of a former employee.  The obligation, which incurred
interest at a variable rate, was paid-off during 2002.  Outstanding balances at December 31, 2002 and 2001
of $0 and $13,198, respectively, were included in loans payable.

The Company leases its corporate office space from a firm in which the president of the Company is a
partner.  Rental cost for the office space was approximately $12,200 and $16,400 for the years ended
December 31, 2002 and 2001, respectively.  Unpaid rent expense to this firm included in accounts payable
was immaterial at December 31, 2002 and 2001.

One of the directors of the Company is also a franchisee of two restaurants.  As part of an agreement with
the Company, these restaurants pay no monthly franchise fee.

Advances from related party consisted of amounts due to an organization owned by the president of the
Company for expenses paid on the Company's behalf.

**10.	Stockholders' Deficit**

In February 2001, 300,000 shares of common stock were issued to the interim president of the Company in
connection with an employment agreement entered into in 1999.  Under the agreement, the Company made
a commitment to issue the stock for services provided by the president from December 1, 1999 through
May 31, 2000.  The estimated value of the shares of $18,000 had been recorded as additional paid-in
capital in 1999.  Related compensation expense was deferred and recognized in 2000.

In November 2001, 300,000 shares of common stock were issued to a consultant.  Under a related
consulting agreement, the Company issued the stock for management services to be provided through
October 2008 relative to the operation and franchising of restaurants in California.  The estimated value of
the shares of $6,000 was recognized as consulting expense in 2001.



**11.	Concentrations of Credit Risk**



In the normal course of business, the Company extends unsecured credit to franchisees.  In addition, the
Company's former parent sold a restaurant and took a promissory note as consideration (see Note 4).  The
income from the sale has been deferred and is recognized on an installment basis.  At December 31, 2002,
the balance outstanding under the note receivable and the related deferred income were $103,002 and
$68,358, respectively.  The Company's note receivable and accounts receivable are subject to potential
credit risk.  The maximum exposure assuming non-performance by the debtors is the amount shown on the
balance sheet at the date of non-performance.  The Company believes that an adequate allowance for
uncollectible accounts has been established.  The allowance for uncollectible accounts is continually
monitored, and adjustments are made as necessary.



****************