ELEPHANT & CASTLE GROUP INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 29, 2002
------------------------------------------------

( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from to
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Commission file number 33-60612
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ELEPHANT & CASTLE GROUP INC.
(Exact name of registrant as specified in its charter)

BRITISH COLUMBIA NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

SUITE 1200, 1190 HORNBY STREET, VANCOUVER, BC, CANADA V6Z 2K5
(Address of principal executive offices) (Zip Code)

(Issuer's telephone number) (604) 684-6451
-----------------------------

- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

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. ( X ) Yes ( ) 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 ISSUERS

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

COMMON SHARES AT SEPTEMBER 29, 2002: 5,169,604
----------------------

ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED BALANCE SHEETS
CANADIAN DOLLARS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

See notes to financial statements

ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
CANADIAN DOLLARS
(IN THOUSANDS OF DOLLARS, EXCEPT NET INCOME/(LOSS) PER SHARE)
(UNAUDITED)

See notes to financial statements

ELEPHANT & CASTLE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CANADIAN DOLLARS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

See notes to financial statements

ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CANADIAN DOLLARS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

See notes to financial statements

ELEPHANT & CASTLE GROUP INC.
NOTES TO FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2002 AND SEPTEMBER 30, 2001
CANADIAN DOLLARS
(IN THOUSANDS OF DOLLARS, EXCEPT NET INCOME/(LOSS) PER SHARE)
(UNAUDITED)

1. BASIS OF PRESENTATION

These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada for interim
financial information. These financial statements are condensed and do not
include all disclosures required for annual financial statements. The
organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the
Company's audited consolidated financial statements filed as part of the
Company's December 30, 2001 Form 10-K.

In the opinion of the Company's management, these interim financial
statements reflect all adjustments necessary to present fairly the
Company's consolidated financial position at September 29, 2002 and
September 30, 2001 and the consolidated results of operations, the
consolidated statement of shareholders' equity and cash flow for the
thirty-nine weeks then ended. The results of operations for the interim
periods are not necessarily indicative of the results of any other interim
periods or for the entire fiscal year.

2. CLOSED LOCATIONS

The comparative financial statements for 2001 include the results of
operations for two locations, which are excluded from the 2002 results. The
Rainforest Cafe located in Vancouver, British Columbia closed on September
2, 2001. The Elephant & Castle Guildford, BC location closed on January 20,
2002 and no revenue or expenses was recognized during this period.

3. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the
current period's presentation.

4. FRANCHISES

Royalties receivable from franchised locations are included in sales.

5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

Financial statement presentation differs in certain respects between Canada
and the United States. Reconciliation of Canadian earnings and U.S.
earnings is as follows (the reader is referred to the Company's Form 10K
for the Year Ended December 30, 2001, as filed with the Securities and
Exchange Commission):

6. LONG-TERM DEBT RE-NEGOTIATION

On June 29, 2001, shareholders approved the issuance of 2,600,000 shares to
General Electric Private Placement Partners II (GEIPPP II) under terms of a
debt re-negotiation agreement. In exchange for the shares, GEIPPP II agreed
to accept common shares in payment of CDN $941 of accrued interest, reduce
the interest rate on the debt from 8% to 6%, convert US$5,000 of the debt
to common shares over the next four years and modify the repayment schedule
for the remainder of the debt.

7. STOCK BASED COMPENSATION

Effective January 2002, the Company adopted the new CICA Handbook
recommendation in accounting for its employee stock option plans. Options
are accounted for using the intrinsic value method where compensation
expense is recorded when options are granted at discounts to market.

8. GOODWILL AND INTANGIBLE ASSETS

Effective January 2002, the Company adopted the new CICA Handbook
recommendation in accounting for goodwill and other intangible assets. This
recommendation includes requirements to test goodwill and indefinite lived
intangible assets annually for impairment rather than amortization. The
impact of this recommendation on the Company's operations is nil for the
thirty-nine weeks ended September 29, 2002.

9. CHANGE IN ACCOUNTING POLICY

Effective January 2002, the Company adopted the new CICA Handbook
recommendation in accounting for foreign currency translation whereby
unrealized gains and losses are recorded as income or expensed in the
period incurred. The impact of the retroactive application of this change
in accounting policy would have resulted in a net loss of CDN ($662) for
the thirty-nine week period ended September 30, 2001 and a loss per share
of CDN ($0.26). The loss on foreign exchange for the 2001 comparatives
relates to the amortization of currency translation on the long-term debt.

ELEPHANT & CASTLE GROUP INC.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

None

ITEM 2 - CHANGES IN SECURITIES

None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5 - OTHER INFORMATION

None

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

None

REPORTS ON FORM 8-K

None

ELEPHANT & CASTLE GROUP INC.
QUARTERLY REPORT
THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2002
(IN THOUSANDS OF DOLLARS, EXCEPT NET INCOME/(LOSS) PER SHARE)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIRTEEN WEEKS ENDED SEPTEMBER 29, 2002 (UNAUDITED) VS. THIRTEEN WEEKS ENDED
SEPTEMBER 30, 2001 (UNAUDITED)

NET INCOME

For the thirteen weeks ended September 29, 2002, the Company's net loss before
income taxes was CDN ($422) compared to a net income of CDN $91 for the
corresponding period in 2001. Loss per share for the current period, before and
after provisions for income taxes, were CDN ($0.08) compared to earnings per
share of CDN $0.04 in 2001. The average number of shares outstanding increased
from 2,595,000 in 2001 to 5,169,604 for the current period.

SALES

Overall, sales decreased 11.7% during the thirteen weeks ended September 29,
2002 to CDN $10,842 from CDN $12,284 for the comparable period in 2001. The 2001
figure included sales for one Rainforest Cafe location that was closed in
September 2001 and sales for the Guildford BC location that was closed on
January 20, 2002.

For the twelve Canadian locations fully open throughout both periods, sales for
the thirteen weeks ended September 29, 2002 totalled CDN $4,928 compared with
CDN $5,121 and were down 3.8% compared to the thirteen weeks ended September 30,
2001.

For the seven US locations open throughout both periods, sales for the 2002
period were US $3,687 compared with US $3,667 and were higher by 0.6% compared
to the 2001 period.

FOOD AND BEVERAGE COSTS

Overall, food and beverage costs, as a percentage of sales, decreased to 27.9%
compared to 28.7% for the thirteen weeks ended September 29, 2001.

LABOUR AND BENEFITS COSTS

Labour and benefits increased from 32.5% of sales in 2001 to 34.1% for the
current period. Expenses were incurred in this period for retroactive employee
health insurance and benefits.

OCCUPANCY AND OTHER OPERATING COSTS

Occupancy and other operating expenses decreased as a percentage of sales from
24.9% in 2001 to 22.8% for the current period.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization costs increased to 5.0% of sales for the current
period from 3.9% last year. The addition of the Chicago store plus amortization
of its pre-operating costs in 2002 account for the higher figure.

GENERAL AND ADMINISTRATIVE COSTS

General and administrative costs increased from 6.2% of sales in 2001 to 8.2% in
the current period. The Company has increased its investment in franchise
marketing and its investment in restaurant support, required by the growth in
number of units in the system. The increase in the proportion of franchised
units in the system is likely to necessitate a growth in G&A costs at a higher
rate than sales.

INTEREST ON LONG-TERM DEBT

Interest on long-term debt fell to CDN $241 in 2002 compared to CDN $302 in
2001. The 2001 comparative has been restated to reflect the change in regards to
the amortization of the currency translation on the long-term debt. The
reduction in interest expense was due to the repayment of US $375 of principal
in 2002 and the amortization of long-term debt. Due to a change in Canadian GAAP
effective January 1, 2002, gains and losses previously amortized over the period
of the loan, are now recorded as an income or expense in the period in which
they arise. The impact of changes in the rate of exchange on foreign currency,
previously included with interest expense, is now recorded separately as gains
or losses on foreign exchange (see below).

GAIN (LOSS) ON FOREIGN EXCHANGE

There was a loss of CDN ($388) on foreign exchange resulting from a weakening of
the Canadian dollar relative to the US dollar during this quarter and it impacts
primarily the US dollar denominated debt. Previously such gains and losses were
amortized over the period of the loan, but under a change in Canadian GAAP these
gains and losses are now recorded as an income or expense in the period in which
they arise. This change in Canadian GAAP will increase the volatility of the
Company's earnings.

INCOME (LOSS) BEFORE TAXES

The Company recorded loss before income taxes of CDN ($422) for the 2002 period
compared to income of CDN $91 for the corresponding 2001 period. The decrease is
primarily attributed to an unfavourable loss on foreign exchange.

INCOME TAXES

The Company did not recognize a tax recovery on the CDN ($422) loss during 2002
or a provision on the CDN $91 income in 2001. The Company still has loss
carry-forwards from prior years that will reduce its effective tax rate in
future periods.

THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2002 (UNAUDITED) VS. THIRTY-NINE WEEKS
ENDED SEPTEMBER 30, 2001 (UNAUDITED)

NET INCOME

For the thirty-nine weeks ended September 29, 2002, the Company's net loss
before income taxes was CDN ($104) compared to a loss of CDN ($86) for the
corresponding period in 2001. Loss per share for the current period was CDN
($0.02) compared to CDN ($0.03) in 2001. There was no income tax recovery in the
current period. The average number of shares outstanding increased from
2,595,000 in 2001 to 5,169,604 for the current period.

SALES

Sales decreased 10.7% during the thirty-nine weeks ended September 29, 2002
to CDN $31,735 from CDN $35,529 for the comparable period in 2001. The 2001
figure included sales for the Vancouver Rainforest Cafe Restaurant which was
closed on September 2, 2001 and the Elephant & Castle Guildford, BC location
which was closed on January 20, 2002 and for which no revenues or expenses
were recognized during this period.

For the eleven Canadian Elephant & Castle locations open throughout both
periods, sales for the thirty-nine weeks ended September 29, 2002 totalled CDN
$12,507 compared with CDN $13,235 and were down 5.5% compared to the thirty-nine
weeks ended September 20, 2001.

For the six US locations open throughout both periods, sales for the 2002 period
were US $8,434 compared with US $8,724 and down 3.3% compared to the 2001
period.

FOOD AND BEVERAGE COSTS

Overall, food and beverage costs, as a percentage of sales, decreased to 28.0%
for the thirty-nine weeks ended September 29, 2002 compared to 28.6% for the
thirty-nine weeks ended September 30, 2001.

LABOUR AND BENEFITS COSTS

Labour and benefits increased from 32.9% of sales in 2001 to 33.1% for the
current period.

OCCUPANCY AND OTHER OPERATING COSTS

Occupancy and other operating expenses decreased as a percentage of sales from
25.0% in 2001 to 24.2% for the current period.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization costs increased to 5.1% of sales for the current
period from 3.8% in 2001. In dollar terms, depreciation and amortization
increased to CDN $1,610 in 2002 from CDN $1,365 in 2001. The increase is
primarily attributable to the addition of the Chicago store plus the
amortization of the pre-opening costs which have been fully amortized.

GENERAL AND ADMINISTRATIVE COSTS

General and administrative costs increased from 6.2% of sales in 2001 to 8.0% in
the current period. In dollar terms, the increase was from CDN $2,205 to CDN
$2,526 in the current period. The Company has increased its investment in
franchise marketing and its investment in restaurant support, required by the
growth in number of units in the system. The increase in the proportion of
franchised units in the system is likely to necessitate a growth in G&A costs at
a higher rate than sales.

INTEREST ON LONG-TERM DEBT

Interest on long-term debt decreased from CDN $1,127 in 2001 to CDN $734 in
2002. The 2001 comparative has been restated to reflect the change in regards to
the amortization of the currency translation on the long-term debt. The
reduction in interest expense was due to the repayment of US $375 of principal
in 2002 and the amortization of long-term debt. Due to a change in Canadian GAAP
effective January 1, 2002, gains and losses previously amortized over the period
of the loan, are now recorded as an income or expense in the period in which
they arise. The impact of changes in the rate of exchange on foreign currency
previously included with interest expense, is now separately recorded as gains
or losses on foreign exchange (see below).

GAIN (LOSS) ON FOREIGN EXCHANGE

There was a gain of CDN $108 on foreign exchange resulting from a strengthening
of the Canadian dollar relative to the US dollar and it impacts primarily on the
US dollar denominated debt. Previously such gains and losses were amortized over
the period of the loan, but under a change in Canadian GAAP these gains and
losses are now recorded as an income or expense in the period in which they
arise. This change in Canadian GAAP will increase the volatility of the
Company's earnings.

INCOME (LOSS) BEFORE INCOME TAXES

The Company recorded a loss before income taxes of CDN ($104) for the 2002
period compared to a loss of CDN ($86) for the corresponding 2001 period.

INCOME TAXES

The Company did not recognize a tax recovery on either the CDN ($104) loss in
2002 or a tax recovery on the CDN ($86) loss incurred in the 2001 period. The
Company still has loss carry-forwards from prior years that will reduce its
effective tax rate in future periods.

LIQUIDITY AND CAPITAL RESOURCES

Operating cash flow for the thirty-nine week period ended September 29, 2002 was
CDN $1,484 compared to CDN $1,394 for the thirty-nine week period ended
September 30, 2001. Changes in non-cash working capital items, principally a
reduction of accounts payable and deposits and prepaids, resulted in a net use
of funds of CDN ($124) in the current period, compared to a net source of funds
of CDN $391 a year ago. Capital expenditures required CDN $1,140 compared to CDN
$2,484 in the comparable period of 2001. Proceeds from capital leases were CDN
$58 in the period compared to CDN $72 in 2001. Repayment of capital leases was
CDN $65 in 2002 compared to CDN $43 in 2001. Debt repayments on the Senior Notes
were CDN $593 compared to $nil in the prior period.

The Company's cash balance as of September 29, 2002 was CDN $671 compared to CDN
$917 on September 30, 2001. The Company's current growth strategy is to focus on
strengthening the profitability of existing operations and leveraging the
brands' strength through franchising and through corporate store growth to the
extent deliverable through internally generated cash flow.

The Company did not meet the EBITDA target required for mandatory conversion of
the first tranche of Junior Notes at the first opportunity for the fiscal period
ended September 29, 2002. If the Company meets the EBITDA requirements in full
for the next Conversion Date, September 1, 2003, then the aggregate principal
amount of the Junior Notes scheduled to be converted into shares of Common Stock
on this Scheduled Conversion Date and on the subsequent Conversion Date shall be
converted in full at a price per share set forth in the agreement.

THIRTEEN WEEKS ENDED SEPTEMBER 30, 2001 (UNAUDITED) VS. THIRTEEN WEEKS ENDED
SEPTEMBER 24, 2000 (UNAUDITED)

NET INCOME

For the thirteen weeks ended September 30, 2001, the Company recorded a net
income before income taxes of CDN $91 compared to a net loss of CDN ($317) for
the corresponding period in 2000. Income per share for the 2001 period was CDN
$0.04 compared to CDN ($0.12) in 2000. On a fully diluted basis, the income per
share for the current period was CDN $0.02. A change in Generally Accepted
Accounting Principles in Canada (see Income Taxes, below, and Note 2 to the
financial statements) reduced the Net Loss for the 2000 period to CDN ($249)
(CDN ($0.10) per share). There was no income tax in the current period. The
average number of shares outstanding was 2,595,000 in the current period
and 2,595,000 in the 2000 period.

SALES

Sales decreased 4.5% during the thirteen weeks ended September 30, 2001 to
CDN $12,284 from CDN $12,857 for the comparable period in 2000. The 2001
figure includes sales for the new Chicago Elephant & Castle location (opened
April 11, 2001) and the sales for the Vancouver Rainforest Restaurant. The
2000 figure includes sales for the Franklin Mills twin location (closed
January 7, 2001) and the Company's share of sales from three Canadian
Rainforest Restaurant locations (the Company wrote-off its entire investment
in these locations as of December 31, 2000).

For the thirteen Canadian E&C locations open throughout both periods, sales for
the thirteen weeks September 30, 2001 totalled CDN $5,392 and were down 1.2%
compared to the thirteen weeks ended September 24, 2000.

For the six US locations open throughout both periods, sales for the 2001 period
were US $2,896 and were down 9.4% compared with the prior period, driven by a
20% decline at the Philadelphia PA location, and the impact of the tragedy of
September 11

Sales at the new Chicago location continue to exceed expectations.

FOOD AND BEVERAGE COSTS

Overall, food and beverage costs, as a percentage of sales, improved slightly to
28.7% for the thirteen weeks ended September 30, 2001, compared to 28.8% for the
thirteen weeks ended September 24, 2000.

LABOUR AND BENEFITS COSTS

Labour and benefits decreased marginally from 32.6% of sales in 2000 to 32.5% in
the 2001 period.

OCCUPANCY AND OTHER OPERATING COSTS

Occupancy and other operating expenses also decreased as a percentage of sales,
from 26.8% in 2000 to 24.9% in the 2001 period.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization costs decreased to 3.9% of sales for the 2001
period from 5.3% last year. In dollar terms, depreciation and amortization
decreased to CDN $484 in 2001 from CDN $677 in 2000.

INCOME FROM RESTAURANT OPERATIONS

As a result of the above factors, income from restaurant operations, as a
percentage of sales, increased from 6.6% for the thirteen weeks ended September
24, 2000 to 9.9% for the 2001 period. In dollars terms, the increase was from
CDN $846 to CDN $1,216.

GENERAL AND ADMINISTRATIVE COSTS

General and administrative costs increased from 5.5% of sales in 2000 to 6.2% in
the 2001 period. In dollar terms the increase was from CDN $704 in the 2000
period to CDN $763 in the current period. Additional costs related to franchise
openings comprised much of the difference.

INTEREST ON LONG TERM DEBT

Interest on long term debt decreased to CDN $362 for the thirteen weeks ended
September 30, 2001, compared to CDN $459 for the comparable period in 2000. The
decrease was attributable to the re-negotiation of long term debt with General
Electric Private Placement Partners II (see Note 7 to the financial statements).

INCOME (LOSS) BEFORE INCOME TAXES

The Company had income before income taxes of CDN $91 for the 2001 period
compared to a loss of CDN ($317) for the 2000 period. As discussed above, the
Company realized positive impacts from the closure of unprofitable locations and
solid control of operating expenses.

INCOME TAXES

Effective January 1, 2000, Accounting Principles Generally Accepted in Canada
(CDN GAAP) require recognition of a future tax asset for all deductible
temporary differences, unused tax losses and income tax reductions, limited to
the amount that is more likely than not to be realized. The Company recognized a
future tax asset of CDN $68 in the thirteen weeks ended September 24, 2000. This
had the effect of reducing the net loss to CDN ($249). In 2001 the Company has
incurred a year to date loss, did not record future tax assets earlier in the
year and therefore had no current tax liability in the current thirteen week
period. The Company also has loss carry-forwards that will reduce its effective
tax rate in future periods.

THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2001 (UNAUDITED) VS. THIRTY-NINE WEEKS
ENDED SEPTEMBER 24, 2000 (UNAUDITED)

NET INCOME

For the thirty-nine weeks ended September 30, 2001, the Company's net loss
before income tax was CDN ($86) compared to CDN ($2,222) for the corresponding
period in 2000. Loss per share for the 2001 period was CDN ($0.03), compared to
($0.85) in 2000. A change in

Accounting Principles Generally Accepted in Canada (see Income Taxes, below, and
Note 2 to the financial statements) reduced the Net Loss for the 2000 period to
CDN $1,660 (CDN ($0.63) per share). There was no recovery in the current period.
The average number of shares outstanding, after giving effect to the one for two
share consolidation, decreased from 2,627,000 in 2000 to 2,595,000 for the
current period.

SALES

Sales decreased 3.1% during the thirty-nine weeks ended September 30, 2001 to
CDN $35,529 from CDN $36,666 for the comparable period in 2000. The 2001
figure includes sales for the new Chicago Elephant & Castle location (opened
April 11, 2001) and the sales for the Vancouver Rainforest Restaurant. The
2000 figure includes sales for the Franklin Mills twin location (closed
January 7, 2001) and the Company's share of sales from three Canadian
rainforest restaurant locations (the Company wrote-off its entire investment
in these locations as of December 31, 2000).

For the thirteen Canadian E&C locations open throughout both periods, sales for
the thirty-nine weeks ended September 30, 2001 totalled CDN $16,131 and were up
3.2% compared to the thirty-nine weeks ended September 24, 2000.

For the six US locations open throughout both periods, sales for the 2001 period
were US $8,725 and were 4.3% lower than the prior period. A 17 % decrease at the
Philadelphia location was the major contributor to the decrease.

Sales at the new Chicago location have exceeded expectations.

FOOD AND BEVERAGE COSTS

Overall, food and beverage costs, as a percentage of sales, improved to 28.6%
for the thirty-nine weeks ended September 30, 2001, compared to 29.1% for the
thirty-nine weeks ended September 24, 2000. For the core business (excluding the
rainforest locations and the Franklin Mills location) the rate improved
slightly, to 28.7% in the current year from 28.8% in 2000.

LABOUR AND BENEFITS COSTS

Labour and benefits decreased from 33.3% of sales in 2000 to 32.9% in the 2001
period. For the core business the rate increased marginally, from 32.6% to
32.7%.

OCCUPANCY AND OTHER OPERATING COSTS

Occupancy and other operating expenses decreased as a percentage of sales from
28.4% in 2000 to 25.0% in the 2001 period. For the core business the rate
decreased from 24.0% to 23.6%.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization costs decreased to 3.8% of sales for the 2001
period from 5.9% last year. In dollar terms, the depreciation and amortization
expense decreased from CDN $2,165 to CDN $1,365.

INCOME FROM RESTAURANT OPERATIONS

As a result of the above factors, income from restaurant operations, as a
percentage of sales, increased from 3.4% for the thirty-nine weeks ended
September 24, 2000 to 9.6% for the 2001 period. In dollars terms, the increase
was from CDN $1,228 to CDN $3,426.

GENERAL AND ADMINISTRATIVE COSTS

General and administrative costs increased from 5.7% of sales in 2000 to 6.2% in
the 2001 period. In dollar terms the increase was from CDN $2,072 in the 2000
period to CDN $2,205 in the current period. Additional costs related to
franchise openings comprised much of the difference.

INTEREST ON LONG TERM DEBT

Interest on long term debt decreased to CDN $1,307 for the thirty-nine weeks
ended September 30, 2001, compared to CDN $1,378 for the comparable period in
2000. The decrease was attributable to the re-negotiation of long term debt with
General Electric Private Placement Partners II (see Note 7 to the financial
statements).

(LOSS) BEFORE INCOME TAXES

The Company had a loss before income taxes of CDN ($86) for the 2001 period
compared to a loss of CDN ($2,222) for the 2000 period. As discussed above, the
Company realized positive impacts from the closure of unprofitable locations and
solid control of operating expenses. Core business operating margins improved in
most key operating categories.

INCOME TAXES

Effective January 1, 2000, Accounting Principles Generally Accepted in Canada
(CDN GAAP) require recognition of a future tax asset for all deductible
temporary differences, unused tax losses and income tax reductions, limited to
the amount that is more likely than not to be realized. The Company recognized a
future tax asset of CDN $562 in the thirty-nine weeks ended September 24, 2000.
This had the effect of reducing the net loss to CDN ($1,660). In 2001 the
Company has incurred a small year to date loss, but has not recorded a future
tax asset against this loss. The Company has loss carry-forwards that will
reduce its effective tax rate in future periods.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

ELEPHANT & CASTLE GROUP INC.
----------------------------------------
(Registrant)

CERTIFICATION

In accordance with the provisions of the Sarbanes-Oxley Act, the undersigned
Chief Executive Officer and Chief Financial Officer, or persons fulfilling
similar functions, each certify:

(i) That the financial information included in this Quarterly Report
fairly presents in all material respects the financial condition
and results of operations of the Company as of, and for the
periods presented in the report; and

(ii) That the Quarterly Report fully complies with the requirements of
Sections 13(a) or 15(d) of the Securities Exchange Act of 1934.

Date October 31, 2002 /s/ Richard Bryant
--------------------------- ----------------------------------------
Richard Bryant, President & C.E.O.

Date October 31, 2002 /s/ Andrew W. Poon
--------------------------- ----------------------------------------
Andrew W. Poon, Chief Accounting Officer